What is dishonour of cheque and what are the reasons for dishonour of cheque? You are on the right spot to know the answer of this question.
A banker can terminate the payment of a customer’s and can dishonour of cheque and following are the reasons for dishonour of cheque or we can say that main conditions and circumstances in which the bank can dishonour the cheque of the customer.
See Also: Advantages and Disadvantages of Cheques
Different Reasons for Dishonour of Cheque
COUNTERMAND OF DRAWER
When the customer of the bank after drawing cheque issues instruction, before the payment of cheque that his cheque shall not be dishonored, the banker must not make the payment of the cheque.
DEATH OF THE CUSTOMER
If the drawer dies before the payment of the cheque and notice of his death is received by the bank. The bank must terminate the payment of the cheque and dishonor the cheque. If the bank receives such notice after the payment of the cheque, the payment is valid.
INSOLVENCY OF THE CUSTOMER
If the customer is declared as an insolvent and this thing is brought into the knowledge of the bank, the banker must not make the payment of the cheque,
CUSTOMERS INSANITY
If the banker has received notice that his customer has become insane, the bank must not make the payment of the cheque until he recovers his insanity or an order is made by the court for the payment of the cheque.
COURT’S ORDER
If by any reason of nonpayment of taxes or by political reason or by any other reason, the court gives garnishee order or any other legal order not to make payment of the customer’s cheque and the bank must not honour the cheque.
NOTICE OF ASSIGNMENT
The banker must not make the payment of the cheque if the customer has given the notice of assignment of his credit balance in favor of any other person.
INSUFFICIENT FUNDS
When the amount of customer’s credit balance is not sufficient to meet the cheque of the customer the bank will dishonor the cheque of the customer.
See Also: Difference between Cheque and Bill of Exchange
NO FUNDS
If there is no credit balance in customer’s account but he ha drawn a cheque to the bank, the bank must honor the cheque.
DIFFERENCE IN FIGURES AND WORDS
If the amount of the cheque differs in words and figures, the bank must terminate the payment of the cheque and can dishonor it.
DRAWER’S SIGNATURE DIFFERS
If the customer draws a cheque with the signature which differs from the specimen given to the bank, the bank shall terminate the payment of the cheque.
WHEN HOLDERS TITLE IS DEFECTIVE
When it comes to the knowledge of the bank that there is any defect in the title of the party presenting the cheque, he must not make payment of the cheque.
CLOSING OF ACCOUNT
The banker after receiving the notice of closing the account from the customer, should not make payment of the cheque.
DEFECTS IN DATE
When a cheque is post dated and presented for payment before the date mentioned on the cheque or is out of date or no date mentioned on it, the banker shall not make the payment of such cheque.
BANKING HOURS
Where the cheque is not duly presented (it is presented after banking hours), the banker can terminate the payment of the cheque.
ENDORSEMENT
When an endorsement is necessary and cheque has not been or endorsement is defective, the bank will refuse to make payment
EFFECTS UNDER CLEARANCE
When the customer of the bank deposits cheque of another bank r draft and draws upon the bank cheque before the clearance of such or draft. The bank must not make the payment.
TYPED CHEQUE
As a general rule if the customer draws a typed cheque because it is easily altered, therefore the bank can refuse to make payment.
CROSSED CHEQUE
If the cheque is a crossed cheque, the banker will not make payment in cash or if a crossed cheque cannot be endorsed further and it has been endorsed, the banker will dishonor the cheque.
SAME BRANCH
The same branch of the bank can make payment of a legal cheque where the customer has his account.
See Also: What is Crossing of Cheque | Types of Crossing of Cheques
If a customer presents a cheque for payment at a branch where he has no account, the bank will not make payment of the cheque.
ALTERATION OR CHANGE
Where after drawing the cheque, the customer has altered figures, date or name etc., but he has not legally attested it, the banker will dishonor the cheque.
JOINT ACCOUNT
Where some customers have a joint account and the signatures of all the persons are required on the cheque but cheque has not been signed by all jointly, the bank will not make payment of the cheque.
