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.
Related articles:
Payment by bank under mistake: Whether recoverable?
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
Hello air/madam,
I have a question about bearer cheque payment.
I received a bearer cheque of Bank Of Maharashtra for one of my party, The account was in the branch which was a bit far away from my location, so I visited the branch of Bank Of Maharashtra near by me, but they refused to make the payment with the reason that either The payee has to be there in person if I have to encash it from that branch, or else I should visit the branch were the account that account belong,
So I just wanted to confirm is there any such rule by RBI,
It was just an excuse given to me to avoid me.
This happens only when I go to Government Bank, but in case of Multi National banks like ICICI etc. I never had such problem. But these government Bank always give such excuse.
Hence I finally decided to write this MSG to you.
I would be a great help if you help me with the prober rule, So if it not true then next time I won’t leave without sacking these government employees by Law.
Thank you.
Under the present CBS atmosphere, the signature of the drawer of the cheque from any branch can be verified and payment of bearer cheque can be made. If the signature of the drawer scanned in the system is slightly different from the signature appearing on the cheque or the cheque is issued in favour of a firm, sometime other branch(out of doubt) may ask the bearer to go the drawee branch to collect the payment. Your experience from a particular public sector bank branch may be bad, but it is a wrong notion to conclude that all PSBs are bad in service and all private banks are good in service. Just like you, many people also report to me about their bitter experience with new generation private banks/exorbitant charges and ask my opinion about the same.
Some Bankes have rules regarding payment. Generally a bearer cheque can be paid in cash only at the base branch where the account belongs or the drawer himself can withdraw it from any branch he wishes that too restrictions apply from bank to bank. Please go through PSBs bank website such information are generally written clearly under designated context. Dont be so quick to judge rather than find information first abt rules of the bank. Please visit their website to know there policies.
Can you please quote which PSB has given you such information in their website. For payment of negotiable instruments, banks have to follow negotiable instrument acts, and they can not form their own law/rules. In the present core banking atmosphere branch banking is replaced by anywhere banking. Signature of the customer can be verified by any branch.
whether self chaque can be encashe by the third person
If it is a bearer cheque (self or bearer) it can be encashed by the third person. If the word bearer is cut on the cheque it cannot be encashed by the third person.
Can banker ask for id card if third person presented cheque for cash payment?
If it is a bearer cheque, legally no need to insist for identity proof of the bearer. However, it is practiced by many bankers to record the name/address/mobile no. of the person who received the cash on the back of the cheque particularly when large amount of cash paid.
Sir,
Greetings….
I have a question for you…. whether is it mandatory to have a witness on cash withdrawal presented by an illiterate person and who should be the witness….. present account holder of the branch where the a/c of an illiterate person is being present or it could be any relative of an illiterate person…. kindly mention the circular no. for my convenience…
Each bank has separate guideline for this. In some banks there is no need of witness for cash payment. These are not Rules as they are only operative guidelines. It’s as simple as that.
How many people can sign a cheque in a organization? Is there any limit on upper side?
There is no limit for the number of signatures on a cheque leaf. Normally an organisation authorizes maximum three signatories, for the convinience as well as within the space available on the cheque for drawee’s signatures.
Sir all banks keep record of bearer check or order check. I’d no or I’d photo copy. I mean that bank keeps record of all this check.
my father is blind… they use thumb impressions… whether cheque book issue to my father or whether they use thumb impressions on cheque
Cheque book cannot be issued to a blind person. Your father has to personally visit the bank to withdraw cash.
How much withdrawal limit for illiterate person…??? Sir please help me
There is no limit of Maximum amount through withdrawal slip at the base branch. Withdrawal slips are being provided by the banks to ease the cash withdrawal at home branches.
Question regarding Third Party Cash Payment in Case of Order Cheque at cash counter.
Is Signature of third party attested by drawer on back of the cheque mandatory or not. If not mandatory how can banker verify the third party.
Please briefly guide me banking rule in case of third party cash payment.
Identification of the Payee is compulsory while making payment to the third party. The drawer either attest the signature of the Payee on the back of the cheque (the cheque bears a blank endorsement of the drawer the cheque is treated as bearer cheque,) or on a separate letter addressed to the bank attesting the signature of Payee.
Is there any clause in IT act or RBI act or any such acts prohibiting cash payment of third party cheque of RS 20000/- and above. If yes, then is payment to agent of account holder will be considered as third party payment or not? Also clarify the clause about cheque without consideration.
There are no such restrictions either by IT act/NI act that Rs.20000 and above shall not be paid to the third party. Cheque issued to a person as a gift is an example of without consideration. However, in all other cases, the drawer of the cheque has the onus of proving that there was no consideration.
I am a foreign national and got a check drawn on Indian bank in Indian Rupees from my mother who lives in UK, but she has an account at the Indian Bank in India. Can I get cash from the bank branch where the account is held? If so, are there any limits on the amount and what should she write in “Pay to” section? Also, will the bank need any proof from me; I only have my foreign drivers license.
In the cheque leaf, after ‘pay to’ fill in the blank with your name. Not to cut ” Dharak ko (in Hindi) or bearer”. It means it is a bearer cheque. A bank is in order to pay the amount mentioned in the cheque to the bearer of the instrument. However, if the account is inoperative for a long period, the account has to be made operative for which your mother has to complete KYC (Know Your Customer) formalities for which your mother has to submit her address proof and identity proof (Copies of Passport/driving licence, etc.) and the latest passport size photograph to the bank. If the amount is very large they may ask you to show your identity for which you may show your passport or driving licence etc.