Stop Payment Cheque Bounce Case: Is It an Offence Under Section 138 and What to Do?

Yes. A cheque returned with the remark “payment stopped by drawer” can lead to a case under Section 138, Negotiable Instruments Act, 1881. The Supreme Court held in Modi Cements Ltd. v. Kuchil Kumar Nandi (1998) that stopping payment does not avoid liability. The payee must send a legal notice within 30 days; the drawer can escape only by paying within 15 days or proving there was no legally enforceable debt.

Key Takeaways

• A cheque dishonoured because the drawer instructed the bank to stop payment can attract Section 138 of the Negotiable Instruments Act, 1881, as held by the Supreme Court in Modi Cements Ltd. v. Kuchil Kumar Nandi (1998).
• Once the drawer admits issuing the cheque, the court presumes under Section 139 that it was for a legally enforceable debt, and a stop-payment instruction does not remove that presumption.
• A drawer can defend a stop-payment case by proving that there was no legally enforceable debt on the date of presentation, or that there was a valid reason for stopping payment and enough funds in the account (MMTC Ltd. v. Medchl Chemicals and Pharma, 2002).
• The payee must follow the usual deadlines: present within 3 months, send notice within 30 days of the return memo, allow 15 days for payment, and file within one month.
• Stopping payment on a security cheque does not avoid liability if the debt had become due when the cheque was presented (Sripati Singh v. State of Jharkhand, 2021).
• A drawer who stops payment because of a genuine dispute should record the reason in writing at once and keep evidence, because the burden of proof will be on the drawer.

Introduction

Many people believe that if they ask the bank to stop payment on a cheque, they cannot be prosecuted when it bounces. That belief is wrong, and acting on it often leads to a criminal case.

At the same time, there are genuine reasons to stop a cheque: goods not delivered, a cheque lost or stolen, or a deal that fell through. The law recognises these situations, but it expects the drawer to prove them.

This guide explains when a stop-payment bounce becomes an offence, the defences available, what both the payee and the drawer should do, and the common mistakes to avoid.

Is a Stop Payment Cheque Bounce an Offence Under Section 138?

Yes, it can be. The Supreme Court has held that a cheque dishonoured on the drawer’s stop-payment instruction falls within Section 138, subject to the drawer’s right to prove a valid defence.

What the law says

(a) The statute: Section 138 expressly covers dishonour because the funds are insufficient or the amount exceeds the arrangement with the bank. It does not expressly mention stop-payment instructions.

(b) What courts have held: In Modi Cements Ltd. v. Kuchil Kumar Nandi (1998), the Supreme Court held that a stop-payment instruction does not take the case outside Section 138. It overruled the earlier contrary view in Electronics Trade & Technology Development Corporation Ltd. v. Indian Technologists & Engineers (Electronics) (P) Ltd. (1996). In MMTC Ltd. v. Medchl Chemicals and Pharma (P) Ltd. (2002), the Court added that the drawer can show that there were sufficient funds and a valid reason for stopping payment, or that there was no debt or liability.

(c) Practical advice: For the payee, treat a stop-payment return like any other bounce and send the legal notice within 30 days. For the drawer, stopping payment is not a shield; only a genuine, provable defence is.

The law at a glance

When Does a Stop Payment Bounce Lead to Liability?

Liability depends mainly on whether a legally enforceable debt existed when the cheque was presented, and whether the drawer can prove a genuine reason.

Whether a defence succeeds depends on the documents and facts of each case.

What Should the Payee Do After a Stop Payment Bounce?

Collect the return memo, contact the drawer in writing, and send a legal notice within 30 days if payment does not follow.

1. Collect the original cheque and return memo showing “payment stopped by drawer” and note the date you received the memo.
2. Ask the drawer in writing why payment was stopped. A written reply may help your case or reveal a genuine dispute.
3. Gather proof of the debt: invoices, delivery challans, agreements, bank transfers and messages.
4. Send a legal notice within 30 days of receiving the return memo, demanding the exact cheque amount within 15 days of receipt.
5. Wait 15 days from the drawer’s receipt of the notice.
6. File the complaint within one month after the 15 days end, before the Magistrate where your bank branch is located.
7. Seek interim compensation under Section 143A once the case begins.

Re-presenting: There is usually little point re-presenting a stopped cheque unless the drawer confirms in writing that the stop instruction has been withdrawn.

What Should the Drawer Do If They Stopped Payment?

Stop payment only for a genuine reason, record that reason in writing immediately, and be ready to prove it.

Before stopping payment

• Make sure you have a real, provable reason, such as non-delivery, a lost cheque or a cancelled contract.
• Write to the payee explaining why you are stopping payment, and keep proof of sending.
• Keep enough funds in the account if possible; the Supreme Court in MMTC recognised sufficient funds plus a valid reason as relevant to the defence.
• If the cheque was lost or stolen, file a police complaint and inform the bank in writing.

After receiving a legal notice

• Pay within 15 days if the debt is genuine; this ends the matter.
• Reply through an advocate if you dispute the debt, setting out the reason for stopping payment with documents.
• Keep your evidence: contracts, delivery records, correspondence, police complaints and bank letters.

Defences the drawer can raise

• No legally enforceable debt existed on the date of presentation
• The debt was paid before presentation
• Goods or services were not supplied, or were defective, and this can be proved
• The cheque was lost, stolen or obtained by fraud
• The legal notice was defective, such as demanding a different amount from the cheque (Kaveri Plastics v. Mahdoom Bawa Bahrudeen Noorul, 2025)
• The notice was sent after 30 days or the complaint was filed late

How to Stop Payment on a Cheque (Bank Process)

Most banks allow a stop-payment request through net banking, mobile banking, phone banking or a written request at the branch.

• Provide the cheque number, date, amount and payee name.
• Most banks charge a stop-payment fee, which varies by bank and account type.
• The instruction applies only if the bank receives it before the cheque is paid.
• Keep the bank’s acknowledgement of the stop-payment request.

A stop-payment instruction only stops the bank from paying. It does not cancel the underlying debt or the drawer’s legal liability.

Worked Example: Stop Payment Over a Supply Dispute

This example shows how evidence decides a stop-payment case.

Harish Mehta orders office furniture worth ₹3,50,000 from a manufacturer, Lakshmi Interiors, in Jaipur, and gives an advance cheque dated 1 July 2026. Lakshmi Interiors delivers only half the furniture, and the delivered items are damaged.

Harish’s prompt written record of the dispute is what gives him a credible defence. Without it, the court would have relied on the presumption under Section 139.

Costs and Time

• Stop-payment charges levied by the drawer’s bank, and cheque return charges for the payee
• Legal notice: postage and advocate’s fee
• Complaint: state court fee and advocate’s fees
• Interim compensation: up to 20% of the cheque amount may be ordered against the drawer
• Time: about two to three months before filing; contested cases often take one to three years

Rights of Both Sides

The payee

• Treat a stop-payment bounce as a Section 138 case and send notice within 30 days
• Seek interim compensation and file a civil suit in parallel
• Prosecute the company and its responsible directors for a company cheque

The drawer

• Stop payment for a genuine reason
• Pay within 15 days of the notice and avoid any case
• Rebut the presumption by proving there was no enforceable debt
• Settle at any stage under Section 147

Common Mistakes With Stop Payment Cheques

• Believing stop payment avoids a criminal case. The Supreme Court has held otherwise.
• Stopping payment without telling the payee why, in writing.
• Not keeping evidence of the dispute, non-delivery or loss of the cheque.
• Stopping payment on a security cheque when the debt has already become due.
• Payees waiting for an explanation and missing the 30-day notice deadline.
• Ignoring the legal notice instead of paying or replying within 15 days.

Key Court Rulings on Stop Payment

FAQs

1. Is stop payment of a cheque a criminal offence?
Stopping payment is not an offence by itself, but if the cheque was issued for a legally enforceable debt and is dishonoured because of the stop instruction, it can attract Section 138 of the NI Act. The Supreme Court held this in Modi Cements Ltd. v. Kuchil Kumar Nandi (1998).

2. Can I file a cheque bounce case if the drawer stopped payment?
Yes. Collect the return memo showing “payment stopped by drawer”, send a legal notice within 30 days of receiving it, wait 15 days from the drawer’s receipt, and file a complaint within one month. The drawer will then have to prove a valid defence.

3. Can I stop payment on a cheque if there is a dispute?
You can instruct your bank to stop payment, but you may still face a Section 138 case. Record the dispute in writing to the payee immediately and keep evidence. In MMTC v. Medchl Chemicals (2002), the Supreme Court said the drawer can show a valid reason and sufficient funds, or that no debt existed.

4. Can I stop payment on a security cheque?
Stopping payment does not protect you if the debt had become due when the security cheque was presented. In Sripati Singh v. State of Jharkhand (2021), the Supreme Court held that a security cheque attracts Section 138 in that situation. If no liability ever arose, you have a defence.

5. What if my cheque was lost or stolen and I stopped payment?
File a police complaint and inform your bank in writing as soon as you discover the loss. If someone misuses the cheque, these records will support your defence that there was no debt owed to the person who presented it.

6. Does stop payment cancel the debt?
No. A stop-payment instruction only stops the bank from paying that cheque. The underlying debt remains, and the payee can recover it through a Section 138 complaint, a civil suit or both.

7. How much does a bank charge for stop payment?
It varies by bank and account type, and some banks waive the charge for certain accounts. Check your bank’s schedule of charges. The payee’s bank may also charge the payee for the returned cheque.

8. Should the drawer reply to a legal notice after stopping payment?
Yes, if you have a genuine reason. A timely reply through an advocate records your defence and supporting documents. If the debt is genuine, the safer course is to pay within 15 days of receiving the notice.

9. Can the payee also file a cheating case for a stopped cheque?
Only if there was dishonest intent at the time the cheque was given. A cheating complaint under Section 318 BNS (earlier Section 420 IPC) needs more than a stopped cheque; it needs evidence of deception from the start.

10. Can a stop-payment cheque bounce case be settled?
Yes. The offence is compoundable under Section 147 of the NI Act at any stage. Under the Supreme Court’s 2025 guidelines, settling before defence evidence costs nothing extra, while later settlements carry costs of 5%, 7.5% or 10% of the cheque amount.

Conclusion

A cheque returned for “payment stopped by drawer” can still lead to a Section 138 case. Payees should send a legal notice within 30 days and follow the usual deadlines. Drawers should stop payment only for a genuine, provable reason, record that reason in writing straight away, and either pay or reply within 15 days of any notice. For advice on your specific situation, consult a qualified advocate.

Disclaimer: This article is general legal information for awareness and is not legal advice. Whether a stop-payment dishonour amounts to an offence depends on the facts of each case. Bank procedures and charges vary. Please consult a qualified advocate before acting on any information here.