A check is a bill of exchange drawn on a particular banking payable on demand. So a cheque is an unconditional order in writing, signed by a drawer, drawn upon a specified banker directing him to pay on demand a certain sum of money to or to the order of a certain person or to the bearer of the instrument.
A cheque is always payable on demand. If it is a post date, it is payable on the date mentioned in it, but not before that date.
The person who draws the cheque is a drawer and the bank on which cheque is drawn is the drawee and to whom the payment is to be paid is payee. If no payee is mentioned in the cheque, the bank must pay the bearer of the cheque. So it has also three parties, the drawer, the drawee and the payee.
A cheque is payable to order, which is expressed to be so payable or which is expressed to the payable to a particular person and does not contain words prohibiting transfer. Thus the word “or order” may or may not be added after the name of the payee.
A cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsement is and endorsement in bank it should be particularly noted that a cheque once a bearer cheque is always a bearer cheque because (85/2), provides that where a chequ8e is originally expressed to be payable to bearer, it is payable to the bearer thereof notwithstanding any endorsement whether in full or in blank appearing thereon and notwithstanding that any such endorsement purports (means) to restrict or exclude further negotiation.
The words “or Bearer” may be changed into “or order” by any holder of a cheque without signing the alteration, but the words “or order” can be changed into “or Bearer” only by the drawer with this signature.
When a cheque is marked or certified by the drawee bank to the effect that it would be honored on the day of presentment for payment, it is known as a marked cheque. A certification or making of a cheque with the words “good for payment on..? is not to acceptance, and the drawee bank is not liable to pay the amount of the cheque.
A cheque is dishonored in the following cases
When the drawee refuses to pay the cheque being duly presented for payment. When a cheque is dishonored, the holder of the cheque should inform the drawer and all the previous endorsers immediately after the cheque is dishonored to enforce payment. While refusing such payment the bank generally notes down the reason for dishonoring the cheque on a separate form.
Reasons dishonored cheque
i. When the drawer’s signature differs from the signature preserved in the bank’s book or a signature card.
ii. When the funds of the drawer are insufficient.
iii. When the cheque is state or post dated and is presented before due date or without signature.
iv. When the amount within figures and words differs.
v. When the payment is stopped by the drawer.
vi. When the cheque is mutilated
vii.dishonored in the following cases When any alteration in the cheque is not properly signed by the drawer.
viii. When the bank receives the news of drawer’s death or bankruptcy or hanacy (madness)
ix. When the cheque is outdated.
x. when there is any irregularity or ambiguity on the very face of the cheque.
If the bank dishonors any cheque without showing any cause, it has to compensate for all losses caused by the dishonor of the cheque. So the banker must take care before holder of the cheque must give notice to the drawer and all the endorses immediately to enforce payment.