by Cheque is a written order given by a person, known as the drawer, to a bank to pay a certain amount of money from their account to another person, called the payee. It is a type of negotiable instrument governed by the Negotiable Instruments Act, 1881. A cheque is always drawn on a bank and is payable on demand. It is widely used for making safe and convenient payments without carrying cash. Cheques help in business and personal transactions by providing a simple method to transfer money. They also act as a proof of payment and help maintain clear financial records.
Features of Cheques:
- Written Instrument
A cheque must always be in writing. It cannot be oral or implied. The written form ensures clarity and authenticity of the transaction. It contains details such as the date, amount, name of the payee, signature of the drawer, and the bank on which it is drawn. A written cheque serves as proof of payment and can be used for record-keeping or in case of disputes. The Negotiable Instruments Act, 1881 recognises only written cheques as valid. This feature ensures transparency, reduces errors, and gives parties confidence in the accuracy of payment instructions.
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Drawn on a Bank Only
A cheque can be drawn only on a bank where the drawer holds an account. This makes cheques different from promissory notes and bills of exchange, which can involve any individuals. Since payment depends on the drawer’s bank balance, cheques give a secure and reliable method of transferring money. The involvement of a bank reduces the risk of fraud and ensures proper verification before payment. This feature also helps maintain trust in the banking system and promotes safe financial transactions.
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Payable on Demand
A cheque is always payable on demand, meaning the bank must pay the amount whenever the cheque is presented, provided funds are available. There is no fixed future date mentioned on a cheque. This feature gives flexibility to the payee to encash the cheque anytime within the validity period. It ensures quick and convenient payment, making cheques a popular instrument for day-to-day transactions. The Negotiable Instruments Act, 1881 classifies cheques as demand instruments, ensuring instant settlement through banks.
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Unconditional Order
A cheque contains an unconditional order from the drawer to the bank to pay a specified sum of money. The instruction cannot be conditional or dependent on any event. If conditions are added, the cheque becomes invalid. This unconditional nature makes cheques simple, clear, and easy for banks to process. It also ensures certainty in payment for the payee. The unconditional order protects the payee’s right to receive money and avoids confusion or disputes during payment.
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Certain Sum of Money
A cheque must specify a definite amount of money to be paid. The amount should be written clearly in words and figures. If the amount is unclear or incomplete, the cheque becomes invalid or may be refused by the bank. Certainty in the amount helps avoid disputes and ensures smooth processing. A clear, fixed amount also allows the cheque to act as a reliable financial document. Banks depend on this clarity to verify and make payment accurately.
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Signed by the Drawer
A cheque must be signed by the drawer for it to be valid. The signature shows that the drawer has authorised the bank to make payment. Without the correct signature, the bank will not process the cheque. The signature must match the specimen signature recorded in the bank’s records. This feature helps prevent fraud and ensures that only the authorised account holder can issue cheques. It provides security and builds confidence in transactions involving cheques.
Types of Cheques:
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Bearer Cheque
A bearer cheque is payable to the person who is carrying the cheque. The bank does not verify the identity of the person presenting it, so anyone holding the cheque can get the payment. It offers quick and easy encashment, which makes it convenient for small transactions. But it also carries the risk of loss or misuse if the cheque falls into the wrong hands. In India, bearer cheques are commonly used for routine payments, but people now prefer safer options. Banks usually mark “Bearer” on the cheque unless it is specifically changed to “Order” by the drawer.
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Order Cheque
An order cheque is payable only to the person whose name is written on the cheque or to someone authorized by that person. The bank verifies the identity of the receiver before paying, which makes it safer than a bearer cheque. The drawer must cancel the word “Bearer” and write “Order” to make it an order cheque. It reduces the chances of misuse and ensures the payment reaches the correct person. Businesses and individuals often use order cheques for secure transactions. The endorsement on the backside can transfer the rights to another person if needed.
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Crossed Cheque
A crossed cheque has two parallel lines on the top left corner. This crossing means the cheque cannot be encashed at the counter and must be deposited into a bank account. It ensures a safe transfer of money because the payment goes only to the account holder. It also creates a clear record of the transaction. There are different types of crossing like general and special crossing. Crossed cheques are widely used in India for salary payments, business transactions, and payments requiring proof. This system reduces fraud and gives better security to both parties.
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Account Payee Cheque
An account payee cheque is a special type of crossed cheque where the words “Account Payee” or “A/C Payee” are written between the two parallel lines. This instruction means the cheque amount can be deposited only into the account of the person named on the cheque. No endorsement or transfer is allowed. It gives the highest level of safety in cheque payments. Even if someone else gets the cheque, they cannot use it. Businesses, institutions, and individuals use account payee cheques when they need secure payments. It ensures the money reaches the exact person intended by the drawer.
