A cheque is a facility or instrument provided by the bank, through which you can pay money to any person or institution without withdrawing cash from your bank account. It is an unconditional grant of mandate, in which the person making the payment is signed and orders the payment of a certain amount written in it, to any person or institution.
In section 6 of the Indian Negotiable Instruments Act, 1881, the definition of the cheque is, “A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.”
The person who issues the cheque is called the drawer, and the person to whom it is issued is the drawee. Another advantage of using the cheque is that if you ever want to make the payment at some future date, you can do that too. Now, let’s have a look at different types of cheques used in the Indian banking system.
Before discussing any further, it is important to know that cheques are classified into various categories based on different classification criteria. We will see each one of them.
Types of cheque based on Location
- Local Cheque: If the check of City X is cleared in City X itself, then it is called a local check. Like if someone gave you a check in your name, then you will have to go to the relevant branch of the city with that cheque, if you take it out of the city and get it cleared, then you will be charged separately.
- Outstation Cheque: If the local check is cleared by taking it out of the city, then that check will be called the outstation check for which the bank charges fixed charges.
- At par/ Multi-city cheque: This type of cheque is acceptable at all branches of the concerned bank across the country. Moreover, there are no additional charges for clearing it outside the city.
Types of Cheques based on the value
- Normal Value Cheques: Cheques with a value of less than 1 lakh are called normal value cheques.
- High-Value Cheques: Cheques above 1 lakh are called high-value cheques.
- Gift Cheques: Cheques given as gifts to loved ones are called gift cheques. If this cheque bounces, it doesn’t amount to penalty or punishment.
Types of cheques based on time
- Post-dated Cheque: A future date pay Cheque would be a crossed bearer Cheque in which the future date is mentioned. This means that the payment of this cheque can be done on or after the specified date.
- Back/Ante-dated Cheque: This cheque has a date before it is presented in the bank. This cheque can be encashed within the completion of three months from the last date.
- Called-Out/Stale cheque: You must encash cheque within three months from the date mentioned in it. If this date is exceeded, it is called a stale cheque which is not accepted by the bank.
Types of cheques based on the payee
- Open or Bearer cheque: A bearer Cheque is a Cheque that can be presented to the bank and received cash over the counter. You don’t need to wait for Clarence. A person holding an open cheque can go to the counter, show the man take the money and either transfer the money.A co-Bearer cheque is that cheque can be cashed by any representative of the account holder by visiting the bank. The representative is not required to sign at the back of the cheque while handing over the cheque and the withdrawal takes place by merely handing over the cheque. These cheques can also be risky because if this check is forgotten, then anyone can go to the bank and cash it.How can you identify a bearer cheque? You know it is a bearer cheque when you see the words ‘or bearer’ printed on them.
- Crossed cheque: A crossed cheque is written in the name of a particular person or organization and two parallel lines are drawn at the top left corner and between them “&CO.” Or “Account Payee” or “Not Negotiable” may or may not be written. No cash withdrawal can be done with this cheque and the amount concerned can only be transferred to the mentioned person or entity.
- Order cheque: In this cheque, the word “bearer” is replaced with “order”. Unlike, bearer cheque order cheques can only be issued to a person whose name is written on them. Bank do verification to authenticate the identity of the bearer before releasing the money.
- Self Cheque: Self Cheque is one which the account holder himself presents to the bank for direct payment. In this, “Self” is written in place of the name of the payee.