DISHONOUR OF CHEQUE

This article will be discussing about the Dishonour of Cheque under the Negotiable Instruments including, its meaning, parties to a cheque, types, causes and penalty; and procedure to punish.

 

1. INTRODUCTION:

 

The Negotiable Instruments Act, 1881 deals with various types of negotiable instrument but this article focused on the Dishonour of Cheques. This legislation's primary goal is to foster trust in the efficiency of banking operations and credibility when conducting business using negotiable instruments. Section 138 of the NI Act, 1881, deals with Dishonour of Cheque. The purpose of Section 138 of the Act is to deter dishonesty on the part of the drawer of a negotiable instrument from drawing a check without having enough money in his bank account and to encourage the payee or holder to act on the check in a timely manner.  Dishonour of Cheque means non-payment of amount specific in the cheque to the Payee by the drawee due to insufficiency etc. of the funds in the account. The dishonour of cheque is now a criminal offence punishable by imprisonment or fine up to the double the amount of dishonoured cheque or with both.

 

2. CHEQUE:

 

A Cheque is a bill of exchange drawn on a specific banker and not expressed to be payable otherwise than on demand and it includes a cheque in an electronic form. A Cheque in electronic form means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secured system ensuring that minimum safety standards with the use of digital signature and asymmetric crypto system.

 

3. PARTIES TO A CHEQUE:

 

A cheque has three parties.

 

a)  Drawer: As per Section 7 of the Negotiable Instruments Act, the maker of a bill of exchange or cheque is called the “Drawer”.

b) Drawee: The person thereby (Cheque or Bill of Exchange) directed to pay is called “Drawee”. (Section 7)

c) Payee: As per Section 7 of the Act, the person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the “Payee”.

 

There may occasionally be two additional parties engaged in a cheque transaction, they are

 

a)   Endorser: A person is referred to as an endorser when a party, or payee, transfers its rights to taking payments on another person.

b) Endorsee: The party to whom the rights have been transferred is considered as an endorsee.

 

 

4. TYPES OF CHEQUE:

 

Cheques come in a variety of forms depending on the issuer and drawee. The most typical types of checks are as follows:

 

a. Bearer Cheque:

 

Bearer Cheque is also known as Carrier Cheque. Bearer Cheques are typically used for cash transactions, and the people holding the cheque can withdraw cash by presenting it to the bank. The account holder does not need to sign the back portion of this Bearer Cheque.

 

b. Order Cheque:

 

The Order cheque refers to that type of cheque in which the printed words or bearer are crossed or cancelled. More specifically, this type of cheque can only be withdrawn by the person whose name is written on the cheque.

 

c. Crossed Cheque:

 

A Bearer Cheque is transformed into a crossed check by drawing two parallel lines across the top left corner twice. The money can only be transferred to the account of the person whose name is on it.

 

d. Open Cheque:

 

Cheques that are not crossed are referred to as Open Cheques. The word "OPEN" printed on a cheque, in particular, should not be crossed out or cancelled. Because of this, these checks are also referred to as uncrossed checks. An open cheque can also be cashed by the person bearing or carrying it, just like a bearer cheque can. These cheques can be cashed at any branch of any bank without having to prove your identity.

 

e. Mutilated Cheque:

 

A mutilated cheque refers to the cheques that is torn. In simple words, when a cheque is submitted in a torn condition, it is referred to as a mutilated cheque.

 

f. Self-Cheque:

 

As the name suggests the account holders name is written on it to encash money in physical form from the branch where he holds his account.

 

g. Post Dated Cheque:

 

Post-dated Cheques are checks that have a future date printed on it. A check has a three-month expiration date once it has been issued. It is utilized for business needs or for payments to be made at a later time.

 

h. Ante Dated Cheque:

 

Ante dated cheques are the opposite of post-dated cheques. In other words, a cheque is said to be ante-dated when the drawer issues it referencing a date earlier than the current date.

 

i. Banker’s Cheque:

 

Banker’s Cheque otherwise called a pay order, it is a non-negotiable instrument, which is issued by the bank on behalf of the customer.

 

j. Traveller’s Cheque:

 

Traveller’s Cheque is a medium of exchange that can be use in hard currency.

 

k. Account Payee Cheque:

 

Account payee cheques are the same as the crossed cheque, but there will be no third-party involvement. Cheque’s value is immediately transferred from the account of the drawer to the account of the payee. These cheques can be recognized by the two parallel lines that have been drawn on the top left corner of the document and the words "A/C PAYEE" that have been written between the lines.

 

k. Blank Cheque:

 

A blank check is a type of check where the drawer's signature is the only information present. All of the fields on this kind of check are left blank.

 

5. HOW A CHEQUE IS TREATED AS DISHONOURED?

 

The bank should pay the amount mentioned on the cheque as soon as it is presented. When the amount of cheque is paid by the bank to the payee, the cheque is treated to be honoured. If the bank refuses to pay the amount of cheque, then the cheque is said to be dishonoured.  Thus, the dishonour of the cheque means the refusal by the banks to pay the amount of cheque to the payee. Normally when the drawer draws the cheque without following all the rules of issuing cheque or when he or she draws the cheque exceeding the bank balance then the cheque is dishonoured.

 

When any cheque is dishonoured due to insufficiency of funds in the drawer’s account the drawer is liable to be punished with imprisonment for a term upto two years or with fine which may extend to twice the amount of the cheque or with both imprisonment and fine.   

 

6. PROCEDURE FOR GIVING PUNISHMENT TO THE OFFENDER:       

 

There are certain condition precedents for prosecuting the offender of dishonour of cheque, such as –

i.  The Cheque should be presented to the Bank within a period of six month from the date of its drawing or within the period of its validity,

ii. Notice has to be given to the person issuing the cheque requesting him to pay the amount dishonoured within thirty days from the date of receipt of information regarding return of cheque, and thereafter, if the person who issued the cheque fails to make the payment of the amount within fifteen days of receipt of said notice, complaint should be filed within one month of expiry of said 15 days. Complaint is required to be made in writing in the court. The person who issued the cheque cannot take any defence in any such case that he had no reason to believe when he issued the cheque that the cheque may be dishonoured.

 

7. CONCLUSION:

 

Dishonour of cheque is a Compoundable Offence. Prior to 1998, the dishonour of the cheque was a civil offence. The Banking, Public Financial Institution and Negotiable Instruments (Amendment) Act, 1988 was amended and made the dishonour of cheques a criminal offence and the offender is liable for imprisonment which may extent to one year and with fine which may extent to twice the amount of the cheque or with both.

 

The Negotiable Instruments (Amendments and Miscellaneous) Act, 2002 further extended the term of imprisonment upto two years.

 

This is a speedy remedy available to the victim of cheque dishonour without restoring to any civil action against the drawer of the cheque.

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