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Unit 10: Negotiable Instruments

vi. Cheque must mention exact amount to be paid: Cheque must only be for money. The Notes
amount to be paid by the banker must be certain and written in words as well as figures.
vii. Payee must be certain to whom payment is made: The payee of the cheque should be
certain whom the payment of a cheque is to be made i.e. either real person or artificial
person like Joint Stock Company. The name of the payee must be written on the cheque or
it can be made payable to bearer.
viii. Cheque must be duly dated by customer of bank: A date must be duly mentioned by the
customer of bank. A cheque is valid for a period of six months from the date of issue.
ix. Cheque has three parties:
(a) Drawer: A drawer is a person, who draws a cheque.
(b) Drawee: A drawee is a bank on whom a cheque is drawn.
(c) Payee: A payee is a person in whose favour a cheque is drawn.

10.1.3 Parts of a Cheque

The four parts of a cheque are:

1. Drawee: The party directed to pay the amount of a draft or check.
2. Drawer: The party who draws the draft upon another party for payment.
3. Payee: The person to whom a cheque, money order, etc., is made out.
4. Amount: The amount that is to be paid.

Figure 10.1: Format of an SBI Cheque

Source: www.richtechindia.com

10.1.4 Types of Cheque

1. Bearer Cheque: When the words “or bearer” which appear 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 because if they are lost, the one who finds it can collect money from
the bank.
2. Order Cheque: When the word “bearer” appearing on the face of a cheque is cancelled and
in its place the word “or order” is written on the face of the cheque, it is called an order

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