What's a cheque? Law on Negotiable Instruments

In CS Online Coaching Classes, the Negotiable Instrument Act is a very interesting subject of Economic, Business and Commercial Law, which is discussed in a cheque that is explained below:

 

What's a Cheque?

A cheque is a bill of exchange drawn from a specified banker and not expressed as payable otherwise than on demand and includes an electronic image of a truncated cheque and a cheque in an electronic form. (Sec. 6 of the NIA)

 

Explanation I – For the purposes of this section, the terms-

 

An electronic form cheque means a cheque that contains the exact mirror image of a paper cheque and is generated, written and signed in a secured system that ensures minimum safety standards with the use of a digital signature (with or without a biometric signature) and an asymmetric cryptosystem;

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

 

EXPLANATION II – For the purposes of this section, the term clearing house shall mean the clearing house managed by the Reserve Bank of India or the clearinghouse recognized as such by the Reserve Bank of India.

 

The subject of the Negotiable Instrument is an important subject of the CS Executive Economic, Business and Commercial Laws (Paper – 7) and is also covered by other CS subjects such as BUSINESS ENVIRONMENT & LAW.

 

A cheque is a kind of bill of exchange but it has additional qualifications also, such as-

 1. It is always drawn on a specified banker and

 2. It is always payable on demand without any days of grace

 

 Parties to a cheque

 Drawer: The drawer is the person who draws or makes the cheque.

Drawee: Drawee is the drawer’s banker on whom the cheque has been drawn.

 Payee: Payee is the person who is entitled to receive the payment of a cheque.

Crossing of Cheque

A crossed Cheque is one that bears, across its face, two parallel transverse lines with or without certain words. Such lines are usually drawn at the top left corner of the Cheque's face. However, such lines can be drawn anywhere on the Cheque's face.

 The objects of the Cheque crossing are as follows:

 To direct the drawee bank to pay the amount of the cheque only to a bank or to a bank;

 To prevent payment of a cheque to an unauthorized or wrong person.

 

Crossing the Cheque is a direction to the drawee bank to pay the amount of the Cheque to the bank. Therefore, a cross cheque is not payable to the payer or the holder at the bank counter. In order to receive payment of the cheque, it must be deposited in the bank's account. The bank, in turn, presents the Cheque to the drawee bank and receives payment on behalf of the payee or the Cheque.

 

The objects of the Cheque crossing are as follows:

To direct the drawee bank to pay the amount of the cheque only to a bank or to a bank;

To prevent payment of a cheque to an unauthorized or wrong person.

 KINDS OF CROSSING

1. General crossing, and

2. Special crossing.

3. Restrictive crossing.

4. Not negotiable

 

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