Madhya Pradesh High Court: Cheque Marked ‘Not Negotiable’ Still Punishable Under Section 138 NI Act
Court Clarifies Endorsement Does Not Extinguish Drawer’s Liability
Ruling Strengthens Legal Protection in Cheque Bounce Cases
By Our Legal Correspondent
New Delhi: January 29, 2026:
In a significant judgment, the Madhya Pradesh High Court has held that cheques marked “Not Negotiable” cannot escape the ambit of Section 138 of the Negotiable Instruments Act (NI Act), 1881. The ruling came in response to a petition seeking to quash criminal proceedings arising from cheque dishonour.
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Justice Himanshu Joshi, while dismissing the petition, observed that the endorsement “Not Negotiable” only affects the transferability of the cheque but does not extinguish the liability of the drawer. The decision reinforces the principle that cheque bounce cases must be adjudicated on merits and cannot be dismissed on technical grounds.
Case Background
- Petitioner’s Argument: The accused argued that since the cheque was marked “Not Negotiable,” it should not attract criminal liability under Section 138.
- Lower Court Orders: The Judicial Magistrate First Class, Rewa, and the 9th Additional Sessions Judge, Rewa, had earlier rejected the petitioner’s plea.
- High Court’s Decision: The High Court upheld these orders, ruling that the marking does not shield the drawer from prosecution.
Court’s Observations
- On Endorsement: “Not Negotiable” restricts transferability but does not affect the obligation to honour the cheque.
- On Liability: The drawer remains liable if the cheque is dishonoured due to insufficient funds or other reasons.
- On Section 138: The provision is designed to ensure credibility of financial transactions and cannot be diluted by endorsements.
Legal Context
- Section 138 NI Act: Makes dishonour of cheques due to insufficient funds a criminal offence, punishable with imprisonment up to two years or fine up to twice the cheque amount.
- Section 142 NI Act: Provides procedure for filing complaints in cheque bounce cases.
Judicial Precedent: Courts have consistently held that endorsements like “Account Payee” or “Not Negotiable” do not affect liability under Section 138.
Significance of the Judgment
- Strengthens Credibility of Cheques: Ensures that endorsements cannot be misused to escape liability.
- Protects Payees: Reinforces legal remedies for individuals and businesses facing cheque dishonour.
- Deters Misuse: Sends a strong message to drawers that technical markings will not absolve responsibility.
Broader Implications
This ruling has wider implications for financial transactions in India:
- Business Transactions: Companies cannot avoid liability by marking cheques with restrictive endorsements.
- Banking Practices: Banks must continue to treat dishonoured cheques seriously, regardless of markings.
- Legal Clarity: Provides clear guidance for lower courts handling cheque bounce disputes.
Expert Commentary
Legal experts have welcomed the ruling, noting that it strengthens the enforceability of cheques as a financial instrument. They emphasize that Section 138 is a cornerstone of India’s banking and commercial law, ensuring trust in cheque-based transactions.
Conclusion
The Madhya Pradesh High Court’s ruling that cheques marked “Not Negotiable” still attract liability under Section 138 NI Act is a landmark in reinforcing financial accountability. By clarifying that endorsements do not extinguish liability, the Court has ensured that cheque bounce cases remain a strong deterrent against financial misconduct.
This judgment not only strengthens the credibility of cheques but also reassures businesses and individuals that the law will protect their financial interests.
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