Module – 3

Paying Banker
Introduction
The term paying banker is the position and duties of the drawee bank with regard to the payment of
cheques drawn on it by its customer. The funds of the customer in the bank account is payable on
demand by honouring the cheques which are drawn by the customer and presented by a legitimate
holder. This obligation of the bank is reckoned as a leading constituent of the implied contract existing
between the banker and the customer.
The payment has to be made by the banker as per the legal obligation also, Section 31 of Negotiable
Instrument Act 1881, says that "the drawee of a cheque, having suf icient funds of the drawer in his
hands properly applicable to the payment of such a cheque, must pay the cheque, when duly required
to do so, and in default of such payment, must compensate the drawer for any loss or damage caused
by such default."
MEANING OF PAYING BANKER
Paying banker refers to the banker who holds the account of the drawer of the cheque and is obliged
to make payment, if the funds of the customer are suf icient to cover the amount of his cheque drawn
or if overdrawing facility is given to the customer.
The banker who is liable to pay the value of a cheque of a customer as per the contract, when the
amount is due from him to the customer is called Paying Banker. The payment to be made by him has
arisen due to the contractual obligation. He is also called drawee bank as the cheque is drawn on him.

PRECAUTIONS WHILE MAKING PAYMENT OF CHEQUES

The banker has to take the following precautions while honouring the cheques of his customers:
1. Open or Crossed Cheque: The most important precaution that a banker should take is about
crossed cheques. A banker has to verify whether the cheque is open or crossed. He should not
pay cash across the counter in respect of crossed cheques. If the cheque is a crossed one, he
should see whether it is general crossed or special crossed. If it is general crossing, the holder
must be asked to present the cheque through some banker and should be paid to a banker. If
the cheque bears a special crossing, the banker should pay only the bank whose name is
mentioned in the crossing. If it is a open cheque, a banker can pay cash to the payee or the
holder across the counter. If the banker pays against the instructions as indicated above, he is
liable to pay the amount to the true owner for any loss sustained. Further, a banker loses
statutory protection in case of forged endorsement.
If it is a 'Not Negotiable' crossing, the paying banker has to verify the genuineness of all the
endorsements. If it is an 'Account Payee' crossing, the banker can credit the account of the
payee named in the cheque and not that of any other person.

2. Proper Form: A banker should see whether the cheque is in the proper form. That means the
cheque should be in the manner prescribed under the provisions of the Negotiable Instruments
Act. It should not contain any condition.
3. Presentment of Cheque: A banker can honour the cheques provided it is presented with that
branch of the bank where the drawer has an account. If the cheque is presented at another
branch of the same bank, it should not be honoured unless special arrangements are made by
the customer in advance. The reasons are:
(a) A banker undertakes to pay cheques only at the branch where the account is opened.
(b) The specimen signature of the customer will be with the of ice of the bank at which he has
an account.
(c) It is not possible for other branches to know that the customer has adequate balance to
meet the cheque.

4. Date of the Cheque: The paying banker has to see the date of the cheque. It must be properly
dated. It should not be either a post-dated cheque or a stale-cheque. If a cheque carries a future
date, it becomes a post-dated cheque. If the cheque is presented on the date mentioned in the
cheque, the banker need not have any objection to honour it. If the banker honours a cheque
before the date mentioned in the cheque, he loses statutory protection. If the drawer dies or
becomes insolvent or countermands payment before the date of the cheque, he will lose the
amount. The undated cheques are usually not honoured.
A stale cheque is one which has been in circulation for an unreasonably long period. The custom
of bankers in this respect varies. Generally, a cheque is considered stale when it has been in
circulation for more than three months. Banker does not honor such cheques. However, banker,
may get con irmation from the drawer and honour cheques which are in circulation for a long time.
So, veri ication of date is very important.

5. Mutilated Cheque: The banker should be careful when mutilated cheques are presented for
payment. A cheque is said to be mutilated when it has been cut or torn, or when a part of it is
missing. Mutilation may be either accidental or intentional. If it is accidental, the banker should
get the drawer's con irmation before honouring it. If it is intentional, he should refuse payment.
The cheque is to be returned with a remark 'Mutilated cheque' or 'Mutilation Requires
Con irmation'. In Scholey Va Ramsbottom, the banker was held liable for wrong payment of a
cheque which was dirty and bore visible marks of mutilation."

6. Words and Figures: The amount of the cheque should be expressed in words, or in

words and igures, which should agree with each other. When the amount in words and igures
differ, the banker should refuse payment. However, Section 18 of the Negotiable Instruments
Act provides that, where there is difference between the amount in words and igures, the
amount in words is the amount payable. If the banker returns the cheque, he should make a
remark 'amount in words and igures differ.

7. Alterations and Overwriting: The banker should see whether there is any alteration or over-
writing on the cheque. If there is any alteration, it should be con irmed by the drawer by
putting his full signature. The banker should not pay a cheque containing material alteration
without con irmation by the drawer. The banker is expected to exercise reasonable care for the
detection of such alterations. Otherwise, he has to take risk. Material alterations make a cheque
void.
 8. Proper Endorsements: Cheques must be properly endorsed. In the case of bearer cheque,
endorsement is not necessary legally. In the case of an order cheque, endorsement is necessary.
A bearer cheque always remains a bearer cheque. The paying banker should examine all the
endorsements on the cheque before making payment. They must be regular. But it is not the
duty of the paying banker to verify the genuineness of the endorsements, unless the cheque
bears 'Not-Negotiable crossing. He is not expected to know the signatures of all payees. So he
gets statutory protection in case of forged endorsements. In India, even in the case of bearer
cheques, bankers insist on endorsement though it is not required.

STATUTORY PROTECTION TO THE PAYING BANKER

The payment must be made to the right person and the banker must get order from his
customer to debit his account. The banker might not be able to make detailed enquiries before
making the payment. Thus, the act provides him some legal protection, if the banker ful ills the
obligations laid down by the Act. The paying banker should take the following protection, in
order to protect himself and customer's interest, while making the payment of his customer's
cheques.

(i) Protection regarding the cheque

In case of an order cheque, Section 85(1) of the NI Act provides statutory protection to the
paying banker as follows, where a cheque payable to order purports to be endorsed by or on
behalf of the payee, the drawee is discharged by payment in due course.

In case, payment is made to a wrong person whose signature is not according to specimen
signature, the protection is given to a banker under Section 16 (2) of the Negotiable
Instruments Act: "It is not possible for a banker to know each of the endorsers and their
signatures." For getting the protection, the banker should note the following:

(a) Regular Endorsement: According to Section 85 (1) of the Act the endorsement should be
regular. For example, if a cheque is payable to a right person and signature is bearing same
name and the same spelling this is known as regular endorsement. Though; this is not a valid
endorsement.

(b) Payment in Due Course: According to Section 10 of the Act the cheque should be paid in
due course. In case the payment is made on forged signature of the endorser and not that of the
drawer, the banker gets statutory protection under Section 10 of the Act.

(ii) Protection In case of bearer cheques

Section 85 (2) of the Negotiable Instruments Act, 1881 states, "Whereas a cheque is originally
expressed to be payable to bearer, the drawee is discharged by payment in due course to the
bearer thereof, notwithstanding any endorsement whether in full or in blank appearing
thereon, notwithstanding that any such endorsement purports to restrict or exclude further
negotiation." The protection is given in the Act on the basis that a bearer cheque always
remains a bearer cheque and it bears endorsement in blank or full whether any endorsement
restricta further negotiation or not. In case a bearer cheque is stolen or lost and the banker
honours the cheque without any knowledge, the banker will be discharged from his duty under
the protection given in Section 85 (2) of the said Act. In such a case, the paying banker is not
required to verify the endorsement on bearer cheque. In case a bearer cheque is crossed, the
paying banker has no right to pay it across the counter in disregard of the crossing.
(iii) Protection in case of crossed cheques
Regarding payment of crossed cheque, the paying banker gets the protection under Section 128
of the Negotiable Instruments Act, 1881: "Whereas the banker on whom a crossed cheque is
drawn has paid the same in due course, the banker paying the cheque and the drawer thereof
(in case such cheque has come to the hands of the payee) shall be entitled respectively to the
same rights and placed in the same position if the amount of the cheque had been paid to and
received by the trus owner thereof."

In case the payment is made on the instructions of the drawer in good faith without any
negligence, the paying banker gets the statutory protection under the Negotiable Instruments
Act, 1881: "The payment of crossed cheque in due course makes the drawee banker liable to
the true owner of the cheque besides disentitling himself to debit the customer's account."

(iv) Protection in case of obliterated cheques

Payment of instrument on which alteration is not apparent where a promissory note, bill of
exchange or cheque has been materially altered but does not appear to have been so altered, or
where a cheque is presented for payment which does not at the time of presentation appear to
be crossed or to have had a crossing which has been obliterated, payment thereof by a person
or banker liable to pay, and paying the same according to the apparent tenor thereof at the time
of payment and otherwise in due course, shall discharge such a person or banker from all
liability thereon, and such payment shall not be questioned by reason of the instrument having
been altered, or the cheque crossed.

(v) Protection in case of draft

Section 85A of the NI Act states that, Drafts drawn by one branch of a bank on another payable
to order where any draft, that is an order to pay money, drawn by one of ice of a bank upon
another of ice of the same bank for a sum of money payable to order on demand, purports to be
endorsed by or on behalf of the payee, the bank is discharged by payment in due course.

MEANING OF CHEQUE
A Cheque is an instrument in writing, containing an unconditional order, drawn on a speci ied
banker, signed by the drawer, directing the banker, to pay, on demand, a certain sum of money
only, to a certain person or to his order or to the bearer of the instrument.

PARTIES TO A CHEQUE
There are three parties involved in every cheque or payment order:

(i) Drawer: The person who gives the order (writes out the cheque)
(ii) Drawee: The inancial institution upon whom the cheque is drawn
(iii) Payee: The person or organisation named to receive payment.

FEATURES OR CHARACTERISTICS OF CHEQUE

The main features or characteristics of cheques are:

1. Cheque is an instrument in writing

A cheque must be in writing. It can be written in ink pen, ball point pen, typed or even printed.
Oral orders are not considered as cheques.
2. Contains an unconditional order
Every cheque contains an unconditional order issued by the customer to his bank. It does not
contain a request for payment. A cheque containing conditional orders is dishonoured by the
bank.

3. Cheque is drawn on a speci ied banker

A cheque is always drawn on a speci ic banker. Cheque book facility is made available only to
account holder who are supposed to maintain certain minimum balance in the account.

4. Cheque must be signed by customer

A cheque must be signed by customer (Account holder). Unsigned cheques or signed by
persons other than customers are not regarded as cheque.

5. Payable on demand
A cheque when presented for payment must be paid on demand. If cheque is made payable
after the expiry of certain period of times then it will not be a cheque.

6. Certain sum of money

The amount to be paid by the banker must be certain. It must be written in words and igures.

TYPES OF CHEQUES
Cheques can be categorized into two, viz.:

1. Open Cheque
a) Bearer Cheque
b) Order Cheque

2. Crossed Cheque
a) General Crossing
b) Special Crossing
c) Double Crossing

1. Open Cheque
An open cheque is a cheque which is payable at the counter of the drawee bank on presentation
of the cheque.

a) Bearer cheque: A bearer cheque is the one which is issued without the name of the payee
and the same can be encashed by any one. Bearer cheque is made payable to the bearer i.e. it is
payable to the person who presents it to the bank for encashment.

b) Order cheque: A cheque which is paid to a named person with the words 'or order' after the
payee's name, showing that he or she can endorse it and pass it to someone else if desired

2. Crossed Cheque
A crossed cheque is a cheque which is payable only through a collecting banker and not directly
at the counter of the bank. Crossing ensures security to the holder of the cheque as the
collecting banker credite the proceeds to the account of the pays of the cheque.

CROSSING OF CHEQUE
A crossing is an instruction to the paying banker to pay the amount of cheque to a particular
banker and not over the counter. The crossing of the cheque восures the payment to a banker.

It also traces the person so receiving the amount of cheque. Addition of words 'Not negotiable'
or 'Account Payee only is necessary to restrain the negotiability of the cheque. The crossing of a
cheque ensures security and protection to the holder.

However, we can negotiate a crossed bearer cheque by delivery and a crossed order cheque by
endorsement and delivery.
A cheque recipient cannot remove the crossing made on the cheque. Moreover, there is no
possibility that the cheque can be transferred over to a third party, or cashed over the counter
by the bene iciary. Such a cheque must be paid directly inte an account in the same name which
is appearing on the payee line of the cheque,

Based on the legal terms, if you have written a cheque then only you hold the authority to
'uncross' the cheque by mentioning crossing cancelled right above the crossing and then
signing it. However, such a step is not recommended since it removes legal protection against
loss and fraud.

TYPES OF CROSSING OF CHEQUE

Crossing can be classi ied into three categories

Types of Crossing of Cheque

(i) General Crossing
(ii) Special Crossing
(iii) Double Crossing.

(i) General Crossing

Section 123 of the Act refers to general crossing as, "Where a cheque bears across its face two
traverse lines with or without the words "and Co." or any abbreviation thereof or the words
'not negotiable, the cheque is said to have been crossed generally.

"Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it
otherwise than to the banker (Section 126). The payee may get the cheque collected through a
bank of his choice.

(ii) Special Crossing

Special crossing implies the speci ications of the name of the banker on the face of the cheque.
The object of special crossing is to direct the drawee banker to pay the cheque only if it is
presented through the particular bank mentioned.

In the case of special crossing the addition of two parallel transverse lines is not essential
though generally the name of the bank to which the cheque is crossed specially is written
between the two parallel transverse line (Section 124).

Meaning of Double Crossing

Double crossing is a form of special crossing of cheque under which two collecting bankers'
name is mentioned between two parallel lines. One is the collecting banker of the payee and
another banker is the agent for collection of cheque. It is very important to include the words
"as agent for collection" under double crossing.

Specimen of Double Crossing

MEANING OF ENDORSEMENT
The word 'endorsement' in its literal sense means, a writing on the back of an instrument. But
under the Negotiable Instruments Act it means, the writing of one's name on the back of the
instrument or any paper attached to it with the intention of transferring the rights therein.
Thus endorsement is signing a negotiable instrument for the purpose of negotiation. The
person who effects endorsements is called an 'endorser and the person to whom negotiable
instrument is transferred by endorsement is called the 'endorsee.

An endorsement on a negotiable instrument, such as a cheque or a promissory note, has the

effect of transferring all the rights represented by the instrument to another individual. The
ordinary manner in which an individual endorses a cheque is by placing his or her signature on
the back of it, but it is valid even if the signature is placed somewhere else, such as on a
separate paper, known as Alonge, which provides space for signature.
ESSENTIALS OF A VALID ENDORSEMENT

The following are the essentials of a valid endorsement:

1. It must be on the instrument. The endorsement may be on the back or face of the instrument
and if no space is left on the instrument, it may be made on a separate paper attached to it
called Alonge. It should usually be in ink.

2. It must be made by the maker or holder of the instrument. A stranger cannot endorse it.

3. It must be signed by the endorser. Full name is not essential. Initials may suf ice. Thumb-
impression should be attested. Signature may be made on any part of the instrument.

4. It may be made either by the endorser merely signing his name on the instrument (it is a
black endorsement) or by any word showing an intention to endorse or transfer the instrument
to a speci ied person (it is a full endorsement). No speci ic form of words is prescribed for an
endorsement. But intention to transfer must be present

Kinds of Endorsement
An endorsement is a signature on a negotiable instrument that transfers ownership from one
person to another. There are several types of endorsements, each with its own speci ic
characteristics and implications. Here are some of the most common types:

1. Blank Endorsement:
The endorser simply signs their name on the back of the instrument.
This makes the instrument payable to the bearer, meaning anyone who possesses it can claim
payment.
It is the least secure type of endorsement as it removes any control over who can cash the
instrument.

2. Special Endorsement:
The endorser signs their name and writes "Pay to the order of" followed by the name of the
speci ic person or entity to whom the instrument is payable.
This provides more security than a blank endorsement as it speci ies who is entitled to receive
payment.

3. Restrictive Endorsement:
The endorser signs their name and adds words that restrict the further negotiation of the
instrument.
Common restrictions include "For deposit only," "Pay to X for collection," or "Not negotiable."
This type of endorsement is often used to prevent the instrument from being cashed by
unauthorized individuals.

4. Conditional Endorsement:
The endorser signs their name and makes the payment subject to a speci ic condition.
For example, "Pay to X if Y pays me $100."
This type of endorsement is less common and can create complications in the negotiation
process.
5. Partial Endorsement:
The endorser signs their name and speci ies that only a portion of the amount is being
transferred.
This type of endorsement is generally not valid as it violates the principle of negotiability.

6. Facultative Endorsement:
This is a less common type of endorsement that allows the endorsee to choose whether to
accept the endorsement or not.
It is often used in situations where the endorser wants to transfer the instrument but retain
some control over its future negotiation.

DISHONOR OF CHEQUE
A cheque is said to be dishonoured when the payment is not made (to customer) on its
presentment to the banker.

CIRCUMSTANCES FOR DISHONOUR OF CHEQUES

A paying banker must refuse payment on cheques, issued by his customers, the following
circumstances:

I. Insuf iciency of funds: When adequate funds are not available in the account of customer,
then the cheque can be dishonoured. If the banker pays a countermande cheque, he will not
only be required to reverse the entry but also be held liable to pay damages for dishonouring
the cheques presented subsequently which would haw been honoured otherwise.

2. Notice of the customer's death: The banker should not make payments cheques presented
after the death of the customer. He should return the chequ with the remark Drawer Deceased.
However, if the payment is made witho knowing the fact of the customer's death, the banker
cannot be held liable.

3. Notice of customer's insanity: The banker should stop the payment on chequs drawn and
received after the receipt of notice of the customer's insanity. Howeve the banker should be
very careful in this regard. He can believe that the customer is insane only when the latter is
sent to the lunatic asylum. Otherwise, he has to obtain a certi icate from competent doctor.
Cheques drawn at a time when the customer was rational may be honoured.

4. Notice of the customer's insolvency: A banker should refuse payment on the cheques soon
after the customer is adjudicated as insolvent.

5. Receipt of the garnishee order: Where Garnishee order is received attaching the whole
amount, the banker should stop payment on cheques received after the receipt of such'an order.
But if the order is for a speci ic amount, leaving the speci ied amount, cheques should be
honoured if the remaining amount is suf icient to meet them.

6. Presentation of a stale cheque or post dated cheque: The banker may refuse the cheque
when they are presented after three months of its issue or they are presented before due date
in case of stale cheques and post dated cheques respectively.

7. Joint accounts: In the case of joint account, the banker can refuse to make payment on the
cheque if it is not signed by all the joint account holders.
8. Material alterations: When there is material alteration in the cheque, the banker may
refuse payment.

9. Stale cheques: When the cheque is presented after a period of three months from the date it
bears, the banker may refuse to make payment. /

10. Drawer's signature: If the signature of the drawer on the cheque does not tally with the
specimen signature, the banker may refuse to make payment.

11. Difference between words and igures: If there is difference between the amount written
in words and igures, the banker may refuse to make payment.

12. Proper form of the cheque: If the cheque is not in the proper form ie., in accordance with
the provisions of the Negotiable Instruments Act and with conditions, the banker should refuse
the payment.

13. Drawn on another branch: If the cheque is presented at another branch of the same bank,
it should not be honoured unless special arrangements are made by the customer in advance.

TYPES OF DISHONOUR
Dishonour of cheque can be divided into two categories Le..:

a) Rightful Dishonour
b) Wrongful Dishonour

(a) Rightful Dishonour: Dishonour of cheque by the drawee banker for any of the reasons
speci ied above or for any other rightful reason. In this case there is no remedy available
against the banker but the holder in due course has remedy both civil and criminal against the
drawer.

(b) Wrongful Dishonour: Dishonour of cheque by the banker due to negligence or

carelessness by its employees. The drawer may bring an action against the bank for losses
suffered by him. The payee has no action against the banker in this case.

Dishonour of Cheque is an Offence

Section 138 of the Negotiable Instruments Act states that the return of a cheque by a banker
because the money standing to the credit of the account holder is insuf icient to honour the
cheque or that it exceeds the amount arranged to be paid from the account by an agreement
made with the bank, is a criminal offence. The drawer shall be deemed to have committed an
offence and such offence will be punishable with imprisonment for a term up to two years
imprisonment or with a ine twice the amount of the cheque or both.

Provisions of section 138 of the Act are applicable only if-

(a) The cheque in question has been issued in discharge of a liability only. Unless contrary is
proved, as per the provisions of section 139, a cheque is presumed to have been received by the
holder in discharge of a debt or liability. A cheque given as gift will not fall in this category.
(b) The cheque is presented to the bank for payment within six months or its speci ic validity
period, whichever is earlier.

(c) The payee or holder in due course has given notice demanding payment within thirty days
of the receiving information of dishonour which should be for a reason other than insuf iciency
of funds.

(d) The drawer does not make payment within 15 days of the receipt of the notice. The
complaint can be made only by the payee/holder in due course, within one month.

Offences by companies: If the person committing an offence under section 138 is a company,
every person who was in charge of the affairs of the company and was responsible for the
business of the company at the time offence was committed shall be deemed to be guilty of the
offence and shall be liable to be proceeded against and punished accordingly. (Section 139)
However, a person shall not be punishable under section 139 if it is proved that the offence has
been committed without his knowledge or consent and that he had taken all due care to
prevent commission of the offence.

Action to be taken: If a cheque is dishonoured for lack of funds, the drawer can be punished
with imprisonment up to one year and/or within a ine up to double the amount of the cheque
if

(i) The cheque has been presented to the bank within a year from the date on which it was
drawn or within its validity.
(ii) The payee or holder makes a demand for payment by giving notice in writing to the drawer
within thirty days of the receipt of the information.
(iii) The drawer of the cheque fails to make payment within ifteen days of receipt of the notice.

GROUNDS FOR DISHONOR

Section 138 creates statutory offence in the matter of dishonour of cheques on the ground of
insuf iciency of funds in the account maintained by a person with the banker. Section 138 of the
Act can be said to be falling either in the Acts which are not criminal in real sense, but are acts
which in public interest are prohibited or those where although the proceeding may be in
criminal form, they are really only a summary mode of enforcing a civil right. Normally in
criminal law existence of guilty intent is an essential ingredient of a crime. However the
Legislature can always create an offence of absolute liability or strict liability where 'mens rea'
is not all necessary.

Creation of the strict liability is an effective measure by encouraging greater vigilance to

prevent usual callous or otherwise attitude of drawers of cheques in discharge of debts or
otherwise. The words as appearing in clause (b) of section 138 cannot be construed even to
imply failure without reasonable cause in view of the explicit language in which the provisions
is couched, the principle of strict liability incorporated in the main enacting clause.

The Supreme Court in the case of Electronics Trade and Technology Development Corporation
(Supra(c) struck a somewhat discordant note whilst going out of it's way to observe that sec.
138 of the Negotiable Instruments Act is not attracted if the payee being put to notice not to
deposit a cheque issued in his favour nonetheless presents such cheque for encashment and
 inds that it is dishonoured. I was really concerned with a situation where the drawer after
issuing a cheque instructed the bank to stop payment and when the cheque was dishonoured
contended that Sec. 138 was not attracted because it was not a case of dishonour for
insuf iciency of funds. This contention was rejected by the Supreme Court rightly holding that
the provisions of Sec. 138 could not be whittled down by issuing a stop payment order to the
drawer's bank after a cheque had been issued by the drawer in discharge of his liability" but it
needlessly added that instructions to the payee not to deposit a cheque issued to him before he
actually presented it would have the effect of avoiding the rigors of Sec. 138. The Supreme
Court also held that the said section raised a presumption of dishonesty if a person draws a
cheque on a bank without supporting funds in the account at that time.

Ingredients and requirements of the Penal Provisions

Section 138 creates an offence for which the mental elements are not necessary, It is enough if a
cheque is drawn by the accused on an account maintained by him with a banker for payment of
any amount of money to another person from out of that account for discharge in whole or in
part of any debt or other liability due. Therefore, whenever the cheques are on account of
insuf iciency of funds or reasons referable to the drawer's liability to provide for funds, the
provisions of section 138 of the Act would be attracted, provided the following conditions are
satis ied.

(1) Existence of a Live account

Existence of a "live account" at the time of issue of cheque is a condition precedent for
attracting penal liability for the offence under this section.

(2) Issue of a cheque in discharge of a debt or liability

The cheque issued unpaid by the bank must have been issued in discharge of a debt or other
liability wholly or in part. Where a cheque is issued not for the purposes of discharge of any
debt or other liability the maker of the cheque is not liable for prosecution under section 138 of
the Act. A cheque given as a gift or for any other reasons and not for the satisfaction of any debt
or other liability, partly or wholly even if it is returned unpaid will not meet penal
consequences. If the above conditions are ful illed, irrespective of the mental conditions of the
drawer he shall be deemed to have committed an offence, provided the other three requisites
aro ful illed.

(a) Presentation of the cheque within six months or within the period of its validity: The
cheque must have been presented to the bank within a period of six months from the date on
which it is drawn or its period of validity, whichever is earlier Thus if a cheque is valid for three
months and is presented to the bank within a period of six months the provisions of this
section shall not be attracted. However if the period of validity of the cheque is not speci ied or
prescribed the cheque is presented within six months from the date the cause of action can
arise. The six months are taken from the date the cheque was drawn.

(b) Return of the cheque unpaid for reason of insuf iciency of funds: The cheque must be
returned either because the money standing to the credit of that account is insuf icient to
honour the cheque or that it exceeds the arrangement made to be paid from that account by an
agreement with the bank. Even if the cheque is returned with the endorsement "account
closed" section 138 is attracted.

(c) Issue of the notice of dishonour demanding payment within thirty days of receipt of
information as to dishonour of the cheque: The payee or the holder in due course of the
cheque has to give a notice in writing making a demand for payment of the said amount of
money to the drawer of the cheque. Such notice must be given within 30 days of information
from the bank regarding the return of cheque as unpaid.

(d) Failure of the drawer to make the payment within ifteen days of the receipt of the
payment: After the receipt of the above notice the drawer of the cheque has to make payment
of the said mount of money to the payee or to the holder in due course of the cheque within 15
days of the receipt of the notice If the payment is not made after the receipt of the notice within
stipulated time a cause of action for initiating criminal proceedings under this section will
arise. It is distinctly possible that each of these ingredients may arise in a different locality and
therefore the court in each of these localities may assume jurisdiction to try the offence. This is
the plain reading of section 177 of the Criminal Procedure Code. (K.Bhaskaran vs Sankaran
Vaidhyan Balan reported in 1999 Criminal Law Journal 4606)

Presumptions

Under Section 139, a court must presume that the holder of a cheque received it for the
discharge, in whole or in part, of a legally enforceable debt or other liability. This presumption
is rebuttable.

CONSEQUENCES OF WRONGFUL DISHONOR OF CHEQUES

The various consequences for wrongful dishonour of cheques are as follows:

(1) The damages that the banker has to pay will be more in case of wrongful dishonour of
cheques of the trader customer.
Example: New Central Hall vs. United Commercial Bank Ltd.

(ii) The amount of damages claimed by the customer need not depend on the amount of the
cheque. It means the smaller is the amount of the cheque dishonoured, the greater will be the
amount of damages. This is because it is presumed that the dishonour of a cheque of a smaller
amount will result in greater loss to the credit of the customer.

(iii) The customer can declare substantial general damages without having any monetary loss.

(iv) In case of trustee account, normally substantial general damages will be awarded for
wrongful dishonour.

(v) In case of non trader customer, the damage will be nominal.

(vi) The particular damages are awarded for the inancial loss incurred by the customer as a
consequence of wrongful dishonour, provided the loss must be proved by the customer.