Cheques

Contents• Meaning• Cheques, Bills of exchange and promissory

note (Difference)• Essesntials of Cheque• Crossing of Cheque

- General Crossing

- Special Crossing

- Not Negotiable Crossing

- Account Payee

- Double Crossing

Cheque

Section 6 of the Negotiable Instrument Act defines a cheque as follows:“A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.”

Promissory Note Bill of Exchange Cheque

i) In writing i) In writing i) In writing

ii) Signed by the maker ii) Signed by the maker ii) Signed by the drawer

iii) Containing an unconditional Undertaking to pay

iii) Containing an unconditional order

iii) Containing an unconditional order

iv) A certain sum of money only

iv) A certain sum of money only

iv) A certain sum of money only

v) Pay to or to the order of a certain person or to the bearer of the P.N.

iv) Pay to or to the order of a certain person or to the bearer of the B.E.

iv) Pay to or to the order of a certain person or to the bearer

vi) Needs to be stamped vi) Must be properly stamped

vi) Need not be stamped

vii) RBI Act prohibits a P. Note payable on demand to a bearer.

vii) RBI Act prohibits a BE drawn payable on demand to a bearer

vii) Must be dated and presented for payment after date only.

viii) May be drawn in any form

viii) May be drawn in any form

viii) May be drawn in prescribed Form

Distinguishing features of a cheque and B.O.ECheque Bill of Exchange

1. A cheque is always drawn on printed form.

1. A bill need not be drawnon a printed form.

2. The drawee (banker) need not accept a cheque

2. Acceptance by the drawee is essential.

3. A cheque is always supposed to be drawn against the funds in the hands of the banker

3. There is no suchsupposition

4. A cheque is an instrument for immediate payment.

4. It is drawn for a specifiedperiod and so it is intended forcirculation.

5. The liability of the drawer continues for 6 months.

5. Unreasonable delay in thepresentation will discharge theBill

6. A cheque is free from stamp duty 6. A bill is subject to ad valorem duty.

Promissory Note

Is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of certain person, or to the bearer of the instrument(Section 4)

Specimen of Promissory Note

• A promissory note is drawn and signed by the debtor, who promises to pay the creditor a certain sum of money.

Place: New Delhi 110023 Rs. 2500/- Date: 15May,2010

On demand, I promise to pay Mr. Joseph or order the sum of Rupees two thousand five hundred only for value received. To Witness Mr. Joseph (1) (2)

StampSignature

Specimen of Bills of Exchange

Rs. 2500/- Place: New Delhi Date: May 15, 2009

Three months after date, pay to Mr. X or order the sum of Rupees two thousand and five hundred only, for value received. To Mr. Senthil Babu, Accepted 65, Church Street, Senthil Babu Nazareth.

StampSignature

Crossed Cheque

Essentials of a Cheque

• Place• Date• Payee• Amount• Signature• Account No.• Counterfoil

Crossing of Cheque

Crossing of cheque means a direction to the drawee

banker not to pay the money

over the counter,.

If not crossed, cheques are called open cheques.

In case of fraud, if cheques are

crossed, it will enable to

ascertain, if such cheques are paid,

to what use the money has been

paid

• General Crossing, Section 123

- the cheque bears two parallel transverse lines across its face with/without the words “ & Co.”, “Not Negotiable”, etc.

- the paying banker shall make payment only to a banker.

• Special, Section 124

- the cheque bear the name of a specific bank in addition of two parallel transverse lines with/without the words “Not Negotiable”.

- such cheque can be payable to the so specified banker only by the paying banker.

Not Negotiable Crosing• In the case of a cheque crossed generally

or specially and bearing, in either case, the words “Not Negotiable,” the position would be that such instrument shall not have, and shall not be capable of giving, a better title to the holder than that which the person from whom it was taken had. (Section 130)

Account Payee

• The amount mentioned in such a cheque is deposited only in the account of the payee.

• Even if such a cheque is endorsed, the amount can be deposited only in the account of the payee and of no other person.

Double Crossing• When the names of two banks written in

crossing, it is known as double crossing.• A double crossing by an individual is not

permitted.• Acc. To 125 and 127 of the Negotiable

Instruments Act, a double crossing even in the case of bankers is permissible only when it is shown that the second crossing was placed by the collecting banker for the purpose of the clearing house.

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