1. Introduction
A cheque is draft drawn upon a bank payable on demand signed by the maker or drawer, containing an unconditional promise to pay a sum certain in money to the order of the payee. Negotiable instrument lays down those cases in which a banker is justified in dishonouring a cheque and in which a bank is bound to dishonour the cheque.
2. Definition of Bank and Banker
(i) Bank
A bank is an institution, usually incorporated, whose business to receive money on deposit, cash checks or drafts and make loans.
(ii) banker
Banker means a person transacting the business of accepting, for the purpose of lending or investment, of deposits of money from the public repayable on demand or otherwise and withdrawal by the cheque, draft, order or otherwise and includes any post office saving bank. (sec 3(b) ).
3. When a banker is justified in dishonouring a cheque
Following are those circumstances in which a banker is justified indishonouring a cheque
(i) Post date cheque
When the cheque is post dated and is presented before ostensible date.
(ii) Insufficient Balance
When funds of the account holder in the bank are insufficient to meet the cheque.
(iii) Funds set aside for special purpose
When the funds of the account holder are set aside for some special purpose and these are not available for payment.
(iv) In proper presentation of cheque
When the cheque is not duly presented e.g has not been presented within banking hours.
(v) Cheque not presented within reasonable time
When the cheque is not presented within a reasonable time after the ostensible date of issue. Generally speaking a cheque presented six months or more after the date of its issue is considered a stale one.
(vi) Forgery of the drawer’s signature
When signature of drawer does not tally with his specimen signature as appended by him at the time of opening the account with the bank.
(vii) Difference in words and figure
When the amount written by drawer on the cheque is different in words and figures etc.
(viii) Mutilated cheque
When a cheque is presented to the banker in mutilated form.
(ix) Where the banker has lien
Where the banker has a lien on the funds of account holder.
(x) Closing of customer’s account
When the account of the customer is closed and cheque is presented for payment.
(xi) Where customary has no account
Where the cheque is presented at a branch of the bank at which the customer has no account.
(xii) Violation of rules and regulation
When a cheque is not presented to the banker in accordance with the rules and regulations of banking transaction.
(xiii) Sealing of account
When the account of the customer is sealed by the government.
4. When bank is bound to dishonour a cheque
(i) Countermanding payment
Where the authority of the drawer to pay a cheque drawn on him by his customer is determined by the customer countermanding payment.
(ii) Death of the Customer
When the customer has died and the banker has got notice of his death.
(iii) Insolvency of the customer
When the customer has become insolvent or an order of adjudication has been made against him and the banker has notice of the same.
(iv) Lunacy of the customer
When the customer has become lunatic and the banker has the notice of his lunacy.
(v) When the cheque is irregular
If the cheque is irregular or ambiguous, or drawn in a form of doubtful legality, or otherwise materially altered.
(vi) Loss of cheque
If the customer has already informed the banker about the loss of that cheque which is presented for payment.
(vii) Receiving order of attachment
When a banker has received order of attachment or other order from the court prohibiting payment out of the funds to the credit of the customer.
(viii) Defective title of the presenter of cheque
If the bank becomes aware that person presenting the cheque is not entitled to receive payment.
(ix) Notice of stop payment
If before the presentment of cheque the customer has given notice to stop the payment on that particulars cheque.
Conclusion
Banker and bank both are justified and bound to dishonour the cheques if these cheques have not been drawn in accordance with rules and regulations of banking transaction.
