Cheque

Cheque: The Bill of Exchange Drawn on a Banker

The cheque is the everyday face of negotiable-instrument law. It is a bill of exchange drawn on a specified banker and payable on demand — a written order by the account-holder (the drawer) directing the bank (the drawee) to pay a specified sum to the payee or to the bearer. The cheque combines the simplicity of a personal order with the creditworthiness of a banking institution, and it has become the principal instrument of payment in commercial and personal transactions across India.

Statutory Definition and the Three Parties

Section 6 of the Negotiable Instruments Act, 1881 defines a cheque as 'a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand'. The instrument involves three parties: the drawer (the account-holder who writes the cheque); the drawee (the bank on which the cheque is drawn — the bank, however, does not become liable until it pays, for a cheque requires no acceptance); and the payee (the person to whom payment is to be made). The cheque may be an 'order' cheque (payable to a named person or their order) or a 'bearer' cheque (payable to whoever bears the instrument). A 'crossed' cheque — bearing two parallel lines across its face — is payable only through a bank account and not over the counter, providing protection against theft and unauthorised encashment.

Statutory Protection of the Bank and Dishonour

The Negotiable Instruments Act provides statutory protection to the paying banker and the collecting banker, encouraging the smooth operation of the cheque system. The paying banker is protected, under Section 128, if it pays a cheque in due course (in good faith and without negligence) — even if the endorsement turns out to be forged, the bank is discharged. The collecting banker is protected, under Section 131, if it collects a cheque for a customer in good faith and without negligence. The most consequential provision in Indian practice is Section 138, which criminalises the dishonour of a cheque issued for the discharge of a legally enforceable debt or liability. Where a cheque is dishonoured for insufficiency of funds (or because the amount exceeds the arrangement), and the statutory notice requirements are complied with, the drawer may be prosecuted and punished with imprisonment. Section 138 has transformed cheque-collection practice in India, making the dishonoured cheque not merely a civil wrong but a criminal offence — a unique feature of Indian negotiable-instruments law that has generated a vast body of litigation.

“The cheque is commerce's everyday instrument — a few handwritten lines that command a bank to pay. Its simplicity conceals a sophisticated legal structure: the bank's protection for payment in due course, the holder's rights against the drawer, and in India the criminal sanction that falls upon the drawer of a cheque returned for want of funds. The cheque is at once mundane and momentous.”