Legal Article

Post-Dated Cheques: Common Financial Instrument

Shivendra Pratap Singh

Advocate

High Court Lucknow

Article

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Published on: 1 Aug, 2023

In today’s fast-paced financial world, post-dated cheque (PDCs) have become an everyday instrument. Whether you’re buying a home, securing a loan, or even managing a monthly subscription, chances are, you’ve come across the realm of post-dated cheques. Let’s dive deep into understanding the nuances, legalities, and implications of PDCs.

What is a Post-Dated Cheque?

A post-dated cheque is like any other ordinary cheque, but the only difference is the ‘date’ mentioned on it. The date inscribed on the cheque is a future date, meaning a date after the date on which the cheque is drawn. Until the date arrives, the cheque remains a non-negotiable instrument.

Why are Post-Dated Cheques Used?

  1. Assurance: PDCs are often used as an assurance to the payee. It’s a common practice in loan agreements where the lender requires the borrower to provide PDCs for the entire loan repayment period.
  2. Scheduled Payments: For transactions where payments are supposed to be made in installments, PDCs come in handy. They give both parties clarity on payment dates, ensuring smoother financial planning.
  3. Ease & Convenience: PDCs eliminate the need for the drawer to remember monthly or periodic payments, making processes more convenient.

Section 138 of the Negotiable Instruments Act comes into play when a post-dated cheque is dishonoured. Even though the cheque is issued for a future date:

  1. If the cheque bounces due to insufficient funds or any other reason, the drawer can face legal consequences similar to those of an ordinary cheque bounce.
  2. It is noteworthy that only when the cheque is presented after the date mentioned on it, and subsequently dishonoured, does it become an offence under Section 138.

Things to Consider with Post-Dated Cheques:

  1. Intention Matters: In various legal judgments, the intent behind issuing a PDC has been considered crucial. If the cheque was issued as a form of security and not with the intention to repay a debt or fulfill an obligation, its dishonour might not always attract punishment.
  2. Early Presentation: If a post-dated cheque is presented before the date mentioned on it, banks will not honour it. The early presentation does not constitute an offence under the law.
  3. Timely Funds: As the issuer, one should ensure that the account holds sufficient funds by the date mentioned on the cheque to avoid legal complications.
  4. Clarity on Date: Ensure the date on the PDC is clear and unambiguous. Any modifications or overwriting can lead to complications during its realization.
  5. Validity: Like regular cheques, post-dated ones also come with a three-month validity from the date mentioned on the cheque.

Conclusion:

While post-dated cheques provide a significant degree of convenience and assurance in financial transactions, it’s imperative for both the drawer and the payee to understand the legal implications and responsibilities that come with it. Issuing or accepting a PDC should be done with clarity, ensuring a seamless financial transaction while safeguarding one’s interests.

Tags: #PostDatedCheque #FinancialInstruments #NegotiableInstrumentsAct #BankingBasics #IndianLaw