- Various kinds of cheque
- Validity of a cheque
- Revalidation of a stale cheque
- Validity of a post-dated cheque
- Case Law
The Negotiable Instruments Act, 1881 (hereinafter referred to as the Act) is an act which in Sec 6 defines a cheque as a bill of exchange which is drawn on a specified banker and it is expressly mentioned that it should not be paid unless a demand is made for its payment.
A cheque also includes the electronic image of a truncated cheque or a cheque in the electronic form. As per sec 138 of the act the validity of a cheque is for six months from the date of issue of the cheque.
A cheque in the usual parlance is issued by a person who has a bank account with funds. The bank provides the cheques to a person and this cheque can be filled by the person holding the account and issue it as a token of payment. The person in whose name the cheque is issued can go to the bank and collect money on depositing the cheque.
Various kinds of Cheque
There are various forms or kinds of Cheque. They are:
- Bearer Cheque:
A bearer cheque is one which is negotiated only when the delivery of possession happens. It can happen without any endorsement. In such a form of cheque, the words ‘or bearer’ are added with the name of the person. Whoever presents the cheque to the bank, the amount is paid to him. A bank does not have to take necessary precautions in such a kind of cheque. If the ‘or order’ are struck off then the cheque becomes payable on order.
- Order Cheque:
In an order cheque the delivery of possession and endorsement is both required. The words ‘or order’ are mentioned along with the name of the person to whom the amount is to be paid. The bank only pays the person whose name is on the cheque. This person can make a further endorsement on such a cheque.
- Crossed Cheque
A crossed cheque is one wherein two crossed lines are drawn on the cheque on the upper corner on the left hand side. A few words are also written in between these lines. This secures the payment of the cheque. A person can present this at the bank and receive the payment.
- Open Cheque:
When a cheque is not crossed it is known as an open cheque. The payment for this cheque can be claimed at the bank.
- Marked Cheque:
In such kind cheques, the drawee bank puts a mark on the cheque as a symbol or certification that the drawer has enough funds in his account to make the payment of the cheque. A bank may write ‘Good’ on one corner of the cheque along with its official stamp and signature.
- The bank gives a certification that when the check was drawn, at that time the drawer has enough funds in his account to dispense with that amount. Such a cheque shows authenticity and credibility that the funds are sufficient in the bank account of a person. A cheque may be marked by the bank is the drawer, holder or collecting banker want it.
- Not payable or Bad Cheque
It is a cheque of such a nature which cannot be made payable even if it is complete in all respects. A cheque may become bad when:
- There are insufficient funds in the account of the drawer of the cheque;
- If the account of the drawer is either closed or frozen;
- If the cheque has been issued by the drawer who is insolvent;
- If the cheque is forged;
- If the cheque is cancelled illegally after it has been issued or if the payment is stopped illegally.
- Ante-dated Cheque
An ante dated cheque is one which is issued for a back date, i.e., a date which is prior from the date of issue of the cheque. Such a cheque is valid since the validity of a cheque is six months from the date of issue of the cheque.
- Post dated Cheque
A post dated cheque is one which is issued for a later date or the date which is mentioned is later than the date on which it is issued. Such a cheque can only be made payable when the date arrives which is mentioned on the cheque.
A banker does not make a payment for a post dated cheque due to various difficulties such as:
- If the payment is made in advance then the banker cannot take money from the account of the customer till the date of the cheque arrives since there is a possibility that there may be insufficient funds in the account of the customer prior to the date mentioned in the cheque.
- If the title of the cheque is found defective later then the banker cannot do anything.
- If the banks give the amount on a post dated cheque then cheque for whose actual date is being reflected on a cheque may get dishonoured due to insufficiency of funds since the banker realised money on account of the post dated cheque. A banker may be held liable for wrongful dishonour of cheque.
- The maker of the cheque might alter it on a later date. If the banker pays the money in the meanwhile then he cannot re claim the money.
- If the account of the customer is closed or seized prior to the date of the cheque then the banker cannot debit the customer.
A post dated check if presented will be returned before the date reflected on the cheque. However, it will not be rejected once the date mentioned on the cheque arrives. It cannot be returned just because it was returned earlier.
- Stale Cheque
A stale cheque is one which is presented after a very long period of time since the date of its issue. Considerable time is no where defined and it depends from case to case. If a cheque is presented after a lapse of six months from the date of issue of the cheque it becomes invalid.
A banker returns the cheque as out of date and does not remit the amount. However, such a cheque can be paid by the bank if the maker of the cheque confirms it.
Sometimes government offices issue cheque which may be valid only for three months. In such cheques the date of validity is mentioned on the cheque itself. If these cheques are presented after their validity is over then they will not be paid.
- Mutilated Cheque
A mutilated cheque is one which is torn into pieces. Such cheques are to be handled carefully and the banker needs to approach them with abundant caution. The key is to find out if the tearing was intentional to cancel the cheque or the tearing happened as an accident.
If the banker is of the opinion that the tearing was for the purposes of cancelling the cheque then the same will be returned and no payment shall be made. In such cases the banker gets the drawer to confirm the mutilation. A mutilated cheque can be made payable by the bank if the material information is intact.
- Digital Cheque
Cheques which are in electronic form are known as digital cheques. These are of two kinds:
- Electronic Form: A cheque in electronic form means a cheque which has been drawn electronically by the means of a computer and the same is signed by using technology like digital signature and asymmetric crypto technology or electronic signature.
- Truncated: A cheque is called to be truncated when it is truncated during a clearing cycle. It may be done either by the clearing house or by the bank which is either receiving or paying the payment. It is done immediately once an electronic image is generated for transmission as it stops the physical movement of the cheque in writing.
- Banker Cheque
A banker’s cheque is one which is drawn by a banker upon itself. These are different from the cheques which are drawn by customers. These are issued on behalf of a customer or non-customer for local transactions.
- Golden Cheque
This is a type of cheque which is issued by the State Bank of India. These have a limited value of Rs 500 for a savings account and Rs 1000 for a current account. These are for providing instant encashment facility for personal cheque.
- Travellers Cheque
Banks issue traveller cheques for facilitating a journey with money and these are not negotiable. Therefore, they are not cheques as per the definition of cheques in sec 6 of the Act.
Validity of a cheque
A cheque is valid only for a period of six months from the date when it is issued or drawn. Once this time period passes, the cheque becomes stale and a banker will return it and refuse to give payment.
In certain situations the government may issue cheques which are valid for a limited period of time like three months. In such cheques the period of validity is mentioned in the cheque. They will be returned if presented after that period of validity.
Revalidation of a stale cheque
A cheque which has become stale due to the period of expiry can be revalidated by the drawer or the issuer. By this act of revalidation the cheque becomes valid and then can be presented to the bank which will accept it.
Validity of a post dated cheque
The validity of a post dated cheque is from the date which is mentioned on the cheque than the date on which it was actually signed. The validity of a cheque starts from the date which is mentioned in the cheque.
- In the case of Ashok Yeshwant Badave v Surendra Madhavrao Nighojakar2001 3 SCC 726, it was held that the six months period has to be calculated from the date mentioned in the cheque and not from the date on which the cheque was actually signed.
- In the case of Lilly Kutty v. Lawrence 2003 (2) DCR 610, it was held that just because the payee’s name and the amount mentioned in the cheque are in a different hand writing, the bank cannot return the cheque.
- In the case of S.A. Thamotharan vs Dalmia Cements 2004 (5) CTC 84, it was held that the law does not prescribe that the body of the cheque be also written by the person who is signing the cheque.
- In the case of Mallappa Sangappa Desai vs Laxmanappa Basappa Whoti ILR 1994 KAR 2689, it was held that the Negotiable Instruments Act does not put a bar on the number of times a cheque may be presented to the bank for encashment if returned earlier if it is done within the period of six months.
Thus it can be concluded that there are various kinds of cheques which are there but the purpose of each is to facilitate the payment of money. A cheque has the objective of remitting an amount to someone or maybe to one’s self.
A cheque has a validity period of six months and needs to be resented within that time. In case a cheque is not then it will be returned and would require revalidation from the issuer or maker of the cheque.