Circumstances Under Which A Cheque May Be Dishonoured
A paying banker is under a legal obligation to honour his customer’s mandate. He is bound to do so under his contractual relationship with his customer. A wrongful dishonor will have, the worse effect on the banker. However, under the following circumstances, the payment of a cheque may be refused.
a) Countermanding: Countermanding is the 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, the banker must refuse to pay the cheque.
b) Upon receipt of notice of death of a customer: When a banker receives written information from an authoritative source, regarding the death of a particular customer, he should not honour any cheque drawn by that deceased customer.
c) Upon the receipt of notice of insolvency: Once a banker has knowledge of the insolvency of a customer he must refuse to pay cheques drawn by him.
d) Upon the receipt of notice of insanity: Where a banker receives notice of a customer’s insanity, he is justified in refusing payment of the cheque drawn by him.
e) Upon the receipt of notice of Garnishee order: Garnishee order refers to the order issued by a court attaching the funds of the judgement debtor (i.e. the customer) in the hands of a third party (i.e. the banker). In such a case, the banker may refuse payment.
f) Upon the receipt of notice of assignment: The bank balance of a customer constitutes an asset and it can be assigned to any person by giving a letter of assignment to the banker. In such case also the banker may refuse payment.
g) When a breach of trust is intended: In the case of trust account, mere knowledge of the customers intention to use the trust funds for his personal use is a sufficient reason to dishonor his cheque.
h) Defective Title: If the person who brings a cheque for payment has no title or his title is defective, the banker should refuse to honour the cheque presented by him.
i) Other Grounds: A banker is justified in dishonouring a cheque under the following circumstances also:
- a conditional one,
- drawn on an ordinary piece of paper,
- a stale one,
- post-dated one,
- mutilated,
- drawn on another branch where the account is not kept,
- presented during non-banking hours.
- If the words and figures differ,
- If there is no sufficient funds,
- If the signature of the customer is forged,
- If the endorsement is irregular and,
- If a crossed cheque is presented at the counter.
137 Comments