Dealing with Cheques

Negotiable Instruments
• Negotiable Instruments Act,1881
• Written documents
• Payable to bearer or order
• Payment of certain sum of money
• Freely transferable – by delivery or
endorsement + delivery (no separate
document of transfer required)
 Negotiable Instruments

• Promissory Note

• Bill of Exchange

• Cheque
 Promissory Note
Rs. 5,000/- New Delhi
20. 06. 2020

On demand , I promise to pay Ramesh a sum of

Rs.5,000/- only .

To , sd/-(revenue stp.)
Mr. Ramesh P. Sharma
 Bill of Exchange
Rs. 5,000/- New Delhi
24.05.2020
Six months after date, pay to Mr. Suresh
or order , a sum of Rs. 5,000/- , for value
received .

To , sd/-
Mr. Ram Karan
Accepted
sd/- (Ram )
 Cheque
ICICI Bank, Dwarka
23.6.20
Pay to Mr. Dinesh Verma or bearer
Rs. Ten Thousand only Rs.10,000

Satish chander
 What is a cheque
• A Negotiable Instrument
• Three parties- Drawer, drawee (Bank),
Payee
• Always payable on demand
• Drawn on a bank
• Can be crossed
• Payment can be stopped
 Negotiation
• Means transfer of cheque from one
person to another to make latter owner
• Negotiation is done by
• (i) Bearer instrument – by delivery
(ii) Order instrument – by endorsement
and delivery
• Endorsement- blank endorsement and
special endorsement
 Endorsements
• Blank endorsement
• Only signature of endorser

• Special endorsement
• Signature and name of endorsee

• Partial or conditional endorsement not

valid
 Crossing of cheques
• Objective – safety - A crossed cheque can
be deposited only with a bank ( No
encashment)
• Two parallel lines on top left corner
• Crossing does not take away right of
transferability
Crossing
 Types of crossing
• General crossing
- two parallel transverse lines on top left
corner – with or without any words
- payment can be made by Drawee bank to

another bank only

- crossing does not effect negotiability
 Special crossing
• Name of bank is added , with or without
parallel lines
• Cheque can be deposited in the specified
bank only
 Not Negotiable Crossing
• Transferee can not have better title than
transferor
• Transferability not restricted
• NN cheque is accepted at your own risk
 Account payee crossing
• Emerged by commercial use
• Generally no further negotiation
• Direction to collecting bank to deposit in
the payee’s account
 Who can cross a cheque

• Drawer
• Payee
• Holder
 Removal of crossing

• Once crossed, only Drawer can make it

open, under his signature
• Otherwise –material alteration
 Dishonour for insufficient balance

• Section 138 of Negotiable Instrument Act

• It is a criminal offence
• 15 days notice to be given for payment
• Drawer liable for
- payment of thrice the amount
- jail term of two years
• Incase of companies, concerned officers
and Directors liable
 Wrongful dishonour of cheque
• Sufficient funds in account
• Funds properly applicable to payment
• Cheque properly drawn
• Bank must duly pay
• Otherwise bank liable for any loss /
damage to customer
s.31 NI Act