Feature and types of cheque
What is negotiable instrument;-
The word 'negotiable' means, "transferable from one person to another in return for consideration". The word 'instrument' means, "a written document by which a right is created in favour of some person". Hence, the term Negotiable Instrument means "a document in writing which creates a right in favour of some person", and which is freely transferable by delivery.
According to Section 13(1) of the Negotiable Instrument Act, "A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer".
Types of Negotiable Instrument;-
Three major types of Negotiable Instruments
The three major forms of a negotiable instrument discussed under the Negotiable Instruments Act of 1881 are:
l Promissory Note,
l Bill of Exchange and
l Cheque.
What is Cheque?
Under the Section-6 of the Negotiable Instruments Act, 'a cheque is a bill of exchange drawn on a specified bank and not expressed to be payable otherwise on demand.'
Cheque is a type of negotiable instrument.
Features of Cheque;-
l Cheque should be writing and signed by the drawer.
l It contains an unconditional order.
l It can be paid to bearer on demand.
l The amount should be specified and should be clearly mentioned both in figures and words.
l It is drawn on a specified bank.
l Unlike Bill of Exchange, it does not require acceptance
Parties in cheque;-
There are three parties in Cheque Transaction – Drawer, Drawee and Payee.
Drawer (Maker of Cheque);-
The person who issue the cheque or hold the account with bank.
Drawee;-
The Person who is directed to make the payment against cheque. In case of cheque, it is bank.
Payee;-
A person whose name is mentioned in the cheque or to whom the drawee makes payment. If drawer has drawn the cheque in favour of self then drawer is payee.
Payment by Cheque is safest way to conduct business transactions as it helps to maintain record in account statement to whom the payment is made by whom payment is received. So it becomes easier to track the transactions through bank account statement.
Different Types of Cheque
There may be different types of Cheques depending on how the drawer has issued the Cheque.
1. Open / Bearer Cheque
2. Order Cheque
3. Crossed Cheque
4. Anti Dated Cheque
5. Post Dated Cheque
6. Stale Cheque
7. Mutilated Cheque
Here we will discuss about different types of cheque with their features in detail :
Open Cheque or Bearer Cheque;-
This type of Cheques are risky in nature for drawer. When the word “Bearer” on the cheque is not crossed or cancelled, the cheque is called a bearer cheque. Open / Bearer Cheques are payable to person specified in the instrument or any person who posses it and present for payment over the counter. In case of cheque is lost, person who find it can collect payment from the bank.
Order Cheque
When the word “Bearer” written on cheque is crossed or cancelled it becomes an order cheque. An order Cheque is payable to a specified person named in the cheque or any other to whom it is endorsed.
Crossed Cheque;-
The person who issue or write the cheque specify its as account payee by simply making two parallel lines on top left or middle or right hand corner of the cheque. This type of cheque can not be encashed over the counter. Considered as safest type of cheque, it can only be credited to payee’s account whose name is mentioned in the Cheque.
Anti Dated Cheque;-
Cheque bearing the date earlier than the date of presentation for payment is known as anti dated cheque.
Post Dated Cheque;-
Cheque bearing the date which is yet to come in future is called Post Dated Cheque. Cheque is honored only on or after the date (upto three months) written on cheque.
Stale Cheque;-
A Cheque turns stale after three months of the date written on cheque. A Stale Cheque can not be honored by the bank.
Mutilated Cheque;-
When cheque gets torn into two or more pieces and presented in bank for payment. Such cheques are called mutilated cheque. Bank requires confirmation by the drawer before honoring such cheques.
