Dishonours of cheques

11/03/2020 2 By indiafreenotes

Where any cheque drawn by a person 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 the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless:

(a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) The payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation: For the purposes of this section, debt or other liability means a legally enforceable debt or other liability.

Dishonour is of 2 kinds:

  1. Dishonour of bill of exchange by non-acceptance
  2. Dishonour of promissory note, bill of exchange or cheque by non-payment

When presentment for payment is made and the maker, acceptor or drawee, as the case may be, makes default in making the payment, there is dishonour of the instrument. And also, if there are certain circumstances when presentment for payment is excused and the instrument is deemed to be dishonoured even without presentment. Thus, when the maker, acceptor or drawee intentionally prevents the presentment of the instrument is deemed to be dishonoured even without presentment.

Notice of dishonour

Notice of dishonour means information about the fact that the instrument has been dishonoured.

Notice of dishonour is given to the party sought to be made liable and, therefore it serves as a warning to the person to whom the notice is given that he could now be made liable.

Enormous delay in giving notice of dishonour may put an end to the plaintiff’s right in respect of the dishonoured instrument.

Notice of dishonour is to be given by a person who wants to make some prior party of his liable on the instrument. Therefore, such a notice may be given:

  1. Either by the holder
  2. A party to the instrument who remain liable for it

Dishonour of cheque

A person suffers a lot if a cheque issued in his favour is dishonoured due to the insufficiency of funds in the account of the drawer of the cheque. To discourage such dishonour, it has been made an offence by an amendment of the Negotiable Instrument Act by the Banking, Public Financial Institution and Negotiable Instrument Laws (Amendment) Act, 1988.

A new Chapter VII consisting of Sections 138 to 142 has been inserted in the Negotiable Instrument Act.

Section 138 makes the dishonour of cheque an offence. The payee or holder in due course can have recourse against the drawer, who may be held liable for the offence.