10 Common Cheque Dishonour Reasons – We often write / issue Cheque to make payment as It is a very convenient and less risky to make payment through Cheque. You just write date, amount in words and figures, party name to whom payment is to be made and signatures. It seems to be easy but we often make some common mistakes due to which cheque is dishonoured by the bank or return unpaid. And also bank deduct Cheque dishonour charges from the account.
This is not just only charges deducted from the account but it also negatively impact your credit history as bank report it to credit information companies. So here in this article, we will know about some common reasons or mistakes to be avoid while writing or issuing Cheque.
10 Common Reasons for dishonour of Cheque
When Cheque is presented for payment, the bank should make the payment to the payee as mentioned in the Cheque if everything is in order. If the bank refuses to make payment of amount then Cheque is said to be dishonoured. Bank return the Cheque to Payee with a memo in which reason of dishonour is written.
Before going through reasons of dishonor of Cheque , know what is need to be written on Cheque are –
- Payee Name – Name of the Person or Party to whom payment is to be made
- Amount in Words and Figures
- Signature of Drawee
If you have written everything as mentioned above in order , then your cheque is dishonoured possibly due to any one of the following reason.
- Funds Insufficient / Exceeds Arrangement – It is a very common mistake or reason due to which bank return the cheque unpaid. Sometime, you write the cheque against salary to be credited on a specific date. But if salary is not credited or get late then cheque is presented for payment, Bank will return it unpaid. So, confirm or maintain bank balance in your account before issuing. In case of overdraft account, Cheque is dishonoured with the reason “Exceeds Arrangement”.
- Amount in Words and Figures – Bank dishonour the Cheque if amount written in words and figures are different. So, avoid this mistake.
- Payee Name – If payee name is absent then bank can dishonor the Cheque with the reason that “Payee Name Required”.
- Signature Differ – Sometime you forget your signatures as you did while opening your bank account. Bank will dishonor the Cheque if your(drawer) signature don’t match with specimen available in bank record.
- Alterations / Overwriting – Bank will not honor the Cheque in case you overwritten / altered something on Cheque. So avoid overwriting and alternation on Cheque.
- Post Dated Cheque – When date written on Cheque is yet to come is called post dated Cheque. Suppose, Date written on Cheque is 04th June 2018, But you present it for payment on 1st June 2018. Bank will dishonour the Cheque and return it unpaid as bank can not 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 written on Cheque then Cheque is called Stale Cheque. Bank can not 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 of Cheque is lost or stolen or other reason may be. In this case, Bank dishonor the Cheque and return it unpaid with the reason that payment stopped by drawer.
- Dormant / Inoperative Account – If account is dormant or inoperative then bank can dishonor the Cheque.
- Account Number – If account number is not mentioned in Cheque clearly or it is absent. Then bank dishonor the Cheque.
What is Cheque Dishonour / Return Memo
When Cheque is dishonoured, Bank return it along with a “Cheque Return Memo” to payee. In Memo, Reason for why Cheque is dishonoured is clearly mentioned along with stamp and sign of returning bank.
Dishonour of Cheque – Criminal Offence
The Negotiable Instrument Act, 1881 is applicable for the cases related to dishonour of cheques. In accordance with section 138 of this act, dishonour of cheque is a criminal offence and is punishable with monetary penalty or imprisonment up to 2 years or both.
Payee can prosecute the drawer legally if Cheque is dishonoured again and again.