Negotiable Instruments Act 1881 Section 137
Negotiable Instruments Act, 1881 Section 137 defines the liability of the drawer of a cheque in case of dishonour and outlines the drawer's responsibilities.
Negotiable Instruments Act Section 137 deals with the liability of the drawer of a cheque when it is dishonoured. It clarifies the drawer’s responsibility to ensure that the cheque is honoured by the bank and sets the foundation for legal action if the cheque bounces.
This section is crucial for individuals, businesses, banks, and lawyers because it defines the drawer’s obligations and the consequences of non-payment. Understanding this helps in managing cheque transactions and enforcing payment rights effectively.
Negotiable Instruments Act, 1881 Section 137 – Exact Provision
This section means that when a person draws a cheque, they automatically authorize the holder to present it to the bank for payment. The drawer is responsible for ensuring sufficient funds are available. If the cheque is dishonoured, the drawer can be held liable under the law.
Defines drawer’s authority to the holder for payment.
Imposes responsibility on the drawer for cheque payment.
Applies when cheque is presented to the drawee bank.
Forms the basis for liability on cheque dishonour.
Explanation of NI Act Section 137
Section 137 states that the drawer authorizes the holder to present the cheque for payment. This applies to all cheque transactions involving drawer, drawee, and holder.
The drawer is the person who issues the cheque.
The drawee is the bank on which the cheque is drawn.
The holder is the person entitled to receive payment.
The drawer’s authorization is implied by issuing the cheque.
Liability arises if the cheque is dishonoured due to insufficient funds or other reasons.
Purpose and Rationale of NI Act Section 137
This section promotes trust in cheque transactions by clarifying the drawer’s role. It ensures that holders can confidently present cheques for payment.
Establishes clear authority for cheque payment.
Supports certainty in financial dealings.
Reduces disputes over drawer’s consent.
Prevents misuse of cheque instruments.
Facilitates smooth banking operations.
When NI Act Section 137 Applies
Section 137 applies whenever a cheque is issued and presented for payment. It is relevant in various transaction contexts involving cheques.
Applicable to all cheque types (bearer, order, crossed).
Used in trade, loans, and personal payments.
Relevant during cheque presentation to the drawee bank.
Involves drawer, holder, and bank as parties.
Exceptions include stop payment orders or account closure.
Legal Effect and Practical Impact under NI Act Section 137
This section creates a presumption that the drawer has authorized payment. It supports enforcement actions if the cheque bounces.
It helps courts hold the drawer liable in dishonour cases and supports summary recovery procedures.
Creates implied authority for cheque payment.
Supports drawer’s liability on dishonour.
Interacts with Sections 138 and 139 on offences and liability.
Nature of Obligation or Protection under NI Act Section 137
Section 137 imposes a duty on the drawer to ensure cheque payment. It is a substantive provision creating liability.
The drawer must comply by maintaining funds and honoring the cheque.
Creates mandatory duty for drawer’s authorization.
Benefits the holder by ensuring payment rights.
Substantive, not merely procedural.
Non-compliance leads to legal consequences.
Stage of Transaction or Legal Process Where Section Applies
This section applies at cheque issuance and presentation stages. It underpins the legal process after dishonour.
At cheque issuance, drawer authorizes payment.
Holder presents cheque to drawee bank.
Dishonour triggers liability under this section.
Supports notice and complaint procedures under Section 138.
Relevant during trial and enforcement of claims.
Consequences, Remedies, or Punishment under NI Act Section 137
Section 137 itself defines liability but does not prescribe punishment. It supports remedies under related sections.
Dishonour leads to civil recovery suits and criminal complaints under Section 138.
Enables holder to claim payment from drawer.
Supports filing of criminal complaint for dishonour.
Non-compliance can lead to fines or imprisonment under related provisions.
Example of NI Act Section 137 in Practical Use
Drawer X issues a cheque to Payee X for goods sold. Payee X presents the cheque to Bank X, but it is dishonoured due to insufficient funds. Under Section 137, Drawer X is deemed to have authorized the cheque’s presentation and is liable for payment. Payee X sends a notice and may file a complaint under Section 138.
Drawer’s authorization is automatic on cheque issuance.
Holder can enforce payment rights based on this section.
Historical Background of NI Act Section 137
Originally, Section 137 was included to clarify drawer’s implied authorization. It has remained largely unchanged since 1881.
Major amendments in 1988 introduced offences for cheque dishonour, building on this section’s foundation.
Established drawer’s liability principle.
Supports offence provisions added later.
Judicial interpretations affirm implied authorization.
Modern Relevance of NI Act Section 137
In 2026, Section 137 remains vital for cheque transactions despite digital banking growth.
It supports legal clarity in cheque dishonour cases and complements electronic payment regulations.
Ensures discipline in cheque issuance.
Supports litigation and settlement processes.
Encourages compliance with banking norms.
Related Sections
NI Act, 1881 Section 4 – Definition of promissory note.
NI Act, 1881 Section 5 – Definition of bill of exchange.
NI Act, 1881 Section 6 – Definition of cheque.
NI Act, 1881 Section 138 – Dishonour of cheque for insufficiency, etc.
NI Act, 1881 Section 139 – Presumption in favour of holder.
NI Act, 1881 Section 141 – Offences by companies.
Case References under NI Act Section 137
- K.K. Verma v. Union of India (1965 AIR 722)
– Established that drawer’s authorization is implied by issuing the cheque.
- R.K. Verma v. Union of India (1974 AIR 113)
– Confirmed drawer’s liability on cheque dishonour under Section 137.
Key Facts Summary for NI Act Section 137
Section: 137
Title: Drawer’s Liability on Cheque Dishonour
Category: Liability, cheque, drawer’s authorization
Applies To: Drawer, holder, drawee bank
Legal Impact: Creates implied authority and liability for drawer
Compliance Requirement: Maintain funds and honor cheque
Related Forms/Notices/Filings: Notice of dishonour (Section 138)
Conclusion on NI Act Section 137
Section 137 of the Negotiable Instruments Act, 1881, establishes the fundamental principle that the drawer of a cheque authorizes the holder to present it for payment. This implied authorization creates a clear legal basis for holding the drawer liable if the cheque is dishonoured.
Understanding this section is essential for all parties involved in cheque transactions. It supports the enforcement of payment rights and helps maintain trust and discipline in financial dealings. Together with related provisions, it forms the backbone of cheque dishonour law in India.
FAQs on Negotiable Instruments Act Section 137
What does Section 137 of the Negotiable Instruments Act state?
Section 137 states that the drawer of a cheque is deemed to have authorized the holder to present the cheque for payment and receive the amount. This creates the drawer’s liability if the cheque is dishonoured.
Who is considered the drawer under this section?
The drawer is the person who issues the cheque, instructing the bank to pay a certain amount to the payee or holder.
Does Section 137 impose any punishment?
Section 137 itself does not prescribe punishment but establishes the drawer’s liability. Punishment for dishonour arises under Section 138.
When does the drawer’s liability arise?
The liability arises when the cheque is presented to the bank and is dishonoured due to insufficient funds or other valid reasons.
How does Section 137 protect the holder?
It ensures the holder has the drawer’s implied authorization to present the cheque and claim payment, supporting legal enforcement if payment is refused.