A cheque is a type of negotiable instrument that is governed by the Negotiable Instruments Act, 1881 in India. Under the Act, a cheque is defined as a bill of exchange drawn on a specified banker and payable on demand. It is an order by the account holder (drawer) of the bank to pay a certain amount of money to the person or entity named on the cheque (payee) or to their order.
Cheques are widely used in India as a means of payment and can be issued for various purposes such as salary payments, supplier payments, rent payments, etc. The Negotiable Instruments Act provides a legal framework for the use of cheques and regulates the rights and obligations of the parties involved in cheque transactions.
Some important concepts related to cheques under the Act include:
- Drawer: The person who writes the cheque and gives instructions to their bank to pay a certain amount of money to the payee.
- Payee: The person who is named on the cheque and who is entitled to receive the payment from the bank.
- Drawee: The bank on which the cheque is drawn, i.e., the bank where the drawer has their account.
- Endorsement: The act of signing the back of the cheque to transfer the right to receive the payment to another person or entity.
- Crossing: The act of drawing two parallel lines on the face of the cheque to indicate that the funds can only be deposited directly into a bank account and not paid in cash over the counter.
- Bouncing of a cheque: When a cheque is presented for payment, but the bank refuses to honour it due to insufficient funds in the account or other reasons.
Types of crossing of Cheques
Crossing of cheques refers to the marking or drawing of lines on the face of a cheque to indicate that the funds can only be deposited directly into a bank account and not be paid in cash over the counter. There are several types of crossing of cheques, including:
- General crossing: This is a type of crossing where the cheque is marked with two parallel lines across the face of the cheque with or without the words “account payee” or “not negotiable”. This type of crossing directs the bank to deposit the funds only into the account of the payee and not to pay the amount in cash over the counter.
- Special crossing: This is a type of crossing where the cheque is marked with two parallel lines and the name of a particular bank is written between the lines. This type of crossing directs the bank to deposit the funds only into the account of the payee with the specified bank.
- Restrictive crossing: This is a type of crossing where the cheque is marked with the words “account payee” or “not negotiable” without any parallel lines. This type of crossing indicates that the cheque can only be deposited into the account of the payee and cannot be transferred or endorsed to any other person.
- Double crossing: This is a type of crossing where the cheque is marked with two parallel lines with the name of a particular bank written between them, and then marked again with two parallel lines with the words “account payee” or “not negotiable”. This type of crossing directs the bank to deposit the funds only into the account of the payee with the specified bank and further restricts the transferability of the cheque.
Dishonour of Cheques and consequences
The dishonour of a cheque occurs when the bank refuses to honour a cheque presented by the payee due to various reasons such as insufficient funds, the account being closed, mismatch of signatures, post-dated cheque, etc.
The dishonour of a cheque occurs when a bank refuses to honour a cheque presented for payment due to insufficient funds, a closed account, a mismatch of signatures, post-dated cheques, or other reasons. The dishonour of a cheque can have legal and financial consequences for both the drawer (issuer) of the cheque and the payee (recipient).
Under the Negotiable Instruments Act, 1881 in India, the dishonour of a cheque is a criminal offence punishable with imprisonment up to 2 years or a fine of twice the amount of the cheque or both. The payee of a dishonoured cheque can file a complaint with the police or initiate legal proceedings against the drawer of the cheque for recovery of the amount of the cheque and any other damages caused.
In case of a dishonoured cheque, the payee can send a legal notice to the drawer demanding payment within 15 days of receipt of the notice. If the payment is not made within the stipulated time, the payee can file a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881. The complaint should be filed within one month of the expiry of the 15-day period mentioned in the legal notice.
In addition to the legal consequences, the dishonour of a cheque can also lead to blacklisting of the account holder by banks, which can impact their creditworthiness and ability to obtain loans and other financial products in the future. It is, therefore, essential for the drawer of the cheque to ensure that sufficient funds are available in their account before issuing a cheque and to communicate with the payee in case of any issues or delays in payment.
The consequences of dishonour of a cheque are as follows:
- Criminal liability: Under the Negotiable Instruments Act, 1881, dishonour of a cheque is a criminal offence punishable with imprisonment up to 2 years or a fine of twice the amount of the cheque or both.
- Civil liability: The payee of a dishonoured cheque can file a civil suit for recovery of the amount of the cheque and other damages.
- Legal notice: The payee can send a legal notice to the drawer of the cheque demanding payment within 15 days of receipt of the notice. If the payment is not made within the stipulated time, the payee can file a criminal complaint.
- Blacklisting: The cheque dishonour can lead to the account holder being blacklisted by banks, which may impact their creditworthiness and ability to obtain loans and other financial products.
To avoid dishonour of a cheque, it is important for the drawer to ensure that sufficient funds are available in their account, and the cheque is signed correctly and dated properly. Additionally, it is advisable to communicate with the payee in case of any issues or delays in payment and make alternative arrangements if required.