Post-dated cheque

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In banking, post-dated cheque is a cheque written by the drawer (payer) for a date in the future.

Whether a post-dated cheque may be cashed or deposited before the date written on it depends on the country. A Canadian bank, for example, is not supposed to process a post-dated cheque and if it does so by mistake, the cheque writer may ask his or her bank to correct the error. In the United States and the UK, post-dated cheques are negotiable instruments and can be drawn upon at any time, while in India post-dated cheques are not payable until the date written on the cheque.

Practices in various countries[edit]

Brazil[edit]

In Brazil, the drawer may seek damages in Justice if their cheque is cashed in before its due date, according to the jurisprudential orientation of the Superior Court of Justice, as per Summary No. 370 of such court.[1]

Canada[edit]

Under the clearing rules of the Canadian Payments Association, a post-dated cheque cannot be cashed prior to the date written on it. If a Canadian financial institution inadvertently accepts and processes a cheque before the due date, the cheque writer may ask his or her financial institution to return the amount until the day before the cheque should have been cashed.[2]

India[edit]

Post-dated cheques in Indian law are illegal. Section 68 of Indian Stamp Act declares that a person who draws a post dated cheque and the person who presents a post dated cheque for payment will be liable to be fined Rs. 1000/- each.

Post dated cheque is no negotiable instrument.

However all the court rulings missed looking into relevant sections of law.

The definition of a cheque in Negotiable instrument act as well as in Negotiable Instruments Act is - that a cheque is always made payable on demand. It is not difficult to understand that a post dated cheque is not payable on demand.

The courts considered under the Negotiable Instruments Act, 1881. Post-dated cheques are common and enforceable.[3] In 1998, the Supreme Court ruled that a post-dated cheque is a bill of exchange and does not become payable on demand until the date written on the cheque:

If a post dated cheque is a bill of exchange which is not payable on demand how the stamp duty will be calculated on such a bill of exchange. There is no exemption from payment of stamp duty on a bill of exchange if it is a cheque. Stamp duty is payable on every negotiable instrument which is payable in future with reference to the time after which it is payable. Nobody in India has seen section 68 of Indian Stamp Act and no one has applied their mind on the reasons and logic why section 68 of Indian Stamp Act and the definition of cheque were drafted the way they were written.

'A "post- dated cheque" is only a bill of exchange when it is written or drawn, it becomes a "cheque" when it is payable on demand. The post-dated cheque is not payable till the date which is shown on the face of the said document. It will only become cheque on the date shown on it and prior to that it remains a bill of exchange under Section 5 of the Act. As a bill of exchange a post-dated cheque remains negotiable but it will not become a "cheque" till the date when it becomes "payable on demand".' [4][5][6]

In India the issue is complex[7] and mainly revolves around article 138 of the Negotiable Instruments Act, 1881. The two major issues before the courts are:

1) Post-dated cheques that are stopped by the bank or issuer, causing problems for whoever is to be paid by the cheque for goods or services provided[8] and;

2) the reverse, in which a person is promised goods or services but does not receive them and has to stop the cheque.

UK[edit]

In the UK the legislation is clear; 'A cheque is a bill of exchange drawn on a banker payable on demand'.[9] Under the Bills of Exchange and Banking Act 1882, part 10, bills of exchange are payable on demand and in part 13, 'A bill is not invalid by reason only that it is ante-dated or post-dated.'[10] In the United Kingdom, postdating a cheque carries no legal weight and so such a cheque can be cashed before the due date. However, a bank may refuse to honour a cheque if the postdate is noticed; othwerwise, the payer has no right to take any form of legal action against the bank for letting the cheque be processed.[11][12]

It is common for the terms and conditions of chequing accounts to state that postdated cheques should not be written and will be dishonoured if detected.[13][14] In some instances a postdated cheque may be retained by the bank and paid on the due date if that date is only a few days away.[15] Some UK organisations do not accept post-dated cheques[16] as well as some Government Departments,[17] while paying income tax or voluntary National Insurance may only be done with post-dated cheques with permission from HM Revenue and Customs.[18][19]

United States[edit]

In the United States, national banks are permitted to pay checks even though payment occurs prior to the date of the check. According to the Comptroller of the Currency: "A check is a negotiable instrument—the payee, the person to whom the check is written, may negotiate it through the banking system at any time" and check writers seeking redress must restrict themselves to pursuing the payee.[20]

Nonetheless, if "the customer has given notice to the bank of the postdating describing the check with reasonable certainty" the Uniform Commercial Code requires that the notice to be honored.[21] In practice, whether the check writer has any redress against the financial institution where the payee deposited the check may depend on whether it can be shown that the check was accepted over the counter without examination.[22]

Serbia[edit]

In Serbia post-dating cheques is a customary practice in the retail industry. The retailers will usually accept post-dated monthly cheque payment installments up to several months in advance allowing their customers to pay for expensive goods as a sort of a line of no interest credit.

See also[edit]

References[edit]

  1. ^ http://www.stj.gov.br/portal_stj/publicacao/engine.wsp?tmp.area=398&tmp.texto=90959
  2. ^ Post-dated cheques Financial Consumer Agency of Canada
  3. ^ https://in.finance.yahoo.com/news/legal-consequences-bounced-cheques-125402222.html
  4. ^ http://www.moneylife.in/article/bounced-cheques-and-section-138-of-ni-act/37274.html
  5. ^ http://indiankanoon.org/doc/718684/
  6. ^ http://judis.nic.in/supremecourt/imgs1.aspx?filename=41392
  7. ^ http://www.vakilno1.com/legal-faq/dishonour-of-cheque-section-138-of-the-negotiable-instruments-act.html
  8. ^ http://articles.economictimes.indiatimes.com/2003-03-12/news/27559217_1_post-dated-cheques-negotiable-instruments-act
  9. ^ http://www.legislation.gov.uk/ukpga/Vict/45-46/61/part/III
  10. ^ http://www.legislation.gov.uk/ukpga/Vict/45-46/61
  11. ^ http://www.chequeandcredit.co.uk/faqs/-/page/can_i_post-date_a_cheque/
  12. ^ http://news.bbc.co.uk/2/hi/programmes/moneybox/3537727.stm
  13. ^ http://payontime.co.uk/cheques-and-cheque-clearing/cheques-and-the-cheque-clearing-system
  14. ^ http://news.bbc.co.uk/2/hi/programmes/moneybox/3537727.stm
  15. ^ http://www.debtscotland.com/bouncedcheques.cfm
  16. ^ https://engineers.gassaferegister.co.uk/Renewals/RenewalFAQ.aspx
  17. ^ http://www.nidirect.gov.uk/the-cost-of-a-driving-licence
  18. ^ https://www.gov.uk/pay-self-assessment-tax-bill
  19. ^ https://www.gov.uk/pay-voluntary-class-3-national-insurance
  20. ^ "Answers About Cashing Checks". Comptroller of the Currency, Administrator of National Banks. Retrieved 2008-11-25. 
  21. ^ http://www.law.cornell.edu/ucc/4/4-401.html
  22. ^ Practical Application of the UCC bankersonline.com