What Is a Cancelled Cheque – How to Write One?

What is a Cheque?

In India, a cheque is a financial instrument that allows one party to instruct their bank to transfer a specific sum of money to another individual or entity. Covered under the Negotiable Instruments Act, of 1881, it is recognised as a legally binding bill of exchange. When issuing a cheque, there are three main participants involved:

• Drawer: The account holder who writes the cheque. 
• Drawee: The bank responsible for processing the payment. 
• Payee: The recipient for whom the funds are intended. 

Cheques can be issued from either savings or current accounts. It provides a practical, cashless method for making payments. A cheque is an unconditional order instructing the bank to pay a specific amount to the designated recipient. The amount mentioned cannot exceed the balance in the drawer’s account, thus ensuring the funds are available. A cheque is always drawn on a particular bank, linking the transaction to a verified institution, and it is payable on demand. This means the payee can access the funds as soon as the bank processes it. Plus, the drawer’s signature on the cheque is mandatory as it confirms their authorisation for the transaction.

What are Cancelled Cheques?

A bank cancelled cheque is a cheque that has been rendered unusable for payment purposes by drawing two parallel lines across it and writing the word “CANCELLED” between them. It serves as a source of important information, such as the account holder’s name, bank account number, IFSC code, and MICR code. For collateral free MSME loans, providing a cancelled check is a common step to confirm the applicant’s banking details and streamline the loan approval process.

How to Write a Cancelled Cheque

If you are wondering how to cancel a cheque, worry no more.

• Take a fresh cheque leaf from your cheque book.
• Draw two parallel lines across the cheque, preferably diagonally.
• Write “CANCELLED” in bold capital letters between the lines using a dark, permanent ink pen.
• Ensure the account number and IFSC code remain visible and unobstructed.

How Does a Cancelled Cheque Look Like?

Cancel cheque sample:

Why and When is a Cancelled Cheque Required?

• KYC formalities: A cancelled cheque is required for various purposes, such as completing KYC formalities for investments in stocks, mutual funds, and insurance policies. It ensures that the account details provided are accurate and verified.
• Opening a Demat account: It is also needed when opening a Demat account as a part of the documentation. This helps the institution verify the account holder’s information for secure trading.
• Withdrawing EPF funds : For withdrawing Employee Provident Fund (EPF), the use of cheque that is cancelled serves as proof of account ownership. It conforms to the accuracy of bank details for the transfer of funds.
• Setting up ECS or NACH mandates : A cancelled cheque is needed to set up Electronic Clearing Services (ECS) or National Automated Clearing House (NACH) mandates. These mandates allow automatic deductions for payments like utility bills or EMIs.
• EMI payments for loans : Lenders may request a cancelled cheque to verify account details when setting up Equated Monthly Instalments (EMIs) for loans. This ensures that the loan payments are accurately processed each month.
• Opening a new bank account: Banks may also request a cancelled cheque when opening a new account. This allows them to confirm the account holder’s details and link the new account accurately.
• Applying for business loans: cancelled check is often required as part of the documentation process when applying for business loans at Lendingkart, ensuring the bank has accurate account details for disbursing funds.

How to Give Cancelled Cheque?

A cancelled cheque is often used for purposes such as setting up Electronic Clearing Services (ECS) mandates, Know Your Customer (KYC) processes, and salary account verifications. You need to follow the format of cancelled cheque as per the above-cancelled cheque example. This makes the cheque unusable for transactions but still allows the necessary banking information to be verified.

Providing a Cancelled Cheque Offline

• Manual submission: Write “CANCELLED” across the cheque, making sure not to obscure essential details like the account number, IFSC code, and bank name. Hand over this cheque physically to the requesting party. 
• Bank branch submission: For some institutions, you may be asked to provide a cancelled signed cheque directly at the bank branch. Ensure the cheque is properly marketed and then submit it as required. 

Providing a Cancelled Cheque Online

• Scanned copy: Scan or take a clear photo before you upload a cancelled cheque picture or email it securely to the concerned institution’s website, app, or email.  
• Digital platforms: Many banking apps and platforms now offer ways to verify your bank account details without a physical check. They may request a soft copy, where you can upload cancelled cheque sample image directly. 

Alternative verification: In some cases, banks may allow virtual verification methods using digital documentation of a cancelled cheque is not feasible.

Risk Associated with a Cancelled Cheque

Although a cancelled cheque cannot be used for withdrawing money from your account, it still contains sensitive information like your account number and IFSC code. It is essential to be cautious when providing a cancelled cheque and ensure that it is handed over to a trusted and authorised entity. Misplacing or sharing a cancelled cheque carelessly may lead to potential

misuse of the information. When securing working capital loans, lenders may request a cancelled check to verify the business’s bank account information.

What is The Difference Between A Stop Payment And A Cancelled Cheque

Also, applicants for pradhan mantri mudra yojana must submit a cancelled check to authenticate their bank account, facilitating the smooth transfer of loan amounts.

Conclusion

A cancelled cheque is an essential tool in banking and finance, especially in India. Its primary function is to verify account details without enabling any transactions, making it highly useful for identification in financial documentation. This simple yet effective method helps facilitate various processes, from KYC formalities to loan applications. Simply use the format of the cancelled check sample to get started. It is also crucial to handle such cheques with care to prevent any misuse of sensitive banking information. Institutions like Lendingkart also request cancelled cheques during the business loan application process to ensure secure and accurate disbursement of funds. 

Frequently Asked Questions 

What happens when a cheque is Cancelled?

When a cheque is cancelled, it becomes invalid for financial transactions, ensuring it cannot be used for payments, withdrawals, or any other transactions. The cancellation is indicated by drawing two parallel lines across the cheque and writing “CANCELLED” between them.

How can I get a Cancelled check?

To obtain a cancelled cheque, request a new cheque leaf from your bank, draw two parallel lines on it, and write “CANCELLED” between them using a blue or black pen. This cancelled cheque is often required for various financial processes.

Is a cancelled cheque required for a PF withdrawal?

Yes, a cancelled cheque is typically required for PF withdrawal to verify bank details and ensure accurate fund transfers. Salaried individuals looking to withdraw funds from their EPF account usually need to submit a cancelled cheque along with the withdrawal form.

Why do employers ask for a Cancelled cheque?

Employers often ask for a cancelled cheque to facilitate direct credit of salaries, reimbursements, or other financial transactions. It serves as a means to verify the employee’s bank account details and ensures accurate and secure fund transfers.