Question

What is a Cheque ? Explain the different types of cheques.

Hint:

Define the cheque using the Negotiable Instruments Act, 1881. Then explain bearer, order, open, crossed, post-dated and stale cheques briefly.

Answer 1

Step 1: Definition of a cheque:
Under Section 6 of the Negotiable Instruments Act, 1881, a cheque is a bill of exchange drawn on a specified banker. It is payable on demand only.
In simple words, it is a written order from the account holder (drawer) to the bank to pay a fixed sum to a named person (payee) or to the bearer.

Step 2: Bearer cheque:
The words "or bearer" are printed on it. The bank pays the amount to anyone who presents it. It can be transferred by simple delivery, so it is risky if lost.

Step 3: Order cheque:
The words "or order" are printed, or the word "bearer" is cut out. The bank pays only the named payee or the person to whom the payee endorses it.

Step 4: Open cheque:
It carries no crossing. The payee can get cash over the counter at the bank, or deposit it in an account.

Step 5: Crossed cheque:
Two parallel lines are drawn across the face, with or without words. The bank pays only through another bank account, never in cash. This makes it safer.
Crossing is of four kinds: general crossing (two lines, or "and Company"), special crossing (name of a bank written between the lines), "Account Payee" crossing, and "Not Negotiable" crossing.

Step 6: Post-dated, ante-dated and stale cheque:
A post-dated cheque bears a future date, and the bank pays it only on or after that date. An ante-dated cheque bears an earlier date than the day of issue.
A stale cheque is one presented after three months from its date. The bank refuses to pay it.

Final Answer:
A cheque is a written order to a bank to pay a sum on demand. Its main types are bearer, order, open, crossed, post-dated, ante-dated and stale cheques.