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CHEQUEModule - 3

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Definition

"Cheque is an instrument in writing containing an unconditionalorder, addressed to a banker, sign by the person who has depositedmoney with the banker, requiring him to pay on demand a certainsum of money only to or to the order of certain person or to the

bearer of instrument."

Section 5 of the Indian Negotiable Instrument Act of 1881 defines the Cheque as A Bill of Exchange drawn specially

on a specif ied Banker and not on expressed to be payable otherwise than on demand...

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Specimen of Cheque

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Essentials of Cheque

It is an Instrument in writing , i.e., it must be written in Inkand not by pencil.

It must be Drawn on Particular Bank . It is drawn by acustomer who has deposited money with the Bank.

It must not contains any conditions . It must be signed by the Account holder. It is always payable on demand.

It must contain an order to pay certain sum of money A Cheque is payable to a Specified Person Only

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400 026 016

963214

Crossing of ChequePayee Name Date

Amount In Words

Bank

Signature of

Drawer

Account No.Amount

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Types of Cheque

Bearer Cheque Order Cheque Open Cheque Crossed Cheque

Anti-Dated Cheque Post-Dated Cheque Stale Cheque Mutilated Cheque

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Bearer Cheque

The words or bearer printed on the cheque, & it is not cancelled,then the cheque is called a bearer cheque. A bearer cheque is made payable to the bearer i.e. it is payable to

the person who presents it to the bank for encashment.

In simple words a cheque which is payable to any personwho presents it for payment at the bank counter is calledBearer cheque

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Order Cheque

The word "or order" is written on the face of the cheque, thecheque is called an order cheque. Such a cheque is payable to the person specified therein as the

payee, or to any one else to whom it is endorsed (transferred).

http://www.fingyan.com/wp-content/uploads/2011/06/cheque1.png

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Open Cheque

When a cheque is not crossed, it is known as an Open Cheque oran Uncrossed Cheque. These cheques may be cashed at any bank and the payment of

these cheques can be obtained at the counter of the bank or

transferred to the bank account of the bearer. An open cheque may be a bearer cheque or an order cheque.

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Crossed Cheque

Crossed cheque means drawing two parallel lines on the leftcorner of the cheque with or without additional words likeAccount Payee Only or Not Negotiable.

A crossed cheque cannot be en-cashed at the cash counter of a

bank but it can only be credited to the payees account . This is asafer way of transferring money then an Uncrossed or opencheque.

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Anti-Dated Cheque

Cheque in which the drawer mentions the date earlier than the dateon which it is presented to the bank, it is called as anti -datedcheque.

Such a cheque is valid upto six months from the date of the cheque

drawn.

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Post-Dated Cheque

Cheque on which drawer mentions a date which is yet to come(future date) to the date on which it is presented, is called post-dated cheque.

For example

If a cheque presented on 10th Jan 2012 bears a date of 25th Jan 2012 , itis a post-dated cheque. The bank will make payment only on or after25th Jan 2012.

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Stale Cheque

If a cheque is presented for payment after six months from thedate of the cheque, it is called stale cheque. After expiry of that period, no payment will be made by banks against that cheque.

A stale cheque is not honored by the bank.

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Mutilated Cheque

When a cheque is torn into two or more pieces and presented for payment, such a cheque is called a mutilated cheque. The bankwill not make payment against such a cheque without gettingconfirmation of the drawer.

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Crossing of Cheque

Crossing of a cheque means "Drawing Two Parallel Lines" acrossthe face of the cheque. Thus, crossing is necessary in order to havesafety.

Crossed cheques must be presented through the bank only because

they are not paid at the counter. Crossing is a popular device for protecting the drawer and payeeof a cheque.

Types of Crossing :-1. General Crossing2. Special or Restrictive Crossing

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General Crossing

There are two transverse parallel lines, marked across its face, or The cheque bears an abbreviation "& Co. "between the two parallel

lines, or The cheque bears the words "Not Negotiable" between the two parallel

lines, or The cheque bears the words "A/c. Payee" between the two parallel lines.

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Special or Restrictive Crossing

Crossing is that the bank makes payment only to the bankerwhose name is written in the crossing. Specially crossedcheques are more safe than a generally crossed cheques.

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Material Alteration

Any alteration made in the cheque is Material Alteration. These cheque are not honored by Banks, for making This as a

valid cheque then the drawer has to sign at every correction made. Alterations' Like:

Date, Amount, Payee Name, Converting order into bearer cheque, etc.

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Endorsement

Signature included on the front or back of a check acknowledgingthat both parties have agreed to exchange the specified amount onthe document.

The signature or account information included on the back of acheck acknowledges that the intended recipient received thedocument and deposited it.

To cash a cheque, the issuer and the recipient must endorse thedocument.

Negotiation of an instrument is the process by which theownership is transferred from 1 person to another person.

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Contd

There are 2 parties in Endorsement Endorser Endorsee

Endorser The Person who signs the instrument with an instrument of

transferring his ownership.

Endorsee The person in whos favor the instrument is transferred.

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By Ankit Porwal