What is a Cancelled Cheque & How to Write a Cancelled Cheque?
A cheque is a negotiable instrument that orders the bank to pay a specific amount from the bank account of the drawer to whomever it is issued or to the order of the specified person or the bearer of the cheque. Three parties to a cheque are:
- Drawer of the cheque: The person who signs the cheque or orders the bank to pay a specified sum of amount through a cheque is known as the drawer.
- Drawee of the cheque: The bank which is ordered to pay the specified amount as per the cheque is known as the drawee of the cheque.
- Payee: The person to who the bank is ordered to pay the amount is known as the payee.
There are different kinds of cheque like open cheque, self-cheque, bank cheque, crossed cheque, stale cheque, cancelled cheque, etc.
A Cancelled Cheque
A cancelled cheque is a cheque that crossed with two lines and with the word “cancelled” written across. A cheque maybe cancelled if any mistakes have been made while writing the cheque and that is why it is known as a cancelled cheque, but there is no need that anything else is mentioned on a cheque other than the word “cancelled”. It is generally cancelled so that the cheque is not misused in any way by anybody.
A cancelled cheque, however, acts as proof that the individual holds an account in the bank. In addition, even though a cancelled cheque cannot be used to withdraw money from the account of the drawer, it contains other details such as the name of the account holder, account number of the drawer, MICR code, IFSC Code, name and branch of the address in which the account exists, and the cheque number.
Uses Of A Cancelled Cheque
A cancelled cheque cannot be used to withdraw money, but it can be used for several other purposes. Few of the purposes for which a cancelled cheque is used are:
- Know Your Customer (KYC) – Cancelled cheques are useful for different procedures of KYC while investing in mutual funds or the stock market as there are pertinent details including the proof that the individual concerned holds an account in the bank, the name and account number of the account holder and the name and branch address of the bank in which the individual holds an account.
- EQUATED MONTHLY INSTALLMENTS (EMI) – EMI options are present in various loans, including car loans, education loans, home loans, etc. The bank or the company concerned would require a cancelled cheque for completing the formalities to assign such monthly payment methods.
- DEMAT ACCOUNT – A demat account is used to hold shares by individuals in an electronic form, and at the time of opening a demat account, a cancelled cheque along with a form for opening account and other KYC documents such as proof of identity, proof of address, etc. need to be submitted to the stock brokerage.
- ELECTRONIC CLEARANCE SERVICE (ECS) – ECS is an electronic mode in which funds can be transferred from one bank account to another. If you set up an ECS from your account, then there would be a deduction of money from the account every month, and for this deduction, the bank would require a cancelled cheque from you.
- WITHDRAWAL OF EMPLOYEE PROVIDENT FUND (EPF) – A cancelled cheque is required to be submitted while withdrawing money from the EPF to verify account details of the person who withdraws.
- OPENING A BANK ACCOUNT – While opening a bank account, a cancelled cheque is required to be submitted for the process to be completed.
- INSURANCE POLICIES– While opting for an insurance policy, some organizations require a cancelled cheque from the person willing to purchase such a policy.
How to Write a Cancelled Cheque?
Cancelling a cheque is important as cheques can otherwise easily be abused. If you are cancelling a cheque to submit it for a particular purpose, the following steps should be followed:
Step 1: Take a fresh cheque from your cheque leaf that you wish to cancel. Do not sign anywhere on the cheque.
Step 2: Draw two parallel cross lines across the cheque.
Step 3: Write “CANCELLED” between those two lines in capital letters.
It is important to note that the parallel lines that you draw across the cheque does not cover any important details such as the account number, the name of the account holder, IFSC code, MIRC code, name and branch address of the bank in which the account exists, etc.
If you wish to cancel a cheque because of any error that you might have made in the cheque, you can start from step 2 of the process as mentioned above.
Nobody can withdraw from a cancelled cheque, but many fraudulent activities can occur even while misusing cancelled cheque. When you provide someone with a cancelled cheque, ensure that you do not put your signature on it, and also ensure that you hand it over to the proper person in charge of collecting it to be on the safer side.
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Cancelled Cheque FAQs:
1. How to cancel a cheque?
2. What are some of the instances where cancelled cheques are required?
3. Will my bank cancel a cheque in case I request them?
4. Should I sign on a cancelled cheque?
5. What are the risks involved in cancelling a cheque?
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