Section 31 of the Negotiable Instruments Act, 1881 (India) – “Liability of drawee of cheque”.

As a law firm specializing in commercial and corporate law, we have come across numerous instances where our clients, who are Non Resident Indians (NRIs), have been involved in disputes related to cheques. In such cases, Section 31 of the Negotiable Instruments Act, 1881 (India) comes into play.

Section 31 of the Negotiable Instruments Act deals with the liability of the drawee or bank on whom a cheque is drawn. It states that “the drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required to do so.”

This means that if a person draws a cheque on their account and there are sufficient funds available for its payment, then the bank on which it is drawn (i.e., drawee) has an obligation to honor it upon presentation. Failure by the bank to do so can result in legal action against them.

In case laws like Standard Chartered Bank v Andhra Bank Financial Services Limited and Anr, it was held that since banks earn interest from deposited money and also charge fees for banking services, they owe a duty to their customers to ensure proper functioning of their banking systems so as not to cause loss or inconvenience due to negligence.

Further amplifying this view point regarding Section 31’s applicability towards banks was observed in Vijaypath Singhania vs National Thermal Power Corporation Ltd., where court stressed that as per Section 85b(3) read with Section 138-NIAct & RBI Guidelines – A banker should provide reasonable assistance relating dishonor/ non-clearance/ dishonouring cheques even after customer closed account.

The relevance of Section 31 becomes more pronounced when dealing with NRIs whose transactions involve cross-border payments because distance makes communication difficult between parties making it necessary for courts working extra hard at ensuring impartiality during legal proceedings yet still maintaining procedural fairness under Indian Law.

The law is clear that if a drawee bank fails to honor a cheque in accordance with Section 31, legal action can be taken against them. This makes it imperative for NRIs to have a thorough understanding of the laws governing cheques in India and also seek legal advice when required. In conclusion, we advise all NRIs to abide by the provisions on this matter as per applicable law and courts judgments related thereto before embarking on any commercial or financial dealing requiring issuance of cheques, since it’s not only banks but individuals can held liable under negotiable instruments act too.