Stop Payment, Account Closed & Signature Mismatch Cheque Bounce in 2026: Which Bank Return Reasons Attract Section 138 NI Act?

For the full procedure, see our Cheque Bounce Case in India guide. The burden and rebuttal framework is explained separately in our Section 139 presumption guide.

1. The statutory wording

Section 138 expressly refers to a cheque returned unpaid because the amount standing to the credit of the account is insufficient or because it exceeds the arrangement with the bank. Supreme Court decisions have interpreted the provision purposively so that drawers cannot avoid liability merely by changing the form of dishonour where the substance remains inability or refusal to honour a cheque issued towards an enforceable liability.

2. “Funds insufficient”

This is the classic Section 138 return reason. Once the other statutory conditions are met, a memo stating “funds insufficient” directly engages the provision, subject to the accused’s right to rebut the existence of legally enforceable debt or other ingredients.

3. “Exceeds arrangement”

This is expressly contemplated by Section 138. It usually means that the cheque amount exceeds the amount the bank had agreed to honour through the available balance, overdraft or other arrangement.

4. “Payment stopped by drawer”

Stop-payment instructions do not automatically take the cheque outside Section 138. In Modi Cements Ltd. v. Kuchil Kumar Nandi, the Supreme Court rejected the proposition that a drawer can escape the provision simply by instructing the bank not to pay.

The presumption under Section 139 continues to operate. The accused may still prove that the stop-payment instruction was issued for a genuine reason, for example because there was no existing liability or because the cheque had been wrongly presented.

5. Ashok Singh v. State of U.P., 2025 INSC 427

The Supreme Court’s reportable judgment in Ashok Singh v. State of Uttar Pradesh, decided on 2 April 2025, involved a cheque returned with the endorsement “payment stopped by drawer”. The Supreme Court restored the conviction after holding that the High Court had wrongly shifted an initial financial-capacity burden onto the complainant and had not properly respected the statutory presumptions.

The judgment can be read at Ashok Singh v. State of U.P..

6. Can stop payment still be a valid defence?

Yes, but “I stopped payment” is not itself a defence. The accused must connect the stop-payment instruction to a legally sustainable explanation. Examples may include:

• no debt or liability existed on the presentation date;
• the liability had already been discharged;
• the cheque was to be returned on occurrence of a condition that had not occurred;
• the cheque was lost or misappropriated and contemporaneous steps were taken;
• the goods/services forming the consideration were never supplied, where the contract and evidence support that conclusion.

These are usually evidence questions, not automatic threshold grounds.

7. “Account closed”

In NEPC Micon Ltd. v. Magma Leasing Ltd., the Supreme Court treated “account closed” as falling within Section 138. Closing the account leaves no funds available to honour the cheque and cannot be used as a device to avoid the statute.

8. What if the account was closed before the cheque date?

That fact may strengthen the complainant’s case on dishonour, but it does not remove the need to prove the underlying liability and statutory notice. It may also become relevant to the factual narrative concerning how and why the cheque was issued.

9. “Signature differs” or “signature mismatch”

Laxmi Dyechem v. State of Gujarat addressed return reasons beyond literal insufficiency of funds and recognised that certain signature-related endorsements can attract Section 138 in the statutory context. A drawer should not assume that “signature differs” automatically defeats the complaint.

At the same time, a genuine forgery defence is different. If the accused establishes that the cheque was not signed by him or her at all, that can go to the foundational requirement that the cheque be drawn by the accused on an account maintained by that person.

10. Genuine signature dispute vs altered signature

Courts distinguish between a cheque admittedly signed by the drawer but returned because the bank found the signature inconsistent with its mandate, and a case where the accused says the signature itself is forged. The latter may require bank officials, specimen signatures or forensic evidence.

11. “Refer to drawer”

“Refer to drawer” is a generic banking return reason. Its legal significance depends on the surrounding material and the reason behind dishonour. Counsel should obtain the bank memo, account evidence where available and bank witness evidence if the exact reason is disputed.

12. “Account frozen”

An account may be frozen due to regulatory, police, tax, court or bank action. Section 138 applicability can become fact-sensitive because the reason for the freeze and the drawer’s control over events may matter. A frozen-account memo should not be treated as automatically equivalent to a clean insufficiency case without examining the circumstances.

13. “Dormant account”

A dormant or inactive account return may also require examination of the bank’s reason and the drawer’s conduct. If the drawer issued a cheque from an account that could not be operated without reactivation, the complainant may argue that the drawer cannot defeat liability through account status alone.

14. “Image not found” and technical return reasons

Cheque truncation and modern clearing systems sometimes generate technical return codes. Whether Section 138 applies depends on whether the return reflects an act attributable to the drawer, a defect equivalent to non-payment, or a purely technical/clerical issue that can be cured by re-presentation. Do not treat every technical code as identical.

15. “Cheque stale”

If a cheque is presented after its validity period, Section 138 ordinarily cannot be built on that stale presentation because timely presentation is a statutory ingredient. The payee should confirm the current banking validity period and present the cheque within time.

16. “Post-dated cheque presented early”

A post-dated cheque becomes payable on or after its date. If it is presented before that date and returned, the payee should not assume that the premature return creates a valid Section 138 cause of action. Re-presentation within validity after the cheque date may be necessary.

17. “Alteration requires drawer authentication”

A material alteration may give the accused a separate defence if the instrument was altered without authority. But the effect depends on what was changed, whether it was material, whether it was authorised and whether the accused had delivered a signed incomplete instrument.

18. Blank signed cheques

A signed blank cheque is not automatically invalid. Once signature is admitted, statutory presumptions may arise. The accused can still show that the instrument was filled contrary to authority or that no liability existed, but the burden is not discharged merely by using the phrase “blank cheque”.

19. Security cheques

The bank return reason and the character of the cheque are separate questions. A “security cheque” can attract Section 138 where liability had crystallised when it was presented. See our security cheque guide.

20. Does the complainant need the original bank memo?

The bank return memo is a key statutory document and carries evidentiary significance. The complainant should preserve the original or legally admissible bank record and obtain tracking/service documents for the later demand notice.

21. Return reason does not prove the debt

A dishonour memo proves that the bank did not honour the instrument for the stated reason. It does not independently prove the underlying transaction. The debt/liability question is addressed through the cheque, statutory presumptions, invoices, agreements, account statements, admissions, correspondence and oral evidence.

22. Accused’s response to a stop-payment complaint

A strong defence should be contemporaneous and document-driven. Depending on facts, the accused should preserve:

• reply to statutory notice;
• stop-payment request and reason;
• bank balance around the presentation date;
• contract or settlement showing conditional delivery;
• proof of prior payment;
• complaints regarding loss or misuse, if genuine;
• correspondence showing dispute before presentation.

23. Complainant’s response to a technical return defence

The complainant should focus on the complete Section 138 chain: debt, cheque, presentation, memo, notice, service and non-payment. If the drawer admits the signature, Sections 118 and 139 become central. If signature is denied, bank and forensic material may become necessary.

24. Can these cases be quashed at the outset?

Sometimes, but disputed bank-return or liability questions usually require evidence. The Supreme Court’s 2026 decision in Renuka v. State of Maharashtra cautions against resolving contested legally enforceable debt questions through a pre-trial mini-trial. See our Section 138 quashing guide.

25. Frequently asked questions

Does “stop payment” attract Section 138?

Yes, it can. Stop-payment instructions do not automatically defeat the offence. The accused may rebut liability on evidence.

Does “account closed” attract Section 138?

Yes. The Supreme Court has treated account closure as within the scope of the provision.

Does signature mismatch automatically mean acquittal?

No. Signature-related returns can fall within Section 138. A genuine forgery or non-execution defence must be proved on its own facts.

What if the cheque bounced because the account was frozen?

The answer is fact-sensitive. The cause and timing of the freeze, drawer’s control and the underlying liability should be examined.

Is the bank memo enough for conviction?

No. It proves dishonour, but all statutory ingredients and the debt/liability framework must still be considered.

26. Conclusion

In 2026, the safest rule is not to read Section 138 by the bank-return code alone. “Stop payment”, “account closed” and some signature-related reasons can attract the provision, while technical, stale or genuinely forged instruments require separate analysis. The case should always be built or defended from the full statutory chain and not from one line on the bank memo.