The cheque is an unconditional order in writing drawn on a banker. Through cheques the accountholder draws his money held in trust with the bank. He enjoys and exercises his right to draw the deposit which is payable on his demand. However, the bank is authorized to refuse the payment against a cheque on the following reasons:
Difference in the Signature: The bank possesses in its record the specimen signature of the accountholder. The specimen is secured at the time of the opening of an account. When the bank receives a cheque, its officer compares the signature on the cheque with that in its record. If the signature differ, the bank will not accept the cheque for payment.
Post-dated Cheque: If the cheque bears a future date it is known as a post-dated cheque. Future-dated cheque cannot be cashed till that date arrives. Bank will cash only present-day cheque or previous-dated cheque provided it is not older than six month.
Stale Cheque: Banks do not honor stale cheques. These cheques are older than six months and as such they cannot be honored by the bank.
Insufficient Amount: If the amount of the cheque is greater than the balance in the account, such a cheque will be bounced. However, if the bank has granted overdraft facility it can be accepted by the bank.
Death: The bank stops the payment against the cheque whose drawer has died. If the cheque has been drawn by the accountholder and dies before it is presented at the counter of the bank, the cheque is liable to be dishonored. However, the bank must be in the knowledge of such a tragedy.
Insanity: If the accountholder loses his sense and goes insane, and the doctor confirms the insanity, and the bank gets this information, the cheque will be dishonored.
Bankruptcy: Banks do not honor the cheques of the accountholder who have become bankrupt. A person can be declared bankrupt only by the court of law.
Garnishee Order: If the court of law issues order to a bank for the stoppage of the payment against cheques drawn by a particular accountholder, the bank is bound to obey.
Drawer’s Countermand: After having drawn and issued a cheque, if the accountholder himself directs the bank not to make the payment, the cheque will be dishonored.
Cross Cheque: Cross cheques cannot be cashed at the counter of the bank. They must be deposited in the receivers account with the bank.
Change in the Cheque: If any alteration in the cheque is made without the endorsement of the drawer the cheque is liable to be dishonored. Altered cheques must be endorsed or confirmed by the signature of the drawer to avoid bank’s non-acceptance.
Difference in the Amount: The amount on the cheque is written twice, first in words, and second in figures. If both the amounts are different the cheque is subject to be dishonored.
Forged Signature: If the bank has sufficient reasons for the suspicion of the signature or any other content on the cheque being forged, the cheque will be bounced.
Anomaly in the Cheque: If the cheque is not in the proper shape, legible, or is mutilated it is liable to be dishonored.
The main objective of dishonoring a cheque is to safeguard the interest of both the accountholder and the bank itself. However, the bank should take extreme care in dishonoring cheques, or else it would be liable for damages.
SPECIMENT OF PAY-IN-SLIP