ChequesLegal Environment of Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – manu_melwinjoy@yahoo.com

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Definition

• A cheque is a bill ofexchange drawn upon aspecified banker and notexpressed to be payableotherwise than on demandand it includes theelectronic image of atruncated cheque and acheque in the electronicform.

Definition

• All cheques are bills ofexchange but all bills ofexchange are not cheques.

Types of cheques

• Open cheques – A chequewhich can be presented bythe payee for payment atthe counter of the bank ofwhich they are drawn, arecalled open cheques.

Types of cheques

• Crossed cheques –Crossing a cheque meansputting two parallel linesacross the face of thecheque. The payment ofsuch a cheque cannot beobtained at the counter ofthe bank. Such chequesmust be collected througha banker.

Modes of crossing a cheque

• General crossing.

• Special crossing.

• Restrictive crossing.

• Not negotiable crossing.

General crossing• When a cheque bears acrossits face an addition of (i) thewords “And company” or (ii)any abbreviation betweentwo parallel traverse linessimply either with or withoutthe word negotiable or (iii)two parallel traverse linessimply either with or withoutthe words not negotiablethat addition shall bedeemed a crossing, it is ageneral crossing.

General crossing

• The two traverse parallellines across the face of thecheque are essential forgeneral crossing. Effect ofsuch crossing is that theholder or payee cannot getthe payment over thecounter of the bank butthrough bank only.

General crossing

Special crossing • When a cheque bears across itsface an addition of name of abank either with or without thewords ‘ not negotiable’, thecheque is deemed to be crossedspecially. A cheque cannot becrossed more than oncespecially. A special crossingmakes the cheque more saferthan a general crossing becausethe payee or holder cannotreceive payment except throughthe banker named in the cheque.

Special crossing

Restrictive crossing

• It includes words like A/Cpayee, Account Payee only,A/c Ashok only etc betweentraverse parallel lines. Theeffect of the restrictivecrossing is that it directs thecollecting banker that theproceeds of the cheques areto be credited only to theaccount of the payee namedin the cheque or betweenthe traverse lines.

Restrictive crossing

Not negotiable crossing

• A cheque may be crossedwith the words ‘notnegotiable’ on it. The effectof the words ‘ notnegotiable’ on a crossedcheque is that chequecannot be negotiable.

Difference between bill of exchange and cheque

• A bill of exchange may bedrawn on any personincluding a banker. But acheque is always drawn ona bank or banker.

• A bill must be acceptedbefore the drawee can becalled upon to makepayment upon it. A chequedoes not requireacceptance.

Difference between bill of exchange and cheque

• A bill is entitled to 3 days ofgrace. A cheque is notentitled to any days ofgrace.

• A cheque may be crossed.But there is no suchprovision for a bill ofexchange.

• A bill requires stamp exceptin certain cases. A chequerequires no stamp.