TYPES OF CHEQUES ISSUED IN INDIA

A cheque is a payment instrument that is issued by a bank account holder for making payments to an individual or company and cash withdrawals from the bank.

        "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." It also facilitates funds transfer to another bank account. For instance, you can make cash payment for a utility bill or you can do it by writing a cheque.

          The biggest benefit of a cheque is that it allows high value transactions which may become a bit large or heavy and therefore difficult to carry or use, if hard cash was used instead.

The following details are necessary in a cheque .

• Drawee:-  A cheque must be drawn upon a specified bank
• Drawer:-  A cheque must be signed by the person issuing the cheque.
• Payee:-     A cheque must have the name of the recipient of the cheque.
• A cheque must mention the amount of money in words and figures.
• A cheque must be dated.

The cheque honored by the bank can be traced back if needed.

Various types of cheques based on their functionality & the location, cheques are classified as: –

1. Local cheques:

If issued by a bank in the same city as the payee. A local cheque is a type of cheque which is valid in the given city and a given branch in which the issuer has an account and to which it is connected. The producer of the cheque in whose name it is issued can directly go to the designated bank and receive the money in the physical form. If a given city’s local cheque is presented elsewhere shall attract some fixed banking charges. Although these types of cheques are still prevalent, especially with nationalised banks, it is slowly slated to be removed with at par cheque type.

2. Outstation cheques:

If a given city’s local cheque is presented elsewhere it becomes an outstation cheque and may attract some nominal but fixed banking charges.

3. At par cheque:

It is a cheque which is accepted at par at all its branches across the country. Unlike local cheque it can be present across the country without attracting additional banking charges.

Based on its value, cheques are classified as: –

i).Normal Value cheques:

Cheques below the amount of Rs. 1 lakh are called normal value cheques.

ii).High Value cheques:

Cheque bearing an amount higher than Rs. 1 lakh is a high value cheque.

iii).Gift cheques:

Cheques used for gifting money to loved ones are gift cheques. The value may vary from Rs. 100 to Rs. 10,000. This is another banking instrument introduced for gifting money to the loved ones instead of hard cash.

Cheques are mainly of five types:-

1) Open cheque/uncrossed cheque:

A cheque is called open when it is possible to get cash over the counter at the bank. The holder of an open cheque can receive payment over the counter at the bank, deposit the cheque in his own account or pass it to someone else by signing on the back of a cheque.

When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". The payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order one.

The issuer of the cheque would just fill the name of the person to whom the cheque is issued, writes the amount and attaches his signature and nothing else. This type of issuing a cheque is also called bearer type cheque also known as open cheque or uncrossed cheque. The cheque is negotiable from the date of issue to three months. The issued cheque turns stale after the completion of three months. It has to be re validated before presenting to the bank.

2) Bearer cheque:

A cheque which is payable to any person who presents it for payment at the bank counter is called ‘Bearer cheque’. A bearer cheque can be transferred by mere delivery and requires no endorsement.

When the words "or bearer" appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment.

Note: However, such cheques are risky; this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.

3) Order cheque:

It is the one which is payable to a particular person. In such a cheque the word ‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. The payee can transfer an order cheque to someone else by signing his or her name on the back of it.

When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred).

4) Crossed cheque:

When a cheque is crossed, the holder cannot encash it at the counter of the bank. The payment of such cheque is only credited to the bank account of the payee. Crossed cheque is done by drawing two parallel lines across top left corner of the cheque, with or without writing ‘Account payee’ in the space between the lines.

It means drawing two parallel lines on the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee's account.

5)Anti-Dated Cheque

If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid upto three months from the date of issuing cheque.

•   Banks also offer various cheques which guarantee payments.

1).A self cheque:

It is written by the account holder as pay self to receive money in physical form from the branch where he holds his account. This can be alternated by using an ATM card.

2).Stale Cheque

If a cheque is presented for payment after three months from the date of the cheque it is called stale cheque. A stale cheque is not honored by the bank

3). Post-dated cheque (PDC):

A PDC is a form of a crossed or account payee bearer cheque but post-dated to meet the said financial payment at a future date. The cheque is valid from the date of issue to three months. 

If a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post dated cheque cannot be honored earlier than the date on the cheque.

A PDC is a form of a crossed or account payee bearer cheque but post dated to meet the said financial obligation at a future date.

4)A Banker’s cheque:

A banker’s cheque is issued by a bank drawing money from its own funds rather than that from an account holder’s. Banker’s cheque is issued after the bank verifies the account status of the requester and the amount is immediately deducted from the customer’s account.  A banker’s cheque cannot be dishonored as in the case of a normal cheque, when an account holder has insufficient funds in his/her account. Though different from a normal cheque it requires clearing too.

 It is a kind of cheque issued by the bank itself connected to its own funds. It is a kind of assurance given by the issuer to the client to alley your fears. The personal account connected cheques may bounce for want of funds in his account. To avoid such hurdles, sometimes, the receiver seeks banker’s cheque. With the computerization and networking of bank branches with its headquarters, a variation to the local cheque has become common place in the name of at par cheque

5)A Traveler’s cheque:

It is a printed open type cheque issued as an alternate for carrying around cash while travelling abroad or on a vacation to a foreign country as they come with a replacement guarantee and lifelong validity. Traveler’s cheques are widely accepted by merchants, restaurants and other recreational organizations. The unused cheques from the recent trip can be used for your next trip. They are a kind of an open type bearer cheque issued by the bank which can be used by the user for withdrawal of money while touring. It is equivalent to carrying cash but in a safe form without fear of losing it.

6)Pay yourself cheque:

The account holder issues this type of crossed cheque to the bank asking the bank deduct money from his account into bank’s own account for the purpose buying banking products like drafts, pay orders, fixed deposit receipts or for depositing money into other accounts held by him like recurring deposits and loan accounts.