Cheques Definition Types and Essentials

A cheque is defined under S.6 of the Negotiable Instruments Act, 1881 as "a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand." It includes the electronic image of a truncated cheque and a cheque in electronic form (Explanation added by 2002 Amendment).

flowchart TD
  C(["Cheque (S.6 NI Act):<br/>bill of exchange on a banker,<br/>payable on demand"])
  C --> BY["By how it is paid"]
  BY --> B1["Bearer<br/>payable to holder"]
  BY --> B2["Order<br/>payable to named payee / endorsee"]
  C --> CR["By crossing"]
  CR --> CR1["Open (uncrossed)"]
  CR --> CR2["Crossed: general / special;<br/>paid only through a bank"]
  C --> EL["Electronic / truncated cheque<br/>(2002 Amendment)"]

Legal Framework

Essentials of a Valid Cheque

Why: The cheque's function as a payment substitute for cash requires strict formality. Each element ensures the banker can process payment with certainty and without risk of dispute.

Types of Cheques

By Mode of Payment

By Time

By Special Features

Material Alteration (S.87)

Any alteration in the material particulars of an instrument that is apparent on the face renders it void against parties who did not consent to the alteration.

Why: Material alteration protection prevents fraud. If alteration were permitted without consequence, instruments would lose commercial reliability.

Dishonour of Cheque

Illustrations

1. Bearer vs Order vs Account Payee (the envelope analogy): Bearer cheque = cash in an unsealed envelope. Whoever holds it can take the money. If you drop it on the street, the finder can encash it. Order cheque = cash in a sealed envelope addressed to "Ramesh." Only Ramesh can open it (or someone Ramesh signs it over to via endorsement). Account Payee cheque = cash wired directly to Ramesh's bank account. Even if Ramesh signs the back, no one else can encash it. It MUST go into Ramesh's account.

2. Post-dated cheque (why it's still valid): You buy a refrigerator on 1 June and give the shopkeeper a cheque dated 1 July (post-dated). On 15 June, the shopkeeper presents it. The bank returns it: "Post-dated instrument." On 1 July, the shopkeeper presents again. NOW it's payable on demand (the demand date has arrived). If it bounces on 1 July, S.138 applies.

3. Material alteration (what goes wrong): A issues cheque to B for Rs.5,000. B erases "5" and writes "50,000" (changes amount). This is material alteration the cheque is now VOID (S.87). If C innocently receives this altered cheque, C gets nothing. The bank is protected for refusing payment. Lesson: always write amounts in words AND figures, and draw lines through unused space.

4. Stale cheque vs S.138: D gives E a cheque dated 1 January 2026. E forgets about it, finds it in a drawer on 10 May 2026 (4+ months later). E presents it. Bank returns: "stale cheque." E files S.138 complaint. This FAILS because S.138 requires presentation "within the period of validity." After 3 months, the cheque is dead no criminal consequence. E's remedy is civil: sue D for the debt, or ask D for a fresh cheque.

Order and Bearer Cheques (S.13)

Why: S.13 decides how the instrument is negotiated: an order cheque by endorsement and delivery, a bearer cheque by delivery alone (S.47, S.48). Under S.85(2), a cheque originally payable to bearer remains payable to bearer despite any later endorsement.

Old Law to New Law

• 1988 amendment: Chapter XVII (S.138 to S.142) was inserted by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, making dishonour of cheques for insufficiency of funds an offence.
• 2002 amendment: The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 added the electronic cheque and the truncated cheque to S.6, and S.89(2) on truncated cheques.
• Validity: The S.138 proviso refers to six months or the period of validity, whichever is earlier. Since 1 April 2012 the RBI has reduced the validity of cheques to three months, so three months now applies in practice.

Requirements

To test a cheque and the drawer's liability, check:

• Definition (S.6): Is it a bill of exchange drawn on a specified banker, payable on demand?
• Essentials: Writing, unconditional order, certain sum, signed by the drawer, payee identified or bearer.
• Order or bearer (S.13): How is it expressed, and how must it be negotiated?
• Date: Is it post-dated, and has its date arrived (Ashok Yeshwant Badave)? Is it within its three-month validity?
• Alteration (S.87): Has a material particular been altered without the consent of the parties?
• Dishonour: On what ground, and could the drawer have caused it (Laxmi Dyechem)?
• S.138 conditions: Presentation within validity, notice within 30 days of information of dishonour, failure to pay within 15 days of notice.

Illustrations

5. Pay Suraj: A writes a cheque "Pay Suraj Rs.10,000" and strikes out nothing else. It is an order cheque (S.13 Explanation (i)). Suraj can negotiate it by endorsement and delivery. If he endorses it in blank, it becomes payable to bearer (S.13 Explanation (ii)).

6. Marked cheque: A drawee bank's manager writes "good for payment" on a post-dated cheque. When it is dishonoured, the holder cannot sue the bank as an acceptor (Bank of Baroda v Punjab National Bank, 1944).

Key Cases

Ashok Yeshwant Badave v Surendra Madhavrao Nighojakar (2001) Ashok Yeshwant Badave v Surendra Nighojakar 2001
Issue: From which date is the period for presenting a post-dated cheque under S.138 counted: the date it was handed over, or the date it bears?
Rule: A post-dated cheque is only a bill of exchange until the date written on it; on that date it becomes a cheque.
Held: A three-judge Bench, agreeing with Anil Kumar Sawhney v Gulshan Rai (1993), held that the period for presentation runs from the date on the face of the cheque. The cheque, handed over on 10 November 1995 but dated 20 January 1996, was presented within time, and the prosecution was upheld.

Laxmi Dyechem v State of Gujarat (2012) Laxmi Dyechem v State of Gujarat 2012
Issue: Whether dishonour of a cheque because the drawer's signature does not match the specimen with the bank can attract S.138.
Held: The High Court was wrong to quash the complaints. "Insufficiency of funds" and "exceeds arrangement" are not the only grounds that attract S.138; dishonour for reasons such as account closed, payment stopped or signature mismatch may also do so where the drawer brought it about to avoid payment. That is a matter for trial.
Principle: S.138 is read purposively; a drawer cannot escape by deliberately causing dishonour on a "technical" ground.

Bank of Baroda v Punjab National Bank (1944) Bank of Baroda v Punjab National Bank 1944
Issue: Whether the drawee bank, by marking a post-dated cheque "good for payment", accepted the cheque and became liable on it.
Held: The Privy Council held that the certification was not an acceptance. A cheque is accepted, if at all, only in very unusual and special circumstances, and no reported case had held a banker liable as acceptor of a cheque. (Partly verified: the Privy Council text was checked on secondary sources, not on Indian Kanoon or sci.gov.in.)

Distinctions

Criticism and Debate

• Criminalising debt: S.138 turns a civil debt into an offence. Supporters say it restored faith in cheques; critics say it clogs criminal courts, where cheque cases form a very large share of pending complaints.
• Technical defences: Before Laxmi Dyechem (2012), drawers escaped by closing accounts or altering signatures. The purposive reading closes that gap but widens criminal liability.
• Post-dated cheques: Treating a post-dated cheque as a bill of exchange until its date (Ashok Yeshwant Badave) is logical, but post-dated cheques are routinely taken as security, which blurs the line between payment and security.
• Decline of cheques: With digital payments growing, the cheque's role is shrinking; the law of S.13 and crossing remains important mainly in examinations and disputes over older instruments.

Essay Outline

1. Introduction: The cheque as a special bill of exchange (S.6).
2. Essentials.
3. Kinds: Order and bearer (S.13), crossed and open, post-dated, stale, electronic and truncated.
4. Material alteration: S.87, S.89.
5. Dishonour: S.31, S.138; Ashok Yeshwant Badave; Laxmi Dyechem.
6. Certification: Bank of Baroda v Punjab National Bank.
7. Critique and conclusion.

Recall Check

1. What distinguishes a cheque from an ordinary bill of exchange under S.6?
2. What constitutes "material alteration" under S.87 and what is its legal consequence?
3. Under what circumstances does S.138 NOT apply to a dishonoured cheque?
4. Is "Pay Suraj" an order cheque or a bearer cheque? Why?
5. From which date does the validity of a post-dated cheque run?
6. Can dishonour for signature mismatch attract S.138?

Flashcards