Earlier days processed cheques were returned to the account holder. These returned cheques could serve as a proof of the transaction from the account. Now in these days of online and e banking just knowing a few details about the account and account holder could be used to the disadvantage of the account holder. The banks therefore do not return the cheque that has been processed and payment is done.
A cancelled cheque is held as proof of holding an account. A cancelled cheque is nothing but a cheque bearing the account number and account holder name which has an inscription “cancelled” across it.
Earlier cancelled cheques are demanded to initiate ECS payments for mutual funds. These days, a cheque with the monthly payment amount written on it is taken instead of a blank cheque or cancelled cheque. A cheque contains MICR number on it which gives details of the bank and branch of the bank. In case of loans from banks and other financial institutions, say it is a home loan or car loan, a blank cheque is taken as security instead of a cancelled cheque. These blank cheques are returned to the customer on repayment of the loan.