Promises have some values

A Negotiable Instrument means a  Promissory Note, Bill of Exchange or Cheque payable either to order or to bearer.  

Negotiation means when a  Promissory Note, Bill of Exchange or Cheque is transferred to any person, so as to constitute the person the holder thereof, the instrument is said to be negotiated. 

RBI Circular regarding dishonor of cheque for schedule banks Ref. DBOD.BC.Leg. No.113 / 09.12.001/ 2002-03

  Procedure for Dishonor of cheques

Procedure for return/ dispatch of dishonored cheques:  

(i) The paying bank should return dishonored cheques presented through clearing houses strictly as per the return discipline prescribed for respective clearing house in terms of Uniform Regulations And Rules for Bankers' Clearing Houses. The collecting bank on receipt of such dishonored cheques should dispatch it immediately to the payees / holders.  

(ii) In relation to cheques presented direct to the paying bank for settlement of transaction by way of transfer between two accounts with that bank, it should return such dishonored cheques to payees/ holders immediately.  

(iii) Cheques dishonored for want of funds in respect of all accounts should be returned along with a memo indicating therein the reason for dishonor as "insufficient funds."  

Information on dishonored cheques:  

(i) Data in respect of each dishonored cheque for amount of Rs.1 crore and above should be made part of bank's MIS on constituents and concerned branches should report such data to their respective controlling office / Head Office.  

(ii) Data in respect of cheques drawn in favor of stock exchanges and dishonored should be consolidated separately by banks irrespective of the value of such cheques as a part of their MIS relating to broker entities, and be reported to their respective Head Offices / Central Offices.  

Dealing with incidence of frequent dishonor:  (i) With a view to enforce financial discipline among the customers, banks should introduce a condition for operation of accounts with cheque facility that in the event of dishonor of a cheque valuing rupees one crore and above drawn on a particular account of the drawer on four occasions during the financial year for want of sufficient funds in the account, no fresh cheque book would be issued. Also, the bank may consider closing current account at its discretion. However, in respect of advances accounts such as cash credit account, overdraft account, the need for continuance or otherwise of these credit facilities and the cheque facility relating to these accounts should be reviewed by appropriate authority higher than the sanctioning authority.  

(ii) For the purposes of introduction of the condition mentioned at (i) above in relation to operation of the existing accounts, banks may, at the time of issuing new cheque book, issue a letter advising the constituents of the new condition.  

(iii) If a cheque is dishonored for a third time on a particular account of the drawer during the financial year, banks should issue a cautionary advice to the concerned constituent drawing his attention to aforesaid condition and consequential stoppage of cheque facility in the event of cheque being dishonored on fourth occasion on the same account during the financial year. Similar cautionary advice may be issued if a bank intends to close the account.