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Section 31: Liability of drawee of cheque

Negotiable Instruments Act • Official Statutory Text & Practice Guide

Statutory Regulation
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Act 1881
Section 30 All 148 Sections of Negotiable Instruments Act Section 32

Legal Commentary & Landmark Judgments: Section 31

Section 31 imposes a mandatory statutory duty on a drawee bank to honour cheques drawn upon it by a customer having sufficient funds properly applicable to payment, and penalizes wrongful dishonour with damages.

  • Sufficient Funds in Customer's Account: The customer must have sufficient cleared funds standing to credit, or an agreed overdraft facility, to cover the full cheque amount.
  • Properly Applicable to Payment: Funds must not be subject to any legal impediment, such as a court Garnishee Order, freezing order by enforcement agencies, or bank lien.
  • Liability for Wrongful Dishonour: The bank must compensate the drawer for any loss or injury caused by wrongful dishonour, including commercial injury to reputation.
Key Landmark Precedents:
  • Bank of Maharashtra v. Automotive Engineering Co. (1993) 2 SCC 97: The Supreme Court held that a bank has a legal duty under Section 31 to honour cheques when funds are sufficient; wrongful dishonour entitles a commercial trader to substantial damages without proving special loss.
  • Central Bank of India v. Gopinathan Nair (AIR 1970 Ker 74): Affirmed that where a bank wrongfully dishonours a businessman's cheque, substantial damages are awarded for injury to commercial creditworthiness.
Courtroom Practice & Strategic Litigation Guidance:

If a bank erroneously dishonours a client's cheque with the memo 'funds insufficient' despite adequate balance, immediately issue a legal notice under Section 31 claiming damages for injury to commercial credit before filing a consumer complaint or civil damages suit.

Section 30 All 148 Sections of Negotiable Instruments Act Section 32