What is a Cancelled Cheques, Its Uses, Sign, SBI, Sample, KYC

 

What is a Cancelled Cheques, Its Uses, Sign, SBI, Sample, KYC

Online transaction, e-banking, mobile wallets – they are booming like fungi and algae. The use of digital transactions was already on the rise but post demonetization (that happened on November, 8, 2016), these modes of transactions have taken off and their user bases have been increasing at an unprecedented rate.

Please find a Sample Cancelled Cheque of SBI

Sample Cancelled Cheques SBI

After the advent of online transactions, banks in India also jumped on to the bandwagon and started offering a whole gamut of services through their online portals. However, when it comes to pure banking, there are still some services that can be received from banks until and unless a manual intervention is provided. There are still a number of services which must be taken care of in a traditional fashion.

What really do we mean when we say “traditional fashion?” We simply mean the banking methods that we knew before online banking started taking over. For instance, using paper documents, using cheques etc.

In this article, we will learn about cancelled cheques in details because even today, cancelled cheque hold a lot of importance and when any transaction or service requires a cancelled cheque, the account holder of a bank will have to get into offline manual mode no matter how much discomfort it creates.

So, without further ado…

What really is a cancelled cheque?

Let us go by the bluntest way of defining a cancelled cheque (in the Indian context of course).

A cancelled cheque is basically a cheque on which there are two parallel lines drawn across the cheque diagonally and the word ‘cancelled’ is written right between the parallel lines.

What does a cancelled cheque actually mean?

Now that we know what a cancelled cheque actually is, the next important question is, ‘what does a cancelled cheque really mean?’

When you issue a cancelled cheque simply means that you hold an account with the bank. Usually when issuing a cancelled cheque, you don’t really have to sign the cheque but some banks might ask you to issue a cancelled cheque with your signature on it.

It is not necessary that you will have to issue a cancelled cheque only at a bank. You can issue it elsewhere also. Here is what happens when you issue a cancelled cheque:

Uses Explanation
Proof It works as a proof that you hold a bank account with the bank where you claim to have an account.
Accurate details Basically, a cancelled cheque is a source of information. When certain details like bank account number, IFS Code etc. are required, issuing a cancelled cheque simply means that you are providing the necessary information very accurate.
Types of details that are available There is the list of all details that can be extracted from a cancelled cheque:

 

1.        Name of the bank
2.       Name of the account holder
3.       Bank account number
4.      IFS Code of the bank (IFS Code or IFSC stands for Indian Financial System Code)
5.       MICR Code (MICR stands for Magnetic Ink Character Recognition)

Method of issuing a cancelled cheque

Wondering how to issue a cancelled cheque? It is very simple. Here are the steps that you need to follow:

Get your cheque book: Get hold of your cheque book of the bank account which you want to use. Remember that you need to have cheque facility

Draw parallel lines: Use a blue or a black pen and draw two parallel lines diagonally across the cheque. The lines should run from one end to another end. The two lines should be far enough to leave ample space for writing in between them.

Write the word cancelled: Write the word ‘cancelled’ between the two parallel lines. Use all caps (that is all capital letters) however, that is not necessary. You can also use sentence case. Here is how all caps look like: CANCELLED and here is how sentence case looks like: Cancelled.

Signature: No need to put your signature on it. However, in case a bank or any other organisation asking for a cancelled cheque specifically asks for your signature, you may have to put your signature. However, do cross cheque with a senior official of the organisation whether you really do need to put your signature or not. If it sounds dicey, you may ask for a written statement from the person asking for a signature on your cancelled cheque. That statement (which explicitly states that you need to put your signature on your cancelled cheque) should be on a letterhead of the organisation. We will explain why we said this in the next segment of this article.

Signature on cancelled cheque

A cancelled cheque is actually meant for your bank information. Once you cancel a cheque, it becomes useless and void. It no longer remains valid and a bank will not go through with any transaction using that cheque. Hence, no fraudulent activities are as such possible using that particular cheque (physical usage).

But…

Fraud is still possible

A cancelled cheque has a multitude of information on it such as:

  • Bank account number
  • Account holder’s name
  • IFSC
  • MICR
  • Name of bank
  • Name of bank branch etc.

This information can be used for various fraudulent activities somewhere else. There are document cases of such activities in the past. Once you put your signature on a cancelled cheque, a fraudster can easily replicate that signature too and use it for criminal activities. This is why, putting a sign on a cancelled cheque becomes a risky affair. If someone is asking for a signature, you should not take it lightly as a general rule is that a cancelled cheque doesn’t require a signature. So, if someone is asking you to sign the cancelled cheque, you can always ask for a statement or declaration as stated above.

What can you do with that declaration or statement?

We are not saying that the whole organisation will be a fraud one (especially organisations of repute). There may be individuals in that organisation who may not be honest and may want to go ahead and engage in fraudulent activities. Once you have the statement or the declaration, you will have a written and documented proof that a signature was asked for by one of the personnel of the organisation. So, if you become a victim of fraud, you can use that document as your defence and you can also ask for proper compensation from the company / organisation or bank.

Difference between stop payment and cancelled cheque

You may ask, ‘is stop payment and cancelled cheque same?’

The answer to this question is simply NO. They are two very different things. The differences between the two are mentioned in the table below:

Difference point Stop Payment Cancelled Cheque
Transaction power The cheque will have transaction power. The cheque will not have transaction power.
The word – ‘cancelled’ Not written on the cheque Written on the cheque
Use Used when a cheque is lost or when there is no sufficient balance in account to make a payment against a cheque or when you deliberately want to stop a payment. Used for providing information like account number, IFSC, MICR Code, name of account holder, bank name, bank branch name etc.
Issuing order You need to explicitly issue a ‘stop payment’ order to a bank for stopping a payment against as cheque. No such order is required because a cancelled cheque has no transaction power and will never be used by bank for issuing any payment.
Charges Bank may charge a small amount of fee for stopping a payment against a cheque. The bank will not charge anything for a cancelled cheque.
Final destination The final destination of a cheque with a stop payment order is always a bank because a cheque can be encashed only at a bank. The final destination of a cheque can be anywhere from an insurance company to a loan company to a service provider (like electricity board) or just any other organisation who might require banking details for issuing payments or debiting ECS or EMI etc.
Signature on cheque A cheque against which a ‘stop payment’ order has been issued will carry the signature of the account holder. Signature is not necessary as a general rule but some organisations may ask for a signed cancelled cheque.

Where are the possible area where a cancelled cheque is used?

A cancelled cheque can be used for a number of reasons. Some of these reasons are:

  • Opening a new bank account: Some banks will ask for a cancelled cheque from another account in case you go for opening a new bank account. This can be asked for in case of a savings bank account or even in case of a current account.
  • As a KYC document: You must have of heard of this – KYC! KYC stands for Know Your Customer wherein several documents are asked for by various financial organisation so that the person who is involved in some kind of financial activity (such as investment, using mobile wallet etc.) can be properly verified. A cancelled cheque can be asked for as a part of the KYC document as it provides various banking details of the person as well as the name of the person.
  • For ECS collection: ECS stands for Electronic Clearance System. This is a method wherein a service provider or even an investment company debits a certain amount of money from your bank account directly on a specified date every month or every quarter or half yearly or yearly. For instance, you may have ECS enabled for your monthly utility bills like electricity, water, internet etc. The service provider or an investment company may ask for a cancelled cheque for the bank account from where you want the service provider or an investment company to deduct the money directly. The cancelled cheque will provide the necessary details to the service provider or the investment company so that they can add the details to their ECS system and the money will get deducted automatically when the time comes.
  • EMI payments: We often buy a number of things in credit and then pay off later in smaller instalments. This may be a home purchase loan, any electronics like TV or music system or home theatre system etc. It may even by your overdue credit card bill. In order to assign EMI facilities, a company may ask for a cancelled cheque. The details on the cheque will be used by the company to assign EMI facilities wherein the EMI amount will be directly debited from your bank account.
  • EPF Withdrawal:If you have EPF account which has matured or you want to make premature withdrawal, you will not only need to provide a duly filled form but you will also need to provide a cancelled cheque. The details of the cheque will be used by EPFO or Employees Provident Fund Organisation to directly credit the amount to your bank account.
  • Loan disbursal: We often take loans. Loans may be for a number of things like education, marriage, home purchase, just a personal loan etc. As of today, no loan company will provide the loan money in cash. They will always credit the loan amount directly to the bank account. So, they will ask for a cancelled cheque so that they can use the details for sending the money directly to your bank account.
  • Demat Account opening: In case you want to invest some money into stocks, you will need a Demat Account. You need to open this account with a bank. However, you just cannot walk up to a bank and ask for such account. You will have to fill up a form and provide necessary documents such as ID proof, address proof etc. A cancelled cheque will also be required. This cancelled cheque along with other documents will be sent to stock brokerage firm. The firm will use the details on the cheque for adding auto debit and auto credit features to your demat account. Basically, your savings account (using the details of the cancelled cheque) will be linked to your Demat account and all money transactions will take place electronically between the two accounts.
  • Insurance policy: We all know what an insurance policy is and what can we use it for. In case you are purchasing an insurance policy such as moneyback, endowment, term, health etc. you will be required to provide a cancelled cheque. The premium amounts for the insurance will be debited directly from your savings account. The maturity amount or any monthly revenue stream will get auto credited to your account. The account details will be taken directly from the cancelled cheque you provide.

Conclusion

Cancelled cheque has a number of uses and it can also be misused. So, make sure that you are handing over a cancelled cheque to a proper person who is authorized by a company or a bank to collect the cancelled cheque. It is an important document but unfortunately, many of us are not fully aware of its uses and its importance. Hopefully, this article helped you to gain the necessary knowledge. In case you have any questions, feel free to drop a message through our comments section and we will get back to you as soon as possible.

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