Beyond Funds and Arrangements: Judicial trends in section 138 of the Negotiable Instruments Act,1881

This article critically examines the evolving judicial interpretation of Section 138 of the Negotiable Instruments Act, 1881, which was originally introduced to penalise cheque dishonour due to “insufficient funds” or “exceeding arrangements” with the bank. Over time, Indian courts have adopted a purposive and expansive approach, extending the applicability of this provision to other reasons for dishonour such as “stop payment,” “account closed,” and “signature mismatch.” These developments reflect a clear judicial intention to uphold the credibility and reliability of cheque-based transactions in the commercial sphere. The paper analyses key Supreme Court decisions that have shaped this broader interpretation and argues that the grounds mentioned in Section 138 are illustrative rather than exhaustive. It also discusses the statutory presumptions under Section 139 and procedural safeguards available to drawers, including the notice period and the opportunity to rebut liability. Ultimately, the article contends that the judiciary has struck a careful balance between deterring wilful defaulters and protecting honest drawers, thereby reinforcing the importance of cheques as trusted financial instruments in India’s transactional landscape.