What is a Cheque – Types, Features, Chequebook, Advantages

A cheque plays a significant role in the Indian financial system even in today’s digital banking era. Whether you are a business owner, a professional, or an individual managing personal finances, understanding how cheques work is essential. The information provided on this page covers everything from the basics of cheques to digital alternatives which will help you navigate this traditional payment method.

A cheque may be issued against a current account or a savings account. Every bank cheque has a cheque number, MICR and IFSC code. Under this mode of fund transfer, there are three parties involved in the on-track movement of money through a written paper source.

What is a Cheque?

A cheque is a financial document that orders a bank to pay a specific amount of money from a person’s account to the person in whose name the cheque has been issued. Essentially, it is a written instruction to transfer money from one account to another or withdraw money from an account.

Key Components of a Cheque

Drawer: The person who writes the cheque and has a bank account

Drawee: The bank on which the cheque is drawn

Payee: The person or entity who receives the payment

Amount: The sum of money to be paid, written in both figures and words

Date: When the cheque was issued

Signature: The drawer’s signature authorizing the payment

Cheque Number: A unique 6-digit number printed on a cheque that serves as a reference for tracking the cheque and is important for keeping a record of the cheque

MICR Code: Stands for Magnetic Ink Character is a 9-digit code printed at the bottom of the cheque which allows banks to process cheques quickly and accurately

Features of Cheque

• It is an unconditional order
• It is always drawn on a particular bank
• A signature on the exchequer is a mandate and should be only done by the maker
• The amount is always a certain sum of money in one’s account
• It is always payable on demand
• Its payment is always in cash or account transfer
• The cash amount is to be paid to the person mentioned therein, or order, or the bearer

Types of Cheques in India Bearer Cheque: Payable to anyone who presents it at the bank. Order Cheque: Payable only to the person whose name is mentioned on the cheque. Crossed Cheque: Contains two parallel lines on the top left corner, indicating it must be deposited into a bank account. Account Payee Cheque: Can only be deposited in the account of the person whose name appears on the cheque. Post-dated Cheque: Dated in the future and can be cashed from the date mentioned in the cheque. Stale Cheque: A cheque that is older than three months that the bank won’t honour. Self Cheque: Used to withdraw cash from your own account

Read in detail: Types of Cheque

How to Fill a Cheque Correctly

To ensure that your payment is processed without any complications, you must properly fill out your cheque properly. Below-mentioned steps explain how to be careful while filling out cheque:

Step 1: Write the date: Enter the current date in DD/MM/YYYY format in the top right corner of your cheque

Step 2: Enter the payee’s name: Mention the full name of the person or organization receiving the payment after “Pay”

Step 3: Write the amount in figures and in words: Enter the amount in numbers in the box provided and then in words on the line below the payee’s name, followed by “only” (e.g., “Five thousand rupees only”)

Step 4: Sign the cheque: Sign in the bottom right corner as your signature in the bank records

Step 5: Cross the cheque: If you want the cheque to be deposited directly into the account, draw two parallel lines in the top left corner

Mistakes to Avoid while Writing a Cheque

• Signature mismatch with the bank records
• Incorrect Date format
• Different Numerical and written amounts
• Writing outside the designated space
• Leaving gaps that could be misused

Cheque Clearing Process

A cheque goes through different stages when you deposit it before funds become available:

Standard Clearing Process

1. Deposit: The payee deposits the cheque at their collecting bank
2. Forwarding: The collecting bank forwards the cheque details to the clearing house
3. Settlement: The clearing bank processes the transition and settles the payment between banks
4. Verification: The drawer’s bank verifies the cheque details and authenticity
5. Fund Transfer: If everything is in order, funds are transferred to the payee’s account

Time Taken for Clearing Cheques

Local Cheques: Usually takes 1-2 days

Outstation Cheques: It can vary based on location (3-14 days)

How to Cancel or Stop a Cheque Payment

Mentioned are the ways to cancel or stop a cheque:

• Inform your bank immediately about stopping the cheque
• Share the cheque number, date, amount, and payee’s name with the bank
• The bank might ask you to submit formal written instructions
• A cheque stands cancelled after three months of issuance

Purpose of a Cancelled Cheque

As all the primary details of your bank account are present in a cancelled cheque, it helps a verifier/auditor to confirm these details of yours. Moreover, a Cancelled Cheque doesn’t necessarily require your signature on it, so there aren’t any security issues which you should be concerned about when you submit your bank cheque as proof of your financial identity.

• While borrowing loans: You are required to submit cancelled cheques to banks when you apply for a loan such as a car loan, home loan, personal loan, or loan against property with them. A cancelled cheque is considered proof of your bank account with the prospective lender bank.
• When investing in the market: When you are investing in the stock market such as the National Stock Exchange or the Bombay Stock Exchange, the service provider will ask you for your cancelled cheque.
• Organizations usually ask for cancelled chequesto verify a person’s banking and financial profile. This is because through a single cancelled cheque they acquire all the usually required details of verification for your bank account.
• When you buy mutual fundsyourself or through a third party agency as per government rules, you need to provide a cancelled cheque as proof of your bank account to the seller so that any funds and derivatives which are received through your mutual funds transactions are credited in your bank account directly. As aforementioned, whenever a credit has to happen in your bank account, a cancelled cheque is required by the creditor to verify the account first.

What is a Crossed Cheque

A crossed cheque is any cheque which is crossed with two parallel lines. The lines can be drawn either across the whole cheque or through the top left-hand corner. What does it signify? It simply means that the specific cheque can only be deposited straightway into a bank account and cannot be instantly encashed by a bank or any credit institution. This ensures a level of security to the payer since it requires the funds to be handled through a collecting bank.

Different ways to Cross a Cheque

Cross cheque focuses on the instruction given by the drawer (maker) of the particular cheque to the drawee bank. This instruction demands to pay the cheque at the counter of the bank, but with a strict direction to pay it to a person who offers it through a banker. What is the purpose of crossing? Crossing makes it possible to trace the person to whom the amount/payment has been made. In India, there are various crossing tools to safeguard cheque payments such as:

General Crossing

This type of cheque crossing requires two parallel transverse lines. There isn’t any restriction on putting these parallel lines on a specific area on the cheque, but they can be drawn anywhere. Usually, it is advisable to put it on the top left corner of the cheque. The usefulness or significance of this crossing is that the cheque should essentially be paid only to the banker.

Special Crossing

Special Crossing cheque does require the name of the banker. The effect of this type of crossing is that the cheque should be funded only to the banker to whom it is crossed. It is a reminder to all the people that a special crossing cannot be changed into a general crossing.

Not Negotiable Crossing

In this type of cheque crossing variety, the paper document needs to contain the words ‘not negotiable’. Moreover, the cheque can be crossed specially or generally.  What is the effect of this crossing?  The cheque remains non-negotiable (transferrable) as well as the title of the transferee will not be better than the title of the transferor.

Uncrossing a Cheque

• If you are now familiar with the cross cheque meaning, then clearly there is no way the payee can uncross the cheque. Furthermore, the cheque is considered non-transferable, which means it cannot be transported to a third party. However, the only action which is allowed is for the payee to deposit the cheque in an account that he/she holds with their name.
• Therefore, the payer can uncross the cheque by lettering “Crossing Cancelled” across the front side of the cheque. However, such an action isn’t recommended since it eliminates the protection the payer initially had in place.

Advantages and Disadvantages of Cheque

Advantages 

• It is safer and more convenient to carry around than cash
• It is a negotiable instrument which can be endorsed in favour of a third party.
• It can be easily traced if lost

Limitations 

• Payments through cheque may be sometimes refused since it is not legal tender money
• Individuals who do not possess a bank account cannot use cheques
• Depositing a cheque into your bank account requires you to visit the bank and is time-consuming

What do you mean by Cheque Leaf

A cheque leaf, commonly known as a Cheque, is a tool which is used to transfer funds from one bank account to another. A bundle of cheque leaves attached is a cheque book which is provided by the bank to its customers.

• A cheque was developed to conduct safe and secure financial transactions.
• Cheques enable you to transfer large amounts of money from one bank account to another without the requirement of a physical transfer.

Positive Pay System

• A positive pay system has been introduced to reduce fraud which occurs due to tampering and increase customer safety in cheque payments
• The process involves reconfirming the details of large-value cheques, that is, cheques exceeding Rs. 50,000. The cheque is honoured if the details match, the discrepancy is flagged in case there is a mismatch.

How to Apply for a New Chequebook

There are various ways in which you can apply for a new chequebook using any of the following means given below:

• Internet Banking: You can log in to your bank’s internet banking account and request a chequebook by mentioning details like your account number and mailing address. The chequebook is then delivered to the address linked to your bank account.
• Mobile Application: You can simply log in to your bank’s mobile app and request a chequebook.
• ATM: You can also apply for a chequebook through an ATM by simply following the steps given below:

1. Visit your bank’s ATM and insert your debit card
2. Enter your PIN and choose the ‘issue new chequebook’ option
3. Click on ‘Submit’
4. Once your request is submitted, your chequebook will be sent to your address

• Branch Visit: You can also visit your bank branch and request a new chequebook

Things to Keep in Mind when Writing a Bank Cheque

• Omit the words ‘OR BEARER’ and Add ‘A/C Payee’ at the top left corner of the cheque. This ensures that no one apart from the individual in whose favour this cheque is drawn can acquire the stated amount
• Avoid leaving spaces between the words PAY and the Name of the Receiver and also between the name and surname. This practice is important since it doesn’t offer anyone a chance to fill in the alphabet before or after the name to claim the money.
• Always write ‘ONLY’ after mentioning the amount in words in the ‘RUPEES’ column by using the symbol ‘/-‘at the end
• Ensure there is no sort of overwriting. It means, that no scribbling or cancellation of text would be entertained by the banks
• Fill in the correct date. A cheque without a date permits anyone to put any date and pull-out cash using the bank cheque at their will. Further, a cheque with a post- or pre-date is another issue that can lead to dishonouring of the cheque. Moreover, a wrongly written date, for example, the wrong year or month would also lead you to a problem
• Make sure you do not hand over a cheque without the presence of the date, amount of cheque in numbers and words and the Payee’s name
• Keep your signature clear and if needed, sign twice to ensure that the cheque is not bounced due to a signature mismatch
• Further, mention the credit card number, mobile number, connection number, etc., on the reverse side of the cheque while you make payments towards bills for utilities
• It is strictly prohibited to staple, disfigure or fold cheque or any sort of damage to MICR Band

Different banks across India have stated specific guidelines regarding the proper filling of cheques. It is important to go through your bank’s guidelines for acquiring proper awareness. Further, do not miss to check out conditions for cheque bounce; this would make you more alert during the cheque filling process.

What are the Possible Reasons why Bank can Dishonour a Cheque

A bank can refuse to make the payment mentioned on a cheque due to various reasons. Some of them are mentioned as follows:

• Insufficient funds in the payer’s bank account
• Signature missing or mismatch
• Account number mismatch
• An issue with the date of the cheque
• Mismatch in the amount of words and numbers
• Disfigured or damaged cheque
• Crossing the limit of the overdraft
• Scribbling, overwriting or omissions on the cheque without authorization(signature) of the payer
• Cheque is expired
• Drawer’s account is closed
• Payment is stopped by the drawer
• Garnishee order on account
• Death or insanity of the drawer
• The seal of the company is missing on the cheque issued by an organization
• Suspicion of a forged cheque

MICR

MICR or Magnetic Ink Character Recognition is a 9-digit code generally printed at the bottom of the cheque leaf. The first three digits represent the city, the next three the bank and the last three the particular branch code. The MICR code on cheque helps in easier identification of cheques, eliminate payment errors and process cheque payments faster.

Digital Alternatives to Cheques in India

While cheques remain relevant, digital payment methods offer faster, more convenient alternatives:

Some of the popular digital payment options are mentioned below:

1. NEFT (National Electronic Funds Transfer): Transfer funds between banks during specific hours (any amount)
2. RTGS (Real Time Gross Settlement): High value transactions (minimum Rs. 2 lakh) with real time processing
3. IMPS (Immediate Payment Service): Instant transfers available 24×7 (maximum limit on IMPS is Rs. 5 lakh, and minimum is Rs. 1)
4. UPI (Unified Payments Interface): Immediate fund transfers using mobile devices (maximum Rs. 1 lakh)
5. Mobile Banking Apps: Conduct various banking transactions through smartphones
6. Net Banking: Online fund transfers and other banking services
7. E-wallets: Store money digitally and make quick payments

Advantages of Digital Payments over a Cheque

• Instant and faster
• Lower processing fees
• Available 24×7
• Risk of fraud is reduced
• No physical handling required
• Automated record keeping

Read More

Demand Draft	RTGS	NEFT
IMPS	Mobile Banking	Net Banking
UPI	Bank Holidays	Savings Account

FAQs

Q. What is the punishment and penalty related to a dishonoured cheque?

Ans. The court, after receiving the complaint along with relevant documents, will start the case. If the drawer is found guilty, as per Section 138 of the Negotiable Instruments Act, 1881, he/she can be sent to the jail for up to two years and/or pay the penalty of amount twice the cheque amount. In addition, the banks also have the right to close the guilty person’s account (on repeated bounce cheque offence) or stop their cheque book facility. The bank may also charge a penalty to both the drawer and the payee for the inconvenience, extra paperwork and wasting the bank’s time.

Q. What happens if the payee takes legal action against the drawer?

Ans. If the payee decides to proceed legally, a chance is given to the drawer to pay the cheque amount immediately. For this, the payee is supposed to send a notice to the drawer within 30 days from the date the payee receives the “Cheque Return Memo” from the bank. The notice should state that the cheque amount must be paid to the payee within 15 days of receiving the notice.

If the drawer still fails to pay money to the payee within 30 days of receiving the notice, the payee has full right to file a criminal report against the drawer as per Section 138 of the Negotiable Instruments Act, 1881. But the complaint or report should be registered in a magistrate’s court within a month of the expiry of the notice period.

Q. What happens if a cheque is dishonoured by the bank?

Ans. As per the Negotiable Instruments Act, 1881, if a cheque is dishonoured by the bank due to insufficient money in the bank account of the drawer then it is a criminal offence. In such a case, the drawee bank issues a ‘Cheque Return Memo’ to the payee’s bank mentioning the reason for non-payment. In turn, the payee’s bank handovers the bounced cheque and the memo to the payee.

Now the payee has the choice to either re-present the cheque within three months from the date mentioned on it or legally prosecute the drawer. If the payee proceeds with the former choice and if even the second time, the drawer fails to make the payment then the payee has the right to sue the drawer. However, the payee can sue the drawer only if the amount mentioned on the dishonoured cheque is to pay off a debt or any other liability of the drawer towards the payee. The drawer cannot be sued in such cases in which the cheque was handed out as a gift or to lend a loan to the payee or for unlawful purposes.

Q. What is the difference between depositing and cashing a cheque?

Ans.

Encashing	Depositing
Cashing a cheque means that you’ll be offered the cash in hand. You can simply walk away with the complete amount of the payment and can spend that money as per your requirements and without any restriction.	Depositing a cheque means adding that amount to your bank account or credit union. Under the deposit process, you might need to wait a couple of days until the full amount is available for withdrawal or spending.

Q. Is a cheque payable outside of banking hours?

Ans. No, a bank is liable to make the payment only during working hours.

Q. Can banks refuse to make a payment?

Ans. Yes, the bank can refuse to make a payment in the following circumstances:
If the cheque is without a date
In case more than 3 months have elapsed since the issue of the cheque
In case a post-dated cheque is presented before its date

Q. What is a cheque number?

Ans. It is a 6-digit unique number printed on each cheque leaf.

Q. Can a cancelled cheque be used multiple times?

Ans.Yes, the same cancelled cheque can be used multiple times.

Q. Can I cancel the cheque using red ink?

Ans. You should always use black or blue ink to cancel the cheque. No other colours are accepted.

Q. What is the validity period of a cheque?

Ans. A cheque is usually valid for three months from the date of issuance. After this period, the cheque becomes stale and cannot be encashed unless the drawer revalidates it.

Q. What is the difference between a bearer and an order cheque?

Ans. A bearer cheque can be encashed by anyone who presents it at the bank, while an order cheque can only be paid to the person whose name is written on the cheque after proper identification.

Q. How long does it take for a cheque to clear?

Ans. A local cheque gets cleared in 1-2 working days, while an outstation cheque may take 3-14 days depending on the location.

Q. What happens if I write the wrong date on a cheque?

Ans. If the mentioned date is in the future, the cheque becomes post-dated and cannot be processed until that date. If the date is more than three months in the past, the cheque is considered stale and cannot be honoured. The bank may still process the cheque for minor errors if other details are correct.

Q. Can I cancel a cheque after issuing it?

Ans. Yes, you can cancel a cheque after issuing it by requesting your bank to stop the payment before it’s processed. You will have to provide the details of your cheque and a stop-payment fee.

Q. Is it safe to share a cancelled cheque with someone?

Ans. A cancelled cheque with “CANCELLED” written on it is relatively safe to share. However, this cheque does reveal your bank details. Hence, it is advised that you share such cheques with trusted entities.

Q. Can a cheque bounce even if there’s balance in the account?

Ans. Yes. Cheque bounce can happen even if there is sufficient balance in the account due to signature mismatch, stale dates, errors in the cheque, stop payment instructions, account freeze, etc.

Q. How can I track the status of my cheque?

Ans. You can track the status of your cheque through internet banking, mobile banking apps, or by contacting customer care service with the cheque number and deposit date if your bank allows this service.

Q. What to do if I lose a signed cheque?

Ans. If you lose a signed cheque, immediately issue a stop-payment instruction to your bank. Provide all the details about your cheque to the bank like its number, date, and amount. You can file a complaint if your cheque is stolen.

Q. What is the difference between a cheque and a demand draft?

Ans. An account holder issues a cheque, while a bank issues a demand draft. A demand draft cannot bounce due to insufficient funds, as the amount is paid in advance to issue a demand draft. Hence, demand drafts are generally considered more secure of the recipient.

Q. What are the numbers on cheque?

Ans. These numbers on cheque are present – MICR code, cheque number, RBI account number, transaction code, cheque amount, account number, etc.