What is Cheque

A cheque is an instrument with an unconditional order in writing, addressed to the bank to pay a specific sum of money to the bearer or to the person or entity named as the payee. A cheque can be issued for a current account or a savings account and can be used to deposit or pay money to other people through the bank account. 

Every cheque is unique and contains a unique cheque number, MICR, and IFSC code. The issuing party is called the drawer of the cheque, and the one it is issued to is called the payee. 

This page covers information on different types of cheques, the key elements of cheques and the importance of cheque numbers.

Features of Cheque

Here are the detailed characteristics of a cheque:

  • Cheques can be issued by individuals who hold a savings account or a current account.
  • Once the payee of the cheque is written, it cannot be changed.
  • The amount that is written on the cheque cannot be changed later on.
  • An oral order to pay the money is not recognised as a cheque.
  • The cheque is an unconditional order in writing and not a request to the bank.
  • The cheque carries validity only when it is signed and dated.
  • The unsigned cheques are invalid.
  • Cheques are usually valid from the day they are dated. Usually, cheques that are longer than six months from the date mentioned are called stale cheques. Although they are stale cheques, they are still valid.
  • The cheques with a sign but no amount written are called blank cheques. These are the riskiest as they can be used by others or also misused.

Types of Cheques in India

There are different kinds of cheques for different purposes, which are mentioned in the table below:

Types of Cheques

Description

Open cheque

An open cheque is a form of leaf that can be used to obtain payment from a bank or to put into one's own account. This cheque can also be issued to another person by the bearer.

Depositing Cheque

This is used to deposit a certain amount into your bank account. It could take a few days for the money to appear in your account to be withdrawn, depending on the bank process.

Bearer cheque

A bearer cheque is one in which the payment is paid to someone acting on behalf of the payee/beneficiary for whom the cheque was issued. In order to process this type of cheque - the word 'carrier' must be included in the leaf.

Self-Cheques

A self-cheque is a cheque written in one's own name, with the drawer and payee being the same person. It could only be deposited in the bank of the drawer. 

Post-dated cheque

A post-dated cheque is a crossed or accounts payee cheque with a future date to meet a financial obligation in the future. It is valid for the tenure of three months from the date of issuance.

Traveller's Cheque

When travelling, a traveller's cheque is used to prevent carrying large quantities of cash and to ensure more safety and security. It can be used to purchase foreign currency when travelling overseas.

Banker's cheque

Banker's cheques are cheques that the bank issues to ensure payment.

Crossed cheque

An account payee cheque is another name for a crossed cheque. It's a bearer's cheque with the words "account payee" inscribed in two parallel lines on the top left-hand corner. It's the safest type of cheque to write because only the person whose name appears on the cheque will have money sent to their account.

Order cheque

An order cheque is a cheque that can only be issued to the person whose name is mentioned on the cheque. 

Stale Cheque

A stale cheque is one that has been deposited three months after the date on which it was signed.

Blank Cheque

A blank cheque is a cheque that has been signed by the account holder but does not have any other information filled in, such as the date, payee, or amount. This means that anyone who has the cheque can fill in the missing information and cash it for the amount they specify.

Dishonour of Cheque

When a bank doesn't deposit the payment that is written on the cheque into the payee's account, it is known as cheque dishonour. A 'cheque Return Memo,' which outlines the reasons for the cheque being dishonoured, is normally issued to the payee's bank. The bank of the drawee issues this memo. The payee's bank presents the dishonoured cheque and memo to the payee. Within three months of issuance - the payee can resubmit the identical cheque. The payee should also send a notification to the drawer saying that the money needs to be paid within the period of 15 days of receipt of the notice.

Ante-dated Cheque

An antedated cheque is a cheque that has been dated before the date on which it was actually written. These cheques are valid and can be cashed or deposited at the bank up until the date that they become stale.

Mutilated Cheque

It is a cheque that has been torn or damaged to the point where it is no longer legible or cannot be processed by a bank.

 If the necessary information on a cheque is torn or not visible, the cheque becomes void.

Key Elements of Cheque

Given below are the important details that are present in a cheque:

  • Drawer: The person who writes the cheque and has the account from which the funds are drawn.
  • Drawee: The bank that is instructed to pay the funds.
  • Payee: The person or entity to whom the funds are to be paid.
  • Amount: The sum of money to be paid.
  • Date: The date on which the cheque is written.
  • Signature: The drawer's signature, which authorises the bank to pay the funds.

What is a Cheque Number?

Every cheque contains a cheque number that is mentioned on the leaf. The cheque number is used to find the status of a cheque. To find the cheque number, you can look at the first six numbers that are present on the bottom of the cheque.

What is a Cheque Leaf?

A cheque leaf is a single cheque found in a chequebook. It serves as a written instruction to a bank to pay a specified amount of money to the payee. A cheque leaf can be used for the purpose of withdrawing, depositing, or transferring funds from one account to another.

Format of Cheque Leaf

The following points explain the format of the cheque:

  • These are six unique digits at the bottom-left corner of the leaf.
  • The MICR code is the magnetic link character recognition code
  • The nine digits of the MICR code indicate the bank and branch from which the cheque was initially issued to the account holder. 
  • The first three digits of MICR code are the city code; the next three digits will reflect the bank code, and the last three digits represent the branch code.
  • After the MICR code, there are the six digits that are mentioned on the cheque, and they are a portion of the account number.
  • The last two digits at the bottom of the leaf are the transaction ID. It assists in knowing if the cheque issued is local or payable at par. 
  • All of the numbers that are mentioned above are written with magnetic ink and can only be read with the magnetic ink reader.

How to Write a Cheque?

There are specific steps while writing a cheque:

  • The first step is the crossing of the cheque - which entails drawing two parallel lines on the document's left-hand corner.
  • In the 'Pay' field, insert the date and the payee's name. Write the sum in words and add the word 'only' at the end.
  • Then write it in numbers, ending with the symbol '/-.'
  • Sign your name at the bottom of the cheque.

Things to Know Before Writing a Cheque

There are particular prerequisites that must be known before writing a cheque. They are mentioned below:

  • Never overwrite on a cheque leaf.
  • Never leave any form of space between numbers or words in the cheque leaf.
  • No column should be left blank in a cheque.
  • A check should not be folded or stapled.
  • Always use the same signature and sign clearly.

What is a Cancelled Cheque?

A cancelled cheque is a cheque that has been rendered unusable for payment. It is typically done by drawing two parallel lines across the face of the cheque and writing the word "CANCELLED" in between the lines.

One can cancel a cheque because of the following reasons:

  • To stop payment on a cheque that has been issued but not yet cashed.
  • To provide proof of account ownership when opening a new bank account or investment account.
  • To verify bank account details for direct deposit or other electronic payments.
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