BILLS OF EXCHANGE, PROMISSORY NOTES

AND CHEQUES

DayaRahyaft Audit & Management Services Firm

www.dayarahyaft.com

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BILLS OF EXCHANGE, PROMISSORY NOTES AND CHEQUES

Definition, Nature and Purpose

No definition has been made, in the laws of Iran, of bills of exchange. In

practice, however, bills of exchange are instruments by means of which a

series of debts may be discharged without the use of cash, or payment may be

postponed by the granting of credit. They are used more often in domestic

transactions than in international trade due to foreign exchange regulations

and restrictions, currently in force.

A cheque is a special form of bill of exchange, being drawn on a banker

payable on demand, and is normally for the immediate discharge of a single

debt.

More often than not, a promissory note (or a cheque, post-dated) is a

continuing security for a debt. Bills and cheques are orders to pay; promissory

notes are promises to pay.

All three are negotiable instruments, that is to say, they may be transferred by

mere delivery from one person to another (in case of instruments being

payable to bearers), or by endorsement and delivery, so as to pass a complete

title to a transferee who takes bona fide and for value, free of the equities and

with the right in the transferee to sue, in his own name, all parties to the

instrument. In this respect, negotiable instruments differ from any other

contracts.

Regulations on bills of exchange, promissory notes and cheques are included

in Articles 223 to 320 of the Commercial Code of Iran approved on 22nd May

1932. In addition, there is today the Cheques Law as Amended on August 27,

2003 providing facilities required for transactions carried out by everyone in

his day to day business.

There are wide differences between the law of Iran and that of the United

Kingdom as well as those countries that are or were members of the British

Commonwealth of Nations and the United States of America. On the contrary

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there are much similarities between the law of Iran and that of the Continent

of Europe, of certain South American countries and of Japan, whose law is

founded on the League of Nations-Conventions Nos. 3314 (Uniform Law and

Conflicts of Law) relating to bills of exchange and promissory notes, relating

to cheques, dated March 31, 1931.*

BILLS OF EXCHANGE

According to Article 223 of the Commercial Code, a bill of exchange is an

unconditional order in writing, addressed by one person to another, signed by

the person giving it, requiring the person to whom it is addressed to pay on

demand, or at a fixed or determinable future time, a sum certain in money to

or to the order of a specified person, at a specified location.

An instrument that does not comply with these conditions, or that orders any

act to be done in addition to payment of money, is not a bill of exchange.

An order to pay out of a particular fund is conditional within the meaning of

this section. An unqualified order to pay, coupled with (a) an indication of a

particular fund out of which the drawee is to reimburse him or a particular

account to be debited with the amount, or (b) a statement of the transaction

which gives use to the bill, is unconditional.

A bill of exchange must comply, substantially, with the above definition,

particularly that it be an unconditional order. The person signing the bill is

called the "drawer", the person to whom the bill is addressed, the "drawee",

and the person named in the instrument to receive the money, the "payee".

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* The countries signing the above Conventions and the extent to which they

have been ratified are given in League of Nations Treaty Series, Vol. CXLIII,

1933-34, pp.257, 317, 355 and 407.

When the "drawee" has undertaken to pay the bill, he is called the "acceptor".

Such an undertaking must be made on the bill, be dated, signed and sealed

(where appropriate).

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Besides the signature or seal of the drawer, a bill of exchange must contain the

words "bill of exchange", the date when drawn (day, month and year), the

name of the drawee, the amount in full, the date of payment (due date), the

place where payment is to be made, whether it be the domicile of the drawee

or other place, the name of the person to whom, or to whose order the bill of

exchange is to be paid, and finally an indication whether it is the first, second,

third, etc. copy of the bill of exchange.

In case a draft shall be written in a language other than Farsi(Persian),

insertion of the words "bill of exchange" must be made in that same language

of the bill.

It should be noted, however, that a bill is not invalid by reason-

(a) That the words “bill of exchange” are not written on it,

(B) that is not dated, the date on which a bill of exchange is issued as well as

the amount not written in words.

If the amount is written more than once in words and there is a difference,

then the smaller amount will be the amount of the bill. If the amount is written

in words and in figures and there is a difference, then the amount written in

words shall be considered to be the amount of the bill.

Bills of exchange are written on special forms published by the Ministry of

Economic Affairs and Finance.

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A Form of bill of exchange

Stamp Duty

The special forms of bills of exchange to which stamps are affixed in

accordance with Article 45 of the Direct Taxation Act (three per mille of the

amount of the bill) may be purchased from branches of banks.

Foreign Bills

Every person into whose hands any bill of exchange drawn or made out of

Iran, comes, in Iran, before he presents it for payment, or endorses, transfers,

or in any manner negotiates or pays the bill, shall affix thereto proper adhesive

stamp(s) of sufficient amount, and cancel every stamp so affixed thereto.

All legal entities or individuals who deal in, pay or collect the amount of bills

in Iran shall be jointly and severally liable to see that stamp duties on a bill

has been duly paid.

In the event of violation of the provision above, in addition to the prescribed

stamp duty, an amount equal to twice the amount of stamp duties shall be

imposed (Article 51 of the Direct Taxation Act as Amended on 15 February

2002).

Acceptance

A bill of exchange drawn by A upon B, requiring him to pay to C or to the

order of C a certain sum at a certain time or location, must be presented to B

for acceptance within 24 hours.

Anything written by the drawee on the bill of exchange together with the

signature and seal shall be deemed as acceptance, unless the drawee specially

indicates his non-acceptance.

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If the drawee dishonors only part of the amount of the bill, then the balance

shall be deemed as accepted. Also, the drawee's mere signature on the bill

without additional words shall be sufficient acceptance.

The drawee accepting a bill is bound to pay its amount on due date and may

not dishonor the bill after having accepted it.

Conditional Acceptance

Acceptance should be made unconditional. When acceptance is conditional,

the bill shall be treated as dishonored by non-acceptance. However, the

drawee shall be liable to the extent of the condition.

Local Acceptance

Local acceptance shall be an acceptance to pay only at a particular, specified

place other than the domicile of the drawee. An acceptance to pay at a

particular place is a general acceptance, unless it expressly states that the bill

is to be paid there only and not elsewhere.

Acceptance Supra Protest or for Honor

Where a bill of exchange has been protested for dishonor by non-acceptance,

and is not overdue, any person, not being a party already liable thereon, may,

with the consent of the holder, intervene and accept the bill supra protest, for

the honor of any party liable thereon, or for the honor of the person for whose

account the bill is drawn.

An acceptance for honor, supra protest, in order to be valid, must be written

on the protest for non-acceptance and be signed by the acceptor for honor.

Where an acceptance for honor does not expressly state for whose honor it is

made, it is deemed to be an acceptance for the honor of the drawer.

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After acceptance of the bill for honor by third party, the payee shall maintain

all the rights acquired against the drawer and the endorsers, by reason of non-

acceptance, as long as the bill of exchange has not been paid.

Presentment for Payment

A bill must be presented for payment in order to render the drawer and

endorsers liable, within one year after the date of issuance of the bill or within

the period provided in the bill. If it shall not be so presented, the drawer and

endorsers who may have already settled their account, regarding the amount of

the bill, with the drawee, shall be discharged.

If an endorser of a bill shall fix a respite for presentment, the bill must be

presented to the drawee within the said respite, or else the payee will be

unable to make a claim against that particular endorser for violation of the

regulations on bills of exchange.

Dishonor – Notice

The payee must demand payment on due date. When a bill has been

dishonored by non-acceptance or by non-payment, notice of dishonor (protest)

must be given to the drawee within 10 days after the due date. If the tenth day

is a public holiday, then the protest must be made on the following day.

The payee shall not be absolved from given protest for non-payment, by death,

bankruptcy or non-acceptance of the drawee.

The payee must, within ten days after the date of protest notify, by a legal

notice or by registered mail with receipt attached, the fact of non-payment or

non-acceptance to the person who transferred the bill to the payee.

Each endorser must likewise, within ten days after the date of receiving the

above-mentioned notice, in his turn, notify the preceding endorser.

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Form of Notice

Notice of dishonor in order to be valid and effectual, must be given in three

copies on the special protest forms printed by the Bureau of Official Gazette

after payment of stamp duties.

The protest must be given in the following instances:

- In case of non-acceptance

- In case of refusing the bill

A protest must contain a copy of the bill and must be signed by the party

giving it. A protest shall be served on the addressee by the bailiff in

accordance with the regulations of the Civil Procedure Code.

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A Form of Protest (bill of exchange)

After the protest for non-acceptance, the endorsers and the drawer must, on

demand of the payee, give a guarantee for payment of the bill of exchange on

due date, or make immediate payment together with the costs of the protest

and re-exchange (if any).

Endorsement

“Endorsement” means an endorsement completed by delivery.

“Delivery” means transfer of possession, actual or constructive, from one

person to another.

An endorsement, in order to operate as a negotiation, must comply with the

following conditions, namely –

(1) It must be written on the bill or on the back of the bill itself and be signed

by the endorser. The simple signature of the endorser on the bill or on its

back, without additional words, shall be sufficient.

(2) A bill may also be endorsed to another person as a representative, trustee

or for security. In this case, the bill will not be transferred, but the holder

will have the right to collect the amount, to protest it if necessary, and to

take legal action for recovery unless otherwise expressly stated on the bill

itself.

If an endorser ante-dates the endorsement, he will be considered guilty of

forgery.

Forgery, according to Article 523 of the Law of Islamic Punishments

(Ta'aziraat) has been defined as "to make a document or any other evidence

contrary to the truth … or to ante-date or post-date a document".

Such act shall be punishable pursuant to Article 536 of the above-said law.

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Foreign Laws

Articles 305 and 306 of the Commercial Code of Iran provide that:

Article 305: Essential conditions of bills of exchange drawn outside Iran are

determined by the laws of the country in which the bills are drawn. Similarly,

liabilities for bills (resulting from endorsement, guarantee, acceptance, etc.)

which are drawn abroad are subject to the laws of the country where they have

been issued. If, however, the essential conditions of a bill of exchange

conform to Iranian law, or if the liabilities are valid according to the said law,

the persons who, in Iran, have undertaken subsequent liabilities cannot plead

that the liabilities and engagements undertaken by prior parties are irregular

according to foreign law.

Article 306- The protest and other measures taken abroad, to exercise and

protect the rights attached to a bill of exchange, are subject to the laws of the

country where the proceedings have taken place.’

Instituting Claim

The payee must institute a lawsuit within three months after the date of service

of protest to the drawee in order to be entitled to summon the drawer, the

drawee(s) who accepted payment of the bill and the endorser(s).

No compensation on account of interest may be claimed from a drawee that

accepted a bill but failed to pay it, the drawer or endorsers. However, damages

and charges on account of stamp duties, court charges, and costs of instituting

a claim for non-payment of a bill may be claimed by the payee according to

Islamic principles that are in force after the 1979 Islamic Revolution.

The joint liability of the drawer, the drawee (who accepts payment and fails to

do so) and the endorsers vis-à-vis the payee was, in the past, disputed and

although generally rejected according to Shi'ite jurisprudence, during the first

two or three years after the 1978 Islamic Revolution by some benches of

provincial courts that had a tendency to reject claims instituted against

endorsers, during the recent years, no instances have been reported where a

judge refused claims instituted against endorsers. It can be deducted,

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therefore, that the joint and several liability of the drawer, the drawee and the

endorsers as provided in Article 249 of the Commercial Coder of Iran is still

in force and valid.1

PROMISSORY NOTES

According to Article 307 of the Commercial Code, a promissory note is an

instrument made by one person to another signed by the maker, engaging to

pay, on demand or at a fixed date, a sum certain in money, to or to the order of

such person.

Besides the signature and seal (where appropriate) of the signatory, a

promissory note must be dated and contain the following:

a) The sum to be paid, written in words

b) Name of the beneficiary

c) Date of payment

The provisions of the Commercial Code relating to bills of exchange save as

the exceptions stated herein apply, with the necessary modifications, to

promissory notes.

It is not mandatory to insert the words "promissory note" in a note.

Proper Form

Promissory note forms to which stamps are affixed are being printed by the

Ministry of Economic Affairs and Finance and sold through branches of

1 Article 249: The drawer, acceptor and the endorsers of a bill of exchange are jointly and severally

responsible to the holder. The latter may, in case of protest for non-payment, take action against drawer,

acceptor or endorsers, whomsoever he chooses, severally, or against all of them jointly.

The same right exists for each of the endorsers with regard to the drawer and prior endorsers. The plaintiff is

not obliged to follow the chronological order of endorsements.

Whoever has given security for the drawee, drawer or endorser is only jointly and severally responsible with

that party for whom he stands surety.

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banks. These forms bear the words "promissory note" and can be

distinguished from other negotiable instruments.

No provision has been made in the Commercial Code of Iran that payment of

promissory note must be unconditional.

A promissory note lacking the place and date of issue is still a promissory note

and is valid. Also, the following provisions that are required in case of bills of

exchange do not apply to notes, namely provisions relating to –

a) Presentment for acceptance,

b) Acceptance,

c) Acceptance supra protest,

In applying those provisions, the maker of a note shall be deemed to

correspond with the acceptor of a bill, and the first endorser of a note shall be

deemed to correspond with the drawer of an accepted bill payable to drawer's

order.

Stamping

A note attracts stamp duty of three per mille of the amount of the note.

Pledge, Guarantee, Security

A note is not invalid by reason that it contains a pledge or guarantee. A note

may be signed in favour of an employer and endorsed by any one who

guaranteed the good performance of an employee and be deposited with the

employer so that in certain cases the amount of the note may be claimed by

the employer. This type of security and guarantee is common in Iran for

employment of those dealing with cash, such as bill collectors, cashiers, etc.

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A Form of Promissory Notes

Maturity Date

The maturity date of a promissory note on which date the note becomes due

for payment may be as follows:

1. Notes Payable at Sight: In this case, the drawer is obligated to pay the

amount of the note to payee upon presentment of the note by the payee.

2. Within a Certain Period from Sight: In this case the payee must present

the note to the drawer within one year or else the payee shall have no right

of claim against the endorsers.

3. within a Certain Period from the Date of Issue of the Note.

4. Payable at a Certain Date: The notes are mostly made payable at a certain

date. The date of payment shall be the working hours in one full day.

Should the said date be a holiday, then the next day shall be considered as

the due date.

Endorsement

Endorsement may only be possible in case the drawer shall not cross off the

words “or payable to the order of “….” on the note.

It is also possible to endorse a note for security of a debt, to representatives,

etc.

In case any one signs the back of a note without insertion of any words, such

mere signature shall be construed as giving security for the drawer. In such

case, the one who signed the back of the note shall stand surety for the drawer.

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Protest

Where a note is dishonored, protest is necessary. The protest must be made

within 10 days after the date of maturity by service of a special form to which

stamp duty is affixed and cancelled.

Service of the protest is being made by the bailiff. The holder of the note must

also send the protest to the endorser from whom he received the note and each

endorser must, in turn, send the protest to the preceding endorser from whom

the latter received the note. The said procedure is necessary to make claim

against the drawer and the endorsers, jointly and severally.

Instituting Claims

The claim must be instituted within one year after the date of service of the

protest in respect of the notes payable in Iran and within two years in respect

of the notes payable outside Iran.

The holder of the note who institutes a claim for non-payment of a note is

entitled to apply for issuing a writ of attachment of property of the drawer

and/or endorsers from the court. The court shall be bound to issue such writ

upon application by plaintiff without demanding a security to be deposited

with the court by the plaintiff.

CHEQUES

The cheques Law, as amended on 24 August 2003 contains all the regulations

pertaining to cheques in force in Iran.

According to the said Law, a cheque is defined as an instrument for payment

of a sum certain in money, available in the account of a drawer with a bank,

drawn on a banker to be paid to the payee or to his order.

The holder of a cheque (payee) has no guarantee other than the creditability of

the drawer. However, the payee may demand a certified cheque (certified by

the transferee bank), or a guaranteed cheque (drawn by bank at a customer’s

request) or travelers’ cheques issued by banks.

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Proper Form

A cheque should be drawn in the proper form supplied by the banker with

whom the account of a customer is kept. A banker is entitled to refuse

payment of a cheque drawn in a form whose legality is doubtful. It goes

without saying that an instrument in the form of a cheque to which the

drawer’s signature is a forgery is not a cheque and is void ab initio (quaere, a

cheque validly issued but later altered). A cheque drawn payable to “bearer” is

still a cheque.

A cheque is similar to a bill of exchange in respect of surety, endorsement,

protest (the service procedure is different), and the joint and several liability of

the drawer and endorsers.

It is however, different from a bill in that a cheque, unlike a bill, is an

instrument for payment and not an instrument of credit.

Place of Issue or Payment

A cheque is not invalid by reason that it does not specify the place where it is

drawn or where it is payable. As, however, banks usually have many branches,

cheques indicate the branch on which they are drawn and the banker cannot be

forced to pay elsewhere.

Dating

Prima facie a cheque need not be dated. An undated cheque will be paid by a

banker without the drawer’s consent and his refusal to pay shall not be upheld.

Actually, cheques are being used in place of promissory notes. In such case, a

drawer of a dud cheque shall not be sentenced to the punishments prescribed

in Article 7 of the Cheques Law in case of post-dated or guarantee cheques

and other instances described in Article 13 of the Cheques Law:

“Article 7- Anyone committing the offense of issuing a dud cheque shall be

sentenced to the following punishments:

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a. Should the amount of the cheque be less than ten million (10,000,000)

rials, the perpetrator shall be sentenced to a jail term of maximum six

months.

b. In case of issuing a cheque in the amount of ten million rials up to fifty

million rials, to imprisonment from six months to one year.

c. In case of dud cheques of over fifty million rials, the drawer shall be

sentenced to imprisonment from one year up to two years and prohibition

on being granted the right of having a cheque book for two years. In case

the drawer is guilty of having issued several cheques, the aggregate sum

of the dud cheques shall be taken into account in applying the above

provisions.

Note- The above punishments shall not include the cases where it shall be

proved that the dud cheques have been issued in respect of illegitimate

transactions or on account of usury interest.

By the term “the holder of the cheque” in this Article, it is meant someone

who presents the cheque for the first time to the bank. In order to ascertain

who referred to the bank for the first time to collect the amount of the cheque,

the banks are required to record immediately, upon referring by the holder of

the cheque, his complete and precise identity on the overleaf of the cheque,

mentioning the date as well.

Those to whom a cheque is assigned after it is dishonoured by the bank shall

not have the right to file a criminal complaint, unless the assignment is made

through the process of law (heirship, bankruptcy, etc.).

In case the holder of a cheque wishes to collect the amount of the cheque

through another person as his representative, while reserving his right to file a

criminal complaint, in case the cheque is dishonored, he must indicate his

identity and address mentioning that he is being represented by the said

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person, on the overleaf of the cheque. In such a case, the bank shall issue the

certificate mentioned in Article 4 in the name of the owner of the cheque, and

his right to file a criminal complaint shall be reserved.

Note- Where after filing of a complaint, the complainant assigns the cheque to

another, or transfers his rights in respect of the cheque to another in any

manner whatsoever, criminal prosecution shall be stopped.”

“Article 13- A drawer of a dud cheque may not be prosecuted in the following

instances:

a. Where it shall be proved that the cheque had been signed blank.

b. Where payment of the amount of the cheque, according to the text of the

cheque, has been made contingent on fulfillment of a condition.

c. Where in the text of the cheque, it has been mentioned that the cheque has

been issued as guarantee for a transaction or fulfillment of an obligation.

d. Where, without any mention in the text of the cheque, it shall be proved

that payment of the value of the cheque was contingent on fulfillment of a

condition or the cheque was issued as guarantee in respect of fulfillment

of an obligation or undertaking.

e. Where it shall be proved that the cheque was issued without a date or the

cheque was issued prior to the date of the cheque therein mentioned.”

Losing a Cheque

According to Article 14 of the Cheques Law, “the drawer of a cheque, the

beneficiary or locum tenens or both of them, duly explaining that the missing,

stolen or forged cheque was obtained through fraud, breach of trust or through

committing other offenses, may instruct the bank in writing not to pay the

amount of the cheque. The bank, after ascertaining the identity of the

individual issuing the instructions, shall refuse to pay the amount of the

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cheque. The bank shall issue a non-payment certificate duly stating the

declared reason, and hand it over.

Holder of the cheque may file a complaint against the individual who issued

the instructions on non-payment of the cheque. Should it be proved that the

contention which led to non-payment of the amount of the cheque was false,

the instructing individual, in addition to the punishment laid down in Article 7

of the Cheques Law, shall also be condemned to pay all the damages sustained

by the holder of the cheque?”

Beneficiary, in the above Article, is someone in whose name the cheque has

been issued or endorsed, or to whom the cheque has been transferred (or a

bearer cheque issued to him/her). In every case where beneficiary issues

instructions on non-payment of the amount of a cheque, the bank shall be

obligated to keep, in a blocked account, the amount of the cheque until the fate

of the cheque will be decided by an investigating authority or instructions are

withdrawn.

Value of a Cheque

A cheque may be drawn for any sum of money, large or small. The sum is to

be expressed both by words and figures. Where there is a discrepancy between

the two, the sum denoted by words is the amount payable; the usual practice is

to dishonor the cheque, though sometimes it would be paid if only the smaller

amount was claimed.

Not Negotiable

Where a person takes a cheque made in his name on which the words “… or to

the order of the payee” has been crossed off, he shall not be capable of

endorsing it.

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Customer’s Breach of Contract

It is a term of the contracts between bankers and customers that the latter shall

draw cheques up to the limit of the funds available in account. A banker can

only be enforced for payment up to the amount of the funds deposited by a

customer with the bank. Customers issuing even one dud cheque may be

precluded from opening new current accounts for up to two years.

A cheque presented to a bank and paid by the bank shall not be returned to the

drawer.

Banker’s Cheques

The payee may ask the paying bank to pay the amount of the cheque through a

banker’s cheque instead of bank notes.

A banker’s cheque is a cheque made by a banker and payment of the amount

mentioned in it is guaranteed by the issuing bank.

A banker’s cheque may be issued in the name of the payee or any person

named by the payee.

A banker’s cheque is negotiable upon writing for endorsement and signature

by the payee on the back of the cheque. The authenticity of the signature of

the endorser must be certified by a notary public.

According to Articles 1 and 3 of the Current Accounts General Conditions, a

banker can only be enforced for payment up to the amount of the funds

deposited by the customer with the bank provided that the cheque is drawn

according to the said General Conditions.

The drawee banker in paying the amount of a cheque, in addition to making

sure that the signature on the cheque reasonably corresponds with and

resembles that of his customer must also make sure –

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- That the drawer has complied with regulations pertaining to drawing a

cheque.

- That the holder is indeed the payee named in the cheque by checking the

identification documents of the holder.

- That endorsement has been made in proper manner and that the endorsers

can be identified and that the last signatory is indeed the holder of the

cheque.

- That the sum of the cheque be paid only to the person named on the face

of the cheque in case the words “… or to the order of …” in the cheque

have been crossed off.

- That the crossed off mistakes have been duly made correct on the back of

the cheque and certified by drawer’s signature.

- That the holder of the cheque writes down his name, identification card

number, his father’s name, date and place of birth and his address on the

back of the cheque and signs on the back of the cheque in presence of the

clerk of bank.

Delay in Presentment

A cheque must be presented within six months after the date of issue. The date

of issue and the due date of a cheque must always be the same. A post-dated

cheque cannot be the subject of criminal proceedings and the amount thereof

may only be claimed through civil proceedings. It will be treated like a

promissory note. If, moreover, a creditor takes from a debtor the cheque of a

third party, the creditor must present the cheque within the said six months. In

practice, the banks usually refuse payment of a cheque from whose date of

issue a period of six months has lapsed, unless the drawer makes a further

instruction to the bank.

Joint Accounts

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When a plurality of persons, not being persons in trade, have money in a bank,

they must each sign the cheque, unless they instruct the banker to act on the

signature of less than all or, being trustees, the trust deed gives permit that if

one becomes absent, the others may receive the money proportionately.

Branches of the same bank in different places are, for many purposes, distinct.

They are in some respects to be regarded, in their dealings with negotiable

instruments, as separate and independent parties. Thus, the obligation of a

bank to its customers is, to some extent, localized. A cheque is properly

presented for payment only at the branch on which it is drawn. On the other

hand, if a customer keeps accounts at two branches, they may combine, the

balance at one being applied in reduction of an overdraft not settled at the

other.

A cheque is usually given to the bank where a customer keeps his account in

order to be collected from the drawee bank. The amount of the cheque shall be

credited to the account of the customer after the bank where the customer

keeps his account collects the amount of the cheque from the drawee bank.

The collection shall be free of charge.

The account of a customer shall not be credited with the amount of a cheque

given by a customer to a bank for collection prior to collection by the bank.

Collection by banks takes some 48 hours for cheques to be collected by one

bank from the other in Tehran and about one week for collection by one bank

from the other in two different cities (with the exception of modern electric

arrangements).

Notice of Dishonor

The drawer of a cheque must have, on the date of issuance of the cheque

enough funds (cash or credit) with the bank. He must not exhaust the balance

to render payment of the cheque impossible, or countermand payment. Nor

must he draw the cheque in such a manner that the bank refuses payment on

the ground that the signature does not correspond to the specimen, or that

there are crossing out in the text of the cheque, or that there are contradictions

in the text of the cheque, and the like.

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Where the amount of the cheque is not paid for any of the above reasons, the

bank shall be required to indicate, clearly the ground or grounds of non-

payment, on a special form containing the full specifications of the cheques,

identity and address of the drawer and submit the same to the holder of the

cheque, after being duly signed and sealed.

The said certificate must certify whether the signature of the drawer (within

the normal banking practices) does or does not correspond with the specimen

signature.

The bank shall be required to dispatch, immediately, the duplicate copy of the

said certificate to the last address of the account holder for the information of

the drawer. In the said certificate, the name, surname and full address of the

holder of the cheque must also be recorded.

If the funds of the drawer with a bank are less than the amount of the cheque,

then at the request of the payee, the bank is required to pay the entire funds

existing in the account to the payee. The payee shall then indicate the amount

he received on the overleaf of the cheque and submit the same to the bank

against receipt of a certificate containing the specifications of the cheque and

the amount which has been paid.

The said cheque, for the unpaid balance, is considered as a dishonored cheque

and the certificate above mentioned shall substitute the original copy of the

cheque.

The bank is also required to send the certificate mentioned above, to the

account holder.

Instituting Claims

Cheques drawn on banks in Iran as well as their branches outside Iran are

considered to be very similar to notaries (enforceable without necessity to file

a plaint with the court) documents.

If the holder of such cheques presents the same to a bank but does not receive

payment in whole or part due to the lack of funds or due to any other reasons

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which culminate in the dishonor of the cheque and its non-payment, he may

do any of the following: -

1) Collect the amount of the cheque or the balance thereof from the drawer

with due observance of the laws and regulations pertaining to execution

of notaries deeds on obtaining an executive writ.

Notary’s deeds are considered to be enforceable without referring to

court. The beneficiary of a notary’s deed may simply refer to the Registry

of Deeds, present his deed and obtain an executive writ. With the help of

police, he can then seize the property of the debtor and the Registrar shall

sell the property and shall pay off the beneficiary.

The Registrar shall issue an executive writ only when the bank certifies

that the signature on the cheque corresponds with the specimen signature

of the drawer kept by the bank.

2) Institute civil lawsuit against the drawer and/or the endorsers.

It should be noted that the facilities provided in Para 1 above can not be

used against endorsers or in case of cheques given as guarantee or in case

of post-dated cheques. Only a civil lawsuit may be filed against the

endorsers and in respect of post dated and guarantee cheques with the

competent court.

3) Sue the drawer for fraud. Issuing a check without having funds is an act

of misdemeanor and the violator shall be condemned to imprisonment

from six months to two years.

The usual line of action is to lodge a criminal complaint and institute a civil

lawsuit after the arrest of the drawer, as arresting the drawer may result in

immediate payment by him, whereas instituting civil lawsuits or obtaining an

executive writ may not be effective. The subsequent civil action may be filed

with the criminal court dealing with the matter.

If the holder of a cheque does not present the cheque within a period of six

months from the date of issuance to the bank for its collection, or does not file

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a complaint within a period of six month from the date of issuance of the

certificate of non-payment, he shall no longer be allowed to lodge a criminal

complaint. By the term “the holder of the cheque”, it is meant someone who

presents the cheque for the first time to the bank and his name and full

particulars are written on the overleaf of the cheque.

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