In banking operations, what is cheque endorsing and why is it done?

Introduction / Context:
Cheque endorsing is a fundamental concept in negotiable instruments law and banking practice. It is often examined in commerce and banking exams because it determines who has the legal right to receive payment on a cheque and how that right can be transferred. Understanding endorsement is important for avoiding fraud, handling cheques correctly and resolving disputes about ownership and payment.

Given Data / Assumptions:

• A cheque has been issued by a drawer in favour of a payee or bearer.
• The cheque may pass through one or more hands before final deposit or encashment.
• The person who currently holds the cheque may wish to transfer it to someone else or present it through a bank.
• The banking system honours endorsements in accordance with legal rules on negotiable instruments.

Concept / Approach:
Endorsing a cheque involves the payee or current holder signing, and sometimes adding instructions, on the back of the instrument. Simple or blank endorsement is just a signature, which can make the cheque payable to bearer. Special endorsement adds the name of a new payee, directing payment to that person or entity. Restrictive endorsements, such as "for deposit only," limit further negotiation and instruct the bank to deposit the funds into a specified account. In all cases, the endorsement helps identify who has the right to receive payment and provides a traceable record of transfers.

Step-by-Step Solution:
Step 1: Recognise that a cheque is a negotiable instrument that can be transferred from one party to another. Step 2: Understand that endorsement is the act of the payee or holder signing the back to assign or confirm rights to payment. Step 3: Note that endorsements can be blank, special or restrictive, each with different effects on negotiability and deposit. Step 4: Acknowledge that banks examine endorsements as part of verifying that the person depositing or encashing the cheque has legal authority. Step 5: Choose the option that clearly states that cheque endorsing is about signing the back to transfer rights or authorise deposit, rather than unrelated actions like printing cheque books.

Verification / Alternative check:
To verify, imagine a cheque made payable to a person who wants to pay a bill to a third party. Instead of depositing the cheque and then writing a new one, the payee signs the back of the cheque and writes "Pay to" followed by the third party name. This is a special endorsement that transfers the right to payment. Alternatively, the payee may sign and write "For deposit only to account number X" which restricts the cheque so that it can only be deposited into that account. In both cases, endorsement is the mechanism used to control and record how the cheque proceeds are handled, matching the description in the correct option.

Why Other Options Are Wrong:
Option B describes writing the amount in words, which is part of completing the cheque on the front, not endorsing it on the back. Option C refers to cancellation or crossing, which is a different concept involving the front of the cheque. Option D relates to legal action after cheque dishonour, which is not endorsement. Option E describes an administrative banking task of printing cheque books, which has nothing to do with transferring rights in a specific cheque.

Common Pitfalls:
A common pitfall is to think that any writing on the cheque back is endorsement, even if it is unrelated scribbling, which can cause confusion or rejection. Another mistake is failing to endorse a cheque when required, leading to delays in deposit or collection. Some people sign cheques in blank and hand them over carelessly, increasing the risk of misuse. For exam purposes, remembering that endorsement is a controlled, legally recognised way of transferring or confirming rights to payment helps maintain conceptual clarity.

Final Answer:
Signing or stamping the back of a cheque by the payee or current holder to transfer rights or to authorise deposit or collection through a bank.