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).
Legal Framework
| Provision | Subject |
|---|---|
| S.6 | Cheque defined |
| S.6 Explanation I | Cheque in electronic form |
| S.6 Explanation II | Truncated cheque |
| S.19 | Instrument payable to bearer or order |
| S.85 | Cheque payable to bearer/order: protection to banker |
| S.87 | Effect of material alteration |
| S.138 | Dishonour for insufficiency of funds |
| S.72 | Liability of banker for wrongful dishonour |
| S.31 | Liability of drawee to drawer |
| S.84 | Payment of cheque payable to order: endorsement required |
Essentials of a Valid Cheque
| Element | Requirement |
|---|---|
| In writing | Written, printed, or typed on prescribed form |
| Unconditional order | Must not attach any condition to payment |
| Drawn on specified banker | Drawee must be a bank (not any person) |
| Signed by drawer | Original signature (or digital signature for e-cheque) |
| Certain sum of money | Amount must be definite (words and figures) |
| Payable on demand | Cannot be post-dated beyond 3 months validity |
| Payee named or bearer | Must identify recipient or be payable to bearer |
| Date | Cheque must be dated; valid for 3 months from date |
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
| Type | Feature | Transfer |
|---|---|---|
| Bearer cheque | Payable to bearer or where endorsement in blank | Delivery alone |
| Order cheque | Payable to named person or order | Endorsement + delivery |
| Account payee cheque | Crossed with "Account Payee" | Cannot be negotiated further; credit only to payee's account |
By Time
| Type | Feature | Validity |
|---|---|---|
| Open cheque | Not crossed; payable at counter | On presentation |
| Post-dated cheque | Date is future | Payable only on or after date |
| Ante-dated cheque | Date is past but within validity | Valid if within 3 months |
| Stale cheque | Presented after 3 months from date | Bank will not honour |
| Mutilated cheque | Physically damaged/torn | Bank may refuse (discretion) |
By Special Features
| Type | Feature |
|---|---|
| Self cheque | Drawer names himself as payee ("Self" or "Cash") |
| Gift cheque | Issued by bank for gift purposes (fixed denomination) |
| Traveller's cheque | Pre-paid instrument for travel; countersigned at use |
| Banker's cheque/Demand draft | Drawn by bank on itself; cannot be countermanded |
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.
| Material alteration includes | Not material alteration |
|---|---|
| Change in date | Correcting a clerical error (with drawer's full signature) |
| Change in amount (words or figures) | Adding place of payment if omitted |
| Change in payee name | Crossing an uncrossed cheque |
| Change in place of payment | |
| Crossing a cheque (this is an exception: holder may cross but this is not "alteration") |
Why: Material alteration protection prevents fraud. If alteration were permitted without consequence, instruments would lose commercial reliability.
Dishonour of Cheque
| Ground | Consequence |
|---|---|
| Insufficiency of funds | S.138: criminal offence (imprisonment up to 2 years or fine up to twice amount or both) |
| Exceeds arrangement | S.138 attracted |
| Account closed | S.138 attracted |
| Payment stopped by drawer | S.138 attracted if for discharge of legally enforceable debt |
| Signature mismatch | Returned; not S.138 (technical ground) |
| Stale cheque | Returned; not S.138 |
| Amount in words and figures differs | Returned under S.18 (payment per amount in words) |
Illustrations
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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.
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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.
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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.
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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.
Recall Check
- What distinguishes a cheque from an ordinary bill of exchange under S.6?
- What constitutes "material alteration" under S.87 and what is its legal consequence?
- Under what circumstances does S.138 NOT apply to a dishonoured cheque?
Key Cases
Ashok Yeshwant Badave v. Surendra Madhavrao Nighojakar (2001) Ashok-Yeshwant-Badave-v-Surendra-Nighojakar-2001 Issue: Whether a post-dated cheque is a "cheque" within the meaning of S.138 NI Act. Rule: S.6 defines cheque as payable on demand; a post-dated cheque becomes payable on demand on the date written on it. Held: A post-dated cheque is a valid cheque under S.6. It becomes payable on demand on the date it bears. S.138 applies to post-dated cheques presented on or after the date they bear.
Dass Ratna v. Kunj Bihari (1929) Dass-Ratna-v-Kunj-Bihari-1929 Issue: Whether alteration of the date on a cheque constitutes material alteration under S.87. Rule: Date is a material part of a negotiable instrument; its alteration without consent of all parties vitiates the instrument. Held: Alteration of date is a material alteration. A cheque with altered date (without drawer's authenticated consent) is void and the banker is protected in refusing payment.
Distinctions
| Feature | Open Cheque | Crossed Cheque | Account Payee Cheque |
|---|---|---|---|
| Payment | Cash at counter | Only through bank account | Only to payee's account |
| Transferability | Fully negotiable | Negotiable (unless A/c payee) | Non-transferable |
| Risk | High (cash over counter) | Medium (through banking channel) | Low (payee identified) |
| Bearer conversion | Can be endorsed | Crossing cannot be cancelled (S.125) | Cannot be negotiated |
| Who gets paid | Bearer or endorsed person | Through collecting bank | Only named payee |
Flashcards
Q: What is the statutory definition of a "cheque" under S.6? A: A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
Q: What is the validity period of a cheque? A: 3 months from the date appearing on the cheque (RBI guideline effective April 2012; earlier it was 6 months).
Q: What is a "truncated cheque"? A: A cheque that is truncated during clearing (physical cheque converted to electronic image under S.6 Explanation II). Only the image travels; physical instrument is retained by presenting bank.
Q: What happens when words and figures on a cheque differ? A: Under S.18, the amount stated in words prevails over figures.
Q: When does S.138 NOT apply to a dishonoured cheque? A: When dishonour is on technical grounds (signature mismatch, stale, account dormant), or when the cheque was not issued for discharge of a legally enforceable debt or liability.
Q: What constitutes material alteration under S.87? A: Change in date, amount, payee, place of payment, or any material particular apparent on the face of the instrument.
Q: Can a bearer cheque be converted to an order cheque? A: Yes. By striking out "or bearer" and writing "or order." However, once crossed as "Account Payee," further negotiation is prohibited.
Q: Is a post-dated cheque valid? A: Yes. It becomes payable on demand on the date written on it. S.138 applies upon dishonour when presented on or after that date.
Exam Scenario
D issues a cheque dated 01-01-2026 for Rs.1,00,000 to P in discharge of a loan. P presents the cheque on 15-04-2026. The bank returns it with "stale cheque" endorsement. P issues a legal notice under S.138. Advise D.
A cheque is valid for 3 months from the date appearing on it (RBI Circular, April 2012). The cheque dated 01-01-2026 expired on 01-04-2026. Presentation on 15-04-2026 is beyond validity. The bank correctly returned it as "stale."
S.138 requires the cheque to be "presented to the bank within the period of its validity." Presentation beyond 3 months does not attract S.138. P's notice under S.138 is premature and unsustainable because the essential condition (presentation within validity period) is not met. P's remedy is to request a fresh cheque from D or file a civil suit for recovery of the underlying debt. D is not criminally liable under S.138 for dishonour of a stale cheque.