Ashok Yeshwant Badeve v. Surendra Madhavrao Nighojakar (2001)

It settles the character of the post-dated cheque, which is the commonest instrument in commercial practice and the most frequently misdescribed in examination answers.

The point turns on the definition. A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. An instrument that will not be payable until a future date is therefore not, at the moment of issue, payable on demand. What is it then? The Court's answer is precise and is the single sentence to learn: a post-dated cheque is not payable till the date shown on it arrives; it becomes a cheque on that date; and prior to that date it remains a bill of exchange.

Everything examinable follows from that — when the banker may pay, when the banker must pay, and when payment is made for the purposes of limitation.

The judgment is a survey, and the survey itself is the answer to a question on the subject.

| Authority | Proposition | |---|---| | Da Silva v. Fuller (1776) | A banker was not justified in paying a post-dated cheque before its actual date | | Emanuel v. Robarts (1868) | A banker was justified in refusing payment of a post-dated cheque before its due date, and the custom of bankers to do so was part of the contract between banker and customer | | Bull v. O'Sullivan | A post-dated cheque payable to order was an instrument payable to order on demand on its date | | Gatty v. Fry (1877) | A post-dated cheque is not payable on the day it is issued but on the day of its date | | Palmer, Re, ex p. Richdale (1882) | After the English codification, a post-dated cheque was equivalent to a bill of exchange payable on a future date, namely the date of the cheque | | Hinchcliffe v. Ballarat Banking Co. | A post-dated cheque is a bill of exchange payable at a future date, and the banker may be liable to an action by the customer for negligence if he pays it before the day it bears date | | Royal Bank of Scotland v. Tottenham (1894) | Post-dating does not invalidate; the objection is now obsolete and useless |

Lord Esher's reasoning in Royal Bank of Scotland v. Tottenham is the passage to carry. A cheque is a contract between the parties, and it is for the judge at the trial to construe that contract by reading what is written upon it. Read on its face, the instrument was dated and payable to order, and was simply an order to pay on demand. It would be fallacious to put a different construction on the written document merely because it had been handed over before the day of the date written upon it. Post-dating does not make a cheque invalid; if a post-dated cheque is dealt with as a bill of exchange before the date it bears, it becomes a bill of exchange in the ordinary sense, but it is not in any way an escrow.

The judgment collects the practice, and it is examinable because it states what a banker must do rather than what a court will hold.

Post-dated cheques are not invalid, but the banker should not pay such a cheque if it is presented before the date it bears. If a cheque dated on a Sunday is presented on the previous business day, it should be returned with the answer post-dated. A post-dated cheque, however, if presented at or after its ostensible date, should be paid, though the banker knows it to be post-dated, and even if it has been presented before the date and refused payment.

The purpose of issuing a post-dated cheque is to prevent the drawee banker from paying it to the payee or a holder before the date written on it. It is clear that the instrument is a cheque once the date written on it arrives; its status before that date is less clear, and it is arguable that between issue and the date written it is not payable on demand and so cannot be a cheque but is an instrument of a different kind. One view expressed is that so far as its practical effect is concerned, a post-dated cheque is the same thing as a bill of exchange at so many days' date as intervene between the day of delivering the cheque and the date marked upon it; another, that the effect is equivalent to giving a promissory note not payable until the date written on the cheque.

A practical statement to the same effect: a cheque is generally post-dated because the drawer does not expect to have the funds to meet it until that date arrives; it is a mandate to the banker that it should not be paid before that date arrives. The difficulties a post-dated cheque presents the banker are practical rather than legal.

In Jiwanlal Achariya v. Rameshwarlal Agarwalla (AIR 1967 SC 1118) a cheque dated 25 February 1954 was delivered on 4 February 1954 and encashed soon after 25 February. The question was when payment had been made for the purposes of the limitation legislation.

The majority held that where payment is by cheque and is conditional, the mere delivery of the cheque on a particular date does not mean that payment was made on that date, unless the cheque was accepted as unconditional payment. Where it is not so accepted, it can only be treated as conditional payment, and the payment is then made on the date on which the cheque would be actually payable at the earliest, assuming it will be honoured. Since the payment was conditional, it would be good only when the cheque was presented on the date it bore and was honoured; the earliest date on which the payee could have realised a cheque received as conditional payment on 4 February was 25 February.

Reading ss. 5 and 6 together, a bill of exchange is a negotiable instrument in writing containing an instruction to a third party to pay a stated sum at a designated future date or on demand. A cheque under s. 6 is also a bill of exchange, but drawn on a banker and payable on demand. A bill of exchange, even though drawn on a banker, is not a cheque if it is not payable on demand.

Therefore a post-dated cheque is not payable till the date shown on it arrives; it becomes a cheque on that date; and prior to that date it remains a bill of exchange.

An instrument drawn on a banker but bearing a date later than that of its issue is, until that date arrives, a bill of exchange and not a cheque, because it is not payable on demand; on the arrival of the date it becomes a cheque. A banker should not pay it before that date and, if he does, may be liable to his customer in negligence; presented at or after that date it should be paid, even if the banker knows it was post-dated and even if it was earlier refused.