Cheque - Kinds of Cheque and Why cheques dishonor

CHEQUES INTRODUCTION: It is a credit instrument, which is used to withdraw the deposited money from the bank, whenever account holder wants to withdraw his deposited money from the bank; he issues a cheque on the bank. It is an order given by the account holder to the bank and bank is responsible to pay on the demand.

DEFINITION: “It is an order given by the account holder to the bank to withdraw (deposited) money from the bank”.

SPECIMEN OF CHEQUE


Muslim Commercial Bank Ltd. Dated  _________ 
Gulshen-e-Iqbal Branch Karachi. Cheque No.54476

Pay ______________________________________ or Bearer Rupees ____________________________________ Rs. 
                                                                              Signature__________

ESSENTIALS OF CHEQUES Cheque must fulfill the following conditions otherwise its status as credit instrument will not be accepted and it will be declared as dishonored cheque.

SIGNATURE: Cheque must be signed by the account holder. The bank possesses in its record the specimen signature of the account holder. The sign must match to it.

UNCONDITIONAL: The cheque must be unconditional. Conditional cheque loses its legality.

ORDER: It must be in the form of an order, not a request.

WRITTEN FORM: Cheque must be in writing form. An oral order to bank for drawing cash not accepted as cheque.

DRAWN ON BANK: The cheque must be drawn on the bank.

PARTIES TO A CHEQUE

DRAWER (ACCOUNTHOLDER): Drawer means account holder, who has account in the bank and issues the cheque by signing it. The drawer issues cheque as order to the bank to pay a certain amount of money to him or a person named therein.

PAYEE (RECEIVER OF THE MONEY): It is the person who receives the amount of the cheque. It names written on the cheque as a receiver of the money. He may be accountholder or any other person.

BANK: Bank is a third party, who receives the order of the drawer (account holder), in the shape of cheque or endorser and make sure the payment of the amount mentioned in the cheque to the payee 

WHY CHEQUES DISHONOR Whenever a cheque is refuse and bank does not pay the amount against it. That kind of cheque is called dishonor cheque. The bank is authorized to refuse the cheque on the following conditions.

• DIFFERENCE IN THE SIGNATURE: Cheque is signed by the account holder. The bank possesses in its record the specimen signature of the account holder. The sign must match it. Otherwise bank can refuse the cheque.

• INSUFFICIENT AMOUNT:
If the amount of the cheque is greater than the balance in the account, bank refuses the cheque. If account holder granted overdraft facility then banks can accept it.

• POST-DATED CHEQUE: If the cheque bears a future date it is known as post-dated cheque. The banks have policy through which banks refuse these kinds of cheques. Bank will cash only present-day cheque.

• STALE CHEQUE: Bank refuses the stale cheque. These cheques are older then six months.

CHANGES IN THE CHEQUE: Any alteration in the cheque made it dishonored.

DEATH: The bank stops the payment against the cheque whose drawer has died.

INSTANTY: If the account holder loses his sense and doctor confirms the instanty, and the bank gets this information formally, the cheque will be refused.

BANKRUPTEY: Bank also refuses the cheque if account holder declared bankrupt by the court.

GARNISHEE ORDER: If the court issues order to bank for the stoppage of the payment against cheques, this cheque will be dishonored.

• DIFFERENCE IN THE AMOUNT: The amount on the cheque is written in words and in figures. If both the amounts are different then cheque will refuse.

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KINDS OF CHEQUE 

BEARER CHEQUE: This is a cheque in which receiver name is not mentioned. It is called bearer cheque. Any person, who presents this cheque to the bank, bank pays the cash to him.

ORDER CHEQUE: This is a cheque, in which receiver name is mentioned. In such case the words “bearer” is cancelled. It is payable to a person whose named written therein.

CROSS CHEUQE: This is a cheque in which two parallels lines are drawn therefore it is called cross cheque. It cannot be cased at the counter of the bank. It must be deposited in the bank account of the payee. Cross cheque are safer then bearer and order cheque.

CONFIRMED CHEQUE: When the bank confirms a cheque it is known as confirmed cheque, these kinds of cheque cannot be bounced, they are exactly reliable the bank deducts confirmation charges

PAY ORDER: It is a cheque in which a bank orders the other bank to pay a certain amount of money to the third party. It is payable within a city. It is issued to a person requesting for it only when he has deposited the same amount plus bank charges with the bank.

OPEN CHEQUE: When the crossing of a crossed cheque is cancelled it becomes an open cheque and it can be cashed at the counter of the bank.

BANK DRAFT: It is a cheque in which bank orders the other bank located outside the city or country to pay a certain amount of money to the third party. If the draft is issued in favor of a person in a foreign country it is known as a foreign bank draft and if it is issued for a person in the other city with in a country, it is called inland draft.

CROSS CHEQUE INTRODUCTION: When two parallel lines are drawn on the cheque, it becomes a cross cheque. It is a kind of cheque, which cannot be cashed at the bank counter, while it is deposited into the payee account (receiver). It ensures safety and minimizes the possibility of falling into wrong hands. The two parallel lines drawn on the cheque may or may not carry words (Not negotiable), (& Co.) (A/c Payee only)

SPECIMEN OF CROSS CHEQUE

Muslim Commercial Bank Ltd. Dated _________

Gulshan-e-Iqbal Branch Karachi. Cheque No.54476

Pay _______________________________________ or Bearer Rupees ___________________________________Rs 
                                                                               Signature_________

KINDS OF CROSS CHEQUE 
1. GENERAL CROSSING: When two parallel lines are drawn lines on the cheque it becomes a cross cheque with general crossing. It may be blank or may carry words between it. For examples

• NOT NEGOTIABLE CROSSING If between these two lines word “not negotiable” is written. Then it will lose its negotiability. This cheque cannot be transferred to any other person.

ACCOUNT PAYEE CROSSING If between these two lines word “Account Payee” is written. Then it will also lose its negotiability, and the bank is bound to pay to the person, which name written on the cheque.

• PLAIN CROSSING It between these two lines word is written “& Co”. Or it remains blank so it is called plain crossing. These kinds of cheques do not lose its negotiability and can be transferred to other parties. 2. SPECIAL CROSSING: When two parallel lines are drawn lines on the cheque and between them bank & its branch name is written it called special crossing. This act further secures transfer of money. This cheque can only be presented to the bank and its branch, which name written there in.



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