Bank should honour drafts issued by it

“By issuing a draft, every bank undertakes a liability which it is bound to discharge at the instance of the person in whose favour it has issued the draft or any person claiming through him. It would lead to unimaginable uncertainty in the business and the financial world if bank drafts were to be countermanded easily,” wrote the Calcutta High Court last week in its judgment in Nepal Bangladesh Bank Ltd vs Everett (India) Ltd. In this case, two drafts were issued to the company, which were rejected by the bank where it was presented.

This led to a suit that was decreed by a single judge bench of the high court. The division bench dismissed the bank’s appeal, observing that “in the current scenario where the integrity of the financial system in general and banking channels, in particular, are under ominous dark clouds such conduct of the bank cannot be countenanced.” The court imposed a penalty of Rs. 1 lakh on the bank which will be given over to the mediation cell of the West Bengal legal services authority.