DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH.

Name : P. Samba Murthy,

Designation : Head of Department

Branch : D.C.C.P.
Institute : S.R.R.S. Govt. Polytechnic, Sircilla,
Karimnagar District
Year/Semester : V Semester
Subject : Banking – I
Subject Code : CCP- 504(B)
Topic : Negotiable Instrument Act
Duration : 50 Minutes
Sub-Topic : Legal provisions in case of dishonour of
cheques
CCP504(B).64 1
Teaching Aids : PPT
Objectives

On completion of this period, you would be

able to
 Further understand other legal provisions for
dishonoring of cheques

CCP504(B).64 2
1. State in which circumstance the
Banker`s honours the cheques?

CCP504(B).64 3
Recap

 We have learnt so far the obligations of the banker

for honouring the cheques of his customers.
 Also legal provisions for dishonouring the cheques.

 Now let us concentrate other activities for

dishonour of cheques.

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Dishonor a cheque - companensahon
Amount of Compensation:

 The amount of compensation is determined by

the amount of loss or damage suffered by the
customer.
 In this connection, a distinction is drawn
between a trader-customer and a non-trader
customer.

CCP504(B).64 5
Dishonor a cheque - companensation

 If the customer is a business man or a trader,

the injury to his credit or reputation would be
substantial.
 A non-trading customer suffers only a nominal
loss.
 He, therefore, gets a nominal damage only.

CCP504(B).64 6
Dishonor a cheque - compensation

 But if he can prove that he has suffered a great

loss, he can recover substantial damage.
 A trading customer can claim substantial
damages in addition to general damage.
 The amount of damage is not restricted to the
amount of cheque wrongly dishonoured

CCP504(B).64 7
Compensation for Dishonour:
 When a negotiable instrument is dishonoured, any
party liable to the holder will have to pay
compensation.
 The compensation has to be computed
according to the rules laid down by section
117 which are as follows:
 The holder is entitled to the amount due upon the
instrument, together with the expenses properly
incurred in presenting, noting and protesting it
CCP504(B).64 8
Compensation

 When the person charged resides at a place

different from that at which the instrument is
payable, the holder is entitled to receive such
sum at the current rate of exchange between
the two places.

CCP504(B).64 9
Compensation

 An endorser who, being liable, has paid the

amount due on the same is entitled to the
amount so paid with interest at six per cent per
annum from the ate of payment until tender or
realization thereof together with all expenses
caused by the dishonour and payment.

CCP504(B).64 10
Compensation

 When the person charged and such

endorser reside at different places, the
endorser is entitled to receive such sum
at the current rate of exchange between
the two places.

CCP504(B).64 11
Compensation

 The party entitled to compensation may draw

a bill upon the party liable to compensate him,
payable at sight or on demand, for the amount
due to him, together with all expenses
properly incurred by him.

CCP504(B).64 12
Compensation

 Such bill of exchange must be accompanied by the

instrument, dishonoured and protest thereof (if
any).
 If such bill of exchange is dishonoured, the party
dishonouring the same is liable to make
compensation thereof in the same manner as in
the case of the original bill.

CCP504(B).64 13
When can a Banker dishonour the cheque

Dishonour of cheques:
 A banker can dishonour cheques under the
following circumstances for which the banker
need not necessary to have legal provisions.

CCP504(B).64 14
Circumstances

 When the balance to the credit of customer is

insufficient to meet the cheque.
 When the funds are not properly applicable to
the payment of a cheque.
 Countermanding of payment.

CCP504(B).64 15
Cheque dishonour – Banker`s duty

 Defect in the title of the person presenting.

 Notice of customer’s death.
 Insolvency of a customer .

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Cheque dishonour – Banker`s duty

 Winding up of a company.
 Insanity of a customer.
 Garnishee or other order.
 Notice of assignment of credit balance.

CCP504(B).64 17
Cheque dishonour – Banker`s duty

 In case a cheque is dishonoured, the bank

should return it with a slip disclosing the reason
for dishonour.
 Most banks have such slips called as ‘Return
Memos’ printed and they tick off (√) the most
appropriate answer.

CCP504(B).64 18
Summary

 The customer has to maintain sufficient funds in

their account to meet the cheque amount other
wise, the cheques can be dishonoured.
 If such is the case, the customer has to inform
the banker for non-payment.
 The banker if dishonoured the cheque though the
customer is having sufficient balance and
satisfies all the conditions of the bank, the banker
has to face legal provisions under the court of
law
CCP504(B).64 19
Frequently Asked Questions

 What are the consequences of wrongful

dishonour?
 Can the customer claim the compensation
when his cheque is dishonoured. Comment.

CCP504(B).64 20
Quiz
When can a Bankers honour the cheque
2. When receives the notice to customer's death
3. Notice or insolvency or a customer.
4. Un-satisfy to a customer
5. When there is sufficient balance and cheque
is presented with all formalities.

CCP504(B).64 21