Cheque

Definition: Cheque refers to a negotiable instrument that contains an unconditional order to the bank to pay a certain sum mentioned in the instrument, from the drawer’s account, to the person to whom it is issued, or to the order of the specified person or the bearer.

Parties to Cheque

Basically, there are three parties to a cheque:

• Drawer: The person who draws the cheque, i.e. signs and orders the bank to pay the sum.
• Drawee: The bank on which the cheque is drawn or who is directed to pay the specified sum written on the cheque.
• Payee: The beneficiary, i.e. to whom the amount is to be paid.

Apart from these three, there are two more parties to a cheque:

• Endorser: When a party transfers his right to take the payment to another party, he/she is called endorser.
• Endorsee: The party in whose favour, the right is transferred, is called endorsee.

Sometimes, the drawer and payee can be the same person, when the drawer writes a self-cheque.

Types of Cheque

1. Open Cheque: Otherwise called as uncrossed cheque, it is one on which cash is payable at the counter of the bank, or it is transferred to the bank account of the person whose name is written on the cheque. It is negotiable, i.e. it is transferable in nature.
2. Bearer Cheque: Bearer cheque refers to the cheque which can be encashed by the person whose name is written on the cheque or anyone who presents the cheque before the bank for payment. It is negotiable in nature, which can be transferred by simply delivering it and so endorsement is not needed. No identification of the presenter or holder is required in case of a bearer cheque.
3. Order Cheque: As the name suggests, it is the cheque which becomes payable to the person or organization whose name is specified on the cheque or to his order. To convert a bearer cheque into an order cheque, the word ‘or bearer’ is stricken off from the cheque. Endorsement of the cheque to the third party is done by simply signing on the cheque.
4. Crossed Cheque: You might have observed, two transverse parallel lines at the top left corner of some cheques, which may or may not have the words – & Co., A/c payee or Non-Negotiable. Such cheques are regarded as crossed cheques. The amount on such cheques is credited to the account of the payee.
5. Self Cheque: When a person wants to withdraw money from his own account, by writing ‘self’ at the name of the payee, is called self-cheque. Do not cross the cheque or cancel the words ‘or bearer’ from the cheque. These cheques should not be crossed, as well as the words ‘or bearer’ should not be stricken off from the cheque, so that any person as your representative can receive the amount on your behalf.
6. Blank Cheque: A cheque which is only signed, but the name of the payee and date is not indicated, is called a blank cheque. Such cheques can be made account payee, and the maximum limit of withdrawal can be mentioned.
7. Stale Cheque: A cheque bears a date and is valid up to three months of the stated date. If a cheque is presented before the bank, after the expiry of the reasonable period, i.e. three months after the date, then it is called stale cheque.
8. Post-Dated Cheque: When a cheque is drawn containing a future date, it is called post-dated cheque. In such cases, money will not be payable by the bank before that date.
9. Ante-dated Cheque: A cheque containing a prior date, is called an ante-dated cheque. Bank honours cheques until three months to the date mentioned.
10. Banker’s Cheque: Otherwise called a pay order, it is a non-negotiable instrument, which is issued by the bank on behalf of the customer, which is payable in the same city.
11. Cancelled Cheque: Due to any kind of mistakes while writing the cheque, it is cancelled, and so it is called cancelled cheque.
12. Mutilated Cheque: A cheque which is torn, damaged, crushed or washed, is called a mutilated cheque. Such cheques are honoured only when certain details are visible, after confirming with the drawer.
13. Traveler’s Cheque: A cheque issued by a bank for a fee, containing a fixed amount. These cheques are enchased or used to make payment in a foreign country, after endorsement by the signature of the holder.
14. Gift Cheque: Cheques that are used for the purpose of gifts and prizes, usually very large in size, are called Gift Cheques. Banks charge a fee for issuing such cheques.

Cheque includes both electronic image of a truncated cheque and a cheque in electronic mode.