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A.SHANMUGAVALLI, M.Com., M.Phil.,HDCA
Lecturer,
PG & Research Department of Commerce,
Arumugam Pillai Seethai Ammal College,
Thiruppattur.
BANKING LAW AND PRACTICE
4BCO4C2
UNIT-1
Banker And Customer: Meaning-Definition-General relationship between a Banker and
a Customer: Primary and subsidiary-Special features of relationship: Obligations and Rights of a
Banker-Rules in Clayton‟s Case.
UNIT-2
Bankers as Borrowers: Savings Account-Current Account-Fixed Deposit-Fixed Deposit
Receipt and its legal implications-General Procedure for opening accounts –Pass Book: Meaning
and maintenance-Effects of wrong entries-special types of Customers: Minors-Firms-limited
companies-Joint accounts Closing of an account –garnishee order.
UNIT-3
Cheque: Meaning-Definition –Essentials-Cheque vs. Bill of Exchange-Drawing up of a
Cheque-Banker‟s cheque-Consequences of drawing up of a cheque Without sufficient balance –
Material Alteration: Case law –Examples-Banker‟s duty-Immaterial alteration-Marking-
Crossing: Meaning-Types and Significance of crossing.
UNIT-4
Endorsement: Meaning-Definition-Kinds-Significance-Paying Banker: precautions-
Circumstance for dishonor of cheques-Payment in due course-Statutory protection-Forgery of
drawer‟s signature-Payment by mistake-Consequences of wrongful dishonor of cheques.
UNIT-5
Collecting Banker: Duties-Statutory protection-Concept of negligence-Knowledge of
various forms used in day to day Banking: Cheque-pay in slip-Withdrawal form-Transfer form-
Draft-Bill of exchange-Promissory note-FDR-Traveler‟s cheque-Credit card-Letter of credit.
UNIT-1
Banker and Customer:
Banker:A person who is doing the banking business is called a banker.
There is no precise definition for the term banker.This term has been defined from
different periods since the field of banking has undergone remarkable changes over the
past.However,the following definitions are of worth mentioning in this respect.
Definition as per the banking regulation act:
According to the banking regulation act,1949 the term banking company means,”a company
which transacts the business of banking in india‟.In order to know the meaning of the term
banking company,it is essential to define the term banking.
The important features of this definition are as follows:
(1)Acceptence of deposits from the public
As per this definition,the primery function of a banker is to collect the small savings of
the people in the form of deposits.Generally, the money lenders are not accepting deposits
eventhough they borrow some amount from their relatives and friends in addition to their own
funds for carrying out of this business.
(2)Acceptance of deposits must be for the purpose of lending or investment
In order to call a person as a banker , he must accept deposits of money only for the
purpose of lending or investment.If the deposits are accepted for investment in own
undertakings,such undertakings will not be treated as banks.
(3)Time of repayment
This definition specifies the time of repayment of deposits.the deposits are repayable only
on demand made by the depositor.the banker can not repay the deposits on his own accord even
if the period of deposits expires.
(4)Mode of repayment
This definitions also specifies the mode of repayment of deposits.The mode may be
cheque,draft or order.
The Banking regulation act specifies the various functions to be carried on by a banking
company under section 6.
At the same time,the act prohibits a banking company from undertaking trading
activities(section 8)
According to section 7 of the act,every banking company must use as part of its name the
words bank,banking or banker.this same section prohibits the use of such words by companies
other than those engaged in the business of banking.
Customer:The term customer is of much significance to a collecting banker because he can get
protection under Sec.131 of the negotiable Instruments Act only if he collects a crossed cheque
for his customer in good faith and without negligence.
There is no statutory definition for the term customer. Ordinarily,customer
meanes a person who has an account with a banker.But Sir John Paget says that,”To constitute a
customer there must be some recognizable course or habit of dealing in the nature of regular
banking business”.
In otherwords,as per this definition,a single transaction with a banker will not make a
person as customer.
According to Dr.Hart,”a customer is one who has an account with a banker or for whom a
banker habitually undertakes to act as such”.
-Prof.E.Gorden.M.com., M.Phil, Dr.K.Natarajan.M.com, M.Phil., Ph.D.
Banker:A person who is doing the term „Banking‟ is defined as “accepting, for the purpose of
lending or investment, of deposits of money from the public, repayable on demand or otherwise,
and withdrawable by cheque, draft, order or otherwise”.
Customer:A person who has an account in a bank is considered its customer.
-K.P.M. Sundharam & P.N. Varshney.
General relationship between a Banker and a Customer:Not a Depository, Not a trustee,Not
an agent, a Banker as a privileged debtor and a creditor.
-Prof.E.Gorden.M.com., M.Phil, Dr.K.Natarajan.M.com, M.Phil., Ph.D.
General relationship between a Banker and a Customer: Relationship as Debtor and
Creditor, Not considered as trustee and Not an Agent.
-K.P.M. Sundharam & P.N. Varshney.
Obligations and Rights of a Banker:
Obligations:Obligation to honour cheque,Banker‟s lien an Duty to maintain secrecy of his
customer‟s account.
Rights:Right to claim incidental charges,Right to charge compound interest and Exemption from
the Law of Limitation Act.
-Prof.E.Gorden.M.com., M.Phil, Dr.K.Natarajan.M.com, M.Phil., Ph.D.
Obligations: Obligation to honour the cheques, Obligation to maintain secrecy of Accounts.
Rights: Right of general Lien, Right of set-off, Banker‟s right of Appropriation, Right to charge
Interest, Incidental charges, etc.
-K .P.M. Sundharam & P.N. Varshney.
(A)Primary relationship (Debtor and creditor relationship)
(1)Demand for repayment
In the case of ordinary commercial debts, the director has to repay the amount on the
expiry of a certain date or as per the terms of the agreement. But a banker, being a debtor, has to
repay the amount only on demand made by the customer.
(2)Demand at proper time and place
(1)Time for making demand
The demand for repayment of deposits must be made by the customer during the normal
working hours on any working day of the bank. Any payment made by the bank after the
working hours will not be considered as payment in due course.
(2)Place for making payment
The for repayment must be made by the customer at the branch of the bank where he is
keeping the account. However, some special arrangements may be made by a customer with the
bank for the repayment of deposits at some other branches e.g.,Traveller‟s cheques.
(3)Demand in proper manner
The demand for repayment must be made be made through a cheque or any other written
order as commonly used among the bankers. It should not be made orally or in any other manner.
(B)Subsidiary relationship
(1)Trustee and beneficiary relationship
A trustee is a person who holds assets and performs certain services for the benefit of
another person called the beneficiary. A banker will become a trustee when he accepts valuables
or securities from the customer for safe custody. In such a case, the customer will become the
beneficiary.
(2)Agent and principal relationship
The banker acts as an agent of his customers when he performs various agency services
on behalf of his customers like collection of cheques and bills, purchase and sale of securities,
payment of customer‟s dues like insurance premium etc.
Special features of relationship between a banker and a customer:
The primary relationship between a banker and customer imposes certain special
obligations and rights upon the banker over an ordinary debtors. Such special obligations and
rights as discussed below are known as special features of relationship between a banker and
customer.
(A)OBLICATIONS OF A BANKER:
(1)Obligations to honour the cheque
It is the statutory obligation of a banker to honour the cheque drawn on him by the
customer. Otherwise, he must compensate for any loss or damage caused to the customer.
However, such obligation of a banker is subject to the following conditions:
(a)Sufficiency of funds:
There must be sufficient funds of the customer in the hands of the banker for honouring
the cheques drawn by the former. The sufficiency of funds means the funds atleast equal to the
amount of cheque. If the funds are insufficient, the banker may refuse payment of a cheque. He
need not even make part payment .
(b)Applicability of funds:
The funds in an account must be properly applicable to the payment of a cheque. In
otherwords, the account on which the cheque is drawn must have sufficient funds.
A customer may have several accounts in a bank in his different capacities for different
purposes. If so, a cheque drawn on one account with insufficient funds cannot be paid out of
another account with sufficient funds.
(c)Proper requirement for payment:
The banker must honour the cheques only when he is duly required to pay. It means that,
(a) The must be complete in all respects and presented during banking hours;
(b) The cheque should not be post dated;
(c) The cheque should not be stale one. A stale cheque denotes a cheque presented for
payment after six month from the date of its issue;
(d) The cheque on a joint a/c must be signed by all the joint holders
(d)No garnishee or attachment order:
A banker may refuse payment on a customer‟s account, when a garnishee or Attachment
order has been issued against that account.
(2) Obligation to maintain secrecy of accounts
It is the statutory obligation of a banker to maintain the secrecy of the customer‟s
account. Otherwise the reputation of the customer and his business will be affected. Due to
which, the customer may have to suffer losses. This obligation will continue even after the
customer has closed his account with the banker.
(A)Legal necessity
A banker may disclose the secrecy of a customer‟s account when required by law under
the following circumstances:
(a)when such disclosure is required under the Income Tax Act, 1961.
(b)when such disclosure is required by an inspector while investigating the affairs of
a banking company under the Companies Act, 1956.
(c)when such disclosure is required under an order of the court.
(d)when such disclosure is required under the Reserve Bank of India Act,1934.
(e)when information regarding the inoperative accounts is required under the Banking
regulation Act.
(f)when such disclosure is required under the Gift Tax Act.
(B)Banking practices
The practices and customs among the bankers may also permit the disclosure of
information about the customer‟s account under the following circumstances:
(a)Disclosure with customer’s consent
A banker is justified in disclosing any information relating to his customer‟s account with
the consent of the customer. Such consent may be express or implied.
(1)Express consent:
A customer may direct his banker to disclose the state of his account to his employee or
agent.such direction by a customer is known as his express consent. with this express consent, a
banker can disclose only the required information to the persons authorised by the customer.
(2)Implied consent:
Under the following cases, it is implied that the customer has authorised the banker to
disclose the information to a third person on his request:
* where a customer has furnised the banker‟s name to a third person for reference.
* where a customer has taken a loan from the banker on the guarantee of a third
person.
(B)RIGHTS OF A BANKER:
(1)Right of Lien
Lien is right of a person who can retain the goods of another in his possession until a debt due
to him is paid. A lien is of two kinds:
*Particular lien: It is the right to retain the possession of a particular property in respect of which
the debt arises.
*General lien: It is the right to retain the possession of any property of another for the general
balance of accounts.
Exceptions to the right of lien
A banker cannot exercise his right of lien over the following:
1. Valuables accepted for safe custody.
2. Bill of exchange and other documents deposited for a special purpose.
3. Money deposited with a banker for a special purpose like purchase of securities etc.
4. Documents or valuables left in the hands of a banker by mistake or negligence.
5. Trust account operated by a customer against his personal debts.
6. Securities lodged with a banker for getting a loan before sanctioning such loan.
(2)Right of set off
It means that a debtor has the right to set off any amount due to him by a creditor before
making payment on the creditor‟s claim. As regards banking transactions, a banker can exercise
this right by settings off a debit balance in one account with the credit balance in one account
with the credit balance in another account maintained by the same customer.
1. There must not be any agreement contrary to this right.
2. A formal notice must be given to the customer regarding the banker‟s intention to exercise this
right.
3. The capacity of the customer must be the same regarding all the accounts.
4. The debts must have becomes due and must not be of future or contingent debts.
5. The amount of debts must be certain .
6. A banker has the option to exercise this right .
(3)Right of appropriation
The problem of appropriation will arise when a customer
(1) Owes several debts to a banker; and
(2) Makes a payment which is not sufficient to discharge all his debts
Rules in Clayton n’s Case:
1.Where the account goes into debit, the first item on the debit side is cancelled by the first item
on the credit side, i.e., appropriation takes pl ace in the order of time.
2. Where the account goes into credit, the first item on the credit side is extinguished by the first
item on the debit side and so on.In other words, appropriation takes place in a chronological
order.
-Prof.E.Gorden.M.com., M.Phil, Dr.K.Natarajan.M.com, M.Phil., Ph.D.
Rules in Clayton’s Case:
1.It is the first item on the debit side of the account that is discharged or reduced by the first item
on the credit side.
2. The first item on the debit side will be the item to be discharged or reduced by a subsequent
item on the credit side.
The credit entries in the account adjust or set off the debit entries in the chronological order.
The problem of appropriation will raise when a customer,
(i) owes several debts to a banker
(ii) makes a payment which is not sufficient to discharge all his debts.
In England,the law regarding this matter was lied down in devaynes Vs.noble,popularly known
as clayton‟s case.
The general rule of appropriation which was decided in clayton‟s case is as follows:
“The first item on the debit side of the account will be discharged or reduced by a subsequent
item on the credit side”.
In otherwords,”the credit item in the account will discharge or reduce the depit items in the
chronological order (i.e) in the order of time.”
By the application of this rule,the debts due from the partnership firm on the date of
death,retirement or insolvency of partner will be discharged or reduced by a subsequent credit to
that account.
As a result, a banker will lose his right to claim such debit from the estate of the deceased,retired
or insolvent partner.In such case,the banker may have to suffer the loss if such dept is not
recoverd from the remaining partners.
-K.P.M. Sundharam & P.N. Varshney.
UNIT -2
BANKERS AS BORROWERS
Bankers as borrowers’:
The bank accounts are opened with deposits of money by the customers, therefore, these
accounts are known as deposit accounts.
The money raised through these accounts constitutes the major source of bank funds.The
bank or mobilishing from the public belonging to different walks of life,engaged in numerous
economic and business activities and having different financial status.
In order to suit th erequirments of different sections of the society and to compete with other
banks, the banks are offering different types of deposit accounts are primarily into the following
three types:
1.Fixed Deposit Account
2.Savings Bank Account
3.Current Account
In order to avoid unhealthy competition among the banks, the reserve bank of india has been
given the powers to fix the rate of interest on different types of deposits.
Therefore,the banks cannot pay interest at a higher rate than the rate prescribed by the
Reserve Bank of India from time to time on various deposits.
FIXED DEPOSIT ACCOUNT
1.The Deposits accepted by the banks for fixed periods specified in advance are known as
fixed deposits or team deposits.
2.The banks need not maintain cash reserves against these deposits since fixed deposits are
repayable on the expiry of a fixed period determined in advance.As a result,the amount of such
deposits can be utilized by the banks more profitably.
3.Therefore,higher rate of interest is offered by banks on such deposits.These deposits alone
constitutes a major portion of bank deposit
Opening of a Fixed Deposit Account
A depositor is required to fill in an application from for opening a fixed deposit account. In
which, he must mention the amount and period of deposit.
In case an application is made for a deposit in joint names, the depositors must also mention
whether it is payable jointly or payable to either or survivor.
On receipt of application form and money, the banker will take the specimen signatures of
the depositor. Then, he will issue a receipt to the customer called „Fixed Deposit Receipt‟.
SAVINGS ACCOUNTS:
1.It means for small savers.Its main object is to encourage the habit of savings among the
public.
2.This account can be opened with a minimum amount which differs from bank to bank .
3.It carries an interest rate as decided by banks since the interest rate is regulated at present.
4.The depositor is supplied with a pass book. generally no withdrawals are allowed without
the presentation of the pass book along with the withdrawal slip.
In order to attract the people towards savings deposit accounts, The commercial
banks have able introduced a number of new savings schemes. these new schemes are nothing
but a slight modification of the savings bank account to suit the requirements of different
sections of the society. The examples of such new schemes are daily savings scheme, childrens
savings scheme, minor‟s savings scheme, insurance linked savings deposit etc.,
Salient features
(i)Restriction on deposits
For opening this account, a minimum of Rs.300/- is to be deposited and thereafter, any
amount can be deposited in this account subject to minimum of Rs.1/-
(b)The cheques or other instruments payable to third parties cannot be deposited in this
account. But such instruments payable to the customer can be deposited.
(ii)Restriction on withdrawals
(a) The withdrawals from this account can be made by means of a cheque or withdrawal
form.
(b) If cheque facility is availed of, a minimum credit balance of Rs.500/- should be
maintained in the account and the amount of each cheque should not be less than
Rs.5/-
(c) If withdrawals are made only by withdrawal forms, the minimum credit balance to be
maintained in the account is Rs.300/- and the minimum amount for each withdrawal
form is Re.1/-. But in this case, the pass book must also accompany the withdrawal
form.,
(d) The total number of withdrawals in every half year should not exceed 50. However ,
the bank may relax this restriction at its discretion on the basis of merits of the case.
(iii) Interest
(a) The rate of interest on saving bank deposits is 4.5%. However, the Regional Rural Banks
may given an additional interest upto 0.5%.
(b) The interest is calculated on the minimum balance in multiples of ten standing to the
credit of the account from the tenth day to the last day of each calendar month.The
interest so calculated is credited to the accounts at the end of every six months.
(c) No interest is payable on savings bank accounts opened in the name of trading or
business concerns.
CURRENT ACCOUNT:
1. A current account is an account which is generally opened by business people for their
convenience. money can be deposited and withdrawn at any time
2. Money can be withdrawn only by means of cheques. Usually , a banker does not allow any
interest on this account even then, people come forward to deposit money on current because
of two important privileges which they can enjoy in a current account namely:
(1)Overdraft facility, and
(2)Other facilities like collection of cheques transfer of money and rendering agency and general
utility services.
(3)This may be one of the reasons why a banker does not pay any interest on current deposit. The
State bank makes no chance for keeping an account provided the balance maintained is sufficient
to compensate the bank for the work involved.
The public sector banks now impose an uniform Ledger folio charge of Rs. 20
per folio ( i.e., one side of the ledger page) on accounts having average balance below Rs.
25,000.
CURRENT ACCOUNT:
“A current account is a running account and it can be operated for any number of times without
any restriction regarding the number and amount of withdrawals.The primary object of this
account is to safeguard the customers from the risk of handling cash by themselves.Therefore,it
is suitable for big business concerns,companies,institutions and public undertakings etc.,”
(i) No interest
(ii) Incidental charges
(iii) Privileges
(i) No interest
The banks donot pay interest on current accounts since they undertake to pay and
collect any number of cheques ,bills,drafts etc., which involves heavy operating cost.
(ii) Incidental charges
Some banks may charge incidental charges on current accounts which are un
remunerative. The un remunerative accounts means the accounts involving lot ofwork
without sufficient balances.
(iii) Privileges
The current accounts are enjoying the following privileges in comparison to savings
bank accounts.
FIXED DEPOSIT RECEIPT AND LEGAL IMPLICATIONS:
FIXED DEPOSIT:
Not transferable
INDIAN OVERSEAS BANK
Regd. Office : Anna Salai , Madras
Branch: ………………………..
FIXED DEPOSIT RECEIPT
No : 182042 Date of maturity: ………………
Dtae : …………………………..
Received from _____________________________________________
The sum of rupees ______________________________as fixed deposit for a
period of ____________months bearing intrest at the rate of _____% per annum.
For Indian Overseas bank
…………………..
Rs.
………………….. Manager
In this category are included the deposits with the bank for a fixed period which is
specified at the time of making the deposit, Such deposits are therefore, called Fixed Deposits or
Term Deposit.
The period varies from 7 days to 10years. A deposit account can be opened for a period
of more than 3 year and in that case the rate of interest remains the same level.
“The deposits accepted by the banks for fixed periods specified in advance are known as
fixed deposits or term deposits. The banks need not maintain cash reserves against these deposit
these deposits since fixed deposits are repayable on the expiry of a fixed period determined in
advance. As a result, the amount of such deposit can be utilized by the banks more profitably”.
Therefore, higher rate of interest is offered by banks on such deposits. These deposits alone
constitutes a major portion of bank deposits.
FIXED DEPOSIT RECEIPT:-
It conditions the amount of deposit, the name of the holder of the deposit, the rate of
interest, due date etc. On the reverse side of the F.D.R. separate columns are provided for
making entries regarding interest.
“It is an acknowledgement of receipt of money on fixed deposit amount.It contains on its
face,The name of bank and holder of deposit,amount and period of deposit,rate of interest and
the date of maturity etc.,On its back,
It contains columns for making entires regarding the payment of interest and principal or
renewal of deposits with a column fir signature of depositor.
To discharge this receipt,the depositor must sign in this column after affixing a revenue
stamp.
It is not negotiable instrument and therefore,it is generally marked as “NOT
TRANSFERABLE” but it can be assigned like other commertial depts. By a notice to the
banker.
However, the title of the assignee will not be better than that of the assignor.The banker
need not affix a stamp on this receipt since it is exempted from stamp duty.
LEGAL POSITION OF A BANKER
The legal position of a banker as regards fixed deposits is that of a debtor.He is bound to
repay the money after the expiry of the fixed period.
He will continue to be a debtor even after the expiry of a fixed period if the repayment is
not claimed by the depositor.
However,after the expiry of such period, the deposit will become a demand deposit payable
without interest.
(i) Premature withdrawl of deposits
1.A banker should not allow the withdrawal of fixed deposits before the due date. however in
practice,
2.the banker accepts such withdrawal after reducing 1% from the rate of interest applicable to
such deposits.
(ii) Advance against fixed deposits
1. The banker can loans up to 75%of the deposit money (with interest in case of cumulative
schemes) against the security of fixed deposit receipts.
2. The rate of interest on such loan is 3% higher than the rate applicable to such deposit.
This rate applicable only when the deposit receipt is in the name of the borrower.
3. In other cases the rate should not be less than 14%.
(III) Payment of interest
1. The interest on fixed deposits is normally payable on the maturity of deposits .However ,
the banks may pay interest quarterly or half yearly and credit the amount of such interest
to the savings or current account of the depositor at his request .
2. The banks may also pay compound interest under reinvestment schemes.
GENERAL PROCEDURE FOR OPENING ACCOUNT:
By opening an account with the banker, a customer enters into relationship with a banker.
He should, therefore, be very careful in opening an account in the name of customer.
Though any person may apply for opening an account in his name but the banker reserves
the right to do so on being satisfied about the identity of the customer.
1. APPLICATION ON THE PRESCRIBED FORM:
The request for opening a savings or current account is made on the described form of the
bank concerned.
Banks provide separate application forms for opening savings and current account for
individuals, partnership firms and companies.
“A person who is willing to open an account in a bank must submit an application in the
prescribed form.In the application,he must he must mention his name,address and occupation.
He must also give an undertaking to comply with the bank‟s rules in force from time to
time for the conduct of the account.”
2. INTRODUCTION OF THE APPLICANT
Before opening a savings or current account in the name of an intending customer, the
banker must get true identity of the former in order to ensure that he is a respectable person.
“The banker before opening up of an account must insist upon the applicant to furnish a
proper introduction regarding his identity. Such introduction is normally made by the customer
of a bank or any person known to the bank by signing on the application form along with his full
address.
When the applicant is not properly introduced, the banker may refuse to open an account
in his name Otherwise. There may arise a possibility of opening an account for an undesirable
person.
As a result banker will have to suffer if any fraud or misrepresentation is committed by such
person.
3. SPECIMEN SIGNATURE
“The applicant is required to give his specimen signature on a prescribed form, generally a
card for the purpose of bank‟s record. The specimen signature thus protects the banker against
forgery.
He should be very careful in comparing the signature of the customer given on a cheque
with his specimen signature.”
“The banker must obtain one or more specimen signature of the applicant in a card called
„specimen card‟ which is to be indexed and properly filed.”
4. OPENING THE ACCOUNT:-
“After the above formalities are over, the banker opens an account in the name of the
applicant. It is essential that the applicant deposits some amount at the time of opening an
account.”
(a) banker will lose statutory protection
(b) fraud or misrepresentation
(c) overdraft become irrecoverable
(d) attachment of deposits in case of undischarged insolvent
(e) specimen signature
(f) mandate for operation by an agent
(g) verification of documents
5. OPERATING THE BANK ACCOUNT:-
After satisfying the above formalities, the customer must pay an initial deposit of
Rs.300/- in case of savings bank account Rs.2000/- incase of current account to be opened urban
and Rs.5000/- in metropolitan branches and Rs.1000/- incae of current account to be opened in
semi-urban and rural branches.
The word „operate‟ in relation to a bank account means that the customer deposits
further sums of money and cheques, etc., into the bank and withdraws money according to his
need or convenience.
Then, the banker can open an account in the name of the applicant and authorise him to
operate the account.for operating the account,the banker will provide him the following:
(A)PASS BOOK
1. “It is authenticated copy of the customer‟s account with the bank.It is writtenby thr bank
and handed over to the customer for his reference.
2. The customer can get it updated by sending it periodically to the banker. Since it passes
between the banker and customer periodically, it is known as a passbook.”
3. All kinds of deposit accounts are in the nature are in the nature of running accounts. So it
becomes imperative for a banker to inform his customers of the real position of their accounts
from time to time. For this purpose, a banker makes use of a small booklet called pass book.
It is useful for the businessman to prepare bank reconciliation statement to find out the
reasons for difference between the balance as shown by his cash book and the balance in the
bank. Some banks are sending periodical statement of accounts to their customers which also
serve the purpose of a passbook..
MAINTENANCE OF A PASS BOOK:
A pass book may be maintained in the form of a ledger accountwith debit entries on the left
hand side and credit entries on the right hand side. Most of the banks follow an tabular form for
maintaining the pass book.
A pass book may also be maintained in the form of a loose leaf ledger card system. in such a
case, entries would have to be made by means of book keeping machines it can be adopted only
by big bank.
EFFECTSOFWRONGENTRIES:
The errors committed in the pas book entries may be either favorable to the customer or the
banker.
1. EFFECTS OF ENTRIES FAVOURABLE OR ADVANTAGEOUS TO THE
CUSTOMER:-
Can a customer rely upon a wrong entry favorableto him? The answer is “yes” It is so
because all the entries in a pass book are made by the banker or his agent. Therefore a pass book
record can be used as an evidence against a banker. It the customer acts upon them as bonafide
so as to alter his legal position, the banker is stopped from rectifying the same.
The pass book belongs to the customer but entries in it are made by the banker.Therefore,
The customer is entitled to believe them as correct and to act on the basis of such entries.If a
wrong credit is made to this account, The passbook will show a higher balance and the entry will
become favourable to the customer. In suchcase, If the customer withdraws money by relying on
the balance shown in the passbook, The banker cannot recover the amount wrongly paid. But the
customer must prove that,
(i) He had acted in good faith without knowledge of the wrong entry in the passbook.
(ii) He had altered his position by spending the same.
This view was expressed in the following cases:
(i) Holt vs Markham
(ii) Oakley Bowden and co. vs. Indian Bank.
(iii) Skyring Vs. Greenwood : In this case, an army officer was overpaid by
mistake and he spent the amount on the assumption that it was his own.It was
held that he had altered his position by spending the amount and therefore, the
amount overpaid could not be recovered.
In the above cases, The banker has no right to dishonor the customers cheques. If he
dishonours, He will be liable to pay damages to the customer for wrongful dishonor of cheques.
2.EFFECTS OF ENTRIES FAVOURABLE OR ADVANTAGEOUS TO THE
BANKER:-
The wrong entry in a pass book may sometimes be favorable to a banker. Does it constitute a
settlement of account? The answer is no‟,
IT IS SO BECOUSE, THE MISTAKE IS COMMITTED BY THE BANKER AND THE
CUSTOMER IS NOT BOUND BY THE MISTAKE.
(i) Complete omission of a credit entry.
(ii) Under statement of the amount of credit entry.
(iii) Wrong Debit Entry.
(iv) Overstatement of the amount of debit entry.
The legal effects of the above entries are as follows:
The customer on finding out the mistake can get it rectified. However, He will not be entitled
to do so if it is proved that-
(a) He was negligent;
(b) The entries in the pass book amounted to settlement of account;
(c) The position of the banker has been subsequently altered;
SPECIAL TYPE OF CUSTOMER:
When a banker opens an account in the name of a customer, There arises a contract
between the two.This contract will be a valid one only when both the parties are competent to
enter into contracts.
Since the banker has to deal with different kinds of persons with different legal status ,he
ought to be very careful about the competency of the customers.
An account in a bank can be opened by any person on satisfication of the following
conditions:
(i) He must be competent to contract.
(ii) He must apply to the banker in the proper manner.
(iii) He must be a desirable person from the point of view of the banker for entering
into business relations.
However, The capacity of certain classesof persons to open a bank account is subject to
some special legal restrictions. Such of those persons are called as special types of banker‟s
customers. Therefore, special precautions should also be taken by a banker while dealing with
them.
The legal position of various special types of customers and the special precautions to be
taken by a banker are discussed below:
MINOR OR INFANT:
A minor is a person who has not attained the age of eighteen.According to sec.3 of the
Indian majority act 1857,a minor is a person who has not attained the age of 18 and in case a
guardian is appointed ,it is 21.
“A person who has not attained 18 years of age is a minor.But, if a guardian is appointed
by the court for a person during the period of his minority, he will remain as a minor till he attain
the age of 21 years. A minor can not enter into a contract except for necessaries of life.
Therefore, a banker should bear in mind the following points dealing with a minor”
1. Type of account.
(i) In the name of minor himself
(ii) In the name of natural guardian
2. Date of Birth
3. Death of minor or Guardian
4. Loans to a minor
5. Loans to a minor on the guarantee of a third person
6. Liability regarding negotiable instruments
7. Minor as a Partner
8. Minor as an Agent
9. Guardianship of a minor
FIRM:
A partnership firm is an association of two or more persons called partners who
undertake a venture for a mutual benefit. According to sec.4 of the Indian partnership act,1932,a
partnership is the “relationship between the persons who have agreed to share the profits of a
business carried on by all or any one of them acting for all.”The persons who have entered into
such relation are known as partners and the agreement between them is known as partnership
deed.
A banker must take the following precautions while dealing with a partnership firm.
(i) Study of partnership deed
The banker must obtain a copy of the partnership deed and study it
thoroughly.
(ii) Opeining of account
The banker may open an account in the name of the firm only on an
application made by the partners authorized to do so.
(iii) Letter or mandate from the partners
The banker should also get a letter signed by all the partners containing-
(a) The nature of firm‟s business;
(b) The names and addresses of all the partners;
(c) The names of partners authorized to opearate the firm‟s account and the
authority of such partners to draw,endorse, and accept bills and mortgage
or sell the properties of the firm.
(iv) Revocation of Authority and stop payment of cheque
Any partner may revoke the authority given to another by a notice stop
payment of a cheque issued by another partner.
(v) Firm’s Cheques Endorsed in Favour of a partner
The banker should not credit a cheque payable to the firm,in the personal
account of a partner without enquiring from other partners.
(vi) Implied Authority of a partner
Every partner of a firm has an implied authority to act on behalf of the
firm.However, in order to bind the firm, his acts must have been done in the
name of the firm and in relation to the business of the firm.
(vii) Power to borrow
The managing partner of a firm has an implied power to borrow money and
pledge the goods of the firm of the purpose of carrying on the business of the
firm.However,
The banker should not give him a ican if he is prohibited to borrow money by
the partnership deed.
(viii) Order of payment of firm’s depts. And separate depts.
When debts are due from the firm as well as from a partner separately, then
the properties of the firm and the partner should be applied towards such debts
in the following order on dissolution of the firm:
(a) The properties of the firm must first be applied towards the firm‟s debts
and the surplus, if any can be applied towards his personal debts but only
to the extent of his share the firm.
(b) Similarly, the personal properties of the partner must first be applied
towards his personal debts and the surplus, if any ,can be applied towards
the debts of the firm.
(ix) Joint and several Liability
If the loan document of the firm has been signed by the partners in their
individuals as well as joint capacities, then the above rule is not applicable.In
this case , the banker can proceed against their personal and firm‟s properties
at the same time to recover the debts.
(x) Reconstitution of a firm
A partnership firm may be reconstituted on the death, retirement or insolvency
of a partner.In all these cases, the old firm stands dissolved. Therefore, it is
advisable for a banker to close the account of the old firm and open a new
account for the reconstituted firm.
Any cheque signed by the partner before his death, retirement or insolvency
should not,now, be hounoured by the banker without getting confirmation
from other partners.
LIMITED COMPANIES:
A joint stock company is an artificial person created by law. It has a separate existence
different from that of the members who constitute it. It has a common seal.
It can sue others and can be issued from birth to death,it is governed by law.As it is an
artificial creation,it cannot act by itself. It requires a special treatment in the hand of the banker.
“The banker must be extra cautions while granting loans to private limited companies
which are newly formed or converted form sole trader or partnership firms.
If a sole trader has coverted his business into a private limited company to defraud his
creditors, his act will be considered as an act of insolvency. Therefore, he may be adjudged as an
insolvent. If so, all his assets transferred to the limited company will have to be handed over to
the official assignee.
If the banker has given any loan against the security of such asserts, he will lose the
security. Therefore. he must carefully examine the circumstances which leads to the conversion
of a business into a private limited company”.
NON TRADING CONCERNS:
Companies limited by guarantee are generally promoted for the purpose of promotion of
education,science,art,commerce etc.
They do not have any implied powers to borrow.powers to borrow must be expressly
given in the documents.
In addition to these, the banker should take the above –mentioned precautions in the case
of such non-trading companies too.
The banker must take the following precautions while opening an account for a non-trading
association:
(i) He must see that the association has been duly registered.
(ii) He must obtain copies of the memorandum and articals of association of the society.
(iii) He must know the objects of the society by going through the memorandum of
association
(iv) He must know the rules and by-laws of the association regarding its management.
(v) He must get a copy of the resolution of the managing committee appointing him as a
banker to the association.Such resolution must also contain the names of persons
authorized to operate the account.
(vi) When a person authorized to operate the account dies,resigns or is removed, He must
stop the operation of the account till the appointment of a new person is
communicated to him.
(vii) The banker should not grant loans to a non-trading association unless the
memorandum of such association.Expressly permits it to borrow.In such case, the
banker must find out the following from the memorandum and articles of association:
(a) Extent of its authority to borrow.
(b) Powers to create charge on its assets.
(c) The purposes of borrowing.
(viii) The banker should not allow the transfer of funds of the association into the personal
account of the person authorized to operate the account.
JOINT ACCOUNTS:
A joint account is one which is opened by two are more individuals while opening a joint
account,
The banker must get a clear mandate in writing containing instructions as to how the
account is to be operated.
Hence, the banker should get specific instructions regarding the operation of the account
and the nature of the powers delegated to the authorised persons in the absence of a mandate all
joint holders must jointly operate the account.
The banker should consider the following points while opening an account in joint names:
(i) The application for opening a joint account must be signed by all the persons.
(ii) The banker must obtain specific instructions regarding the persons authorized to
operate the account. In the absence of such instruction, the account must be operated
by all of them jointly.
(iii) The banker may allow a third party to operate the joint account if he is authorized by
all the joint account holders.
(iv) He must obtain a mandate from the persons opening a joint account. Such mandate
must mention the persons to whom the balance in the account is payable in case of
death of a joint account holder.
(v) In the absence of the above mandate,
(a) The balance is payable to the suevivors alongwith the representatives of the
deceased in case of death of one or more joint account holders.
(b) The balance is payable to the legal representatives of all the joint account holders
in case of death of all of them.
(vi) Where a joint account has been opened in the style of “Either or survivor,” then the
banker must pay the balance to the survivor alone in the event of death of a joint
account holder.
(vii) A joint account may show a debit balance at the time of death of a joint account
holder. In such case, the banker must stop operation of the joint account and open a
new account in the names of survivors to avoid the application of the rule in
Clayton‟s case.
(viii) The opening of a account does not imply the power to overdraw the account.
Therefore, the banker must obtain the signature of all the joint account holders in the
application for sanctioning an overdraft.
(ix) The banker must stop payment of a cheque issued on a joint account if it is instructed
by any of the joint account holders.
(x) The authority given to a person to operate a joint account can be revoked by a person
who gives the authority. However, it will become automatically revoked in case of
death, insolvency and insanity of a joint account holder.
CLOSING OF AN ACCOUNT:
When an account is closed the relationship between a banker and a customer will come to
an end. when the customer wants to close his account, The must inform the banker of his
intention in writing. The banker may also close the account of a customer on his own intention.
The banker should stop operation of the account on receiving notice of death of a
customer also closing of an account for the reasons,
insanity of a customer insolvency of a customer, winding up of a company receipt of
garnishee order notice of assignment from the customer, dissolution of partnership firm.
(1) Customer’s intention
When the customer wants to close his account, He must inform the banker of his
intention in writing.
He need not give any reason for his intention to close the account. He must draw a
cheque for the balance in the account and return the unused cheques.
Then, the banker can close the account by returning the balance to him.
(2) Banker’s intention
The banker may also close the account of a customer on his own intention under the
following cases:
(i) When the account is in operative: An account is inoperative when it has not been
operated for a long tie.
(ii) When the customer is not a desirable person:
A customer is not considered as a desirable person when he draws cheques
frequently without sufficient balance or with the intention of cheating others.
In this case, the banker must give a reasonable notice of his intention to close the account
in advance (champion Ltd., Vs. Madras and Travancore National bank Ltd.,) What constitutes a
reasonable notice depends upon the account etc.,
If the customer has not turned for closing the account after the expiry of a reasonable
period, the banker should wait for him to draw the balance without accepting further deposits.
But in the case of undesirable customers, he should close the account after giving a reminder and
remit the balance to him by a draft.
(3) Death of a customer
The banker should stop operation of the account on receiving notice of death of a customer.
Then he should ask the legal representatives of the deseased to produce the death certificate
and succession certificate for closing the account. In case of executors and administrators as the
case may be .
After verifying this document, he should close the account and remit the balance to the
persons legally entitled to it.
GARNISHEE ORDER:
In case a debtor having a bank account fails to pay the money due to his creditor.The
creditor may apply to the court for attaching the debtor‟s bank account.
The court will issue an order to the debtor‟s banker attaching the account. Such an order
is known as garnishee order.
After receipt of this order, the banker should suspend the operation of the account and
refuse to make payment on the cheques issued by that customers.in otherwords,there is no
obligation of a banker to honour the cheques of a customer against whom the garnishee order is
issued.
The creditor at whose request the order is issued is called the judgement creditor . The
debtor whose account is attached is called the judgement debtor.The banker with whom the
debtor maintains his account is called the garnishee
The garnishee order will be issued by the court in two parts.
(a) Order nisi
By this order, the court will ask the banker,
(1) To suspend the operation of the debtor‟s account
(2) To explain why the funds in the account so suspended should not be used for payment to
the judgement creditor
On recipt of this order the banker will be prohibited from making payments due to his
customers .
Therefore he should inform the customer about the receipt of such order immediately to
avoid the possible dishonour of cheques issued by him .Then, the banker must file an explanation
to the court as required by it.
(b) Order absolute
After receiving explanation from the bank,the court will issue a final order called
„Order absolute‟. This order will direct the banker to pay entire balance in the account
against which order nisi has been issued or part thereof to the judgement creditor.
The following points are also to be considered as regards the garnishee order:
(i)Attachment of amount
The garnishee order may be for the attachment of the whole or a part of the funds in
the account of judgement debtor with the bank
In case , the account is attached in full , the banker should not make any payment out
of the account .Otherwise , he will be liable for acted against the order of the court . in case only
apart of the account is attached. The banker may transfer the part of funds so attached to a
suspence account and permit the customer to operate the account with the balance.
(II) Applicable of order
The garnishee order is applicable only against the debt due or accruing due by the
banker. Therefore, an amount which is not a debt due by the banker cannot be attached by such
an order
For example, a customer has actually drawn rs 3000/- out of the overdraft of rs5000/-
allowed to him. The balance of rs2000/- which has not been drawn cannot be attached by this
order since it is not a debt due from the bank.
(iii) Adjustment of banker’s claim
This order will not restrict the banker to adjust his claims against the judgement
debtor. In otherwords, the banker can set off the amount due to him from the judgement
debtor out of the balance in th account of such debtor even after passing the garnishee
order.
(iv) Inapplicability of the order
This order is not applicable to,
(a) Un realised cheques, bills etc.,deposited for collection;
(b) Un realised sale proceeds of securities etc.,of the customer;
(c) Deposits made by the customers after serving of the garnishee order;
(d) Payments made by the banker before serving of the garnishee order;
(e) Money held abroad by the judgement debtor;
(f) Securities held by the banker in safe custody.
(v) serving of garnishee order
The garnishee order will be served on the head office of the bank which in turn will
give a notice to its branches where the judgements debtor is keeping his accounts .For
giving such notice,the head office will be given a reasonable time .Any payment made by
the branches before the receipt of such notice will be considered as a valid payment.
UNIT-3
CHEQUE
CHEQUE MEANING:
“ A cheque is a negotiable instrument and its freely transferable from one person to another.it
performs almost the functions of a currency note through its not a legal tender money.it is safe
and economical for Carriying out the financial transactions.”
It is convenient for making and receiving payments.Therefore,it is used as an important from
of money transactions in the modern world.The cheques are issued by the commertial banks to
their customers in printed forms.
The customers may make use of it for withdrawing money against their funds in the hands of
a banker.
A cheque is a document of very great importance in commercial world.it was originally spelt as
“cheque”.The Cheque currency is very popular in all places of commercial importance because
of its merits.
Since, a cheque can be drawn for any amount, it satisfies the cannon of convenience.
Another advantage is that can be crossed to ensure safety and since the name of the paid cheque
itself acts as a voucher. Hence, there is absence of the necessity to obtain a separate receipt for
each payment made.
DEFINITION OF CHEQUE:
According to section 6 of the negotiable instruments act,”cheque is a bill of exchange
drawn on a specified banker and not expressed to be payable otherwise than on demand”
The term bill of exchange has been defined by the same Act under section 5,
“An instrument in writing containing an un conditional order,signed by the maker,directing a
certain person to pay a certain sum of money only to,or to the order of a certain person or to the
bearer of the instrument”.
CHEQUE VS BILL OF EXCH`ANGE:-
CHEQUE BILL OF EXCHANGE
1.A cheque is always drawn on a prined form. 1.A bill need not be drawn on a printed form.
2.The drawee(banker)need not accept a
cheque.accordingly there is no privity of
contract between the payee and the banker.
2.Acceptance by the drawee is essential.
3.The liability of the drawer continues for 6
month.
3.unreasonable delay in the presentation will
discharge the bill.
4.A cheque is free from stamp duty. 4.A bill subject to ad valorem duty.
5.Its not drawn in sets. 5.Foreign bills are always drawn in sets.
6.It may be crossed to ensure safety. 6.It cannot be crossed.
7.A cheque may be countermanded. 7.Countermanding of a bill is not possible.
8.It is not protested or noted on dishonour. 8.It is usually protested and noted for
dishonour.
9.In case of dishonour,notice of dishonour to
the drawer is not essential.
9.Notice of dishonour must be sent to hold the
party liable.
SPECIMAN OF A CHEQUE WITH COUNTER FOIL
COUNTER FOIL CHEQUE
G3/AU No. 05162
Bank of Madura Ltd.,
Date……………..
In favour of……………………………………
…………………………………………………
Rs
…………………………………………………
…………………………………………………
Previous Balance …………………………….
Deposit if any ……………………………
Total ……………………………
Less this cheque ……………………………
Balance ……………………………
G3/AU No. 05162 Code No.
53
Bank Of Madura Ltd.,
Regd. Office: 33, North chitrai street, Madurai
Coimbatore –Main
……………………20………..
Pay to ……...................Or bearer……………
Rupees………………………………………..
Rs.
A/c. No. ………….......
DRAWING UP OF A CHEQUE:
The cheque must be drawn by a customer on the bank in which he maintains his
account.therefore,the customer is the drawer and the banker is the drawee of a cheque.the payee
is the person to whom the cheque is possible.
The cheque is must be drawn without any mistake.Otherwise,the banker may refuse to
honour it.
The cheque must be drawn by a customer on the bank in which he maintains his
account.Therefore,the customer is the drawer and the banker is the drawee of a cheque.The
payee is the person to whom the cheque is payable.
The cheque must be drawn without any mistake.Otherwise,the banker may refuse to
honour it.Therefore,the customer must be very careful while drawing a cheque.He should not
draw a cheque without sufficient balance in the account unless an overdraft ha benn arranged.
Demand draft:
It means an instrument drawn by one branch of a bank upon another branch of the same bank
instructing the later to pay a certain sum of money to the person named there in to his order.
BANKERS CHEQUE:
The cheque which has been discussed so far in this chapteris called a customer‟s
cheque,since,it is drawn by a customer upon a banker.On the other hand,a banker‟s cheque is one
which is drawn by a banker upon him self.
It is a cheque drawn by a a banker on himself.It is payable only at the issuing bank and it
is not transferable.It is issued by a banker for the following purposes.
1. For making the payments of his own.
2. For payment of remittances received for the persons who are not maintaining an account.
3. For facilitating the customers to make local payments.
CONSEQUENCES OF DRAWING UP OF A CHEQUE WITH OUT SUFFICIENT
BALANCE:
As per section 138 of the negotiable instruments Act, a person who is drawing a cheque
without sufficient balance in his account will be liable for punishment under a criminal offence.
However .to make a oerson criminally liable,the following conditions fulfilled.
1. The cheque should have been issued to settle a debt or for a consideration.
2. The cheque should have been presented within a reasonable period of time i.e.,before six
months from the date of issue.
3.The cheque in question should have been dishonoured only due to the reason of insufficiency
of funds in the account of the drawer.
4. The payee should have made a demand for payment of that dishonoured cheque through a
written notice with in 15 days of the cheque in question.
5. The drawer should have failed to make payment of the amount with in 15 days of the receipt
of the notice.
If the drawer is found guilty of a criminal offence on the basis of the above conditions,he will
be punishable with imprisonment for one year or a fine of twice the amount of the cheque or
both.
MATERIAL ALTERATION:
Alteration is material when it affects the fundamental character of a cheque.In other
words ,Material alteration means “any change in an instrument which causes it to speak a
different language in legal effect from what it spoke originally”
“An alteration in a cheque may be of two types.They are,
I. Meterial Alteration
II. Immaterial Alteration.
Therefore ,an alteration is material if it alters the following:
(i) Operation of the instrument
(ii) Rights and liabilities of the parties.
(iii) Legal identity or character of the instrument.
However, a material alteration should have taken place withoutnthe knowledge of the
drawer and after the issue of cheque.
EXAMPLES OF MATERIAL ALTERATION:
(1) Alteration of the date:
By alteration of the date,the payment may be proponed or postponed against the
intention of the drawer. Consequently, a fradulent holder can get payment of a post-dated
cheque or stale cheque.
(2) Alteration of the place of payment:
A cheque is payable only by a specified bank in which the account is kept. Therefore,
the alteration of place of payment will make the cheque invalid.
(3) Alteration of the name of payee:
In the case of slingsby and others Vs. District Bank, a cheque payable to „John prust
& Co., per cumberbirch & potts‟. The addition of „per Cumberbirch & potts‟ to the name
of original payee alters the cheque as payable to john prust &Co., Through cumberbirch
& potts.
As a result, the amount of cheque was paid by the banker to cumberbirch & potts. The
banker was held liable since he had not taken care of the alteration made in the name of
payee.
(4) Alteration of amount:
It is easy to alter the amount of a cheque. Therefore, both the banker and customer
must be very carefull regarding this column. If there is an alteration in this column, the
bankers should not honour the cheque.
Otherwise ,He will be liable to the drawer unless the drawer himself has acted
negligently in filling up this columns like leaving blank spaces before and after the
amount in words.
London joint stock bank Vs. Macmillan and Arthur
In this case, the amount of a cheque was written as $2 in figures only by leaving blank
spaces on both sides of the figure.
Then the amount was altered as $120 and the same was written in words also.
Thereafter, the cheque was paid by the bank. When Macmillan and Arthur came to know this
fraudulent alteration, they had sued the banker.
But it was held that the customer had not exercised reasonable care in drawing the
cheque and therefore, the banker was relieved from his liability.
(5) Alteration of the word ‘Order’ as ‘Bearer’
If the world „order‟ in a cheque is altered as „bearer‟, it amounts to material alteration
(keptingalla Rubber Estates Ltd., Vs. The National Bank of India Ltd.,)
(6) Alteration of crossing
If crossing in a cheque is altered , it also amounts to material alteration. E.g.
unauthorized cancellation of crossing , striking off the words „Not Negotiable‟ etc.
CASE LAW
According to sec.87 of the negortiable instruments act,if a cheque is materially altered,it
cannot be regarded as a cheque at all.Therefore,material alteration renders the cheque void.
A material alteration affects the parties at the time of alteration,and,it does not affect
parties,subsequent to such an alteration.
EXAMPLES OF MATERIAL ALTERATION:
1.Alteration of date:
The date is an important part of a cheque , because,it fixes the period of limitations for
obtaining payment.The date may be altered with a view to prepone or postpone payment.
2.Alteration of place of payment:
A cheque must be always drawn only on a specified banker.
3.Alteration of crossing:
According to the Act,crossing is a material part of a cheque.Hence,alternation of crossing
or addition thereto not authorized by the drawer,amounts to a meterial alternation.
BANKER’S DUTY
1.Exercise of reasonable care and diligence
The collecting banker,as an agent,must exercise due care and diligence in collecting the
cheques of his customer.
2.Presentation of cheques for payment within a reasonable time
The collecting banker should present the cheques received for collection to the paying
banker within a reasonable time.
if the cheque is payable by a bank in the same place,the banker should present it on the day
after he receives it.if it is payable by a bank in another place(outsatation cheque),he should
dispatch it on the day after he receives it.
The cheque may be presented through clearing house or through post.
3.Remittance of proceeds
When a cheque is collected,the collecting banker should pay the amount collected to his
customer.Normally,such amount is credited to the customer‟s account.
4.Notice of dishonour
When a cheque sent for payment to the paying banker is dishonoured,the collecting banker
should give notice of dishonour within a reasonable time.
IMMATERIAL ALTERATION:
An alteration is immaterial and will not make the cheque as void if,
1.It does not affect the fundamental character of a cheque ;
2.It is allowed by law;
3.It is made before the issue of cheque;
4.It is made for the purpose of correcting a mistake;
5.It is made to carry out the common intention of original parties to the cheque;
6.It is made with the consent of parties to the cheque.
EXAMPLES OF IMMATERIAL ALTERATION:
(i) Conversation of a endorsement in blank into an endorsement in full.
(ii) Crossing of an open cheque by the holder.
(iii) Conversation of general crossing into special crossing.
(iv) Conversation of „bearer‟ into „order‟.
(v) Filling up the blanks in an instrument.
MARKING OF A CHEQUE:
When a cheque is marked or certified as “good for payment”by the drawee bank,then it is
known as marking of a cheque.
Such marking is normally done on the face of a cheque by the drawee banker with his
seal and initials.The marking may be done at the request of drawer,holder or collecting banker.
The marking of a cheque simply indicates that the drawee bank has sufficient funds of the
drawer to pay the cheque on the date of marking it but does not amount to acceptance of liability
on the cheque does not create any legal oblication on the part of drawee bank unless it has
received a consideration for such purpose.
CROSSING:
A cheque may be open or crossed .An open cheque is one which is payable directly to the
person presenting it across the counter. It will be subject to great risks in circulation.If it is stolen
or lost, the finder can get it encashed.
Hence,there is a chance of making payments to wrong persons.In order to avoid such
risks, the system of crossing has been introduced.
A crossed cheque is one which has two parrellel transverse lines across its face with or
without words. it is an instruction to the paying banker to pay the amount of the cheque only to a
banker and not to the holder at the counter. In other words,a crossed cheque should be paid only
through an account and not directly at the counter when it is presented by the holder.
Therefore, the holder of a crossed cheque must have an account to get it encashed. Thus,
the crossing avoids danger of making payment to unauthorised person. however the crossing of a
cheque does not affect its negotiability by delivery and endorsement.
The drawer or the subsequent holder of a cheque may cross it.Such crossing may be
hand-written, stamped, printed or perforated on the face oa a cheque. The crossing may be of two
types viz.,
TYPES AND SIGNIFICANCE OF CROSSING:
1.GENERAL CROSSING
2.SPECIAL CROSSING
1.GENERAL CROSSING:
Section 123 of the negotiable instruments act defines general crossing as,”where a cheque
bears across its face an additionof the words and company „ or any abbreviation thereof between
two parallel transverse lines simply,either with or with out the words „not negotiable‟,that
addition shall be deemed a crossing and the cheque shall be deemed to be crossed generally.
EFFECTS OR SIGNIFICANTS OF GENERAL CROSSING
1.When a cheque is generally crossed, the paying banker should not make payment at
the counter.The payment should be made only through an account in the same bank or in another
bank.in otherwords ,the payment should be made only to a banker and not to the payee directly.
2.If a crossed cheque is paid across the counter ,the payment will not be considered as
payment in due course.As a result,the paying banker will lose the statutory protection.
ESSENTIAL OF GENERAL CROSSING:-
(i) There must be two parallal lines on the face of a cheque.
(ii) Such lines must be in a crosswise direction(I,e. transverse)
(iii) Between the lines, the words „and company‟,or its abbreviation may be written.
Similarly, the words „NOT NEGOTIABLE‟ may also be included in a crossing.
However, the inclusion of these words is immaterial since they do not affect the
validity crossing.
2.SPECIAL CROSSING:
Section 124 of the negotiable instruments Act defines special crossing as.”where a cheque
bears across its face an addition of the name of a banker, either with or without the words not
negotiable‟, that addition shall be deemed a crossing and the cheque shall be crossed specially
and to be crossed to that banker”.
ESSENTIALS OF SPECIAL CROSSING:-
(i) When a cheque is generally crossed, the paying banker should not make payment at the
counter. The payment should be made only through an account in the same bank or in
another bank.
(ii) “In otherwors, The payment should be made only to a banker and not to the payee
directly.
(iii) The parallel transverse lines or words like „NOT NEGOTIABLE‟,‟account payee only‟
may also be added with such name.However,
(iv) These lines and words are not necessary for constituting a special crossing. Therefore ,
it is clear that the name of a banker alone is sufficient to constitute a special crossing.
EFFECTS OR SIGNIFICANTS OF SPECIAL CROSSING
1. When a cheque is speacially crossed,the paying banker should make payment only to a
banker whose name is mentioned in the crossing or ti his agent.
2. In other words,it can be collected only by a banker whose name appears in the crossing
or by his agent.
3. It gives more protection than general crossing regarding the payment of cheque to right
persons.
4. In special crossing,the cheques are crossed in favour of the payee‟s banker who knows
the payee and his signature well.Therefore, it will be difficult for persons other than the
payee to get the cheque collected by forging the signature of payee.
UNIT-4
ENDORSEMENT
Endorsement: Meaning:
DEFINITION:
The person who signs the instruments for the purpose of negotiation is called the endorser and
the person in whose favour the instrument is transferred is called the endorsee. Such transaction
is called endorsement.
Section 15 of the Negotiable instruments Act defines endorsement as follows:”When the
maker or holder of a negotiable instrument signs the same, otherwise than as such maker , for
the purpose of negotiation, on the back or face thereof or, on a slip of paper annexed
thereto…..he is said to have endorsed the same and is called the endorser”.
ALLONGE
The endorsement may be made on the back or face of the instrument. However, in practice, the
endorsement are made on the back of the instrument. If the backside of the instrument is not
sufficient to make endorsement, a piece of paper may be attached thereto for making further
endorsements. Such peace of a paper is known as allonge.
KINDS OF ENDORSEMENT:
1.Blank or General Endorsement:
An endorsement is said to be blank when the endorser simply signs on the back of an
instrument without mentioning anything.It makes an order instrument as a bearer one and
it can be transferred by
mere delivery.
Example:A cheque payable to Sankar or Order is simply signed by him on the back.
2.Full or Special Endorsement:
An endorsement is said to be in full when an instrument is signed by the endorser with
the direction to pay the amount to or to the order of a certain person.Any holder of an
instrument may convert the blank endorsement by inserting the name of endorsee in the
endorsement.
Example: A cheque payable to Sankar or Order is endorsed in the following manner:
„Pay to Ram‟
Sankar
3.Partial Endorsement:
An endorsement is said to be partial when an instrument is endorsed only for a part of its
amount.Such partial endorsement is not valid in case of a cheque.But iin case of a bill of
exchange,it is valid when it is made in respect of a balance due after paying a part of bill.
4.Restrictive endorsement:
An endorsement is said to be restrictive when it prohibits the endorsee from further
negotiation of the instrument.
Examples:a cheque payable to to sankar is endorsed by him with any one of the
following directions:
(i) „pay ram only‟
(ii) „pay ram for my use‟
(iii) „pay ram or order for the account of arun‟
5.conditional endorsement or qualified endorsement
An endorsement is said to be conditional under the following cases:
(i) If it limits the liability of endorser.
(ii) If it imposes certain conditions upon the endorsee to receive payment to the
instrument.
Example: a cheque payable to to sankar is endorsed by him in following manner:
„pay ram or order on his marriage with seetha „
A conditional endorsement may be in any of the following forms:
(i) Sans resource endorsement : An endorsement is said to sans recourse when it
contains the words „sans recourse „ or „without recourse to me‟ after the name of
the endorsee. This endorsement frees the endorser from the liabilities arising out
of the dishonour of instrument towards the endorsee or any subsequent holder.
Example: „pay to ram,without resourse to me‟sankar
(ii) sans frais endorsement: An endorsement is said to be sans frais when it contains
the words „sans frais‟ or „without expense to me‟ after the name of the endorsee.
this endorsement is made when the endorser does not want the endorsee or any
subsequent holder to incur any expense on the instrument.
(iii) Facultative Endorsement:An endorsement is said to be facultive,when the
endorser,by express words,waives(givesup)some of his rights or increases his
liabilities under the instruments.
Example:”Pay to Ram or Order-Notice of dishonour waives” Sankar
Per Pro Endorsement
When an endorsement is made by an agent, it is known as ,‟per pro Endorsement‟. The
term „per pro Endorsement‟ . The term „per pro‟ denotes that the person making endorsement is
acting on behalf of another. In such a case, the banker must be informed in advance regarding the
delegation of authority to the agent.
Example: An endorsement made by Muthu on behalf of Sankar is in the following
manner:
„Pay to Ram or Order‟
Muthu
Per Pro Sankar
Difference Between Transfer and Negotiation
Transfer Negotiation
(1)It is a part of negotiability (1)It is a broad term which includes
transferability
(2)It does not necessarily free from defect. (2)It is always free from defect
(3)It may or may not involve transfer of
ownership in the negotiable instrument
(3)It always involves the transfer of ownership.
(4)The transferee will not get a better title
unless the document is free from prior defects.
(4)The transferee who receives the document
in good faith and for value will get a better title
though the document has prior defects.
(5)The transferee may or may not get the right
as holder of the instrument.
(5)The transferee will get the right as holder of
the instrument.
PAYING BANKER:
The paying banker is a banker on whom a cheque is drawn and presented for payment.It
is his statutory obligation to honour his customer‟s cheques when there is sufficient funds of the
customer in his hands.Otherwise, he will be liable to compensate for any laws or damaged
caused to the customer.However, If he should not honour the cheques carelessly and negligently
without obeying the instructions of the drawer.Therefore, the paying banker should ensure that
the cheque is proper in all respects for making payment by taking certain precautions.
PRECAUTIONS TO BE TAKEN BY THE PAYING BANKER:
The following are the precautions to be taken by the paying banker before honouring his
customer‟s cheques.
(1)FORM OF CHEQUE
The cheque should be in proper form. The form of cheque has not been prescribed by
law.But the banks have made the drawing up of cheques in printed forms as a condition for
opening an account .
The opening of an account is a contract between the banker and customer .Therefore, the
cheques must be drawn only in printed forms supplied by the banks. otherwise, the banker may
refuse payment.The printed forms are convenient for both banker and customer.
(2)DATE OF CHEQUE
A cheque may be current dated,ante-dated‟post-dated or undated. If a cheque is current
dated,there is no problem.if it is ante-dated,the banker can very well make payment on it until the
expiry of 6 months from such data .in case of un dated and post-dated cheques,
The banker should not make payment on them.As regards undated cheques, it will not be
possible for the banker to decide whether they are stale or not. In no case,a banker should honour
a stale cheque.
In case a post –dated cheque is honoured , the position of a banker will be as follows:
(i) He cannot debit the customer‟s account with the amount of cheque when the customer‟
(a) countermands the payment;or
(b)dies or become insolvent before the date mentioned in the cheque.
(ii) due to the payment of post- dated cheques, the funds may become insufficient for
honouring the other cheques issued by the customer .in such a case, the banker will become
liable for the wrongful dis honour of other cheques.
(iii) The payment of a post –dated cheque shall not be considered as a payment in due course
and therefore,he will not be entitle to any statutory protection.
(3) AMONUNT OF CHEQUE
The amount of a cheque must be written both in words and figures.if the amount in
words and figures differs,the amount in words shall be taken as correct.however ,if a cheque is
written only in figures, it should not be honoured.
(4)SUFFICIENCY OF FUNDS
The sufficiency of funds means te funds atleast equal to the amount of cheque.If the
funds are insufficient,the banker should refuse payment of a cheque.He need not even make part
payment.
The cheque should be paid in the following order:
(i) When the cheques are received one by one , They should be paid in chronological
order of their receipt by the bank.
(ii) When several cheques are received at the same time and the funds are insufficient to
meet all of them., The cheque for greater amount should be paid first.
(iii) In the above case , If two are more cheques are for equal amounts ,The banker has the
discretion to honour any of them to the extent of funds available.
(5)MATERIAL ALTERATION
The banker should not honour a cheque materially altered unless such alteration has
beeen authorized by the drawer by his full signature.However,The banker will not be liable for
the payment made on a meterialy altered cheque if he proves that ,
(i) The alteration is not apparent; And
(ii) The payment has been made in due course.
(6)DRAWER’S SIGNATURE
It is duty of the banker to verify the signature of the drawer.Otherwise,the banker cannot
debit the customer‟s account for the amount of cheque if the drawer‟s signature is forged.
However, the banker will not be responsible for a forged cheque when it is confirmed as
genuine by the customer on request made by the banker.
(7)MUTILATION
A cheque is said to be mutilated when it is torn into two or more pieces.Such a cheque
should not be honoured unless the banker is satisfied that.,
1.There is no intention to cancel it;
2.no material fact of the cheque is erased or illegible;
3.The drawer has confirmed it;
(8)PAYMENT DURING BANKING HOURS
A cheque is payable on demand only during banking hours.Any payment made by the
banker after the working hours will not be considered as payment in due course.
The banker will be held liable for any loss resulting therefrom to the customer.
(9)OPEN OR CROSSED CHEQUE
An open cheque can be paid across the counter.But when a cheque is crossed,the
banker should see whether it is generally,the payment should be made only to a banker.
It is crossed specially, The payment should be made only to the banker whose name is
mentioned in the crossing.
If any payment is made contrary to crossing, The payment will not be considered as
payment in due course.
The banker will be liable for any loss resulting therefrom to the drawer and true owner
of the cheque
(10)ENDORSEMENT
The banker should see the regulariy of endorsements made in the order cheques
before making payment, otherwise he will be liable if a payment is made on an order cheque
bearing irregular endorsement.
(11)LEGAL RESTRICTION
If there is any legal restriction regarding the payment of a cheque like Garnishee
Order,the banker should act carefully.
(12)COUNTERMANDING ORDER
If any order is received from the drawer to stop payment of a cheque,the banker should
not make payment on it.
(13)NOTICE OF DEATH,INSANITY OR INSOLVENCY OF A CUSTOMER
The banker should also take into consideration the information received regarding thje
death,insanity or insolvency of a customer before honouring his cheques.
DISHONOURING OF CHEQUES OR REFUSAL TO HONOUR THE CHEQUES:
A banker is justified to refuse payment of a cheque under the following cases:
(1)Countermanding of payment
When the drawer of a cheque instructs the banker to stop payment on it, then it is known
as „Countermanding‟. If such an instruction is received, The banker should not honour the
cheque.While countermanding the payment of a cheque, the following points are to be
considered:
(1)The drawer alone is entitled to countermand the payment of a cheque.
(2)It must be instructed by the drawer by an order in writing.If is made orally are telegraphically,
Then it must confirmed by the drawer in writing. Till that time , The banker may post-pone the
payment.
(3)The order must be signed by the drawer. In case of companies, Firms etc., Anyone of the
directors or partners may sign it.
(4)The order should contain full and correct details like number, date, payee etc., Of the cheque
to be countermanded. Otherwise, the banker will not be liable for the payment of cheque
(Mitchell Vs. Security bank).
(5)The order must be served on the banker before he makes payment of a cheque.
(2)Death of the drawer
The banker should not make any payment on the cheques issue by the customer after the
receipt of reliable information about his death.This is because the account of a customer will
become inoperative on his death until a succession certificate is produced.
(3)Insolvency of the drawer
The banker should not honour the cheques of a customer in respect of whom an insolvency
petition has been filed.
However, The banker may make payments if he has not received any information regarding
the solvency of a customer.
(4)Insanity of the customer
The banker should not make payment on the cheques issued by the customer who becomes
lunatic.
However, The banker should not judge the lunacy of a customer without a conclusive
evidence like court order , medical certificate etc., If there is no such evidence, The banker may
honour his cheque.
(5)Receipt of Garnishee order
When an account of the customer is attached by an order of the court called garnishee
order, the banker should not honour the cheque issued by such customer.
(6)Receipt of Notice of Assignment
A credit balance in the account of a customer may be transferred to another by a notice of
assisgnment. On receipt of such notice , the banlerr should refuse to make payment on the
cheques drawn by the assignor.
(7)Breach of trust
When the banker knows that the person operating a trust account is not using the funds of
the account in accordance with the trust deed , He may dishonour his cheques.
(8)Defective title
When a person presenting a cheque has no title to it or if his title is defective , the banker
should dishonour the cheques presented by him.
(9)Other Circumstances for dishonouring cheques
i)When the cheque is post-dated or stale one.
(ii)When the funds of the customer in the hands of banker is insufficient to pay a cheque.
(iii)When the funds are not properly applicable to the payment of a cheque .
(iv)When the cheque is not in proper form.
(v)When a cheque is materially altered.
(vi)When the drawer‟s signature is forged or does not tally with his specimen signature.
(vii)When a mutilated cheque is presented without drawer‟s confirmation.
PAYMENT IN DUE COURSE
“Payment in due course means payment in accordance with the apparent tenor of the
instrument in good faith and without negligence to any person in possession thereof under
circumstances which do not afford a reasonable ground for believing that he is not entitled to
receive payment of the amount therein mentioned”.
STATUTORY PROTECTION
The payment of a cheque involves a number of risks on the part of a paying bank.In
order to protect a paying banker from such risks,the negotiable instruments Act lays down the
following provisions:
(1)Protection In Case Of Order Cheques
The paying banker is given protection in case of order cheque under section 85(1).The
banker must satisfy the following two conditions:
(i)He must have verified the regularity of endorsement.
(ii)The payment must have been made in due course.
(2)Protection In Case Of Bearer Cheques
In case of bearer cheque,the banker need not verify the regularity of endorsement
because it can be negotiated by mere delivery without endorsement.
(3)Protection In Case Of Crossed Cheques
This protection will be granted to him only when the payment has been made-
(i) in due course and
(ii) in accordance with the requirements of crossing.
(4)Protection In Case Of Materially Altered Cheques
If a materially altered cheque is paid,the paying banker will be given statutory
protection under section 89 provided-
(i) the alteration is not apparent;and
(ii) the payment has been made in due course.
Forgery Of Drawer’s Signature
Every banker is expected to know the signatures of his customers. Therefore, if the
drawer‟s signature is forged in a cheque,the banker should not make payment on it.
Payment By Mistake
Sometimes bankers may make payments to wrong persons.In such a case,the question
arises whether the banker can recover the money paid by mistake.But the law is silent regarding
this question.Therefore,this question is to be decided according to the circumstances of the case.
Circumstances under which money paid by mistake is recoverable
(1)Money received malafide
When the person receiving the money knows that he has no right to receive it, then the
money pain by mistake is recoverable.
Consequences of wrongfull dishonour of cheques:
If a cheque is dishonoured without proper grounds, the banker will be liable compensate the
customer for ny loss or damage caused to him thereby.when cheque is wrongfully dishonoured,it
will amount to breach of contract.therefore,the customer may claim for damages.
(1)Money received malafide
When the person receiving the money knows that he has no right to receive it, then the
money paid by mistake is recoverable.
(2)Mistake of fact
When the payment is made by a mistake , then it is recoverable. Such mistake of fact may
be due to the wrong identification of persons.
For example, payment made by a banker to Kumar on the assumption that he is Kannan. In
this case, The money paid by mistake as to the identity of parties.
Therefore, it is recoverable from Kumar to whom the payment is made by mistake.
(3)Mistake between payer and receiver
When the mistake lies in between the banker and receiver of money, then the money paid
by mistake is recoverable.
But if it lies in between the banker and others , the money is not recoverable from the
receiver.In Chambers Vs. Miller, the bank paid a cheque but immediately found that the account
was overdrawn by the payment.It was held that the money could not be recovered since the
mistake lies in between the banker and drawer and not between thye banker and receiver of
payment.
HOLDER
According to section 8 “holder means a person,
(i)Who is entitled in his own name to the possession of the instrument and
(ii)Who is also entitled to receiver or recover the amount due theron from the parties thereto”.
The following conditions must be satisfied by a person to become a holder of an instrument:
He must have acquired the title to the instrument lawfully and in a proper manner, Therefore,
A thief or a finder of a negotiable instrument or who has got it by forged endorsement cannot be
called as a holder.
RIGHTS OF A HOLDER
The following are the rights of a holder:
(1)He can covert a blank endorsement into full.
(2)He is entitled to cross open cheques.
(3)He can negotiate a cheque if it is not prohibited by the directions given in the cheque.
(4)He can claim payment and sue in his own name on the instrument.
(5)He can obtain duplicate copy of a cheque lost.
HOLDER IN DUE COURSE
According to section 9,”holder in due course means any person who become the possessor
of a negotiable instrument payable to bearer or endorsee or payee thereof for consideration,
(1)Before the amount mentioned in the instrument become payable; And
(2)Without having sufficient cause to believe that any defect existed in the title of the person
from whom he derived his title”.
The following are the conditions to be satisfied by a person to become a holder in due
course:
(1)He must have obtained the possession of an instrument payable to bearer or order.
(2)Such possession must have been obtained by him by payment of consideration and not by way
of gift, donation etc.,
(3)He must have become the holder or possessor before the date of maturity of the instrument.
(4)He must have become the holder of the instrument in good faith.That is , He should not have n
instrument.
PRIVILAGES OR RIGHTS OF A HOLDER IN DUE COURSE:
(1)He gets a better title than that of his transferror and previous parties to the instrument.
(2)He can recover the amount of the instrument from any or all of the previous parties to the
instrument.
(3)He can file a suit in his own name against the parties liable to pay.
(4)He takes the instrument free from defects. Therefore, A person liable on the instrument cannot
defend himself on the ground that it was obtained from him by unlawful ways or for unlawful
consideration.
(5)The drawer cannot deny the original validity of an instrument in a suit filed by the holder in
due course.
(6)The drawer cannot also deny the payee‟s capacity to endorse the instrument in a suit filed by
the holder in due course.
DIFFERENCE BETWEEN HOLDER AND HOLDER IN DUE COURSE:
HOLDER HOLDER IN DUE COURSE
1. He need not pay consideration for
obtaining possession of the instrument.
He must pay consideration for obtaining
possession of the instrument.
2. He need not take care about transferors title
to the instrument.
He must take all possible care find out the
goods title of the transferor.
3. He takes the instrument subject to all defects.
He takes the instrument free from all
defects.
4. He can obtain possession of the instrument at
any time.
He must obtain possession of the
instrument before its due date.
UNIT-5
Collecting banker
When the customer receives a cheque,he may get it enchashed directly from the paying
banker or he may deposit the cheque with his banker for collecting it from the paying banker.
However , if the cheque is a crossed one, It should be deposited only with his banker for
collection.The banker who undertakes to collect the cheques is called the collecting banker.But a
banker is not leagally bound to collect cheques , bills etc.,
On behalf of his customers.However, The growth of banking habit and the wide use of
crossed cheques have made it as an impotant function of a modern banker.
The collecting banker may collect cheques either in the capacity of,
1. Holder for value; Or
2. Agent of the customer.
1.Collecting Banker as Holder for value
A collecting banker is said to be holder for value when he allows the customer to make use
of the amount of cheques before its actual collection. Sir john paget says that a banker becomes
holder for value under the following circumstances:
(i)When he lends further on the strength of a cheque.
(ii)When he pays the amount of cheque or part of it before it is collected.
(iii)When he permits his customer to draw against a cheque before its collection(Underwood
Ltd., Vs. Barclays Bank Ltd.)
(iv)When he receives a cheques for collection in specific reduction of an overdraft.
(v)When he has lien on the instrument.
RIGHTS OF A BANKER AS HOLDER FOR VALUE:
His rights are the same as that of a holder in due course.In addition to them, he enjoys the
following rights:
(i)If the last but one endorsement is forged, he will be liable to the true owner of the cheque. But
he shall have the right to recover the money from his customer.
(ii)if the cheques sent for collection returned dishonoured, he can sue all the previous parties
2.Collecting Banker as an Agent
A collecting banker acts as an agent of his customer when he undertakes to collect
cheques for him.As an agent, He should collect the amount of the cheuqe and credit the same in
the customer‟s account.
But he has no rights of his own on the cheque. In otherwords has a defective title, he
cannot get a better title.
CONVERSION
The term conversion means wrongful or unlawful interference with with the property of
another. The law implies that the true owner is entitled to get back the properties converted.
The negotiable instruments are also properties. Therefore, the banker is liable to the owner
if he collect cheques for a customer who has defective title to them.
Duties of a Collecting Banker
1. Exercise of reasonable case and diligence:
The collecting banker as an agent must exercise due care and diligence in collecting the
cheques of his customer.
2. Presentation for cheques payment within a reasonable time:
The collecting banker should present the cheques received for collection to the banker
within a reasonable time.If the cheque is payable by a bank in the same place, the banker should
present it on the day after he receives it.
If it is payable by a bank in another place(outstation cheque), he should dispatch it on the
day after he receives it. The cheque may be presented through clearing house or through post.
3. Remittance of proceeds:
When a cheque is collected,the collecting banker should pay the amount collected to his
customer. Normally, such amount is credited to the customer‟s account.
But when the banker is instructed by the customer to remit the proceeds in a specified
manner, then the banker should act accordingly.
4. Notice of dishonour:
When a cheque sent for payment to the paying banker is dishonoued,the collecting
banker should give notice of dishonour within a reasonable time.
Such notice of dishonour within a reasonable time. Such notice should be given to the
customer from whom the cheque was received for collection. It enables the customer to
recover the amount from the parties liable on the dishonoured cheque.
Statutory protection to a collecting banker:
The collecting banker is given statutory protection under section 131 of the negotiable
instruments act against the risks of conversation. He can claim such protection only if the
following conditions are satisfied:
(1)Collection of crossed cheques:
A collecting banker can claim statutory protection if he has collected crossed
cheques.The crossing may be special or general. But the cheque must have been crossed before
he receives it for collection.
(2)Collection for customers:
The cheques must collected by the banker on behalf of customers only.In otherwords,If a
cheques is collected on behalf of a person who is not a customer, the banker can not claim
statutory protection under this section.(For the meaning of customer, refer chapter 1).
(3) Collection in the capacity of agent:
The collecting banker must collect the cheque in the capacity of agent of the customer. If he
collects a cheque in the capacity of holder for value or in his personal interest, he cannot claim
protection under this section.
(4)Collection in good faith and without negligence:
The collecting banker must have acted in good faith and without negligence in the collection
of cheques.He should have exercised reasonable care and he should not be negligent.
If he is found negligent in the collection of cheques, he cannot claim statutory
protection.(the term negligence is explained in detail in the following pages).
Concept of negligence:
The doing of that which reasonable man under all the circumstances of the particular case in
which he is acting,would not do,or the failure to do something which a reasonable man under
hose circumstances would do”.
Knowledge of various forms used in day to day banking:
Cheque:
“The cheque is a negotiable instrument and its feely trasferable from onr person to another.
it performs almost all the functions of a currency note though it is not a legal tender money.It
is safe and economical for carriying out the financial transactions”.
SPECIMAN OF A CHEQUE WITH COUNTER FOIL
COUNTER FOIL CHEQUE
G3/AU No. 05162
Bank of Madura Ltd.,
Date……………..
In favour of……………………………………
…………………………………………………
Rs
…………………………………………………
…………………………………………………
Previous Balance …………………………….
Deposit if any ……………………………
Total ……………………………
Less this cheque ……………………………
Balance ……………………………
G3/AU No. 05162 Code No.
53
Bank Of Madura Ltd.,
Regd. Office: 33, North chitrai street,
Madurai
Coimbatore –Main
……………………20………..
Pay to ……...................Or bearer……………
Rupees………………………………………..
Rs.
A/c. No. ………….......
Pay-in-slip:
It is provided in a book form or loose leaves to facilitate the deposits made by the customer.it
is to be filled up and submitted by the customer at the time of making deposits.
BANK OF
TAMILNAD
U
H.O.
Annasalai,chan
nai.
Date :
Branch :
A/c No.
NAME
BANK OF TAMILNADU
Branch:_______ Date:___________
NOTE:PLEASE USE SEPARATE SLIP FOR LOCAL,OUTSTATION CHEQUES AND
CASH
FOR CREDIT OF SB CA RD CC TL DL
OTHERS
PARTICULRS R
s
P
s
NAME A/C NO
BANK BRANC
H
CHEQU
E NO.
CASH
DEPOSIT
DENO
PIECES
Rs Ps
1000X
500X
100X
50X
20X
10X
5X
TOTAL 2X
CHEQUE(s) SUBJECT
TO REALISATION
JO:
1X
COINS
FOR
OFFICE
USE
TRAN.ID.
JO
RUPEES(inwords) TOTAL
AUTHORIS
ED
SIGNATOR
Y
SIGNATURE OF
DEPOSITS
Withdrawal form:
The customers who are not having the cheque book facility can make use of withdrawal
form for wihdrawing money from the bank.this form is like a cheque.The passbook must
accompany this form for withrawing money
BANK OF TAMILNADU
H.O: Annasalai, Chennai
Date:
Pay self or bearer
Rupees…………………………………………………………………
…
Rs…………………..
A/C no:……………………………….
Transfer form:
This form is used for the transfer of funds frm one branch of a bank to another.its to be
filled up and submitted to the bank by the customer for the transfer of funds.
BANK OF TAMILNADU
H.O.: Annasalai,Chennai
Branch:Madurai
Applicant Date
M.T, Issued on
M.T
G.C.
NO.
In favour
of
Amout
Rs.
Ps
Exchange
total
Cashier officer
BANK OF TAMILNADU
H.O.: Annasalai,Chennai
Branch:Madurai
Date:
Wanted a MAIL TRANSFER on
For Rupees
In
favour
of
Amount
Rs.
P.
Exchange
Rs
Ps
Total
Rs Ps
Cashier
Passing
officer
M.T/G
.C.
NO.
Signed
by
officer
Applicants signature
Name & Address
DRAFT:
BANK OF TAMILNADU
H.O.: Annasalai,
Branch:Madurai
Date:
On demand pay to ……………………………………………… or order
Rupees …………………………………………for value received
Rs……………………..
To
Bank of Tamilnadu…………………………. …………………….
Trichy officer Manager
758617 463258762 10
Draft:
It means an instrument drawn by one branch of a bank upon another branch of the same bank
instructing the later to pay a certain sum of money to the person named therein or to his order.
Bill of exchange:
“It may be drawn on any person.It requires acceptance by the drawee.it may be payable on
demand or on the expiry of a fixed period.three days are allowed as grace days.
It must be properly stamped.it cannot be crossed.it cannot be countermanded.it cannot be
drawn payable to beare on demand.
It is not intended for immediate payment. there is no such necessity foreign bills are
generally drawn in sets. it must be noted and protested when dishonoured.it can be discounted”.
Specimen bill of exchange
R s 5000/- Madurai
Nov.18,2002
Two months after date, pay to murugan or order the
sum of rupees five thousand only, for value received.
To
Mr.Raman Accepted stamp
18,Anna Nagar Raman
Trichy.
Signature
Promissory note:
Specimen of a promissory note
Rs. 10,000/- Madhurai
Nov. 18,2002
Three months after date, I promise to pay kannan
The sum of Rupees ten thousand only, for value received.
To Stamp
Mr. Kannan Signature
A promissory note contains an unconditional promise to pay and hence no acceptance by
the debtor is necessary .if a promissory note is payable at a certain period after sight „it must be
presented to the maker for sight.
FDR:
Specimen of a fixed Deposit Receipt
Not transferable
INDIAN OVERSEAS BANK
Regd. Office : Anna Salai , Madras
Branch: ………………………..
FIXED DEPOSIT RECEIPT
No : 182042 Date of maturity: ………………
Dtae : …………………………..
Received from _____________________________________________
The sum of rupees ______________________________as fixed deposit for a period of
____________months bearing intrest at the rate of _____% per annum.
For Indian Overseas bank
…………………..
Rs.
………………….. Manager
It is an fixed acknowledgement of receipt of money on fixed deposit account .It contains
on its face,the name of bank and holder of deposit ,amount and period of deposit,rate of interest
and the date of maturity.its marked as not „not transferable‟.
Traveller’s cheque:
The Traveller‟s cheques are useful to persons who frequently travel within the country or
abroad.They are more or less like circular letters of credit and circular notes.
They are issued for round sums and can be encashed at the places mentioned therein. The
holder of the cheque is paid the money after he affix the signature. This signature must
correspond to the signature made at the time of its issue.
(1)A traveler‟s cheque can be purchased by anyone.He need not be a customer of the bank.
(2)The purchaser has to deposit money with the issuing bank equivalent to the amount of
traveler‟s cheque he intends to buy.
(3)At the time of purchase,the purchaser shall have to sign at the place marked when
countersigned below with this signature.
Specimen of a Travellers’ cheque
BANK OF TAMILNADU
Travelers cheque
When Countersigned BS 708532
Below with this Date :……….
Signatutre Place and Date………….
…………………… (to be filled before cashing)
BANK OF TAMILNADU
H.O.: Annasalai,Chennai.
Pay this cheque to the order of……………………………………………………
In India In other countries
Rupees two
Thousand only Negotiable at the current
buying rate for bamker‟s
cheques on India
Countersign here in
Presence of person
Cashing ………………………….
……………….. Chairman
Letters of Credit:
“A letter of credit is defined as,letter issued by the importer‟s bank in favour of the
exporter authorizing him to draw bills up to an amount specified in it and assuring him of
payment against the delivery of the prescribed documensts in his own country”.
Credit card:
The RBI has advised RRBs to introduce a General Credit Card(GCC)scheme for issuing
GCC to their customers in rural and semi-urban areas.The GCC will operate like a kisan credit
card and there will be no linkage to purpose or end use of funds or security.GCC can also be
used for withdrawing cash against the limit sanctioned.
Front side
BANK OF TAMILNADU
photo
5125 0575 8131 1054
5125 valid valid
From thru
Member Month/Year Month/year
Since 1997 10/02 10/05
S.Kannan
Advocate
signature
VISA
Backside
Bangalore Chennai Hydrabad
8597777 4837777 3637777
5125 0575 8131 1051 252
Signature
This card is the property of bank of tamilnadu to whom it must be returned
upon request.The use of this card is governed by the terms and conditions of the
Bank‟s Credit Card agreement.
