Commerce · Ch 22 — The Negotiable Instruments Act, 1881
Cheque: Meaning and Types
Cheque: Meaning and Types
A cheque is the negotiable instrument students encounter most often in everyday life, and the Act treats it as a special, restricted category of bill of exchange.
Definition (Section 6). Section 6 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Later amendments to the Act (in 2002 and 2015) extended this definition to also include the electronic image of a truncated cheque used in image-based clearing, and a cheque in electronic form generated and transmitted through a secure, authenticated system — recognising how cheque processing has modernised without changing the underlying legal rules.
How a cheque differs from an ordinary bill of exchange
| Basis | Bill of Exchange | Cheque |
|---|---|---|
| Drawee | Any person or firm | Must always be a specified banker |
| When payable | May be payable on demand or after a fixed period/event | Always payable on demand only |
| Acceptance | Usually needs the drawee's acceptance | Never needs acceptance — the bank simply pays if funds and instructions are in order |
| Days of grace | Three days of grace are added for a fixed-period bill (Section 22) | No days of grace — a cheque is payable immediately, on demand |
| Stamping | Must be stamped | No stamp duty is charged on a cheque |
| Crossing | Cannot be crossed | Can be crossed (see the next section) |
Common types of cheque recognised in banking practice
- Bearer cheque — payable to whoever holds it; can be encashed over the counter or transferred by mere delivery.
- Order cheque — payable to a named person or their order; needs the payee's endorsement to be transferred further.
- Crossed cheque — bears two parallel transverse lines (or a banker's name) across its face, directing that it be collected only through a bank account rather than paid in cash across the counter (explained fully in the next section).
- Open cheque — an uncrossed cheque that can be encashed directly at the bank counter.
- Post-dated cheque — bears a date later than the date on which it is actually issued/handed over; the bank will not honour it before the date written on it.
- Ante-dated cheque — bears a date earlier than the date it is actually issued, still valid as long as it is presented within its usual period of validity from the date written on it. …
A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand; the definition now also covers the electronic image of a truncated cheque …