Cheque

What is a Cheque?

A cheque is a widely used negotiable instrument under the Negotiable Instruments Act of 1881, where the account holder (drawer) instructs their bank (drawee) to pay a specific amount to another person (payee). Cheques can be issued from savings account and current accounts and are a secure alternative to cash payments.

Key Features of a Cheque

1. Unconditional Written Order – A cheque is always a written order to the bank without any conditions.
2. Cash Payment on Demand – When presented, the bank pays the cheque in cash.
3. Drawn on a Specific Bank – Cheques are linked to specific bank accounts.
4. Certain Sum of Money – The amount written on a cheque cannot exceed the available account balance.
5. Signature Requirement – The drawer must sign the cheque to be valid.

Types of Cheques

• Bearer Cheque: Payable to anyone who presents it at the bank; no identification is required.
• Order Cheque: Payable only to the person whose name is mentioned on the cheque. The payee must endorse it before encashing.
• Crossed Cheque: Marked with two parallel lines on the face, ensuring that payment is made directly into a bank account, reducing fraud.
• Post-dated cheque: This type of cheque is issued with a future date and can only be cashed after that date. It is commonly used for future payments like rent or EMIs.
• Traveller’s Cheque: Designed for travellers, it serves as a secure means of payment and can be replaced if lost or stolen.
• Self Cheque: Written by the account holder to withdraw cash for personal use.

Validity of a Cheque

A cheque is valid for 3 months from the date of issue, which is printed at the top right-hand corner. After this period, it becomes invalid and cannot be cashed.

Cheque Number and How to Identify It

A cheque number is a unique identification number printed at the bottom of each cheque. It helps banks and account holders track issued and processed cheques. The cheque number is printed in magnetic ink on the bottom-right side for machine readability.

Advantages of Using a Cheque

1. Safe and Convenient – Cheques eliminate the need to carry large amounts of cash.
2. Transferable – Being a negotiable instrument, cheques can be endorsed to third parties.
3. Traceable – If lost, cheques can be traced using their cheque number, enhancing security.

Disadvantages of Using a Cheque

1. Not Legal Tender – Unlike cash, cheques can be refused by the recipient.
2. Inconvenient for Unbanked Individuals – People without bank accounts face difficulty with cheque transactions.
3. Time-Consuming Process – Depositing and clearing cheques requires visiting a bank, which can be inconvenient.

Positive Pay System for Cheque Payments

The Positive Pay System is a security feature introduced to prevent cheque fraud. For cheques above Rs. 50,000, the issuer must reconfirm the cheque details with the bank before it is processed. If the details match, the cheque is honoured. If there’s a discrepancy, the bank flags it for further verification. This system improves the safety of large-value cheque transactions.