CHEQUE
A ‘Cheque’ is a ‘bill of exchange’ drawn on a
specified banker and not expressed to be
payable otherwise than on demand .It includes
the electronic image of a truncated cheque and
a cheque in the electronic form.
(Or)
Cheque is an instrument in writing containing an
unconditional order, addressed to a banker, sign
by the person who has deposited money with
the banker, requiring him to pay on demand a
certain sum of money only to or to the order of
certain person or to the bearer of instrument."
Characteristics of
cheque
1.Cheque is an instrument in writing
2. Cheque contains an unconditional order
3.Cheque is drawn by a customer on his bank
4. Cheque must be signed by customer
5. Cheque must be payable on demand
6. Cheque must mention exact amount to be paid
7. Payee must be certain to whom payment is
made
8. Cheque must be duly dated by customer of bank
9. Cheque has 3 parties : Drawer, Drawee & Payee
Specimen of a cheque
TYPES OF CHEQUES
1. Bearer Cheque
The bearer cheque is payable to the person specified
there in or to any other else who presents it to the bank
for payment. However, such cheques are risky, this is
because if such cheques are lost, the finder of the cheque
can collect payment from the bank.
2.Open Cheque
When a cheque is not crossed, it is known as an "Open
Cheque" or an "Uncrossed Cheque". The payment of such
a cheque can be obtained at the counter of the bank. An
open cheque may be a bearer cheque or an order one.
3.Crossed Cheque
Crossing of cheque means drawing two parallel
lines on the face of the cheque with or without
additional words like "& CO." or "Account Payee"
or "Not Negotiable". A crossed cheque cannot be
encashed at the cash counter of a bank but it can
only be credited to the payee's account
Why Crossing of Cheque is
being used
The important usefulness of a crossing cheque is that
it cannot be covered at the counter but can be
collected only by a bank from the drawee bank.
Crossing provides a protection and safeguard to the
owner of the cheque as by securing payment through
a banker it can be easily detected to whose use the
money is received. Where the cheque is crossed the
paying banker shall not pay it except to a banker.
In case of not negotiable crossing the person holding
such a cheque gets no better title than that of his
transfer and cannot suggest a better title to his own
transferee. In case of 'account payee' only crossing, a
direction is given to the collecting banker to collect
cheque and to place the amount to the credit of the
payee only.
A special crossing makes the cheque more safe than
Types of crossing.
1. General crossing.
2. Special Crossing.
3. Not negotiable crossing.
4. Restrictive crossing.
1. General crossing. A cheque is said
to be crossed generally where it bears
across its face an addition of‑
the words 'and company' or any
abbreviation thereof, between two
parallel transverse lines, either with or
without the words 'not negotiable' or
two parallel transverse lines simply,
either with or without the words 'not
negotiable' (Sec. 123).
Specimen of General Crossing ↓
2. Special Crossing
When a particular bank's name is
written in between the two parallel lines
the cheque is said to be specially
crossed. The effect of special crossing is
that the bank makes payment only to the
banker whose name is written in the
crossing. Specially crossed cheques are
more safe than a generally crossed
cheques.
The crossing compels the holder to
present the cheque through a 'quarter of
known respectability and credit" and
affords security and protection to the
owner of the cheque, as the cheque is
payable only through a banker.
Specimen of Special
Crossing
Not negotiable crossing
The effect of the words 'not negotiable'
on a crossed cheque is that the title of
the transferee of such a cheque cannot
be better than that of its transferor. The
addition of the words 'not negotiable'
does not restrict the further
transferability of the cheque. It only takes
away the main feature of negotiability,
which is, that a holder with a defective
title can give a good title to a subsequent
holder in due course.
Anyone who takes a cheque marked
'not negotiable' takes it at his own
risk.
The object of crossing a cheque 'not
negotiable' is to afford protection to
the drawer or holder of the cheque
against miscarriage or dishonesty in
the course of transit by making it
difficult to get the cheque so crossed
cashed, until it reaches its
Restrictive crossing.
In Restrictive crossing the words 'A/c Payee' are
added to the general or special crossing.
The words 'A/c Payee' on a cheque are a direction
to the collecting banker that the amount collected
on the cheque is to be credited to the account of
the payee. If he credits the proceeds to a different
account, he is guilty of negligence and will be
liable to the true owner for the amount of the
cheque.
In practice, the collecting banker sees to it that
such instruction is carried out and usually refuses
to accept A/c payee crossed cheques with any
endorsement thereon.
Cheques crossed ‘A/c.payee’
Often cheques are crossed with two parallel
transverse lines and in between the two
parallel lines the words “a/c payee "or “a/c
payee only "are written.
This means that the proceeds of the cheque
are to be credited to the account of the
payee only.
This type of crossing is also called
“restrictive crossing”.
It serves a good protection to drawer from
loos or theft.
