When a cheque is issued, what should be considered the date of payment? Is it when the cheque is physically handed over or when it is debited from the drawer's account and credited to the payee's?
Under the Negotiable Instruments Act, 1881, a cheque is an instrument negotiated by delivery. The drawer is discharged when payment is made in due course. In simple terms, this means when the 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 it is actually presented for payment. This principle would not apply in the event of the cheque getting dishonoured. Thus, the date of tendering is to be considered the date of payment, just like a cash payment. This is the legal interpretation enunciated by the Supreme Court.
In Commissioner of Income Tax, Bombay South, Bombay v/s Ogale Glass Works Ltd [1954 AIR 429], the Supreme Court had to consider what should be the date of payment when a cheque was issued.
The court considered various English case laws. In Stedman v/s Gooch, it was observed that payment by negotiable instrument is conditional. It means if the negotiable instrument is dishonoured on presentation, the creditor may consider it waste paper and resort to his original demand. The same view was expressed in Felix Hadley & Co v/s Hadley. In Rhokana Corporation v/s Inland Revenue Commissioners, Lord Maugham held the common law rule is to the effect that sending of a cheque in payment of a debt is subject to the subsequent condition that it must be met on presentation. However, the date of payment, if the cheque is duly paid, is the date when it was posted.
Various legal commentaries were also considered. ‘Benjamin on Sale’, eighth edition, states the payment takes effect from the delivery of the bill, but might get defeated due to non-payment at maturity. ‘Byles on Bills’, 20th edition, summarises: "A cheque, unless dishonoured, is payment." This was also expressed in ‘Hart on Banking’, fourth edition, volume one.
The Supreme Court accordingly concluded that even if a cheque is accepted conditionally, i.e. subject to realisation, the legal position would be that the date of payment would relate back to the date when the cheque was issued and not when it was encashed or credited to account.
In the case of K Saraswathy, alias K Kalpana (deceased), by legal heirs versus PSS Somasundaram Chettiar, the Supreme Court observed that payment by cheque is an ordinary incident of present-day life, whether commercial or private, and unless it is specifically mentioned that payment must be in cash, there is no reason why a cheque should not be taken to be due payment if it is subsequently encashed. Relying on the judgement in the above case of Ogale Glass Works, the Supreme Court held that payment by cheque relates back to its date of receipt, and, in law, the date of payment is the date of delivery of the cheque.
Consumers often issue cheques to insurance companies for payment of premium. Cover notes are issued on receipt of the cheque. In the event of an accident, and a claim being lodged, the insurance company doesn't encash the cheque and contends that the policy cannot be said to be in force since the premium has not been received. Gullible consumers sometimes get misled by this.
More From This Section
It is important to know the law so that you do not get misled. The authoritative interpretation of the law by the Supreme Court will help consumers assert their rights in case service providers attempt to misinterpret it against consumer interest.
The author is a consumer activist
