Cheque:

what is cheque? main characters of cheque?

crossing of a cheque and state its significance?
different types of crossing and their special features?
Definition: Cheque refers to a negotiable instrument that contains an unconditional order
to the bank to pay a certain sum mentioned in the instrument, from the drawer’s account,
to the person to whom it is issued, or to the order of the specified person or the bearer.
There are various types of cheque, but before moving towards the types of cheque, let’s
talk about the essentials of the cheque.
1. It is an unconditional order.
2. It is an instrument in writing.
3. It is always drawn on a particular Bank.
4. It must be signed by the maker of the cheque.
5. Its amount is a certain sum of money.
6. It is always payable on demand.
7. The payment of the cheque is always in cash.
8. It is to be paid to the person named therein, or order, or the bearer.

Parties to Cheque
Basically, there are three parties to a cheque:
 Drawer: The person who draws the cheque, i.e. signs and orders the bank to pay
the sum.
 Drawee: The bank on which the cheque is drawn or who is directed to pay the
specified sum written on the cheque.
 Payee: The beneficiary, i.e. to whom the amount is to be paid.
Apart from these three, there are two more parties to a cheque:
 Endorser: When a party transfers his right to take the payment to another party,
he/she is called endorser.
 Endorsee: The party in whose favour, the right is transferred, is called endorsee.

Sometimes, the drawer and payee can be the same person, when the drawer writes a self-
cheque.
Types of Cheque
1. Open Cheque: Otherwise called as uncrossed cheque, it is one on which cash is
payable at the counter of the bank, or it is transferred to the bank account of the
person whose name is written on the cheque. It is negotiable, i.e. it is transferable
in nature.
2. Bearer Cheque: Bearer cheque refers to the cheque which can be encashed by the
person whose name is written on the cheque or anyone who presents the cheque
before the bank for payment. It is negotiable in nature, which can be transferred by
simply delivering it and so endorsement is not needed. No identification of the
presenter or holder is required in case of a bearer cheque.
3. Order Cheque: As the name suggests, it is the cheque which becomes payable to
the person or organization whose name is specified on the cheque or to his order.
To convert a bearer cheque into an order cheque, the word ‘or bearer’ is stricken
off from the cheque. Endorsement of the cheque to the third party is done by
simply signing on the cheque.
4. Crossed Cheque: You might have observed, two transverse parallel lines at the top
left corner of some cheques, which may or may not have the words – & Co., A/c
payee or Non-Negotiable. Such cheques are regarded as crossed cheques. The
amount on such cheques is credited to the account of the payee.
5. Self Cheque: When a person wants to withdraw money from his own account, by
writing ‘self’ at the name of the payee, is called self-cheque. Do not cross the
cheque or cancel the words ‘or bearer’ from the cheque. These cheques should not
be crossed, as well as the words ‘or bearer’ should not be stricken off from the
cheque, so that any person as your representative can receive the amount on your
behalf.
6. Blank Cheque: A cheque which is only signed, but the name of the payee and date
is not indicated, is called a blank cheque. Such cheques can be made account
payee, and the maximum limit of withdrawal can be mentioned.
7. Stale Cheque: A cheque bears a date and is valid up to three months of the stated
date. If a cheque is presented before the bank, after the expiry of the reasonable
period, i.e. three months after the date, then it is called stale cheque.
8. Post-Dated Cheque: When a cheque is drawn containing a future date, it is called
post-dated cheque. In such cases, money will not be payable by the bank before
that date.
9. Ante-dated Cheque: A cheque containing a prior date, is called an ante-dated
cheque. Bank honours cheques until three months to the date mentioned.
 10. Banker’s Cheque: Otherwise called a pay order, it is a non-negotiable instrument,
which is issued by the bank on behalf of the customer, which is payable in the
same city.
11. Cancelled Cheque: Due to any kind of mistakes while writing the cheque, it is
cancelled, and so it is called cancelled cheque.
12. Mutilated Cheque: A cheque which is torn, damaged, crushed or washed, is called
a mutilated cheque. Such cheques are honoured only when certain details are
visible, after confirming with the drawer.
13. Traveler’s Cheque: A cheque issued by a bank for a fee, containing a fixed
amount. These cheques are enchased or used to make payment in a foreign
country, after endorsement by the signature of the holder.
14. Gift Cheque: Cheques that are used for the purpose of gifts and prizes, usually
very large in size, are called Gift Cheques. Banks charge a fee for issuing such
cheques.

Crossing a Cheque:
A crossing is an instruction to the paying banker to pay the amount of cheque to a
particular banker and not over the counter. The crossing of the cheque secures the
payment to a banker.
However, we can negotiate a crossed bearer cheque by delivery and a crossed order
cheque by endorsement and deliver
Types of Cheque Crossing (Sections 123-131 A):
General Crossing – cheque bears across its face an addition of two parallel transverse
lines.
Special Crossing – cheque bears across its face an addition of the banker’s name.
Restrictive Crossing – It directs the collecting banker that he needs to credit the amount
of cheque only to the account of the payee.
Non-Negotiable Crossing – It is when the words ‘Not Negotiable’ are written between
the two parallel transverse lines.
General Cheque Crossing
In general crossing, the cheque bears across its face an addition of two parallel transverse
lines and/or the addition of words ‘and Co.’ or ‘not negotiable’ between them.
In the case of general crossing on the cheque, the paying banker will pay money to any
banker. For the purpose of general crossing two transverse parallel lines at the corner of
the cheque are necessary.
Thus, in this case, the holder of the cheque or the payee will receive the payment only
through a bank account and not over the counter. The words ‘and Co.’ have no
significance as such.
But, the words ‘not negotiable’ are significant as they restrict the negotiability and thus,
in the case of transfer, the transferee will not give a title better than that of a transferor.
Special Cheque Crossing
In special crossing, the cheque bears across its face an addition of the banker’s name,
with or without the words ‘not negotiable’.
However, in special crossing two parallel transverse lines are not essential but the name
of the banker is most important.
Difference between General and Special Crossing
General Crossing Special Crossing
1. Drawing of two parallel transverse lines is a must. 1. Drawing of two parallel
transverse lines is not essential.
2. Inclusion of the name of a banker is not essential. 2. Inclusion of the name of a
banker is essential.
3. In General Crossing paying banker to honor the cheque from any bank A/C. 3. In
Special Crossing paying banker to honor the cheque only when it is presented through the
bank mentioned in the crossing and no other bank.
4. General Crossing can be converted into a Special Crossing. 4. Special Crossing
can never be converted to General Crossing.
5. In case of General Crossing the words “And Company” or “& Company” or “Not
Negotiable” between the transverse lines to highlight the crossing does not carry special
significance. 5. In case of Special Crossing the name of a banker may be written within
two parallel transverse lines or with the words “And Company” or “Account Payee Only”
or “Not Negotiable” the inclusion of these words has become customary.
Who can cross a cheque?
a) A cheque may be crossed generally or specially by the drawer.
b) Holder may also cross it.
c) Holder may turn a general crossing into special crossing.
d) A banker may cross an uncrossed cheque & he may cross it specially to himself or to
another banker for purpose of collection through him.
Opening of crossing/cancellation of crossing
If the crossing on a cheque is cancelled, it is called opening of the crossing. The cheque
thereafter becomes an open cheque. Only the drawer of the cheque is entitled to open the
crossing of the cheque by writing the words “Pay Cash” and canceling the crossing along
with his full signature. His initials are not sufficient for this purpose.
Definition of Negotiable Instrument
Negotiable Instrument means a promissory note, bill of exchange or cheque payable
either to order or bearer (Section-13).
Promissory Note: A ‘Promissory Note’ is an instrument in writing containing an
unconditional undertaking, signed by the maker, to pay a certain sum of money only to,
or the order of certain person, or to the bearer of the instrument (Section 4 of NI Act).
Bill of Exchange: According to Section 5 of NI Act, a bill of Exchange is “an instrument
in writing containing an unconditional order, signed by the maker, directing a certain
person to pay a certain sum of money only to, or to order of, a certain person or to the
bearer of the instrument”.
Cheque: A cheque is a bill of exchange drawn on a specified banker and not expressed to
be payable otherwise than on demand (Section 6 of NI Act). A cheque is a bill of
exchange which is always (i) Drawn on a banker specified therein and (ii) Payable on
demand.
Types of Endorsement:
Endorsement is called a conditional endorsement (Section 52 of NI Act).
According to the N.I. Act, 1881 endorsement may take any of the following forms:
1. Endorsement in blank or general endorsement.
2. Endorsement in full or special endorsement.
3. Restrictive endorsement.4. Partial endorsement.
5. Conditional endorsement.