Page 96 - DMGT407Corporate and Business Laws

Unit 4: Law of Negotiable Instruments

4.3.4 A Bill of Exchange and a Cheque Distinguished Notes

Though, a cheque is defined as a bill of exchange, it differs from the latter in the following
respects:
Table 4.2: Distinction between a Cheque and a Bill of Exchange

Cheque Bill of Exchange
It must be drawn only on a banker. It can be drawn on any person including a
banker.
The amount is always payable on demand. The amount may be payable on demand or after a
specified time.
The cheque is not entitled to days of grace. A usance (time) bill is entitled to three days of
grace.
Acceptance is not needed. A bill payable after sight must be accepted.
A cheque can be crossed. Crossing of a bill of exchange is not possible.
Notice of dishonour is not necessary. The Notice of dishonour is necessary to hold the
parties thereon remain liable, even if no parties liable thereon. A party who does not
notice of dishonour is given. receive a notice of can generally escape its
liability dishonour thereon.
A cheque is not to be noted or protested in A bill is noted or protested to establish
case of dishonour. dishonour.
The protection given to the paying banker in No such protection is available in the case of bills.
respect of crossed cheques is peculiar to this
instrument.

Did u know? Out-of-date, or Stale and Overdue Cheques
The paying banker is bound to pay only such cheques as are presented to him for payment
within a reasonable time of issue. Usually, the cheque presented after six months of the date
mentioned thereon are considered stale and hence are returned by the banker for their
confirmation of the drawers. This period of six months is sometimes varied by a special
agreement with a particular customer. For example, a company issuing dividend warrants,
reduces this period to three months. In any case, the company may revalidate the same on
the request of the holder who fails to present it within the stipulated period of three months.
Section 84 provides that if the holder fails to present the cheques for payment within a
reasonable time of its issue and in the meanwhile the bank fails causing damage to the
drawer, the latter is then discharged as against the holder to the extent of the actual
damage suffered by him. The Limitation Act provides that a cheque becomes time-barred
after three years from its date of issue.

Self Assessment

Fill in the blanks:

5. A cheque must be drawn on a ………………..banker.
6. A cheque in the electronic form means a cheque which contains the exact ……………….of
a paper cheque.

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