In this article, we shall discuss in detail what is a cheque, various types of cheques that are issued in the Indian banking system and what are the features of each of them.
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There are various types of cheques that can be issued. Given below is the list of the various cheque types:
- Bearer Cheque
- Order Cheque
- Crossed Cheque
- Account Payee Cheque
- Stale Cheque
- Post Dated Cheque
- Ante Dated Cheque
- Self Cheque
- Traveler’s Cheque
- Mutilated Cheque
- Blank Cheque
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What is Cheque?
A cheque is a piece of document/paper which orders the bank to transfer money from the bank account of an individual or an Organisation to another bank account.
The person who writes the cheque is called the “drawer” and the person in whose name the cheque has been issued is called the “payee”. The amount of money that needs to be transferred, payee’s name, date and signature of the drawer are all mentioned in a cheque.
There are certain points to remember regarding Cheques which are mentioned below:
- Cheque can only be issued against a current or savings bank account
- A cheque without date shall be considered invalid
- Only the payee, in whose name the cheque has been issued, can encash it
- A cheque is only valid 3 months from the date it has been issued
- A 9-digit MICR (Magnetic Ink Character Recognition) code is mentioned at the bottom of the cheque. This makes the clearance of cheques easier for the banks.
Further below each type of cheques has been discussed in detail for candidates to study and prepare themselves for the upcoming Government exams.
The bearer cheque is a type of cheque in which the bearer is authorised to get the cheque encashed. This means the person who carries the cheque to the bank has the authority to ask the bank for encashment.
This type of cheque can be used for cash withdrawal. This kind of cheque is endorsable. No kind of identification is required for the bearer of the cheque.
For example: A cheque has been signed by Arjun (drawer) and the payee for the cheque is Varun. Varun can either go himself to the bank or can send a third person to get encashment for the cheque. No identification shall be required for the bearer’s name.
If a person does not want their cheque to be endorsable, they can strike off the “OR BEARER” option mentioned in the cheque.
This type of cheque cannot be endorsed, i.e., only the payee, whose name has been mentioned in the cheque is liable to get cash for that amount. The drawer needs to strike the “OR BEARER” mark as mentioned on the cheque so that the cheque can only be encashed to the payee.
For Example: If a cheque has been signed with the name of Varun, then only the payee can visit the bank to get an encashment for the same for a order cheque.
The payee’s identity may be cross-checked by the bank before encashing the sum of money.
In this type of cheque, no cash withdrawal can be done. The amount can only be transferred from the drawer’s account to the payee’s account. Any third party can visit the bank to submit the cheque.
In case of a crossed cheque, the drawer must draw two lines at the left top corner of the cheque.
Account Payee Cheque
This is the same as the account payee cheque but no third party involvement is required. The amount shall be transferred directly to the payee’s account number.
To ensure that it is an account payee cheque, two lines are made on the left top corner of the cheque, labelling it for “A/C PAYEE”.
In India, any cheque is valid only until 3 months from the date of issue. So if a payee moves to the bank to get withdrawal for a cheque which was signed 3 months ago, the cheque shall be declared a stale cheque.
For example: If a cheque is dated January 1, 2021, and the payee visits the bank for withdrawal on May 1, 2021, his/her request shall be denied and the cheque is declared stale.
Post Dated Cheque
If a drawer wants the payee to apply for withdrawal or transfer of money after the present date, then he/she can fill a post dated cheque.
For example: If the date on which the drawer is filling the cheque is May 10, 2021, but he wants the payment to be done later, he/she can fill the cheque dates as May 30, 2021. It shall be called a post-dated cheque.
Ante Dated Cheque
If the drawer mentions a date prior to the current date on the cheque, it is called ante dated cheque.
For example: If the current date is January 30, 2021, and the drawer dates the cheque as January 1, 2021. It shall be considered as an ante-dated cheque.
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If the drawer wishes cash for himself he can issue a cheque where in place of the Payee’s name he can write “SELF” and get encashment from the branch where he owns an account.
For example: If a person wants Rs.1,00,000/- in cash, he can issue a self cheque and visit his bank branch where he owns an account and get encashment in place of a cheque.
As the name suggests, the Traveler’s cheque can be used when a person is travelling abroad where the Indian currency is not used.
If a person is travelling abroad, he can carry the traveller’s cheque and get encashment for the same in abroad countries.
If a cheque reaches the bank in a torn condition, it is called a mutilated cheque. If the cheque is torn into two or more pieces and the relevant information is torn, the bank shall reject the cheque and declare it invalid, until the drawer confirms its validation.
If the cheque is torn from the corners and all the important data on the cheque is intact, then the bank may process the cheque further.
When a cheque only has a drawer’s signature and all the other fields are left empty, then such a type of a cheque is called a blank cheque.
The above-mentioned types of cheques are the most commonly known and used in the Indian banking industry. Let us now know the parties associated with a cheque.
Number of Parties involved with a Cheque
There are three parties involved to a cheque.
- Drawer or Maker – drawer of the cheque is the customer or account holder who issues the cheque.
- Drawee – Drawee is basically the bank on which the cheque is drawn. Remember that a cheque is always drawn on a particular banker.
- Payee – This is the person who is named in the cheque and gets the payment for the amount mentioned in the cheque. In particular cases (when the drawer writes a self-cheque), the drawer and the payee can be the same individual.
Apart from these three, there are two more parties involved with a cheque –
- Endorser: When a party i.e. payee transfers his right to take the payment to another party, he/she is called endorser.
- Endorsee: The party in whose favour, the right is transferred, is called endorsee.
Essentials of a Cheque
There are certain extremely important pointers or features of a cheque which should be known and understood before using this payment mode for money transfer. Some of the important pointers related to a cheque are:
- A cheque is an unconditional order.
- A cheque’s payment is always in cash.
- A cheque is always drawn on a particular Bank.
- A cheque is always payable on demand.
- Signature on the exchequer is mandatory and should be only by the maker.
- The amount is always a certain sum of money from one’s account.
- This cash amount is to be paid to the person mentioned therein, or order, or the bearer.
Aspirants must know that any direct or indirect question may be asked from this topic in the general awareness section and they must be completely prepared for the same.
For any further information regarding the banking terms or the government exam syllabus or information regarding the same, candidates can turn to BYJU’S for assistance.