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.
A cheque in the electronic form means a cheque which contains the exact mirror image of a paper cheque and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature ( with or without biometric signatures) and asymmetric crypto system.
A truncated cheque means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment immediately on generation of an electronic image for transmission substituting the further physical movement of the cheques in writing.
Clearing house means the clearing house managed or recognized by The Reserve Bank of India.
A cheque is drawn on a banker only, while a bill of exchange can be drawn on any one. Like bill of exchange, cheque has three parties viz., drawer, drawee and payee. A drawee in case of cheque is always a banker. A cheque is an unconditional order on the specified banker to pay on demand, a certain sum of money to the bearer of the cheque or to his order. A bill of exchange is wider than a cheque. Therefore, all cheques are bills of exchange but all bills of exchange are not cheques. However, a cheque does not require acceptance. If the cheque is dishonored, the holder has no remedy against the banker because cheque does not amount to assignment of drawer’s fund in the hands of the banker in favor of he holder. Further, there is no privity of contract between the payee and the banker. The banker is liable only to the drawer. Drawing of a cheque is simply a direction to pay. A cheque is not invalid because it is post dated or antedated. A cheque is payable only on demand and on presentation. Usually a cheque is valid for a period of six months. It may be drawn on a Sunday or a holiday.
A cheque must satisfy the essential requirements of a bill of exchange. The signature of the drawer must be the same as his specimen signature with his banker. A cheque must be dated. Unlike a promissory mote and a bill of exchange, cheque may be drawn payable to bearer on demand.
Specimen of a Cheque
Date: 1st March 2005
PAY ABC …………………………………………………………………
RUPEES Five thousand Only Rs 5000
THE BANK OF INDIA
“340218” 400013020 11
Cheque and Bill of Exchange distinguished>
1) Drawee: Only a banker can be a drawee.
2) Acceptance: A cheque requires no acceptance
3) Payment: Payable on demand without any days of grace.
4) Presentment: If not presented to the banker for payment it does not discharge the drawer unless he suffers injury or damages
5) Notice: In case of dishonor no notice of dishonor is necessary.
6) Crossing: A cheque may be crossed
7) Stamp: Cheque requires no stamp.
8) Countermanding payment: Payment of cheque may be countermanded by the drawer.
9) Noting and protesting: A cheque is not required to be noted or protested for dishonor.
10) Payable to bearer on demand: It can be drawn so.
Bill of exchange:
1) Any one can be a drawee, including a banker.
2) It must be presented for acceptance. Drawee is liable only after his acceptance.
3) A bill is normally entitled to three days of grace after maturity unless payable on demand.
4) Drawer is discharged, if bill is not presented for payment to the acceptor.
5) Notice of dishonor is to be given to all parties liable to pay.
6) Bill of exchange can never be crossed
7) Bill must be properly stamped.
8) Payment of the bill cannot be countermanded by the drawer
9) A bill may be noted or protested for dishonor.
10) It cannot be drawn so.
Types of Cheques:
Popularly cheques are of two types:
1) Those which are uncrossed are popularly known as “bearer” or open cheques; and
2) Crossed cheques
Bearer or open Cheques:
Bearer or open cheques are payable at the counter of drawee banker on presentment. As the bearer cheques carry risk of being lost or stolen and the finder may be able to get it encashed, crossing of cheques avoids such a contingency and secures payment.
Crossing of cheques is of different types:
Cheques are crossed generally when:
1) it has two transverse parallel lines marked across it face; or
2) it bears an abbreviation “& Co.” between the transverse parallel lines, or
3) It bears the words “not negotiable” between the two parallel lines.
A cheque crossed generally will be paid to the banker through which it is presented. It is direction to the drawee banker the sum only through a banker. Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker.
Crossing of cheques generally does not affect negotiability of instrument except, when the words ‘not negotiable’ are added to the crossing, as given in the specimen (3) below. However this does not restrict transferability of a cheque.
Specimens of General Crossing>>
2) & Co
3) Not Negotiable
Cheques crossed specially:
Where a cheque is crossed by two parallel transverse lines and the name of the banker is written between the two parallel lines, with or without the words, not negotiable it is called Special Crossing. It may be noted that two transverse parallel lines are not necessary in special crossing. The banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed or his agent for collection. It will be paid only when presented by the banker.
Any cheque issued in two names (1) banker and (2) the party to whom it is to be credited will not fall in the category of cheque which must be issued in name of one party only. The name of the party to whom it is to be credited is the payee and the banker whose name appears on the payee and the banker whose name appears on the cheque is the collecting banker only.
Specimens of Special Crossing:
Bank of India
Bank of India
Bank of India