Legal Question in Banking Law in India

Re: bank

What is the question.

Re: bank

The contract between the customer and the bank is defined as a debtor- creditor relationship. This contract requires the bank to honor all valid and proper orders of the customer to pay amounts from his account with the bank, for as long as funds remain available in the customer's account. The customer's order, however, remains executory and can be rescinded until the bank makes payment. One of the reasons on account of which the banker can refuse to make the payment of a cheque is that the payment has been stopped by the drawer. Upon receipt of a timely stop payment order, the bank ceases to have authority to pay the item.

A customer thus, has a right to give notice to his Bankers to stop payment of a cheque which he has issued. Generally a written notice, signed by the drawer is sufficient to stop the payment. A stopped payment is usually requested if the cheque has been declared missing or lost.

In India, while there is as such no express provision relating to stop payment of cheques. However there are however various judgments regarding this aspect. Indian Courts have covered this facet in Section 138 of Negotiable Instruments Act (hereinafter referred as Act), which is related to dishonour of cheques. The discussion relating to stop payment has assumed importance in view of the amendment to the Negotiable Instruments law by the amendment in 1988. Prior to this amendment, people issued cheques knowing well that the cheque is not going to be honored on presentation, and they tried to create circumstances in which the bank would return the cheque with such endorsements as "stopped payment", "refer to drawer" or "A/C closed". These were some of the tricks used by the drawer to escape the penal liability, which was attached to Section 138 of Negotiable Instruments Act.

Under the present theme, the sole question which will be scrutinized in the paper is whether a drawer who stops the payment having insufficient funds in his account can be held liable under Section 138 of the Negotiable Instruments Act? In this regard various judgments of High Courts and the Supreme Court have been reviewed in order to find out a solution to the abovementioned issue.

Re: bank

Insufficient funds.

Re: bank

insufficiency of funds