The cheque is an important negotiable instrument that can transfer by mere hand delivery. The Concept of the study Explains – Cheque Meaning, Definition, What is Checking Accounts? Types, The Different Kinds of Cheque, and Features. The cheque uses to make a safe and convenient payment. It is less risky and the danger of loss minimizes. Also Learn, Bill of Exchange.
Explain and Learn, Cheque: Meaning, Definition, Types, and Features.
A cheque is a very common form of the negotiable instrument. If you have a savings bank account or current account in a bank, you can issue a cheque in your name or favor of others, thereby directing the bank to pay the specified amount to the person named in the cheque.
Therefore, a cheque may regard as a bill of exchange; the only difference is that the bank is always the drawee in case of a cheque. The Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
From the above dentition, it appears that a cheque is an instrument in writing, containing an unconditional order, signed by the maker, directing a specified banker to pay, on-demand, a certain sum of money only to, to the order of, a certain person or to the bearer of the instrument.
The person who draws a cheque calls the “drawer”. The banker on whom it draws is the “drawee” and the person in whose favor it draws is the “payee”. A cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or to the bearer.
Definition of a Cheque:
The definition below is;
“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 the certain person or to the bearer of the instrument.”
What is Checking Accounts?
To open a checking account, a person deposits a sum of money in a bank. The bank gives him a checkbook with blank check forms and provides him with a means of keeping a record of the checks he writes and the amount of money he still has on deposit. The bank gives him a receipt for each new deposit and sends him a statement (usually monthly) showing a complete record of all transactions.
All concealed checks (checks that have been cashed by the bank) are returned with the statement, providing the depositor with proof that payment was received. The bank usually makes a small service charge on every account, and perhaps also a charge for each check written. Ordinarily, no interest pays on checking accounts.
To make out a check, the depositor writes the date, the name of the payee (the person or firm who is to receive the money), and the amount. He then signs his name. Before cashing the check the payee must endorse it by signing his name on the back. He then either deposits it in a bank or exchanges it for cash by giving the check to a bank, currency exchange, business firm, or individual. The new owner can endorse the check to someone else or can deposit it in a bank.
When a check reaches a bank, it is forwarded through a clearing-house back to the bank on which it was drawn. After making sure the depositor’s signature is genuine, this bank, in turn, pays the cashing bank through the clearinghouse. The biggest danger in accepting a check is that the person writing it may not have enough money (or any money) in the bank to cover it. Forgery is another danger. The best defense against “bad checks” is to refuse to accept checks from strangers.
Types of Cheque:
Cheques are of four types.
A cheque is called “Open” when it is possible to get cash over the counter at the bank. The holder of an open cheque can do the following:
- Receive its payment over the counter at the bank.
- Deposit the cheque in his account.
- Pass it to someone else by signing on the back of a cheque.
Since open cheque is subject to the risk of theft, it is dangerous to issue such cheques. This risk can avoid by issuing other types of cheque called “Crossed cheque”. The payment of such cheque does not make over the counter at the bank. It is only credited to the bank account of the payee. A cheque can cross by drawing two transverse parallel lines across the cheque, with or without the writing “Account payee” or “Not Negotiable”.
An order cheque is one that is payable to a particular person. In such a cheque the word ‘bearer’ may cut out or cancel and the word ‘order’ may write. The payee can transfer an order cheque to someone else by signing his or her name on the back of it.
There is another categorization of cheques which discusses below:
- Ante-dated cheques: Cheque in which the drawer mentions the date earlier to the date of presenting if for payment. For example, a cheque issued on 24th March 2011 may bear a date 4th March 2011.
- Stale Cheque: A cheque that issues today must be presented before at the bank for payment within a stipulated period. After expiry of that period, no payment will make and it then calls ‘stale cheque’
- Mutilated Cheque: In case a cheque is torn into two or more pieces and presented for payment, such a cheque calls a mutilated cheque. The bank will not make payment against such a cheque without getting confirmation of the drawer. But if a cheque is torn at the corners and no material fact is erased or canceled, the bank may make payment against such a cheque.
- Post-dated Cheque: Cheque on which drawer mentions a date which is after the date on which it is presented, is called post-dated cheque. For example, if a cheque presented on 8th May 2003 bears a date of 27th March 2011, it is a post-dated cheque. The bank will make payment only on or after 27th March 2011.
Different Kinds of Cheques:
They are below;
When the words “or bearer” appearing on the face of the cheque are not canceled, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein 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.
When the word “bearer” appearing on the face of a cheque is canceled and when in its place the word “or order” is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to anyone else to whom it is endorsed (transferred).
Uncrossed / 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.
The 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.
If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as “anti-dated cheque”. Such a cheque is valid for up to three months from the date of the cheque.
If a cheque bears a date that is yet to come (future date) then it is known as the post-dated cheque. A post-dated cheque cannot be honored earlier than the date on the cheque.
If a cheque is presented for payment after three months from the date of the cheque it is called stale cheque. A stale cheque is not honored by the bank.
Features of a Cheque:
The cheque is one of the important negotiable instruments. It is frequently used by the people and the business community in the course of their personal and business transactions. The definition of the cheque has been given in Section 6 of Negotiable Instrument Act in these words, “A cheque is a bill of exchange drawn on a specified banker and is expressed to the payable, otherwise than on demand.”
The essential requisites of the cheque areas;
Must be in Writing:
The cheque may be written in hand by using ink or ballpoint pen, typed or even it may be printed. But the customer should not use the pencil to fill up the cheque form. Even though other columns may be permitted to be written in hand or printed or typed, the signatures should be made by ink pen or ballpoint pen by the maker.
Must be Unconditional:
The order to pay the amount must be unconditional. If there is any condition imposed to pay the amount to the holder of the cheque then it will not be considered as a cheque. A cheque made payable on the happening of a contingent event is void ab-initio.
Must be Drawn on a Specified Banker:
For the validity of a Cheque, it must draw on a specified banker. If there is not mentioned in the cheque about the banker it would not be a valid cheque. In addition to it, it must contain all the three parties i.e. Drawer, Drawee, and Payee.
Certain Sum of Money:
It is one of the essential requirements of the Cheque that it must be payable in money and money only. It is not in terms of the money then it will be a valid one. The sum mentioned in it must be certain.
The parties of the Cheque must be certain. There are three parties to the cheque i.e. Drawer, Drawer, and Payee. In a valid Cheque the name of the must contain in other words they must be certain. It must contain an order, which must be unconditional. If any condition were imposed then it would not be a valid cheque.
In a valid cheque, it must signs by the drawer with date otherwise it would not be a valid cheque. It must write in hand by using ink or ballpoint pen, typed or even it may print as it becomes conclusive proof i.e. presumption under Section 118(b) unless the contrary proves.
Parties to the Cheque:
The maker of a cheque calls the ‘Drawer’, the person thereby directed to pay calls ‘Drawee’ and the person named in the instruments, to whom or to whose order the money is by the instrument directly to pays, and calls the “Payee.”
The person entitled in his name to the possession of the cheque and to receive or recover the amount due to calls the “Holder of the cheque.”
The person who for consideration becomes the possessor of the cheque is payable to bearer, or the payee or endorsee thereof, if payable to order, before the amount mentioned in it became payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title is called the “Holder in due course.”
The maker or the holder of the cheque signs his name (endorse) on the back of the cheque for negotiable and he says to be the ‘Endorser.’ The endorser who signs his name and directs to pay the amount mentioned in the cheque to, or the order of, a specified person, and the person so specified calls the “Endorsee” of the cheque.