Section 6: 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.
Explanation I For the purposes of this section, the expressions
(a) “a cheque in the electronic form” means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system;
(b) “a truncated cheque” means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.
Explanation II For the purposes of this section, the expression “clearing house” means the clearing house managed by the Reserve Bank of India or a clearing house recognised as such by the Reserve Bank of India.
The definition shows that the cheque is a bill of exchange drawn on a specified banker and payable on demand. Unless restricted it is negotiable by endorsement and delivery. While all cheques are bills of exchange, all bills of exchange are not cheques. A cheque must conform to all the conditions laid down in the section 5 relating to bills of exchange. Although these two instruments have several things in common, they differ from one another in many respects.
If we compare the Sections 4, 5 and 6 of the Act, we can deduce that in the promissory note there are two persons i.e the maker and the beneficiary whereas in the bill of exchange there are three persons i.e the maker and the beneficiary and between them, an intermediary is there. Cheque being a Bill of Exchange also has three parties and they are: Drawer, Drawee and Payee.
The person who draws a cheque i.e. makes the cheque. (Debtor) His liability is primary and conditional.
The specific bank on whom cheque is drawn. He makes the payment of the cheque. In case of cheque, drawee is always banker.
“drawee in case of need” When in the bill or in any endorsement thereon the name of any person is given in addition to the drawee to be resorted to in case of need such person is called a “drawee in case of need.
The person named in the instrument (i.e. the person in whose favour cheque is issued), to whom or to whose order the money is, by the instrument, directed to be paid, is called the payee. The payee may be the drawer himself or a third party.
According to the definition of cheque under section 6, a cheque is a species of bill of exchange. Thus, it should fulfill:
The last two additional features distinguish a cheque from bill. Thus, all cheques are bills while all bills are not cheques
A banker’s cheque is a peculiar sort of instrument, in many respects resembling a bill of exchange, but in some, entirely different. A cheque does not require acceptance, in the ordinary course it is never accepted. It is not intended for circulation; it is given for immediate payment, it is not entitled to days of grace, and though, strictly speaking, it is an order upon a debtor by a creditor to pay to a third person the whole or part of a debt, yet, in the ordinary understanding of persons it is not so considered. It is more like an appropriation of what is stated as ready money in the hands of the banker, and in giving the order to appropriate to a creditor the person giving the cheque must be considered as the person who orders his debts to be paid at a particular place, primarily liable to pay, and as being much in the position of the maker of a promissory note, or the acceptor of a bill of exchange payable at a paiticular place and not elsewhere, who has no right to insist on immediate presentment at that place.
|Cheque||Bill of exchange|
|Drawn on the banker.||May be drawn on any person|
|Cheque is always payable on demand. No acceptance is required.||If not payable on demand, requires acceptance|
|Presumption that the cheque is drawn by the drawer on his funds in the hands of the Drawee (Bank)||There is no such presumption|
|Cheque is always payable on demand||3 days of grace allowed for payment.|
|Notice of dishonour not necessary||Notice of dishonour is absolutely essential.|
|Drawer may countermand the cheque before payment||After acceptance there can be no countermand by drawer.|
Since the drawing up of a cheque upon a banker prima facie imlies that the drawer has funds with the bank to operate upon, the payment by the bank necessarily implies that the payment has been made out of the deposit.
Payment by the bank of a cheque drawn in favour of a particular person is no evidence of payment to that person unless it is proved that the cheque has passed through the hands of the person in whose favour the cheque was drawn. In such cases it is desirable to cause the payee to write his name across the cheque.
There is a practice of writing across the cheque the words “to be retained”. The condition imported by these words applies only between the drawer and the payee and has no reference to the banker order on whom is absolutely unconditional.
A cheque is a bill of exchange drawn in a special manner and as a bill of exchange it is negotiable. Although there is no provision in the Act specifically allowing post dated cheques like Sec 13 (2) of the English Bill of Exchange Act of 1882 there is nothing forbidding them, and paragraph 2 of Sec 5 of this Act contemplates the making of a bill of exchange payable at a future date.
The mere fact that the date of payment of the cheque is postponed to a future date does not make the cheque payable otherwise than on demand. It is payable on demand after the due date. Consequently, a holder in due course of a cheque without any notice of any defects is entitled to payment from the drawer.
A cheque is a bill of exchange subject to two qualifications, eg, it shall be drawn on a specified banker and not on a Govt Treasury which is not a bank, and it shall be payable on demand without any days of grace. Demand must be from the date the cheque contains and not necessarily from the day of issue , so that post-dated cheques cannot be presented before the date, the cheque bears, which is taken to be the date of issue. A cheque bearing a date which falls on a Sunday is not bad. A post-dated cheque is admissible in evidence although it bears a stamp for duty payable in respect of a bill of exchange, and after the due date, may be sued upon as a cheque
A cheque which is a payment order can always be revoked by the issue of another order upon the bank to stop payment and it can also be revoked by notice of the death or bankruptcy of the customer.
As already noticed in the case of a cheque, acceptance is not necessary to create a liability to pay as between the drawer and the drawee bank. The liability depends on the contractual relationship between them. If the customer has sufficient fund or credit available with the bank the latter is bound either to pay the cheque or dishonour it at once. But if the bank (at least at the drawer’s request) accepts the cheque, he should be entitled to protect himself as against his customer by setting aside the appropriate funds standing to the customer’s credit.
The practice of certifying cheques is not judicially or legislatively established in India. Marking or certification of a cheque is not an acceptance. It is essentially different in its nature and effect in the absence of a customer treating certification as an acceptance. There is a practice amongst bankers for marking cheques as good for payment for the purpose of clearance by which they become bound to each other. This is entirely different from acceptance, the effect of which is to create a negotiable liability. Wherever such practice of marking prevails as in Calcutta under the Rule 22 of the Calcutta Clearing Banks Association, the practice seems to be simply that after clearing hours a cheque presented for clearing may be marked and will then be paid on the next day when clearing business is resumed. The marking bank is by judicially established custom bound to pay it to the other bank. But this marking or certification cannot be identified with acceptance. That cheques once marked by the bank on whom they are drawn are presumed to be in order and they are honoured as a matter of course irrespective of the question of fund or defect in the instrument appears to have been too broadly stated. In order to see whether a certification of a cheque is by the banker, the certification must be construed according to the meaning of the words used in their setting and independently of the doctrine of negotiability. The question is whether the words appearing on a cheque import a promise by the certifying bank to pay the amount of the cheque whether or not there are funds to it, and if they do, whether there is any privity of contract between the holder and the certifying bank and if there is whether there is consideration for the promise as between these parties.
The words of the certification may be construed as words of representation as to the genuineness of the cheque and of the signature. In case of a cheque which is due for payment at the time of certification it may include a representation as to the sufficiency of the drawer's account at the time. But in case of a post-dated cheque i.e, a cheque not due for payment at the time but some days later a representation as to the position of the fund will not go very far. If it is to be construed as a representation that on the date the cheque will be due there will be funds available it necessarily amounts to a promise and if on that date the requisite fund is not available want of consideration will be fatal to the enforcibility of the promise. The promise, if any, is a non-negotiable promise without consideration. A gentle-man’s agreement or honourable obligation, however important in business, has no validity from the legal point of view.