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CHEQUE
QUESTION BANK.
Q.1. Discuss the essentials of cheque and difference between cheque and Bill of Exchange.
Q.2. Define cheque and its essentials.
Q.3. Define cheque and state kinds of crossing.
Q.4. Write detailed ntoe on ‘Cheque’, dishonour of cheque and its effect. Nov. 05.
SHORT NOTES.
- Crossing of cheque.
- Effects of dischonour of cheque.
SYNOPSIS.
- CHEQUE (S. 6):-
- ESSENTIALS OF CHEQUE:-
(i) It is drawn on a specific banker:-
(ii) Payable on demand:-
III. SPECIMEN OF CHEQUE.
- DISTINCTION BETWEEN CHEQUE AND BILL OF EXCHANGE.
(l). Upon whom drawn:-
(2). Acceptance:-
(3). Grace Days:-
(4). Payable on demand:-
(5). Presentment:-
(6). Crossing:-
(7) Requirement of Stamp:-
(8) Noting or protest:-
- RULES AS TO CROSSING OF CHEQUES:-
(1) Open cheque:-
(2) Crossed cheque:-
Kinds of crossing:-
(1) General Crossing (S. 123):-
(2) Special Crossing (Ss. 124 and 127):-
(3) Account Pyee Croing:-
(4) Not negotiable crossing (S. 137):-
- DISHONOUR OF CHEQUE AND ITS EFFECTS:-
- a) Penal liability:-
- b) Liability under Civil law:-
I. CHEQUE (S. 6):-
According to S. 6, a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
A cheque, being a Bill of Exchange, possesses all the essentials of the bill and should also meet the requirements under this section.
II. ESSENTIALS OF CHEQUE:-
The cheque is a Bill of Exchange; hence, all the essentials of the bill are essential requirements of the cheque. In addition, S. 6 lays down two more requirements for cheque, viz-
(i) It is drawn on a specific banker[1]:-
According to Halsbury’s Law of England, ‘a banker’ is an individual, partnership or corporation whose sole or predominating business is banking, i.e. the receiving money on a current or deposit account and the payment of cheques drawn upon and collection of cheques paid in by the customer.
A Government treasury is not a banker.
(ii) Payable on demand[2]:-
A cheque must contain an unconditional order from a specified banker for payment on demand of a certain sum of money to or to the order of a specified person or to the bearer of a cheque.
III. SPECIMEN OF CHEQUE.
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- DISTINCTION BETWEEN CHEQUE AND BILL OF EXCHANGE.
All cheques are Bill of Exchange, but all Bill of Exchanges are not cheques. In some respect, there is a difference between these two; viz-
(l). Upon whom drawn:-
A bill of exchange may be drawn on any person, including a banker, but a cheque is always drawn on a banker.
(2). Acceptance:-
A bill must be accepted before the drawee can be called upon to make payment on it. A cheque does not require such acceptance.
(3). Grace Days[3]:-
A bill of exchange which is not expressed to be payable on demand is entitled to 3 days of grace. A cheque is not entitled to any days of grace.
(4). Payable on demand:-
A bill of exchange may be payable on demand or after the expiry of a certain period, while a cheque is always payable on demand.
(5). Presentment[4]:-
A bill of exchange shall be duly presented for payment to the acceptor; the drawer of the bill will then be discharged from liability. However, the drawer of a cheque is not so discharged from his liability.
(6). Crossing:-
A cheque may be crossed, but not a bill of exchange.
(7). Requirements of Stamp:-
A cheque does not require any stamp, except in certain cases, a bill of exchange shall be stamped.
(8). Noting or protest[5]:-
A cheque is not required to be noted on protests for dishonour. A bill of exchange may be protested on dishonour.
V. RULES AS TO CROSSING OF CHEQUES:-
The cheque may either be open or crossed.
(1) Open / Barer cheque:-
Ordinary cheques are known as ‘open cheques’. They are paid over the counter of the bank. They are also called “Barer Cheques”. Such cheques are liable to great risks. They may be lost or stolen, and the finder can get them cashed. Such cheques may also be paid by forging the signature of the payee. If such a cheque is negotiated, any holder, in due course, will acquire a good title to the instrument. Even the banker paying the amount on such a cheque (lost or forged) gets absolute discharge by such payment. The only remedy for the true owner in such circumstances is to find the person who stole it and sue him for compensation. The practice of crossing was introduced to prevent such cheque loss from getting into the wrong hands.
(2) Crossed cheque:-
When a cheque bears two parallel transverse lines across its face, it is said to be crossed.
Specimens of the crossed cheque:-
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The two parallel transverse lines are usually drawn on the top left-hand corner of the cheque. However, there is no such strict rule; parallel lines may be drawn anywhere on the cheque. After crossing the cheque, it can no longer remain payable to the payee or holder at the counter of the bank. The payment of crossed cheques can be obtained only through a banker on the holder’s account, even if any wrongful person secures payment that can be traced because of his account in a bank.
A real effect of a crossing is a direction to the paying banker to pay the proceeds of the cheque to a banker or a particular banker, as the case may be, and, in all other respects, the cheque remains as negotiable as any other cheque would be.
Kinds of crossing:-
There are basically two kinds of crossing viz- (1) General and (2) Special. However, either of these kinds may take several forms.
(1) General Crossing (S. 123):-
The cheque is generally crossed when there are no words between the lines of crossing or when there are some words but not the name of the bank. These lines may be blank or contain “ & Company”, which makes no difference.
General crossing may be made by following these steps.
BANK OF MAHARASHTRA A/C NO. 1000
Mumbai 16th January, 2011.
Pay to ……XYZ…………or Bearer
Rupes ..five thousand …only.
Rs. 5000/-
Sd/- ABC
Many a time, instead of “& co.”, “Not Negotiable” or “A/c Payee only” is written in cross lines.
(2) Special Crossing (Ss. 124 and 127):-
Where the lines of crossing bear the name of a bank either with or without any additional words (like ‘not negotiable’), etc., the cheque is said to be crossed specially to that banker. Its effect is that the payment can be obtained only through the particular banker whose name appears between the lines.
BANK OF MAHARASHTRA A/C NO. 1000
Mumbai, 16th January, 2011.
Pay to ……XYZ…………or Bearer
Rupes ..Five thousand …only.
Rs. 5000/-
Sd/- ABC
3) Account Payee Crossing:-
Sometimes, the lines of crossing contain the words “account payee only”. It is a form of general crossing. This practice of adding words is not recognised by law. The effect of such crossing may be two-fold. It may affect the cheque’s negotiability and the collecting banker’s duty. The words ‘account payee only’ are a direction to the collecting banker that the cheque amount shall be received only for the payee and credited to his account. If the collecting banker receives payment of such a cheque on behalf of any person other than the payee, the banker will be guilty of negligence.
In House Property Co. v. Westminister Bank[6]
Facts—The cheque was payable to ‘X’ and crossed ‘account payee. ‘ It came to the hands of ‘Y’ as bearer. The receiving banker did not inquire whether X had title to the cheque or not. Y had no title.
Held:- The Bank was guilty of neglect.
4) Not negotiable crossing (S. 137):-
The cheque ‘not negotiable’ crossed can also be transferred like any other cheque. But it provides more protection than general and special crossings. It is like a warning upon the paying and collecting bankers. Both of them should be very careful when handling this type of cheque transaction. ‘Not negotiable’ remark may give a warning that ‘take care, this cheque may be stolen.
V. DISHONOUR OF CHEQUE AND ITS EFFECTS:-
a) Penal liability (S. 138):-
This Act has provided penal sanction for the dishonour of cheques under S. 138 of the Act. It provides that A drawer of a dishonoured cheque shall be deemed to have committed an offence for which he shall be imprisoned for a term that may extend to two years.[7] or with a fine which may extend to twice the amount of the cheque or with both, provided-
- The cheque is drawn on a bank for the discharge of any legally enforceable debt or other liability.
- The cheque is returned by the bank unpaid.
- The cheque has returned unpaid because the amount available in the drawer’s account has insufficient to pay the cheque.
- The payee has given a notice to the drawer claiming the amount within 30[8] days of the receipt of the information by the bank.
- The drawer failed to pay within 15 days of receiving the notice.
Bombay High Court also laid down the above ingredients of an offence under S. 138 in a Case, i.e. Smt. Kiran Yugalkishore Bhattad v. Smt. Sushila Ramchandra Kattamwar (2011 ACD 93 BOM).
b) Liability under Civil law:-
The holder of a cheque may file a suit for recovery of the amount in a civil court under normal recovery proceedings. However, enforcement of the liability through civil court does not disentitle the aggrieved person from prosecuting the offender under S. 138 of the Negotiable Instruments Act 1881.
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[1] हा विषिष्ठ बॅंकेवर काढलेला असतो. [यह एक विशिष्ट बैंक पर तैयार किया होता है।]
[2] मागणी प्रमाणे रक्कम देवू केलेली असते. [मांग के अनुसार राशि का भुगतान किया जाता है।]
[3] सवलतीचे दिवस. [छूट के दिन।]
[4] सादर करणे. [प्रस्तुत करना।]
[5] प्रोंमिसरी नोट किंवा बिल ऑफ एक्सचेंज अस्विकृत किंवा नाकारले गेल्यास म्हणजेच ठरल्याप्रमाणे पैसे न मिळाल्यास ज्याला पैसे मिळालेले नाहीत ती व्यक्ती नोटरी पब्लिक मार्फत त्यावर तसे टिपण करुन घेते असे टिपण ठरलेल्या वेळेत करुन घ्यावयाचे असते. अशा टिपणात अशा अस्विकृतीचा वेळ व कारण लिहिले जाते. – टिपणी
[यदि प्रॉमिसरी नोट या बिल ऑफ एक्सचेंज अस्वीकृत या अस्वीकृत हो जाता है, यानी यदि निर्धारित भुगतान प्राप्त नहीं होता है, तो जिस व्यक्ति को भुगतान प्राप्त नहीं हुआ है, उसे निर्धारित समय के भीतर नोटरी पब्लिक के माध्यम से ऐसी टिप्पणी करनी चाहिए। ऐसी अस्वीकृति का समय और कारण ऐसे नोट में लिखा होता है। – टिप्पणियां]
[6] (1915) 84 LJKB 1846.
[7] Before Amendment in Negotiable Instrument Act, in 2002 the punishment of imprisonment was upto one year.
[8] Before Amendment in Negotiable Instrument Act, in 2002 the period of service of notice was 15 days.