SUBJECT: - FUNDAMENTALS OF BANKING - I

BCOM SEM- I
PROFESSOR SNEHAL SUNIL DARJI
Q.1 Define Cheque. Explain Feature and Types of Cheque.
What is a Cheque ? Meaning
Cheque is an important negotiable instrument which can be transferred by mere hand delivery. Cheque is used to make
safe and convenient payment. It is less risky and the danger of loss is minimised.
Definition of a Cheque

"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."

Feature of Cheque
1. Cheque is an instrument in writing
A cheque must be in writing. It can be written in ink pen, ball point pen, typed or even printed. Oral orders are not
considered as cheques.

2. Cheque contains an unconditional order

Every cheque contains an unconditional order issued by the customer to his bank. It does not contains a request for
payment. A cheque containing conditional orders is dishonoured by the bank.

3. Cheque is drawn by a customer on his bank

A cheque is always drawn on a specific bank mentioned therein. Cheque drawn by stranger are of no meaning. Cheque
book facility is made available only to account holder who are supposed to maintain certain minimum balance in the
account.

4. Cheque must be signed by customer

A cheque must be signed by customer (Account holder) . Unsigned cheques or signed by persons other than customers
are not regarded as cheque.

5. Cheque must be payable on demand

A cheque when presented for payment must be paid on demand. If cheque is made payable after the expiry of certain
period of time then it will not be a cheque.

6. Cheque must mention exact amount to be paid

Cheque must be for money only. The amount to be paid by the banker must be certain. It must be written in words and
figures.

7. Payee must be certain to whom payment is made

The payee of the cheque should be certain whom the payment of a cheque is to be made i.e. either real person or
artificial person like joint stock company. The name of the payee must be written on the cheque or it can be made
payable to bearer.

Prof. Snehal Sunil Darji, Sheth Shree K. J. Patel BBA College, Nanikadi Page 1
8. Cheque must be duly dated by customer of bank
A cheque must be duly dated by the customer of bank. The cheque must indicate clearly the date, month and the year. A
cheque is valid for a period of three months from the date of issue.

9. Cheque has 3 parties : Drawer, Drawee & Payee

1. Drawer : A drawer is a person, who draws a cheque.
2. Drawee : A drawee is a bank on whom a cheque is drawn.
3. Payee : A payee is a person in whose favour a cheque is drawn.

Types of Cheque.

1. Order Cheque:
2. Bearer Cheque :
3. Blank Cheque:
4. Counter cheque:
5. Stale Cheque:
6. Multilated Cheque:
7. Post Dated Cheque:
8. Open Cheque:
9. Crossed Cheque
10. Gift Cheques
11. Traveller’s Cheques:
12. Self cheques:
13. Bankers Cheque:
14. Outstanding cheque:

1. Order Cheque:
❖ A cheque which is payable to a particular person or his order is called an order cheque.
❖ This is a cheque whereby the printed word “Bearer” on the cheque is cancelled. The cancellation of the word
“Bearer” automatically makes the cheque an “order” cheque.
❖ An order cheque can be paid to the named payee across the bank’s account if so presented.
❖ Identification must be insisted on by the bank when encashing the order cheque for the presenter. The ID
number and the named payee’s signature will be asked for on the back of the cheque.

2. Bearer Cheque :

❖ A cheque which is payable to a person whosoever bears, is called bearer cheque.

❖ The cheque sometimes can be made payable to “Cash” or bearer or made payable to a specific name, for
example, “bujji sekhar or Bearer”.
❖ This cheque is payable by the drawee bank over the counter to the Bearer or presenter of the cheque.
❖ A Bearer cheque can be negotiated or pass to another person by mere delivery. In other words, the holder (or
the Transferer), when giving it to another person need not endorse the cheque.
Prof. Snehal Sunil Darji, Sheth Shree K. J. Patel BBA College, Nanikadi Page 2
 ❖ No identification is needed when a bearer cheque is presented for encashment. However, in normal banking
practice, where the amount of the cheque is substantial, the identity of the encasher is insisted on.
❖ A bearer cheque can be collected by the bank for the credit of anyone’s account
❖ In banking practice, the need for the encasher’s signature on the back of the cheque is merely to evidence that
the encasher has received the money from the bank.

3. Blank Cheque:

❖ A cheque on which the drawer puts his signature and leaves all other columns blank is called a blank cheque.
❖ A check that is signed by the payer but with no specific amount indicated, leaving this determination up to the
drawee.
❖ More generally, a term used for any situation in which an usually high level of trust is afforded by one party to
another.
❖ “ My wife must have a high level of trust for her sister, because when she asked to borrow some money my
wife gave her a blank check. ”

4. Counter cheque:

❖ Blank cheque was also commonly used as a synonym for counter cheque. requiring that cheque be MICR
encoded in order to be handled by their clearing houses, it was fairly common for banks, especially in small
towns, to issue cheque to customers which were not personalized other than the name of the bank.
❖ Businesses would have pads of counter cheque which did not even have the bank specified on them – the
customer had to not only fill in the value of the cheque, the date, and their signature, but also had to designate
the bank on which funds were to be drawn.

5. Stale Cheque:

❖ Check presented at the paying bank after a certain period (typically six months) of its payment date. A stale
check is not an invalid check, but it may be deemed an ‘irregular’ bill of exchange. A bank may refuse to
honor it unless its drawer reconfirms it payment either by inserting a new payment date or by issuing a new
check. Also called stale dated check.
❖ *NOW __The cheque which is more than three months old is a stale cheque.
❖ Eg. If Mr.CooL issues cheque to Miss. Bujji, if Mr. CooL has issued cheque from his SBI A/c then SBI is a
drawee bank.
❖ The banking regulation Act has not define specific period after which the instrument (cheque) becomes stale.
Some of the banks write specific instruction on the cheque where the validity period is mentioned. In such case
the cheque will become stale after expiry of the period from the date of issue (date on the instrument)

6. Multilated Cheque:

❖ If a cheque is torn into two or more pieces such cheque is Mutilated Cheque. If it presented for payment, such
a cheque the bank will not make payment against such a cheque without getting confirmation of the drawer.
In case, if a cheque is torn at the corners and no material fact is erased or cancelled, the bank may make
payment against such a cheque.

Prof. Snehal Sunil Darji, Sheth Shree K. J. Patel BBA College, Nanikadi Page 3
 ❖ If the payee is clear, signature and the MICR line intact – they can process it. There are sealable plastic carriers
used to put such cheques through the high speed transports used in Clearing.

7.Post Dated Cheque:

❖ If a cheque bears a date later than the date of issue, it is termed as post dated cheque.
❖ Any check or draft that has a future date written upon it by the user. The amount of the check will not be
drawn from the account until the date written on the check. For example, a check written on the 14th of the
month but dated for the 28th will not be cashed for another two weeks.

8.Open Cheque:

❖ A cheque that is not a crossed cheque. The person whose name appears on the cheque can write the name of
another person on it, and the money will be paid to them.
❖ An open cheque is a cheque that is not crossed on the left corner and payable at the drawee bank on
presentation of the cheque.
❖ The words ‘OPEN’ should not be struck off and the person issuing the cheque should sign on the reverse of
the cheque also before giving it to another person; otherwise the bank may refuse payment. The latter can
collect the money from any branch of the bank nowadays, depending on the bank. S/he should also sign at the
back of the cheque while receiving the amount.

9.Crossed Cheque

❖ A crossed cheque is one which has two short parallel lines marked across its face.
❖ A cheque which carries too parallel transverse lines across the face of the cheque with or without the words “I
and co”, is said to be crossed.
❖ Crossed cheques are of two types. By simply crossing a cheque or with the words ” & Co”, by the payer, the
payee can either deposit it in his/her account or endorse it in favour of another person on the reverse. This
practice is nowadays not accepted by the banks.
❖ The advantage of crossing is that it reduces the danger of unauthorised persons getting possession of a cheque
and cashing it. A crossed cheque can only be cashed through a bank of which the payee of the cheque is a
customer.
❖ A cheque crossed generally will be paid to any bank through which it is presented.
❖ A cheque crossed specially will be paid only when it is presented for collection by the bank named between
the parallel lines. Such crossing affords a greater measure of protection against loss.

10. Gift Cheques

❖ Gift cheque, it is a cheque forirted in decorative form issued for a small extra charge by the banks for use by
customers who wish to give presents of money on special occasions.
❖ Gift cheques may be purchased in unlimited numbers from every branch of the ‘X’ Bank.
❖ Gift cheques may be used to give presents of money as
• Birthday Gift
• Wedding Gift
• Honour Gift

Prof. Snehal Sunil Darji, Sheth Shree K. J. Patel BBA College, Nanikadi Page 4
 • EASI SMART Gift
❖ Gift cheques are used for offering presentations on occasions like birthday, weddings and such other
situations. It is available in various denominations.

Features and Benefits

• Convenient
• Pre-denominated
• Elegant – Improve promotional impact with packaging customization and personalization options
• Flexible – Provide redemption flexibility by offering the reward with no expiration date
• Replaceable – Protect your investment and offer Reward Earners increased security and peace of mind with
lost and stolen Cheque protection
• Simple – Order and administer rewards easily for timely reinforcement
• Reliable – Feel at ease with the American Express brand name — it conveys reliability, security and prestige

11.Traveller’s Cheques:

It is an instrument issued by a bank for remittance of money from one place to another.

Travelers Cheques are accepted almost everywhere and are available in many denominations. Plus, the no-expiration
feature allows you to cash in leftover cheques or retain them for the next time you travel.

BENEFITS

• Convenience : Easy to use. Secured to protect your money when on the move.
• Choice : Available in United States Dollars (USD), Great Britain Pounds (GBP), EURO, Japanese Yen (JPY),
Australian Dollars (AUD) and Canadian dollars (CAD).
• Acceptance : Accepted worldwide in over 400,000 locations spread across 200 countries. TCs can be encashed
or used at Exchange bureaus, Banks, Hotels Shops, Restaurants and other establishments.
• Security : Signature based security. If your cheques are lost or stolen, the 24 hour Call Centre is just a phone
call away. Replacement of lost TCs is attended to on priority across the world.
• Buy-Back : When you return back to India, you can encash any unused TCs issued by us, at any of the Axis
Bank Branches.
• Expiry : Valid forever! You can save any unused Travellers Cheques for future trips.

12. Self cheques:

❖ A self cheque is written by the account holder as pay self to receive the money in the physical form from the
branch where he holds his account.
❖ If your friend wants to pay YOU the amount of 10000/-, he/she should have written YOUR NAME in the
space provided for PAYEE on the cheque. If he/she has written SELF in that area, it is supposed to be used by
him (or the bearer as written on the cheque) and whoever possess that cheque can go to the same branch and
bank of the account holder to cash the cheque.

Prof. Snehal Sunil Darji, Sheth Shree K. J. Patel BBA College, Nanikadi Page 5
 ❖ Some banks may honour cheques in their other branches than the account holder branch. However, this cannot
be encashed in any other BANK.
❖ You can either encash it by visitng the bank and the branch of your friend’s account or should return or tear
this cheque off (If lost, the person who finds it can get it cashed from the bank and branch mentioned on the
cheque) and ask for another cheque in your name that you can deposit in your account.

13. Bankers Cheque:

❖ The banker’s cheque is an instrument issued by the bank on behalf of customer containing an order to pay a
certain sum to a specified person within the city. The validity period of the Banker’s cheque is 3 months,
however it can be re-validated subject to some legal formalities.
❖ In Banker’s cheque the chances of dishonor is not possible because it is always prepaid. It is always pre-
printed with the words ‘not negotiable’ which means it cannot be further negotiated.
❖ Banker’s Cheque or Payment Order is a cheque issued for making payments within the same city.
❖ Banker’s cheque is valid up to 3 months from the date of issue.
❖ All banker’s cheque are pre-printed with “NOT NEGOTIABLE”.
❖ It can be cleared in any branch of the same city.

14. Outstanding cheque:

A cheque which has been written and therefore has been entered in the company’s ledgers, but which has not been
presented for payment and so has not been debited from the company’s bank account

Q.2 what is crossing of Cheque?

A cheque is a negotiable instrument. During the process of circulation, a cheque may be lost, stolen or the signature of
payee may be done by some other person for endorsing it. Under these circumstances the cheque may go into wrong
hands.

Crossing is a popular device for protecting the drawer and payee of a cheque. Both bearer and order cheques can be
crossed. Crossing prevents fraud and wrong payments. Crossing of a cheque means "Drawing Two Parallel Lines"
across the face of the cheque. Thus, crossing is necessary in order to have safety. Crossed cheques must de presented
through the bank only because they are not paid at the counter.

Different Types of Crossing

1. General Crossing :-

Generally, cheques are crossed when

1. There are two transverse parallel lines, marked across its face or
2. The cheque bears an abbreviation "& Co. "between the two parallel lines or
3. The cheque bears the words "Not Negotiable" between the two parallel lines or
4. The cheque bears the words "A/c. Payee" between the two parallel lines.

A crossed cheque can be made bearer cheque by cancelling the crossing and writing that the crossing is cancelled and
affixing the full signature of drawer.

Prof. Snehal Sunil Darji, Sheth Shree K. J. Patel BBA College, Nanikadi Page 6
Specimen of General Crossing ↓

2. Special or Restrictive Crossing :-

When a particular bank's name is written in between the two parallel lines the cheque is said to be specially crossed.

Specimen of Special or Restrictive Crossing ↓

In addition to the word bank, the words "A/c. Payee Only", "Not Negotiable" may also be written. The payment of
such cheque is not made unless the bank named in crossing is presenting the cheque. The effect of special crossing is
that the bank makes payment only to the banker whose name is written in the crossing. Specially crossed cheques are
more safe than a generally crossed cheques.

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