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Cheques. Virtually every adult today would have come across this instrument while either paying for rent in advance or while finalizing a business deal or home loan. Those who are into a business most certainly have come across this important financial instrument in the business world.
It won’t be wrong to say that virtually everyone knows what a cheque is, except for millennials perhaps. It’s not their fault, though, as digital payments are the most popular method of payment in this age of technology due to which cheques are used quite less for a deposit or withdrawal of money.
This article addresses the concept of cheques, Post-dated Cheques (PDC) and everything related to it. Let’s lay the foundation by understanding first what a simple bank cheque is.
A cheque is defined as an instruction to the bank asking to pay a stated sum from the owner’s account to the cheque presenter or drawer. Cheques are written or printed in a specific format and in a form that is not easily replicable.
The respective banks print the cheques, and in some cases, customize them with the name or account number of the person holding an account with the bank. A sample cheque from the State Bank of India is shown below:
Before we dive into the details about Post-dated Cheques, let’s look at the components or parts of a cheque.
As you can see in the image of a sample cheque above, several blanks need to be filled in before you send the cheque to be honoured by the bank.
With the concept of cheques now behind us, it should be much easier to understand the concept of Post-dated Cheques.
So, what is a PDC cheque? Post-dated cheques are normal cheques with a future date written on them. The cheques cannot be honoured by the banks before the date mentioned on the cheque.
Post-dated cheques, like normal cheques, have a validity of 3 months from the date of issuance. The national bank of India, RBI (Reserve Bank of India), has reduced the validity period of all cheques from the previous 6 months to 3 months, effective April 1, 2012.
However, there is a small technicality. The 3 months are not counted in the number of days, but the date of issuance. For example, if the cheque was issued or is payable on 01 Jan 2021, the cheque will be valid till 31st of Mar 2021, irrespective of the number of days in between.
Post-dated cheques are usually issued in one of the below cases.
Section 138 of the Negotiable Instruments Act applies to cheques and post-dated cheques alike. Under Section 138, Post-dated cheques should have an amount written with a future date for withdrawl. There have been incidents where blank post dated cheques have been issued, and the courts have promptly rejected these as the cheques become a bill of exchange only if a certain amount is mentioned on the post-dated cheque.
It is important to note that a bounced or dishonoured cheque is considered a criminal offence, punishable by a jail term or fines under section 138 of the Negotiable Instruments Act.
Under the provisions of the Negotiable Instruments Act, the legal penalty for the dishonour of a post dated cheque is:
As per the provisions of section 138 of the Negotiable Instruments Act, a legal notice should be issued within 30 days of the date the cheque bounced or was dishonoured.
In the absence of a valid response from the respondent, the concerned party must file a case within 45 days from the date of the legal notice.
Also Read: Double Entry System of Accounting
Post dated cheques are a great way to enjoy products and services before you actually pay for such services and products. They can also be used as security for short term loans. It is also a quick way to continue business operations without having to stop for want of funds. It also ensures the quality of the product or service.
Post-dated cheques now have a validity of only 3 months from the date of issuance.
What is the validity of normal cheques?
Like post-dated cheques, normal cheques also have only 3 months of validity from the date of issuance.
Is dishonour of post-dated cheques a criminal offence?
Yes, dishonour of post-dated cheques is considered a criminal offence in India.
Can I use post-dated cheques as security for short term loans?
Yes, if the lender agrees to it, you may use post-dated cheques to secure short-term loans as a means of security.
Which law governs the issuance of post-dated cheques?
Section 138 of the Negotiable Instruments Act holds legal standing in legal cases related to post-dated cheques.
What is the punishment for the dishonour of cheques?
As per provisions of section 138 of the Negotiable Instruments Act, the issuer of a dishonoured cheque is liable to go to jail for up to 1 year or pay a fine equal to twice the value of the cheque or both.
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