Cheque & Types

Cheque: Section 6 of the Negotiable Instruments Acts, 1881, states "A cheque is a bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand." So, a cheque is a written instruction to a bank (also called the drawee bank) asking it to pay a specific sum of money to the person/company whose name is written on it. The person issuing the cheque is called the drawer and the one to whom it is issued is called the payee.

Types of cheques 
cheques are of basically four types
Open cheque:

A person holding an open cheque can 

i. Receive payment over the counter at the bank
ii. Deposit the cheque into his account

iii. Pass it to another person by endorsing the cheque on the reverse side
Crossed Cheque: Payment of a crossed cheque cannot be made over the counter at a bank; it can only be credited into the payee's account. Cheques can be crossed by drawing two parallel lines across the top left corner.

Bearer Cheque: A bearer cheque is payable to the person presenting it for payment at the branch; it does not require endorsement and can easily be transferred.
Order Cheque: An order cheque is payable only to a particular person. In this, the word "bearer" may be struck out and the word "order" written. It can be transferred by the payee to someone by simply signing his/her name on the reverse side of the cheque.

Local clearing process
Local Cheque: Both the issuer and receiver banks of a "local cheque" are in the same city.
Clearing House: Each bank sends its representative to a centralized place called the "Clearing House" to exchange cheques drawn on each other. The Reserve Bank of India (RBI) acts as a clearing house. The State Bank of India (SBI) and other banks may act as clearing houses in cities where RBI officies are not present. The clearing house and participating branches usually have a defined distance between them based on the transportation and communication facilities, as cheques have to be physically taken to and from the clearing house.
Local clearing: Only those cheques drawn on branches of banks within the purview of the local clearing house are handled. The clearing house gives the cheque to the drawer's bank, which cheks if there are sufficient funds in the account and then agrees to pay. The clearing house settles the cheque amount by debiting the drawer's bank and crediting the payee's bank. The drawer's bank then debits the amount from the drawer's account.

Outstation clearing process
Here, the cheques have to be moved from the presentation centre (the city where cheques have been presented) to the Drawee center (the city where cheques are payable), thereby increasing the realization time for "outstation cheques."

Reasons for the cheque return
Some of the reasons for a cheque to return unpaid are:

• Insufficient balance in the customer's account.
• signature mismatch
• Mismatch of amount in words and figures.
• Too many alterations on the cheque
• 'Effects not cleared present again':Funds not available in the account was not yet cleared/available for use in the account.
• Counterfeit, forged or fraudulently altered cheque.
• Post-dated Cheque: A post-dated cheque (PDC) is one,which is drawn on a future date. To illustrate with an example, if a cheque presented on January 10, 2015 bears the date April 2, 2015, it is a post-dated cheque. In this case, the bank can make the payment only on or after April 2, 2015.
• Stale Cheque: A cheque is valid for a limited period from the date on which it is drawn. Once the period has expired, it is called a "stale cheque" and no payment can be made for it. In India, post April 1, 2012, cheques, drafts, pay orders etc. are valid for three months as opposed to six months hitherto.
• Mutilated Cheque: A cheque that is torn into two or more pieces in termed "mutilated cheque." Banks will not make payments against such cheques without obtaining confirmation from the drawer. However, payment may be made against cheques just torn at the corners with no material fact removed or canceled.
• Ante-dated Cheques: Such a cheque bears a date earlier than the date of presentment for payment. For example, a cheque that is issued on February 22, 2015 may bear the date February 6, 2015