Introduction
What is meant by a Cheque?
A cheque is a Bill of Exchange drawn on a specified banker and not expressed to be payable other than on demand.
In the process of Bill of Exchange
- The Drawee of a cheque is always a banker.
- In other words, in the context of a cheque, the bank is called the drawee.
- The account holder, who issues cheques, is called the drawer.
- The person to whom the money is made payable is called the payee.
Concept
Bill of Exchange:
A bill of exchange is an unconditional order, and it involves
- Made by a person (drawer)
- To direct the other person (drawee)
- To pay a certain sum of money on a certain date to the person who bears that bill on that certain date (payee).
- The bill of exchange is signed by the drawee(who has to make the payment) to ensure that the bill is valid.
- A bill of exchange is always written and cannot be in oral.
- The drawer and the payee can be the same person.
- P sells goods worth Rs. 250 to Q, and Q is unable to make payment at that time.
- So P draws a bill of exchange on Q to direct him to make payment of that amount at a later fixed date.
- On that fixed date if P is in possession of the bill the payment would be made to P, or in case P had given the bill to R the payment of the bill would be made by Q to R.
Contents of Bill of Exchange:
1. Title of Bill:
- The title Bill of Exchangewill be mention on the face of the document.
- The date of drawn a bill should be written on it.
- The certain amount payable will be described on it in the figures and also in words.
- The specific date or the term of the bill will be mention on it.
- The term means for 2 months or 3 months etc.
- The term is the tenure of the bill and runs from the date of the bill.
- There will be a grace period of 3 days in addition to the total term of the bill.
- Every bill has a unique identification number. It will be mention on it.
- The name of both parties will be mention on the bill.
- The bill is also signed by both parties.
- The person who transfers his right to another person.
- The person to whom the right is transferred.
Features of Bill of Exchange:
- It should be in writing.
- An order to make payment on the specific date or after a certain period.
- An unconditional order of payment, it does not contain any condition of payment.
- A certain amount should be described in it.
- It must be signed by both parties Drawer (maker) and Drawee.
- The amount must be payable to either a certain person or on his/her behalf.
- It should be paid on the date of maturity or on demand or on mutual understanding.
Cheques
Cheques - Types of Cheques:
- Open / Bearer Cheque
- Bearer Cheque
- Crossed Cheque
- Anti-Dated Cheque
- Post-Dated Cheque
- Stale Cheque
- This type of Cheques are risky in nature for drawer.
- When the word Bearer on the cheque is not crossed or canceled, the cheque is called a bearer cheque.
- These are payable to the person specified in the instrument or any person who possess it and present for payment over the counter.
- In case of the cheque is lost, a person who finds it can collect payment from the bank.
- When the word Bearer written on cheque is crossed or cancelled it becomes bearer cheque.
- It is payable to a specified person named in the cheque or any other to whom it is endorsed.
- The person who issue or write the cheque specify its as account payee by simply making two parallel lines on top left or middle or right-hand corner of the cheque.
- This type of cheque cannot be encashed over the counter.
- Considered as the safest type of cheque, it can only be credited to payee’s account whose name is mentioned in the Cheque.
- Cheque bearing the date earlier than the date of presentation for payment is known as anti-dated cheque.
- Cheque bearing the date which is yet to come in future is called Post Dated Cheque.
- The cheque is honored only on or after the date (up to three months) written on the cheque.
- A Cheque turns stale after three months of the date written on cheque.
- A Stale Cheque cannot be honored by the bank.
Crossing
What is Crossing of a Cheque?
- Crossing is an instruction given to the paying banker to pay the amount of the cheque only through account credit.
- A cheque bearing such an instruction is called a crossed cheque.
- Section 123 to 131 of the Negotiable Instruments Act contains provisions relating to the crossing.
- As per Section 131-A, these Sections are also applicable in case of drafts.
- General Crossing
- Special Crossing
- Non Negotiaable Crossing
- Account Payee Crossing
- In this type of crossing the cheque must contain two parallel transverse lines.
- They could be put anywhere on the cheque.
- Generally, we put it on the top left of the cheque.
- The effect of this crossing is that the cheque must be paid only to the banker.
- The cheque must contain the name of the banker.
- It may be made only once.
- The effect of this crossing is that the cheque must be paid only to the banker to whom it is crossed.
- Please note that special crossing cannot be converted into the general crossing.
- In this type of crossing, the cheque must contain the words not negotiable.
- The cheque must be crossed generally or specially.
- The effect of this crossing is that the cheque nevertheless remains negotiable (transferrable) and the title of the transferred shall not be better than the title of the transferor.
- This is also called restrictive crossing.
- The cheque must contain the words account payee or account payee only.
- The cheque must be crossed generally or specially.
- The effect of this type of crossing is that the cheque does not remain negotiable anymore.