What Are Cancelled Cheques Used For?

What Is A Cheque?

A cheque is a negotiable instrument that orders the bank to pay the specified sum of money from the drawer’s account to whomever it is issued to. The three parties to the cheque are:

• Drawer of the cheque – The person who signs the cheque and orders the bank to pay the specified amount
• Drawee of the cheque – The bank which is ordered to pay the specified amount
• Payee – The person to whom the bank is ordered to pay the amount

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 with “cancelled” written across it between two lines which cross the cheque. A cheque may be cancelled because of some mistake made while writing the cheque. Nothing else other than the word “cancelled” needs to be mentioned. A cheque is cancelled so that it may not be misused for any other purposes.

A cancelled cheque is also used as a proof that an individual owns an account in the bank. Though it might not be used to withdraw or deposit money, but it provides vital information such as name of the account holder, account number of the drawer, MICR code, IFSC code, name and address of the branch in which the account exists and the cheque number.

Uses Of A Cancelled Cheque

A cancelled cheque though may not be used for banking purposes but it can be used for the following purposes:

• Know your customer (KYC) – Since a cancelled cheque contains all the important information regarding the account held by the individual, It is helpful in completing the KYC formalities.
• Equated monthly installments (EMI) – Banks and other lenders need a cancelled cheque to complete the formalities of assigning an EMI for the loan availed. Almost all loans come with EMIs. EMIs are a way to repay the loan and interest amount on a regular monthly basis. The borrower can adjust the amount of EMI as per his repaying capabilities.
• DEMAT account – DEMAT account is used to hold shares of an individual in an electric form. At the opening of a DEMAT account apart from the other documents needed, cancelled cheque is also required. Cancelled cheque needs to be submitted to the stock brokerage.
• Electronic clearance service (ECS) – ECS is a way in which funds from one bank account can be transferred to another electronically. If you give consent for an ECS then money will be deducted from your bank account. For such transactions, bank requires a cancelled cheque from you.
• Withdrawal of funds from Employee Provident Fund (EPF) – A cancelled cheque needs to be submitted while withdrawing funds from EPF. This is required to verify the account details of the person withdrawing the funds.
• Insurance policies – Some insurance companies require a cancelled cheque to be submitted from the person purchasing the policy.

How To Write A Cancelled Cheque?

To write a cancelled cheque follow the steps listed below:

1. Take a new cheque leaf from the cheque book. Do not sign anywhere on this leaf.
2. Draw two parallel lines on the cheque leaf to cross the cheque. The lines should be drawn in such a manner that no important information such as name of the account holder, account number, IFSC code, MICR code, name and address of the branch is covered.
3. Write the word “CANCELLED” in capitals between the two lines.

In case you are cancelling a cheque because of a mistake you made while writing the cheque, you need to start from step 2 from the steps mentioned above.

How To Prevent A Cancelled Cheque From Being Misused?

A cancelled cheque though might not be used for withdrawing purposes but still there are ways it can be misused. To prevent such fraudulent activities ensure that you never sign a cancelled cheque. Also hand over the cancelled cheque to the person in charge of collecting it.

Conclusion

There may be a requirement to cancel a cheque. It may be required to complete the banking procedures like opening a bank account, completing a KYC or an ECS, withdrawing funds from EPF or opening a DEMAT account. You may also need to cancel a cheque because of the error you made on the cheque. Make sure to cross the cheque leaf with two parallel lines with word cancelled written between them to cancel a cheque. The most important point to take care of is to never sign a cancelled cheque.

Frequently Asked Questions

1. How to cancel a cheque?
Ans- To cancel a cheque you cross the cheque with two parallel lines and write the word “CANCELLED” between them. Make sure that while crossing the cheques, you do not cover any important information on the cheque leaf.

2. Should I sign on a cancelled cheque?
Ans- You should never sign a cancelled cheque as it can be used for many fraudulent activities. No procedure can mandate signing of a cancelled cheque.

3. What are the instances where cancelled cheques are required?
Ans- A cancelled cheque is required to complete a formality in the banking procedures like opening a bank account, completing a KYC or an ECS, withdrawing funds from EPF or opening a DEMAT account.