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As per negotiable instrument act 1881, A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
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.
Types Of Cheques
When the words “or bearer” printed on the cheque is not cancelled, the cheque is called a bearer cheque. A bearer cheque is made payable to the bearer i.e. it is payable to the person who presents it to the bank for encashment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank. Bearer cheque can be transferred by mere delivery; they need no endorsement. In simple words a cheque which is payable to any person who presents it for payment at the bank counter is called ‘Bearer cheque’.
When the word “or bearer” printed on the cheque is cancelled and and the word ‘order’ may be written on the cheque, the cheque is called an order cheque. An order cheque is one which is payable to a particular person. The payee can transfer an order cheque to someone else by signing his or her name on the back of it
Uncrossed / Open Cheque
When a cheque is not crossed, it is known as an “Open Cheque” or an “Uncrossed Cheque”. These cheques may be cashed at any bank and the payment of these cheques can be obtained at the counter of the bank or transferred to the bank account of the bearer. An open cheque may be a bearer cheque or an order one.
Crossing of cheque means drawing two parallel lines on the left corner of the cheque with or without additional words like “Account Payee Only” or “Not Negotiable”. A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee’s account. This is a safer way of transferring money then an Uncrossed or open cheque.
Cheque in which the drawer mentions the date earlier than the date on which it is presented to the bank, it is called as “anti-dated cheque”. Such a cheque is valid upto six months from the date of the cheque. For Example, a cheque issued on 10th Jan 2010 may bear a date 20th Dec 2009.
Post Dated Cheque
Cheque on which drawer mentions a date which is yet to come(future date) to the date on which it is presented, is called post-dated cheque. For example, if a cheque presented on 10th Jan 2010 bears a date of 25th Jan 2010, it is a post-dated cheque. The bank will make payment only on or after 25th Jan 2010.
If a cheque is presented for payment after six months from the date of the cheque it is called stale cheque. After expiry of that period, no payment will be made by banks against that cheque.
When a cheque is torn into two or more pieces and presented for payment, such a cheque is called a mutilated cheque. The bank will not make payment against such a cheque without getting confirmation of the drawer.