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Cheque Returned without payment?, Cases in which banker is Justified in Refusing Payment

People generally care about maintaining sufficient balance in the account while issuing cheques. There many reasons why a banker can refuse payment of the cheque. Return of Cheque will always make a bad track record to the account holder and will be considered negative while sanctioning loan. Some of the reasons which Justifies the banker for refusal are:

Post dated or Stale Cheque
A Cheque will not be paid if the date of the cheque does not correspond or falls after the date of presentation. 

Funds Insufficient
Section 31 of the Negotiable Instruments Act, 1881 says that it is the duty of the banker to pay a customer's cheque when there is sufficient fund of the drawer in their hand. Therefore, when either there are no funds to meet the cheque or the amount to the customer's credit is insufficient to meet the whole amount of the cheque, the banker is justified in refusing the payment of that cheque. However, if there is a contract between the banker and the customer whereby the banker has already undertaken to meet the customer's cheques even though there are no sufficient funds of the customers to meet the same, the banker is bound to honour the cheque, otherwise the banker would render himself liable to the customer for breach of contract.
When customer countermands or stops the payment
When the customer requests the banker by a notice not to pay a particular cheque, thst is known as Countermand. The banker's authority to pay the cheque is determined by the countermand of payment.
Cheque is with doubtful validity
The validity of the cheque may be doubt where it is not property drawn. In case the validity of the cheque is doubtful or illegal the banker is justified in refusing the payment.


Funds not properly applicable to the Cheque
If the funds in the bank account is meant for being utilized for some other purpose, e.g. the banker has lein over them under section 171 of the Indian Contract or the banker is entitled to set off in respect of them or, the funds in the account are meant for a trust and the cheque is drawn in breach of trust, in these circumstances the banker is justified in refusing the payment.
Cheque not properly presented
If cheque is not properly presented, e.g. the cheque is presented in a branch where the customer has no account.
Where Customer died
If the bank receives a notice of the customer's death, the bank is not liable to honour the cheque. Payment made by banker before the receipt of notice of death is justified.

Customer becomes insolvent
When the customer is adjudicated insolvent his assets vest in the official assignee, which only has a power to deal with them, the banker must refuse to pay the insolvent customers cheque.
Customer has become a person of unsound mind
If a person is of unsound mind he is not competent to enter into a contract. A cheque being a contract for payment is suspended during the period of the customer's insanity provided the banker has notice of the fact.
Where garnishee order has been issued
On receipt of legal order or garnishee attaching money in the customer's account or otherwise dealing with that money the banker is bound to dishonor customer's cheque. If the garnishee order is for a specific amount, the banker can release balance payment.

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