Cheque Marked ‘Not Negotiable’ Still Attracts Section 138 NI Act: Madhya Pradesh High Court

The Madhya Pradesh High Court has held that merely marking a cheque as “Not Negotiable” does not take it outside the purview of Section 138 of the Negotiable Instruments Act, 1881, reiterating that such an endorsement does not extinguish the drawer’s liability arising from the issuance of the cheque.

The Court dismissed a petition filed under Section 482 of the Code of Criminal Procedure seeking quashing of proceedings arising out of cheque dishonour, observing that the petitioner had failed to make out any exceptional circumstance warranting interference at an interlocutory stage.

The petition was decided by Justice Himanshu Joshi, who was hearing a challenge to orders passed by the Judicial Magistrate First Class, Rewa, and the 9th Additional Sessions Judge, Rewa, by which the petitioner’s application under Sections 138 and 142 of the NI Act had been dismissed.

The petitioner, Dr. Sandeep Patel, had approached the High Court contending that the cheque in question bore the endorsement “Not Negotiable” and therefore could not attract penal consequences under Section 138 of the Act.

As per the complaint, the respondent had extended a loan of Rs. 5 lakh to the petitioner in December 2019 for family needs. Towards partial discharge of the liability, the petitioner issued a cheque for Rs. 4 lakh drawn on the Bank of Maharashtra, Rewa. The cheque was presented in July 2020 and was dishonoured due to “Funds Insufficient.”

Despite service of the statutory demand notice, the amount remained unpaid, leading to the initiation of proceedings under Section 138 of the NI Act.

Appearing for the petitioner, Advocate Lawkush Prasad Mishra argued that the courts below had failed to appreciate that the cheque having been marked “Not Negotiable” could not be treated as a negotiable instrument within the meaning of the Act.

Reliance was placed on the Allahabad High Court judgment in Durga Shah Mohal Lal Bankers v. Governor General in Council to contend that the negotiability of a cheque stands destroyed when such an endorsement appears on its face.

Opposing the plea, counsel for the respondent, Advocate Neerja Agrawal, submitted that the petition was a misconceived attempt to delay trial proceedings. It was argued that the endorsement “Not Negotiable” merely restricts transferability and does not absolve the drawer of liability, nor does it render Section 138 inapplicable if the statutory ingredients are otherwise satisfied.

Agreeing with the respondent, the High Court held that Section 6 of the NI Act does not carve out any exclusion for cheques bearing the endorsement “Not Negotiable.”

The Court clarified that such an endorsement only limits the transferee’s title under Section 130 of the Act and does not invalidate the cheque or negate the underlying debt. The Court further observed that whether the cheque was issued towards a legally enforceable debt is a matter of evidence that cannot be adjudicated at a preliminary stage by invoking inherent jurisdiction.

Holding that no abuse of process or miscarriage of justice was made out, the Court dismissed the petition, reiterating that inherent powers under Section 482 CrPC must be exercised sparingly.

Case Title: Dr. Sandeep Patel v. Anil Kumar Gupta

Bench: Justice Himanshu Joshi

Date of judgment: 08.01.2026