This document summarizes a seminar on cheques given by five students. It defines a cheque, outlines the essential features of a valid cheque, and describes the different types of cheques. It also discusses endorsement of cheques, the roles and responsibilities of a paying banker and collecting banker, circumstances for dishonoring a cheque, and the protections provided to paying and collecting bankers under Indian law.

1. Seminar by:
• Adithya BR
• Balakrishna Kini
• Dhanush Urs
• Ganesh Kuruvadi
• Iliyaz Ahamed
2nd Sem B.Com ‘C’, SBRR MFGC, Mysore.
03/04/2013

2.  Meaning & Definition
 Specimen of Cheque
 Essentials of a Cheque
 Types of Cheques
 Endorsement of Cheques
 As a Paying Banker
 Dishonour of Cheques
 As a Collecting Banker

3.  Section 6 defines a cheque as “A bill of
exchange drawn on a specified banker and
not expressed to be payable otherwise
than on demand and it includes the
electronic image of a truncated cheque
and a cheque in the electronic form”.

4.  Thus a cheque is also a bill of exchange with three
additional qualifications:
(a) It is always drawn on a specified banker.
(b) It is always payable on demand.
(c) It includes the electronic image of a truncated
cheque and also a cheque in electronic form.
In other words, "Cheque is an instrument in
writing containing an unconditional order,
addressed to a banker, sign by the person who
has deposited money with the banker, requiring
him to pay on demand a certain sum of money
only to or to the order of certain person or to the
bearer of instrument."

6. The essential features of a cheque are:
1. A Cheque must be in writing. The writing may be by
means of a pen, a type-writer, printed characters, ball-
pen or even pencil because law has not specified the
writing materials with which a cheque has to be written.
2. Cheques must be in form of a order and not in form of a
request.
3. The order must be unconditional. If any condition is
attached with the order, the cheque will lose its legality.
4. The Amount demanded must be for certain amount in
money and not in kind.
5. The payment must be made to a certain person, bearer
or self.
6. It must be drawn on a banker.
7. It must be signed by the account holder.

7. Different types of cheques are:
 Bearer Cheque
 Order Cheque
 Uncrossed/Open Cheque
 Crossed Cheque
 Anti-Dated Cheque
 Post-Dated Cheque
 Stale Cheque

8.  1. Bearer Cheque
When the words "or bearer" appearing on the
face of the cheque are not cancelled, the
cheque is called a bearer cheque. The bearer
cheque is payable to the person specified
therein or to any other else who presents it to
the bank for payment. However, such cheques
are risky, this is because if such cheques are
lost, the finder of the cheque can collect
payment from the bank.

9.  2. Order Cheque
When the word "bearer" appearing on the face
of a cheque is cancelled and when in its place
the word "or order" is written on the face of
the cheque, the cheque is called an order
cheque. Such a cheque is payable to the
person specified therein as the payee, or to
any one else to whom it is endorsed
(transferred).

10.  3. Uncrossed / Open Cheque
When a cheque is not crossed, it is known as
an "Open Cheque" or an "Uncrossed Cheque".
The payment of such a cheque can be obtained
at the counter of the bank. An open cheque
may be a bearer cheque or an order one.

11.  4. Crossed Cheque
Crossing of cheque means drawing two parallel
lines on the face of the cheque with or without
additional words like "& CO." or "Account
Payee" or "Not Negotiable". A crossed cheque
cannot be encashed at the cash counter of a
bank but it can only be credited to the payee's
account.

12.  5. Anti-Dated Cheque
If a cheque bears a date earlier than the date
on which it is presented to the bank, it is
called as "anti-dated cheque". Such a cheque is
valid upto three months from the date of the
cheque.

13.  6. Post-Dated Cheque
If a cheque bears a date which is yet to come
(future date) then it is known as post-dated
cheque. A post dated cheque cannot be
honoured earlier than the date on the cheque.
 7. Stale Cheque
If a cheque is presented for payment after six
months from the date of the cheque it is called
stale cheque. A stale cheque is not honoured
by the bank.

14.  Endorsement of a cheque means sisgning
one’s name either on the back of a cheque or
on its face or on a slip of paper called the
allonge for the purpose of transferring the
interest, right, property or title in the
cheque to another person. The person who
endorse the cheque is called the endorser of
the cheque. The person to whom the cheque
is endorsed is called the endorsee of the
cheque.

15. Kinds of endorsement:
 Blank Endorsement or General Endorsement
 Full endorsement or Special Endorsement
 Restrictive Endorsement
 Sans Recource Endorsement
 Conditional Endorsement or qualified
Endorsement
 Faculative Endorsement
 Sans Frais Endorsement

16.  Blank Endorsement
It is an endorsement in which the endorser merely
signs his name on the back of the instrument
without mentioning the name on the back of the
instrument without mentioning the name of the
person to whom the instrument is endorsed.
 Special Enorsement
It is an endorsement in which the endorser writes
not only his name, but also the name of the person
to whom the instrument is endorsed on the back of
the instrument.

17.  Restrictive Enorsement
A restrictive endorsement is one which, limits
the further negotiation of an instrument. The
endorsee in such cases, cannot further endorse
it. Generally, the word ‘only’ is added after
the endorsee’s name.
 Sans Recourse Endorsement
It is an endorsement which limits the liability
of the endorser. The effect of this
endorsement is, to render the endorser free
from all liability to any subsequent holder.

18.  Conditional Endorsement
It is an endorsement in which the endorser makes
his liability on the instrument or the right of the
endorsee to receive the payment of the instrument
depend upon the happening of a specified event.
 Faculative Endorsement
It is an endorsement whereby , the endorser
waives some of his rights on the instrument.
 Sans Frais Endorsement
It is an endorsement in which by writing the words
“Sans Frais”, the endorser makes it clear that no
one should incur any expense on his account in
respect of the negotiable instrument.

19.  Meaning:
The banker on whom the cheque Is drawn or
the banker who is required to pay the cheque
drawn on him by a customer is called the
Paying Banker or Drawee Banker.

20.  Precautions to be taken by a paying banker:
1. He should see that the cheque is drawn in
proper form and satisfies all the requirements
of a valid cheque.
2. He Should verify whether the cheque is dated
or not.
3. He should satisfy himself that the amount
payable is certain.
4. He should see whether there is sufficient
amount in the bank account.
5. The banker should see whether the cheque is
signed by the drawer.

21. 6. The banker should see whether the cheque
is drawn on the same branch of the bank in
which the drawer has his account.
7. When a cheque is presented to him at the
counter, the paying banker must verify
whether it is an open (i.e., Uncrossed
Cheque or Crossed Cheque).
8. The Banker should see whether there is any
material alteration in the cheque.
9. When a cheque presented for payment is
mutilated, he should check whether it is
intentional or accidental.

22.  The paying banker is given some statutory
protection in respect of risks or difficulties
faced by him.
 The protection to the paying banker is laid
down in Section 85(1), 16(2), 85(2), 85A,
89 and 128 of the Indian Negotiable
Instruments Act of 1881.

23.  Protection in respect of an Order Cheque Bearing Forged Endorsement of
the Payee.
(1) The endorsement of the payee must be regular or correct.
(2) The payment must be a payment in due course.
 Protection in respect of an Order Cheque Bearing Forged Endorsement of
the Endorsee:
(1)The endorsement of the endorsee must be regular or correct, but
not necessarily be genuine.
(2)The payment must be a payment in due course.
 Protection in respect of a Bearer Cheque.
(1)There is nothing to arouse suspicion about the bearer of the cheque.
(2)The payment is made to the bearer in due course.
 Protection in respect of an Order Draft Bearing Forged Endorsement.
(1) The endorsement on the draft must be regular or correct.
(2) The payment must be a payment in due course.

24.  A cheque is said to be dishonoured when it
is not paid by the paying banker on
presentation.
Circumstances under which a customer’s Cheque can
be Dishonoured:
1. When the cheque is a conditional one, the paying banker can
dishonour that cheque.
2. When the customer countermands the payment of any cheque,
the banker must refuse to make the payment for that cheque.
3. When the banker receives a notice from the holder about the
loss of the cheque, he cannot ignore that notice and make the
payment.

25. 4. On receipt of a notice of the drawer’s death, the banker must
stop the payment of cheques issued by the drawer. This is
because the order of the drawer to the banker to pay any
cheque ceases to operate after his death.
5. When the banker receives a notice of the drawer’s insolvency, he
must dishonour the cheque issued by the customer. This is
because after a customer is declared insolvent, his properties,
including his bank balance, vest in the official assignee or
official receiver, as the case may be.
6. When a garnishee order is served on the banker by a court
attaching the customer’s funds, the banker is bound to comply
with the garnishee order.
7. If the bank account is a trust account and if the banker comes to
know that the customer, who is operating the trust account,
intends to use the funds in the trust account in breach of trust
for his personal use, the banker must stop payment for the
cheques issued by the said customer or trustee.

26. 8. If a cheque is presented for payment after the customer’s account is
closed, the banker must refuse payment for a cheque.
9. When a cheque is not signed by the drawer, the banker must not
make the payment for such a cheque.
10. When a crossed cheque is presented at the counter for payment, the
banker must not make the payment for that cheque.
11. If the drawer is a foreigner, and if there is an outbreak of war with
the drawers’s, country, the banker must refuse payment for the
cheques issued by that customer during the time of war.
12. When the funds to the credit of a drawer are insufficient to meet
the cheque issued by him, the banker may refuse payment.
13. When the drawer’s signature on the cheque differs from his
specimen signature, the banker may refuse payment for the same.
14. When a cheque is undated, the banker may refuse payment.
15. Where a cheque bears an incomplete date, the banker may refuse
payment.

27. 16. Where a cheque bears an incomplete date, payment may be refused
by the banker.
17. If a cheque has become stale, payment may be refused.
18. If a cheque is presented for payment outside banking hours,
payment may be refused.
19. When the endorsement of the payee or the endorsee on a cheque is
irregular, the banker may refuse payment.
20. If the amount of the cheque stated in words differs from the amount
stated in figures, the banker may refuse payment.
21. If the amount of a a cheque is stated only in figures, payment may
be refused.
22. If a cheque is not drawn in proper form, the banker may refuse
payment.
23. If the cheque is ambiguous, i.e., not clearly written, payment may
be refused.
24. If a cheque bears any material alteration, the banker may refuse the
payment.

28.  N.S (Not Sufficient): The answer means that the funds to the credit
of the drawer are not sufficient to meet the cheque.
 N.F (No Funds): This anwer means that there are no funds in the
drawer’s account to pay the cheque.
 N.A.F (Not Arranged For): This answer means that the cheque has
been drawn against an overdraft which has not been arranged.
 E.A (Exceeds Arrangement): This answer means that the payment of
the cheque would result in the overdraft exceeding the limit
sanctioned.
 D.R (Discharge Required): This means that endorsement is required.
 D.D (Drawer Deceased)
 Drawer Insolvent
 Drawer Insane
 No Account
 Account Closed

29.  Cheque irregularly drawn
 Cheque is post dated
 Cheque is stale or out of date
 Cheque is mutilated
 Payment stopped under court order
 Drawer’s signature differs
 Alteration requires drawer’s signature

30.  The collecting banker is the banker who collects cheques drawn
upon other bankers for and on behalf of his customers. He is
called the collecting banker, as he undertakes the work of
collection of cheques.
Procedure Followed in collection of cheques:
First, he recieves from his customer the cheque which is required to be
collected.
Then, he presents that cheque to the drawee or paying banker either
through clearing or thrrough post for payment.
If the cheque presented to the paying banker is honoured or realised, he
credits the amount realised to his customer’s account, and informs the
customer about it.
If the checque is dishonoured, he gives notice to his customer about the
dishonour of the cheque.

31. Legal Status of a collecting banker:
 Collecting Banker as a Holder for Value:
A Collecting banker becomes a holder for value, if he has paid
the value of the cheque to the customer before the cheque is
actually collected. In other words, a collecting banker becomes
a holder for value, when he collects his customer’s cheque for
himself, and not for the customer.
 Collecting Banker as an Agent of His Customer:
A Collecting banker collects a cheque as an agent of his
customer, he has no rights of his own. His rights or tilte to the
cheque will be the same as that of the customer. If his customer
has a good title to the cheque, he too will have a good title to
the cheque.

32.  The protection to the collecting banker is laid down in Sections 131
& 131A of the Indian Negotiable Instruments Act of 1881.
 The Section 131 states:
“A banker who has in good faith and without negligence, received
payment for a customer, of a cheque crossed generally or specially
to himself, shall not, in case the tilte to the cheque proves
defective, incur any liability to the true owner of the cheque by
reason only of having received such payment.”
It means, “A banker recieves payment of a crossed cheque for a
customer within the meaning of this section not withstanding that he
credits his customer’s account with the amount of the cheque before
receiving the payment thereof”.

33.  The protection given under section 131 can be claimed by
the collecting banker only if the following conditions are
satisfied:
1. This protection is available only for a crossed cheque. No
protection is granted for an open or uncrossed cheque, as
it need not be collected through a banker.
2. This protection can be claimed only for that cheque
which has been crossed before it reaches the collecting
banker.
3. This protection can be claimed only when the collecting
banker has collected the cheque as an agent for his
customer
4. This protection can be claimed only if the collecting
banker has collected the cheque in good faith and
without negligence.

34.  Protection in respect of Bank Drafts:
Section 131A of the Negotiable Instruments Act of 1981 gives protection to the
collecting banker in respect of a draft, bearing a forged endorsement or in
respect of a draft to which the customer has no title or defective title. The
protection given under Section 131A can be claimed by the banker only if all the
conditions laid down in section 131 are satisfied.
 Protection is respect of Bills of Exchange:
The statutory protection given to a collecting banker in respect of cheques and
bank drafts under Section 131 and 131A of the Negotiable Instruments Act, 1881 is
not extended to the bills of exchange. The reason for this is simple. Unlike
cheques and bank drafts, bills of exchange are not crossed. As bills of exchange
are not crossed, there isno obligation on the part of a collecting banker to
undertake the work of collection of bills on behalf of customers. As the the
collecting banker is not charged with the responsibility of collecting bills for
customers, he is not given the statutory protection provided under the Act.

35.  We would like to thank our lecturer Mr Karun
Sharma for the guidance and support!
The soft copy of this presentation is available
at www.chintana.in/btpnotes.

36.  We would like to use this oppurtunity to
convey social message.
“If you are eligible, Please Cast your
vote in the elections!”