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Reviewed by Jun 17, 2022| Updated on
A cheque is a bill of exchange in which one party orders the bank to transfer the money to the bank account of another party. It is a negotiable instrument that is covered under the Negotiable Instruments Act, 1881. There are three parties involved in the transaction – the drawer is the person who writes the cheque, the drawee is the bank that has to transfer the funds and the payee is the person in whose name the cheque has been issued. A cheque can be issued against a savings account or a current account.
A cheque is an unconditional order in writing. The payment of the cheque is made in the form of cash. A cheque is drawn on a particular bank and is always payable on demand. The amount is always a certain sum of money that is present in one’s account and cannot exceed the same. This cash amount is to be paid to the person mentioned therein, or order, or the bearer. Signature on the exchequer is mandatory and should be only by the maker.
There are two main types of cheque – Bearer Cheque – is a type of cheque in which the bearer can encash the sum on presentation of the cheque before the authorized bank. Order Cheque – is a type of cheque in which only the payee, whose name has been written on the cheque, can encash over the counter. This kind of cheque cannot be endorsed.
A cheque is valid for a period of 3 months after the date of issue of cheque (the date is indicated on the top right-hand corner of the cheque).
It is more convenient and safer to carry around than cash. It is a negotiable instrument that can be endorsed in favour of a third party. They can be easily traced if lost.
It is not legal tender money and hence, payment via a cheque can be refused. Individuals without bank accounts will be inconvenienced by crossing of cheques. Depositing cheques into one’s account is time consuming and requires one to go to a bank branch.
The positive pay system is a process of reconfirming the details of large-value cheques i.e. cheques exceeding Rs. 50,000. If the details match, then the cheque will be honoured. If there is a mismatch then the discrepancy is flagged. This system augments customer safety in cheque payments and reduce instances of fraud occurring due to tampering.