In legal terms, cheque is a negotiable instrument. “Negotiable” means transferable. A cheque given in the name of one person can be transferred to the ownership of another person, by merely putting a signature on the backside of the cheque. The second owner can also transfer it to a third person, by putting his signature below the signature of the first owner. This process is called “Negotiation” and the instrument is called “Negotiable Instrument”. A cheque is a negotiable instrument which is supplied by a banker to the customer who opens a savings or current account in a bank.

Definition of a cheque

According to Section 6 of the Negotiable Instruments Act, 1881, “a cheque is a bill of exchange, drawn on a specified banker and not expressed to be payable, otherwise than on demand”.
From the above definition; we come to know that,
 A cheque is always drawn upon a banker
 It is always payable on demand
Another definition of a Cheque
“Cheque is an instrument in writing containing an unconditional order, addressed to a banker, signed 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.”

ESSENTIAL ELEMENTS / CHARACTERISTICS OF CHEQUE

Essential characteristics of a cheque
If we take a close look at the definition of a cheque, it becomes clear that a cheque has the following 10 essential elements or characteristics.

1. It must be in writing: A cheque must be in writing. An oral order to pay does not constitute a cheque.
2. It should be drawn on a banker: It is always drawn on a specified banker. A cheque can be drawn on a bank where the drawer has an account (saving bank or current account).
3. It contains an unconditional order to pay: A cheque cannot be drawn so as to be payable conditionally. The drawer’s order to the drawee bank must be unconditional and should not make the cheque payable dependent on a contingency. A conditional cheque shall be invalid. (Example: Pay only if presented by Ram in person) This is conditional. So the cheque become not valid for payment, though presented properly.
4. The cheque must have an order to pay a certain sum: The cheque should contain an order to pay a certain sum of money only. If a cheque is drawn to do something in addition to, or other than to pay money, it cannot be a cheque. For example, if a cheque contains ‘Pay USD 500 and a TV worth USD 500 to A’ it is not a cheque.
5. It should be signed by the drawer and should be dated: A cheque does not carry any validity unless signed by the original drawer. It should be dated as well.
6. It is payable on demand: A cheque is always payable on demand.
7. Validity: A cheque is normally valid for three months from the date it bears. Thereafter it is termed as stale cheque. A post-dated cheque will not be valid. In both cases, the validity of the cheque is presumed to commence from the date mentioned on it.
8. It may be payable to the drawer himself: Cheques may be payable to the drawer himself/herself. It may be drawn payable to bearer on demand unlike a bill or a pronote.
9. Banker is liable only to the drawer: The banker on whom the cheque is drawn shall be liable only to the drawer. A holder or bearer has no remedy against the banker if a cheque is dishonoured.
10. It does not require acceptance and stamp: Unlike a bill of exchange, a cheque does not require acceptance on part of the drawee. There is, however, a custom among banks to mark cheques as ‘good’ for the purpose of clearance. But this marking is not an acceptance. Similarly no revenue stamp is required to be affixed on cheques.

A Cheque payment involves three parties:

 The drawer of the cheque – Bank Account Holder
 Drawee of the cheque – on whom the cheque is drawn. It is the bank branch which has issued the cheque book. That bank branch, ultimately pays the cheque.
 Payee of the cheque /
Beneficiary of the cheque – The person to whom the amount of cheque is paid.

Form of the Cheque:

A cheque can take the form of an order written on an ordinary piece of paper. But generally the banks will supply printed cheque forms to the customer while opening the account and the customers as a rule must use only the printed cheque forms supplied only as that rule, if the order is made on piece of paper the bank will refuse payment.
Issue of Cheque: A cheque is said to be issued when the drawer parts it to another person. The issue of cheque is very important because the drawer is not liable on a cheque until he has issued it. Even if drawer is induced by fraud, it is deemed to be duly issued.
Dating of Cheque: A cheque is not invalid simply because it is not dated. But dating of a cheque is essential to find whether it is stale cheque or not. A stale cheque is one which is not presented for payment before three months from the date of issue of cheque.
Drawing of a Cheque
If the drawer makes the cheque properly and if the balance of the drawer at the bank permits, the bank must pay the amount of cheque as soon as it is presented. If the drawer does not make the cheque properly, the bank rejects payment. Hence, to make the cheque properly,
the following points or rules must be considered.

1. Date: Date should be mentioned on the cheque properly. If the cheque is more than three months old or contains future date then the bank will not pay the amount.
2. Name of the Payee: The name of the payee should be mentioned on the cheque.
3. Amount of the Cheque: The amount of the cheque should be mentioned both in words and figures clearly. The amount written in the word should tally with the amount written in figures.
4. Signature: The drawer should sign the cheque properly. The signature given on the cheque should tally with the signature given on the signature specification card. The signature specification card is kept by the bank.
5. Account Number: The drawer should mention his account number clearly and correctly.
6. Minimum Balance: The amount mentioned on the cheque should not be more than the amount deposited in the bank. Beside it, a certain amount of minimum balance should always be there in the account as per the rule of the bank.
7. Overwriting: There should not be any overwriting in the cheque.
8. Condition of the Cheque: Cheque should be in proper condition. If the cheque is torn, wet and spotted, it will not be acceptable to the bank.
9. Endorsement: The ordered and crossed cheques should be transferred by proper endorsement and delivery. Otherwise, the amount of cheque will not be paid by the bank.

Kinds of Cheque:

Bearer Cheque:

Bearer cheques are the cheques which are used to withdraw money by the cheque’s owner. These types of cheques normally used for a cash transaction.

Order Cheque

Order cheque are the cheques which are withdrawn for the payee (the cheque withdrawn for another person). Before paying the amount to that payee, banks cross check the identity of the payee.

Crossed Cheque

Crossed cheques are cheques which bear, two parallel line made on the left top part of the cheques. Then that cheques formed to crossed cheques. In this type of cheques, payment is not made in cash while the payment of that type of cheque transferred to the payee’s account or to the person’s account recommended by the holder of the cheque.

Account Payee Cheque

When two parallel lines along with a crossing made on the cheque and the word ‘Account Payee’ written between these lines, then that types of cheques are called account payee cheque. The payment of the account payee cheque should be made to the person, firm or company on whose name the cheque was issued.

Company Crossed Cheque

When two parallel lines along with a cross made on the cheque and the word ‘Company’ written between these lines, then that types of cheques are called company crossed cheques. Normally crossed cheque and company crossed cheque are same.

Stale Cheque

If any cheque issued by a holder does not get withdrawn from the bank till three months, then that type of cheques are called stale cheque.

Post Dated Cheque

If any cheque issued by a holder to the payee given with a later date, then that type of cheques are called post-dated cheque.

Anti-Dated Cheque

If a cheque contains a date, prior to the date of presentation it is called Ante-Dated cheque Banker will honour this cheque till the completion of 3 months from the date of the cheque.