Can I Stop Payment on a Cheque After the Bank Handed It Over to the Seller?

When it comes to financial transactions, the ability to stop payment on a cheque can be crucial for both the drawer and the payee. If a bank has handed over a cheque to a seller, can the payment be stopped? This article aims to provide clarity on this issue, addressing common scenarios, legal considerations, and practical steps.

Understanding Stop Payment on a Cheque

A payment of a cheque can be stopped by the drawer before the cheque is encashed. This means that if the drawer issues a stop payment instruction to the bank before the cheque is paid, the bank must comply and halt the payment process. This is irrespective of whether the cheque has been handed over to another party, such as a seller. The act of stopping the payment does not void any contracts or agreements between other parties involved in the cheque.

Who Can Stop Payment?

The drawer of the cheque has the authority to stop payment. If you have issued the cheque and you need to stop the payment, you can do so by contacting your bank and sending a stop payment instruction. This can be done online through internet banking, or through the bank’s counter.

However, if the cheque was issued by the bank itself, you, as the drawer, cannot stop the payment. The bank cannot stop the payment of a cheque it has issued, as it cannot countermand its own instructions. In such cases, the drawer must address any disputes or complications with the recipient directly.

Submitting a Stop Payment Instruction

To stop payment on a cheque, the drawer must issue a stop payment instruction to the drawee bank in writing. The instruction must include the correct details of the cheque, such as the cheque number, date, payee's name, and the amount. It is essential to ensure that the bank notes the instructions clearly.

Legal Considerations and Exceptions

There are very few exceptions to the ability to stop payment on a cheque. If the bank itself is the beneficiary, it may be able to establish a law of estoppel, which can prevent the drawer from stopping the payment. Additionally, if there is a genuine dispute with the seller, the drawer can address the issue through communication or negotiation with the seller. If the situation is unresolved, the drawer should consider consulting a legal professional.

Consequences of Misusing Stop Payment

Using stop payment as a means to avoid legitimate payment without a genuine reason can have serious legal repercussions. If you misuse the stop payment mechanism to avoid a payment for which you are liable, the payee can proceed against you under Section 138 of the Negotiable Instruments Act for wrongful dishonour of a cheque. This can result in fines, legal fees, and damage to your credit rating.

Conclusion

The ability to stop payment on a cheque before it is encashed is a crucial right for the drawer. If you find yourself in a situation where you need to stop payment, it is advisable to take the correct steps and ensure that the bank complies with your instructions. Failing to do so can lead to legal complications and financial penalties.