Cheques are governed by the.....

Bills of Exchange Ordinance – 1927.

This ordinance relates to NEGOTIABLE  instruments in Sri Lanka.

 DEFINITION OF A BILL OF EXCHANGE

An unconditional order

In Writing

Address by one person to another

Signed by the person giving it

Requiring the person to whom it is addressed to pay

On demand , or at a fixed or determinable future time

A sum certain in money

To or to the order of a specified person or to bearer

DEFINITION OF A CHEQUE

A Cheque is a Bill of Exchange drawn on a Banker Payable on demand…

PARTIES TO A CHEQUE

Drawer - Customer

Drawee – The Bank

Payee – The person to whom the cheque  is issued

MATERIAL PARTS OF A CHEQUE

Date

Drawer

Drawee

Payee

Amount

Crossings

Endorsements

 

DATE

Stale Cheque

Not stipulated in the Bills of Exchange Ordinance. According to General Banking Practice, a cheque is considered stale, when it has been in circulation for 6 months.

               

                Such cheques are not paid and returned without payment..

                Remark -  “ Cheque stale “

Post Dated Cheque

A Cheque which is dated for a future date.

A Bank do not pay such Cheques :

                - Disobeying customer’s Mandate.

                - Customer might stop-payment of the cheque before due date.

                - Customer fail or die.

Remark – “ Cheque Post Dated”

 

 

Undated Cheque

                A Cheque is not invalid by reason that it is not dated. If presented for payment the Bank may…;

                               

                - Return it unpaid

                                Such as Trade related Cheques.

                                Remark – “ Cheque Incomplete”

                - The bank may get a letter of consent from the                customer and pay

                                For statutory payments / Utility payments

DRAWER

THE CUSTOMER….

                The customer has to sign the cheque according to his specimen signature .

DRAWEE

The Bank…..

                The Customer is demanding payment from the Bank……

PAYEE

The Person to whom the payment is to be made.

Examples

Pay “Samantha Perera  or  bearer”….. Pay to Samantha Perera or any person who is holding the cheque.

Pay “Samantha Perera or order”…. Pay to Samantha Perera or to his order.

Pay “Cash”…. Pay to Bearer by way of cash.

Pay “Self”…. Pay to the account holder himself.

AMOUNT

The Amount is mentioned in words and figures.

If the amount in words & figures are different the Bank will return the cheque unpaid.

Remark…” The amount in words and figures differ. “

CROSSINGS

Why………?

To provide a measure of protection for the Drawer (Customer)..

Effect……?

The cheque should not be cashed over the counter and must be routed to an account.

 

Two Types of Crossings..

General Crossing

Special Crossing

 

General Crossing

Two transverse parallel lines drawn across the face of the cheque with or without the words “Not Negotiable”  and/or “Account Payee Only”

Eg:          Not Negotiable

                                Account Payee only

                                Not Negotiable – Account Payee Only

Special Crossing

A Crossing bearing a name of a Particular Bank With or without  any of the features mentioned in the General Crossing.

NOT NEGOTIABLE CROSSING

Gives excellent protection to the Drawer.

The Drawer can stop payment, if he gets to know that the payee has obtain the cheque by fraud and a subsequent holder will not be able to enforce against the drawer.

A person receiving a cheque “not negotiable” which has already been stolen can not acquire a good title even acquired honestly.

Although the cheque is crossed “not negotiable” the transferability in not hindered.

 

ACCOUNT PAYEE CROSSING

Should not be collected to an account other than the account of the PAYEE.

Has no statutory basis & has no effect to for the paying bank, Such instructions are directed to the Collecting Bank.

OPEN CHEQUE

A cheque which does not bear a crossing, is an open cheque.

(Such cheque could be cashed over the counter)

A holder of an open cheque may cross the cheque Generally or Specially.

ENDORSEMENTS

Endorsements are made on the reverse of the cheque & should be written exactly as it is written on the face of the cheque.  (Payees Name)

Only Order cheques need to be endorsed.

If the name of the Payee is misspelled, the endorsement should be made the same way as written on the face of the cheque.

If only the surname is written on the face of the cheque, payee’s initials or the first name should be endorsed.

Courtesy titles are not acceptable. (Eg Dr / Rev / Ven / Hon)

If there are joint names in the cheque , the endorsement must be made by all parties.

According to the banking practice , if the endorsement is in English , it has to be in Flowing hand.

Even if the name of the payee is made in English , endorsements made in Sinhala or Tamil is regular.

If the Payee is illiterate , his left hand thumb impression and a cross mark should be placed & certified by an acceptable party.

By

Sanjeeva Pieris