CHEQUE

 It contains unconditional order to pay a certain

sum of money.
 It is drawn by the drawer.
 It is drawn upon a specified banker.
 It is payable on demand to a specific person or
his order or to the bearer of the instrument.
 Cheque should be properly dated.
 It should be signed by the maker/drawer
CHEQUE • There are three parties in the cheque
transaction
“An unconditional order in writing drawn  Drawer
by a customer of a bank, requesting
 Drawee
them (the bank) to pay on presentation
 Payee
(on demand) a specified sum as
mentioned there in, to a person named in • If it is self cheque, payee will be drawer
only.
the instrument or to the bearer or to the
order as specified.”
 CHEQUE ISSUED TO FRIEND SELF CHEQUE

DRAWER DRAWEE DRAWER PAYEE

Bank Branch of X

X is native of Delhi SBI, Delhi X is native of Delhi

Y is native of Chennai
SBI, Delhi

Bank Branch of Y
SBI, Chennai
PAYEE DRAWEE
 NOMENCLATURE ASSOCIATED WITH CHEQUES

Order cheque A cheque payable to a particular person or his order.

Bearer cheque A cheque payable to a person who so ever bears.

Blank cheque Except signature, all other columns are blank.

Stale cheque Which is more than three months old.

Mutilated cheque The cheque is torn into two or more pieces.

Post-dated cheque A cheque which bears a date later than the date of issue.

Open cheque Cheque which has not been crossed.

Crossed cheque Cheque which carries two parallel transverse lines across the face of the cheque.
 MICR CODE ON CHEQUES
 It is Magnetic Ink Character Recognition (MICR).
 It is a 9 digit code.
 First three digits … city / district
 Next three digits … name of bank
 Last three digits … location of branch / branch name

6 9 5 2 4 0 0 0 2

TRIVANDRUM HDFC BRANCH

 MICR code is essential for Electronic Clearing Service (ECS)

(Electronic Clearing Service (ECS) is the electronic mode of payment / receipt for transaction
that is repetitive and periodic in nature).
 MATERIAL ALTERATION OF CHEQUES

“ Material Alteration “ is the alteration, that alters substantially the operation of the
instrument.

 Alteration of the date

 Alteration of the sum payable

 Alteration of the name of the payee

 Alteration of the crossing marks

Sometimes, the cheque with material alteration will be dishonored.

However, FULL SIGNATURE is essential after material alteration.

 WHY CROSSING OF CHEQUE IS NEEDED?
 This is to prevent possibility of the cheque to fall into the hands of wrong or
unauthorized parties. Hence crossing is required.
 Crossing is applicable only for cheques.

TYPES OF CROSSING AS PER NI ACT

General crossing
(Direction to the bank not to pay across the counter in cash, but should be paid to the account holder only)

Special crossing “Non – Negotiable”

(Cheques with special crossing shall be considered to be crossed to that banker only)

HOWEVER, CROSSING WITH BECAME CONVENTIONAL, THOUGH IT IS NOT

MENTIONED IN THE NI ACT.
 SPECIAL CIRCUMSTANCES WHERE
Banks can withheld payments
 DEATH OF THE DRAWER
… If the drawer dies before the payment is made.
 INSOLVENT DRAWERS
… When a customer is declared insolvent by the court of law, the rights of the
account vests with the official assignee.
 COMPANY IN LIQUIDATION
… As the rights of the account rests with the official liquidator, they can not be DO YOU KNOW?
honoured. Banks are under statutory obligation
 INSANE CUSTOMERS to honour the customers cheques
provided…
… Also called lunatics due to mental derangement. An insane customer cannot
understand what is right or what is wrong. The Payment should be made as  There are sufficient funds with
per the orders of the court. Insanity should be certified by the registered the drawer.
medical practitioner.  Funds are meant for payment of
such cheque.
 COUNTERMANDING
 There is proper demand to make
… After receiving stop payment instruction by the bank from the drawer. the payment.
 MORE ABOUT BOUNCING OF CHEQUES
BOUNCING OF CHEQUES
 Cheque should be presented for encashment within validity.
 Sections 138 to 142 in the NI Act,
1881 deals with the cases of  After receiving cheque return memo from the bank due to
bouncing of cheques. “insufficiency of funds”, the payee should give notice demanding
 When the cheque is returned payment to the drawer within 30 days.
unpaid due to insufficient funds
 The drawer can make the payment within 15 days to the payee
or due to stop payment
instruction, the drawer deemed to after receiving the notice (In some articles, this period is
have committed criminal liability. mentioned as 30 days).
 If it is not complied, the complaint is to be made within one
DO YOU KNOW?
month of the cause of action arising.
 If amount written on the cheque in words
and figures differs, amount written in  No court inferior to that of Metropolitan Magistrate or I Class
words should be paid irrespective of
Judicial Magistrate will try the offence.
whether it is less or more.
 Punishable with imprisonment for a term which may extend up
 When cheques are drawn by arrested
persons, under trials or convicted, they to one year or with fine which may amount to twice the amount
should be honoured
of cheque or both.
 DEMAND DRAFT
 It is a Bill of Exchange drawn by a bank
on another bank or by itself to its other
CHEQUE DEMAND DRAFT
 Drawer is individual  Drawer is normally a
branch to pay to the third party i.e. payee. account holder scheduled bank

 It is not mentioned in the Negotiable  No certainty of payment  Payment is certain

Instruments Act.  Drawer can stop it by  No one can stop it
issuing order
 Due to its nature, it is classified under Bill
of Exchange.  Defined in NI Act, 1881  Not defined in NI Act,
1881
 Demand drafts along with cheques are
commonly used by the customers of banks.
 CTS - 2010

 It is Cheque Truncation System – 2010

 Truncation is the process of stopping the flow of the physical cheque.
 The physical instrument will be truncated at some point en route to the drawee
branch and it will be verified digitally.
 Hence the need to move the cheque physically will be eliminated.
 As a pilot project, it was first introduced in NCR.
CTS CHEQUES
 CHEQUE ISSUED TO FRIEND

DRAWER DRAWEE

Bank Branch of X

X is native of Delhi SBI, Delhi

Y is native of Chennai

Bank Branch of Y
SBI, Chennai
PAYEE
 The images captured at the presenting  Faster clearing cycle.
bank or at the designated point would be  Better reconciliation / verification.
transmitted to the drawee branch with  Better customer service.
digital signature.  Minimise transaction costs.
 Each image will carry digital signature  Additional security features.
apart from endorsement of the presenting  Fear of loss of cheque en route is not
branch. there.
 Entire process will involve image based  Frauds can be eliminated.
clearance in stead of physical clearance.