Cheques

Concept of Cheque

A cheque is a financial document that instructs a bank to transfer a specific amount of money from one person’s account to the account of another person or company in whose name the cheque was written or issued. It is drawn to a specific bank.

Features of cheque

The following are the main features of cheque:

• It’s always derived from a specific bank.
• The signature on the exchequer is a requirement, and the maker should only do it.
• The sum is always a specific amount of money from one’s account.
• On-demand, a check is always payable.
• The payment of a check is always made in cash.

Types of Cheque

There are different types of cheque which are used for withdrawing the amount from bank. They are mentioned below:

1. Bearer Cheque:

Bearer Cheque is a cheque where the carrier is approved to get the cheque encashed. In other words, banks makes payment to anyone who represent the cheque so it is even not safe .And the bank cannot be made wrong if the cheque goes in wrong hand.

2.Order Cheque:

This type of check cannot be endorsed, which means that only the payee whose name appears on the check is eligible to receive cash for the amount. An order cheque can be endorsed to others by making valid signature of the drawer at the back.

3. Crossed cheque:

This type of check does not allow for cash withdrawal. Only the amount from the drawer’s account to the payee’s account can be transferred. The cheque can be presented to the bank by any third party.

There are two types of cross cheque:

a. General cross cheque:

This type of check doesn’t bear the name of the bank in which the amount has to be deposited.

b. Special crossed cheque:

This type of cheque specifies the name of bank in which the amount has to be deposited.

Parties in a Cheque

There are mainly three parties involved in a cheque. They are mentioned below:

1. Drawer: A person or party drawing the cheque is called the drawer . The person or party is the depositor and orders the bank for making payments.
2. Drawee: Drawee is the bank to whom the order of payment is placed by the drawer. The drawee makes payment as ordered by the drawer.
3. Payee: Payee is the person or the party who receives payment from the drawee. The payee can be anyone with case of bearer cheque.

Honor and dishonor of cheque

• A cheque is called honoured if the bank makes the payment to the bearer or any ordered party in cheque. For this the cheque must be issued properly.
• When the bank disagrees or rejects the order of accountholder for the payment then it is called “dishonour of cheque”.

A bank may dishonour the cheque under the following circumstances:

a. Ordinary Causes:

• If the cheque is overwritten.
• If the name of the payee is absent or not clearly written.
• If the amount written in words and figures does not match with each other.
• If the account number is not mentioned clearly or is altogether absent.
• If the signature is absent or the signature in the cheque does not match with the specimen signature kept by the bank.
• If the balance of customer is not sufficient to meet the payment.
• If the cheque is written by different inks.

b. Abnormal causes:

• If the bank receives the information regarding the death or insolvency of the drawer.
• If the court of law has given an order to the bank to stop payment on the cheque.
• If the drawer orders the bank to stop payment on the cheque.
• If the drawer has closed the account before presenting the cheque.