Dishonour of cheques

Dishonor of cheques

Section 92 of the Negotiable Instruments Act states that –

“A promissory note, bill of exchange or cheque is said to be dishonored by non-payment when the maker of the note and acceptor of the bill makes default in payment.”

Dishonour of cheque is an offence.

Section 138 of the Negotiable Instruments Act states that, A banker shall return the cheque when the money standing to the credit of the account holder is insufficient to honour the cheque.

Dishonour of cheque is a criminal offence. The drawer shall be deemed to have committed an offence and such offence will be punishable with imprisonment and with fine.(imprisonment shall be extend 1 years or fine twice the amount of the cheque or both).

Provisions of section 138 of the Act are applicable only if –

(a) The cheque is issued for discharge of a liability only. A cheque given as gift will not fall in this category.

(b) The cheque is presented to the bank for payment within 6 months or its specific validity period, whichever is earlier.

(c)The payee or holder in due course has given notice demanding payment within 30 days of the receiving information of dishonour as regarding the insufficiency of funds.

(d) The drawer does not make payment within 30 days of the receipt of the notice. The complaint can be made only by the payee/holder in due course, within 1 month.

When banker shall refuse the payment.

A banker will be justified or bound to dishonour a cheque in the following cases if-

(1) The cheque is undated.

(2) The cheque is stale i.e. it has not been presented within the validity period of the cheque.

(3)The instrument is inchoate (unclear or unformed or tentative) or not free from reasonable doubt.

(4)The cheque is post-dated and presented for payment before its ostensible date.

(5) Authority of the banker to honour a cheque of his customer is determined by the notice of the drawer’s death, lunacy and insolvency. However, any payment made prior to the receipt of the notice of death is valid.

(6) Bank receives notice in respect of closure of the account.

(7) The cheque contains material alterations, irregular signature of irregular endorsement.

(8) The customer has countermanded payment.

(9) Any difference between the amount of cheque in words and in figures.

(10) Any irregular endorsements.

(11) The cheque is mutilated.

(12)  Signature of the drawer has been forged.
General Crossing and Special Crossing in cheques

 What is a promissory note? What are the essentials of Promissory Notes

 What is a bill of exchange?

 Essentials of a bill of exchange

 Characteristic of a Bill of Exchange

 The procedure for transfer a bill of exchange-

 Difference between a promissory note and a bill of exchange.

 Dishonour of cheques

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