Statutory Obligations of a Bank to Honour Customer's Cheques


A bank is a financial institution that provides various services to its customers, including the issuance of cheques. When a customer issues a cheque, it is the bank's responsibility to honor that cheque and make the payment to the payee. This obligation is backed by specific statutes and laws to ensure the smooth functioning of the banking system.


The correct answer to the question is option 'C,' which states that a bank is under a statutory obligation to honor its customer's cheques as per Section 31 of the Negotiable Instruments Act, 1881. This section deals with the liability of a banker to pay a customer's cheque.


- The Negotiable Instruments Act, 1881, is an Indian legislation that governs negotiable instruments such as promissory notes, bills of exchange, and cheques.
- Section 31 of this Act specifically addresses the obligations of a bank when it comes to honoring its customer's cheques.
- According to this section, when a customer issues a cheque, the bank is bound to pay it if there are sufficient funds available in the customer's account.
- The bank must pay the cheque as per the customer's mandate, regardless of any internal arrangements or disputes between the bank and the customer.


The other options mentioned in the question, namely:
a) Section 10 of the Banking Regulation Act, 1949
b) Section 3 of the RBI Act, 1934

Though these acts and sections govern various aspects of banking and regulate the functioning of banks in India, they do not specifically address the obligations of banks to honor customer's cheques. Therefore, these options are incorrect in the context of the question.


In conclusion, a bank is under a statutory obligation to honor its customer's cheques as per Section 31 of the Negotiable Instruments Act, 1881. This section ensures that banks fulfill their responsibility to pay customer's cheques as per the customer's mandate. It is important for banks to adhere to these statutory obligations to maintain the trust and confidence of their customers in the banking system.