Liability for Marked Post-Dated Cheques

The Question in Perspective

The central question is whether the Bank of Bihar, having discounted a post-dated cheque that was marked by Bengal Bank and subsequently dishonoured for want of funds, can recover the money from Bengal Bank. The answer requires navigating three interlocking principles: the nature of a post-dated cheque, the legal effect of "marking" or "certification" by a bank, and the rights of a holder in due course against the drawee bank.

The Post-Dated Cheque: A Bill of Exchange First

The first thing to appreciate is that the instrument in question was a post-dated cheque, which means that when it was drawn by C, it was not yet technically a cheque within the meaning of Section 6 of the Negotiable Instruments Act, 1881. A cheque is defined as a bill of exchange drawn on a specified banker and payable on demand. A post-dated instrument, however, is not payable on demand when drawn — it only becomes a cheque on or after the date it bears. As the Madras High Court held in N.S. Rasheed v R. Loganathan (AIR 2008 NOC 149 Mad), a post-dated cheque remains a bill of exchange until the date mentioned on it, and only thereafter becomes a cheque. This distinction is not merely semantic — it carries real legal consequences for the parties involved.

The Effect of "Marking" by Bengal Bank

Bengal Bank marked the cheque "good for payment" on the date it bore. This act — commonly called certification or marking — has been the subject of significant judicial consideration. The Privy Council, in the landmark case of Bank of Baroda Ltd. v Punjab National Bank Ltd. (1944) 2 All ER 83, laid down the authoritative position that certification of a cheque by a banker does not constitute acceptance of the instrument in the legal sense contemplated by the Act. The Privy Council held that such certification may be construed as a representation of two things: first, the genuineness of the cheque and of the drawer's signature; and second, the current sufficiency of the drawer's account to meet the cheque at the time of marking. Importantly, it is not an undertaking to pay.

This point is of critical importance. The drawee of a cheque — which Bengal Bank was — does not become an acceptor merely by marking the instrument. Under Section 32 of the Act, it is the acceptor of a bill of exchange who is primarily and unconditionally bound to pay. Since Bengal Bank never accepted the instrument in the legal sense, it did not assume the liability of an acceptor. There is no privity of contract between Bengal Bank and the Bank of Bihar arising out of the mere act of marking.

No Privity Between the Holder and the Drawee Bank

The fundamental rule embedded in Section 31 of the Act is that the drawee of a cheque, while obligated to honour it if funds are sufficient, owes that duty to the drawer — to the customer — and to the customer alone. As the Supreme Court noted in Jagjivan Mavji Vithlani v Ranchhoddas Meghji (1955 1 SCR 503), and as the law has repeatedly affirmed, the drawee bank is not liable to the payee unless it has accepted the instrument. The obligation created by Section 31 runs between the banker and the drawer, not between the banker and any third party who may be holding the cheque. There is no cause of action in favour of the Bank of Bihar, as holder, against Bengal Bank arising simply from the dishonour.

Furthermore, where a bank manager, without proper authority, certified a post-dated cheque, the bank was held not liable to a holder in due course when, on presentation on the due date, there were no funds in the drawer's account to meet it — and the holder in due course could not claim either in contract (there being no privity) or on estoppel (there being no consideration passing from him to the bank). This is precisely the situation before us.

The Bank of Bihar's Position as Holder in Due Course

The Bank of Bihar discounted the cheque — that is, it purchased the instrument from D, paying value for it before maturity. In doing so, it became a holder in due course within the meaning of the Act, taking the instrument for value, in good faith, before it became overdue, and without notice of any defect. As a holder in due course, the Bank of Bihar acquired all the rights that the law confers — but those rights run against the parties to the instrument, not against the drawee bank which has never accepted it. Its right of recourse is therefore against the prior parties: against D, who indorsed the cheque when discounting it, and against C as the drawer.

The Answer to the Question

The Bank of Bihar cannot claim the money from Bengal Bank. The reasoning is as follows:

Bengal Bank's marking of the cheque was a representation, not an acceptance. It created no contractual obligation in favour of the Bank of Bihar.
There is no privity of contract between the Bank of Bihar and Bengal Bank.
The duty cast by Section 31 runs only in favour of the drawer, C — not in favour of any holder or third party.
The Privy Council's ruling in Bank of Baroda v Punjab National Bank, which is the governing authority on certification of cheques in Indian law, makes it explicit that certification does not transform the drawee bank into an acceptor.
The Bank of Bihar's remedy lies not against Bengal Bank, but against D who discounted the cheque (and who, by delivering it for discount, assumed the liability of an indorser), and against C as the drawer who is obliged to compensate the holder on dishonour after due notice.

It may also be observed that the marking was done by the bank manager, apparently without proper authority from the bank, which further weakens any claim that Bengal Bank assumed any special obligation to third parties. The Bank of Bihar, having acquired the instrument by discounting, took the commercial risk that the drawer's account might prove insufficient at the time of presentation. That risk has materialised, and the loss must be borne by recourse along the chain of parties to the instrument — not by proceeding against the drawee bank which never bound itself by acceptance.