Cheque

A cheque is a bill of exchange drawn on a specified banker and payable only on demand (Section 6 of the Negotiable Instruments Act, 1881). It is the most commonly used negotiable instrument in daily commercial transactions.

Essential features of a cheque: - It must be in writing and signed by the drawer (account holder) - It is always drawn on a banker (the drawee must be a bank) - It is payable only on demand — a post-dated cheque becomes valid on its date - It must contain an unconditional order to pay a specific sum of money - The payee must be a certain person or the bearer

Parties to a cheque: - Drawer — The person who draws/writes the cheque (account holder) - Drawee — The bank on which the cheque is drawn - Payee — The person to whom the amount is payable

Types of cheques: - Bearer Cheque — Payable to the bearer (whoever presents it). Risky if lost. - Order Cheque — Payable to a specific person or their order. Requires endorsement for transfer. - Crossed Cheque — Two parallel lines on the face of the cheque. Cannot be encashed at the counter; must be deposited in a bank account. Types: General Crossing and Special Crossing. - Post-dated Cheque — Bears a future date. Valid for payment only from that date. - Stale Cheque — A cheque that is more than 3 months old from the date of issue. Banks will not honour it.

Crossing of cheques (important for exam): - General Crossing — Two parallel transverse lines with or without "& Co." or "Not Negotiable". Effect: cheque can only be collected through a bank. - Special Crossing — Name of a specific bank written between the two lines. Effect: payment only through that named bank. - Restrictive Crossing — Words like "Account Payee Only". Effect: amount credited only to the payee's account.

Section 138 — Dishonour of Cheque: If a cheque is returned unpaid due to insufficient funds, the drawer can be prosecuted. The payee must give notice within 30 days of receiving the "cheque returned" memo, and if payment is not made within 15 days of receiving notice, a complaint can be filed within 30 days.

Exam tip: ICAI frequently tests crossing types and their effects, the distinction between cheque and bill of exchange, and the Section 138 procedure (notice period, filing deadline). Memorise the timeline: 30 days for notice + 15 days for payment + 30 days for complaint.