Cheque & Withdrawal ( Chapter Three)

Definition of drawdown: Banking: Transfer of funds from one account to another on the instructions of an account holder.

What is called a cheque?

Cheque:

As per negotiable instruments Act-1881 Section 6, A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. ( Section 5- A bill of exchange is an instrument 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 to the bearer of the instrument) 

Parties in a cheque:

These are three parties in a cheque:

i)          The drawer      -           Customer, A/C holder, who issue the order.

ii)         Drawee                       -           The banker, on whom the order is issued.

iii)         Payee              -           Beneficiary of a cheque, who is to receive the payment.

Characteristics of a Cheque as per definition which must be fulfilled:

1.    Written order

2.    Unconditional order

3.    Order on a Banker where the drawer maintain his Account

4.    Signature and date

5.    Specified payee- person or to bearer

6.    Specified Amount (both in figure and words)

7.    Specified 3 (three) parties i.e. Drawer, Drawee & Payee.

8.    Cheque is generally in printed format of a Negotiable Instrument.

Checking points for payment of cheques

Cheque is payable on due presentation for payment if it is-

a)            The cheque is issued from the payee Branch.

b)            Duly signed by the drawer

c)            Sufficient credit balance in the account.

d)            Presented within the stipulated time of banking hour.

e)            The cheque is not post dated/stale/ ante-dated

f)             The amount in figure and word does not differ.

Cheque must be returned in the following case:

1)            If the cheque is post dated/stale

2)            If there is no sufficient balance in the account.

3)            If the signature in the cheque does not agree with that of SS Card.

4)            If the amount in figure and word differ then the cheque may be returned.

5)            If the cheque is mutilated.

6)            If the cheque is ante-dated

7)            If there is material alteration in the cheque

8)            In case of customers’ death or If the customers died.

9)            If the cheque is Account payee one.

10)         If the Account is marked ‘Stop Payment’ or ‘Garnishee Order’ received from the Court.

In the event of dishonor of a cheque due to a reason other than valid one, the drawee banker is liable to the drawer for any loss or damage cased thereby as per section 85(1) of NIA.

Passing means cheque rotate or cross through ledger or computer by an authorised officer of the bank.

Cancellation means striking out that is a marked in canceling so that it can not be used further. Cancellation must be by an authorised Officer and it is marked from the top to bottom of a cheque.

Types of Cheuqe :

Mainly, cheque is classified in two types

1.    Bearer cheque.

2.    Order cheque.

Order / Bearer cheque is classified again in two types.

1.    Open cheque

2.    Crossed cheque.

Bearer Cheque:

A bearer cheque is payable to the bearer and the banker is discharged from liability by payment in due course to the bearer of the cheque. Unless the form of drawing, bearer is changed to order. A bearer cheque is always a bearer one and no endorsement can make it payable otherwise than to the bearer thereof. Bearer cheque can be transferred from one to another by mere transfer of the same.

Order cheque:

The cheque in which “or order” is written after the name of the payee is called an Order Cheque which indicate that the drawee is bound to pay its value to payee or the ordered person only. This type of cheque is transferred by endorsement. Where an order cheque has been endorsed by the payee in favour of another, the endorsee must also sign it to receive the payment and the drawee banker is discharged from liability by payment in due course.

Antedated cheque/backdated cheque :

Where a cheque bears a date before the date of its issue, it is known as an antedated cheque & is not invalid. A cheque antedated for more than 6 months be comes stale or out of date as per banking practice.

Stale Cheque ( invalid 6 months expired)

As per banking custom a cheque becomes stale when it remains in circulation for more than six months. Though there is no legal sanction in this respect. Such an instrument is not honoured by the drawee banker  unless revalidated by the drawer. But it does not appear established that the drawer or the endorser of such an instrument is discharged from liability unless barred by limitation of three years.

Post dated cheque : (Future date)

A post dated cheque is one which bears a future date as its date of issue. Such a cheque is valid and its negotiability is not impaired simply because it is post dated. But the banker can not pay it earlier than its date because the drawer’s mandate is not to pay it earlier. If the banker pays it before its ostensible date, the payment is not a payment in due course and as such, he losses legal protection and is liable to his customer for any loss that may arise out of his action.

Alteration in cheque

Alteration in an instrument (a formal legal document (such as a deed, bond, or agreement, execution of which involves signature and unconditional delivery) so as to alter the character of an instrument for example when date, amount, name of the payee are altered or making a cheque payable to bearer from an order one or opening the crossing on a cheque.

Stop payment of cheque :

Account holder may stop payment of the cheque issued by him. “Stop payment of cheque” instruction means stopping payment by the bankers which may come from cheque maker through written application or telephonic message if acceptable to the Bank.

The following  persons or institutions can stop the payment of cheque :

1.    Account holder can direct to stop payment of his cheque.

2.    Court can impose injunction against the payment of any cheque.

3.    Bank  can stop the payment of cheque of any account holder hearing  the news of death, insanity and bankruptcy.

Reasons behind stop payment of cheque :

Generally, the following reasons are responsible for stopping payment of cheque :

1.    Direction comes from the account holder for stop payment.

2.    Any notice received regarding lost or stolen of cheque.

3.    Injunction imposed by the court/ tax office to stop transaction of any account.

4.    Notice received regarding death of account holder.

5.    Direction given by account holder to stop.

Crossed cheque is classified again in five types.

a)    General crossed cheque.

b)    A/c payee crossed cheque.

c)    Non transferable crossed cheque.

d)    Not negotiable crossed cheque.

e)    Special crossed cheque

Now, we shall try to show classification of the cheque through a diagram:

More types:

Mutilated Cheque: A worn out or tear cheque is called Mutilated cheque.

Certified Cheque: the cheque which is certified by the manager  of the ordered bank is called Certified  cheque.

Traveler’s cheque: This type of cheque is issued by the banks of international repute. This cheque is encashable  at a bank, hotel in the country being visited.