Sunday, November 23, 2014

Negotiable Instruments Act: Cheque and Its features, Cheque vs. Bills of Exchange

Cheque and its essentials:
A Cheque is a special type of Bill of Exchange. It is drawn on banker and is required to be made payable on demand. A “cheque” is defines as “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.” [Section 6]
‘Cheque’ includes electronic image of a truncated cheque and a cheque in electronic form. The definition is amended by Amendment Act, 2002, making provision for electronic submission and clearance of cheque. The cheque is one form of Bill of Exchange. It is addressed to Banker. It cannot be made payable after some days. It must be made payable ‘on demand’.

The essentials of a Cheque are:-
a.       Essentials of Bill of Exchange:  As a cheque is a bill of exchange, it must contain the essentials of a bill of exchange. In addition there are few more essentials as below.
b.      Drawn on a specified banker:  The drawee in case of a cheque is always a specified banker.

c.       Payable on demand: The cheque is always payable on demand.
d.      No Stamp:  A Cheque does not require a stamp.
e.      Acceptance:  No acceptance is necessary by the draw before the demand for payment.
f.        Payable to bearer:  A cheque can be made payable to bearer.

When a banker is justified in dishonouring the cheque?
The banker is justified in dishonouring the customer’s cheques in the following cases:-
a)      The signature of the drawer on the cheque does not match with the specimen signature in the records of the Bank.
b)      Funds are not properly applicable to the payment of cheque. For e.g. Funds are subject to lien, or banker is entitled to set-off.
c)       Customer becomes insolvent.
d)      Death, lunacy or insolvency of the customer and the banker has notice of the same.
e)      Cheque presented beyond a period of 6 months from the date of issue.
f)       If the banker is not holding sufficient funds of the drawer, unless the banker has agreed to honour the cheque without sufficient funds.
g)      If the customer countermands payment and communicates the same to the bank properly.
h)      Holder gives notice to the banker of loss of cheque.
i)        If the cheque is not presented within the usual banking hours.
j)        Where the cheque is drawn on another branch office of the same bank where the customer does not have an account.

k)      Where a garnishee order has been issued by the Court attaching customer’s balance. 

Difference between cheque and bills of exchange:
Basis
Cheque
Bills of Exchange
Drawee
A cheque is always drawn on a bank or banker.
A bill of exchange can be drawn on any person including a banker.

Acceptance
A cheque does not require any acceptance.
A bill must be accepted before the Drawee can be made liable upon it.
Payment
A cheque is payable immediately on demand without any days of grace.
A bill of exchange is normally entitled to three days of grace unless it is payable on demand.

Stamp
A cheque does not require any stamp.

A bill of exchange must be stamped.
Protection
A banker is given statutory protection with regard to payment of cheques in certain circumstances.
No such protection is available to the Drawee or acceptor of a bill of exchange.

Crossing
A cheque may be crossed.
Bill can never be crossed.
Presentment
If not presented to the banker for payment, it does not discharge the drawer unless he suffers injury or damages.
Drawer is discharged, if bill is not presented for payment to the acceptor.

 Noting and Protesting
A cheque is not required to be noted or protested for dishonour.
A bill of exchange may be noted or protested for dishonour.

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