Post-dated cheque

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In banking, postdated refers to cheques which have been written by the drawer (payor) for a date in the future.

Whether a postdated cheque may be cashed or deposited before the date written on it depends on the country. A Canadian bank, for example, is not supposed to process a postdated cheque and if it does so by mistake, the cheque writer may ask his or her bank to correct the error. In the U.S., however, check writers should not expect the post-dating of a check to be honored.[1]

In the United States, postdated items are described in Article 3, Section 113 of the Uniform Commercial Code.[2] Postdated checks are often used in conjunction with payday loans.

Practices in various countries[edit]

Brazil[edit]

In Brazil, the drawer may seek damages in Justice if their cheque is cashed in before its due date, according to the jurisprudential orientation of the Superior Court of Justice, as per Summary No. 370 of such court.[3]

Canada[edit]

Under the clearing rules of the Canadian Payments Association, a post-dated cheque cannot be cashed prior to the date written on it. If a Canadian financial institution inadvertently accepts and processes a cheque before the due date, the cheque writer may ask his or her financial institution to return the amount until the day before the cheque should have been cashed.[4]

India[edit]

Section 68 of the Indian Stamp Act provides as under -

68. Penalty for post-dating bills, and for other devices to defraud the revenue

Any person who,-

(a) with intent to defraud the government of duty, draws, makes or issues any bill of exchange or promissory note bearing a date subsequent to that on which such bill or note is actually drawn or made; or

(b) knowing that such bill or note has been so post-dated, endorses, transfers, presents for acceptance or payment, or accepts, pays or receives payment of, such bill or note, or in any manner negotiates the same; or

(c) with the like intent, practices or is concerned in any act, contrivance or device not specially provided for by this Act or any other law for the time being in force,

shall be punishable with fine which may extend to one thousand rupees. Legally a postdated cheque is not payable before the date written on the cheque. Some banks may "discount" a postdated cheque (even if drawn on another bank) by charging a fee for making payment before the date written on the cheque. The payee has to endorse the cheque to the bank that discounts the cheque. Interest from the date of payment to the date written on the cheque is also charged. Legally the payment made to the payee before the due date is considered a loan given by the bank. Therefore if the cheque is dishonoured on presentation, the payee has to return the money received earlier with penalty.

So Post Dated Cheques are illegal in India. In Indian Stamp Act as well as in Negotiable Instruments Act cheque has been defined to be a Bill of Exchange.

I understand that in other countries also there is stamp on Bills of Exchange. Any country where there is a stamp duty on Bills of exchange the Post dated cheque or blank cheque will be illegal.

Section 20 of Negotiable Instruments Act provides as under -

20. Inchoate stamped instruments

Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in 14[India], and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount; provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder.

Negotiable Instrument is defined as an instrument for which value has been received and is payable on demand or after some period. By Post dating a cheque it will come into existence on the date written thereon. And on that date it will become current dated and thus helping in evasion of stamp duty. I do not think a post dated cheque qualifies to be termed as negotiable instrument at all.

UK[edit]

In the UK the legislation is clear; 'A cheque is a bill of exchange drawn on a banker payable on demand'.[5] Under the Bills of Exchange and Banking Act 1882, part 10, bills of exchange are payable on demand and in part 13, 'A bill is not invalid by reason only that it is ante-dated or post-dated.'[6] In the United Kingdom post-dating a cheque carries no legal weight and therefore such a cheque can be cashed before the due date. However a bank can refuse to honour a cheque if the post-date is noticed; if it isn't, the payer has no right to take any form of legal action against the bank for letting the cheque be processed.[7][8] It is common for the terms and conditions of chequing accounts to state that post-dated cheques should not be written and will be dishonoured if detected.[9][10] In some instances a post-dated cheque may be retained by the bank and paid on the due date if that date is only a few days away.[11] Some UK organisations do not accept post-dated cheques[12] as well as some Government Departments,[13] while paying income tax or voluntary National Insurance may only be done with post-dated cheques with permission from HM Revenue and Customs Department.[14][15]

USA[edit]

In the United States, national banks are permitted to pay checks even though payment occurs prior to the date of the check. According to the Comptroller of the Currency: "A check is a negotiable instrument—the payee, the person to whom the check is written, may negotiate it through the banking system at any time" and cheque writers seeking redress must restrict themselves to pursuing the payee.[16] Nonetheless, if "the customer has given notice to the bank of the postdating describing the check with reasonable certainty" the Uniform Commercial Code requires that that notice be honored.[17] In practice whether the cheque writer has any redress against the financial institution where the payee deposited the cheque may depend on whether it can be shown that the cheque was accepted over the counter without examination.[18]

See also[edit]

References[edit]

  1. ^ Banking in Canada and the U.S. RBC Bank Advice Centre
  2. ^ 3 UCC 113 from the Cornell Law Center's online version of the Uniform Commercial Code
  3. ^ http://www.stj.gov.br/portal_stj/publicacao/engine.wsp?tmp.area=398&tmp.texto=90959
  4. ^ Post-dated cheques Financial Consumer Agency of Canada
  5. ^ http://www.legislation.gov.uk/ukpga/Vict/45-46/61/part/III
  6. ^ http://www.legislation.gov.uk/ukpga/Vict/45-46/61
  7. ^ http://www.chequeandcredit.co.uk/faqs/-/page/can_i_post-date_a_cheque/
  8. ^ http://news.bbc.co.uk/2/hi/programmes/moneybox/3537727.stm
  9. ^ http://payontime.co.uk/cheques-and-cheque-clearing/cheques-and-the-cheque-clearing-system
  10. ^ http://news.bbc.co.uk/2/hi/programmes/moneybox/3537727.stm
  11. ^ http://www.debtscotland.com/bouncedcheques.cfm
  12. ^ https://engineers.gassaferegister.co.uk/Renewals/RenewalFAQ.aspx
  13. ^ http://www.nidirect.gov.uk/the-cost-of-a-driving-licence
  14. ^ https://www.gov.uk/pay-self-assessment-tax-bill
  15. ^ https://www.gov.uk/pay-voluntary-class-3-national-insurance
  16. ^ "Answers About Cashing Checks". Comptroller of the Currency, Administrator of National Banks. Retrieved 2008-11-25. 
  17. ^ http://www.law.cornell.edu/ucc/4/4-401.html
  18. ^ Practical Application of the UCC bankersonline.com