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Monday, May 17, 2010

Using a Bank Cheque


Many of us use cheque’s issued by banks in our day to day financial activities but some of us are still not sure of how to use them properly and how to avoid misuse of cheques. The purpose of this article is to outline what a cheque is and how to prevent misuse of our cheques.

What is a Cheque?

A cheque is a negotiable instrument that can be issued by one person to pay money to another person/entity. The person to whom the cheque is issued is entitled to receive the sum mentioned in the cheque (provided the account has sufficient balance) from the bank where the cheque issuer holds his account.

Who can issue Cheques?

Anyone who holds a valid bank account can issue a cheque to make payment to anyone or any organization. The most important thing to note here is that – WE NEED TO MAINTAIN SUFFICIENT BALANCE IN OUR ACCOUNT TO PAY THE CHEQUE. ISSUING CHEQUES WHILE THERE IS NO SUFFICIENT BALANCE IN OUR ACCOUNT IS AN OFFENCE AND WE CAN BE JAILED FOR IT.

What are the important things to note while writing a cheque?


There are a number of important things that we must keep in mind while writing a cheque. They are elaborated below.

1. Remember to Cross the Cheque

Crossing a cheque means putting two parallel lines on the left hand top corner of the cheque. This means that, the cheque is a Account Payee cheque which means it can only be deposited into another account and cannot be exchanged for cash over the counter. This serves two purposes – you can keep a track of who encashed your cheque and also ensure that even if the cheque is lost, it cannot be misused by anyone. The person to whom the cheque was paid will be recorded.

2. Write the Name of the person to whom the cheque is to be paid in full

It is very important to state the cheque payee’s name in full without missing any part of the name in the “pay to line” The name entered here should match the name under which the person holds a valid bank account. If there is any mismatch or spelling mistake the cheque will not be paid

3. Write the amount to be paid both in numbers and words

It is advisable to write both the number value as well as value in words in the cheque. Also care must be taken to ensure that there are no leading or trailing blank spaces while entering these values which might cause tampering of the cheque and modification of the cheque value

4. Write the cheque date promptly

Do not issue cheques that do not have a cheque issue date.

5. Sign the cheque at the bottom right hand corner with the exact signature that is registered with the bank records.

If there is even a slight mismatch between the signature in the bank records and that in the cheque the bank will not release the payment.


Apart from these points, there are some other questions that might arise while using a cheque.

1. Can we overwrite/edit/alter the details in a cheque?

Preferably NO. It is advisable not to rewrite/overwrite any contents in the cheque. But if situation warrants, we must counter-sign near the altered area to confirm that it was a legitimate change done by the cheque issuer. Any unsigned modifications in the cheque would make the cheque unusable and the bank will not release any payments.

2. Can we issue blank cheques?

The answer is a BIG NO. DO NOT issue cheques to anyone that does not contain a cheque value.

3. How long is a cheque valid?

Cheques are valid for 6 months from the date of issue. Any cheque that was issued more than 6 months before from the current date is termed a stale dated cheque and the bank will not pay them.

Note: Starting April 1st 2012, all cheques and drafts are valid only for 3 months from the date of issue. This 6 month validity will cease to exist after that date. Click here for more details

4. What should I do if one of the cheques I wrote is lost?

Call up the bank customer care or visit your nearest branch and provide the cheque number(s) and issue a stop payment requests. It is our responsibility to keep these safe and if anyone uses our cheques after we lose them, the bank will not accept liability

Cheques are very powerful instruments and improper usage of these can result in financial losses due to malpractice. Hence use them safely and with caution.

21 comments:

  1. Hi,
    What are the chargest or fees on outstation cheques that we deposit into our accounts? Is there any upper limit on it? I am a businessman and deposit cheques issued by my outstation clients into my account. My bank is debiting a lot of money as fee.

    Thanks
    Prasanna

    ReplyDelete
    Replies
    1. Hi Prasanna,
      The most recent article in this blog is just for you. Please refer to that article for all the details

      http://anandvijayakumar.blogspot.com/2012/05/cheque-clearing-collection-by-banks.html

      Anand

      Delete
    2. Hey Anand...
      1) Can anyone misuse the cheque that i have lost in which cheque payee's name is written??? I mean is it possible for anyone to scratch the name and write his name on it???

      2) Is initials allowed on the 'Pay to line' instead of the middle and last name???

      Delete
    3. Hi Anonymous,
      Answers below:

      1a. Technically yes - If the cheque is issued to Ganesh and the actual Ganesh loses it and someone else with the same name finds it, they can get it cashed.

      1b. No. If someone scratches or overwrites in a cheque, it is invalid. The cheque will not be paid by the bank. So, the person who actually did the forging will not get any money plus he may be criminally prosecuted for attempted forgery

      2. Yes, provided the initials and the middle + last name combination matches and is updated as per bank records.
      Remember - If your bank knows that the initials belong to you, they will most likely cash it but if they dont know it, then your cheque will bounce.

      Anand

      Delete
  2. my bank cashed a crossed cheque which had my remarks written on it as 'prior permission required fr payment'..this additional remarks printed on the face of my ch. Were not counter signed. The cheque was

    issued only as a conditional warranty to a person wth whom a contract was due performane and was undated bt signed by me. Only the remarks were there. Can i claim my money, a handsome amt, frm my banker??

    Plz advise.
    Mazbut_pk@yahoo.com

    ReplyDelete
    Replies
    1. Hi Mazhur,
      The moment you sign a cheque without a date, you are essentially agreeing to pay the other party anytime they want. The bank is not liable in such cases because the receiver of your cheque could fill in any date he/she wants.

      So, you cant do anything to claim the money here.

      You can file a complaint against the person who cashed the cheque (if he/she did so without your consent or when they were not supposed to) but it will come back to you because signing a cheque without a date and handing it over to someone is not right and so, you have no claim on your side because the other person hasnt done anything wrong.

      Anand

      Delete
  3. Hi Anand

    Thanks a lot for your prompt response. The point in case is ''Did the bank act legally in paying a cheque which was additionally marked or scribbled on the face of it?? ''.....I think the bank acted illegally in paying the said cheque for if I submitted them more cheques with the same marking they would certainly not pay. Additional scribbling or jotting down instructions on the cheque or writing certain remarks should make the cheque invalid as such scribbling is beyond the mandate given by the account holder to the bank and even against the banking laws and in my opinion the bank is liable to refund payment released against such invalid cheque and talking more legally the bank is also liable for damages. The bank in the present case had nothing to do with the business of the drawer and the drawee or holder of the cheque and was supposed to comply with the banking rules only. I hope you will review the question and post your expert advice accordingly. Thanks again.

    ReplyDelete
    Replies
    1. Hi MazHur,
      It depends on where the scribbling was present and what was scribbled. Just writing something on top doesnt mean that the cheque is illegal. If there was any overwriting in the pay-to name or on the amount in words/number requires a counter signature. But, such general scribblings like "Prior permission required" technically means nothing to the bank because if you signed a cheque and have filled in to whom the cheque has to be paid.

      I agree that such scribblings must tender a cheque invalid, but if it was invalid why would the other party accept the cheque? will you accept a cheque if you know that the cheque is worth nothing?

      Anand

      Delete
    2. Hi Anand

      Thanks but you seem to relate the scribbling more towards my dealing with the drawee rather than viewing from the point of view of a banker or banking laws. Any scribbling on the front of the cheque ought to render it suspicious and invalid in view of such discrepancy ....and NO bank is supposed to honor it. But in my case the bank payed such cheque which is patently illegal and makes the banker liable to restitute for the same ......
      The bank has No connection with my dealings with the payee whatsover because the bank is not a party to the contract between me and the payee and should only be concerned with the banking laws and practice. For your information No bank in Pakistan would accept a currency note with any scribbling on it so why it should pay a cheques with clear marking/noting on the cheque?
      If such practice be allowed the bank would even pay against forged signatures and pose innocence. To test this I am again going to issue more than a dozen scribbled cheques to test what my banker as well as other banks do with it.Even you can check this out with your bankers ....for a practical assessment of neat banking system. The bank in any or all cases has no concern to whom or why the cheques was issued. Also, your surmising that why should one accept a cheque with scribbling is not correct for such cheques are often used in contracts to serve as 'proof'' or ''receipt'' given to the other party for due performance of contract as a precondition for encashment of such a cheque.

      I hope you get my point now.

      Delete
    3. Hi MazHur,
      You can try and see how it works. But, per my understanding, such scribblings (as of now) do not affect the validity of a cheque unless there is any overwriting or scribbling on the pay to or the amount both in words and numbers.

      Do leave a comment if any of those cheques are honored.

      Anand

      Delete
  4. dear Anand .,..,..while i test here it would be worth a practical experience for you as well if you cared to draw such a cheque on yr own bank.

    ReplyDelete
    Replies
    1. Hi MazHur,
      The main reason the government came up with the new Cheque Truncation System is to prevent guys like you from using cheque as an arbitrage instrument. You cant just write something on a cheque and then claim that it is legally binding on either the person who received it or the bank.

      Writing stuff up on a cheque (apart from whom to pay, how much and date) is a real bad idea and should not be done.

      I use cheques only for valid payments and hence have no need to write up stuff on my cheque. so, unfortunately i cant try this out.

      Anyways, as per thew new Cheque Truncation System banks will reject such cheques. So, even if you try i am not sure if it will get cashed. you can try and it is your wish and you can leave a comment if it succeeds.

      Anand

      Delete
    2. Anand................am awaiting receipt of a copy of impugned cheque, ,,meantime they refuse to honor new cheques with scribbling. Now i will try with other banks n see.......Such cheques get issued circumstantially wth mutual consent of drawer n drawee while contracting some deal . If this is bad practice fr the issuer it's also illega fr banks to pay them out with eyes shut.

      Delete
    3. Mazhur,
      What you did wasnt illegal either my friend - it just wasnt right. Similarly what the bank did wasnt illegal either - it just wasnt right. Just like you had the right to write what you wanted, the bank validated the important aspects it was mandatory to check - like your signature, date, amount etc and cleared it. As I said before the bank did nothing wrong here.

      They are rejecting these new cheques because of the Cheque Truncation System i said in my previous comment. Check it out.

      Anand

      Delete
  5. could you plz post link to Truncsted cheque system to check its relevance to Pakistan.

    ReplyDelete
    Replies
    1. Hi MazHur,
      Sorry man, I have very little idea about the banking laws and regulations in Pakistan. I was wondering how a bank in India cashed such a cheque and now I know why. Banks in India do not cash cheques where people have scribbled stuff in it.

      Anand

      Delete
  6. Hi
    I just have this doubt...what if someone else with the same name as tht of payee gets the cheque? will he be able to transfer to his account? how r the banks confirming this? how can the payer make sure this won't happen?

    ReplyDelete
    Replies
    1. Anonymous - You can add the bank account number of the person who you are paying to make sure that only he/she can get the money. In the payee section where you say Pay Mr. ABC say as Mr. ABC (ICICI Bank Acc Num: 1234567)

      Delete
  7. will the bank clear /accept the cheque if instead of writing fourteen thousand only I wrote forteen thousand only

    ReplyDelete

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