Addis Ababa University

School of law and governance

Faculty of law
Recourse for nonpayment of cheques in Ethiopia
L.L.B Senior Thesis

By Girma W/Giorgis
Submitted to : Shume Alemu

Jan, 2019
i
Contents
Chapter one ................................................................................................................................................. 1
1.1 Introduction ........................................................................................................................................... 1
1.2 Statement of the problem ..................................................................................................................... 2
Determine our Damages and the Likelihood of Recovery ....................................................................... 3
1.3 Objectives of the study .......................................................................................................................... 5
1.3.1 Specific objectives of the study ......................................................................................................... 5
1.4 Research questions ................................................................................................................................ 5
1.5 Scope of the study............................................................................................................................ 5
1.6 Significance of the Study ...................................................................................................................... 5
Chapter two ................................................................................................................................................. 7
2. Review of related literature .................................................................................................................... 7
2.1Type and definition of negotiable instruments .................................................................................... 7
3.1 Recourse for nonpayment of cheque ..................................................................................................... 14
3.3 The Punishment of the unbalanced cheque ...................................................................................... 17
3.4 Civil liability of dishonored cheque under Ethiopian Law ............................................................. 18
3.5 other problems related to cheque ...................................................................................................... 18
Chapter three ............................................................................................................................................ 21
Research Methodology ............................................................................................................................. 21
2.1 Methodology ........................................................................................................................................ 21
2.2 Data analysis ........................................................................................................................................ 21
2.3 Data sampling ...................................................................................................................................... 21
Chapter Four ............................................................................................................................................. 22
4. Finding and analysis of the study .................................................................................................... 22
4.1 Guide to the legal recourse under Indian law/practice.............................................................. 22
4.1.1 Filing a criminal complaint under Indian law/ practice ............................................................... 22
4.1.2 Filing a civil suit under Indian law/ practice ................................................................................. 23
4.1.3 Exceptions ......................................................................................................................................... 24
4.1.4 Risk faced by defaulters .................................................................................................................. 24
4.1.5 Changes in the pipeline .................................................................................................................... 24
4.2 Legal recourse under Ethiopian law/practice .................................................................................. 24
4.3 Recourse for non-payment ................................................................................................................. 25

ii
4.3.1. Stop payment Order ....................................................................................................................... 27
4.3.1.1 Possible conditions for order of nonpayment. ............................................................................ 27
Chapter Five .............................................................................................................................................. 29
Conclusion and recommendation ............................................................................................................ 29
5.1 Conclusion ........................................................................................................................................... 29
5.2 Recommendations ............................................................................................................................... 30
References .................................................................................................................................................. 31

iii
 Chapter one
1.1 Introduction
Cheque is a negotiable instrument drawn against the bank, to pay a specified amount of money to
a specific person upon demand.1 Examples include cheques, bills of exchange and drafts.2 Under
Ethiopian law, cheque is defined under negotiable instruments. Negotiable Instruments are
documents or papers incorporating or containing various types of rights which are transferred by
endorsement and delivery or by mere delivery of the document. 3The Ethiopian Commercial
Code recognizes three types of documents as negotiable instruments, i.e., commercial
instruments /bills of exchange, promissory notes, cheques, travelers‘ checks/, securities / shares
or stocks, bonds/ and documents of title to goods / bills of lading and other types of way bills,
warehouse goods‘ deposit certificates.4 Article 715 of the commercial code state that a negotiable
instrument is any document incorporating a right to an entitlement in such manner that it be not
possible to enforce or transfer the right separately from the instrument. (2) The law recognizes in
particular as negotiable ointments commercial instruments, transferable securities, documents of
title to goods.5 Here it is stated as follows.

Art. 715. – Definitions

(1) A negotiable instrument is any document incorporating a right to an

entitlement in such manner that it be not possible to enforce or transfer the right
separately from the instrument.

(2) The law recognizes in particular as negotiable instrument commercial

instruments, transferable securities, documents of title to goods.

Article 868 of the same code also stipulates the holder may exercise , his right of recourse
against the endorsers, the drawer and the other parties liable where the cheque on presentment in
due time is not paid and the refusal to pay is evidenced.

( a) by a formal instrument (protest); or

1
http://www.investorwords.com/844/check.html#ixzz5e16lbKit
2
ibid
3
Fasil Alemayehu and Merhatbeb Teklemedhin (2009) Law of Banking, Negotiable Instruments and Insurance
Teaching Material. Justice and Legal System Research Institute. page 1.
4
Ibid
5
Commercial code of the empire of Ethiopia 1960. Article 715(2)

1
 (b) by a declaration by the drawee dated and written on the cheque and specifying the
day of presentment; or

( c) by a dated declaration made by a financial institution approved by the

Government stating that the cheque has been presented indue time and !has not been
paid.

Some experts think the Romans may have invented the check about 352 BC. But even if
that were true, the idea apparently didn’t catch on. Banks or bank-like institutions existed
in ancient Mesopotamia, Greece, and Rome, and probably transferred deposits from one
account to another, but no documentary evidence of such transfers has survived.6

As cheques became more widely accepted, bankers discovered they had a big problem,
which still exists in today’s society: how to move these pieces of paper to collect the
money due from so many other banks. At first, each bank sent messengers to the other
banks to present cheques for collection, but that meant a lot of travelling and a lot of cash
being hauled around in less than secure conditions.7

1.2 Statement of the problem

A practice grew up whereby a customer could arrange for the transfer of part of his credit
balance to another party by addressing an order to the banker. This was the origin of the
modern cheque. It was only a short step from making a loan in specie or coin to allowing
customers to borrow by cheque: the amount borrowed would be debited to a loan account
and credited to a current account against which cheques could be drawn; or the customer
would be allowed to overdraw his account up to a specified limit. In the first case, interest
was charged on the full amount of the debit, and in the second the customer paid interest
only on the amount actually borrowed. A cheque was a claim against the bank, which had a
corresponding claim against its customer.8

Cheque ease of use, which provides advantages over other payment methods but creates
risk to businesses and banks; cheques sophistication, which evolved through centuries of

6
http://echeck.org/the-brief-history-of-checking-using-checks-as-for-money/
7
http://echeck.org/the-brief-history-of-checking-using-checks-as-for-money/
8 Fasil Alemayehu and Merhatbeb Teklemedhin (2009) Law of Banking, Negotiable Instruments and Insurance
Teaching Material. Justice and legal system research institute. Addis Ababa.

2
legal precedent and operational experimentation; and cheques' high costs relative to other
forms of payment.9

As it has attempted to discuss above, a cheque was aimed to be used to facilitate the
business transaction. However, so many criminal acts are being occurring in our day today
activities. If you run a business, whether a major corporation or a sole proprietorship, one
of the biggest headaches is not get paid on time. Accounts receivable are the lifeblood of
any operation and when that spigot turns off or even slows down, it can have a devastating
impact.10

Determine our Damages and the Likelihood of Recovery

Before we initiate the legal process to collect a debt, we need to make an important
business decision is it worth the cost of litigation to pursue? As we weigh this decision,
we'll need to know what our damages are and whether the customer can pay up. 11 When
determining damages, we'll want to calculate all of the unpaid invoices and, if the customer
was renting or buying goods or equipment, whether they were damaged in any way. If so,
we can factor in repair costs and possibly other damages due to lost income from future
rentals (this is more likely if we already have future rental agreements in place).12

The next step is to examine the customer's financial health by analyzing factors like:

Fixed assets (vehicles, equipment, machinery, etc.);

Cash on hand;

Liquid inventory;

Real property;

Corporate bonds/stock;

Notes receivables; and

Debts/liabilities.

9 The Evolution of the Check as a Means of Payment: A Historical Survey, Stephen Quinn and William Roberds
Economic Review, Vol. 93, No. 4, 2008
10
https://smallbusiness.findlaw.com/business-finances/how-to-take-legal-action-for-non-payment-of-invoices.html
11
Ibid
12
Ibid

3
Make our Formal Demand

If we decide to take legal action for non-payment of invoices, we initiate the process with a
formal demand letter to the defendant, whether it can be an individual or a business, or both. If
the defendant is a business, but an individual signed a personal guaranty, we can make the
demand on both. In our demand letter, among other things, we'll want to, Identify how the
customer is in default; Identify how much is owed; Demand payment of all past due amounts by
a certain date; and Advise of possible legal action.13

Views taken by various High Courts for recourse for nonpayment are stated as follows by Naresh
Pareek, there are 5 ingredients, which must be fulfilled to say there is nonpayment.14 These are
as follows:

1. The cheque is drawn on a bank for the discharge of a legally enforceable debt or other
liability.

2. The cheque has returned by the bank unpaid.

3. The cheque is returned unpaid because the amount available in that account is insufficient for
making the payment of the cheques. Article 830 of the commercial code of the empire of
ethiopia.

4. The payee gives a notice to the drawer claiming the amount within 15 days of the receipt of
the information by the Bank (this is 4 days under article 870 (1) of the commercial code).

5. The drawer fails to make payment within 15 days of the receipt of notice. (this is 4 days under
article 870 (1) of the commercial code).

In the case under study, cheques are being used to manipulate innocent people. They are used to
facilitate fraudulent acts.15 As a result, it collapses people’s healthy business activity. It is due to
this problem that the researcher initiated to conduct a research in this field of study.

13
https://smallbusiness.findlaw.com/business-finances/how-to-take-legal-action-for-non-payment-of-
invoices.html
14
http://www.legalserviceindia.com/articles/nego.htm
15
Mikias Tesfaye addis fortune Nov 09,2015 [ Vol 16 ,No 810] https://addisfortune.net/articles/banks-in-ethiopia-
to-issue-standardized-cheques/

4
 1.3 Objectives of the study
The main objective of the study is to analyze the practical problems of Recourse for nonpayment
of cheques in Ethiopia. Having this issue the following specific objectives are set.

1.3.1 Specific objectives of the study

The specific objectives of the study are to:-

1. Analize the practical problems of Recourse for nonpayment of cheques in Ethiopia.

2. To weigh the negative consequences of checkes in Ethiopia under the current
phenomena.
3. To assess court decisions versus the intention of the commercial law provisions on the
validity of cheque.
1.4 Research questions

At the end of the research the following research questions will be answered.

1. What are the practical problems of Recourse for nonpayment of cheques in Ethiopia?

2. What negative consequences do checkes have in Ethiopia under the current phenomena?

3. Are courts decisions go in line with the intention of the commercial law provisions on the
validity of cheque?

1.5 Scope of the study

The scope of the research is confined recourse for nonpayment of check in federal courts, in
Addis Ababa among the many other similar negotiable instruments. The major reasons to narrow
the scope of the study are economic, logistics and time constraints.

1.6 Significance of the Study

The senior thesis focuses on recourse for nonpayment of check under some selected federal
courts. Hence, the findings of this work will contribute to understand the practical problems in
recourse for nonpayment of check. Hence, the business community who are the subject of the

5
study, the banks, the community and the country will be benefactors of the study. This research
will also be used as a reference to other further researches. The legislative organ, the government
and merchants will also use the research as an impute.

6
 Chapter two
2. Review of related literature
2.1Type and definition of negotiable instruments

Ethiopian law has adopted a very broad definition and types of negotiable instruments. Art 715,
after defining negotiable instruments, states that the law in particular recognizes three types of
instruments as negotiable; these are

a) Commercial instruments

b) Transferable securities

c) Document of title to goods

The three main types of negotiable instruments mentioned in art 715(2) should first be defined
and classified to understand their exact nature and meaning.

A) commercial instruments

Commercial instruments usually referred to as commercial papers could be shortly defined as

instruments other than cash, entitling the payee or the holder payment of a specified amount of
money. A closer definition is given in Art 732(1) of the commercial code which reads:-

“Commercial instruments are negotiable instruments setting out an entitlement consisting

in the payment of a sum of money”

From Both definitions one can clearly understand the exact scope of commercial papers. The
right contained in a commercial instrument is always payment of money and money only.16 An
instrument entitling the holder to property rights or any other right than a sum of money could
not qualify as a commercial paper. Even though Art 732 (1) clearly indicates the true nature of
commercial papers i.e. their entitlement of the holder to payment of a sum of money, contradicts
itself by the wider recognition it gives to the different types of commercial instruments in Art
732 (2). This Article, enumerating the types of commercial instruments states “Bills of exchange,
promissory notes, cheques, traveler’s cheques and warehouse goods deposit certificates” shall be
considered as commercial instruments under the code. A travelers cheque is a different type of

16
https://ethiopianlaw.weebly.com/blog/types-of-negotiable-instruments

7
cheque hence, the classification can be reduced to four categories i.e. bills of exchange,
promissory notes, cheques and warehouse goods deposit certificates.17

However, the Ethiopian commercial code does not provide the definition of cheque, in order to
clarify definition of a cheque under the Ethiopian commercial code, the following essentials of a
cheque should be analyzed.

1. The cheque should contain an unconditional order to a banker. If a cheque is payable out
of a particular fund or payable on contingency, it cannot be a cheque under the Ethiopian
commercial code.
2. . A cheque must be signed by the drawer to be a valid cheque under the Ethiopian
commercial code. Signature can be either personally or by someone authorized to sign on
his behalf.
3. The cheque must be for the payment of a certain sum of money only. The sum must be
expressed in words and figures.
4. The cheque should also contain the name of the person who is to pay. So the name of the
banker who is to pay should be stated in the cheque to be considered a valid cheque under
the Ethiopian commercial code.
5. According to the Ethiopian commercial code the place of the payment of the cheque
payment should be contained in the cheque.
6. The cheque should also indicate when and the place where the cheque is drawn.

Under the Ethiopian commercial code, if a negotiable instrument does not have the essential
characteristics provided under article 827 then it does not meet the legal definition of a cheque.

Art. 827. - Requirements.

A cheque shall contain:

(a) An unconditional order to pay a sum certain in money;

(b) The name of the person who is to pay (drawee);

(c) The place of payment;

(d) The date when and the place where the cheque is drawn;

17
https://ethiopianlaw.weebly.com/blog/types-of-negotiable-instruments

8
 ( e) The signature of the person who draws the cheque (drawer).

With the exception of the above requirements, the commercial code remain silent/undefined
what cheque mean.

2.2 Historical background of cheque

The ancient Romans are believed to have used an early form of cheque known as praescriptiones
in the first century BC.18 During the 3rd century AD,banks in Persia and other territories in the
Persian Empire under the Sassanid Empire issued letters of credit known as Sakks. Between
1118 and 1307, it is believed that the Knights templar introduced a cheque system for piligrims
traveling to the holy land or across Europe.19 The piligrims would deposit funds at one chapter
house, and then withdraw it from another chapter at their destination by showing a draft of their
claim. These drafts would be written in a very complicated code only the Templars could
decipher. The knights adopted it most likely from the Muslims who are known to have used the
cheque or Sakk system since the times of Harunalrashid (9th century).20

In the 9th century, a Muslin businessman could cash an early form of the cheque in China drawn
on sources in Baghdad, a tradition that was significantly strengthened in the 13th and 14th
centuries, during the Mongol Empire.21 Indeed, fragments found in the Cairo Geniza indicate that
in the 12th century cheques remarkably were similar to our own in use, only smaller to save costs
on the paper.22 They contain a sum to be paid and then the order “may so and so pay the bearer
such and such amount”.23 The date and name of the issuer are also apparent.24

The cheque had its origins in the ancient banking system, in which bankers would issue an order
at the request of their customers, to pay money to identified payees. Such an order was referred
to as a bill of exchange.25 The use of bills of exchange facilitated trade by eliminating the need
for merchants to carry large quantities of currency (e.g. gold) to purchase goods and services.26

18
Aksumite Tesfaye(2008) The legal and practical problems surrounding the dishonoring of cheque due to
insufficient fund St. Merry University, Addis Ababa, unpublished LLB thesis. page 10
19
Ibid
20
Ibid
21
Ibid
22
Ibid
23
Ibid
24
Ibid
25
ibid
26
Ibid

9
In Ethiopia there is no clear history of the using of cheque. However, Fasil Alemayehu and
Merhatbeb Teklemedhin (2009) argue that Bank of Abyssinia was allowed to engage in
commercial banking (selling shares, accepting deposits and effecting payments in cheques) and
to issue currency notes in 1905.27 Although cheques have been in use since the 9th century, it
was during the 20th century that they became a highly popular non-cash method for making
payments. By the second half of the 20th century, as cheque processing became automated,
billions of cheques were issued annually; these volumes peaked around the early 1990s. 28

3.2 Cheque dishonored

The dishonour of cheque is a criminal offence and is punishable by imprisonment up to two

years or with monetary penalty or with both.29 Cheques are used in almost all transactions such
as re-payment of loan, payment of salary, bills, fees, etc.30 A vast majority of cheques are
processed and cleared by banks on daily basis.31 Cheques are issued for the reason of securing
proof of payment.32 Nevertheless, cheques remain a reliable method of payment for many
people. On the other hand, it is always advisable to issue crossed “Account Payee Only” cheques
in order to avoid its misuse.33

A cheque is a negotiable instrument. Crossed and account payee cheques are not negotiable by
any person other than the payee. The cheques have to be deposited into the payee's bank
account.34Legally, the author of the cheque is called ‘drawer’, the person in whose favour, the
cheque is drawn is called ‘payee’, and the bank who is directed to pay the amount is known as
‘drawee’.35However, cases of cheque bounce are common these days. Sometimes cheques
bearing large amounts remain unpaid and are returned by the bank on which they are drawn.36

27
Fasil Alemayehu and Merhatbeb Teklemedhin (2009) Law of Banking, Negotiable. Instruments and Insurance
Teaching Material. Justice and legal system research institute. Addis Ababa. Page 9
28
Ethiopian business review: New Technology, More Problems: Cheque Clearing System Chokes Business Activities
accessed at http://ethiopianbusinessreview.net/index.php/focuss/item/353-new-technology-more-problems-
cheque-clearing-system-chokes-business-activities
29
https://www.indiainfoline.com/article/research-articles/cheque-dishonoured-a-step-by-step-guide-for-legal-
recourse-44367785_1.html
30
Ibid
31
Ibid
32
Ibid
33
Ibid
34
Ibid
35
Ibid
36
Ibid

10
A person may accept or pay a commercial instrument by intervention for the honor of any person
against whom the holder may have a right of recourse.37 Acceptance or payment by intervention
may be made by any person including persons who have already signed the instrument and are
liable on it except the acceptor.38 The person who pays or accepts the instrument by intervention
shall have to give notice of his intervention to the person for whose honor he has intervene
within two working days from the date of such intervention.39

The right of recourse refers to the right of a holder of commercial instruments to institute legal
action based on the instrument for the purpose of recovering the unpaid value of the instrument.
This right may be exercised before maturity in cases of bills of exchange, which are capable of
acceptance i.e. all types of bills of exchange except those payable at sight or on demand, or after
maturity in cases of non-payment of commercial instrument. (Arts 780 and 868).40

The holder may exercise his right of recourse against parties liable on the instrument, i.e.,
signatories of the instrument in various capacities.41 These parties include the drawer of a bill of
exchange and a check, the maker of a promissory note, endorsers, acceptors, acceptors for honor
and the acceptor by intervention for honor.42 As parties to a commercial instrument are jointly
and severally liable to the holder, the holder may sue all these persons individually or
collectively without being required to follow the order in which they signed the instrument and
became a party to the instrument.43 Proceedings against one party shall not prevent the holder
from instituting an action against the other parties even where such other parties signed the
instrument subsequent to the party first proceeded against.44 The extent of the right of recourse of
the holder is limited to the unaccepted or unpaid value of the instrument, interest where provision
as to interest has been inserted in the instrument as per Article 739, interest at the rate of 9% to
be calculated starting from the date of maturity on the unpaid amount of the instrument,
commission not exceeding 0.3% and expenses.45 However, if the right of recourse is exercised

37
Fasil Alemayehu and Merhatbeb Teklemedhin (2009) Law of Banking, Negotiable. Instruments and Insurance
Teaching Material. Justice and legal system research institute. Addis Ababa.
38
Ibid
39
ibid. Page 98
40
Ibid page 107
41
Ibid
42
Ibid
43
Ibid
44
Ibid
45
Ibid

11
before maturity, /Art 780/ the holder shall be entitled to a discounted amount to be calculated
based on the official rate applicable at the place where the domicile of the holder is situated.46

The holder who intends to exercise a right of recourse must have a protest drawn up. Protest is a
written document drawn up by a notary public or by a court registrar evidencing non-acceptance
or non-payment of a commercial instrument. However, since the office of the notary pubic are
not established as intended and the registrars of courts do not draw up protests, both because of
lack of awareness of their function in this respect and because commercial instruments,
particularly bill of exchange and promissory notes are not commonly used, it is not possible at
present to have protests drawn up by these officials. So, the only alternative way of drawing up
of a protest is according to Book VI of the Commercial Code containing the Transitory
Provisions. Art 1178 provides that where there is no notary public or court registrar readily
available (or performing the function of drawing up a protest) a protest may be drawn up by any
person who is capable to perform juridical acts in the presence of two witnesses following the
relevant provisions of the code.

The law also provides the time within which protest has to be drawn up. Accordingly, protest for
non-acceptance has to be drawn up within the period of time provided for presentment of the
instrument for acceptance by the law or the drawer or endorser. / Refer to Arts 759,757,758 and
781(3)/. A protest for non-payment of a check shall be drawn up within the period provided for
presentment for payment under Art 855, i.e., it must be drawn before the period of six months
lapses (Art 869 (1). However, where the check is presented for payment on the last day of the
period provided for presentment for payment, a protest may be drawn up on the following
working day. Similarly, a protest for non-payment of bills of exchange and promissory notes
shall be drawn up within the period of time provided for presentment for payment provided
under Arts 770 (1) and 774(1). In other words, protest for non-payment of bills of exchange and
promissory notes payable at sight shall be drawn up within a period of one year from the date of
drawing. However, in case of nonpayment of the other types of bills and notes, the protest has to
be drawn up either within the period provided for payment or one of two working days following
the last day on which the bill is payable, i.e. the protest may be drawn on one of the three days on
which the instrument is payable or one of the two working days following the lapse of this
period. /See Art 774(1) and Art 781(4). / Failure to have a protest for non-acceptance or

46
Fasil Alemayehu and Merhatbeb Teklemedhin (2009) Law of Banking, Negotiable. Instruments and Insurance
Teaching Material. Justice and legal system research institute. Addis Ababa.

12
nonpayment within the period provided by the law will result in the loss of right of recourse of
the holder (Art 796, 876).

However, there are certain cases in which the holder may exercise his right of recourse without
the need to have a protest for non – acceptance or non – payment. These are:

1. A declaration of non – acceptance or non – payment of the bill by the drawee written on the
instrument by the drawee or maker unless where the drawer or maker made a provision requiring
a formal protest to be drawn up by a public officer. (Art 781(2),886,825(1)(C))

2. A judgment in bankruptcy of the drawee or of the drawer of a bill which cannot be

accepted/payable at sight/ or of the maker of a promissory note shall replace a protest.

3. Where the holder is released from the obligation to have a protest drawn up by provisions such
as “retour sans frais”, “sans protet” or any similar expression implying permission to the holder
to exercise his right of recourse without the need of a protest. (Art 789,871). This release may be
made by drawer or maker, or endorser’s .Where it is made by the drawer, it shall be effective
against all the parties to the instrument, but where it is made by any other party, the release shall
be effective against the person who made it. In such cases the holder must have a protest drawn
up in order to exercise his right of recourse against other persons as per Art 789, 871 and 825 of
the commercial code.

Article 868 of the same code also stipulates the holder may exercise , his right of recourse
against the endorsers, the drawer and the other parties liable where the cheque on presentment in
due time is not paid and the refusal to pay is evidenced.

( a) by a formal instrument (protest); or

(b) by a declaration by the drawee dated and written on the cheque and specifying the day of
presentment; or

( c) by a dated declaration made by a financial institution approved by the Government stating

that the cheque has been presented indue time and !has not been paid.

The first sub article 868(a) stipulates that a cheque is a formal instrument to claim for non-
payment. However, in the current court decisions, people are being asked to present additional
instruments like contract to claim for nonpayment. The remaining provisions of the same article

13
also added that the specific day and that it has been presented in due time. the due time of
cheque in the code is 6 months as per article 881 as follow.

Art. 881. - Periods of time.

( I) Actions of recourse by the holder against the endorsers, the drawer and the other
parties liable shall be barred after six months from the expiration of the limit of time for
presentment.

(2) Actions of recourse by the different parties liable for the payment of a cheque
against other such parties shall be barred after six months from the day on, which the
party liable has paid the cheque or the day on which he was sued thereon.

(3) Actions by the holder of the cheque against the drawee shall be barred after three
years from the expiry of the time limit for presentment.

As it is clearly indicated above in article 881 of the commercial code, the beneficiary who
presented the cheque in the limit of 6 months (within 6 months) shall have to claim for
recourse. However, now the courts are using other criteria’s regardless of the fact that the
beneficiary has evidence that the drawer has not enough amounts in his account, and the fact
that the beneficiary came to the bank within six months limited. 47

3.1 Recourse for nonpayment of cheque

The FDRE criminal code of 2004 article 787 also prohibited nonpayment of cheque as
follows. Article 787.- Violation of Provisions Regarding Negotiable Instruments. .

Whoever, contravenes the laws, regulations or directives regarding negotiable instruments,

cheques, bills of exchange, as well as shares or bonds of commercial or industrial
companies, is punishable with fine or arrest. However, the punishment of the drawer has
nothing to the beneficiary. (Emphasis added).

cassation decision No, 123984 of volume 21, አአአአአአ- አአ አአአአ አአአ - አአአ አአአአአ አአአአ
47

አአአአአአአአአአአአ አአአ አ/አአአ አአአአ አአአአአ አአአአ አአ 100000 /አአአ አአ አአ/ አአአአ አአአአአ
አአአአአአ አአአ አአአአ አአአአአአ አአ አአአአአአ አአአአ አአአአ አአአ አአአ አአአአአ አአአአ አአአ አአአ
አአአአ አአአአ አአ አአአአ አአአአአ አአአ አአአ አአአአ አአአአ አአአአአ አአአ አአአአ አአአአአ አአአአአአ
አአአ አአአአአአአ

14
 3.1.1 A step-by-step guide for legal recourse of dishonored cheque
under Indian law

The Negotiable Instruments Act, 1881 require that the payee should follow a certain
procedure to claim relief under Section 138. The steps to be taken by the payee for recovery
of the cheque amount are as under:48

Step 1: On dishonour of cheque, collect the dishonoured cheque and cheque return memo
from the bank immediately.

Step 2: Within 30 days from the date of dishonour of the cheque, send a demand notice to
the drawer giving a brief background of the transaction, intimation about the fact of the
dishonour and requiring the drawer to pay the cheque amount within 15 days from the date
of receipt of the demand notice.

Step 3: If the drawer fails to make the payment within the notice period of 15 days, then
the payee can file a complaint against the drawer under Section 138 of the Negotiable
Instruments Act, 1881. The complaint should be filed before the magistrate within 30 days
from the end of notice period.

Step 4: The court will issue summon to the drawer of the dishonoured cheque. On
receiving the summons the drawer has to be present in court and file an appearance through
his advocate. After the parties complete their written pleadings and lead evidence to support
their case, the magistrate will pass an appropriate order in the matter.

3.2 The crime of unbalanced cheque

The crime of a false or unbalanced cheque is considered a crime when three elements
happen: the materialistic element and the place of a cheque without an account and the
moral element.49 The moral element requires verification that the material element of the
drawer after the issuance of the cheque and transferring the possession and give to the
beneficiary or his agent put any trading intent to transfer full possession of the beneficiary to

48
https://mylegalwork.com/guides/cheque-dishonour
49
The Crime of Unbalanced Cheque by Khalid Mohammed Dr (2017) IOSR Journal Of Humanities And Social cience
(IOSR-JHSS) Volume 22, Issue 4, Ver. 1 (April. 2017) PP 58-60 e-ISSN: 2279-0837, p-ISSN: 2279-0845.
www.iosrjournals.org Cihan University/ Sulmaniyha

15
give up ownership of the drawer once and for all.50 It should be noted that the material
element of the offense of giving a check without balance of specific images specified in
Article (787) of the criminal code, as follows: First, giving a check is not perfect against the
existing fulfillment inalienable: Crime here is achieved by the liberalization of the drawer of
the check and he knows that there is no return for a complete fulfillment of his own account
then issuing an order to the beneficiary so the drawer shall be responsible for the crime of giving a
check without balance. The other important issue is retrieving the cheque before getting the
money.And this is done through getting the entire account by the drawer at the drawee balance
recovery. Or the drawer recovers some of the account so that what remains of it is not enough to
repay the amount of the check and doesn’t spare the drawer of the responsibility, whatever the
motive for this recovery. In all cases, preventing cashing the check is the significant issue that is to
be considered. This is done through the fact that the drawer issues an order to the drawee not to
exchange, although the check satisfies the conditions and balance enough and capable of pulling the
time of release. The exception to this is not considered a crime according to article 6.4 of the
licensing and supervision of banking business directive No. SBB/31/2002 Amendment of Directive
for the proper operation of current account and cheque. State that there is punishment of fine up on
dishonoring as stated here bellow.

Up on dishonoring at any time a cheque drawn by a person who has been provided
with current account service in line with the authorization obtained from the NBE
under article 6.2 and recorded in register book established in accordance with
article 6.3 of this directive banks shall 1).levy a fine of 10% of the amount
appearing on the dishonored cheque, and 2) automatically cloth current accounts of
such person in all their branches and report to the NBE with in the following three
working days.51

Therefore, dishonoring of cheque is clearly known that it is punishable under the criminal
law. The above directive also added that it is administratively punishable as per article 6.4 of
the same directive.

It has equated the endorsement and delivery in terms of punishment if the drawer endorses or
delivers a check to someone else and he knows that is doesn’t fulfill the amount in due (Shoyash,
2009: 357 cited in Khalid Mohammed Dr (2017) ). The second element is the element crime of the

50
The Crime of Unbalanced Cheque by Khalid Mohammed Dr (2017) IOSR Journal Of Humanities And Social cience
(IOSR-JHSS) Volume 22, Issue 4, Ver. 1 (April. 2017) PP 58-60 e-ISSN: 2279-0837, p-ISSN: 2279-0845.
www.iosrjournals.org Cihan University/ Sulmaniyha
51
Licensing and supervision of banking business directive No. SBB/31/2002 Amendment of Directive for the proper
operation of current account and cheque.

16
cheque. In the widest sense, the cheque is known as an order issued by the owner, who is called the
drawer, into a bank requesting to pay a sum of money to the order of a person appointed in this
instrument as soon briefed on it.52 It also known that it is a structured shape in accordance with the
stipulated conditions stated by the text of the law under which the terms of the drawer orders people
to pay a certain amount to a third person, so the check is different from other commercial
papers. As the check is a tool of commitment, it is payable once submitted.53

The third element of the unbalanced cheque is the moral element. 54 There is no doubt that
giving a cheque without balance is a crime of deliberate offenses that requires the
availability of general criminal intention (knowing and the will). The drawer must know
when issuing a check that it does not have enough balance.55 This cannot be achieved if the
drawer is believed that it covers the value of the check and proves insufficient. 56 So the
drawer should make sure the before issuing the check (Galani, 2004 cited in Khalid
Mohammed Dr (2017) ). But the will is intended to the direction of the will of the drawer to
issuing the check and this means to have a balance which exists and is intended to pushor
pull part of the balance after giving the check amount to decrease the balance. In other cases
it may mean that the drawer issues an order to the drawee not to cash the check in the cases
stipulated by law. It is clear from the text of Article (787) of the criminal Code that the
intent requirement for the crime of giving a check without balance is the general intent. It is
worth mentioning that some jurists are inclined to the necessity of the occurrence of the
private intent in which the intention of the drawer is directed to harm the beneficiate (Attai,
1956: 267 cited in (Khalid Mohammed Dr (2017)). The reason of the existence of this
opinion is the phrase ‘’ill-intention’’ which the legislator used as the explicit interpretation
of the text shows that it is necessary for the private intent to be available. However, the
probable opinion is the existence of the general criminal intent in the crime of giving a
cheque without a balance because the main priority of the legislator is protecting the value
granted by the cheque.57

3.3 The Punishment of the unbalanced cheque

52
The Crime of Unbalanced Cheque by Khalid Mohammed Dr (2017) IOSR Journal Of Humanities And Social cience
(IOSR-JHSS) Volume 22, Issue 4, Ver. 1 (April. 2017) PP 58-60 e-ISSN: 2279-0837, p-ISSN: 2279-0845.
www.iosrjournals.org Cihan University/ Sulmaniyha
53
ibid
54
ibid
55
Ibid
56
Ibid
57
Ibid

17
The crime of giving a cheque without a balance is considered a felony which is punished by
imprisoning and paying a fine no more than three hundred dinars. Since this punishment is
very significant as it deals with such crimes and since punishment is considered a means of
social and economical reformation, reconsideration of this kind of punishment took place.
Such reconsideration is directed towards increasing the amount of fine in addition to making
it more vital.58 It is now a legal item that the punishment of such crimes is as in the
following: Anyone who commits such crime shall be punished by imprisonment for not less
than three years and a fine equivalent to five times the amount of the instrument that no
fewer than three thousand dinars who gave the instrument in bad faith and he knows that he
is not fulfilling enough.59 In other cases, it is considered a crime if the filled information is
done improperly that prevents the drawer from cashing. In general, if the cheque doesn’t
fulfill the amount in due, it is considered a crime.60 Any violation of giving a cheque is
considered a crime that has a specific punishment as the law stated.61

3.4 Civil liability of dishonored cheque under Ethiopian Law

According to licensing and supervision of banking business directive No. SBB/31/2002
Amendment of Directive for the proper operation of current account and cheque. State that there
is punishment of fine up on dishonoring results administrative punishment. Article 6.4 (2)
provides automatically cloth current accounts of such person in all their branches and report to
the NBE with in the following three working days. This administrative measure damages the
person and will no more be the customer of the bank.

In addition to that he will be liable in covering all the cost of the applicant like court fee,
administrative fee, the interests after the due date and other costs.

3.5 Other problems related to cheque

The need for building an efficient system arose from the lack of quick transaction clearing
facilities, which increased the risk, delays, difficulty and cost of using cheques anywhere in the

58
The Crime of Unbalanced Cheque by Khalid Mohammed Dr (2017) IOSR Journal Of Humanities And Social cience
(IOSR-JHSS) Volume 22, Issue 4, Ver. 1 (April. 2017) PP 58-60 e-ISSN: 2279-0837, p-ISSN: 2279-0845.
www.iosrjournals.org Cihan University/ Sulmaniyha
59
Ibid
60
Ibid
61
ibid

18
country. In 2011, close to ETB35 billion worth of cheques were carried by messengers from
bank to bank for clearance in Addis Ababa alone.62 This created a problem for many businesses,
NGOs and government institutions, as well as theircustomers who wanted to settle bills in
cheques.63 For the business community that uses cheques for most of their transactions, the new
system was expected to be a major boost to efficiency and also bring many more unbanked
societies to the banking system.64

Many in the banking industry as well as their customers expected a significant transition from
cash and paper-based transactions, including cheques and bank payment orders, to electronic
payments which are faster, more secure and less costly.65 Officials of the NBE also promised to
build an efficient system comprised of a real time gross settlement, which functions for large
value and time critical payments as well as an automated cheque clearing house that will allow
banks to clear cheques faster than before.66 With the aim of facilitating commercial activity,
economic growth and the ability of the country to participate in global trade, the NBE ordered all
commercial banks to install a CORE banking system and establish links to the NPS. 67 This
required most of the banks to upgrade their existing systems, which were initially created in-
house and consisted of branch-bound networks. As a result, most of the banks made a huge
investment to automate their systems in order to link them with the NBE system. This was
expected to allow them to clear cheques electronically.68

However, after the system began operating, the intended results became farfetched. In fact
cheque clearance has become extremely slow, taking several days and weeks at times. This has
significantly contributed to the current business slowdown in the country.69 With all the risks
associated, the situation has on several occasions forced companies to require payments to be

62
Ethiopian business review: New Technology, More Problems: Cheque Clearing System Chokes Business Activities
accessed at http://ethiopianbusinessreview.net/index.php/focuss/item/353-new-technology-more-problems-
cheque-clearing-system-chokes-business-activities
63
Ibid
64
Ibid
65
Ibid
66
Ibid
67
Ibid
68
Ibid
69
Ibid

19
made in cash. In fact some companies in Addis Ababa have started requiring their clients to first
deposit cash in their account and give the bank advice to the payee to get a receipt for payment.70

Such companies like, Zemenwan PLC, a landlord which runs Aberus Complex on Africa Avenue
in Addis Ababa, has recently issued a letter to its tenants that it no longer accepts cheque
payments because of the slowprocess of cheque clearance at the banks. Its repeated experience
that some tenant’s accounts had insufficient funds forced the landlord to change its rules.71

Since then cheque usage has fallen, being partly replaced by electronic payment systems.72 In an
increasing number of countries cheques have either become a marginal payment system or have
been completely phased out. But in countries like Ethiopia, they are still the dominant way of
making payments, particularly in the formal economy.73 It is only recently that the central bank
started initiatives to gradually replace them with electronic payments.74

How large is the risk? The amount of cheques cleared in the country could reach 70 billion Birr
in 2012, according to World Bank estimates.75 With such an inefficient system of clearing
cheques, the question arises over who will bear responsibility for any loss while doing things
manually.76 According to the expert, since large value cheques are especially initiated by the
government and the banking industry itself, they will be the most affected.77 But its impact on
businesses that are currently under financial stress will be worse since they do not have enough
money to fill the gap.78

70
Ethiopian business review: New Technology, More Problems: Cheque Clearing System Chokes Business Activities
accessed at http://ethiopianbusinessreview.net/index.php/focuss/item/353-new-technology-more-problems-
cheque-clearing-system-chokes-business-activities
71
Ibid
72
Ibid
73
Ibid
74
Ibid
75
Ibid
76
Ibid
77
Ibid
78
Ibid

20
 Chapter three
Research Methodology
2.1 Methodology
This senior thesis employs doctrinal legal research. To show the scope of the problem on
recourse for nonpayment of checks in Ethiopia, its civil and criminal consequences, other
negative attitude on the business transaction are analyzed.

2.2 Data analysis

In the Analysis, the data are analyzed in a mixed way (qualitatively and quantitatively). The data
collected through questionnaire are analyzed quantitatively while the data collected through
interview and both observations are analyzed quantitatively. These countries are selected on the
basis of their well-developed legal mechanism. Review of books, theses, journal, articles and
internet links related to the concept are also other methods employed as secondary sources.

2.3 Data sampling

Sampling of the data is based on Random sampling. However, sampling of the documents is
selected using purposive sampling. This is to help the strength and reliability of the data
collected and the quality of the output. Then, the conclusion is delivered based on the analysis
and the recommendation is delivered for all concerned individuals in relation to the finding.

21
 Chapter Four
4. Finding and analysis of the study
4.1Guide to the legal recourse under Indian law/practice
Bounced cheques are one of the most common offences plaguing the financial world. A cheque
can be dishonoured for various reasons, the most common being insufficient funds in the account
of the person drawing the cheque, and a mismatch of signatures with the bank records.79 The
following solutions are proposed.

4.1.1 Filing a criminal complaint under Indian law/ practice

As per as the Indian practice, When a cheque bounces the first time, the bank issues a ‘cheque
return memo’, stating the reasons for non-payment. The holder can resubmit the cheque to the
bank within three months of the date on it, if he believes it will be honoured the second time.80

The other option would be to prosecute the defaulter legally.81 The first step is to send a legal
notice to the defaulter within 30 days of receiving the cheque return memo.82 All the relevant
facts of the case, including the nature of transaction amount, date of depositing the instrument in
the bank, and subsequent date of dishonouring, should be clearly mentioned in the notice.83 If the
cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the payee has
the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act.
However, the complaint should be registered in a magistrate’s court within a month of the expiry
of the notice period.84

If you fail to file the complaint within this period, your suit will become time-barred and, hence,
not be entertained by the court unless you show sufficient and reasonable cause for the delay.85
On receiving the complaint, along with an affidavit and relevant paper trail, the court will issue

79
Sakina Babwani (2013) economictimes. indiatimes.com/ articleshow/20714356.cms?utm_ source=
contentofinterest & utm_medium=text&utm_campaign=cppst
80
Ibid
81
Ibid
82
Ibid
83
Ibid
84
Ibid
85
ibid

22
summons and hear the matter.86 If found guilty, the defaulter can be punished with a prison term
of two years and/or a fine, which can be as high as twice the cheque amount.87

However, the defaulter can appeal to the sessions court within one month of the date of
judgement of the lower court.88 If a prolonged court battle is not acceptable to both the parties,
an out-of-court settlement can be attempted at any point. “You can also file a case of cheating
under Section 420 of the Indian Penal Code, but the above recourse is preferred as it is faster and
specially dedicated to this particular offence (bounced cheques),” says Ravi Goenka, advocate,
Goenka Law Associates.89

4.1.2 Filing a civil suit under Indian law/ practice

While the above-mentioned process is helpful in taking a defaulter to task, it may not always
result in recovery of the pending dues.90 Hence, one can file a separate civil suit for recovery of
the cheque amount, along with the cost borne and the lost interest.91

This is where a summary suit under Order 37 of the Code of Civil Procedure (1908) comes in. A
summary suit is different from an ordinary suit as it does not give the accused the right to defend
himself.92 Instead, the defendant has to procure permission from the court to do so.93 However,
remember that summary suits can be availed of only in recovery matters, be it promissory notes,
bills of exchange or cheques.94 “Since a summary suit is a civil proceeding that does not have the
force of a criminal charge, the chances of imprisonment are remote in such matters,” says
Goenka.95

86
Sakina Babwani (2013) economictimes. indiatimes.com/ articleshow/20714356.cms?utm_ source=
contentofinterest & utm_medium=text&utm_campaign=cppst
87
Ibid
88
Ibid
89
Ibid
90
Ibid
91
Ibid
92
Ibid
93
Ibid
94
Ibid
95
Ibid

23
 4.1.3 Exceptions
These legal remedies are available only where pending debt or liability can be clearly
established.96 Hence, if a bounced cheque was issued as a donation or as a gift, the holder cannot
legally sue the defaulter.97

4.1.4 Risk faced by defaulters

A jail term or heavy penalty isn’t the only consequence faced by the issuer of a dishonoured
cheque.98 The bank has the right to stop the chequebook facility and close the account for repeat
offences of bounced cheques. “If the bounced cheque was for repayment of loans, banks also
have the collateral offered as security. They are bound to issue a notice before they auction such
property to recover the money.” 99

4.1.5 Changes in the pipeline

The option of dragging an offender to court under Section 138 of the Negotiable Instruments Act
of India may not be available for long.100 If the amendment proposed by an inter-ministerial
group look into policy and legislative changes to tackle the large number of pending cases are
accepted, all cases of dishonoured cheques will have to be decided only through arbitration,
conciliation or settlement by lok adalats.101 If the matter is referred to an arbitrator, the latter will
hear both the parties and pass an award binding on both. This can only be appealed on grounds
that it is invalid or the defendant was not given adequate time to present the case, or was not
given notice about the arbitrator’s appointment.102

4.2 Legal recourse under Ethiopian law/practice

Article 827 of the commercial code of 1960 specified Requirements of cheque as here bellow.

A cheque shall contain:

(a) an unconditional order to pay a sum certain in money;

96
Sakina Babwani (2013) economictimes. indiatimes.com/ articleshow/20714356.cms?utm_ source=
contentofinterest & utm_medium=text&utm_campaign=cppst
97
Ibid
98
ibid
99
Ibid
100
Ibid
101
Ibid
102
Ibid

24
( b) the name of the person who is to pay (drawee);

( c) the place of payment;

(d) the date when and the place where the cheque is drawn;

( e) the signature of the person who draws the cheque (drawer).

This articles shows us a cheque that fulfills the above requirements is legitimate to be paid.
However, there are so many problems in practice. Article 828 stipulates that this will not be valid
while one of the requirements are missed. But in Ethiopia cheque is not being paid with all these
requirements. As to Gezu Ayele Mengistu 2019, there are so many reasons that make
problematic on the payment of cheques.103

4.3 Recourse for non-payment

Civil remedies for the unlawful act of drawing cheque without sufficient cover. There are civil
and criminal penalties for the unlawful act of drawing cheque without insufficient cover.
According to article 872 of the Ethiopian commercial code, a holder can sue all persons liable on
a cheque individually or collectively without being compelled to observe the order in which they
have become bound. Under article 873 of the Ethiopian commercial code, the code has stated
what can be claimed from those sued in article 872. The person can claim:-

- The unpaid amount of the cheque

- Interest at the legal rate as from the date of presentment

The expenses of the protest or equivalent declaration, and of the notices given and any other
expenses

- A commission not exceeding one third percent

- National bank of Ethiopia can also impose 10% of the total amount of the cheque from the bank
once the cheque is proven to be with insufficient cover as per directive SBB/64/2016 in addition
to the criminal and civil remedies.

Gezu ayele Mengistu (march 14,2019) አአአ አአአ አአአ አአአአ (Stop Payment Order) አአአአአ አአ አአ
103

አአአአ አአ? Accessed at https://www. abyssinialaw.com/blog-posts/item/1800-stop-payment-order ….አአአአ

አአአአ አአ አአአአአአ አአአአ አአአ አአአ አአአ አአአ አአአ አአአአ አአአ አአአ አአአ አአአአአ
አአአአአአአአ አአአአ አአአ አአአ አአአአአ አአአ አአአ አአአአአ አአአአአ አአአአአ አአአአአአአ
አአአአአአ አአአ አአአአአአአ አአ አአአአአ አአአአ አአአአ አአአአ አአአአአ አአአአአ

25
Cases involving a cheque are entertained by a summary procedure according to article 284 of the
civil procedure code. When we analyze article 284 of the civil procedure code, it tells us that all
suits where the plaintiff seeks to recover a debt or liquidated demand in money payable by the
defendant with or without interest arising from a contract, expressed or implied such as a cheque
may at the choice of the plaintiff, be instituted upon payment of the given court fee by presenting
a statement of claim endorsed “summary procedure” and together with an affidavit made by the
plaintiff or by any other person who can swear to the facts found in the statement of claim.
According to article 285 of the civil procedure code, upon filing of a suit according to article
284, the court, after the defendant is summoned in the form prescribed by law and the court
passes a judgment and the defendant does not appear and defend the suit except upon applying
for and obtaining leave to defend from the court. In sub article 2 of the article 285, the in default
of such application by the defendant within the period fixed by the summons served upon him,
then the court passes the decree according to the words or the claim of the plaintiff.

Recourse for nonpayment of dishonored cheque In Ethiopia, a suit involving a dishonored

cheque with or without interest is entertained by a summary procedure when the plaintiff opts for
a summary procedure. The suit should include in the statement of claim that he/she prefers a
summary procedure. Where the plaintiff submit his statement of claim with an affidavit and the
defendant is summoned in the form prescribed by the law and the defendant does not apply for
leave to defend, then the court passes a decree as per the statement of claim. The practical
problem is thus as to the defendant being given a chance to defend though he does apply for it.
That is, when the defendant does not apply for a leave to defend, the court orders that the
defendant appears and defend the case. This is contrary to the law that states in article 285 of the
Ethiopian civil procedure code, which states that the court passes judgment based on the
statement of claim when the defendant does not apply leave and it is granted.

Although cases involving a cheque must be disposed off speedily and without full scale trial
according to article 284 of the civil procedure code, takes a longer time to pass judgment.
Because the courts do not pass a decree as per the statement of claim of the plaintiff but instead
order or grant a leave to defend to defendant even when they do not apply for it. It should be
noted that in Ethiopia, where there is still heavy reliance on cheques, a time-consuming court
judgment would affect the smooth working of the system of cheque.

26
 4.3.1. Stop payment Order

One of the reasons for the bank to stop payment is when stop order is delivered to the payer.
Article 858 of the commercial code states as follows.

Art. 857. - Stopping payment of cheque.

The stopping of the payment of a cheque by the drawer is sufficient authority

for a bank to refuse payment.

This is vague and subjective to interpretation that the reasons of stop payment order are not
clearly specified.104 The other problem is the term “sufficient cause” that is subject to open
interpretation and difficult to decide. Banks may use this interpretation to escape from payment
any time they fail to balance insufficient payment. As this gives Discretion to the banks, they
may harm the payee by saying that they feel the cause is sufficient for nonpayment. Naturally,
banks need to protect their customers and easily violate article 827 of the commercial code.105

It is known that, the purpose of using cheque for the financial transaction is stipulated in the
preamble of directive No SBB/64/2016 it says “where proper use of acheque as payment
instrument is created in facilitating smooth and cashless exchange of goods and services”. It is
also aimed to recognize and give legal protection, create and maintain efficient and sound
payment system, and determine the manner of proper operation of bank and insure its safety and
credibility of as the payment instrument. However, the problems are still continuing that most
cheque users are ordering stop of nonpayment of cheque when they unable to pay their
customers as a result of insufficient fund. Therefore, the law should be clear protective to cheque
payee.

4.3.1.1 Possible conditions for order of nonpayment.

104
Gezu ayele Mengistu (march 14,2019) አአአ አአአ አአአ አአአአ (Stop Payment Order) አአአአአ አአ አአ
አአአአ አአ? Accessed at https://www. abyssinialaw.com/blog-posts/item/1800-stop-payment-order ….አአአአ
አአአአ አአ አአአአአአ አአአአ አአአ አአአ አአአ አአአ አአአ አአአአ አአአ አአአ አአአ አአአአአ
አአአአአአአአ አአአአ አአአ አአአ አአአአአ አአአ አአአ አአአአአ አአአአአ አአአአአ አአአአአአአ
አአአአአአ አአአ አአአአአአአ አአ አአአአአ አአአአ አአአአ አአአአ አአአአአ አአአአአ
105
Gezu ayele Mengistu (march 14,2019) አአአ አአአ አአአ አአአአ (Stop Payment Order) አአአአአ አአ አአ
አአአአ አአ? Accessed at https://www. abyssinialaw.com/blog-posts/item/1800-stop-payment-order ….አአአአ
አአአአ አአ አአአአአአ አአአአ አአአ አአአ አአአ አአአ አአአ አአአአ አአአ አአአ አአአ አአአአአ
አአአአአአአአ አአአአ አአአ አአአ አአአአአ አአአ አአአ አአአአአ አአአአአ አአአአአ አአአአአአአ
አአአአአአ አአአ አአአአአአአ አአ አአአአአ አአአአ አአአአ አአአአ አአአአአ አአአአአ

27
The other problematic way is the law remains silent that how the order of nonpayment is issued,
either by post, email or phone or authorized and signed written application. Sue to these
problems, the implementation become controversial and problematic.106 Therefore, the law has
gaps that the drawee may escape committing crimes and order the payer using electronic devises
either phone, email etc. If the reason for nonpayment is theft, or other illegal acts there could
have been evidences that are brought from the police station. And the so called thief should have
been criminally liable if she/he is really alleged thereof.

Ibid (….አአአ አአአ አአ አአአ አአአ አአአ አአአአ አአአ አአአ አአአአአ አአአ( አአአአ አአአ አአአአ
106

አአአአአ አአአአአ አአአአ አአአ አአአአ አአአአአ አአአአአ) አአአአአአ አአአ አአአአአ አአአ አአአአአአ
አአአአአ አአ አአአአአ አአአአአአአ አአአ አአ( አአአአ አአአ አአአአአአ አአአአ አአአአአ አአአአ አአአ
አአአአአ አአአአአአ አአአአአአ አአአአአ አአአአአአ አአአአ አአአአ አአ አአአአአ አአአአአአአ አአአአአ
አአአአ አአአአ አአአአ አአአአ))አ

28
 Chapter Five
Conclusion and recommendation
5.1 Conclusion
Stop payment of cheque shall be carefully seen and examined, and the reasons for stop order
shall not be vague.

A cheque is one of the means money is transferred in a cashless payment and also means money
is protected from being stolen while being transferred. But still cheque fraud is among the most
widespread and common crimes.

A cheque is not actually defined under the Ethiopian commercial code instead provides lists of
requirements that a certain negotiable instrument should fulfill in order to be considered a legal
cheque under the Ethiopian law which is found in its article 827.

A cheque can be two or three party instrument. The person who draws the cheque or the drawer
when drawing a cheque on the drawee, it is necessary to check according to the Ethiopian law
that there is sufficient fund in the hands of the drawee or the account or the account of the holder.

The Ethiopian commercial law also in its article 830 states the necessity of having sufficient
previous cover before drawing a cheque. When a cheque is presented and there is not sufficient
fund in the account of the drawer, then the bank refuses payment, we say the cheque is
dishonored. Insufficiency of funds is one of the reasons for which banks dishonor a cheque.
Sometimes a wrongful dishonor might occur due to some error created by the bank. In addition
to the commercial code, there are directives issued by the national bank of Ethiopia by which the
dishonoring of cheque is governed.

A case involving a dishonored cheque is heard by a summary procedure at the option of the
plaintiff according to article 284 of the civil procedure code.

Vague terminologies that lead the bank to violate the right of the payee like “sufficient cause” to
order nonpayment should be amended.

29
 5.2 Recommendations
Since Ethiopia still relies heavily on cheque, it is important that cheques are used with honesty
and without fraud. The smooth working of the system of cheque depends upon the honesty and
integrity of the people using the cheque, judiciary that can interpret the laws, banks decide on the
payment and stop for nonpayment properly and laws that can contribute to the smooth working
of the system of cheque. Therefore, the following points are recommended:-

1. Laws or directves the National Bank of Ethiopia should be designed for clear
interpretation/free from subjective interpretation.
2. The commercial code should include the measure of damages for wrongful dishonor in
order to protect a drawer whose cheque is erroneously dishonored by a bank.
3. The directive No SBB/64/2016 should include issues such as stop payment order, the
penalty for those who enter the delinquent list for the third time or more, and reduce the
harsh punishment as the drawers of a dishonored cheque are subject to penalty are subject
to other laws (the criminal and civil law). Because it can affect the people that using
cheque in their business transactions.
4. The government should adopt the registration system in order to keep track of the people
that draw a cheque without sufficient fund and escape liability be getting a new identity
card and by which the directive can be effective.
5. The government should assign qualified judges that can interpret the law properly in
order to make the practice of the courts effective in dealing with cases that involve a
cheque.

30
 References
1. Aksumite Tesfaye(2008) The legal and practical problems surrounding the dishonoring of
cheque due to insufficient fund St. Merry University, Addis Ababa, unpublished LLB
thesis.
2. Cassation decisions of the federal supreme court of Ethiopian.
3. Directive No.SBB/64/2016 of The Nathiopnal Bank Of Ethiopia.
4. Black’s law dictionary 8th edition 2004.
5. Cassation decision volumes 18, 15, 12,21 etc.
6. Commercial code of the empire of Ethiopia 1960.Berhanna selam printing press addis
ababa.
7. Fasil Alemayehu and Merhatbeb Teklemedhin (2009) Law of Banking, Negotiable.
Instruments and Insurance Teaching Material. Justice and legal system research institute.
Addis Ababa.
8. Gezu ayele Mengistu (march 14,2019) አአአ አአአ አአአ አአአአ (Stop Payment Order)
አአአአአ አአ አአ አአአአ አአ? Accessed at https://www. abyssinialaw.com/blog-
posts/item/1800-stop-payment-order ….አአአአ አአአአ አአ አአአአአአ አአአአ አአአ
አአአ አአአ አአአ አአአ አአአአ አአአ አአአ አአአ አአአአአ አአአአአአአአ አአአአ
አአአ አአአ አአአአአ አአአ አአአ አአአአአ አአአአአ አአአአአ አአአአአአአ
አአአአአአ አአአ አአአአአአአ አአ አአአአአ አአአአ አአአአ አአአአ አአአአአ
አአአአአ
9. Sakina Babwani (2013) economictimes. indiatimes.com/
articleshow/20714356.cms?utm_ source= contentofinterest &
utm_medium=text&utm_campaign=cppst
10. http://echeck.org/the-brief-history-of-checking-using-checks-as-for-money/
11. https://smallbusiness.findlaw.com/business-finances/how-to-take-legal-action-for-non-
payment-of-invoices.html.
12. http://www.investorwords.com/844/check.html#ixzz5e16lbKit.
13. The Evolution of the Check as a Means of Payment: A Historical Survey, Stephen Quinn.
and William Roberds Economic Review, Vol. 93, No. 4, 2008.
14. Ethiopian business review: New Technology, More Problems: Cheque Clearing System
Chokes Business Activities accessed at
http://ethiopianbusinessreview.net/index.php/focuss/item/353-new-technology-more-
problems-cheque-clearing-system-chokes-business-activities
15. https://www.indiainfoline.com/article/research-articles/cheque-dishonoured-a-step-by-
step-guide-for-legal-recourse-44367785_1.html

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