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A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it contains the electronic image of a truncated cheque and a cheque in the electronic form. 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, thus directing the bank to pay the specified amount to the person named in the 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 ".
Below given are some of the important features of a cheque
Generally speaking, cheques are of four types, they are ;
A cheque is called ‘Open Cheque’ when it is possible to get cash over the counter at the bank.
The holder of an open cheque can do the following :
Open cheque is subject to risk of theft so it is dangerous to issue such cheques. But this risk can be avoided by issuing other types of cheque called ‘Crossed cheque’. The payments of such cheques are 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 writing ‘Account payee’ or ‘Not Negotiable’ on it.
A Bearer cheque is one which is payable to any person who presents it for payment at the bank counter. A bearer cheque can be transferred by mere delivery of it and it doesn’t require endorsement.
An Order Cheque is one which is payable to a particular person. In such a cheque instead of the word ‘bearer’ 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.
In some cases a cheque will be marked or certified by the banker on whom it is drawn as “good for payment.” This marking does not lead to the acceptance but is very similar and protects the person to whom the cheque is issued against the cheque being refused for payment later. An open cheque is one that can be paid by a paying banker across its counter.
Crossing is an instruction or order given to the paying banker that the cheque should not be paid across the counter but through a banker. Payment of a crossed cheque can only be collected through a banker. Crossing is done by drawing two parallel lines across the face of the cheque with or without the addition of certain words such as ‘Account payee’ or ‘Not Negotiable’.
Three parties can cross a cheque, they are;
the drawer can cross the cheque generally or specially.
If the drawer has not crossed the cheque, the holder can cross it generally or specially.
Where a cheque is crossed specially, the collecting banker may cross it again to another banker as it is an agent for collection, this is called double special crossing.
There are two ways of crossing cheque. They are;
Putting two traverse lines across the face of the cheque with or without the words “& co” or the words “non negotiable” is called General Crossing. Where a cheque is crossed generally, the banker on which it is drawn must pay it through a banker. Cheques that are crossed generally and payable to “order” must be collected only on proper endorsement by the payee.
If the drawer writes specific instructions within the two traverse lines such as to which bank it should be paid is called special crossing. The purpose of a special crossing is to pay it if it is presented though a specific banker such as at XYZ Bank.
Some cheques are crossed “account payee”. This is a restrictive crossing that the cheque must be paid to the account of a particular person. It is also a warning to the collecting banker to make sure that the cheque is to be deposited in the account of a specific depositor. The paying banker needs to ensure that it bears no other endorsement than that of the payee.
In this type of cheque the principle of “nemo dat quod non habet” (nobody can pass on a title better than what he himself has) will be applicable. The title of the transferee would be vitiated by the defect in the title of the transferor. The transferee cannot claim the right of a holder in due course by proving that he purchased the instrument in good faith.
‘Account payee’ is an instruction to the collecting banker that he must collect the amount of the cheque for the benefit of the payee’s account only and nobody else. This crossing does not limit the transferability but in practice these are not transferred as the collecting banker had to credit the payee’s account. The Reserve Bank (RBI) has also stated that these should not be credited to anyone else’s account. It has also stated that “account payee” cheques of third parties should not be collected.
These kinds of cheques are to be collected by the banker specified. It cannot be crossed again as the purpose of the first is frustrated by the second crossing. This is only allowed if the bank to which it is crossed does not have a branch at the paying banker’s place.
If a crossed cheque is wrongly paid, the banker is liable to the true owner for any loss occurred to him.
If the banker pays an uncrossed cheque in due course, he is authorized to debit the account of his customer with the amount so paid irrespective of the genuineness of the endorsement on the cheque.
When a banker pays a cheque drawn by his customer, he can debit the drawer’s account even though the amount of the cheque does not reach the owner.
The payment must be made in due course :
Drawee has the liability to pay the cheque provided he has in his hands sufficient funds of the drawer. If the banker rejects the payment without sufficient cause he must compensate the drawer (not the holder) for any loss.