Highlights:
- A cheque is more than just a payment slip; one small mistake can create unnecessary trouble.
- Need to submit a cancelled cheque? Mark it clearly as “CANCELLED” and avoid signing it unless specifically asked.
- Before issuing a cheque, check the amount, signature, and account balance to avoid a return.
UPI may have become a part of everyday payments, but cheques haven't disappeared.
You may still be asked for a cancelled cheque while setting up an investment, insurance policy, loan repayment, or other banking instruction. And if you actually need to issue a cheque, knowing how to fill it correctly matters.
So, let's go through the basics without making banking sound complicated.
What Is a Cancelled Cheque?
Here's where people often get confused.
A cancelled cheque is a cheque leaf that has been marked as cancelled so that it cannot normally be used to make a payment.
To cancel one, draw two parallel lines across the cheque and write “CANCELLED” between them. Do not sign it unless the organisation requesting it specifically requires something different.
Why would anyone want a cheque that cannot be used for payment?
Because it can help an organisation verify banking details printed on the cheque, depending on its requirements.
A cancelled cheque may be requested while setting up certain financial services, investments, electronic mandates, or other bank-linked processes.
So, when someone asks what a cancelled cheque is, remember: it is generally being provided as supporting banking information, not as an instruction to make a payment.
Also Read: Dishonoured Cheque: What It Is, Why It Happens & Charges
Cancelled Cheque vs Regular Cheque
| Regular Cheque | Cancelled Cheque |
| Used to make a payment | Generally used for bank-detail verification |
| Contains payment instructions | Marked “CANCELLED” |
| Requires the drawer's signature for payment | Usually should not be signed merely to cancel it |
| Can be presented for payment if valid | Not intended to be used for payment |
Even though a cancelled cheque is not meant for payment, it still contains banking information. Share it only when there is a genuine reason to do so.
What Is Cheque Bounce?
Imagine you give someone a cheque for ₹20,000, but the bank returns it unpaid.
That is commonly called a cheque bounce or cheque dishonour.
A cheque can be returned for different reasons. Depending on the situation, these may include:
- insufficient funds in the account
- signature-related issues
- mismatch or problems with cheque details
- a stale cheque
- overwriting or alterations
- payment being stopped by the drawer
The bank generally provides a reason when a cheque is returned.
What Are Cheque Bounce Charges?
A returned cheque can also cost you money.
Banks may levy cheque bounce charges or cheque-return charges according to their own schedule of charges. The amount is not the same across every bank.
The charge may also depend on factors such as the account type and reason for return.
So, instead of assuming there is a standard fee, check your bank's latest schedule of charges.
Can a Cheque Bounce Become a Legal Case?
Yes, in certain circumstances.
Section 138 of the Negotiable Instruments Act, 1881 deals with dishonour of certain cheques issued towards a legally enforceable debt or liability, including cases involving insufficient funds or where the cheque exceeds the amount arranged.
For Section 138 to apply, specific legal conditions and timelines have to be met.
For example, the payee or holder must generally send a written demand notice within 30 days of receiving information from the bank about the dishonour. The drawer then gets 15 days from receiving the notice to make the payment.
A cheque bounce case can therefore be more serious than simply paying a bank charge.
Under Section 138, the punishment can extend to imprisonment of up to two years, a fine of up to twice the cheque amount, or both, subject to the law and facts of the case.
If you are involved in an actual cheque dispute, it is better to seek qualified legal advice rather than relying only on general information online.
Also Read: What is the Validity Period of a Cheque?
A Few Things to Check Before Issuing a Cheque
Most cheque mistakes are easier to prevent than fix.
Before handing over a cheque, quickly check the payee's name, date, amount in words, amount in figures, and signature.
Also make sure there are sufficient funds in your account when the cheque is presented.
For higher-value cheques, your bank may also offer the Positive Pay System. RBI introduced this as an additional safety measure against cheque tampering. Banks have been advised to enable the facility for account holders issuing cheques of ₹50,000 and above, while banks may consider making it mandatory for cheques of ₹5 lakh and above.
Final Thoughts,
A cheque may look like a simple piece of paper, but filling it incorrectly can create unnecessary trouble.
Know how to fill cheque details carefully, keep your cheque book secure, and don't sign blank cheques.
If you need a cancelled cheque, clearly mark it as cancelled and share it only with a trusted organisation.
And before issuing a cheque for payment, check the details and your available funds. A little care can help you avoid a cheque bounce, extra charges, and, in some situations, a possible legal dispute.
FAQs
1. What is a cancelled cheque used for?
A cancelled cheque is generally used to verify bank account details for processes such as investments, insurance, loan mandates or other financial services. It is not meant for making payments.
2. How do I cancel a cheque correctly?
Draw two parallel lines across the cheque and write “CANCELLED” between them. Do not sign it unless the requesting organisation specifically asks you to do so.
3. What happens if a cheque bounces?
The bank returns the cheque unpaid. The account holder may have to pay cheque bounce charges, and the payee may take further steps depending on the reason and circumstances.
4. How much are cheque bounce charges?
There is no fixed charge across all banks. The amount depends on the bank’s current schedule of charges, account type, and other applicable conditions.
5. Does every bounced cheque lead to a legal case?
No, a returned cheque does not automatically result in a legal case. Section 138 of the Negotiable Instruments Act applies only when specific legal conditions and required timelines are met.
