Types of Cheque (Open and Crossed) - Meaning and Difference

Negotiable Instruments Act' 1881 Notes
Business Laws Notes B.Com 1st & 2nd Sem CBCS Pattern 

Types of Cheques (Open and Crossed)

Based on this characteristic, cheques can be classified into two main groups. They are:

1. Open cheques; and

2. Crossed cheques

1. Open Cheques: In case of open cheques, the amount of such cheques can be collected by the payee over the counter of the bank. These cheques are of two types:

a. Bearer cheque: The cheque which is payable to the bearer or the possessor, is called the bearer cheque. Such cheque can be transferred by mere delivery without any endorsement. For example, “Pay Ram or bearer” is a bearer cheque, where Ram or any other person who possess the cheque, can collect the amount of the cheque.

b. Order cheque: The cheque which is payable only to a certain person (whose name appears on the cheque) or to his order, is called the order cheque. The word ‘Order’ is written instead of the word ‘Bearer’ on the cheque. The drawer can strike off the word ‘bearer’ and can write the word ‘order’ to make it an order cheque. An order cheque cannot be transferred without endorsement and the paying banker takes reasonable care before making the payment of such cheque. For example, “Pay Ram or order” is an order cheque, where payment will be made only to Ram or to the person to whom Ram has endorsed the cheque.

2. Crossed Cheques: In case of crossed cheques, the amount of such cheques cannot be collected over the counter of the bank. The amount of such a cheque is paid through the bank account of the payee. Hence, they are safer as compared to the open cheques. 

A cheque can be crossed by drawing two parallel transverse lines across the face of the cheque with or without the words “and company” or “not negotiable” or “account payee” between the parallel transverse lines. Crossing of a cheque means paying the money to the specified person only by transferring the money to his account and not directly (cash). A cheque can be crossed by the-

1. Drawer; or 

2. The holder; when the cheque is open; or

3. The collecting banker.

Difference between bearer cheque and order cheque

a)       Bearer cheque is payable to the person named on the cheque or to any bearer. But an order cheque is payable to the person named on the cheque or to his order.

b)      Bearer cheque may be negotiated by more delivery of cheque. But order cheque needs to be endorsed for the purpose of negotiation.

c)       The risk is more in case of bearer cheque as it can be encashed by anybody, even a thief. But, the degree of risks is less in case of order cheque as it is payable to a particular person.

d)      Bearer cheque is suitable for making small payments. But, order cheque is suitable for making big payments.

e)      There is no record of movement of bearer cheque as it is transferred without endorsement. But there is a record of movement of order cheque because it bears endorsement.

f)        Bearer cheque can be converted into order cheque. But order cheque cannot be converted into bearer cheque.

Difference between open cheque and crossed cheque

a)       Open cheque is payable across the counter of the bank. But crossed cheque is payable only through a bank account.

b)      Open cheque does not require any parallel lines on the face of the cheque. But crossed cheque requires two parallel lines or some other indicators signifying crossing.

c)       Open cheque may be a bearer or order cheque. But crossed cheque is not a bearer or order cheque.

d)      The degree of risk is more in case of open cheque as it can be encashed by anybody across the bank’s counter. But, the degree of risk is less in case of crossed cheque as it cannot be encashed by any unauthorized person.

e)      Open cheque is used by the drawer to withdraw money for himself. But crossed cheque is not used by the drawer to withdraw money for his own use.

f)        Open cheque can be easily converted into crossed cheque. But crossed cheque cannot be converted into open cheque except by the drawer of the cheque.