Payment By Cheques: What The Law Says

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: Every single reader of this article must be having at least one bank account with cheque book facility. We are so used to making and accepting payments by cheque that we do not even bother to give it a second thought, let alone consider the legal implications.

How many of us are really aware as to what is considered the date of payment when a cheque is issued? Is it the date when the cheque is physically handed over? Or is it the date when the cheque is debited to drawer’s account and credited to payee’s account? In this article, I will deal with the law on the subject and its interpretation by the Supreme Court.

Under the Negotiable Instruments Act, 1881 a cheque is an instrument which is negotiated by delivery. The drawer is discharged when payment is made in due course. In simple terms, this means that when cheque is tendered there is a presumption that payment would be realised in due course, and hence the date of payment is considered to be the date on which the cheque is delivered, regardless of when the cheque is actually presented for payment.

This principle would not apply in the event of the cheque getting dishonoured. Thus the date of tendering the cheque is to be considered as the date of payment, just like a cash payment.

Now let us consider the interpretation of the law by the Supreme Court.

Case1

In the case of Commissioner of Income-Tax, Bombay South, Bombay v/s Ogale Glass Works Ltd, the Supreme Court took into consideration various English case-laws and commentaries.

It observed that payment by negotiable instrument is a conditional payment, which means that if the negotiable instrument is dishonoured on presentation the creditor may consider it as waste paper and resort to his original demand (Stedman vs Gooch).

In “Benjamin on Sale,” 8th Edition, it was stated that payment takes effect from the delivery of the bill, but might get defeated by the happening of the condition of non-payment at maturity. In “Byles on Bills,” 20th Edition, the position was summarised pithily as “A cheque, unless dishonoured, is payment.”