Negotiable Instruments
Act 1881
Difference between promissory
note, bills of exchange and
cheque
Cheque
Cheque is a bill of exchange drawn upon a
specified banker and payable on demand
and it includes the electronic image of a
truncated cheque and a cheque in the
electronic form
Cheque
A truncated cheque is one which undergoes
truncation during a clearing cycle. Truncation
basically means the conversion of a physical
cheque into digital format. Either a clearing-
house or a bank may do this upon generating an
electronic image of a cheque.
Cheque
An electronic cheque is a cheque which exists in
digital format. A computer resource generates
such cheques using digital signatures (either with
or without biometrics).
Cheque
Cheque is a species of bill of exchange;
but it has the following additional
qualification
It is always drawn on a specified banker
It is always payable on demand
Parties to a Cheque
The drawer is the person who draws the
cheque,
The drawee is the banker on whom it is
drawn
A payee who is liable to pay the amount
on the cheque; a holder who is generally
the original payee
Essentials of a Cheque
They are drawn on a banker and are payable on demand.
They never require any formal acceptance.
Cheques can be payable either to the drawer himself or to
a bearer on demand. Hence, there might be two or more
parties to a cheque depending on the situation.
Cheques are usually valid only for six months.
They do not require any stamping as other negotiable
instruments do.
Distinction between a bill of
exchange and a cheque
Bill of exchange Cheque
1. Bill can be drawn on any person, 1. Cheque is always
including a banker drawn on a banker.
2. Bill must be accepted before the drawee 2. Cheque requires no
can be called upon make payment upon it acceptance
3. Bill which is not expressed to be payable 3. Cheque is not
on demand is entitled to three days of grace entitled to any days of
grace
4. Bill may be payable on demand or after 4. Cheque is always
the expiry of a certain period after date or payable on demand
sight
Distinction between a bill of
exchange and a cheque
Bill of exchange Cheque
5. Bill must be duly presented 5. Drawer of the cheque is not
for payment to the acceptor or necessarily discharged from his
else the drawer of the bill will liability by delay of the holder
be discharged from liability presenting it for payment
6. Bill may not be crossed 6. Cheque may be Crossed
7. Bill requires stamp 7. Cheques does not require stamp
8. The payment of bill cannot 8. Payment of cheque may be
be countermanded countermanded by the drawer
9. Bill may be noted or 9. Cheque is not required to be
protested for dishonour noted or protested or dishonour
Marking of Cheques
Marking is the writing on a cheque by the drawee
banker that it would be honoured when it is duly
presented for payment
The effect of marking a cheque as good by the
drawee banker is that it cannot be cancelled by
the drawer subsequently and the payee is certain
of getting the money
Marking of Cheques
Marking at the drawer’s instance – drawee banker
earmarks sufficient funds in the account to meet
the cheque
Marking at holder’s instance – it is the intimation to
the holder that at the time of marking the banker
has sufficient funds
Marking at collecting banker’s instance – to
safeguard the interest of the customer
Crossing of Cheques
Open Cheque – cheque which is payable in cash
across the counter of a bank is called an open
cheque
Closed Cheque – is one on which two parallel
transverse lines with or without the words ‘& Co’
are drawn
Payment of such cheque can be obtained only through a
banker
Crossing of Cheques
Types of Crossing
General crossing
Special crossing
(Restrictive crossing) – developed out of
business usage
Types of Crossing
General crossing – where it bears
The cheque bears across its face an addition of
two parallel transverse lines and/or the
addition of words ‘and Co.’ or ‘not negotiable’
between them
In the case of general crossing on the cheque,
the paying banker will pay money to any
banker.
Types of Crossing
Thus, in this case, the holder of the cheque or the
payee will receive the payment only through a bank
account and not over the counter.
The words ‘and Co.’ have no significance as such.
But, the words ‘not negotiable’ are significant as
they restrict the negotiability and thus, in the case
of transfer, the transferee will not give a title better
than that of a transferor.
Types of Crossing
Special crossing – In special crossing, the cheque
bears across its face an addition of the banker’s
name, with or without the words ‘not negotiable’.
In this case, the paying banker will pay the
amount of cheque only to the banker whose
name appears in the crossing or to his collecting
agent.
Types of Crossing
Thus, the paying banker will honor the
cheque only when it is ordered through the
bank mentioned in the crossing or its agent
bank.
However, in special crossing two parallel
transverse lines are not essential but the
name of the banker is most important.
Types of Crossing
Restrictive Crossing – This type of crossing
restricts the negotiability of the cheque.
Adopted by commercial and banking usage
In this type the word A/c payee are added to the
general or special crossing
Types of Crossing
It directs the collecting banker that he needs to
credit the amount of cheque only to the account
of the payee, or the party named or his agent.
However, such crossing will have no effect on the
paying banker. This is so because it is not his
duty to determine that the cheque is collected for
the account of the payee
Types of Crossing
Not negotiable crossing – It is when the words ‘Not
Negotiable’ are written between the two parallel transverse
lines across the face of the cheque in the case of general
crossing or in the case of special crossing along with the
name of a banker.
A person taking a cheque bearing a general or special
crossing with the words ‘not negotiable’ will not have and is
neither capable of giving a better title than that which the
person from whom he took it had.
