The law for stale cheque

The "stale cheque" is a debatable questions having many sides which require removing since there exists no specific law which may state its existing position. The question is whether it is a law or a custom or practice to honour or dishonour the cheque having old date of more than six (6) months or any date of validity. There are various points of view on "stale cheque" which may be considered.
BLACK'S LAW DICTIONARY GIVES THE DEFINITION OF "STALE CHEQUE" AS GIVEN BELOW:
"STALE CHECK: A cheque that has been outstanding for an unreasonable time - more than six months in the banks in jurisdictions adopting UCC may choose not to honour such a cheque.
The "stale cheque" is defined in "merriam webster's collegiate dictionary," as "(1) tasteless or unpalatable from age, (2) tedious from familiarity, (3) impaired in legal force or effect by reason of being allowed to rest without timely use, or demand, (4) impaired in vigour or effectiveness."
In the Tannan's book of "Banking Law and Practice in India" the stale cheque is defined as under:-
"STALE CHEQUES: It is also necessary for the paying banker to see that the cheque presented is not stale, or out of date. A cheque is said to be stale when it has been in circulation for an unreasonably long period. What is to be regarded as an unreasonably long period is determined by the nature of the instrument, the usage of trade, the practice prevalent among bankers and the circumstances of the particular case. It is understood that the bankers in India consider a cheque stale, when it has been outstanding for more than six months.
There may be differences in practice in various parts of India. In the case of dividend warrants, however, the issuing companies which issue them usually do not honour them if they are presented more than three months after the dates of their issuance, unless they are subsequently revalidated by the companies concerned.
It may be noted that in order to remove any ambiguity in this regard, where it is intended to limit the currency of a cheque, dividend warrant etc to a period of less than six months, such instruments are usually marked, say "current for three months only." A stale cheque may also be honoured by the drawee bank, after getting it confirmed by the drawer."
"Stale cheque" is also defined in the "hand book of banking terms" by Fazul Suleiman Kazi, herein as under:-" Cheque presented on the counter of a bank for encashment after the expiry date mentioned in the instrument. Stale cheque is not accepted for payment. Cheque that runs out of its time that it has become outdated, if it has been with the holder for over six months. For payment on such a cheque confirmation from the drawer may be needed.
Cheque becomes stale if it is in circulation for over six months that is where the instrument is submitted at the counter or lodged after a period of six months. Payment of such instrument is declined unless it is revalidated.
The "stale cheque" is also defined in "excellent legal words and phrases" by Mian Mohammad Kakakhel as under:
"Stale cheque.- A cheque that is not presented for payment within a reasonable period. Bankers make a rule of not cashing cheques six months or more old"
In "Sheldon's Practice and Law of Banking" the learned author states that "it is necessary to distinguish between cheques termed out of date in law for purposes of negotiation and those termed 'out of date' by banker's custom. As regards the latter, most bankers return cheques presented six or more months after date, marked "out of date," and require the drawer's confirmation before payment."
In "Banking Law and Practice in India" by M.L. Tannan the learned author stated that "unless a cheque is presented within a reasonable time after the ostensible date of its issue, it should not be honoured. Generally, speaking a cheque presented more than six months after the ostensible date of its issue, is considered a stale one. Some banks in England honour cheques even if they are presented within twelve months, but, both in England and in India a period of six months is allowed for presentation of cheques according to the practice of bankers."
SECTION 84 SUB-SECTIONS (1) AND (2) OF NEGOTIABLE INSTRUMENTS ACT, 1881 PROVIDE AS FOLLOWS:
(I) Where a cheque is not presented for payment within a reasonable time of its issue, and the drawer or person on whose account it is drawn had the right, at the time when presentment ought to have been made, as between himself and the banker, to have the cheque paid and suffers actual damage through the delay, he is discharged to the extent of such damage, that is to say, to the extent to which such drawer or person is a creditor of the banker to a larger amount than he would have been if such cheque had been paid.
Sub-section (2), Section 84: "In determining what a reasonable time is, regard shall be had to the nature of the instrument, the usage of trade and of bankers, and the facts of the particular ease."
The definition of "stale cheque" also clarified in Dishonour of Cheques (Prosecution and Penalties) by R.K. Suri:
"Stale Cheques": - A cheque is payable on demand and the amount becomes payable when the cheque is presented for payment to the drawee, and a holder after it is presented for payment is not a holder in due course. It is the duty of the banker not to pay cheques presented after the lapse of a stipulated period or a period of its validity. Such cheques are said to be stale and the refusal to honour them is lawful.
The drawee's liability is discharged when the period of its limitation is lapsed. The claim of the holder against his endorser cannot be entertained due to the non-presentation which is barred by limitation.
In the reported case of NLR 1993 CLI 752 in the matter of Habib Bank Ltd vs. Jamilur Rehman, reliance is held by Justice Syed Haider Ali Pirzada, that "Cheque/draft not presented within six months of its issue would become out of date or stale. Suit based on out of date or stale cheque and draft cannot be decreed." and "defendant's revision against decree passed in a suit based on cheque which had become stale, the High Court accepting revision, setting aside decree and dismissing suit."
It is also held in the instant judgement by his Lordship that "it is not in dispute that bank draft No 0168466 for Rs 1000 was issued on 17-1-1985 by Riyadh Bank. It is an admitted position that the same was presented for encashment after over one year. The petitioner returned the draft with endorsement on Memo "The cheque is outdated."
It is further held "that the petitioner's bank pleaded practice in its written statement. The Bank Officer appeared in the witness box and stated that it is their practice that the negotiable instruments lose their validity if they are not presented within six months from the date of issue. It appeared from the evidence of the Bank Officer of the petitioner that the Bank draft was presented after a lapse of seventeen months and in Pakistan there is a practice that negotiable instruments should be presented within a reasonable time. Sub-section (2) of Section 84 of Negotiable Instruments Act provides that in determining what reasonable time is, regard shall be had to the nature of the instrument, the usage of trade and of' bankers, and the facts of the particular ease.
In the ease of "Griffiths v. Dalton (1940-2-KB 264)" the facts of the case are that the cheque was given to the plaintiff in August, 1931, and that time bore no date. Nothing was done with it until February, 1933, when the plaintiff filled in the date of the cheque February 20, 1933. He then presented the cheque for payment at a Brighton Branch of the Midhand Bank, but it was dishonoured and he filed a suit and it was held as follows:-
"Although the cheque in the present case bore no date, the plaintiff, by S.20 of the Bill of Exchange Act, 1882, following what, I think, was the common law before the passing of that Act, had a prima facie authority to fill in the date, but by the common law he was bound to do so within a reasonable time. The question what is a reasonable time is a question of fact, and on the facts of this case I am satisfied that the reasonable time had long since elapsed. There was therefore, no authority to fill in the date as it appeared on the discussed cheque and no liability on the bank to meet it. The claim on the cheque fails."
The principles laid down in the above case law of Griffiths v. Dalton are endorsed and relied in the ease of NLR 1993 CLJ 752" as it was held by Justice Syed Haider Ali Pirzada (in the only reported case law existing in Pakistan at the moment) as follows:
"I am of the opinion that admittedly the Bank Draft was presented after seventeen months, the same had become out of date or stale and the petitioner had refused to pay the amount of Rs 1000/-. The claim on the bank draft fails." It is further held that" in the result, the revision petition succeeds, the judgement and decree dated 23-12-1988 passed by the learned judge, Small Causes Court, Karachi are set aside. The suit stands dismissed, in the circumstances of the case the parties are directed to bear their own costs.
It was held by the Kerala High Court in the reported case of Kesavan Thankappan v. State of Kerala and another is reported as 1998 Company cases 574 (Vol. 193) by Justice K.A. Mohamed Shafi, wherein it was held as follows:-
"Offence and Prosecution Cheque Dishonour Condition that cheque must be presented within six months of drawing or within a period of validity whichever is earlier. Shorter period of validity contemplate - cheque drawn on treasury bank and having three (3) months validity presented after three months. No cause of action arises. Indian Negotiable instruments Act, 1881. S.l38."
It is further held that "it is clear that the lower court is perfectly justified in finding that the respondent is not guilty of the offence punishable under Section 138 of the Negotiable Instruments Act and acquitting and setting him at liberty and absolutely no ground is made out in this appeal to interfere with those findings arrived at by the lower court. Therefore, the judgement passed by the lower court is confirmed and the appeal is dismissed."
A learned single Judge, Justice Eswara Prasad, in case of Richard Samson Sherrat v. State or A.P reported as 1992 (1) An. WR-502 has held that "the cheque can be presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. Clause (a) of the proviso to Section 138 does not lay down as to the number of times a cheque can be presented to the bank. When the statute has not laid down any limitation on the number of times that a cheque may be presented within a period of six months or any shorter period, it will not be desirable to read into the said clause any such restriction as to the number of times a cheque may be presented."
A division Bench of the Kerala High Court in the reported case of 1991 (1) -Kerala LJ 335 of Mahadevan Sunail Kumar v. Bhadran has held as follows:- "It is clear that the cause of action for filing the complaint may arise on several occasions and the payee or holder in due course is entitled to present the cheque at any time within a period of six months from the date on which it was to be drawn and for filing the complaint he should have served notice of such dishonour to the drawer; the payee or holder in due course can make a second presentation of the cheque and if other conditions are fulfilled, he can launch a complaint on the basis of the second dishonour of the cheque as the cheque would remain valid for a period of six months."
From the scheme of Sections 138 and 142 of the Indian Negotiable Instruments Act, 1881, it is thus seen that a cheque can be presented to the bank within the period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.
The cheque can be presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. During the validity period the cheque can be presented any number of times but the action by filing a complaint under Section 138 read with Section 142 can be taken only once.
It is common knowledge that in commercial practice a cheque may be presented any number of times within the period of its validity. The principle of autrefeis acquit or autre fois convict will also come into play and the drawer of the cheque cannot be subjected to repeated prosecutions and convictions on the strength of one cheque." (Reference; Law of Negotiable Instruments and dishonour cheques "by P.S. Narayana (Edition 1997, Page 441.)
It is held in the case of Ram Sarup v. Hardeo Prasad reported in AIR 1928 Allahbad 68 by a division bench of the Allahabad High Court comprising Justice Lindsay and Justice Kendall as follows:-
"Under sections 9 and 19 of Negotiable Instruments Act (26 of 1981), -Taking a Stale cheque - Transferee not a holder for value - Suit by transferee against drawer must fail though he did riot know the detect in his transferer's title.
A cheque is payable on demand and the amount becomes payable when the cheque is presented for payment to the drawee, and a holder after it is presented for payment is not a holder in due course.
Where plaintiff took a Stale Cheque in good faith for consideration without notice of dishonour and without having any reason to believe that there was any defect in the title of his transferrer, who, however, was not a holder for value and the endorsement to him was fictitious.
It was held by the division bench of the Allahbad High Court that "plaintiff could not be regarded a "holder in due course" and his claim against the drawer must fail."
To avoid the ambiguity and/or legal flaw, that there is no provision of law or statute is existing in respect of "Stale cheques," but it is only a practice, a proposed amendment in Section 84 of Negotiable Instrument Act, 1881, by insertion of sub-section (41) in section 84 is suggested which may be called and termed as "Negotiable Instruments-(Amendment, Ordinance, 2004," which may runs as under:-
"Section 84(4).... (i) The word "reasonable time of it's issue" as mentioned in sub-section (1) and reasonable time as narrated in sub-section (2) above, means the time in limitation of six months from the date of issue for the ordinary cheque and time as well as limitation of three months (ordinary or treasury cheque will be deemed to be "within a reasonable time of its issue" and "reasonable time" for the purpose of the meanings as mentioned in sub-section (1) and (2) above."
(ii) The "date of issue" means the date of execution which is mentioned in the cheque (ordinary or treasury) and if the cheque will be presented for encashment after the expiry and/or lapse of time and period of six months in case of ordinary cheque and within three months in case of treasury cheque, the banker and/or bank concerned is not under any obligation to encash the said cheque and the said cheque will be treated as invalid for the purpose of encashment and to be termed as "Stale Cheque."
(The author of the instant article is a Karachi based practicing Banking Lawyer, Economist and Author of various books on Law, Banking & Economics).