Rules for payment of a cheque

Under the Negotiable Instrument Act a cheque is a bill of exchange it is an order on the drawee bank to pay the amount specified in it to the payee or the bearer until and unless the amount mentioned in the cheque is paid, the disposition of property therein will not take place. Section 19 of the Negotiable Instruments Act, 1881 states that promissory notes, bills of exchange, and cheques are payable on demand if they don’t specify a time for payment. However, Section 138 provides that a Cheque must be presented within 3 months or a validity period whichever is earlier.
According to the Negotiable Instruments Act of 1881, a paying bank has a responsibility to honour a customer’s cheque if it’s presented for payment and the customer has sufficient funds in their account.

The bank must also ensure the cheque is in order, which means it must meet the following criteria:
The cheque is in the proper form
The cheque has the correct date
The bank takes care of any extra modifications or changes made to the cheque
The bank checks all endorsements on the cheque
The bank ensures that the cheque is issued by the holder in its original form within a reasonable period of time
The bank ensures that the bank hasn’t provided orders to stop paying or receiving notice of the customer’s death

Cash Payments:

When an uncrossed cheque is presented for payment in cash at the counters of the bank, the presenter should sign on the reverse of the cheque. Banks verify the signature on the cheque with the specimen signature of the drawer on record before making payment.  The payment cashier will ask for another signature to be made by the presenter at the time of payment. The banks ordinarily do not insist on the presence of an account holder for making cash withdrawals in case of bearer cheques unless the circumstances warrant bankers to take precautions. In case of the bearer’s word in the cheque is cut then it becomes an order instrument. Banks make payment of order cheques only on confirming the endorsement/s of Payee and other endorsees on the reverse of the cheque. A depositor cannot withdraw a smaller sum than one Rupee except on the occasion of the closure of the account.

Cash payment where Payee’s name is written as self, ourselves, Pay Cash, etc.

It is a convention that companies and organizations while withdrawing cash from the bank write ‘ourselves’ in place of the payee’s name. Sometimes even the cheque may be issued ‘Pay Cash’.   Banks have been making cash payments of such cheques to the person who presented them at the counter without any hassle. However, nowadays it is learned that some bank branches refuse payment and insist on writing only “self” instead of “Ourselves”. The logic for such refusal is that an entity whether the firm, company, or any other organization is a legal person (entity) opened the account and not a group of people. Moreover, cash payment can be made only to a single person and not to a group of people against a single cheque, although more than one person signed on the cheque as an authorized signatory of the organization. Many people question the validity of such refusal by the bank when a bearer cheque ‘payable to ourselves’ is presented for payment.

The above discussion rather seems like an argument based on English grammar and not on legal finding. Legally speaking banks are bound to pay to any person who presents a bearer cheque for payment at the bank counter, if the cheque presented is otherwise in order. Nowhere in negotiable instrument acts prohibits the payment of a cheque where the payee’s name is mentioned as ‘Ourselves’. Furthermore, an order cheque is payable to an unidentifiable payee, banks are in order if it is paid to the account holder. Therefore the order cheques payable to God, Temple, Church, Masjid, etc. are considered unidentifiable payees and in such cases, banks are to make the payment to the account holder. Exactingly the words ‘Self’, ’Our Selves,’ or ‘pay cash’ are not nouns, as persons of that name do not exist and are therefore paid to the account holder.

When a cheque is endorsed in blank by the drawer, even an order cheque becomes a bearer cheque. So the cheque bearing the company’s seal with signatures of authorized persons on its back is treated as a bearer cheque. Thus, the cash payment can be made to the bearer of the cheque irrespective of the payee’s name. Usually, the persons coming to the bank for cash withdrawals on behalf of an entity are known to the bank (regular employee, partner, etc.). The presenter has to sign on the reverse of the cheque in the presence of the cashier as an acknowledgment of having received the cash. The bank by convention may also insist the presenter write his name, address, and phone number whenever a new face presents the cheque for payment.

Cash payment of  cheques issued in favour of firms/companies

As per law, a bearer cheque is always a bearer cheque. However, when a cheque is drawn up in favour of a business entity, the cheque is purported to have a crossing effect. Banks cannot afford to make payment of such cheques without proper enquiry as that may later on deemed as negligence on the part of the banker.  If proper identification is established banks may make payment of such cheques across the counter (normally bank contact their account holder and inform them that the subject cheque is presented to them for cash payment and take their consent for the payment). Though it is not a rule prescribed by any law for payment of bearer cheques, as an abundant precaution cash payment of a cheque drawn up in favour of firms and companies is done only on the obtention of endorsement (rubber stamp of the firm on the reverse of the cheque and signed by the authorised signatory of the beneficiary firm).

Cash withdrawal by illiterate/bedridden persons

If the depositor is unable to write, he/she must call the Bank personally to withdraw money from her/his account. In the case of aged or bedridden person, banks depute a person or an official at the depositor’s cost, to obtain the signature/thumb impression duly witnessed.

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What is Cheque Truncation?

CLICK here to know ‘10 parties’ to a negotiable instrument viz. maker/drawer, drawee, payee, holder, holder in due course, endorser, endorsee, endorsement, drawee in the case of need, Acceptor for honour.

Know more about Negotiable Instruments

(I) Definition of a cheque  ,(II)  Effects of not negotiable mark on a cheque, (iii)General and special crossing of a cheque(IV)Meaning of inchoate cheque, ( V)Meaning of material alteration in a cheque,  (VI)Cheque bounce implications, (VII)Difference between bill of exchange and cheque, (VIII) Little more to know about a cheque