Stale Cheque with Altered Amount and Cancelled Crossing
On 12 August, Shree Traders, a proprietorship firm maintaining a current account with a Pune branch, deposits a cheque for ₹1,85,000 drawn on a Nashik branch. The cheque is dated 5 April of the same year. It bears a printed 'A/c Payee' crossing, but the words 'A/c Payee' have been struck through and initialled by the drawer. The amount in figures was originally written as ₹1,85,000; it has been overwritten as ₹1,95,000 with the drawer's initials, while the amount in words still reads 'one lakh eighty-five thousand only'. On the reverse, the deposit endorsement reads 'For Shree Traders' and is signed by an authorised signatory. The branch's cheque return register for the previous month shows two cheques of the same drawer returned for 'payment stopped by drawer' and 'insufficient funds'. The collecting bank's service branch asks the Pune branch whether to present the cheque or return it. The customer insists the cheque is valid because the drawer has initialled every change.
1. Identify the defects in the cheque and decide whether the collecting bank should present it. Give reasons.
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Defects:
- Stale cheque: dated 5 April and deposited on 12 August, it is more than three months old. Under RBI directions, a cheque is valid for three months from its date; the bank should return it as stale.
- Material alteration of amount: the figures were changed from ₹1,85,000 to ₹1,95,000. Even with the drawer's initials, the words 'one lakh eighty-five thousand only' prevail under Section 18 of the Negotiable Instruments Act, so the mandate is ambiguous.
- Cancellation of 'A/c Payee' crossing: striking through the crossing is a material alteration. It requires the drawer's clear authentication; initials alone may not satisfy a prudent banker, and the collecting bank cannot treat it as an ordinary open cheque.
- Adverse return history: two recent cheques returned for stopped payment and insufficient funds indicate risk, though this is not by itself a statutory defect.
Decision: return the cheque unpaid with a memo such as 'stale cheque / material alteration'. The bank should not present it merely because the customer insists. If it presents and the drawee pays, the collecting bank may face liability for negligence; the safer course is to return it and ask for a fresh cheque with consistent amounts and a clear crossing.
2. Suppose the drawee bank pays the cheque and debits the drawer's account. Discuss the drawer's remedy against the bank and the bank's possible recovery from the collecting bank.
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The payment is contrary to the drawer's mandate because the cheque was stale and the amount was materially altered. A paying banker gets statutory protection only if it acts in good faith, without negligence, and the instrument appears regular; apparent alterations and an expired date should put the bank on inquiry. The drawer can demand reversal of the debit and, if the bank refuses, claim damages for wrongful debit. The bank's liability is to restore the account. The bank may seek recovery from the collecting bank or payee on the ground that collection was made without authority, but that does not cure the wrong debit. The customer's insistence or the drawer's initials do not automatically transfer the loss to the customer, because the bank still had a duty to check validity and the words-in-figures rule. The bank should also examine whether the payee's endorsement was genuine and whether the proceeds are still available.