A cheque is commonly defined as a negotiable instrument. By issuing a cheque, the issuer is directing the bank to pay the predetermined amount to the individual named on the cheque. When the issuer or the drawer writes a cheque, the said person specifies the amount of money that is to be issued to the beneficiary to whom the cheque is being issued. The details such as the payee’s name paid amount, date and signatures are mandatorily required for the cheque.
Some of the main characteristics required for a valid cheque include amongst others:
- Must be in writing: A cheque has to be in writing in order for it to be considered valid.
- Drawn on a specified bank: The cheque should be issued stating a specific bank and hence using the cheque book issued by such bank.
- Unconditional Order: A given cheque can be drawn for it to be paid unconditionally. When the drawer presents the cheque to the drawee bank, it must be unconditional and not make the cheque payable depending on a contingency.
- Should order a sum of money: A cheque should be issued only towards ordering a certain sum of money to be paid to the beneficiary of the cheque. However, if it includes any other purpose other than payment of a defined sum of money, then it would make the cheque invalid in itself.
- No requirement for acceptance or stamp: Unlike invoices or bills of exchange, a cheque in itself is a complete instrument and does not require further acceptance or processes. However, a cheque is payable only on demand and therefore has to be presented by the beneficiary within the valid term period.
There also exist different types of cheques such as:
In this type of cheque, a person bearing the cheque is allowed to receive the payment specified on the cheque. These cheques are hence commonly referred to as bearer cheques. Bearer cheques are also transferrable, as it essentially allows anyone who is carrying it can receive the payment.
In this type of cheque, the issuer inserts two parallel cheques into the top left corner of the cheque across the word’s a/c payee. It means that the specified sum on the cheque, irrespective of whom the cheque is handed over, will be transferred only to the individual whose name is mentioned as the payee. A crossed cheque is therefore also safer as it can be cashed only at the payee’s bank.
In this type of cheque, the issuer includes a future date, i.e. a later date on which the cheque is to be presented. Thereby the bearer may present the cheque only to be cashed as per the date included on the cheque. If presented earlier than the date indicated on the cheque, the bank will reject the cheque. Postdated cheques are very commonly used in commercial transactions in the form of a guarantee cheque.
This type of cheque is issued by a bank; it is also referred to as a ‘managers cheque’ and is commonly used for real estate transactions. A banker’s cheque is issued by the bank itself, and it is issued on behalf of an account holder to issue payment to another person and are usually valid only for three months’ time period.
An open cheque does not have crossed lines, and hence, is also called an uncrossed cheque. An open cheque can be cashed at either of the banks, namely, the payer’s bank or the payee’s bank. Also, an open cheque is transferable by the payee, which means they can make someone else the payee. The issuer of the open cheque is required to sign on both the front and back of the cheque.
Cheques are a crucial part of commercial transaction in the UAE. Taking the same into consideration, the UAE has recently amended and added new articles to the UAE commercial transaction law no. 18 of 1993. One of the significant changes that are being highly welcomed concerns the limited scope of criminalization in instances of returned cheques on account of insufficient funds. The instances in which criminality will still apply are the instances wherein bad faith exists on account of the issuer of the cheque. It can be seen that the new changes have been affected to strengthen the rights of both the cheque drawer and drawee and also to ensure that a cheque collection process is made more effective.
