What is Cheque? Definition, Characteristics, Types, Parties

  • Post last modified:27 January 2021
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What is Cheque?

A cheque is a bill of exchange, drawn on a specified banker and it includes ‘the electronic image of truncated cheque’ and ‘a cheque in electronic form’.

The cheque is always payable on demand. A cheque must contain all the characteristics of a bill of exchange.

Characteristics of a Cheque

The essentials characteristics of a cheque can be summarized as under:

  1. It must be in writing.
  2. It must contain an express order to pay.
  3. The order to pay must be definite and unconditional.
  4. It must be signed by the drawer.
  5. The sum contained in the order must be certain sum.
  6. The order must be to pay money only.
  7. Three parties (drawer, drawee and payee) must be certain.
  8. It is always drawn upon a specified banker.
  9. It is always payable on demand.
Characteristics of a Cheque
Characteristics of a Cheque

Parties of Cheque

Basically, there are three parties to a cheque:

  1. Drawer
  2. Drawee
  3. Payee

Drawer

Drawer is a debtor or borrower. The person who makes the promise to another to pay the debt.

Drawee

Drawee is a credit or lender. The person on whom the bill is drawn.

Payee

Payee The person to whom the money is to be paid or a person receiving payment.


Truncated Cheque

A truncated cheque means a cheque which is truncated during the course of a clearing cycle either by the clearing house or bank whether paying or receiving payment immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.


Cheque in electronic form

A cheque in electronic form means a cheque which contains the exact mirror image of paper cheque and is generated, written and signed in secure system, ensuring the minimum safety standards with the use of digital signature (with or without biometric signature) and asymmetric crypto system.


Presentment of truncated cheque

In case of and reasonable suspicion about the genuineness of the electronic image of a truncated cheque (e.g., suspicion as to fraud, forgery, tampering or destruction of the instrument), the paying banker is entitled to demand any further information regarding the truncated cheque. The payee banker can also demand the presentment of truncated cheque itself for verification.


Difference Between Bill of Exchange and Cheque

Basis for DistinctionBill of ExchangeCheque
MeaningA written document that shows the indebtedness of the debtor towards the creditorA document used to make easy payments on demand and can be transferred through hand delivery is known as cheque
Defined inSection 5 of The Negotiable Instrument Act, 1881Section 6 of The Negotiable Instrument Act, 1881
Validity PeriodNot Applicable3 months
Payable to bearer on demandCannot be made payable on demand as per RBI Act, 1934Always
Grace Days3 days of grace are allowed.Not Applicable, as it is always payable at the time of presentment
AcceptanceBill of exchange needs to be acceptedA cheque does not require acceptance
StampingMust be stampedNo such requirement
CrossingNoYes
DraweePerson or BankBank
Noting or ProtestingIf a bill of exchange is dishonoured it can be noted or protestedIf the cheque is dishonoured it cannot be noted or protested

Business Law Notes

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Business Law Book References

  1. Goel, P. K. (2006). “Business Law for Managers” Wiley
  2. Sheth, T. (2017). “Business Law” (2ed.) Pearson.
  3. Kuchhal. M.C. & Prakash. “Business Legislation for Management” (2ed.) Vikas Publishing.

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