Page 95 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes Every bank has its own printed cheque forms which are supplied to the account holders at the
time of opening the account as well as subsequently whenever needed. These forms are printed
on special security paper which is sensitive to chemicals and makes any chemical alterations
noticeable. Although, legally, a customer may withdraw his money even by writing his directions
to the banker on a plain paper but in practice bankers honours only those orders which are
issued on the printed forms of cheques.

4.3.3 Requisites of a Cheque

The requisites of cheques are:

1. Written instrument: A cheque must be an instrument in writing. Regarding the writing
materials to be used, law does not lay down any restrictions and therefore cheque may be
written either with (a) pen (b) typewriter or may be (c) printed.

2. Unconditional order: A cheque must contain an unconditional order. It is, however, not
necessary that the word order or its equivalent must be used to make the document a
cheque. Generally, the order to bank is expressed by the word “pay”. If the word “please”
precedes “pay” the document will not be regarded as invalid merely on this account.

3. On a specified banker only: A cheque must be drawn on a specified banker. To avoid any
mistake, the name and address of the banker should be specified.
4. A certain sum of money: The order must be only for the payment of money and that too
must be specified. Thus, orders asking the banker to deliver securities or certain other
things cannot be regarded as cheques. Similarly, an order asking the banker to pay a
specified amount with interest, the rate of interest not specified, is not a cheque as the sum
payable is not certain.

5. Payee to be certain: A cheque to be valid must be payable to a certain person. ‘Person’
should not be understood in a limited sense including only human beings. The term in fact
includes ‘legal persons’ also. Thus, instruments drawn in favour of a body corporate, local
authorities, clubs, institutions, etc., are valid instruments being payable to legal persons.
6. Payable on demand: A cheque to be valid must be payable on demand and not otherwise.
Use of the words ‘on demand’ or their equivalent is not necessary. When the drawer asks
the banker to pay and does not specify the time for its payment, the instrument is payable
on demand (s.19).
7. Amount of the cheque: Amount of the cheque must be clearly mentioned. The amount
should be written both in words as well as figures so as to avoid mistakes. Moreover, the
amount should be so written as to leave no blank space before or after the words and
figures specifying the amount. In case a customer does so, though innocently and his
banker pays the forged amount because the forgery is not noticeable in spite of reasonable
care, the banker would be justified in debiting his account with the amount actually paid.

8. Dating of cheques: The drawer of a cheque is expected to date it before it leaves his hands.
A cheque without a date is considered incomplete and is returned unpaid by the banks.
The drawer can date a cheque with the date earlier or later than the date on which it is
drawn. A cheque bearing an earlier date is antedated and the one bearing the later date is
called postdated. A postdated cheque cannot be honored, except at the personal risk of the
bank’s manager, till the date mentioned. A postdated cheque is as much negotiable as a
cheque for which payment is due, i.e., the transferee of a postdated cheque, like that of the
cheque on which payment is due, acquires a better title than its transferor, if he is a holder
in due course. A cheque that bears a date earlier than six months is a stale cheque and
cannot be claimed for.

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