Step 2 cannot be carried out while you do not have your British passport because in the Surrender form - you would have to enter British Passport Details.
Here is the link for the form:
http://in.vfsglobal.co.uk/pdf/Applicati ... .09.13.pdf
Rather than the Surrender certificate(which is relatively quicker 1-week) - getting OCI from the HCI is a wait of a lifetime.
Also, while applying for BP - it is not mandatory to use Check and Send. As long as you are confident that the form is filled corectly - one shouldnt have any issues.
One thing worth mentioning is about the mode of payment in HCI if you are applying in person.
They will either accept ONLY CASH or Postal Order.
This information is not mentioned clearly in their website. Personally - would recommend to carry CASH.