Jayanta Bandyopadhyay 23 August 2024

Ni act -blank cheque to bank towards loan

We are taking a term loan from Bank.

Towards discharge of the Borrower’s outstanding debt obligations under
the Facility (“Outstanding Debt Obligations”), the Borrower is advised by Bank to give a signed cheque(s) drawn in favor of Lendor Bank, to discharge Borrower’s pecuniary
obligations and also authorize and empower Bank/its officers to present the cheque(s) in terms of Section 20 of the Negotiable Instruments Act 1881 towards repayment of our Outstanding Debt Obligations.

What sanctity of 1881 act? Suppose cheque pattern undergoes changes during tenor of bank, then automatically, they can not encash it.
What legal binding lies with handing over the blank cheque? Signing persons may die or leave organisation during tenor of loan

Reply Follow

2 Replies

T. Kalaiselvan, Advocate (Advocate) 23 August 2024

Section 20 of the Negotiable Instruments Act of 1881 states that when someone signs and gives stamped paper to another person, they are giving the recipient the authority to make the paper a negotiable instrument. The recipient is then liable to any holder in due course for the amount specified in the instrument, but no one can receive more than the amount intended to be paid.

Section 20 also states that incomplete documents that are stamped in accordance with the law relating to Negotiable Instruments are legal instruments. The Andhra Pradesh High Court recently ruled that this presumption of consideration applies to such instruments under Section 118(a) of the Act.

Jayanta Bandyopadhyay 23 August 2024

Many thanks.sir.

Bank is taking one undated and signed cheque drawn as follows-

Our company name a/c. Bank name

Is it correct?

Further, if we go for fresh hypothecation instead of differential, there will be huge stamp duty. Can we arrange stamping in any cheaper state other than our regd office and Corp office situated states. All costs are to our account

Kindly guide