What is a Cheque?
A cheque is a widely used negotiable instrument under the Negotiable
Instruments Act of 1881, where the account holder (drawer) instructs
their bank (drawee) to pay a specific amount to another person (payee).
Cheques can be issued from savings account and current accounts and
are a secure alternative to cash payments.
As Per Section 6 of the Negotiable Instruments Act, of 1881, "A cheque is
a bill of exchange drawn on a specified banker and not expressed to be
payable otherwise than on demand and it includes the electronic image of
a truncated cheque and a cheque in the electronic form".
How Many parties are there in a Cheque transaction?
There are a total of three parties in a transaction facilitated by a cheque
which includes,
1. Drawer: The person who makes and signs the cheque and promises to
pay the debtor a specific amount.
2. Drawee: In the case of a cheque Drawee is always the bank on whom
the cheque is drawn and it's the responsibility of Drawee to make the
payment.
3. Payee: The person in whose favour the cheque is drawn, his name is
written on the cheque he is the person in whose name the cheque is
endorsed.
Key Features of a Cheque
1. Unconditional Written Order – A cheque is always a written order
to the bank without any conditions.
2. Cash Payment on Demand – When presented, the bank pays the
cheque in cash.
3. Drawn on a Specific Bank – Cheques are linked to specific bank
accounts.
4. Certain Sum of Money – The amount written on a cheque cannot
exceed the available account balance.
5. Signature Requirement – The drawer must sign the cheque to be
valid.
Validity of a Cheque
A cheque is valid for 3 months from the date of issue, which is printed at
the top right-hand corner. After this period, it becomes invalid and cannot
be cashed.
Types of Cheques
There are two types of cheques available one is called Open cheques, and
others are Crossed cheques.
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1. Open cheque: Any basic cheque without crossing is an Open cheque.
They can be presented to the Drawee i.e. the bank, and the holder of the
open cheque is entitled to get the amount written on the cheque at the
bank counter. However, if the open cheque gets lost and any stranger has
an open cheque, he/she can claim the payment from the bank counter
even though he/she is not the actual owner.
2. Crossed Cheque: When a cheque contains two parallel transverse
lines, the cheque is called a Crossed cheque. The parallel lines can be
drawn anywhere on the cheque but the general practice is to draw on the
top left corner. Here the holder of a crossed cheque can not get payment
on the counter.
What is the Crossing of Cheques?
Crossing is a unique feature associated with a cheque affecting to a
certain extent the obligation of the paying banker. The crossing is like an
instruction to the paying bank not to make payment on the bank counter
rather payment shall be made through a bank account only so that no
wrong person can take the payment to the said cheque. The crossing of a
cheque is effected by drawing two parallel transverse lines with or without
the words ‘and company’ or any abbreviation thereof. This ensures a level
of security for the payer since it needs the funds to be handled with a
collecting bank. Cheque writers can use crossed cheques to protect the
amount transmitted from being cashed by an unauthorised person or
stolen, as Crossed Cheques can only be paid through a bank account.
Types of Crossing of Cheques
1. General Crossing
When a cheque only possesses two parallel transverse lines without
having anything written between them is called General Crossing, When a
cheque possesses General Crossing the payee bank can only pay the said
cheque to a banker. This protects the issuer of the cheque as the amount
can only be credited to the bank account of either the named payee or an
endorsee.
2. Special Crossing
Where the line of crossing has the name of a specific banker, then the
payment can be obtained only by the said bank whose name is written
between the crossing of lines. The drawing of two parallel lines is not
necessary in the case of a specially crossed cheque. The object of special
crossing is to direct the drawee banker to pay the cheque only if it is
presented through the particular bank mentioned therein. This makes
cheques safer.
3. Account Payee Crossing
When the cheque has "A/c Payee" written between the crossed lines and
"A/c Payee" is added to a case of general or special crossing then it is
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Restrictive crossing. In this case, the collecting bank has to credit the
amount of the cheque in the payee's bank account only. It is also
considered the safest form of crossing and is widely used in the market.
4. Not Negotiable Crossing
When "Not Negotiable" is written between the crossing lines, the cheque
is said to be a non-negotiable cheque. The effect of this cheque is that the
person accepting a "Not Negotiable" cheque shall not be allowed to pass
the title of "Holder" to any other person i.e. a better title can't be passed
on to any other Party/Person. However, this crossing doesn't affect the
transferability of the cheque. A bank, therefore, should be extra careful in
paying such cheques. The payment should be made only after he is
satisfied that the person demanding payment is the person entitled to
receive it.
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