An unconditional order in writing made to the bank to make payment of specified amount to the bearer or specified person and/or institution mentioned in it. It is issued by the account holder and is presented to the Bank for payment. Once a cheque is issued, it is valid for a time period as mentioned in ‘Negotiable Instrument Act’ or the validity period mentioned in the cheque leaf itself from the date of its issuance. Cheque is a type of negotiable instrument.
Contents of cheque
Following are major contents of cheque that make the instrument valid for transaction.
i. Name of the drawee Bank and branch
ii. Date of issuance
iii. Cheque number
iv. Account title and account number
v. Payee
vi. Amount in figures and words
vii. Signature of the drawer (accountholder)/operator
viii. Crossing, if any.
Parties of a Cheque
A) Drawer:
The drawer is the person whose signature appears on the cheque. In other words, the drawer is the debtor who writes a cheque and instructs his or her bank to pay somebody on demand. His/her signature on the cheque authorizes his/her banker to make the payment. The Drawer is the account holder who maintains a current or saving (CASA) bank account.
B) Drawee:
The drawee of a cheque is the banker. This is the bank on which the cheque is drawn. This means that all the time, the drawee is the bank in which the drawer maintains a current or saving account. The name of the bank is always printed on the cheque. For example, Siddhartha Bank etc.
C) Payee:
The last but not least party to a cheque is the payee. As the name implies, the payee is the person who is being paid by the bank. The payee is the person who the drawer orders his banker to pay on demand.
NOTE: There are certain times where the drawer can be the same person as the payee. This happens when the drawer of a check makes a check payable to himself/herself.
Types of Cheque
a. Bearer Cheque
It is a valid cheque for which payment can be made to the bearer of the cheque upon its presentation at the counters of the bank. The bearer may not necessarily be the payee mentioned in the cheque or a client of the bank for encashing the cheque.
b. Order Cheque
A cheque which is issued as payable to a named person with the words ‘or order’ after the payee’s name, showing that he or she can endorse it and pass it to someone else as desired. It is a valid cheque in which name of the payee is explicitly mentioned. Order Cheque endorsed by the maker but not by the payee does not become payable to bearer. Bank should be satisfied with the endorsement of the payee mentioned in the cheque in order to accept order cheques. A bearer cheque becomes order cheque when the word “or Bearer” is cancelled and/or the word “order” is written in the cheque.
c. Crossed Cheque
A cheque with two parallel lines across its face, normally at top left corner of the cheque, to specify that the cheque must be paid into an account and cannot be encashed or paid cash directly. A crossed cheque cannot to be paid in cash over the counter. There are two types of crossing. General Crossing and Special Crossing. If there is simple crossing on the cheque without any texts written in between such crossing is general crossing where as any text written in between the crossing will become special crossing.
& Company
A crossed cheque on which words “& Co” or “& Company” has been mentioned in between the crossing. It must be deposited into account for realization and can be further negotiated. However, it is not necessary that the account being deposited should be the payee’s account only.
Account Payee/ Non-negotiable/ Non transferable
A crossed cheque on which Account Payee has been mentioned in between the crossing. The amount to be paid must be deposited into the account of payee. It cannot be further negotiated or transferred. If account number of the payee is mentioned in the cheque even without crossing, it is also considered as A/C payee cheque.
If a cheque amount is NPR 1,000,000 or above NPR 1,000,000 then such cheque shall also be considered as A/C payee cheque. Any Cheque drawn in favor of a legal entity (Firms/Company/Institutions) as a Payee, then such cheque shall also be considered as A/C payee cheque. In case any bank’s name has been mentioned in between the crossing, such cheque cannot be presented to other banks.