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3 Introduction to Banking ATMTE 2016

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6th CHAPTER : CHECKS AND BANKS

 Definition of Check
According to the N.I. Act, is: “An statement in writing containing an unconditional order,
signed by the maker, directing a certain person to pay on demand or at a fixed
determinable future time a certain sum of money only to, or to the order of a certain
person or the bearer of the statement.”

 Features of Check
The features of Check are given below:
1. It Most be an Unconditional Order: A check must be an unconditional order. It cannot
made payable on the condition of happening of any event.
2. Check Must be a Written Order: The order to pay by the account holder must be in
writing. Checks are not allowed to be written by pencil since such writing may be
causing harm to the banks.
3. For Certain Sum of Money: The order to pay must for a specific amount of oney. A
check cannot be for any unspecified amount. Banks require the drawer to write the
amount both in words and figures so that the order to pay the amount is not
misunderstood.
4. Drawn on a Specific Bank: A check must be drawn on a specific bank. To comply with
such requirement, check contain generally the name of the bank, branch and address of
the branch.
5. Payee of a Check To be Certain: There must be a ‘payee’ of a check and payee must be
‘certain’. It implies that the payee must be either a natural person identifiable or legal
person crated by any law.
6. Check Must be Payable of Demand: A check has to be payable always on demand unlike
a bill of exchange which may be payable on demand or after some time. As and when
presented before the banks, check has to be paid. Check not payable on demand cannot
be a check at all.

 Is Check Money?
Check is never money or legal tender. Nobody can be compelled, as in case of notes and
currency, to accept checks in settlement of debts. After all check are simply pieces of
printed paper issued by the banks. People may or may not use and accept those. There is no
legal binding upon the people to accept payment in checks.

 Rules To Be Followed While Writing Checks

There are certain rules which are to be followed by the account holders while using the
checks. These rules generally require the account holders to:
1. Keep the check book is safe custody.
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2. Present the checks within banking hours.

3. Draw check within the balance available in the account.
4. Write checks in ink and not in pencil though there is no bar in writing pencil. This is done
to protect drawer’s interest.
5. Encash checks as soon as possible to avoid non-payment being ‘stale checks’.
6. Write the amount on the check both in words and figures as far as possible from the left
of the space provided so that other words or figures cannot be inserted by any
fraudulent means.
7. Write the amount clearly in figures and in words.
8. Avoid any alternation on the check. If done at all, it must be confirmed under the
drawer’s full signature.
9. Inform the bank immediately in case a check or check book is lost or stolen.
10. Request by an application or fill in a requisition slip for a fresh check book.
11. Immediately instruct the bank to refuse/stop the payment of a check giving the number,
date, amount and the name of the payee, of necessary.

 Kinds of Checks
1. Bearer Checks: These kinds of checks are like cash since they are freely transferable
from one person to another without any bat. Bearer checks can be encashed by
anybody from the banks over the counter. Because of easy transferability like cash,
many times people do not have any resource if these are lost or stolen.
2. Order Checks: Such checks are payable only after identification of the payee by the
banks. If doubt arises banks do not pay Order checks. As a result, it is a little difficult to
get it enchased by a thief or any finder.
Despite being an improved version over the Bearer checks, Order check also is not free
from limitation and can also be encashed from a busy bank by false identification.
3. Crossed Checks: To get encashment, Crossed checks are to be deposited into the
accounts maintained in a bank which collects the proceeds on behalf of the customers.
On collection, money has to be withdrawn by a fresh check of the account holder. This
acts as a check to fraudulent encashment of checks.
4. Not Negotiable Checks: “A person taking a check crossed generally or specially bearing
in either case the words “Not Negotiable”, shall not be capable of giving, a better title to
the check than that which the person from whom he took it had.” This provision
restricts the ‘negotiability’ of the check.
However, restriction on negotiability does not restrict ‘transferability.’ It implies that a
check bearing ‘not negotiable’ crossing cannot be encashed by the persons who get it
from a thief or any finder even if he got on consideration and without the knowledge of
theft or loss.
Generally this kind of check is used by government, agencies or corporations etc. who
want to restrict further negotiation of the checks.