laws related to cheque & dishonor of cheque

7/30/2019 Laws Related to Cheque & Dishonor of Cheque

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LAWS RELATED TO CHEQUE& DISHONOR OF CHEQUE

Presented By: Anubhuti Singh

Anuradha SharmaKiran GuptaPriyanshi LakheraSanjay Aggarwal


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Definition of a NegotiableInstrument

Negotiable- Freely Transferable from oneperson to another by delivery or byendorsement and delivery.Instrument any written document by whichright is created in favor of a person.

Thus, a Negotiable Instrument is a documentby which rights vested in a person can betransferred to another person in accordancewith the provisions of the Negotiableinstruments Act1881In simple words NI is a written document whichguarantees the payment of specific amount of money, either on demand or at a set time.


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Characteristics of NI According to NI act 1881a Negotiable InstrumentMust Be In WritingMust Be Signed by the Maker/ Drawer Must be unconditional promise or order to payInvolve payment of money only (certain amount)Certain time (presumed it bears the date on which it ismade)Drawee must be named or describedTransferrable by delivery or by endorsement anddeliveryNI can be transferred any no of time before maturity thisis called Transfer InfinitumHolder s title free from defects.The holder can sue in his own name.


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Types of NI The NI act 1881 mentions only follwing three as negotiableinstruments these are called NI by Statue and are governedby NI act 18811. Promissory notes2. Bill of exchange3. ChequesNI not governed by NI act 1881 are called negotiable bycustom or usage or quasi negotiable these are:1. Bank draft2. Pay order 3. Govt. promissory notes

4. Hundies5. Delivery order Not Negotiable Instruments

1. Share certificate2. Postal order etc..


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What is a Cheque? A cheque, in essence, is an order by thecustomer of the bank directing his banker topay on demand, the specified amount, to or tothe order of the person named therein or to the

bearer.Section 6 defines a cheque as a bill of exchange drawn on a specified banker and notexpressed to be payable otherwise than ondemand. Thus, a cheque is a bill of exchange with twoadded features, viz.

1. It is always drawn on a specified banker.2. It is alwa s a able on demand and not otherwise.


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There are mainly twotypes of Cheques viz. Open Cheques

Those which are paidacross the counter eg.Bearer cheque

Crossed Cheques If Cheque if crossed by

drawing two parallellines across the face itcannot be paid oncounter it is deposited in

account of person , inwhose favor it is drawn

The following are theparties to a Cheque:

The Drawer: Theperson who draws thecheque.

The Drawee: Thebanker of the drawer on whom the chequeis drawn.

The Payee: To whomPayment is to bemade

The Holder: Endorser: Endorsee:

Types of Cheque Parties to a Cheque


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Requisites of a Cheque E Written instrument.E Unconditional order.E On a specified banker only.E A certain sum of money.E Payee to be certain.E

Payable on demand.E Amount of the cheque.E Dating of cheque.


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Specimen of acheque


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Overdue, Stale or Out-of-date

Cheque A cheque is overdue or becomes statute-barred after three years from its due date of issue. A holder cannot sue on the cheque after that time. Apart fromthis provision, the holder of a cheque is required topresent it for payment within a reasonable time, as acheque is not meant for indefinite circulation. InIndia, a cheque, which has been in circulation for

more than six months, is regarded by bankers asstale. If, as a result of any delay in presenting acheque, the drawer suffers any loss, as by the failureof the bank, the drawer is discharged from liability to

the holder to the extent of the damage.


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Endorsement and Kinds of Endorsement

An endorsement is the mode of negotiating a negotiable instrument.1. Endorsement in blank.2. Endorsement in full.3. Restricted endorsement.4. Conditional endorsement.

5. Partial endorsement.6. Endorsement sans recourse . 7. Facultative endorsement.


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Liability of Endorser

In order to charge an endorser, it isnecessary to present the cheque for payment within a reasonable time of its

delivery by such endorser. 'A' endorses anddelivers a cheque to B, and B keeps it for anunreasonable length of time, and thenendorses and delivers it to C. C presents it

for payment within a reasonable time after itsreceipt by him, and it is dishonored. C canenforce payment against B but not against A,as qua A, the cheque has become stale.


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g s o o er aga ns eBanker

A banker is liable to his customer for wrongfuldishonor of his cheque but it is not liable tothe payee or holder of the cheque. The holder has no right to endorse payment from the

banker except in two cases, namely, (1)where the holder does not present thecheque within a reasonable time after issue,and as a result the drawer suffers damage bythe failure of the banker in liquidationproceedings; and (2) where banker pays acrossed cheque by mistake over the counter,he is liable to the owner for any lossoccasioned by it.


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Crossing of Cheque A cheque is either "open" or "crossed". An open chequecan be presented by the payee to the paying banker and

is paid over the counter. A crossed cheque cannot bepaid across the counter but must be collected through abanker.

A crossing is a direction to the paying banker to pay themoney generally to a banker or to a particular banker,and not to pay otherwise. The object of crossing is tosecure payment to a banker so that it could be traced tothe person receiving the amount of the cheque. Torestrain negotiability, addition of words "Not Negotiable"or "Account Payee Only" is necessary. A crossed bearer cheque can be negotiated by delivery and crossed order cheque by endorsement and delivery. Crossing affordssecurity and protection to the holder of the cheque.


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Modes of Crossing (Sections 123-131A)

There are two types of crossing whichmay be used on cheque, namely: (1)General,and (2) Special.

Who can cross a cheque?It can be crossed by any of the following:(1) The holder of the cheque,(2)The drawer of the cheque.


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Dishonor of cheque

Dishonor by Non-Acceptance(Section 91)

Section 91 provides that a bill is said to be dishonored by non-acceptance:

(a) When the drawee does not accept it within 48 hours from thetime of presentment for acceptance.(b) When presentment for acceptance is excused and the billremains unaccepted.(c) When the drawee is incompetent to contract.

(d) When the drawee is a fictitious person or after reasonablesearch can not be found.(e) Where the acceptance is a qualified one.


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Dishonor by Non-payment (Section 92)

A promissory note, bill of exchange or cheque is saidto be dishonored by non-payment when the maker of the note, acceptor of the bill or drawee of the chequemakes default in payment upon being duly required topay the same. Also, a negotiable instrument isdishonored by non-payment when presentment for payment is excused and the instrument whenoverdue remains unpaid.If the bill is dishonored either by non-acceptance or by non- payment, the drawer and ail the endorsers of the bill are liable to the holder, provided he gives

notice of such dishonor. The drawee is liable onlywhen there is dishonor by non-payment.


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Few news related to the dishonor of cheque

Cheque bouncing Bill passed : The Lok Sabhaon Thursday passed a Bill providing for stringent penalties, including imprisonmentup to two years, for cheques that bounce.

The move comes as part of its efforts to bringgreater discipline in the financial transactionsin the country. The Negotiable Instrument(Amendment & Miscellaneous Provisions)Bill, 2002, moved by Jaswant Singh, waspassed by a voice vote without discussionamidst protest by CPI (M) member VRadhakrishnan. (November 22, 2002)
http://articles.economictimes.indiatimes.com/2002-11-22/news/27330525_1_cheque-stringent-penalties-summary-trialhttp://articles.economictimes.indiatimes.com/2002-11-22/news/27330525_1_cheque-stringent-penalties-summary-trialhttp://articles.economictimes.indiatimes.com/2002-11-22/news/27330525_1_cheque-stringent-penalties-summary-trial


18/19

Signature mismatch on cheques to invitepenalty :

Cheque-bouncing charges will be slappedeven if the cheque is dishonored on theground that signatures on the cheque didnot match the specimen signatures with thebank, the Supreme Court has said. A two-

judge bench, comprising Justices TSThakur Gyan and Sudha Mishra,overturned a Gujarat High Court

judgement, which had ruled to the contrary.(December 2, 2012 )
http://articles.economictimes.indiatimes.com/2012-12-02/news/35530560_1_cheque-specimen-signatures-penaltyhttp://articles.economictimes.indiatimes.com/2012-12-02/news/35530560_1_cheque-specimen-signatures-penaltyhttp://articles.economictimes.indiatimes.com/2012-12-02/news/35530560_1_cheque-specimen-signatures-penaltyhttp://articles.economictimes.indiatimes.com/2012-12-02/news/35530560_1_cheque-specimen-signatures-penaltyhttp://articles.economictimes.indiatimes.com/2012-12-02/news/35530560_1_cheque-specimen-signatures-penaltyhttp://articles.economictimes.indiatimes.com/2012-12-02/news/35530560_1_cheque-specimen-signatures-penaltyhttp://articles.economictimes.indiatimes.com/2012-12-02/news/35530560_1_cheque-specimen-signatures-penalty


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ICICI Bank drags Deccan Chroniclepromoters to court in cheque bouncecase : ICICI Bank, the biggest lender to thecash-strapped media house DeccanChronicle Holdings (DCHL), has moved alocal court in Hyderabad against thepromoters after a cheque issued for Rs 350crore by them bounced. ICICI Bank had in all

lent Rs 511 crore to DCHL, which is still torepay Rs 350 crore of loans. (January 17,2013)
http://articles.economictimes.indiatimes.com/2013-01-17/news/36394315_1_deccan-chronicle-promoters-dchl-icici-bankhttp://articles.economictimes.indiatimes.com/2013-01-17/news/36394315_1_deccan-chronicle-promoters-dchl-icici-bankhttp://articles.economictimes.indiatimes.com/2013-01-17/news/36394315_1_deccan-chronicle-promoters-dchl-icici-bankhttp://articles.economictimes.indiatimes.com/2013-01-17/news/36394315_1_deccan-chronicle-promoters-dchl-icici-bankhttp://articles.economictimes.indiatimes.com/2013-01-17/news/36394315_1_deccan-chronicle-promoters-dchl-icici-bankhttp://articles.economictimes.indiatimes.com/2013-01-17/news/36394315_1_deccan-chronicle-promoters-dchl-icici-bank

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