- Definition of Cheque
- Difference between cheque and Bill of Exchange
- Difference between cheque and Promissory Notes
- Case Law
The Negotiable Instruments Act, 1881 (hereinafter referred to as the Act) is an act which deals with promissory notes, bill of exchange and cheques. It provides the definition of these terms and also prescribes the general guidelines revolving around them.
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.
The cheque if is account payee, then will have to be deposited in the bank of the person in whose name the cheque has been made. The bank will cheque the details and when the cheques gets cleared deposits the money in the account of the person in whose name the cheque was issued.
Definition of Cheque
Sec 6 of the Act 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.
An explanation has also been provided to shed light on a truncated cheque and a cheque in electronic form which states that:
- 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 a digital signature and asymmetric crypto technology or electronic signature.
- 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.
Features of a Cheque
The basic features of a cheque are:
- It should fulfil the essential requisites of a bill of exchange;
- It must be payable either to the bearer or to order and it shall be payable on demand;
- It shall contain the signature of the drawer;
- It shall be dated;
- An undated cheque must not be cleared for payment;
- A cheque becomes payable from the date mentioned on the cheque;
- A post dated cheque is considered valid however, it becomes payable only when the specified date is reached;
- It shall make an unconditional order to the specific banker for making the payment of the amount mentioned;
- The amount which is asked to be paid through a cheque may be paid to the particular individual or to the bearer of a cheque or to the order of a individual;
- It is intended for payment which is to happen immediately and it requires no acceptance in the ordinary course of business;
- If a cheque completes all the requisites of being a valid cheque then it is the duty of the banker to pay the amount mentioned in the cheque if the drawer has sufficient funds to his credit in his bank account;
- The cheque must be presented to the banker in the official hours and the banker has to pay the amount only on being presented with the cheque;
- The signature of the drawer must match with the signature of the drawer maintained in the bank records;
- Generally a cheque is valid for six months from the date specified on it and it cannot be accepted once the period of six months is over from the date specified;
- Some cheques issued by the Central Government may be valid for only three months from the date of issue and the date of validity is mentioned on the cheque;
- In a cheque, the drawee is always the bank, drawer is a person who draws the cheque and is having a bank account in the drawee bank. Payee is the person who is paid by way of the cheque.
Example of a cheque
Pay to________________________________or bearer
Sum of Rupees____________________
Adress of bank__________
Difference between Cheque and Bill of Exchange
As mentioned earlier, a cheque is defined under sec 6 of the Act whereas sec 5 of the Act defines a bill of exchange.
Sec 5 of the act contemplates that a bill of exchange is an instrument which is in writing and has an unconditional order that is signed by the person making the bill of exchange. This instrument directs a particular person to pay an amount which is mentioned in the bill of exchange to the maker of the instrument or to the bearer of the instrument.
The general difference between a cheque and a bill of exchange are:-
|Cheque||Bills of Exchange|
|A cheque is drawn on a banker||It may be drawn on a bank or a person|
|Not drawn in sets||It is drawn in sets|
|A cheque is payable on demand||It may or may not be payable on demand. It can also be payable after a fixed period of time|
|A cheque can also be issued for payment to bearer on demand||A bill of exchange cannot be issued for payment to bearer on demand. Bills of this kind can be issued by the Reserve bank of India and by the Government.|
|Cheques are printed in form||Bills are not printed in form|
|A cheque does not require the acceptance of the drawee bank||A bill requires an acceptance from the issuer before payment|
|A cheque can be used for payment from the date of issue||A bill becomes mature for payment as per the rules of maturity|
|A Cheque does not require any stamping||A bill of exchange requires stamping as it makes it authentic|
|A cheque may be crossed||Bill of Exchange except bank drafts cannot be crossed|
|If a cheque gets dishonoured then this amounts to a offene which is penal||Dishonour of a bill does not amount to an offence|
|If the drawer dies or becomes insane then the payment of cheque is stopped||If the maker of Bill dies then the legal heirs become liable for payment|
|Can be issued as payable to bearer on demand||A bill cannot be issued as payable to bearer on demand|
|Signature can happen via digital signature||Signature cannot happen with digital signature|
|Cheque can be presented again if dishonoured||Bill can be presented only once|
|Cheques can be issued for a later date||Bills cannot be issued for a later date|
|Cheque is generally valid for six months||No such validity of bill of exchange|
|Cheque can be in electronic form or be truncated||A bill cannot be like any of them|
Difference between Cheque and Promissory Note
As we have seen the definition of a cheque and also the difference between a cheque and a bill of exchange it becomes pertinent to understand what a promissory note is.
As per Sec 4 of the Act a promissory note is an instrument which is in writing and signed by the maker and contains an undertaking which is unconditional and asks to pay an amount of money to the order of a certain person or to the bearer of the instrument. This does not include a bank note or a currency note.
- A is indebted to B for Rs 500, so A writes an instrument wherein he mentions this in writing like “I acknowledge that I have to pay B a sum of Rs 500”. There is no condition attached in this.
- A is indebted to B for Rs 500, so A writes an instrument wherein he mentions this in writing like “I acknowledge that I have to pay B a sum of Rs 500 and I will do the same after India wins the cricket world cup”. This is not a promissory note since there is a condition attached in this.
The general difference between a cheque and a bill of exchange are:-
|There are three parties involved in this. Namely the drawer, drawee and payee||Only two parties involved. Namely maker and payee|
|Chques are issued by the customer upon a bank||Issued by debtor to creditor|
|Cheque is an order to pay||Promissory Note is a promise to pay|
|A cheque is to be paid on demand|
|A cheque can be crossed||There is concept of being crossed|
|Maturity related provisions of the act do not apply on a cheque||Maturity related provisions of the act apply on Promissory Note|
|Every bank has its own form of cheque||A Promissory Note has no defined form|
|A cheque requires no stamping||A note must be stamped|
|Drawing of a cheque from an account which has insufficient funds is an offence||No such penal offence|
|Discounting of cheques does not happen||A Promissory Note is discounted|
|A cheque remains valid for six months from the date of issue||No such limit or provision for validity|
|If the drawer of cheque dies or becomes insane then the cheque is stopped.||The legal heirs of the person who executed the Promissory Note become liable for the amount.|
- In the case of Ashok Yeshwant Badave v. Surendra Madhavrao Nighojakar 2001 3 SCC 726, it was held that a cheque is also a bill of exchange. If it is not payable on demand it is not a cheque. It was further held that a post dated cheque does not become payable till the date mentioned on the cheque arrives.
- In the case of Jiwanlal Achariya v. rameshwarlal AIR 1967 SC 1118, it was held that if a cheque is not treated as an unconditional payment then it can only be treated as a conditional one.
- In the case of Shirish Suresh Welling v. Sangeeta Avinash Marathe (2001) 2 BOMLR 99, it was held that a promissory note cannot be treated like a cheque and a cheque is different from promissory note.
- In the case of BPDL Investments P. Ltd. v. Maple Leaf Trading International 129 (2006) DLT 94, it was held that if there are material alterations in a cheque then it will become void.
Thus it can be concluded that cheques are instruments which can be used to make a payment to a person or can also be used to draw money from the bank in which a person is holding an account.
There are certain requisites which need to be complete for a cheque to be successfully used. It must contain the amount of money, date, signature of the person who is issuing the cheque and name of person to whom it is being made.
A cheque remains valid for a period of six months from the date it is issued and cannot be used before the date which is mentioned in the cheque. A cheque if it gets dishonoured meaning thereby that it is returned because the amount in the accounts of the person who issued the cheque were insufficient can be again presented for clearing.
However, such an act will land the person in trouble since this constitutes a penal offence and a person can be tried in a court of law.