Cheque:-

Section 6- 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.

Instances where a BOE is a cheque-

- When it is drawn on a specified bank. Here, the banker would become the drawee.
(Drawee=Bank, Drawer=Amount/Liability)

- Payable on demand

- Drawee- Bankee

\- Valid for 3 months

Electronic image of a truncated cheque-

When a person writes or pen down/handwritten signature, CTS(Truncation System) method

“a truncated cheque” means a cheque which is truncated during the course of a clearing cycle,
either by the clearing house(RBI or RBI affiliated) or by the bank whether paying or
receiving payment, immediately on generation of an electronic image for transmission,
substituting the further physical movement of the cheque in writing.

See the IT Act as well. Clearance Cycle performed by RBI or if not RBI then SBI. Truncation
is changed into a mirror image.

Electronic cheque-

Authentic digital signature, directors of big companies use electronic cheque because they
fear forgery, and to reduce the chances of the forgery.

“a cheque in the electronic form” means a cheque drawn in electronic form by using any
computer resource and signed in a secure system with digital signature (with or without
biometrics signature) and asymmetric crypto system or with electronic signature, as the case
may be;”
Types of Cheque-

1. Open Cheque-

Over the counter cheque, get a cash payment. Need to go to the same bank (If icici then only
icici not HDFC).Open cheque does not have restrictions, can be negotiated and endorsed
many times during the tenure of 3 months. Two restrictions w.r.t. Banker-

1. Check the identity of the person submitting the cheque.

2. Open cheque can not have an amount greater than 50,000.(Cheques greater than
50,000 need to be accompanied with the account number of payee)- RBI Notification
Rules, 2021.

a. Bearer Open Cheque

b. Order Open Cheque

1. Crossed Cheque-

THey are the one which are crossed on one corner. Bank can not pay cash, bank is required to
pay to the payee in the bank account only.

a. Bearer crossed cheque

b. Order crossed cheque

1. Generally Crossed(S.123)

When you make only two parallel lines. Payee will get money in account. It's made without
writing anything. However it's negotiable. By attesting an allonge on side. (allonge is a lip of
paper).

Cheque crossed generally.—Where a cheque bears across its face an addition of the words
“and company” or any abbreviation thereof, between two parallel transverse lines, or of two
parallel transverse lines simply, either with or without the words “not negotiable”, that
addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally.

1. Specially crossed(S.124)

When you write the name of the banker in the parallel lines, directing the bank that the
cheque should go to that bank account only.
Cheque crossed specially.—Where a cheque bears across its face an addition of the name of
a banker, either with or without the words “not negotiable”, that addition shall be deemed a
crossing and the cheque shall be deemed to be crossed specially, and to be crossed to that
banker.

1. A/C payee -

When you write A/C payee, the bank cannot pay anyone else then the payee. The drawer is
somewhere secured. (RBI 2009 Circular).

1. Not Negotiable Crossing (S.130)- Creates an exception against the whole concept of
negotiability.

When you write account payee and not negotiable sign it and on back of the cheque you write
the payee’s account number. RBI Circular states that the cheque loses its negotiability. It's the
most secure form. It prevents fraud, even if the person not intend to have the cheque he needs
to prove in the court why he is the due holder in course of the cheque.

Cheque bearing “not negotiable”.—A person taking a cheque crossed generally or specially,
bearing in either case the words “not negotiable”, shall not have, and shall not be capable of
giving, a better title to the cheque than that which the person from whom he took it had.

CROSSING OF CHEQUE

According to Section 123, when a cheque bears across its face, with or without, an addition
of the words, such as “Account”, “Payee” or “& company” between the two parallel
transverse lines, it is deemed to be crossed generally.

According to Section 124, when a cheque bears across its face an addition of the name of a
bank it denotes that the Payee can collect the amount only in that bank mentioned across the
two parallel lines. (Special crossing)

Crossing whether general or special does not affect the negotiability of the cheque, but
general or special crossing with the word “non-negotiable” affects the negotiability of the
cheque and takes away the feature which states that holder with a defective title can give a
good title to a subsequent holder in due course. Thus, it can be said that non-negotiable
cheque materially diminishes the negotiable value and it can be transferred subject to the rule
nemo dat quod non habet (nobody can have a better title than himself) which normally does
not apply to negotiation of cheques or any negotiable instrument. (Section 130)
Example: A in favour of B writes a cross-cheque with the words “not negotiable” on
Allahabad Bank. C steals the cheque from B’s house and endorses to D who takes it in good
faith for value without the knowledge of theft. Normally, D would have acquired a lawful
title as a holder in due course, but the cheque being a non-negotiable cheque in this case will
create a material effect and D’s title will not be lawful. In a similar case, Tailor's Priya v.
Gulabchand , the Court held that- crossing of cheque non-negotiable deprives the instrument
of negotiability and even if it is transferred with defective title, the endorsee cannot claim the
rights of being holder in due course for consideration.

Case: Rajmoti V Assistant Commissioner of IT 2014

22.01.2021- B&I

Sec 40A(3)

General cross cheque and A/c payee cheque are same- argued.

1. There is no definition of A/c payee

2. Both of them are negotiable.

- Rajmoti industries filed in assessment and claimed certain exemption up to 20% for cheques
given to Swaraj Oil mills and jamkhambalia.

- IT Act gives you exemption if you give a cheque > 20k and if you have made it A/c payee
cheque.

- When he filed for assessment, the assessment officer did an investigation. He said that the
exemption of 26 lakhs being claimed is disallowed- because it was not A/c payee cheque.

- Swaraj Oil mill endorsed it to Kishan Enterprise.

- Rajmoti said that it was a crossed cheque, then how can we not take an exemption?

- Read para 8, 15.

Encashing is the difference.

26 lakhs IT had to be paid.