‘Certification’ or marketing’ of a cheque means a written undertaking by the drawee banker that the cheque will be honoured when duly presented for payment. It is done by writing the words ‘Good for Payment’ on the cheque. It is done to ensure payment.

However, it has been held that in India, no such practice of marketing the cheque has been established either by judicial decisions or by statutes. A cheque was marked good for payment by the manager of the bank. But the cheque was dishonoured. The Court held that the bank was not liable as marketing of cheques is not recognized either by the law or judicial decisions. [Bank of Baroda v. Punjab National Bank Ltd],

Notwithstanding the fact that marketing of cheques is not recognized in India, marketing may be done by the drawee banker at the instance of the following:

(i) The drawer,

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(ii) The holder, and

(iii) The collecting banker.

(i) Marketing at the drawer’s instance, Marketing of cheques is mostly done at the instance of the drawer so that he can show it to the other party to his satisfaction that the cheque will be honoured when duly presented for payment. In such a case the drawee banker earmarks or reserves sufficient funds in the account to make the payment of the cheque as and when it will be presented.

The drawee bank is justified to dishonour other cheques if there is no balance left in the account after earmarking the funds for the cheque marked good. The drawer also has no right to countermand or stop payment of a cheque marked good.

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(ii) Marketing at the holder’s instance:

A holder may ask the drawee banker to mark the cheque ‘good for payment’. When a cheque is marked good at the instance of the holder, it is not an undertaking by the bank that the cheque will be honoured when duly presented. It simply indicates that at the time of marketing, the bank had sufficient funds. In this case bank does not earmark the funds. As such, a banker can dishonour the cheque if there are no sufficient funds in the account of the holder if the customer has countermanded or stopped payment.

(iii) Marketing at the collecting banker’s instance:

This type of marking is not very common. When the collecting banker receives a cheque too late to send it for collection on the same day, it may get the cheque marked good for payment to protect the interest of his customer. Marketing of cheque at the instance of the collecting banker implies that the cheque will be honoured when duly presented at the next clearing. Actually, such a marketing amounts to ‘constructive payment’.

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Maturity :

The maturity of promissory note or a bill of exchange is the date on which it falls due (Sec.22).

It should be remembered that a cheque is always payable on demand, as such it falls due on the date mentioned in it and not earlier.

1. An instrument which is payable on demand, or at sight or presentation becomes due at once.

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2. An instrument which is payable at a specified time after date or after sight or after the happening of a certain event, becomes due on the third day after the day on which it is expressed to be payable.

Days of Grace :

It was the practice in olden days to grant ‘3 days’ period to the debtor to enable him to make payment. Such period was allowed as a gratuitous favours and as such it was called days to grace. Now it is recognised by law also.

1. Instruments which are not allowed days of grace:

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Instruments which are in effect payable on demand e.g., instrument payable on demand, at sight or on presentation in which no date for payment is specified are not allowed any days of grace. As such these are due immediately. A cheque, if dated, is due from the date written on it and not earlier.

2. Instruments which are allowed days of grace:

Instruments which are not in effect payable on demand, e.g. instrument payable on demand, at sight or on presentation in which no date for payment is specified are not allowed any 3 days of grace. Such instruments are bills and notes payable at a specified time, after date or after the happening of certain event.

Days of grace are also allowed where an instrument is payable by installments. It must be presented for payment on the third day after the day fixed for the payment of each installment. It should be noted that days of grace are allowed on each installment. Failure to pay the installment, regularly or punctually, does not take away the right to day of grace.

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4. If the day of maturity is a holiday:

When an instrument is at maturity on a public holiday, it will fall due on the next preceding business day. Sunday or any other holiday declared as a public holiday by the Central Government is a public holiday.

Example:

A bill is due on Sunday, 27th Jan. 1977. It will fall due on 26th Jan., 1977. Since 26th January, 1977 is also a public holiday (Republic Day), then it will fall due on 25th Jan. 1977 and so on.

If the maturity falls on an emergency holiday, the instrument shall be deemed to be due on the next succeeding business day.

Payment in Due Course :

A bill is discharged only when the payment is made in due course. Therefore, when the payment is not made in due course, the instrument is not discharged and the holder can still claim the amount.

Payment in due course means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof, under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount mentioned therein. (Sec. 10.)

The following are the essential: conditions for a payment in due course:

1. Payment must be in accordance with the apparent tenor of the instrument:

Payment in accordance with the apparent tenor means that the payment has been made prima facie according to the intention of the parties. Thus, payment must be made in legal tender money unless agreed otherwise. Payment must be made on maturity, if the instrument is paid before maturity and the instrument is reissued or endorsed it will be valid in the hand of a holder in due course.

2. Payment must be made to a holder, i.e., the person who is entitled to the payment:

In case the instrument is payable to bearer, the payment to the person who is in possession of the instrument is payment in due course if there are no suspicious circumstances. For example, payment to a thief or finder is good if there are no circumstances to arouse the suspicion.

It should be noted that payment of a Shahjog Hundi should be made to a Shah, i.e., a respectable or reputable party. If the payment is made to a party who is a pauper, it is not a payment in due course. In case the instrument is payable to order, the payment must be made to that person his order. In case there is forged endorsement and the payment is made to the endorsee, it is not good payment. Even in the case of imper sonation, there is no payment in due course.

However, Sec. 85 (1) provides an exception in favour of a banker who in due course pays on a forged endorsement purported to be made by the payee. It should be noted that the protection is in respect of endorsement only, as a banker is not supposed to know the signatures of the whole world. But forgery of drawer’s signature will not discharge the bank as he is expected to know the signature of his drawer.

Again, Sec. 85 (2) provides that whereas a cheque is originally expressed to be payable to bearer, the drawee is discharged is discharged by payment in due course to the bearer even if there is an endorsement. As a rule is, once a bearer always a bearer. (For full discussion, see Chapter on Banker and Customer).

3. Payment must be made by or on behalf of the drawee or acceptor:

Payment by a stranger is not payment in due course except for honour of some party.

4. Payment must be made in good faith and without negligence:

It is an extension of the second rule. The payment must be made in such circumstances which do not create any doubt or suspicion. Payment made after stopping for countermanding payment by a customer is not payment in good faith and without negligence. It is a gross negligence.

Similarly Payment of Post dated cheque is not payment without negligence. Again Payment of a crossed over the counter is not a good payment.

Payment of Interest :

(Secs.79-80)

When Rate of Interest is Specified (Sec.79) :

When rate of interest is specified in the instrument, it will be payable at such rate on the principle sum due from the date of instrument to the date of payment or tender of the amount. In case a suit is filed on the instrument for non-payment, interest will be payable for such period as the Court may allow.

When Rate of Interest is not Specified (Sec. 80) :

When rate of interest in not specified in the instrument, interest on the amount outstanding shall be calculated (even if there is no agreement relating to interest) at the rate of 18% per annum from the date due until paid or tendered or realization of the amount or until such date after institution of the suit to recover such amount, as allowed by the Court.

Example:

In case the party charged is the endorser of the instrument dishonoured by non-payment, he is liable to pay interest only from the time he received notice of the dishonour.

Rate of interest raised from 6% to 18% by the Banking Public Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 w.e.f.