MEANING

Cheque – Section 6

 A cheque is a note containing the amount paid by one party

to another party. It includes the bearer’s name and account
number from which the money would be debited. In addition,
it also mentions the name of the payee. As a result, even if
the cheque goes missing, no third party can misuse it. In
short, cheque are the safest mode of making payments or
transferring funds from one party to another.
 Though debiting the amount from one account and crediting
the same in the other takes a bit more time, people still
consider issuing a cheque for safety reasons. People and firms
use various cheque, like traveler’s cheque, personal
cheque, certified cheques, cashier’s cheque, etc. 

Essentials
1. All the essentials of bill of exchange apply here.
2. It should be drawn on bank.
3. It is always payable on demand. Whenever, the payee demands the
money, the bank has to honour the cheque amount.
4. Banker is the drawee here.

Types of Cheques
The various kinds of cheques are below-mentioned:
1. Bearer Cheque– A cheque is a bearer cheque when the words ‘or bearer’ is
mentioned therein and it is payable to the person specified in the cheque or
to the person who presents it to the bank for such payment. However, such
cheque is risky, for if it is lost then its finder can collect the amount
mentioned therein from the bank.
2. Order Cheque- When the words “or order” appears on the cheque instead
of the word “bearer”, it is called an order cheque. It is payable to the payee
or to somebody else to whom it is endorsed.
3. Uncrossed / Open Cheque– When a cheque is not crossed, it is known as
an “Uncrossed Cheque” or an “Open Cheque”. The payment of such a cheque
can be obtained at the counter of the bank. Such a cheque can either be a
bearer or an order cheque.
4. Crossed Cheque– Crossing of cheque means drawing two parallel lines on
the face of the cheque with or without additional words like “& CO.” or
“Account Payee” or “Not Negotiable”. A crossed cheque cannot be encashed
at the cash counter of a bank. It can only be credited to the payee’s account.
5. Anti-Dated Cheque– If a cheque bears a date earlier than the date on
which it is presented to the bank, it is called as “anti-dated cheque”.
6. Post-Dated Cheque– If a cheque bears a future date for encashment, it is
called a post-dated cheque. It cannot be honoured before the date which is
mentioned on the cheque.
7. Stale Cheque– If a cheque is presented for payment after the expiry of its
validity, it is called stale cheque.

Crossing of cheques (Sections 123-131)

When a cheque bears across its face, two parallel transverse lines, the
cheque is said to be crossed. Lines are usually drawn or the left hand top
corner of the cheque. But, they may be drawn anywhere.

Purpose of Crossing – Crossing affects the mode of payment of the cheque.

The cheque is no more payable to the payee or holder at the counter of the
bank. The payment of a crossed cheque can be obtained only through a
banker.

Crossing is a material alteration - Crossing is a mode of assuring that only the

rightful holder gets payment. Even if some wrongful person secures payment
it can be traced, because he has to operate through a banker. He has to
firstly, open an account with some banker and then pay the cheque into his
account to enable the banker to receive its payment on his behalf and credit
it into his account. This makes it easy to trace the recipient of the money if it
subsequently turns out that he was not entitled to the cheque.Crossing does
not, however, affect the transferability or negotiability of a cheque.
The precautions to be taken by the bank:
 Verification of signature of the drawer.
 Verification of the genuineness of the instrument.
 Payment not stopped by the A/c holder.
 Holders title on the cheque is valid.
 A/c is not dormant one.
 A/c holder is not bankrupt, deceased and insanse.
 A/c is not under subject of liquidation process.
 ‘Guernsey Order’ not issued by court.
 Properly endorsed.
 Cheque is not drawn beyond limit fixed by the drawer is respect of amount.
 Instrument being presented is crossed.
 Instrument is not state or post-dated.
 No material alteration is made.
 Sufficient balance in the A/c

Collecting banker
One who undertakes to collect cheques, drafts, bill, pay order, traveller
cheque, letter of credit, dividend, debenture interest, etc., on behalf of the
customer is known as a Collecting banker.

Duties & Responsibilities of Collecting Bankers:

 Due Care and Diligence in the Collection of Cheques:The collecting banker is bound
to show due care and diligence in the collection of cheques presented to him.
 Acting as agent: While collecting an instrument, whether for credit to customer’s
account or for himself, the Bankers works as agent of his customer. As an agent he
has generally to take such steps & precautions to protect the interest or his customer
as a man of ordinary prudence would take to safe-guard his own interest.
  Scrutinizing the instruments: Name of the holder, Branch name, date, amount in
world and figure, any cutting without signature, material alteration of any to be
checked carefully.
 Checking the endorsement: Bankers has to check the instrument whether it has
been endorsed properly.
 Presenting the instrument in due time: It is the responsibility of the collecting
bank to present the instrument in due time to the paying bank.
 Collecting the proceeds in the payee’s account: It is the duty of collecting banks
to collect and credit the proceed of the instruments to the proper/correct account.
 Notice of dishonor and returning the instruments: If any instrument is
dishonored by the paying bank it should be informed to the customer on the
business day following the receipt of the unpaid instruments.

Protection to Collecting Banker

Under section 131 of negotiable instrument Act the collecting banker is not liable to the true
owner of a cheque or a banker’s draft if his title to the instrument proves defective provided the
cheque or draft was one crossed generally or specially to himself and collected for a customer is
good faith and without negligence.
The above statutory protection is available to the collecting banker only if he fulfills the
following conditions:

 The cheque he collected is a crossed cheque.

 He collected such crossed cheque only for his customer as an agent & not as a
holder for value.
 He collected such crossed cheque in good faith and without negligence.

Paying Banker
Paying banker refers to the banker who holds the cheques of the drawer and is obliged to
make payment if the funds of the customer are sufficient to cover the amount of his cheque
drawn.