Cheque: Definition, Characteristics, Types, and Special Rules

Key Points:

1. Definition Under Section 6.

2. Characteristics of Cheque.

3. Parties to Cheque.

4. Types of Cheques.

5. Special rules for cheques.

 

1. Definition Under Section (6):

"A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand".

So, a cheque is a bill of exchange with two additional qualifications:

(i) Always drawn on a specified banker.

(ii) Always payable on demand.

2. Characteristics of Cheque –

(i) Written form.

(ii) Express order to pay.

(iii) Definite and unconditional order.

(iv) Signed by drawer.

(v) Order to pay a certain sum.

(vi) Order to pay money only.

(vii) Certain three parties.

(viii) Drawn on a specified banker.

(ix) Payable on demand.

3. Parties to Cheque:

(i) Drawer: The person who draws the cheque is called "Drawer.”.

(ii) Drawee: The bank on whom the is drawn by the drawer is drawn is known as "Drawee.”.

(iii) Payee: The person who is authorized to receive the payment of a cheque is called the “Payee”.

4. Types of Cheques –

(i) Open Cheque –

It is an uncrossed cheque. Such cheques can be cashed at any bank and payment is made. Directly to the individual holding the cheque. This cheque can be transferred from the original payee to another payee. Both the front and back of the cheque must bear the signature of the issuer. Such cheque cannot be uncashed by any other person apart from the one whose name has been mentioned on it.

(ii) Crossed Cheque –

Cash withdrawal of these cheques is not possible. Transfer of amount from account of drawer to account of payee is only possible. Such cheques can be deposited to the bank by the third party.

The drawer must draw two lines at the left top corner of the cheque in case of crossed cheque.

(iii) Bearer Cheque –

This cheque is payable to anyone who presents it for payment at a bank. It can be transferred simply by delivery and does not need to be endorsed.

(iv) Order Cheque –

Cheque which is payable to a specific person is an order cheque. The word ‘bearer’ in this cheque must be cancelled or cut out and the word ‘order’ may be written. By signing and writing his/ her name on the back of the order cheque, a payee can transfer it to someone else.

(v) Other types of Cheques –

(a) Mutilated (torn or damaged) Cheque –

The bank has the right to refuse the cheque and declare it invalid. However, if the drawer certifies the validity of the cheque, it may be processed. Still the final decision will be made by the bank.

Bank will process the cheque for withdrawal if the cheque is torn or damaged only from the corners and the information written on it is completely clear and visible.

(b) Stale Cheque - Time barred (3 months).

(c) Anti - Dated Cheque –

It is issued by a drawer including a date that is prior to the present date. When presenting the cheque to the bank, the date mentioned in the cheque should not exceed 3 months e.g. If drawer dates a cheque January 1, 2024, however the current is date January 30, 2024.

(d) Post - Dated Cheque –

A post - dated cheque is the cheque that includes date which is subsequent to the date on which it is presented to the bank.

E.g. Post - dated cheque will be the cheque that is presented on 8th may 2023 and bears a date 25th may 2023. The payment for that cheque will be made either on or after 25th May 2023.

Honouring of post - dated cheque before the date mentioned on it is not possible.

(e) Traveller’s Cheque –

These cheques are used by person while travelling to the country where Indian currency is not used. It is used to avoid carrying hard cash.

5. Special rules for Cheque –

(i) Date

(ii) Name of Payee.

(iii) Account Number.

(iv) Minimum Balance.

(v) Crossing.

(vi) Overwriting.

(vii) Condition.

(viii) Signature.

(ix) Endorsement - Transferring of Ordered and crossed cheques necessities proper endorsement and delivery. Bank will not pay in case if these condition is not fulfill.

(x) Amount.