Three Cheques, Three Defects: Stale, Altered and Dishonoured
On 6 May 2025 a hardware trader in Sambalpur lodges three cheques for collection at his branch. Cheque A, dated 20 January 2025 for ₹2,40,000, was handed to him by a customer in January. Cheque B, dated 5 April 2025 for ₹1,15,000, carries an overwriting in the amount in words - 'one lakh fifty thousand' has been rewritten as 'one lakh fifteen thousand' - and the drawer has put his initials beside the correction. Cheque C, dated 25 April 2025 for ₹90,000, is returned by the drawee branch on 12 May 2025 with the memo 'insufficient funds'. On hearing this, the trader wants to file a criminal case immediately. He also asks the manager whether the bank can be forced to pay cheque A because the drawer admittedly has enough balance in his account. The branch follows the rule that a cheque is valid for three months from its date.
1. What is the fate of cheque A, and can the bank be compelled to pay it? Advise the trader on his remedy.
Read the worked answer
Cheque A is stale and must be returned unpaid.
Reasoning:
- A cheque is payable within three months of its date. From 20 January 2025 the validity ends on 20 April 2025; presentation on 6 May 2025 is about a fortnight too late.
- The payee's collecting branch should return it with the memo 'stale/out of date' rather than send it into clearing, where it would be returned with charges.
- The drawer's available balance is irrelevant. A paying bank acts on the mandate in the instrument; once the instrument has ceased to be a valid mandate, payment would expose the bank to a claim from the drawer and to an inspection objection.
Remedy: the trader's right on the underlying debt survives for three years from the date it became due, and he can sue for it or obtain a fresh cheque or demand draft. What he loses is the summary remedy under section 138 of the Negotiable Instruments Act, because the dishonour was not for insufficiency of funds and the instrument was not presented within validity. The branch should record the return memo and hand it to him.
2. How should the branch treat cheque B, which carries an initialled correction in the amount?
Read the worked answer
An alteration in the amount is a material alteration. Under section 87 of the Negotiable Instruments Act, a materially altered instrument is void against everyone except a holder in due course who took it without notice, unless the alteration was made to carry out the common intention of the parties.
Reasoning and action:
- The correction is visible, so a holder cannot claim to have taken it without notice; the holder is the payee, not a holder in due course.
- Initials beside the correction may show the drawer's assent, but initials are not always accepted as authority. The prudent course is to send the cheque back to the collecting branch with the remark 'material alteration - drawer's confirmation required'.
- Obtain the drawer's written confirmation on the cheque or on a letter, authenticated by his signature (and, ideally, telephone confirmation from the branch that holds his account). If the drawer confirms ₹1,15,000, the cheque can be paid; if he does not, it must be returned.
- The collecting bank should not simply present it and hope for payment; if the paying bank pays without proper authority, the drawer can recover the amount from it.
Record the confirmation in the file so the decision is auditable.
3. What is the correct legal course after the return of cheque C on 12 May 2025, and what timelines bind the trader?
Read the worked answer
Filing a criminal case immediately is premature. Section 138 requires a statutory notice first.
Steps:
- The trader must issue a written demand notice within 30 days of receiving the return memo - here, by 11 June 2025 - calling on the drawer to pay ₹90,000.
- The drawer then has 15 days from receipt of the notice to pay. If he pays, no offence arises.
- If he does not pay, the cause of action arises on the 16th day, and a complaint must be filed within one month thereafter.
- The complaint must show a legally enforceable debt, the dishonour for insufficiency of funds, valid presentation within three months, and service of notice.
Practical points: the notice should be sent by registered post with acknowledgement due and an ordinary post copy; a part-payment later does not wipe out the offence but reduces the amount; the bank should give the trader a certified copy of the return memo and a statement of the account as evidence. The branch's role is documentary, not advisory on prosecution.