What is Cheque? Characteristics of a Cheque

Definition of Cheque [Section 6]

Section 6 defines a cheques as ‘”a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”. A cheque is also,therefore,a bill of exchange with two additional qualifications:

  • It is always drawn on a specified banker.
  • It is always payable on demand.

All cheques are bills of exchange but bills are not cheques. A cheque must have all the essential requisites of a bill of exchange. It must be signed by the drawer. It must contain an unconditional order on a specified banker to pay a certain sum of money to or to the order of a specified person or the bearer of the cheque. But it does not require acceptance as it is intended for immediate payment.

Essential Characteristics of a Cheque

  • In writing: It must be in writing.
  • Express order to pay: There must be an express order to pay and not request to pay.
  • Definite and Unconditional Order: The order must be definite and unconditional.
  • Signed by the Drawer: It must be signed by the drawer.
  • Order to pay Certain Sum: The order must be to pay a certain sum.
  • Order to pay Money Only: The order must be to pay money only.
  • Certain Three Parties: The three parties must be certain and must be mentioned in the instrument.
  • Drawn upon a Specified Banker: It must always be drawn upon a specified banker.
  • Payable on Demand: It must always be payable on demand.

Parties to a Cheque

  1. Drawer: Drawer is the person who draws the cheque,i.e.,the depositor of money in the bank.
  2. Drawee: Drawee is the drawer’s banker on whom the cheque has been drawn.
  3. Payee: Payee is the person who is entitled to receive the payment of a cheque.

Specimen of a Cheques

cheques

Types of Cheques

(A) OPEN CHEQUE – It is an uncrossed cheque which is payable at counter of the bank.
It can be Bearer Cheque or Order Cheque .
  • BEARER CHEQUE –  When a cheque is payable to a person whose name appears on the cheque or to the bearer i.e. to the person who presents the cheque to the bank for encashment, is called bearer cheque. It can be transferred by mere delivery and do not need endorsement.
  • ORDER CHEQUE – When a cheque is payable to person named in the cheque or to his order, is called Order Cheque.When the word Bearer is cancelled , the cheque becomes the order cheque. It can be transferred only by endorsement and delivery.
(B) CROSSED CHEQUE – It is the cheque on which two parallel transverse lines are drawn across the top left , with or without the word :
(i) ‘ & Co.’
(ii) Not Negotiable
(iii) A/c Payee
 It can not be encashed at the counter of the bank , can only be credited to the account of the payee.
(C) STALE CHEQUE – The validity of cheque is for three months. It cheque is not presented within the three months, it got expired and becomes the Stale Cheque or Out-dated cheque.
* Earlier the validity of cheque was for six months, it has been reduced to three months, with effect from April 1, 2012.
(D) ANTE- DATED CHEQUE – A cheque contains the date on which it is drawn. If it bears a prior date or back date, it is called Ante-Dated cheque. Bank will honour this cheque until it exceed the three months, i.e. stale period of cheque.
(E) POST-DATED CHEQUE – If the cheque bears the date later than the date on which it is drawn, is called Post-Dated Cheque. This cheque can not be honoured before the date written on it.
(F) MULTILATED CHEQUE – A cheque which is torn into pieces is called Multilated cheque.