Cheque is a negotiable instrument that contains an unconditional order to the bank to pay a specified sum from the drawer’s account, to the person to whom it is issued, or to the order of the specified person or the bearer. Different types of checks are available to meet the needs and purposes of the customers. Despite the advent of digital payments, checks remain the most trusted method of transferring and receiving money.
Below mentioned are the most common types of cheques in India:
Bearer is one of the most common types of cheque. Through a bearer cheque, whoever presents it to the bank, the payment is made to the same person. This implies that any individual in possession of the cheque can claim the amount.
Such kinds of cheques are endorsable, and there is no need for the bearer to verify themselves. Most cheques fall under this category and can be easily identified through the words ‘OR ORDER’/‘OR BEARER.’
If a cheque has the words’ SELF’ written in the ‘PAY’ line, it is called a self-cheque. This type of bank cheque allows individuals to withdraw money from their own accounts.
A banker’s cheque is a cheque issued by banks wherein they debit the required amount on behalf of a customer and present the same to the recipient in the same city. The bank guarantees this transaction. And for the same reason, it is considered a secure and reliable means of fund transfer.
In an order cheque, the words’ OR ORDER’/‘OR BEARER’ is cancelled or struck out. Like crossed cheques, an order cheque, regardless of whoever is presenting, is issued only to the designated person. The bank may also initiate a background check on the recipient of the cheque.
An open cheque may be considered the opposite of a crossed cheque. In this kind of cheque, the payment can be made to whoever presents the cheque. This uncrossed cheque can also be encashed at any bank. In fact, the receiver can transfer this cheque to another payee. Naturally, such transactions are less secure.
Cheques can be issued for a future date. Cheques that are dated for enchantment/deposit on a future date are called post-dated cheques. Commonly, these cheques are used for recurring payments, like rent etc.
Now the crucial thing to remember is that this kind of cheque cannot be encashed or deposited before the date mentioned. Even if you present the cheque to the bank, it will be processed on the said date.
Cheques come with a valid period. A stale cheque is a type of bank cheque that has not been cashed within a set time period. In India, a cheque is considered stale if it has not been encashed within 3 months. In fact, right in the centre of the cheque, you would find the statement – ‘Valid for three months from date of issue.’ Stale cheques hold no validity and will require a re-issue.
If you regularly deal with cheques, you must have observed two parallel lines drawn on the top left side of the cheque with the text’ a/c payee’. Some cheques may not have this text; in such cases, two parallel lines are drawn across or on the backside of the cheque. Such a cheque is referred to as a crossed cheque.
The importance of a crossed cheque is that regardless of who’s handling the cheque, the amount is transferred only to the individual whose name is written on the cheque or the withdrawer. Also, only the payee’s bank can encash this kind of cheque, ensuring additional safety.
Foreigners, for convenience, carry what is known as a traveller’s cheque. This type of bank cheque is designed especially for travellers. Here, the cheque issued by the payee’s bank can be encashed at any local bank in a foreign country. This avoids the need to carry large amounts of cash when travelling abroad. Also, the unique feature of this cheque is that it comes without an expiry date.
A blank cheque, as the name suggests, is a cheque that has no details filled in except the signature of the issuer. This type of cheque is issued in special cases, primarily for convenience. Blank cheques should be cautiously issued as they can easily be misused for fraud. And in case the cheque is lost, it can cause severe losses to the issuer.
A mutilated cheque is a cheque that has been subject to damage or alteration. Damage is recorded if the cheque presented is torn or altered due to liquids and food elements. It may be difficult to encash or read a mutilated cheque and can require a re-issue. Additionally, banks may require you to re-verify and complete some other formalities in case of severe damage.
|Bearer Cheque||Order Cheque|
|Bearer cheques are those that are payable to the bearer, i.e. the holder who carries and presents the cheque at the bank counter.||When the only person named on the cheque presents it at the bank’s counter, it is considered as an order cheque.|
|Transferred through simple delivery||Transferred through proper endorsement|
|The word ‘bearer’ can be found at the end of the payee’s name.||The word ‘order’ will appear at the end of the payee’s name.|
|A bearer cheque can be converted into an order cheque by the drawer.||An order cheque cannot be converted into a bearer cheque by the drawer.|
|The banker or drawee bears no responsibility.||The banker or drawee will be held accountable.|
Technically there a number of parties involved with a cheque:
Drawer is the person who issues the cheque
The drawee is the bank on which the cheque is drawn. Keep in mind that a check is always drawn on a specific banker.
This is the person whose name appears on the cheque and who receives payment for the amount stated on the cheque. In some cases (such as when the drawer writes a self-check), the drawer and the payee may be the same person.
When a party, i.e. the payee, transfers his or her right to receive payment to another party, this person is referred to as an endorser.
The party to whom the right is transferred is known as the endorsee.
In a special crossing, the cheque bears an addition of the banker’s name, with or without whiles, rather than the words ‘not negotiable.
In this case, the paying banker only pays the amount of the cheque to the banker whose name appears on the crossing or his assembling agent. Only if the cheque is ordered through the bank specified in the crossing can the paying banker honor it. However, in this case, crossing two parallel crosswise lines does not appear to be necessary, but the name of the banker is crucial.
Two parallel transverse lines are required for this type of cheque crossing. There is no requirement to draw these parallel lines on a specific area of the cheque; they can be drawn anywhere. It is usually best to place it on the top left of the cheque. The benefit of this crossing is that the cheque must essentially be paid to the bank.
The words “non-negotiable” must appear on the cheque. Furthermore, the cheque could be crossed specifically or broadly. The cheque remains non-negotiable, and the title of the transfer is not superior to the title of the transferor.
A restrictive crossing is also known as an account payee crossing. This type of check must include the words account payee or account payee only. The check must be crossed, either generally or specifically. The significance of this type of crossing emphasises that the cheque is no longer negotiable.
A cheque can be defined as a financial instrument that allows for the transfer of money from one person/ institution to the designated recipient. There are several types of cheques, like bearer cheques, blank cheques, traveller cheques, crossed cheques and more. Each cheque has its own unique features and characteristics and may be used for different purposes. Understanding the different types can help you choose the right cheque type and ensure your funds’ safety.
A stale cheque is a cheque that no longer holds validity. If you do receive a stale cheque, contact the issuer immediately for a new cheque or an alternative payment means.
The IFSC or Indian Financial System Code is an 11-digit code mentioned on cheques that help identify individual bank branches linked with money transfer options like RTGS or NEFT.
MICR, or Magnetic Ink Character Recognition, is a 9-digit code that appears on the bottom centre of a cheque. It has information about the bank code, cheque number, amount and more. Banks in India have their own MICR code.
If your cheque is slightly damaged or torn, it may still remain valid. However, if you have torn your cheque into two halves, then you cannot deposit or encash it.
Individuals and organisations can use different types of cheque books based on their unique needs. The most common include personal cheque book, business cheque book, and customised cheque book.
There are around 10 types of cheques in India. Which assists various needs and requirements of customers.
– A cheque is a commercial paper that is used to pay the payee’s obligations through a bank.
– A cheque can be drawn to a specific bank or a specific person
The validity period of a cheque is three months from the date of issue, according to Reserve Bank of India (RBI) guidelines.
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