The relationship between the banker and customer is said to be primarily that of the debtor and creditor. It is, therefore, the duty of the banker to honour the cheques (make payment on them on demand) of the customer when he has sufficient funds applicable for the payment of such a cheque (section 31).
The banker has to pay damages for wrongful payment or loss arising out of the dishonour. Similarly, he must refuse payment of his customer’s cheques only under circumstances when he will not become liable for the payment. If he has not refused payment where he should have, he has to hear the loss by himself. In some cases, he can recover the loss from the wrong payee if he is traceable. First the cases in which he must refuse payment may be listed.
In the following cases, the banker must refuse payment of a cheque:
1) When the customer countermands payment, i.e., issues instructions to the bank not to honour (‘stop payment’) a particular cheque issued by him, the banker is bound to comply with such instruction. The countermanding order should have been given to the banker with sufficient time.
2) When the bank receives a Garnishee order i.e., a prohibiting order by any court attaching the money in the customer’s account, payment must be refused. In this case he cannot recover from the payee who gets payments of an otherwise valid cheque.
3) When the banker receives a notice of the death of his customer or when his customer has been adjudged insolvent or has become insane, the banker must refuse payment as his authority to pay on behalf of such customers comes to an end. He must get a fresh authority on those accounts. An payment made after a due notice is not good against the drawer, nor is the banker entitled to a refund from the payee, who gets payment of an otherwise valid cheque.
4) When the banker receives a notice of assignment of his credit balance from a customer, he must refuse payment of the cheques drawn by the customer.
5) When the banker comes to know of the defect in the title, or when there is a material alteration in the cheque or the signature of the drawer does not tally with the specimen signature kept by the bank, the banker must dishonour such cheques.
6) When the customer has lost the cheque and has informed the loss to the banker, the banker in turn must dishonour the cheque.
There are some-occasions where the banker may refuse payment but still makes the payment at his discretion. On some occasions the question of who will bear Exchange and Cheque the loss, damages arising out of a wrong refusal will be decided by the court by taking into account the facts of the case. These occasions are listed below:
1) Payment on post-dated cheque presented before the actual date on which it is written to be payable.
2) Payment when funds in the customer’s account are insufficient to meet the amount payable against the cheque. Sometimes, the funds might have been there but they are kept for some other authorised purpose and, therefore, not applicable for the cheques presented.
3) Payment when the cheque is not presented within a reasonable time, i.e., within three months after the date of issue as is the practice now. Such cheque is treated as stale cheque. He may honour the stale cheque after getting confirmation by the customer.
