NEGOTIABLE INSTRUMENT – CHEQUE

S. Thilak, Assistant Professor, SIMS

A Cheque is a bill of exchange drawn on a specific banker and not expressed to be payable otherwise on demand. The drawer is the account holder signing the cheque, drawer is always the bank and the payee is the beneficiary who will receive the amount mentioned in the cheque.

Written Format: A cheque should be in writing by ink pen or ball point pen, or typed, but not in pencil as the writing can be easily erased or altered. It can also be written by another person apart from the drawee.

Forms of Cheque:  As per RBI guidelines, all the banks have been advised to issue only CTS 2010 standard multicity/payable at par cheques to their bank account holders. Void Pantograph is embossed on left hand side of the cheque leaf, standardized date format. Bank/Branch address along with IFSC code printed on the top of the cheque. An account holder can use only these printed cheques for transactions and cheque book is to be kept in safe custody by the account holder.

Drawer’s Signature: The cheque has to be signed in ink by the account holder or his authorized agent as per the specimen signature available on record with the bank branch. If the signature differs materially, the cheque may be returned by the banker, to protect the customer’s interest from possible forgery. Printed signatures on dividend/interest warrants cheques that are issued by companies in bulk, are also acceptable.

Due of Cheque: A cheque has to be dated, as the date constitutes a material element of a cheque. A holder of an undated cheque may fill in the date while presenting it for payment. A post-dated cheque cannot be paid before its due date. An ante-dated cheque is payable within three months from the date specified on the cheque. As per Indian banking practices, a cheque presented after expiry of 3 months from its written date, cannot be paid unless it is revalidated by the drawer under his signature.

Alteration in the Cheques:  With the introduction of Cheque Truncation System, cheque will be returned if any alteration is made in cheque. No changes/corrections should be carried out on the cheques in the payee’s name, courtesy amount or legal amount etc., excepting change in the date for validation period, and such alteration if any should be under full signature of the drawer of the cheque. Since other than date no alterations will be permitted, fresh cheque forms should be used by customers. The prescription on prohibiting alterations/corrections on cheques has been introduced to curtail cheque related frauds.   

OTHER FEATURES OF NEGOTIABLE INSTRUMENTS

There are certain features which are common to promissory notes, bills of exchange and cheques and the common features of negotiable instrument are as follows.

1. Instrument has to be in writing.

2. The instrument must contain on unconditional promise or undertaking.

3. The promise must relate to paying a certain sum of money, and not anything else. In terms of the provisions of law, the sum payable is deemed to be certain if it (a) includes future interest, (b) is payable at an indicated rate of exchange, or if (c) the instrument provides that on default of payment of an instalment, the balance unpaid shall become due.

4. The date of payment must be certain; the instrument should be payable either on demand or presentment or on a fixed or determinable future date.

5. The payee must be certain person either singly or jointly with other certain person, as per the instrument itself.

6. The instrument must bear the signature of the drawer or promisor.

7. The instrument must be delivered to the person for whom it is meant, after having been drawn and signed by the drawer/promisor. Delivery may be actual or constructive. The creation, acceptance and endorsement of a negotiable instrument get completed only after delivery.

8. Stamping of the instrument is as per the Indian Stamp Act 1899. An unstamped document cannot be the basis of a suit in a court of Law as it cannot be accepted in evidence.