Payment By Cheques: What The Law Says

Every single reader of this article must be having at least one bank account with cheque book facility. We are so used to making and accepting payments by cheque that we do not even bother to give it a second thought, let alone consider the legal implications.

How many of us are really aware as to what is considered the date of payment when a cheque is issued? Is it the date when the cheque is physically handed over? Or is it the date when the cheque is debited to drawer’s account and credited to payee’s account? In this article, I will deal with the law on the subject and its interpretation by the Supreme Court.

Under the Negotiable Instruments Act, 1881 a cheque is an instrument which is negotiated by delivery. The drawer is discharged when payment is made in due course. In simple terms, this means that when cheque is tendered there is a presumption that payment would be realised in due course, and hence the date of payment is considered to be the date on which the cheque is delivered, regardless of when the cheque is actually presented for payment.

This principle would not apply in the event of the cheque getting dishonoured. Thus the date of tendering the cheque is to be considered as the date of payment, just like a cash payment.

Now let us consider the interpretation of the law by the Supreme Court.

Case1

In the case of Commissioner of Income-Tax, Bombay South, Bombay v/s Ogale Glass Works Ltd, the Supreme Court took into consideration various English case-laws and commentaries.

It observed that payment by negotiable instrument is a conditional payment, which means that if the negotiable instrument is dishonoured on presentation the creditor may consider it as waste paper and resort to his original demand (Stedman vs Gooch).

In “Benjamin on Sale,” 8th Edition, it was stated that payment takes effect from the delivery of the bill, but might get defeated by the happening of the condition of non-payment at maturity. In “Byles on Bills,” 20th Edition, the position was summarised pithily as “A cheque, unless dishonoured, is payment.”

In “Hart on Banking,” 4th Edition, Volume I, expressed the same view as Byles on Bills. In the case of Felix Hadley & Co v/s Hadley, Justice Byrne, expressed the same idea, ie, that payment by a cheque or a bill is a conditional payment of the debt,...
the condition being that the cheque or bill should be duly met or honoured at the proper date.

Lord Maugham in Rhokana Corporation v/s Inland Revenue Commissioners, held that the common law rule is to the effect that the sending of a cheque in payment of a debt is subject to the condition subsequent that the cheque must be met on presentation, but the date of payment, if the cheque is duly met, is the date when the cheque was posted.

The Supreme Court concluded that even if cheques are taken conditionally, when the cheques are not dishonoured but cashed, the payment relates back to the dates of the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques.

Case 2

In the case of K Saraswathy alias K Kalpana (Dead) By Legal Heirs v/s PSS Somasundaram Chettiar, the Supreme Court observed that payment by cheque is an ordinary incident of present day life, whether commercial or private, and unless it is specifically mentioned that payment must be in cash there is no reason why payment by cheque should not be taken to be due payment if the cheque is subsequently encashed in the ordinary course.

Relying on the judgement in the above case of Ogale Glass Works, the Supreme Court held that payment by cheque realised subsequently on the cheque being honoured and encashed, relates back to the date of the receipt of the cheque, and in law the date of payment is the date of delivery of the cheque.

Despite these judgements and the authoritative pronouncements of the Supreme Court, it is quite common to find even the Government authorities refusing to follow the well-established legal interpretation as laid down by the Supreme Court.

In the next article, I will explain the relevance of these judgements which came in handy for deciding a matter in the consumer courts where complainants had been filed for negligence and deficiency in service.

Source

5 hidden banking charges

Standing instruction fee

Banks offer to relieve you of the trouble of remembering regular payments, but it is not a free service. While the standing instruction facility helps you avoid late payment penalties, be prepared to shell out between Rs 50 and Rs 150 per instruction. And if you want to modify any directive, there is an additional charge of Rs 25-60, depending on the bank. Needless to add, private banks charge more than the public ones.
Cash payment penalty

Do you often leave your credit card bill payments for the last day, racing to pay in cash before the bank closes for the day? This flexibility will cost you around Rs 100 each time. This is a relatively new entrant to the schedule of bank fees. The other alternatives are to pay by cheque at least four days before the last date or take the online route.
Banking channel usage fee

The Standard Chartered Bank is one of the few banks to mention upfront that only the first four transactions on any channel (Internet banking, phone banking, ATM and branches) per month are free. Thereafter, every transaction costs an additional Rs 75. It is very likely that your bank imposes a similar fee. For instance, even at base branches, most banks allow only a limited number of free cash transactions per quarter.
Not maintaining the minimum quarterly balance too has a snowballing penalty regimen. Besides the Rs 500-1,500 you pay as penalty per quarter, speaking to a customer-care executive is also chargeable. Every time you bypass the Interactive Voice Response (IVR) system, you have to pay Rs 50.
Then there is the myth that Net banking is a free facility.
Initiating a real-time gross settlement transaction—an instant fund transfer mechanism for over Rs 1 lakh—costs at least Rs 50 per transaction. Also, every time you go to the branch to request a reissuance of your Internet user ID or password—or miss hearing the option on the IVR system—be prepared to pay Rs 50.
At par cheque fee

Most banks now offer payable-atpar cheques, which are treated as local clearing cheques across the bank’s branch network. While most private banks offer at least one such chequebook free per quarter, others charge Rs 3-25 per cheque. Go through your bank’s schedule of charges and decline such a chequebook if you do not require the facility. If your bank does not offer such a chequebook, be prepared to pay extra for cash transactions at branches in different cities. This charge varies from Rs 2-5 per Rs 1,000 deposited or withdrawn.
Penalty on carelessness

For some banks, stupidity is a chargeable offence. At a leading private bank, for instance, if you deposit cash in the cheque drop box, you have to pay a fine of Rs 100; Rs 300, if the deposit amount is over Rs 500. Repeat instances of cash deposits through cheque drop box attract an enhanced charge of Rs 500.

Source