Define Dishonor of Cheque & Legal Consequences
One case of unlawful dishonour that has been widely investigated is that of Loucks v. Albuquerque National Bank. The plaintiff, Loucks, owned L&M Paint and Body Shop with a partner, Martinez. As a partnership, they kept a current account with the defendant bank, the National Bank of Albuquerque. Loucks owed the bank an individual debt of $402, but the bank charged that debt to the company`s checking account, even though it knew it was not a partnership debt. If all five items are present, the beneficiary has a valid reason to deposit a cheque case. The magistrate must knowingly verify whether the ingredients have been produced. A holder or a timely holder who becomes the holder of the cheque by legally valid means is also entitled to receive the amount contained therein. No illegal cheque holder is entitled to receive the amount of the cheque. According to paragraph (a) of section 142(2) of the Transferable Instruments Act, “the court in whose branch the bank in which the beneficiary maintains the account is located has jurisdiction to hear the offence if the cheque is issued through a forfeiture account.” [Himalaya Self Farming Group vs Goyal Feed Suppliers, SC] According to section 138 of the Act, dishonouring a cheque is a criminal offence punishable by imprisonment for two years or a fine, or both. If the beneficiary decides to proceed legally, the drawer may have the opportunity to immediately refund the amount of the check.
Only one complaint is allowed for a maximum of 3 uncashed checks. Thus, for example, if there are 4 controls that have been rejected, 2 complaints must be submitted. In the case of 7 uncashed checks, 3 cases must be submitted and so on. If more than one cheque is presented for payment on the same day and payment of both cheques would result in an overdraft of the account (or a payment below an approved credit limit), the bank has the discretion to know which cheque to pay and which not to cash. A bank has general discretion as to whether or not to cash a cheque that results in an account overdraft, but a payment on one occasion does not require the bank to do so again on another occasion. A bank cannot pay a cheque in part, so it must either pay a cheque in full or not cash it. If a bank refuses to pay a cheque, it must immediately return the cheque to the person who deposited it or presented it for redemption. As a general rule, a bank can only withdraw from the account from which it was debited and cannot claim any other account that the customer has from the bank, unless expressly stated otherwise. The drawer of a check is required to compensate the holder of the check if the drawer is properly informed by the recipient (bank) of the non-compliance with the check. The date is an essential feature of controls. Any discrepancy or error with it may result in uncollected or disapproved checks.
The most common problem with data on controls is that it can be distorted or outdated. Be sure to check this carefully before depositing or offering a cheque. In the check clearing process, a check is first deposited at the bank by the payee, and then this check is sent to the bank branch, where it is drawn by the clearing house. The clearing house is responsible for the net settlement of funds between the presenting bank and the bank used and the debit or credit position of the banks is determined. Upon receipt of the check, Drawee Bank will check whether the check is genuine or not. After the analysis, the authenticity check is returned to the drawer, subject to the availability of funds in the account. If a cheque is not paid for any reason, it will be returned to the referring banking institution indicating the reason for the return. [vi] However, this traditional cheque settlement process is now being replaced by the cheque reduction system.
The CTS clearing process eliminates the actual flow of cheques between banks and instead uses an electronic image of the cheque for the clearing process. The new CTS technology has reduced the time and risk required for the cheque clearing process. [vii] If you need to write a cheque, here are a few things to keep in mind; [ix] Check rebound, PAISABAZZAR. (2020, 11 June), www.paisabazaar.com/banking/cheque-bounce/. The proceedings may be terminated by the court if the defendant promises to pay the estimated amount (amount of the cheque plus interest and ancillary costs). Under section 138 of the Negotiable Instruments Act, 1881, it is a criminal offence to cash cheques for insufficient funds in the drawer account. The drawer may be punished with imprisonment for up to two years and/or a fine of up to twice the amount of the cheque. [x] A civil action for the recovery of the amount of the rejected cheque may also be brought against the drawer. Banks can also charge a certain amount as a penalty for themselves in case the check bounces back. According to the rules of procedure practiced by some banks: Several reasons can be written on the check return letter using predetermined codes (separated by a comma for several reasons) Usually code:1 means insufficient funds, while code:13 means signature conflicts You can read: How to write a check to better understand the right way, write a cheque.
