What is a Cheque

Cheques are the backbone of the banking industry and is still a very important negotiable instrument in the country. Each cheque comes with a cheque number, IFSC code and MICR.

Latest Update

Cheque Payments from 1 January: New Rules

The Reserve Bank of India just launched the 'positive pay system' a few months ago. According to the new rule, if you are making any payment more than Rs.50,000, you will have to reconfirm few crucial details regarding the cheque.

What is Positive Pay?

Positive Pay is a tool which has been designed for detecting any fraudulent activity. These fraudulent activities are detected by matching specific information regarding the cheque presented for clearing against a list of cheques which have been previously issued by you. These include cheque date, cheque number, account number, payee name, and amount.

What You Need to Know About the New Cheque Payment Rule:

  • The new process will require the reconfirmation of important details of cheques with large values.
  • As the cheque issuer, you should submit minimum details of the cheque like the name of the beneficiary/payee, and amount. This can be done via channels like mobile app, SMS, ATM, and internet banking.
  • These details are cross-checked with the presented cheque by CTS. Any discrepancies are then flagged by the CTS and brought to the notice of the drawee bank and also the presenting bank.
  • They will then take redressal measures.
  • National Payments Corporation of India (NPCI) will develop the facility of Positive Pay in CTS. They will make this available to all the participating banks and in turn, the banks will enable it for every account holder who are issuing cheques which amount to Rs.50,000 and more.
  • Keep in mind that the option to avail the facility will be the discretion of the account holder, a few banks can consider making it mandatory if the amount is over Rs.5,00,000 and above.
  • In order to be accepted under the dispute resolution mechanism at the CTS grids, the cheques will have to be compliant with these instructions.
  • All member banks are free to implement similar arrangements for cheques that are cleared or collected outside CTS also.

MICR, expanded as Magnetic Ink Character Recognition (MICR), is a code printed usually at the bottom of the cheque leaf and enables easier identification of cheques, helps eliminate payment errors and process cheque payments in a faster manner.

MICR is a 9-digit code, where the first three digits represent the city, the next three the bank and the last few digits the specific branch code. The main use of MICR codes in cheques is to aid the processing of cheques in a more efficient and speedy manner.

On the other hand, an IFSC code too, is an integral part of the banking system and is printed on your cheque leaf. This code helps identify specific bank branches without any errors for smooth and efficient fund transfers from one bank to another.

Know About Cheque

Know Your Cheque

To put it in simple words, a cheque is nothing but a written bill of exchange that is written by a bank account holder to pay for goods or services. It is always issued in favor of other parties, there may also be third parties and it is an order for the bank to pay the person whose name the cheque bears or is in favor of.

Where can I find the Cheque Number?

In case you wish to track the status of the cheque, you will need to provide the cheque number. The identity of the cheque can be found only with the help of the cheque number. The first six numbers that are present on the bottom of the cheque is the cheque number.

Features of Cheque

  • Cheques can be issued against savings or current accounts
  • A cheque is always drawn on a specified banker
  • It is an unconditional order
  • The payee of a cheque is fixed and certain and cannot be changed
  • The payment will only be made in the name of the payee/beneficiary
  • It is an instrument that is payable on demand
  • A cheque will be considered invalid if does not contain the date

Steps to Write a Cheque

Do

Step 1: The first step is to cross a cheque, which means to draw two lines, which are parallel to each other, on the left hand corner of the document.

Step 2: Write the date and write the name of the payee in the ‘Pay’ column. Proceed to write the amount in words and add ‘only’ in the end,

Step 3: And then write it in numbers followed by this symbol ‘/-.’

Step 4: Sign at the bottom of the cheque

Don'ts
  • Never overwrite on a cheque leaf
  • Remember never to leave any kind of space between number or words on the leaf
  • Never leave any column blank on a cheque
  • Do not fold or staple a cheque
  • Sign clearly and always use the same signature

Types of Cheques

Open cheque

An open cheque is a type of leaf that a holder can use to get payment at a bank or deposit in his own account. It is also possible for the holder to issue this cheque to someone else.

Bearer cheque

In a bearer cheque, the payment is made to someone who is acting on behalf of the payee/beneficiary, in whose favor the cheque has been issued. In the leaf, it is a must to include the word ‘bearer’ to process this type of cheque.

Depositing vs. Cashing a Cheque

The differences between depositing and cashing a cheque is as given below:

Depositing a cheque: Adding a specified amount to your bank account through the cheque. Depending on the bank process, it may take a few days for the money to reflect in your account to be withdrawn.

Cashing a cheque: This is being offered the cash in hand.

Self-Cheques

A self-cheque is a cheque drawn in one’s own name, which means the drawer and the payee are the same. You would write the word ‘'self’' in the space for the drawee’s name on the cheque. It can only be encashed in the drawer’s bank. A self-cheque is for use in situations when you want to withdraw money from your own account in cash. It has to be kept in mind that if such a cheque falls in the wrong hands, it can easily be used by another person to withdraw money from the bank from which the cheque is issued, so a self-cheque should be kept safely.

Account Payee Cheques

An account payee cheque is a bearer’s cheque that has the words ‘'account payee’' written on the top left-hand side, within two parallel lines, and crossed twice. This is also called a ‘'crossed cheque’'. It is considered to be the safest way to issue a cheque as the amount written will be transferred only to the person’s account that is written on the cheque.

Post-dated cheque

A post-dated cheque is an account payee or crossed cheque that has a future date in order to meet a financial obligation in future. It is valid for up to 3 months from the date of the cheque’s issuance.

Banker’s cheque

Banker’s cheques are cheques that are issued by the bank so it guarantees payment.

Traveler’s Cheque

A traveler’s cheque is used when traveling in order to avoid carrying large amounts of cash so as to maintain greater safety and security. It can be encashed when traveling abroad where foreign currency is required.

Crossed cheque

A crossed cheque is also called an account payee cheque. It is a bearer’s cheque which has the words ‘'account payee’' written on the top left-hand corner enclosed in two parallel lines. It is the safest cheque to issue because only the name written on the cheque will have the money transferred to their account.

Dishonour of Cheque

Dishonor of cheque is what happens when a bank does not deposit the payment written in the cheque to the payee’s account. A ‘Cheque Return Memo’' is usually issued to the payee’s banker which specifies the reasons for the cheque being dishonored. This memo is issued by the drawee’s bank. The dishonored cheque and the memo is presented to the payee by the payee’s bank. The payee can resubmit the same cheque within three months of the date of issuance of the cheque. The payee should also send a notice to the drawer stating that the amount should be paid within 15 days of the notice being received by the drawer. This notice should be sent to the drawer within 30 days of receiving the Cheque Return Memo. If the drawer fails to make a payment even within 30 days of receiving the notice, then the payee can initiate legal proceedings against the drawer under Section 138 of the Negotiable Instruments Act.

Stale Cheque

A cheque in India is valid for 3 months from the date of issue. Any cheque which has been deposited three months after the date of the cheque being signed becomes a stale cheque.

Ante-dated Cheque

An ante-dated cheque is one in which the date written is prior to the current date (for example, if the current date is 1 January 2020 but the date on the cheque is 1 December 2019, then it is an ante-dated cheque).

Mutilated Cheque

If a cheque reaches the bank in a torn or otherwise damaged condition, it is called a mutilated cheque. If a cheque is torn or the important information is not visible, then it will become an invalid cheque.

Blank Cheque

A cheque which has all the fields blank except for the drawer’s signature, then it is called a blank cheque.

Number of Parties Involved with a Cheque

The number of parties that are involved with a cheque are as given below:

  • Payee: The person named in the cheque who is to receive the payment
  • Drawee: The specific bank on which the cheque has been drawn
  • Drawer: The person who writes the cheque, who can be the account holder or the customer. The payee and drawer can be the same person.
  • Endorser: When the right to take the payment is transferred by the payee to another party, the payee is called an endorser.
  • Endorsee: When the right to take the payment is transferred by the payee to another party, the party to which the right is transferred is called the endorsee.

How to Apply for a New Cheque Book?

Applying for a cheque book is an easy process and can be done using various methods such as applying online, through an ATM, visiting the branch or using your bank’s mobile app. Also, every cheque book comes with a requisition slip, all you need to do is fill the same and submit it to get a new chequebook.

  • Internet Banking: This is probably one of the most hassle-free and easy methods to apply for a new chequebook. When you log in to the internet banking account of your home bank, you can request for a cheque book by mentioning certain details like account number and mailing address. In most cases, the cheque book is delivered to the residential address or the address that is linked with the bank account.
  • ATM: Did you know that you can apply for a cheque book easily at an ATM? This is a simple process and one of the fastest ways to get your chequebook. Below is the stepwise process that tells you how to apply for a chequebook through an ATM:
  1. Go to your bank ATM and insert your debit card
  2. Proceed to enter your pin and select the ‘issue new cheque book’ option
  3. Click on submit.
  4. Your request will be submitted and your chequebook will be mailed to your residential address.
  • Mobile app: Log in to the mobile app of your bank and apply for a chequebook. This is easy and can be done in a matter of seconds.

Check IFSC Code for Top Banks:

FAQ's on Cheque

  1. What is an IFSC code? Is it printed on all cheques?

    Indian Financial System Code, abbreviated as IFSC, is defined as a 11-digit alphanumeric code that acts as a unique identity for a specific bank branch. Yes. IFSC code is printed on all cheques issued by banks and this code helps in the identification of bank branches and clearing of cheques in an error-free manner.

  2. What is the purpose of an MICR code on a cheque leaf?

    The 9-digit MICR code is an essential and important feature on all cheques. It helps banks process cheques without any error and in a speedy fashion.

  3. Where is the MICR number printed on a cheque leaf?

    This number is generally printed at the bottom of the cheque. However, this may sometimes vary from bank to bank.

  4. What is a cheque number?

    A cheque number is a unique number that is printed on each cheque leaf. This consist of 6-digits.

  5. When does a bank have a right to refuse to make a payment?
    • In cases when the cheque is undated
    • If 6 months have passed since the issue of the cheque
    • When a postdated cheque is presented before its date
  6. Is a cheque paid only during banking hours?

    Yes. A bank is liable to pay only during working hours.

  7. What are the consequences if a banker makes a wrong payment on a crossed cheque?

    The bank will be liable for the loss occurred.

  8. Who has the right to cross the cheque?

    The drawer, holder and then banker have the right to cross a cheque.

  9. Who governs cheque transactions in India?

    The Negotiable Instruments Act along with the Reserve Bank of India.

  10. What if a cheque gets lost during the clearing process?

    The bank will inform the customer that is the issuer of the cheque, at the earliest and the customer is also entitled to reimbursement.

Other IFSC Related Article

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Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.

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