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• It must be in writing
• It must contain an order to pay. The order to pay may be in
the form of a request, but it should be imperative
• The order to pay should be unconditional.
• The order must be to pay money and money only. The amount
ordered to be paid must be certain.
• It requires three parties.
• The person who makes the bill of exchange, called the
drawer;
• The person to whom it is addressed called the drawee and
• The payee
• All these parties must be indicated with reasonable certainty.
• The bill must be signed by the drawer.
Cheque
•Meaning of Cheque
– Cheque is a negotiable instrument governed by the provisions in the Negotiable
Instruments Act, 1881.
– It is an unconditional order, drawn on a specified banker, signed by the drawer,
directing the banker, to pay on demand, a certain sum of money only to or to the
order of a certain person or to the bearer of the instrument.
– Every bank has its own printed cheque forms which are supplied to the account
holders at the time of opening the accounts.
Definition
– A ‘cheque’ is a bill of exchange drawn on a specified banker and not expressed
to be payable otherwise than on demand.
– A cheque being a bill of exchange must possess all the essentials of bill and
should also meet the requirements of section 6.
Essential Characteristics of Cheque:
Order Cheque
Bearer Cheque
Blank Cheque
Open Cheque
Crossed Cheque
General Crossing
Special Crossing
Double Crossing
Traveller’s Cheque
Difference Between Bill of Exchange and Promissory Note
S. N. Bill of Exchange S. N. Promissory Note
2 The primary liability is that of the 2 The primary liability is that of the
drawee after he has accepted the bill; maker who signs the note.
the drawer’s liability is secondary.
3 A bill can be drawn payable to bearer, 3 A promissory note cannot be made
provided it is not payable on demand. payable to bearer.
4 Bills of exchange are sometimes drawn 4 In the case of promissory note, the
in sets; the position is not the same in necessity for acceptance does not arise
the case of promissory note. since the maker of the note is already
liable upon it.
5 It cannot be drawn conditionally, but it 5 A promissory note can never be
can be accepted conditionally with the conditional.
consent of the holder.
6 In the case of a bill of exchange, notice 6 These are unnecessary in respect of a
of dishonour, nothing and protesting are promissory note.
required to prove dishonor,
Difference Between Bill of Exchange and Cheque
S. N. Bill of Exchange S. N. Cheque
1 The drawee may be any person, 1 The drawee, i.e., the person on whom
the bill is drawn, must always be a
banker.
2 A bill cannot be drawn to bearer if it is 2 A cheque can be drawn to bearer and
made payable on demand, made payable on demand.
Parties to the instrument Two-Maker and Payee Three- Drawer, Drawee Three- Drawer, Drawee
and Payee and Payee
By whom drawn Any person Any person Customers of bank only
Grace days 3 days for usance 3 days for usance bills Not available. Always
promissory notes payable on demand.
Provisions relating to Not applicable Applicable Not applicable
acceptance for honour,
drawee in case of need,
etc.
Countermanding Not applicable Once accepted cannot be Can be countermanded
payment countermanded at any time before
payment
Meaning of Holder
• A person is called holder of a negotiable instrument if he satisfies the
following two conditions:
a) He must be entitled to the possession of the instrument in his own
name; and
b) He must be entitled to receive/recover the amount due on the
instrument from the parties liable under the instrument,
Kinds of Holder
De jure holder
De facto holder
Holder’s Rights and Powers
• The following are the more important rights and powers of the holder of a
cheque:
• Special Endorsement
• Crossings
• Where a cheque is uncrossed, the holder may cross it generally or
specially;
• where cheque is crossed generally, the holder may cross it specially; and
• where cheque is crossed generally or specially, the holder may add the
words ‘Not negotiable’.
• Duplicate of Cheque
• Where a cheque has been lost before it is overdue, the person who was the
holder of it has the right to apply to the drawer to give him another cheque
of the same sense; If, on request, the drawer refuses to give a duplicate
cheque, he may be compelled to do so.
• The holder has, however, no right to apply to an endorser to make a fresh
• Negotiation
• Usually, however, a holder has a right to negotiate a cheque to another person.
Furthermore, a holder sometimes has power to negotiate a cheque even though
he has no title or a defective title to it.
• Presentation
• If the holder of a cheque does not negotiate it to another person, he may present
it for payment to the bank on which it is drawn.
• If the cheque is an open one, he may present it personally to the drawee bank
and request payment in cash; but
• If the cheque is crossed, he cannot require the drawee bank to make payment in
cash, and he should, therefore, present it for payment through a bank.
• Notice of Dishonour
• When a Bill of Exchange is dishonoured by non-acceptance or
non-payment, the Holder thereof, or some party thereto who
remains liable thereon, must give notice to all other parties
related to such instrument, and if any party among them has
not been noticed, such party shall not be liable to that
instrument.
• Provided that, nothing in this section renders it necessary to
give notice of dishonour to the maker of the Promissory Note,
acceptor of the Bill of Exchange or the Drawee.
• Right of Action
• It is one of the characteristics of a negotiable instrument that
the holder may sue on it in his own name. He may bring his
action against anyone or more of the prior parties. Whether his
action on the cheque will succeed will every often depend
upon whether he is a mere holder or a ‘holder in due course.’
Holder in Due Course
• The person may be holder in due course; the following conditions must be
satisfied:
• Consideration
• Before Maturity
• Notice of Defect in Transferor’s Title
• Complete and Regular Instrument
• Forged Endorsement