If a party has issued a cheque from an account which is closed, the bank cannot destroy it when it is presented for payment. The cheque has to be returned to the payee’s bank.
Case Study: Ramkishan Choudhary received a cheque from Madan Gopal for Rs1 lakh drawn on ICICI Bank’s Jodhpur branch. Choudhary deposited it in his account with State Bank of Bikaner & Jaipur (SBBJ), Jodhur branch. ICICI Bank refused to honour it, and sent a “return memo” with an endorsement stating “cheque destroyed”.
Choudhary was aggrieved as the cheque ought to have been returned in case it was not cleared or dishonoured, but in no circumstances could it have been destroyed. Alleging deficiency in service, Choudhary filed a joint complaint before the Jodhpur district forum against ICICI Bank, SBBJ Bank and Madan Gopal. He claimed that the destruction of cheque was a gross deficiency in service which had caused him a loss of Rs 1 lakh.
The forum upheld the complaint and granted Rs 5,000 as compensation and Rs 2,000 as cost, but refused to award the value of the cheque, saying that the amount should be recovered from Madan Gopal who had issued it. In appeal, the Rajasthan state commission modified the order by holding both the banks jointly liable to pay Rs 1 lakh along with 9% interest from the date of the complaint.
ICICI Bank challenged this order in a revision before the national commission. It attempted to justify its action, saying that it had every right to destroy the cheque as Madan Gopal’s account was closed and inoperative. The bank argued that even if this is construed as a minor negligence, it should not be held liable to pay the value of the cheque, as Madan Gopal was responsible for making payment to Choudhary.
Choudhary contended that he cannot be made to undergo the harassment and mental agony of filing a civil suit against Madan Gopal merely because the bank had been negligent in destroying the cheque.
In its judgment of November 3, 2014, delivered by Justice J M Malik for the bench along with Dr S M Kantikar, the commission observed that the bank had not produced any evidence to show that the account had been closed. Even otherwise, the bank had no business to destroy the cheque but was duty-bound to return it, giving, along with the cheque, a return memo, citing the appropriate reason.
The commission said that destruction of the cheque results in its loss due to criminal intent. It indicted ICICI Bank of having acted negligently and vengefully. It held that the bank could not be liable to pay the value of the cheque, but would have to pay compensation for deficiency in service. The commission modified the order and held the banks jointly liable to pay Rs 30,000 as compensation to Choudhary.
Observing that ICICI Bank had been terribly remiss in the discharge of its duties, almost verging on criminality, the commission imposed further costs of Rs 20,000 payable by ICICI Bank to the Consumer Welfare Fund.
Conclusion: If a party has issued a cheque from an account which is closed, the bank cannot destroy it when it is presented for payment. The cheque has to be returned to the payee’s bank.
Reference: Section 6 of the Indian Negotiable Instruments Act, 1882
Sections 138 of Negotiable Instruments Laws (Amendment) Act, 1988