CHEQUE

By Kowshik Chakraborty
PRN :16020548007
Meaning And Definition
• “A bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand and it includes the electronic image of a truncated cheque
and a cheque in the electronic form”.
• Thus a cheque is also a bill of exchange with three additional qualifications:
• (a) It is always drawn on a specified banker.
• (b) It is always payable on demand.
• (c) It includes the electronic image of a truncated cheque and also a cheque in
electronic form.
• In other words, "Cheque is an instrument in writing containing an unconditional order,
addressed to a banker, sign by the person who has deposited money with the banker,
requiring him to pay on demand a certain sum of money only to or to the order of
certain person or to the bearer of instrument."
Specimen of a CHEQUE
Essential Features Of a CHEQUE
• A Cheque must be in writing. The writing may be by means of a pen, a type-
writer, printed characters, ball- pen or even pencil because law has not
specified the writing materials with which a cheque has to be written.
• Cheques must be in form of a order and not in form of a request.
• The order must be unconditional. If any condition is attached with the order,
the cheque will lose its legality.
• The Amount demanded must be for certain amount in money and not in kind.
• The payment must be made to a certain person, bearer or self.
• It must be drawn on a banker.
• It must be signed by the account holder.
Types Of Cheques
Different types of cheques are:
• Bearer Cheque
• Order Cheque
• Uncrossed/Open Cheque
• Crossed Cheque
• Anti-Dated Cheque
• Post-Dated Cheque
• Stale Cheque
Types Of Cheques…Contd
• Bearer Cheque
When the words "or bearer" appearing on the face of the cheque are not cancelled, the
cheque is called a bearer cheque. The bearer cheque is payable to the person specified
therein or to any other else who presents it to the bank for payment. However, such
cheques are risky, this is because if such cheques are lost, the finder of the cheque can
collect payment from the bank.

• Order Cheque
When the word "bearer" appearing on the face of a cheque is cancelled and when in its
place the word "or order" is written on the face of the cheque, the cheque is called an
order cheque. Such a cheque is payable to the person specified therein as the payee, or
to any one else to whom it is endorsed (transferred).
Types Of Cheques…Contd
• Uncrossed / Open Cheque
When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed
Cheque". The payment of such a cheque can be obtained at the counter of the
bank. An open cheque may be a bearer cheque or an order one.

• Crossed Cheque
Crossing of cheque means drawing two parallel lines on the face of the cheque with or
without additional words like "& CO." or "Account Payee" or "Not Negotiable". A
crossed cheque cannot be encashed at the cash counter of a bank but it can only be
credited to the payee's account.
Types Of Cheques…Contd
• Anti-Dated Cheque
If a cheque bears a date earlier than the date on which it is presented to the bank, it is
called as "anti-dated cheque". Such a cheque is valid upto three months from the date
of the cheque.

• Post-Dated Cheque
If a cheque bears a date which is yet to come (future date) then it is known as post-
dated cheque. A post dated cheque cannot be honoured earlier than the date on the
cheque.

• Stale Cheque
If a cheque is presented for payment after three months from the date of the cheque it
is called stale cheque. A stale cheque is not honoured by the bank.
Endorsement Of Cheques
• Endorsement of a cheque means sisgning one’s name either on the back of a cheque or
on its face or on a slip of paper called the allonge for the purpose of transferring the
interest, right, property or title in the cheque to another person. The person who
endorse the cheque is called the endorser of the cheque. The person to whom the
cheque is endorsed is called the endorsee of the cheque.
• Kinds of Endorsement:
• Blank Endorsement or General Endorsement
• Full endorsement or Special Endorsement
• Restrictive Endorsement
• Sans Recource Endorsement
• Conditional Endorsement or qualified Endorsement
• Faculative Endorsement
• Sans Frais Endorsement
Endorsement Of Cheques .. Contd
• Blank Endorsement
It is an endorsement in which the endorser merely signs his name on the back of the
instrument without mentioning the name on the back of the instrument without
mentioning the name of the person to whom the instrument is endorsed.

• Special Endorsement
It is an endorsement in which the endorser writes not only his name, but also the
name of the person to whom the instrument is endorsed on the back of the
instrument.
• Restrictive Endorsement
A restrictive endorsement is one which, limits the further negotiation of an
instrument. The endorsee in such cases, cannot further endorse it. Generally, the word
‘only’ is added after the endorsee’s name.
Endorsement Of Cheques .. Contd
• Sans Recourse Endorsement
It is an endorsement which limits the liability of the endorser. The effect of this
endorsement is, to render the endorser free from all liability to any subsequent holder.

• Conditional Endorsement
It is an endorsement in which the endorser makes his liability on the instrument or the
right of the endorsee to receive the payment of the instrument depend upon the
happening of a specified event.

• Sans Frais Endorsement

It is an endorsement in which by writing the words “Sans Frais”, the endorser makes it
clear that no one should incur any expense on his account in respect of the negotiable
instrument.
M.I.C.R. Cheques
• For speeding up the cheque clearing process, the Reserve Bank of India
introduced mechanized cheque processing system using MICR
technology.
• MICR stands for Magnetic Ink Character Recognition.
• Banks issue cheque, draft and other payment instrument in MICR format
using the special quality paper and printing specifications.
• On MICR instruments, there is code line at the bottom containing
information printed in magnetic ink, which is required for mechanical
processing.
M.I.C.R. Cheques
• Code line contains following information:
• First six numbers indicate the cheque number.
• Next three numbers indicate city code
• Next three numbers indicate bank code.
• Next three numbers indicate branch code.

• MICR cheque should not be folded, pined or stapled. Rubber stamp should not
be affixed on the band line.
• MICR cheque books provide for record slips at the end which are used for
recording the details of every cheque issued.
Advantages of MICR Technology
• The chances of error is minimised because the instrument are read by
the machines.
• The transfer of funds between two banks is fast and easy.
• The work of clearing becomes easy.
• The manual work of staffs is minimised.
• At Par Cheque
The cheque which is recovered at its face value is said to be at par cheque.
Check Clearing Process Flow
Inward Clearing
Outward Clearing
Dishonor Of Cheques
• A cheque is said to be dishonoured when it is not paid by the paying
banker on presentation.
Circumstances under which a customer’s Cheque can be Dishonoured:
• When the cheque is a conditional one, the paying banker can dishonour
that cheque.
• When the customer countermands the payment of any cheque, the
banker must refuse to make the payment for that cheque.
• When the banker receives a notice from the holder about the loss of the
cheque, he cannot ignore that notice and make the payment.
Dishonor Of Cheques
• On receipt of a notice of the drawer’s death, the banker must stop the payment
of cheques issued by the drawer. This is because the order of the drawer to the
banker to pay any cheque ceases to operate after his death.
• When the banker receives a notice of the drawer’s insolvency, he must
dishonour the cheque issued by the customer. This is because after a customer
is declared insolvent, his properties, including his bank balance, vest in the
official assignee or official receiver, as the case may be.
• When a garnishee order is served on the banker by a court attaching the
customer’s funds, the banker is bound to comply with the garnishee order.
• If the bank account is a trust account and if the banker comes to know that the
customer, who is operating the trust account, intends to use the funds in the
trust account in breach of trust for his personal use, the banker must stop
payment for the cheques issued by the said customer or trustee.
Dishonor Of Cheques
• If a cheque is presented for payment after the customer’s account is closed, the banker must refuse
payment for a cheque.
• When a cheque is not signed by the drawer, the banker must not make the payment for such a cheque.
• When a crossed cheque is presented at the counter for payment, the banker must not make the
payment for that cheque.
• If the drawer is a foreigner, and if there is an outbreak of war with the drawers’s, country, the banker
must refuse payment for the cheques issued by that customer during the time of war.
• When the funds to the credit of a drawer are insufficient to meet the cheque issued by him, the banker
may refuse payment.
• When the drawer’s signature on the cheque differs from his specimen signature, the banker may refuse
payment for the same.
• When a cheque is undated, the banker may refuse payment.
• Where a cheque bears an incomplete date, the banker may refuse payment.
Dishonor Of Cheques
• Where a cheque bears an incomplete date, payment may be refused by the banker.
• If a cheque has become stale, payment may be refused.
• If a cheque is presented for payment outside banking hours, payment may be refused.
• When the endorsement of the payee or the endorsee on a cheque is irregular, the banker
may refuse payment.
• If the amount of the cheque stated in words differs from the amount stated in figures, the
banker may refuse payment.
• If the amount of a acheque is stated only in figures, payment may be refused.
• If a cheque is not drawn in proper form, the banker may refuse payment.
• If the cheque is ambiguous, i.e., not clearly written, payment may be refused.
• If a cheque bears any material alteration, the banker may refuse the payment.
Statement Of Reason Of Dishonor
• N.S (Not Sufficient): The answer means that the funds to the credit of the drawer are not
sufficient to meet the cheque.
• N.F (No Funds): This anwer means that there are no funds in the drawer’s account to pay
the cheque.
• N.A.F (Not Arranged For): This answer means that the cheque has been drawn against an
overdraft which has not been arranged.
• E.A (Exceeds Arrangement): This answer means that the payment of the cheque would
result in the overdraft exceeding the limit sanctioned.
• D.R (Discharge Required): This means that endorsement is required.
• D.D (Drawer Deceased)
• Drawer Insolvent
• Drawer Insane
Statement Of Reason Of Dishonor
• No Account
• Account Closed
• Cheque irregularly drawn
• Cheque is post dated
• Cheque is stale or out of date
• Cheque is mutilated
• Payment stopped under court order
• Drawer’s signature differs
• Alteration requires drawer’s signature
PRIOR CONDITIONS TO TAKE LEGAL ACTION UNDER
THE ACT (SECTION 138):

• In order to initiate a legal action against the person committed the offence of
dishonor of cheque under the Negotiable Instruments Act, the following
conditions shall have to fulfill:
• The cheque has to be presented to the drawee Bank within 6 months from the
date on which it is drawn or within the period of its validity, whichever is
earlier;
• Demand has to be made for the payment of the said amount of money by giving
a 30 days written notice to the drawer of the cheque within 30 days from the
date of dishonor;
• Failure to make the payment by the drawer within 30 days of the receipt of the
said notice (Clause c of the provision to Section 138). After the expiry of this 30
days the cause of action of the case arises
PUNISHMENT FOR DISHONOUR OF CHEQUE
(SECTION 138):
• Any person committed the offence of dishonor of cheque shall be liable
to be punished with imprisonment up to two year, orwith fine up to
twice the amount of the cheque, or with both.
THE PROCEDURE FOR THE RECOVERY OF MONEY IN
CASE OF A DISHONOURED CHEQUE UNDER SEC 138
OF NI ACT 1881
THE PROCEDURE FOR THE RECOVERY OF MONEY IN
CASE OF A DISHONOURED CHEQUE UNDER SEC 138
OF NI ACT 1881

• Under provisions of negotiable instruments act.sec.138 a legal notice on behalf

of complainant is issued to the defaulter whose cheque is dishonoured.it
should be issued within 15 days of dishonor of cheque by registered post
• The person who has issued cheque is directed to make the payment of amount
of dishonoured cheque within 15 days. In c ase the said payment is made
within 15 days of service of notice then the matter ends.
• But in case the said payment is not made within 15 days then the complainant
has to file a criminal case in the court within 30 days from the expiry of notice
period of 15 days .
• The court will hear arguments of complainant/ advocate for complainant and
issue process under section 138 of NI act.
CONTD …
• The summons are sent and served through police station where accused
is residing.
• Police is limited to only service of summons and in case accused remains
absent on court date after service of summons then only warrant is sent
to police station to produce accused in court.
• Accused has to submit surety with all surety documents including
ownership documents of house or land owned by surety, his address
proof including ration card, election identity card, photo and address
proof of surety and accused.
CONTD ..
• On receiving summons from the court the accused and surety should
remain present in court with all abovementioned documents and court
will accept the surety and on signing bonds by accused and surety, the
bail will be granted and accused will be released by court.
• Then the complainant will file the affidavit for his evidence with all
original documents in support of his complaint. This is called exam in
chief of complainant. Then accused/his advocate will cross examine the
complainant.
• Complainant can submit additional witnesses in support of complaint.
CONTD …
• Then once witnesses of complainant are over then statement of accused
is recorded under Sec.313 of CRPC .accused will be asked to give reply to
the questions and allegations against him .
• Then witnesses of accused to prove his innocence will be produced and
the evidence will be recorded by the court.
• Last stage is of arguments of advocate of complainant and argument of
advocate of accused
• Court will pass the judgment.
• In case accused is acquitted then matter ends.
THANK YOU