Thursday, December 27, 2012

Dishonouring a cancelled draft is no crime

A payee cannot haul a bank under Section 138 of the Negotiable Instruments Act for not honouring a demand draft that is cancelled by the person who got the draft made before being presented to it, held the Delhi High Court in State Bank of Patiala v. Nascent Educational and Development Society

A demand draft, unlike a cheque, is issued by a bank for consideration already received and hence cannot possibly be dishonoured on the ground of lack of funds; but a bank cannot be compelled to honour the draft in the face of a cancellation instruction by the person who got it issued from the bank. 

The payee, therefore, has no recourse to the bank including proceeding against it under Section 138 of the Act for criminal liability in such circumstances. However, he can proceed against the debtor under the civil laws.

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