Cheque is a special type of Bill of Exchange. Comment.

Section 6 of the Negotiable Instruments Act, 1881, which defines a cheque as "a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand." The definition itself begins by acknowledging that a cheque is, first and foremost, a bill of exchange, and then adds two special qualifications to that identity. Every cheque is a bill of exchange, but every bill of exchange is not a cheque.

The Foundation in Section 6

To appreciate this relationship, one must begin with what Section 5 creates and what Section 6 builds upon it. A bill of exchange, under Section 5, is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer. Section 6 then takes this exact structure and adds two defining conditions: the drawee must be a specified banker, and the instrument must be payable only on demand. The Delhi High Court put this with admirable clarity in Mojj Engineering Systems Ltd. v A.B. Sugars Ltd. (154 (2008) DLT 579) — a bill of exchange acquires the status of a cheque when it is drawn on a banker and is payable on demand. Remove either of those conditions, and what remains is a bill of exchange, not a cheque.

This has a very practical consequence. An instrument in the form of a cheque must first satisfy all the requirements of a bill of exchange under Section 5 before it can qualify as a cheque under Section 6. As the Delhi High Court articulated in Shree Tyres v State (Cr. Revision No. 742/2019, 2020 SCC OnLine Del 929), an instrument must satisfy the five conditions of a valid bill — writing, unconditional order, signed by the maker, directing a certain person, to pay a certain sum to a certain person or bearer — and only then, if the direction is given to a specified banker, does it become a cheque. If the instrument fails at the stage of being a valid bill, it cannot qualify as a cheque at all.

Two Special Qualifications

The two conditions that differentiate a cheque from an ordinary bill of exchange are not technical formalities; they carry deep commercial significance.

First, the drawee must be a specified banker. In an ordinary bill of exchange, the drawee may be any person — a merchant, a debtor, or even a bank. In a cheque, the drawee is always and necessarily a banker. The relationship between a drawer and the drawee-banker is contractual in nature. The banker has an implied obligation to honour the cheque up to the amount of the customer's funds — or up to the overdraft limit where one has been agreed. This contractual duty, however, runs only between the banker and the drawer; as the Privy Council made clear in Bank of Baroda Ltd. v Punjab National Bank Ltd. (AIR 1944 PC 58), the mere dishonour of a cheque gives no right of action to anyone other than the drawer against the bank.

Second, it must be payable only on demand. This is perhaps the most commercially distinguishing feature of a cheque. An ordinary bill of exchange may be drawn payable at a future date, and the drawee is allowed three days of grace after the maturity date. A cheque, by contrast, is payable immediately on presentment, without any days of grace whatsoever. The Supreme Court in Anil Kumar Sawhney v Gulshan Rai (1993 (4) SCC 424) made this principle strikingly clear in the context of post-dated cheques: a post-dated cheque is only a bill of exchange on the date it is written, because it is not payable on demand until the date written on its face. It transforms into a cheque only upon or after that date. The offence under Section 138, accordingly, can only be attracted once the instrument has ripened into a cheque by becoming payable on demand.

Points of Similarity

Because a cheque draws its identity from the bill of exchange, the two instruments share a large body of governing principles. As a general rule, the provisions applicable to bills of exchange payable on demand apply equally to cheques. The three necessary parties — the drawer, the drawee, and the payee — are common to both. The requirement that the order be unconditional, that the sum be certain, that all parties be identifiable with reasonable certainty, and that the instrument be in writing, applies with equal force to a cheque as to a bill. The drawer of a cheque, like the drawer of a bill, is liable to compensate the holder in the event of dishonour, provided that due notice of dishonour has been given, subject to the special provisions of Chapter XVII.

Points of Difference

The law, however, has been careful to identify where the cheque diverges from its parent instrument, and these divergences are significant enough to make a cheque a distinct commercial tool in practice.

The absence of acceptance in the case of a cheque is perhaps the most telling difference, and the courts have repeatedly drawn attention to it. Parke B, in the celebrated Privy Council decision of Ramchurn Mullick v Luchmeechand Radakissen (1854, 9 Moo PC 46), expressed the matter with characteristic precision: a cheque is a peculiar sort of instrument, in many ways resembling a bill of exchange, but in some entirely different; in the ordinary course it is never accepted; it is not intended for circulation; it is given for immediate payment; it is not entitled to days of grace. This passage has been quoted with approval across more than a century of Indian judicial decisions, and it captures in few words the essence of the relationship between the two instruments.

The Post-Dated Cheque: A Telling Illustration

The transformative nature of the cheque's relationship with the bill of exchange is most vividly illustrated by the treatment of post-dated cheques. When a person writes a cheque bearing a date in the future, that instrument on the day it is written is still only a bill of exchange — because on that day it is not payable on demand. It travels through commercial life as a bill, negotiable but not yet a cheque, until the appointed date arrives. From that date forward, it becomes a cheque, bringing with it the full force of the Act including the penal provisions of Section 138. This is not a technicality; it reflects the Act's deliberate choice to attach the special consequences of a cheque only to an instrument that actually commands immediate payment.

Cheques in the Electronic Age

The Negotiable Instruments (Amendment) Act, 2002, expanded the definition in Section 6 to include the electronic image of a truncated cheque and a cheque in the electronic form. A cheque in the electronic form is one drawn using any computer resource and signed with a digital signature in a secure system. A truncated cheque is one that is stopped in its physical journey during the clearing cycle, substituted by an electronic image transmitted for the purposes of settlement. This statutory expansion did not alter the fundamental character of the cheque as a species of bill of exchange; it merely extended the definition to accommodate the realities of modern banking, where paper instruments are increasingly being replaced by their digital equivalents. The original basic definition — a bill of exchange drawn on a specified banker, payable on demand — was retained untouched, and the amendment only enlarged the scope of what form that cheque could take.

The cheque thus stands as a child of the bill of exchange — sharing its lineage, its foundational requirements, and many of its governing rules — while carving out for itself a distinct commercial identity through the two cardinal features that the statute has given it: a banker as the permanent drawee, and immediate payment as its unfailing promise.