dishonoured of cheque

 Dishonour of Cheques

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  dishonour will have the worse effect on the banker. However, under the following circumstances, the payment of a cheque may be refused:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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 dishonour his cheque.
8. 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.
9. Other Grounds: A banker is justified in dishonouring a cheque under the following circumstances also:
   1. a conditional one;
   2. drawn on an ordinary piece of paper;
   3. a stale one;
   4. post-dated one;
   5. mutilated;
   6. drawn on another branch where the account is not kept;
   7. presented during non-banking hours;
   8. if the words and figures differ;
   9. if there is no sufficient funds;
   10. if the signature of the customer is forged;
   11. if the endorsement is irregular and
   12. if a crossed cheque is presented at the counter.