What is cheque? Explain the types of cheque.

 

       Cheque

                Cheque is a written, unconditional, and signed order from an account holder (drawer) to their bank, instructing the bank to pay a specific amount of money to a designated recipient (payee) or to the bearer of the cheque. Cheques are one of the oldest and most common forms of payment, though their usage has declined in recent years with the rise of digital payment methods.

    In short, Cheque is a negotiable instrument which contains an order to the bank, signed by the drawer, to pay a certain sum of money to a specified person.

Types of cheque:

There are mainly three types of cheque. They are as follows:

a)     Bearer cheque: A bearer cheque is payable to the bearer or the person who possesses the cheque. It does not mention any specific payee's name and can be encashed by anyone who presents it to the bank. Bearer cheques are considered riskier since they are negotiable by anyone and can easily be stolen or lost.

b)     Order cheque: An order cheque is payable to a specific person or entity whose name is mentioned on the cheque. The payee can only encash or deposit the cheque into their bank account, and it cannot be transferred to another person without proper endorsement.

c)      Crossed cheque: A crossed cheque is one on which two parallel lines are drawn across the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". It indicates that the cheque can only be deposited into a bank account and cannot be encashed over the counter. This enhances the security of the payment and minimizes the risk of misuse if the cheque is lost or stolen. There are two types of crossed cheque. They are as follows:

                                               i.          General crossed cheque: In a general crossing, two parallel lines are drawn across the face of the cheque, but no specific name of a bank is mentioned between the lines. The words "and Co." or "not negotiable" might be written in between the lines. This type of crossing indicates that the cheque can only be deposited into a bank account and cannot be cashed over the counter. The payee's bank will process the cheque and credit the amount to the payee's account.

                                             ii.          Special crossed cheque: In a special crossing, two parallel lines are drawn across the face of the cheque, just like in a general crossing. However, the name of a specific bank is written between the lines. This type of crossing restricts the cheque's encashment or deposit to the mentioned bank only. The payee can only deposit the cheque into an account with the bank named in the crossing.

Some other types of cheque are:

d)     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.

e)  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.

f)      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 postdated cheque cannot be honoured earlier than the date on the cheque.

g)     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.