Post Dated Cheque Legal Status - Validity, Bounce and Legal Recourse for PDCs

What is a Post Dated Cheque

A post-dated cheque (PDC) is a cheque that bears a future date. The drawer issues the cheque with a date that is later than the date of issuance, with the understanding that the cheque will be presented for payment on or after the date mentioned on the cheque. Post-dated cheques are commonly used in India for various purposes, including loan repayments, instalment payments, security deposits, and advance payments. The PDC provides the drawer with time to arrange funds, while the payee has the assurance of a future payment.

The legal status of a post-dated cheque has been the subject of judicial interpretation. The Supreme Court has held that a post-dated cheque is a negotiable instrument that becomes a cheque on the date mentioned on it. Until that date, it is a bill of exchange. When a post-dated cheque is presented on or after its date and is dishonoured, the drawer can be prosecuted under Section 138 of the Negotiable Instruments Act. The dishonour of a post-dated cheque attracts the same legal consequences as the dishonour of a regular cheque. Vidhi Legal Services advises clients on the legal status of post-dated cheques and the remedies available in case of dishonour.

Legal Validity of Post Dated Cheques

The legal validity of post-dated cheques has been established by the Supreme Court in several landmark judgments. In the case of Ashok Yeshwant Badave v. Surendra Madhavrao Nighojakar, the Supreme Court held that a post-dated cheque is not payable until the date mentioned on it. The cheque becomes a cheque on the date mentioned, and the bank can honour it only on or after that date. The period of limitation for presenting the cheque runs from the date mentioned on the cheque, not from the date of issuance.

The Supreme Court has also held that a post-dated cheque can be presented for payment at any time within its validity period, which is three months from the date mentioned on the cheque. If the post-dated cheque is dishonoured, the payee can take legal action under Section 138, provided all the procedural requirements are satisfied. The courts have also held that the issuer of a post-dated cheque is liable under Section 138 if the cheque is dishonoured due to insufficient funds or other reasons. The liability arises from the date of the cheque, and the drawer cannot argue that the cheque was issued as a security or for a future liability. Vidhi Legal Services provides expert guidance on the legal validity of post-dated cheques and the rights of the parties.

Presentation and Clearing of PDCs

The presentation and clearing of post-dated cheques is governed by the rules and guidelines of the Reserve Bank of India. A post-dated cheque cannot be presented before the date mentioned on the cheque. If a post-dated cheque is presented before its date, the bank will dishonour the cheque with the return code Post Dated. The payee must present the cheque on or after the date mentioned on the cheque. The cheque must be presented within its validity period, which is three months from the date mentioned on the cheque.

Banks in India use the Cheque Truncation System (CTS) for clearing cheques. When a post-dated cheque is presented on or after its date, the cheque is processed through the CTS system in the same manner as a regular cheque. If the cheque is dishonoured due to insufficient funds or other reasons, the bank issues a cheque return memo with the reason for dishonour. The payee can then take legal action under Section 138. The payee should ensure that the post-dated cheque is presented promptly on or after its date to avoid the cheque becoming stale. Vidhi Legal Services advises clients on the proper presentation of post-dated cheques and the steps to take in case of dishonour.

Cheque Bounce of a Post Dated Cheque

When a post-dated cheque is dishonoured, the legal consequences are the same as for a regular cheque. The payee can file a criminal complaint under Section 138 of the Negotiable Instruments Act, provided all the procedural requirements are satisfied. The payee must issue a legal notice within 30 days of receiving the cheque return memo, and the drawer must fail to make payment within 15 days of receiving the notice. The payee must file the complaint within one month from the expiry of the 15-day notice period.

The drawer cannot defend the case by arguing that the cheque was post-dated and was issued as a security. The Supreme Court has held that a post-dated cheque is a cheque for the purposes of Section 138, and the drawer is liable if the cheque is dishonoured. The drawer can, however, raise other defences, such as the cheque not being issued for a legally enforceable debt or liability, or the debt being discharged before the presentation of the cheque. The payee should be prepared to prove that the cheque was issued for a valid debt or liability and that all procedural requirements were satisfied. Vidhi Legal Services assists clients in pursuing legal action for the dishonour of post-dated cheques.

Precautions for Issuing and Accepting PDCs

Both the drawer and the payee should take certain precautions when dealing with post-dated cheques. For the drawer, the most important precaution is to ensure that sufficient funds are available in the account on the date mentioned on the cheque. The drawer should also maintain a record of all post-dated cheques issued and the due dates. The drawer should ensure that the cheque is properly filled and that the signature matches the specimen signature. The drawer should also communicate with the payee if there is any delay or difficulty in arranging funds.

For the payee, the most important precaution is to verify the credibility of the drawer before accepting a post-dated cheque. The payee should also ensure that the cheque is properly filled and that all details are correct. The payee should present the cheque promptly on or after its date and should follow up with the bank to ensure that the cheque is cleared. The payee should preserve the cheque and the return memo in case of dishonour. The payee should also maintain a record of all post-dated cheques received and the due dates. The payee should also consider using electronic payment methods as an alternative to post-dated cheques. Vidhi Legal Services advises clients on best practices for issuing and accepting post-dated cheques.

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