The phrase Refer to Drawer under 138 N I Act: meaning and maintainbility of cheque

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In a cheque bounce scenario, when the bank returns a cheque with the remark “Refer to Drawer,” it signifies that the cheque has been dishonored. Typically, this happens because the drawer’s (the person who issued the cheque) account does not have sufficient funds to cover the cheque amount. Since banks are legally bound by confidentiality under banking secrecy laws, they avoid directly stating the reason for the dishonor (like "insufficient funds") and instead use this more neutral phrase.

The phrase “Refer to Drawer” essentially directs the payee (the person in whose favor the cheque was drawn) to contact the drawer for clarification or resolution of the issue. In many cases, the underlying reason is insufficient funds in the drawer’s account, which is a violation that can be prosecuted under Section 138 of the Negotiable Instruments (NI) Act, 1881.

Legal Implications:

  1. Section 138 of the NI Act: If a cheque bounces due to insufficient funds, the payee can initiate legal proceedings against the drawer after fulfilling the legal requirements:
    • Demand Notice: The payee must send a legal notice demanding the cheque amount from the drawer within 30 days of receiving the dishonor memo from the bank.
    • Response Period: The drawer has 15 days to make the payment.
    • Filing a Case: If the drawer fails to pay within the stipulated time, the payee can file a complaint under Section 138 of the NI Act.

In summary, “Refer to Drawer” is a polite way for banks to indicate insufficient funds without breaching customer confidentiality, while also enabling the payee to pursue legal remedies.

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