A banker can stop the payment of a customer and can dishonour the cheque. The following are the main reasons and circumstances in which the bank can dishonour the Cheque of the customers.
We often issue Cheque to make payment as it is a convenient and less risky to make payment through Cheque. You write the date, the amount in figures and words, name of the party to whom payment needs to transfer along with signatures. It appears to be easy, but we often make some common mistakes due to which Cheque is dishonoured by the bank or return unpaid.
Let's find some common reasons or mistakes to be avoided while writing or issuing Cheque. When Cheque is given for payment, the bank should make the payment to the payee as specified in the Cheque if everything is in order. In case the bank refuses to make payment of amount then Cheque is said to be dishonoured. Bank returns the Cheque to Payee with a memo specifying the reason for dishonour.
Before we go through the reasons for the Dishonour of Cheque, let's see what needs to write Cheque;
• Name of the person to whom payment is to be done, i.e. Payee Name
• The amount in Figures and Words
• Date of depositing the cheque
• Drawee Signature
If one has written everything as mentioned above in order, then your cheque is dishonoured due to any one of the following reason.
Funds Insufficient/Exceeds Arrangement – Prevalent reason due to which bank return the cheque unpaid. Sometimes, you write the cheque against salary which is to be credited on a particular date. In case salary is not credited or get late then the Cheque is presented for payment, Bank will return it unpaid. So, confirm or maintain bank balance in your account before issuing. In the case of the overdraft account, the cheque is dishonoured with the reason "Exceeds Arrangement".
The amount in words and figures – Bank dishonour the Cheque if amount written in words and numbers are different. In such a case, the bank can terminate the payment of the cheque and dishonour it.
• Payee Name – In case the payee name is absent then the bank can dishonour the Cheque with the reason "Payee Name Required".
• Signature Differ – Sometimes you forget your signature, which you did while opening the account. The Bank will dishonour the Cheque if the (drawer) signature doesn't match with specimen available in a bank record.
• Alterations/Overwriting – The Bank will not honour the Cheque if you overwrote/altered something on it. It is advisable to avoid overwriting and alternation.
• Post Dated Cheque – When date written on Cheque is yet to come is called post dated Cheque. Suppose, Date written on Cheque is 04th May 2019, But you present it for payment on 1st May 2019. Bank will dishonour the Cheque and return it unpaid as the bank cannot honour it before the date mentioned on Cheque.
• Instrument Out-Dated/Stale Cheque – A Cheque is valid for three months from the date written on Cheque. If a Cheque is presented after three months of the date mentioned, then it is called Stale Cheque. Bank cannot make the payment of Stale Cheque and return it unpaid with the reason "Stale Cheque or Instrument".
• Payment Stopped by Drawer – Mostly drawer stop the payment in case if the cheque is lost or stolen. In this case, Bank dishonours the Cheque and return it unpaid with the reason that payment is stopped by the drawer.
• Dormant / Inoperative Account – If the account is dormant or inoperative, then the bank can dishonour the Cheque.
• Account Number – If the account number is not mentioned in Cheque clearly or it is absent. Then bank dishonours the Cheque.
• For No Funds – In case there is no credit balance in customer's account, but he has drawn a cheque to the bank, the bank must dishonour the cheque.
• Typed Cheque – As a general rule if the customer draws a typed Cheque because it is easily altered, then the bank can refuse to make payment.
• Same Branch – The same bank branch can make payment of a cheque where the customer has his account. 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 – when it is seen that the customer has altered the figures, date, name, etc. after drawing the Cheque, but has not legally attested it, the banker will dishonour the cheque.
• Joint Account – Some customers have a joint account, and the signature of all the persons is needed on the Cheque, and if the Cheque has not been signed by all jointly, the bank will not make the payment.
• When the Payment Is Stopped – In case the drawer asks the bank to stop payment and not to pay for a cheque issued, in that case, the Cheque will not be honoured by the bank.
• For Frozen Account – In case the government or court order that the account of a particular person has to be frozen, in such case, the bank will dishonour all the cheques bearing that account number.