A Cheque is a legal instrument issued by the bank to its account holders. It is a Negotiable instrument used in business to pay off liabilities.
It is a written order to a bank which entitles the bank to deduct the stated sum from the drawer’s bank account and transfer it in favor of the payee.
A drawer of a cheque is the account holder in the bank who is liable to pay, whereas, the payee is the one who has the right to collect the sum stated on the cheque.
A Cheque can be issued on order or to the bearer.
Whereas, a Bearer cheque is an inchoate(incomplete) instrument, which is drawn in favor of the payee, without mentioning his name on the face of the cheque.
As the instrument stands negotiable in nature, the payee can transfer the cheque in favor of anyone else, to pay off his liability. Now the new legal holder of cheque receives the right to collect the sum stated on the cheque. This is known as the negotiation of the cheque.
An Order instrument requires the transferor to sign the cheque on the face or at the back of it, in favor of the transferee, to complete the endorsement. And then transfer the cheque to the payee.
On the other hand, a Bearer instrument can be negotiated merely by transferring it. It requires no further authorization or signature of the transferor.
A bearer cheque is transferred by the drawer to the payee. And can be further transferred in favor of someone else as a bearer instrument.
A bearer cheque, at the option of its holder, can be converted to an order instrument before endorsing it further, and also before the due date of the cheque
A bearer cheque, thus, gives all the rights of collecting the stated sum of money, to the person who holds and presents the same in the bank.