CHEQUE

A cheque is a species of a bill of exchange .

Two additional qualifications, viz.,
(1) It is always drawn on a specified banker,
(2) It is always payable on demand.

 All cheques are bills of exchange, but all bills of

exchange are not cheques.
 It must be signed by the drawer.
 It does not require acceptance as it is intended for
immediate payment.
The usual form of bank cheque is as follows :

No……. Date……….2000
PUNJAB NATIONAL BANK
Subzi Mandi, Delhi-110007
Pay……………………………………or bearer the sum of Rs.
……………………………………………….
Rs. …………................
Sd/-
Crossing of cheques
Two types of cheques.
 Open cheque: A cheque which is payable in cash
across the counter of a bank.
 Crossed cheque: A cheque which two parallel
transverse lines with or without the words ‘& Co.’
are drawn. Crossing is a direction to the drawee
banker to pay the amount of money on a crossed
cheque generally to a banker so that the party who
obtains the payment of the cheque can be easily
traced.
Types of crossing. There are two types of crossing,
(1) General crossing, and
(2) Special crossing.
1. General crossing. A cheque is said to be crossed
generally where it bears across its face an addition
of-
(i) The words ‘and company’ or any abbreviation
thereof, between two parallel transverse lines,
either with or without the words ‘not negotiable’ ;
(ii) Two parallel transverse lines simply, either with or
without the words ‘not negotiable’.

n y
1 2 pa 3
om

o
C

C
d

&
a n
 Where a cheque is crossed generally, the drawee
banker shall not pay it unless it is presented by a
banker.
2. Special crossing. Where a cheque bears across
its face an addition of the name of a banker, either
with or without the words ‘not negotiable’,
 Transverse lines are not necessary in case of a
special crossing.
 The payment of a specially crossed cheque can be
obtained only through the particular banker
whose name appears across the face of the cheque.
 3.

1
1
Ac Th
co e
un B
an
tP k
ay of
e e In
on di
a

crossing.
ly

2
2

A/
c Th
P e
B ay
an e B
an
k eo k
o f nl of
In y S In
d i ta d
a te ia
3
3

Ac
co
u N
N nt Th ot
eg p N
ot ay e
ia e B eg
ot
bl e an
e No k ia
t of bl
In e
di
a
Restrictive crossing. In this type of crossing the
words ‘A/c payee’ are added to the general or Special
 The words ‘A/c Payee’ on a cheque are a direction to
the collecting banker that the amount collected on
the cheque is to be credited to the account of the
payee.
Not negotiable crossing.
 The effect of the words ‘not negotiable’ on a crossed
cheque is that the title of the transferee of such a
cheque cannot be better than that of its transferor.
 Protection to the drawer or holder of the cheque
against miscarriage or dishonesty in the course of
transit.
Who may cross a cheque
(1) The drawer.
(2) The holder.
(3) The banker
 CLASSIFICATION OF NEGOTIABLE
INSTRUMENTS
The negotiable instruments may be classified as :
I. Bearer and order instruments
Bearer instruments.
 A negotiable instrument is payable to bearer-
(1) When it is expressed to be so payable, or
(2) When the only or last indorsement on the
instrument is an indorsement in blank.
Order instrument.
 A negotiable instrument is payable to order-
(1) When it is expressed to be payable to order,
e.g., ‘Pay to A or order’ or ‘Pay to the order of A’.
 In both these cases, the bill is payable to A or his
order at his option.
(2) When it is expressed to be payable to a particular
person, and does not contain words prohibiting or
restricting its transfer,
e.g., ‘Pay A one hundred rupees.’
II. Inland and foreign instruments
(a) Inland instruments. A promissory note, bill of
exchange or cheque which is
(1) Both made in India and made payable in India,
or
(2) Drawn upon any person resident in India,
 Is deemed to be an inland instrument.
Examples.
(a) A bill is drawn in Delhi on a merchant in Bombay
and accepted payable in Calcutta or London.
(b) Foreign instruments. An instrument, which is not
an inland instrument, is deemed to be a foreign
instrument.
 Usance. Usance is the time fixed for the
payment of bills drawn in one country and
payable in another.
 It is fixed by the custom of the countries and
 The length of the usance varies in different
countries.
III. Instruments payable on demand
A cheque is always payable on demand
 A promissory note or bill of exchange is payable
on demand-
(a) When no time for payment is specified in it ; or
(b) When it is expressed to be payable ‘on demand’,
or ‘at sight’ or ‘on presentment’.
 The words ‘on demand’ are usually in a promissory
note,
 The words ‘at sight’ are in a bill of exchange.
IV. Time instruments
A bill or note which is payable
(a) After a fixed period, or
(b) After sight, or
(c) On a specified day, or
(d) On the happening of an event which is certain to
happen, is known as a time instrument.
Ex:- An order to pay on or before a specified date is not
a bill.
 The expression ‘after sight’ in a promissory note
means that payment cannot be demanded on a
note till it has been shown to the maker.
 The expression ‘after sight’ in a bill of exchange
means after acceptance, or protest for non-
acceptance.
V. Accommodation bill
A bill may be-
(1) A genuine trade bill, or
(2) An accommodation bill.
 When a bill is drawn, accepted, or indorsed for
consideration it is called a genuine trader bill’.
 When it is drawn, accepted or indorsed without
any consideration, it is called an ‘accommodation
bill’.
VI. Fictitious bill
When the name of the drawer or the payee or
both is fictitious in a bill, the bill is called a
fictitious bill.
Documentary bill and clean bill
When documents of title to the goods and other
documents, e.g., invoice, marine insurance
policy, etc., are annexed to a bill, the bill is called
a documentary bill. When no documents relating
to the goods represented by the bill are
attached to it, it is called a clean bill.
VII. Escrow
When a negotiable instrument is delivered
conditionally or for a special purpose as a collateral
security or for safe custody only, and not for the
purpose of transferring absolutely therein it is called an
escrow.
VII. Ambiguous instrument
When an instrument owing to its faulty drafting may
be interpreted either as a promissory note or a bill
of exchange, it is called an ambiguous instrument.
IX. Inchoate instrument
An inchoate instrument is an incomplete instrument
in some respect. When a person signs and delivers to
another a blank or incomplete stamped paper, he
authorises the other person to make or complete
upon it a negotiable instrument for any amount not
exceeding the amount covered by the stamp.
X. Undated bills and notes
A negotiable instrument is not invalid by reason that
it is undated. If the instrument otherwise fulfils the
legal requirements, the date of its execution can be
proved by oral or other evidence.
 A holder in due course may, insert therein the
true date of issue or acceptance,
XI. Hundis
Hundis are negotiable instruments written in
Hindustani language Sometimes they are in the form
of promissory notes but usually they are like bills of
exchange in from and substance.