Paying or Drawee bank the banker on whom the cheque is drawn or the banker who is required to pay the

e cheque drawn on him by a customer

It is the duty of paying banker to make the payment of cheque to the right person as per the direction given by the drawer If the payment is made negligently and without and without proper care, the banker is liable to pay compensation to customer

1. 2. 3. 4. 5. 6.

Presentation of the cheque Form of the cheque Sufficient balance in the account Signature of the drawer Endorsement Legal bar

Paying Banker should consider a. Type of the cheque open cheque or crossed cheque open cheque - the payment can be done at the counter crossed cheque- the payment should be done only to a fellow banker b. Branch see whether the cheque is drawn on the same branch where the customers account is kept c. Account should be withdrawn from same account. Because the customer has many account. A cheque for one account cannot be used for withdrawing money from another account d. Banking hours cheque can be presented only during bankig hours e. Mutilated cheque should not honour

Payment banker should see that whether presented for the payment is in proper form

the

cheque

a. Printed form- customers should draw cheques in the printed cheque forms supplied by the banker
b. Date the paying banker must see whether the instrument is properly dated. He should not make payment to an undated cheque. He should not honour stale cheque which was in circulation for more than 6 months. c. Amount expressed in both words and figures. Banker will return if both differs. if the amount is stated only in words, the banker may honour it, but if the amount is written in fiqures, the banker can return it without making ay payment

The paying banker has an obligation to honour customers cheques only if there is sufficient credit balance in the account of the customer Banker should not make part payment.

The paying banker should see whether the cheque is signed by the drawer Signature should be compared with specimen signature If the payment is made to the cheque which contain the forged signature of the drawer , the banker will be held liable

Banker should ensure that all the rules of the endorsement is strictly followed that appear in the instrument

Should check whether any legal restrictions is imposed by the court Eg. Garnishee order

HONOUR

paid at maturity

If a cheque is honoured by bank, and payment made to payee, cause of action for a legal action does not arise at all.

DISHONOUR it means to disgrace ; to reduce ;

to degrade ; to refuse a payment, as a cheque.

To refuse or neglect to accept or pay when duly presented for payment of a bill of exchange or promissory note or draft on a banker

Circumstances under which a cheque can be dishonoured

1. Countermanding 2. Receipt of the notice of death of a customer 3. Receipt of the notice of insolvency of a customer 4. Receipt of the notice of insanity of a customer 5. Receipt of the notice of garnishee order

Instruction given by the customer of a bank requesting the bank not to honour a particular cheque issued by him. When such an order is received from a customer, the banker must refuse the payment of a cheque 1. The drawer can only issue the countermand order. The payee of cheque has no right to countermand the payment of cheque 2. Drawer can issue a countermand order verbally or in writing 3. The customer should inform all information regarding the cheque 4. If the bank pays a cheque even after receiving a countermand order , he should be liable to the customer

Banker should not honour the cheque after receiving the notice of death of customer

Banker should not honour the cheque after receiving the notice of insolvency of the customer issued by the court.

Banker should not honour the cheque after receiving the notice of insanity of customer He should get reliable info from doctors or court

Issued by the court

The banker should refuse the payment of the cheque

If the cheque is a post dated or a stale cheque If the cheque is drawn on another branch of the same bank If the cheque contain material alteration which is not properly attested by the drawer If the signature of the drawer is forged one If the balance in account is not sufficient If the cheque is mutilated If the amounts in words and figures differ If the cheque is presented not during the banking hours If a crossed cheque is presented at the counter

 On the dishonour of a cheque, one can file a suit for recovery of the cheque amount along with the cost & interest under order XXXVII of Code of Civil Procedure 1908 ( which is a summary procedure and) can also file a Criminal Complaint u/s 138 of Negotiable Instrument Act for punishment to the signatory of the cheque for having committed an offence. However, before filing the said complaint a statutory notice is liable to be given to the other party

 Notice of dishonor may be given to a duly authorized agent of the person to whom it is required to be given. Where he has died, to his legal representative Where he has been declared to be insolvent, to his assignee, maybe oral or written. It must be given within a reasonable time after dishonor, at the place of business or ( in case such party has no place of business) at the residence. If the notice is duly directed and sent by post and miscarries, such miscarriage does not render the notice invalid.

PUNISHMENT

Maximum 2 years (earlier it was 1 year to make the act more stringent vide 2002 Amendments it was extended to the present 2 years.
Upto twice the amount of cheque as FINE.