Court dismisses petition challenging applicability of Section 138 for dishonoured "Not Negotiable" cheques, reinforcing obligations of the drawer.
In a significant ruling, the Madhya Pradesh High Court at Jabalpur has dismissed a petition filed by Dr. Sandeep Patel challenging the applicability of Section 138 of the Negotiable Instruments Act, 1881, concerning a dishonoured cheque marked as "Not Negotiable." The judgment, delivered by Justice Himanshu Joshi on January 8, 2026, reinforces the legal interpretation that such markings on a cheque do not exclude the drawer from liability under Section 138, which deals with penalties for cheque dishonour.
The case arose from a complaint filed by Anil Kumar Gupta, who alleged that Dr. Patel had issued a cheque of Rs. 4,00,000 to discharge a debt, which was dishonoured due to insufficient funds. Despite the cheque bearing the note "Not Negotiable," the complainant pursued legal action under Section 138, leading to a legal debate over the cheque's enforceability.
Dr. Patel's counsel argued that the "Not Negotiable" note on the cheque exempted it from Section 138, suggesting that such cheques lose their negotiability and, consequently, the liabilities associated with them. However, the High Court rejected this argument, citing the statutory definitions and obligations under the Negotiable Instruments Act.
Justice Joshi noted that the marking "Not Negotiable" does not invalidate the cheque or negate the drawer's obligation to honour it. Instead, it merely restricts the transferee from acquiring a better title than the transferor, as per Section 130 of the Act. The court emphasized that the core issue of whether the cheque was issued towards a legally enforceable debt and whether statutory requirements under Section 138 are satisfied are matters to be decided through evidence, not at an interlocutory stage.
The court also addressed the exercise of inherent powers under Section 482 of the Criminal Procedure Code, highlighting that such powers should be used sparingly and only to prevent abuse of process or secure the ends of justice. Finding no exceptional circumstance warranting interference, Justice Joshi dismissed the petition, affirming the lower courts' decisions.
This ruling reiterates the legal position that cheques, even when marked "Not Negotiable," remain subject to the liabilities under Section 138 if other statutory conditions are met. It serves as a reminder to parties issuing cheques of their obligations and the potential legal consequences of dishonour due to insufficient funds.
Bottom Line:
Negotiable Instruments Act - Cheque marked as "Not Negotiable" does not exclude it from the purview of Section 138 of the Act; such marking restricts transferability but does not negate the drawer's liability or the applicability of Section 138.
Statutory provision(s): Section 6, Section 130, Section 138, Section 142 of the Negotiable Instruments Act, 1881; Section 482 of the Criminal Procedure Code, 1973.
Dr. Sandeep Patel v. Anil Kumar Gupta, (Madhya Pradesh)(Jabalpur) : Law Finder Doc id # 2845233
