position and dutios of the drawoe ban, a ‘Tho torm paying banker is the rogard to the payment of choquos drawn on it by its customer. The fundy oe d by honouring the cheque, customer in the bank account is payable on aah nerestoe, wh are drawn by the customer ‘and prosonted by a 1 ; ‘ the bank is reckoned as a Jonding constituent of the implied contract existing betna the banker and the customer. mae payment has to be made by the banker as per the logal obligation Section 31 of Negotiable Instrument Act 1881, says that “the drawee of & chen | having sufficient funds of the drawer in his hands properly applicable to a payment of such a cheque, must pay the cheque, when duly required to do 0, ang ;, default of such payment, must compensate the drawer for any loss or damage ¢, by such default.” ING JANKER n y Paying banker refers to the banker who holds the account of the drawer of ty | cheque and is obliged to make payment, ifthe funds of the customer are sufficient, | cover the amount of his cheque drawn or if overdrawing facility is given to thy customer. ‘The banker who is liable to pay the value of a cheque of a customer as per the contract, when the amount is due from him to the customer is called Paying Banker The payment to be made by him has arisen due to the-contractual obligation. He is also called drawee bank as the cheque is drawn on him. The banker has to take the following precautions while honouring the cheques of his customers: 1. Open or Crossed Cheque: The most important precaution that a banker should take is about crossed cheques. A banker has to verify whether the cheque is open or crossed. He should not pay cash across the counter in respect of crossed cheques. If the cheque is a crossed one, he should see whether it is general crossed or special crossed. If it is general crossing, the holder must be asked to present the cheque through some banker and should be paid to a banker. If the cheque bears a special crossing, the banker should pay only the bank whose name is mentioned in the crossing. If it is a open cheque, a banker can pay cash to the payee or the holder across the counter. If the banker pays against the instructions as indicated above, he. to pay the amount to Fe a eatery protectins nue ower for any lose sustained. Further, ¢ pasker loses 8 in case of forged endorsement. ._ jg a Not Negotiable’ crossing, the payi i P sitio e ents. I tis an “Aasora ee has to verify the genuineneas of jg the om : it Payee’ crossing, the banker can credit the ‘ t of the payee named in the cheque and not that of any " proper Form: A banker should see whether the cheque isin the proper form. That the cheque should be in the mann: ied pe ler prescribed under the provisions of the Ne egotiable Instruments Act. It should not contain any condition. of Cheque: A banker can honour the cheques provided it is presented ‘qth that branch of the bank where the drawer has an account. If the cheque is presented at another branch of the same bank, it should not be honoured unless special srrangements are made by the customer in advance. The reasons are: (a) A banker undertakes to pay cheques only at the branch where the account is opened. o ‘The specimen signature of the customer will be with the office of the bank at which he has an account. © It is not possible for other branches to know that the customer has adequate balance to meet the cheque. Date of the Cheque: The paying banker has to see the date of the cheque. It must pe properly dated. It should not be either a post-dated cheque or a stale-cheque. If a cheque carries a future date, it becomes a post-dated cheque. If the cheque is presented on the date mentioned in the cheque, the banker need not have any objection to honour it. If the banker honours a cheque before the date mentioned in the cheque, he loses statutory protection. If the drawer dies or becomes insolvent or countermands payment before the date of the cheque, he will lose the amount. The undated cheques are usually not honoured. Aatale cheque is one which has been in circulation for an unreasonably long period. ‘The custom of bankers in this respect varies. Generally, a cheque is considered stale when it has been in circulation for more than three months. Banker does not honour such cheques. However, banker, may get confirmation from the drawer and honour cheques which are in circulation for a long time. So, verification of date is very important. Mutilated Cheque: The banker should be careful when mutilated cheques are presented for payment. A cheque is said to be mutilated when it has been cut or torn, or when a part of it is missing. Mutilation may be either accidental or intentional. If itis accidental, the banker should get the drawer’s confirmation before honouring it. If it is intentional, he should refuse payment. The cheque is to be returned with aTemark ‘Mutilated cheque’ or ‘Mutilation Requires Confirmation’. In Scholey y, Ramsbottom, the banker was held liable for wrong payment of a cheque which wa, dirty and bore visible marks of mutilation.” 6 Words and Figures: The amount of the cheque should be expressed in words, or jn words and figures, which should agree with each other. When the amount in word, and figures differ, the banker should refuse payment. However, Section 18 of the Negotiable Instruments Act provides that, where there is difference between the amount in words and figures, the amount in words is the amount payable. If the banker returns the cheque, he should make a remark ‘amount in words and figures 7. Alterations and Overwriting: The banker should see whether there is any alteration or over-writing on the cheque. If there is any alteration, it should be confirmed by the drawer by putting his full signature. The banker should not pay cheque containing material alteration without confirmation by the drawer. The banker is expected to exercise reasonable care for the detection of such alterations, Otherwise, he has to take risk. Material alterations make a cheque void. 8 Proper Endorsements: Cheques must be properly endorsed. In the case of bearer cheque, endorsement is not necessary legally. In the case of an order cheque, endorsement is necessary. A bearer cheque always remains a bearer cheque. The paying banker should examine all the endorsements on the cheque before making payment. They must be regular. But it is not the duty of the paying banker to verify the genuineness of the endorsements, unless the cheque bears ‘Not-Negotiable’ crossing, He is not expected to know the signatures of all payees. So he gets statutory protection in case of forged endorsements. In India, even in the case of bearer cheques, bankers insist on endorsement though it is not required. The payment must be made to the right person and the banker must get order from his customer to debit his account. The banker might not be able to make detailed enquiries before making the payment. Thus, the act provides him some legal protection, if the banker fulfills the obligations laid down by the Act. The paying banker should take the following protection, in order to protect himself and customer's interest, while making the payment of his customer's cheques. In case of an order cheque, Section 85(1) of the NI Act provides statutory Protection to the paying banker as follows, where a cheque payable to order purportswe gon payment i8 made fo & wrong wide i ne me s5 satus the ction is given to a banker under Section 16 (2) of the Oo nn ae toe itt fr banker to know cach of eo apd theit signatures.” For gotting the protection, the banker should note oD: Endorsement: According to Section 86 (1 pegulr : ) of the Act the endorsement @ ‘pod be regular. For example, if a cheque is payable to a right person and #sore io boing sane heme and fhe same speling thie ia as regular 3 oroement Though: this ie not a valid endorsement, in Due Course: According to Section 10 of the Act the cheque should be o Pepin due [Link] the payments made on forged signature of the ence? Me jnot that ofthe drawer, the hanker gets statutory protection under Section 10 of qpe Act. e 5 (2) of the Negotiable Instruments Act, 1881 states, “Whereas @ ection. se originally expressed to be payable to bearer, the drawee is discharged bY ages in due cours tthe bearer thet notwthtanding amy enemen wor in fll or in Sank appearing therm, nobithitanding thet omy. ® purports to restrict or exclude further negotiation.” The protection is ein te Acton the bass that e bearer cheque lwaye remains « Dares CU evr, pears endorsement in bank or fll wheter any endorsement restricts R=TOSE iat gr not, In case a bearer cheque is stolen or Jost and the banker honours meeeqve without any knowledge, the banker wil be discharged from bis dbp i tke protection given in Sectim 85 (2) of the said Ac. In such a case, the Moving banker is nt required to verily the endorsement on bearer cheque, 1 SX. & rare cheque is crossed, the paying banker has no right to pay it aeross the counter in disregard of the crossing. Regarding payment of crossed cheque, the paying banker gets the protection under Soetion 128 of the Negotiable Instruments Act, 1881: “Whereas the banker on vvhom e erossed cheque is drawn has paid the same in due course, the banker paying The cheque and the drawer thereof Gn case such cheque hn come to the hands of the payee) shall be entitled respectively to the same rights and placed in the samestore nn on Pom bs a tman, aos za Fonte vp a *SO4sDOe GRsOEsooN The cheque had its origins in the ancient banking system, in which bankers would issue orders at the request of their customers, to pay money to identified payees. Such an order was referred to as a bill of exchange. The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency (e.g. gold) to purchase goods and services. A draft is a bill of exchange which is not payable on demand of the payee. The ancient Romans are believed to have used an early form of cheque known as pra-scriptiones in the first century BC. During the 3rd century AD, banks in Persia and other territories in the Persian Sassanid Empire issued letters of credit known as bakks. Muslim traders are known to have used the cheque system since the time of Harun al-Rashid (9th century) of the Abbasid Caliphate. In the 9th century, a Muslim businessman could cash an early form of the cheque in China drawn on sources in Baghdad, a tradition that was significantly strengthened in the 13th and 14th centuries, during the Mongol Empire. Indeed, fragments found in the Cairo Geniza indicate that in the 12th century cheques remarkably similar to our own were in use, only smaller to save costs on the paper. They contain a sum to be paid and then the order “May so and so pay the bearer such and such an amount”. The date and name of the issuer are also apparent. Between 1118 and 1307, it is believed the Knights Templar introduced a cheque system for pilgrims travelling to the Holy Land or across Europe. The pilgrims would deposit funds at one chapter house, thention by showing » draft A wy, the licated code only Vernithey, withdraw it from another chapter at their destina’ claim. Those drafts would be written in a very oomp could decipher. There are three parties involued in every cheque or payment order: () Drawer: The person who gives the order (writes out the cheque) @w Drawee: Tne financial institution upon whom the cheque is drawn (ii) Payee: The person or organisation named to receive payment. The main features or characteristics of cheques are: 1. Cheque is an instrument in writing ‘A cheque must be in writing, It can be written in ink pen, ball point pen, typeq or even printed. Oral orders are not considered as cheques. 2. Contains an unconditional order Every cheque contains an unconditional order issued by the customer to hi, bank. It does not contain a request for payment. A cheque containing condition orders is dishonoured by the bank. 8. Cheque is drawn on a specified banker ‘A cheque is always drawn on a specific banker. Cheque book facility is mate available only to account holder who are supposed to maintain certain minimun balance in the account, 4, Cheque must be signed by customer A cheque must be signed by customer (Account holder). Unsigned cheques signed by persons other than customers are not regarded as cheque. 5. Payable on demand A cheque when presented for payment must be paid on demand. If cheque s made payable after the expiry of certain period of times then it will not be a cheque 6. Certain sum of money The amount to be paid by the banker must be certain. It must be written words and figures.to a certain person or to the bearer pay® a poe payer of eee should be certain whom the payment of a cheque 18 to psd Be 2 er real Person or artificial person like Joint Stock Company: The be, of the payee must be written on the cheque or it can be made payable to wi Sf. heave aust be duly dated by customer of bank ‘a cheque must be duly dated by the customer of bank. The cheque must indicate ‘he date, month and the yesr. A cheque is valid for a period of three months ce date of issue. ‘An open cheque is a cheque which is payable at the counter of the drawee bank on presentation of the cheque. a) Bearer cheque: A bearer cheque is the one which is issued without the name of the payee and the same can be encashed by any one. Bearer cheque is made payable to the bearer ie. it is payable to the person who presents it to the bank for encashment. 4) Order cheque: A cheque which is paid to a named person with the words ‘or order’ after the payee’s name, showing that he or she can endorse it and pass it to someone else if desired. ‘A crossed cheque is a cheque which is paysble only through a collecting banker and not directly at the counter of the bank. Crossing ensures security to the holder ofthe cheque as the collecting banker credita the proceeds to the account of the pay, of the cheque. he paying banker to pay the amount of cheque to A crossing i instruction to tl oral ‘The crossing of the cheque secures th, @ particular banker and not over the counter. payment to a banker. It also traces the person eo receiving the amount of cheque. Addition of word, ‘Not negotiable’ or ‘Account Payee only’ is necessary to restrain the negotiailty the cheque. ‘The ervesing of a cheque ensures security and protection to the holder, However, we can negotiate a crossed bearer cheque by delivery and a cross order cheque by endorsement and delivery. ‘A cheque recipient cannot remove the crossing made on the cheque. Moreover, there is no possibility that the cheque can be transferred over to a third party, op cashed over the counter by the beneficiary. Such a cheque must be paid directly inty an account in the same name which is appearing on the payee line of the cheque. Based on the legal terms, if you have written a cheque then only you hold the authority to ‘uncross’ the cheque by mentioning crossing cancelled right above the crossing and then signing it. However, such a step is not recommended since jt removes legal protection against loss and fraud. Crossing can be classified into three categories: Types of Crossing of Chequea cheque is crossed cabere : oe Pernt, the banker on whom it is drawn shall not ws it otherwise than ; anker” (Section 126). The payee may get the cheque collected through a bank of his choice, Special crossing implies the specifications of the name of the banker on the face of the cheque. The object of special crossing is to direct the drawee banker to pay the cheque only if it is presented through the particular bank mentioned. ‘Specimen of Special or Restrictive Crossing ; ‘Specimen of Special or Restrictive Crossing EPL LE In the case of special crossing the addition of two parallel transverse lines is not essential though generally the name of the bank to which the cheque is crossed specially is written between the two parallel transverse line (Section 124). Section 126 of the Act provides that: “Where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed or his agent for collection”.AER 8 fs eR mo, Section 127 of the Act provides that, “Whore a cheque ia crammed apecially to more than one banker, C108 Whey, crossed to an agent for the purpose of ootletion, the banker on whom it le draw, shall refuse payment thereof” Special crossing may take any of the following shapes: @ “Account Payee” crossing ot restrictive crossing ai) ‘Thi type of crossing acta as a warning tothe collecting banker that the proceede ary to be credited into the account of the payee. (iii) ‘These words are a mere direction to the receiving or collecting banker. These do nog affect the paying banker who is under no duty to ascertain that the cheque i fae, hhas been collected for the account of the person named as the payee. Gv) Tt has been held that crossing cheque with the words “Account Payee” anq mentioning a bank is not a restrictive endorsement so as to invalidate further negotiation of the cheque by the endorse. (v) It has been decided by the courts that an “account payee” crossing is a direction tp the collecting banker as to how the proceeds are to be applied after receipt. The banker can disregard the direction only at his own risk and responsibility. Cheque marked “Not Negotiable” ‘The general rule about the negotiability is that the holder in due course of bil or promissory note or cheque takes the instrument free from any defect which might be existing in the title of the transferor. If the holder takes the instrument in good faith, before maturity and for valuable consideration, his claim is not defeated or affected by the defective title of the transferor. In case of any dispute, it is the transferor with the defective title who is liable, Addition of the words “not negotiable” to the crossing of a cheque, makes the position different. Section 130 of the Negotiable Instruments Act provides that: “A person taking a cheque crossed generally or specially bearing in either case the words ‘not negotiable’ shall not have or shall not be able to give a better title to the cheque than the title of person from whom he took had”. The effect of such a crossing is that the title of the transferee would be vitiated by the defect in the title of the transferor. The transferee of such a crossed cheque cannot get a better title than the transferor himself. The transferee cannot claim the right of a holder in due course by proving that he purchased the instrument in good faith for value.o-_eeweoe ie which In MpactaTly evened haw to Iw entlantad chromed che beni? in the cheque. There ia an enewption tn this for « epanial roms it 0 banter M cheque 1® HpeCAlly Crome, dew not have a branch at che glans of Ot o mnker, he may crow the cheque epetay tn anther banter wor eee w” U8 the purpone of collection of the eheee It ba very imprrtant io ineiade Sn tne nent fr collection” under double cronsing or yoni of Double Crossing mine eroaing it form of epcil croming of chamse wader ws bankers’ name is mentioned between two parallel lines eal ne rhe ofthe payee and anther baker the am i i ee ery inprtanto nde the were“r aee o sei’ S gpecimen of Double Crossing Union Bank of India to State Bank of India «As agent for collection” Banker's liability on payment of crossed cheque in due course Sc coumd cng itis yomned thet he ber. <= TAOS St ee ce papmant wo the ie omer of thw chi, Cad sn veiny mt reach ho tv oer. Ine wands 6 enn ft ue i pon, oer te mae 8 96 making amen mor oft shoqe Sesion 128. Basher 'ADLAY 2 TNE miymeat of crossed cheque section 126 ofthe Act states ist (a) aot goerliy esd cheque he banker shal mt py oer SAS19 a banker, and (b) a an apy one cng it hal oto paid byte banker orn saa ener to whom iti eressed ort his agent for oolertion oo re dramee banker pays acoso chaque otherwise than i» Snasoes ey aire of Seton 128i shal be Hable othe true owner of the ease for any loss he may have sustained (section 129).Section 127 of the Act provides that: “Where a cheque is crossed specially to more than one banker, except Whey crossed to an agent for the purpose of collection, the banker on whom it is Gray, shall refuse payment thereof”. Special crossing may take any of the following shapes: () “Account Payee” crossing or restrictive crossing Gi) This type of crossing acts as a warning to the collecting banker that the proceeds ate to be credited into the account of the payee. (ii) These words are a mere direction to the receiving or collecting banker. These do Rot affect the paying banker who is under no duty to ascertain that the cheque in fag, has been collected for the account of the person named as the payee. (iv) It has been held that crossing cheque with the words “Account Payee” and mentioning a bank is not a restrictive endorsement so as to invalidate furthe, negotiation of the cheque by the endorsee. (v) It has been decided by the courts that an “account payee” crossing is a direction to the collecting banker as to how the proceeds are to be applied after receipt. The banker can disregard the direction only at his own risk and responsibility. Cheque marked “Not Negotiable” The general rule about the negotiability is that the holder in due course of a bil] or promissory note or cheque takes the instrument free from any defect which might be existing in the title of the transferor. If the holder takes the instrument in good faith, before maturity and for valuable consideration, his claim is not defeated or affected by the defective title of the transferor. In case of any dispute, it is the transferor with the defective title who is liable. Addition of the words “not negotiable” to the crossing of a cheque, makes the position different. Section 130 of the Negotiable Instruments Act provides that: “A person taking a cheque crossed generally or specially bearing in either case the words ‘not negotiable’ shall not have or shall not be able to give a better title to the cheque than the title of person from whom he took had”, The effect of such a crossing is that the title of the transferee would be vitiated by the defect in the title of the transferor. The transferee of such a crossed cheque cannot get a better title than the transferor himself. The transferee cannot claim the Tight of a holder in due course by proving that he purchased the instrument in good faith for value.poe which is specially crossed has to be collected through the banker jp the cheque. There is an exception to this for a special reason. If a banker, cheque is specially crossed, does not have a branch at the place of the op @jankers be may cross the cheque specially to another banker who acts as bis i the PUTPOSE of collection of the cheque. It is very important to include the eo re agent for collection” under double crossing. _-g of Double Crossing Mer sple crossing is a form of special crossing of cheque under which two Do name is mentioned between two parallel lines. One is the lett penkor of the payee and another banker is the agent for collection of . It is very important to include the words “as agent for collection” under der ossing. . & .men of Double Crossing ‘Goion Bank of India to State Bank of India «hs agent for collection” Banker's liability on payment of crossed cheque in due course In respect of a crossed cheque it is presumed that the banker, on whom it is drawn, has made payment to the true owner of the cheque, though in fact, the amount of the cheque may not reach the true owner. In other words, the banker making payment in due course is protected, whether the money is or is not, in fact, received by the true owner of the cheque (Section 128). Bankers liability on wrong payment of a crossed cheque section 126 of the Act states that: (a) Inthe case of generally crossed cheque the banker shall not pay it otherwise than to abanker, and (b) Inthe case of a specially crossed cheque it shall not be paid by the banker otherwise than to the banker to whom it is crossed or to his agent for collection. Where the drawee banker pays a crossed cheque otherwise than in accordance With the provisions of Section 126 it shall be liable to the true owner of the cheque for any loss he may have sustained (section 129).at th ge Rred by the loss or damage gay vt" "OU have to pay to the drawer is y loas of pe lesser the val Credit, suffered drawer. The ra The ue of the by the wal eof the drawer”, cheque dishonoured, the greater the damage pe o word ‘endorsement’ in its literal “ ‘ Sense means, " pie ad hee Negotiable Instrumente Ave Wcaa ‘oe par heap ps ig on the back oF the instrument or any paper Attached to it with the intention of mii the rights therein. Thus endorsement is signing a wes rete eect e ieee ene me Person who effects fasdsesesaea is called an and the person whom negotiable i ‘ ent is called the ‘endorses, lable instrument is transferred by 1 It must be on the instrument. The endorsement may be on the back or face of the instrument and if no space is left on the instrument, it may be made on a separate paper attached to it called Alonge. It should usually be in ink. 2 It must be made by the maker or holder of the instrument, A stranger cannot endorse it. . 3, It must be signed by the endorser. Full name is not essential. Initials may suffice. Thumb-impression should be attested. Signature may be made on any part of the instrument. It may be made either by the endorser merely signing his name on the instrument (it is a black endorsement) or by any word showing an intention to endorse or transfer the instrument to a specified person (it is a full endorsement). No specific form of words is prescribed for an endorsement. But intention to transfer must be present. . eee amount of compensation th,Te must be completed by delivery ofthe instrument. The deliver” must bo may the endorser himself or by somebody on his behalf with the intention of pq property therein, Thus where a person endorses an instrument to another ang " itin his papers where it is found after his death and then delivered to the end," t the latter gets no right on the instrument. \ It must be an endorsement of the entire bil. A partial endorsement i, m4, purports to transfer to the endorsee a part only of the amount payable dog, operate as a valid endorsement. KINDS OF ENDORSEMENT Pe Ce Ue ne The different types of endorsement. They are: Endorsement means signing one’s name on the back of negotiable instrument like bills of exchange a promissory note or a cheque with a view to transfer the Interest, right, property or title in the instrument to another person. 1. Blank endorsement: The endorsement in which the endorser merely signs his name on the back of the instrument without mentioning the name of the person topein ite, | o ws? qi] be no endorse at all Tn the case of an end: pore e payable » Only the end endorsement in blank it means ‘ye become Payable to bearer, Tj orser put his ei 0 orsements Iti This as also anon ris Signature and then the : I ease Aa a " endorsement in which tee as general endorsement. , 28 oe snetrument Teste Person to whom the ms band vrites not only his of Waser section i oe ank endorsement can be conv ei is endorsed on the of ‘ad in bl ank © negotiable instrument into endorsement ee ey ove the endorsement in lank ina ai of a cheque en a director to pay the instrument to ee ictive endorsement: It is an end e lorse1 in whi . % ether transferability in express words to ont in which the endorser restricts the restricts further negotiation of the aera a rey aS ee . i : or whi itil authority t0 deal with the instrument as directed, As a et i is the ou the instrument “pay X only or pay X for my use or pay the contents to Mr. X only” 4, Conditional endorsement: It is an endorsement which contains a condition made py the endorser. The endorse can receive the amount only on the fulfillment of the condition or events. For instance, pay Mr. Z, if he returns to Bangalore. 5. Sons recourse endorsement: Under this endorsement, the endorser frees himself from any such liability arising from the dishonour of the instrument. For example pay Mr. X at his own risk, Sans frais endorsement: In this type of endorsement, the endorser makes it clear that no one should incur any expense on his account in respect of the negotiable instrument. Facultative endorsement: In case of facultative endorst his right to receive the notice of dishonour by writing the ement, the endorser waives orsurrenders words “Notice of dishonour waived” after writing the name of the endorse. ‘The legal provisions regarding endorsement () The endorsement may be cancelled before delivery. (i) It will be complete by delivery. Jt may be actual or constructive. Gi) The endorsement should be made for the fall value of the instrument. Ifthe value of the instrument is partially cleared the endorsement shall be made for the balance amount.WOR Dig La 8 | (iv) Tt in implied that the endorsement is made in the order in which it is shown on 1), face or back of the instrument. (*) Endorsement may be made on the back of the cheque or on the face of 1p, instrument or on a separate slip. (vi) It should be in writing and the endorser should sign the instrument. DISHONOR OF CHEQUE E A cheque is said to be dishonoured when the payment is not made (ty , A paying banker must refuse payment on cheques, issued by his customers, in, the following circumstances: L. Insufficiency of funds: When adequate funds are not available in the account of . customer, then the cheque can be dishonoured. If the banker pays a countermandeq cheque, he will not only be required to reverse the entry but also be held liable to pay damages for dishonouring the cheques presented subsequently which would have been honoured otherwise. 2. Notice of the customer's death: The banker should not make payments on cheques presented after the death of the customer. He should return the cheque with the remark ‘Drawer Deceased’. However, if the payment is made without Inowing the fact of the customer's death, the banker cannot be held liable. 3 Notice of customer’s insanity: The banker should stop the payment on cheques drawn and received after the receipt of notice of the customer's insanity. However, the banker should be very careful in this regard. He can believe that the customer ig insane only when the latter is sent to the lunatic asylum. Otherwise, he has to obtain a certificate from competent doctor. Cheques drawn at a time when the customer was rational may be honoured. 4, Notice of the customer’s insolvency: A banker should refuse payment on the cheques soon after the customer is adjudicated as insolvent. 5. Receipt of the garnishee order: Where Garnishee order is received attaching the whole amount, the banker should stop payment on cheques received after the | receipt of such an order. But if the order is for a specific amount, leaving the specifiedft wot ofthe cheque for his personal use ponent the trustee wants to use the 4 bout the title saiereramaee ieee s ust suspicion o% over the cheque: When the banker believes that the & orson presenting the cheque is not entitled to receive the pa ent, he should refuse o make payment. For example: stolen cheque. _ ion of a stale : equities cheque or post dated cheque: The banker may refuse the cbeque W! ‘ey are presented after three months of its issue or they are presented before due date in case of stale cheques and post dated cheques respectively: a goint accounts: In the case of joint account, the banker can refuse to make psyment on the cheque if it is not signed by all the joint account holders. jh Moterial alterations: When there is material alteration in the cheque, the banker may refuse payment. , Stale cheques: When the cheque is presented after a period of three months from the date it bears, the banker may refuse to make payment. 1 Drawer’s signature: If the signature of the drawer on the cheque does not tally with the specimen signature, the banker may refuse to make payment. 14, Difference between words and figures: If there is difference between the amount written in words and figures, the banker may refuse to make payment. 15, Endorsement: If the endorsement is irregular, the banker may refuse payment on the cheque. 16, Proper form of the cheque: If the cheque is not in the proper form ie., in accordance with the provisions of the Negotiable Instruments Act and with conditions, the banker should refuse the payment. 17, Drawn on another branch: If the cheque is presented at another branch of the same bank, it should not be honoured unless special arrangements are made by the customer in advance.(REN OR BNOHONOUR Dishonor of cheque can be divided into taro categories i.e. (a) Rightful Dishonour: Dishonout of cheque by the drawee banker for any of », reasons specified above or for any other rightful reason. In this case there ig ,, remedy available against the banker but the holder in due course has remedy boy, civil and criminal against the drawer. @) Wrongful Dishonour: Dishonour of cheque by the banker due to negligence o, carelessness by its employees. The drawer may bring an action against the bank fy, losses suffered by him. The payee has no action against the banker in this case. Section 138 of the Negotiable Instruments Act states that the return of a cheque by a banker because the money standing to the credit of the account holder ig insufficient to honour the cheque or that it exceeds the amount arranged to be paid from the account by an agreement made with the bank, is a criminal offence. The drawer shall be deemed to have committed an offence and such offence will be punishable with imprisonment for a term up to two years imprisonment or with a fine twice the amount of the cheque or both. Provisions of section 138 of the Act are applicable only if- (a) The cheque in question has been issued in discharge of a liability only. Unless contrary is proved, as per the provisions of section 139, a cheque is presumed to have been received by the holder in discharge of a debt or liability. A cheque given as gift will not fall in this category. (b) The cheque is presented to the bank for payment within six months or its specific validity period, whichever is earlier. (c) The payee or holder in due course has given notice demanding payment within thirty days of the receiving information of dishonour which should be for a reason other than insufficiency of funds.wer d0€5 NOt MAKE payment... po ean be made only by tne ti" 15 days of the 7 @ (oa! © Payee/holder ; Teceipt of the notice. The by companies: If the in due course, within one month. , EVERY PeTSON Who Was in change wptthe AD offence under section 138 gate it of the cheque if Year and/or within a fine up to double tbe cheque has been presented to the oe 0 7 drawn oF Within ite validity, bank within a year from the date on which it holder makes a de: he payee oF ne 8 demand for payment by giving notice in writi @ within thirty days of the receipt of the j siving in writing to the 4 The drawer ofthe cheque fails to make payment within teen days of receipt ofthe 2 we Section 188 creates statutory offence in'the matter of dishonour of cheques on he ground of insufficiency of funds in the account maintained by a person with the panker. Section 188 of the Act can be said to be falling either in the Acts which are not criminal in real sense, but are acts which in public interest are prohibited or those where although the proceeding may be in criminal form, they are really only a summary mode of enforcing a civil right. Normally in criminal law existence of guilty intent is an essential ingredient of a crime. However the Legislature can always create an offence of absolute liability or strict liability where ‘mens rea’ is not all necessary. Creation of the strict liability is an effective measure by encouraging greater vigilance to prevent usual callous or otherwise attitude of drawers of cheques in discharge of debts or otherwise. The words as appearing in clause (b) of section 138 cannot be construed even to imply failure without reasonable cause in view of the explicit language in which the provisions is couched, the principle of strict liability incorporated in the main enacting clause.Paaverenion Trade and Tons The Supreme Coun in tm come OF ential ht Wing” cere « omer ad Demwinnprenent repwmntinn (orternl”) 198 of the Negetiable inatroments Aes, Ut ot He wny te ciommrwe chet mer won on dopoene a cherpane ime it hig 4, | nd firehe that i ie diaheonrg. | payment order to the drawer's a? liability” but it needlessly added F Fen | sepost's dhgueiound to him before e actually prevented it would have tho, of avoiding the rigors of Sec. 138. The Supreme Court also held * mid in raised a presumption of dishonesty if a person draws a cheque on With, supporting funds in the account at that time. Ingredients and requirements of the Penal Provisions Section 188 creates an offence for which the mental elements are not necessar, It is enough if a cheque is drawn by the accused on an account maintained by bi, with « banker for payment of any amount of money to another person from out that account for discharge in whole or in part of any debt or other liability dy Therefore, whenever the cheques are on account of insufficiency of funds OF reas, refersble to the drawer's liability to provide for funds, the provisions of section 138 y the Act would be attracted, provided the following conditions are satisfied. (1) Existence of a Live account Existence of a “live account” at the time of issue of cheque is a conditin precedent for attracting penal liability for the offence under this section. (2) Issue of a cheque in discharge of a debt or liability The cheque issued unpaid by the bank must have been issued in discharge of « debt or other liability wholly or in part. Where a cheque is issued not for the purposes of discharge of any debt or other liability the maker of the cheque is not liable for prosecution under section 138 of the Act. A cheque given as a gift or for any other reasons and not for the satisfaction of any debt or other liability, partly or wholly even if it is returned unpaid will not meet penal consequences. If the above conditions are fulfilled, irrespective of the mental conditions of the drawer he shall beque is Presented within Six months from the date the cause of action can arise. a ea months are taken from the date the cheque was drawn. petur” of the cheque unpaid for reason of insufficiency of funda: The cheque () Tt be revurned either because the money standing tothe credit ofthat account is spon jent to honour the cheque or that it exceeds the arrangement made to be paid that account by an agreement with the bank. Even if the cheque is returned ath the endorsement “account closed” section 138 is attracted. (a) Hse of the notice of dishonour demanding payment within thirty days of receipt of information as to dishonour of the cheque: The payee or the holder in fue course of the cheque has to give a notice in writing making a demand for ent of the said amount of money to the drawer of the cheque. Such notice must be given within 30 days of information from the bank regarding the return of cheque as unpaid. @ Failure of the drawer to make the payment within fifteen days of the receipt ofthe payment: After the receipt of the above notice the drawer of the cheque has to make payment of the said mount of money to the payee or to the holder in due course Af the cheque within 15 days of the receipt of the notice Jf the payment is not made after the receipt of the notice within stipulated time a cause of action for initiating sriminal proceedings under this section will arise. Its distinctly possible that each of these ingredients may arise in a different locality and therefore the court in each of these localities may assume jurisdiction to try the offence. This is the plain reading of section 177 of the Criminal Procedure Code. ([Link] vs Sankaran Vaidhyan Balan reported in 1999 Criminal Law Journal 4606) Presumptions Under Section 139, a court must presume that the holder of a cheque received it for the discharge, in whole or in part, of a legally enforceable debt or other liability. This presumption is rebuttable.TTT TT . dishonour of cheques are as follows: ata “ will be more in case of wrongful dite, The various consequences for wrongful (@ The damages that the banker has to PAY of . ‘cheques of the trader customer. ia} Bank Ltd. er need not depend on the amouns t of the cheque dishonoureg e Example: New Central Hall vs. United Comm! (i) The amount of damages claimed by the custom the cheque. It means the smaller is the amoun! wees greater will be the amount of damages. This is because it is presvimed that g, dishonour of @ cheque of a smaller amount will result-in greater 1089 09 Se credit without having a, the customer. Gi) The customer can declare substantial general damages monetary loss. Gv) In case of trustee account, normally substantial general damages will be award for wrongful dishonour. (*) “In case of non trader customer, the damage will be nominal. (vi) The particular damages are awarded for the financial loss incurred by the customer as a consequence of wrongful dishonour, provided the loss must be proved by the customer.