It is the duty of banker to honour the cheques of his customers provided that there are sufficient funds, cheques are in proper form and there is no illegal bar for the payment of the cheques. But due to following reasons, a bank can refuse the payment of cheque.
- Drawer’s Signature:
When the drawer does not sign the cheque or signature does not tally with the specimen signature supplied to the bank, the cheque is dishonoued.
- No Entry of Date:
If the date (day, month or year) is not written on the cheque, the bank does not make payment.
- Insufficient Funds:
If the credit balance of the customer is not sufficient to pay the cheque then banker will refuse the payment of cheque.
- Post Dated Cheque:
If a cheque is post-dated and is not due for payment then it will not be paid.
- Out Dated Cheque:
The cheque, which has been in circulation for an unreasonable length of time, is an out dated cheque, which is not paid by the banker.
- Amount in Words and Figures Differ:
If the amount of the cheque in words and figures differs then banker will not honour the cheque.
- Lost Cheque:
If the cheque is lost and the drawer informs the bank well in time then the bank does not make the payment.
- Torn Cheque:
If the cheque is tom out and the writing is illegible then the bank refuses to accept it.
- Vague Statement:
If the information written on cheuqe is not cleared or not understandable then the bank does not honour the cheque.
- Use of Pencil:
If the drawer writes the cheque with pencil then the bank will terminate the payment.
- After Banking Hours:
If the cheque is presented after banking hours then the bank can return that cheque unpaid.
- Death of the Customer:
A banker can refuse the payment of cheque when he learns of the customer’s death.
- Customer’s Insanity:
If the customer becomes of unsound mind and the bank has learnt of it, he must stop payment of all his cheques. However, the cheques issued prior to his insanity are valid.
- Insolvency of the Customer:
When the banker is informed that certain customer has become bankrupt then the banker terminates the payment of cheque because now the deposited money will be divisible among the creditors of the customer.
- Garnishee Order:
When an order of the court has been served upon the banker prohibiting him to honour any cheque drawn against the credit balance of his customer. On receipt of such order the banker must stop payment to the customer.
- Bank Branch:
If a cheque is drawn on that branch of the bank where the customer does not have its account then the bank refuses to honour it. In on line banking, a customer can draw the cheque on any branch of the bank.
- Defect in Title:
If the banker comes to know that the presenter of the cheque has no right to receive the amount of cheque then the bank has authority to terminate the payment of that cheque.
- Stop Payment by the Customer:
On the receipt of a notice from customer the bank stops the payment of cheque. However, if the drawer stops the payment by telegram, the bank may require confirmation.
- Nature of Account:
If the customer has changed the nature of its account then issued cheques on old account will not be honoured.
- Alternations Not Signed:
When the cheque has been materially altered and drawer does not sign the alteration, the banker will not pay it.
- Irregular Endorsement:
If the cheque is not properly endorsed then the banker will not pay it.
- Notice of Assignment:
If customer has assigned his account to any other person then after his assignment, the cheque drawn on his account will not be paid.
- Illegal Transfer:
If the transfer of crossed cheque is not allowed and even then it is transferred, the bank does not accept it.
- Crossed Cheque:
If the customer presents a crossed cheque at the counter of the bank then the bank refuses to pay the amount of this cheque.
- Cheque by Post:
If an accountholder sends the cheque by post and persists on getting the amount of cheque by post then the amount is not paid in this way.
- Marked Cheque:
If there are unnecessary stains of ink or colour on a cheque then the bank may refill e to honour it.
- Partnership Account:
In partnership, the bank does not make the payment unless the cheque is duly signed by all partners or authorized partner(s).
- Closed Account:
If any customer issues a cheque against the closed account then the bank does not make payment of this cheque.
- Company Account:
The company provides a copy of resolution passed by directors in which an authorised person is nominated to operate the bank account. If authorised person does not sign the cheque then the bank will not make the payment.
- Joint Account:
When more than one person open the account and the cheque is not signed by any of the persons, the bank will not make the payment
Dishonoring a cheque can have serious consequences for both the issuer and the payee. Whether intentional or unintentional, this act can lead to financial disruptions and legal complications. Understanding the causes of dishonoring a cheque is crucial in order to avoid such situations and maintain trust in financial transactions. In this article, we will explore the various factors that can lead to the dishonoring of cheques, highlighting the importance of careful consideration when dealing with cheque payments.
Main Keyword: Causes of Dishonouring Cheque
When it comes to dishonoring a cheque, several reasons can contribute to this unfortunate event. Let’s take a closer look at some of the primary causes below:
1. Insufficient Funds
One of the most common causes of dishonored cheques is a lack of sufficient funds in the issuer’s bank account. When a cheque is presented for payment, the bank verifies the availability of funds. If the account balance is insufficient to cover the amount written on the cheque, it will be dishonored. This can happen due to various reasons, such as poor financial planning, unexpected expenses, or mismanagement of funds.
2. Overdrawn Account
Another reason for dishonoring a cheque is an overdrawn account. When an account is overdrawn, it means that the account holder has withdrawn more money than what is available in their account. In such cases, any cheques issued by the account holder will be dishonored. It is essential for individuals and businesses to consistently monitor their account balances to prevent this from happening.
3. Signature Mismatch
A signature mismatch occurs when the signature on the cheque does not match the specimen signature provided by the account holder to the bank. Banks have strict protocols in place to ensure the authenticity of signatures. If the bank identifies any discrepancies in the signature, it will refuse to honor the cheque. This measure is in place to protect account holders from potential fraud or forgery.
4. Post-Dated Cheques
Post-dated cheques are issued with a future payment date mentioned on them. However, if a payee tries to cash or deposit the post-dated cheque before the specified date, it will be dishonored. Banks are typically instructed not to honor post-dated cheques until the designated date arrives. This can happen unintentionally if the payee fails to observe the date or attempts to encash the cheque prematurely.
5. Alteration or Modification
Any alteration or modification made to a cheque without proper authorization can lead to its dishonor. Changes to the amount, payee name, or any other crucial details on the cheque are considered suspicious and can result in the cheque being rejected by the bank. It is important to ensure that cheques are filled out correctly and any corrections are made in accordance with the bank’s policies.
6. Stop Payment Request
An account holder can request a stop payment on a cheque if they wish to prevent its clearance. This can occur due to various reasons, such as a dispute with the payee or a lost or stolen cheque. When a stop payment request is placed, the bank is legally obligated to refuse payment on the specified cheque. It is crucial for individuals to emphasize clear communication with their bank to execute stop payment requests promptly.
Conclusion
Dishonoring a cheque can have significant consequences for all parties involved in a financial transaction. Whether it is due to insufficient funds, signature mismatches, alterations, or a stop payment request, it is essential to exercise caution and adhere to the necessary guidelines when dealing with cheque payments. By understanding the causes of dishonoring cheques and taking appropriate measures to prevent them, individuals and businesses can maintain trust and integrity in their financial transactions. It is crucial to maintain responsible financial practices and communicate effectively with banks to avoid any dishonoring of cheques in the future.
