Before we proceed ahead let check out some basics :-
1)The Maker or Drawer – the person who makes the note and promises to pay the amount stated therein..
2) The Payee – the person to whom the amount is payable.
In course of transfer of a promissory note by payee and others, the parties involved may be -
a. The Endorser – the person who endorses the note in favour of another person.
b. The Endorsee – the person in whose favour the note is negotiated by endorsement
Cheque is a very common form of negotiable instrument. If you have a savings bank account or
current account in a bank, you can issue a cheque in your own name or in favour of others,
thereby directing the bank to pay the specified amount to the person named in the cheque
Therefore, a cheque may be regarded as a bill of exchange; the only difference is that the bank is
always the drawee in case of a cheque
Features of a cheque :-
Let us look into some important features of a cheque.
i. A cheque must be in writing and duly signed by the drawer.
ii. It contains an unconditional order.
iii. It is issued on a specified banker only.
iv. The amount specified is always certain and must be clearly mentioned both in figures and
words.
v. The payee is always certain.
vi. It is always payable on demand.
vii. The cheque must bear a date otherwise it is invalid and shall not be honoured by the bank.
Types of Cheque
Broadly speaking, cheques are of four types.
a) Open cheque, and
b) Crossed cheque.
c) Bearer cheque
d) Order cheque
Let us know details about these cheques
a) Open cheque: 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:
i. Receive its payment over the counter at the bank,
ii. Deposit the cheque in his own account
iii. Pass it to some one else by signing on the back of a cheque.
b) Crossed cheque: Since open cheque is subject to risk of theft, it is dangerous to issue
such cheques. This risk can be avoided by issuing another types of cheque called ‘Crossed
cheque’. The payment of such cheque is not made over the counter at the bank. It is only
credited to the bank account of the payee. A cheque can be crossed by drawing two
transverse parallel lines across the cheque, with or without the writing ‘Account payee’ or
‘Not Negotiable’.
c) Bearer cheque: A cheque which is payable to any person who presents it for payment at
the bank counter is called ‘Bearer cheque’. A bearer cheque can be transferred by mere
delivery and requires no endorsement.
d) Order cheque: An order cheque is one which is payable to a particular person. In such a
cheque the word ‘bearer’ may be cut out or cancelled and the word ‘order’ may be
written. 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 is discussed below:
1)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 20th May 2003 may bear a date 5th May 2003.
2)Stale Cheque:- A cheque which is issued today must be presented before at bank for payment
within a stipulated period. After expiry of that period, no payment will be made and it is then called
‘stale cheque’. Find out from your nearest bank about the validity period of a cheque.
3)Mutilated Cheque:- In case a cheque is torn into two or more pieces and presented for payment ,
such a cheque is called 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 cancelled, the bank may make payment against such a cheque.
4)Post-dated Cheque:- Cheque on which drawer mentions a date which is subsequent to 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 25th May 2003, it is a post-dated cheque. The bank will make payment only on
or after 25th May 2003.
