Cheque and Demand Draft Part 2

What is Cheque and Parties involved

“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”.

1) Drawer - He is a person who holds the account and has written and signing authority on cheque. Therefore, he issues cheques of his bank account. He is directing banks to pay a certain amount of money to the certain person or to the bearer of the cheque. Therefore, in simple words, you may say that a person who holds the bank account and who sign on cheque is called the drawer. meaning and Parties involved 

2) Drawee - Drawee is a party upon whom the cheque is written. The drawee is your bank. So drawer is giving instruction to drawee to pay an amount mentioned on the cheque to the person named or to the bearer of the cheque. When your bank follows the instruction and pay the cash to the person whose name mentioned on cheque or to the bearer of cheque then it is called as “cheque is honoured”. If payment not done, then it is called “cheque dishonoured”. 

3) Payee - He is a person to whom the payment will be made. His name will be mentioned on cheque, so he is an authorized person to receive cash.So if drawer himself need to withdraw cash from his account using cheque then he need to write as SELF in the payable field of the cheque. In such case drawer himself becomes payee.

1.   Branch address with IFSC code printed top of the cheque 

2.   Date in dd/mm/yyyy format with boxes 

3.   Printers name with CTS-2010 in left side of cheque 

4.  A pantograph which shows VOID/COPY while taking photocopy of the cheque below the account  number 

5.   New rupee symbol instead of bilingual format

6.   “Please sign above” is mentioned on bottom right of the cheque 

7.   Watermark “CTS INDIA” to be visible cheque is held against any light. 

8.   Ultra Violet logo of Bank printed at upper left corner of cheque to be visible in UV lamps Best practices writing a cheque essential features of a cheque

                       

1.   A Cheque must be in writing. The writing may be by means of a pen, a type-writer, printed characters, ball- pen or even pencil because law has not specified the writing materials with which a cheque has to be written. 

2.   Cheques must be in form of a order and not in form of a request. 

3.   The order must be unconditional. If any condition is attached with the order, the cheque will lose its legality. 

4.   The Amount demanded must be for certain amount in

money and not in kind. 

5.   The payment must be made to a certain person, bearer or self. 

6.   It must be drawn on a banker. 

7.  It must be signed by the account holder.

Types of cheques

•   Bearer Cheque

•   Order Cheque 

•   Account Payee Cheque 

•   Crossed Cheque 

•   Anti-Dated Cheque 

•   Post-Dated Cheque 

•   Stale Cheque 

•   Company Crossed Cheque types of cheques 

1. Bearer Cheque

When the words "or bearer" appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.

2. Order Cheque

When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred). types of cheques 

3. Account Payee Cheque

When two parallel lines along with a crossed made on the cheque and the word 'ACCOUNT PAYEE' written between these lines, then that types of cheques are called account payee cheque. The payment of the account payee cheque taken place on the person, firm or company on which name the cheque issue. types of cheques

4. Crossed Cheque

Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee's account. types of cheques

5. Anti-Dated Cheque

If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid upto three months from the date of the cheque. types of cheques 6. Post-Dated Cheque If a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post dated cheque cannot be honoured earlier than the date on the Cheque.

7. Stale Cheque

If a cheque is presented for payment after six months from the date of the cheque it is called stale cheque. A stale cheque is not honoured by the bank. types of cheques 8. Company Crossed Cheque When two parallel lines along with a cross made on the cheque and the word 'COMPANY' written between these lines, then that types of cheques are called company crossed cheques. Then the type of withdrawn does not take in cash while the person on which the cheque issue, transferred on its account. Normally crossed cheque and company crossed cheque are same. Endorsement of a cheque Endorsement of a cheque means signing one’s name either on the back of a cheque or on its face or on a slip of paper called the allonge for the purpose of transferring the interest, right, property or title in the cheque to another person. The person who endorse the cheque is called the endorser of the cheque. The person to whom the cheque is endorsed is called the endorsee of the cheque.

What is Demand Draft

A demand draft or a DD is a negotiable instrument issued by the bank. The meaning of negotiable instrument is that it guarantees a certain amount of payment mentioning the name of the payee. It cannot be transferred to another person in any situation.

The bank issues the draft to a client (drawer) directing another bank or own branch to pay the specific amount to the payee. Demand drafts can be compared to cheques but these are hard to counterfeit and more secure. This is because the drawer has to pay before issuing a demand draft to the bank whereas cheque can be issued without ensuring the sufficient funds in your bank account. Therefore, cheques can bounce but drafts assure a safe and on-time payment.

The drafts are payable on demand. It cannot be paid to the bearer but the beneficiary has to present the instrument directly to the branch. It can also be collected by the clearing mechanism of the bank. Mostly, demand drafts are issued in situations where the parties are unknown to each other and lack trust. It comes handy in such situations as there are almost no chances of fraud and counterfeiting.

It is not mandatory that you should have a Bank Account in the Bank from where you are preparing the Demand Draft The Demand Draft can be made by paying the Bank in Cash as well, but for Demand Drafts exceeding Rs. 50,000 the payment should be by cheque only. Quoting your PAN No. is also necessary in case the value of the DD is more than Rs. 50,000.

Types of Demand Draft

Sight Demand Draft

This type of DD is approved and paid only after the verification of certain documents. The payee will not be able to receive any money if he/she fails to present any of the required documents.

Time Demand Draft

A Time DD is payable only after a specific period of time and before that, it cannot be drawn from the bank.