Banking Awareness Study Notes : Types of cheques
Banking Awareness Study Notes :
Types of cheque
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.
A cheque typically involves three parties, (1) the drawer who writes the cheque, (2) the payee, to whose order the cheque is made out, and (3) the drawee , the bank which has the drawer’s operating account from which the cheque is to be paid.
Types of 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.
When the word “bearer” appearing on the face of a cheque is cancelled and the word order is written in its face, the cheque is called an order cheque. Such a cheque is payable to the person specified there in as the payee, or to any one else to whom it is endorsed. The payee can transfer an order cheque to someone else by signing his or her name on the back of it.
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.
An open cheque is a cheque that is not crossed on the left corner and payable at the counter of the drawee (bank) on presentation of the cheque. An open cheque may be a Bearer cheque or an Order 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 3 months from the date of the 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.
A Self Cheque
A self cheque is written by the account holder as pay self to receive the money in the physical form from the branch where he holds his account.
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.
If a cheque is torn into two or more pieces, then such cheque is called Mutilated Cheque. If it is presented for payment, the bank will not make payment against such a cheque without getting confirmation of the drawer. In case, if a cheque is torn at the corners and no material fact is erased or cancelled, the bank may make payment against such a cheque.
“A truncated cheque” means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the 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. The expression “clearing house” means the clearing house managed by the Reserve Bank of India or a clearing house recognised as such by the Reserve Bank of India.
The banker’s cheque is an instrument issued by the bank on behalf of customer containing an order to pay a certain sum to a specified person within the city. The validity period of the Banker’s cheque is 3 months, however it can be re-validated subject to some legal formalities. In Banker’s cheque the chances of dishonour is not possible because it is always prepaid. It is always pre-printed with the words ‘not negotiable’ which means it cannot be further negotiated.
A traveller’s Cheque is a pre-printed, fixed-amount cheque designed to allow the person signing it to make an unconditional payment to someone else as result of having paid the issuer for that privilege.
Traveller’s cheques are accepted worldwide in over 400,000 locations spread across 200 countries. TCs can be encashed or used at Exchange bureaus, Banks, Hotels, Shops, Restaurants and other establishments. Plus, the no-expiration feature allows you to cash in leftover cheques or retain them for the next time you travel.
Their use have been in decline since 1990s as alternatives, such as credit cards, debit cards, and automated teller machines became more widely available and were easier and more convenient for travellers.
Penalty for dishonor of cheque
If found guilty, the defaulter can be punished with monetary penalty which may be twice the amount of the cheque or imprisonment for a term which may be extended to two years or both. The bank also has the right to stop the cheque book facility and close the account for repeat offences of bounced cheques.