APPLIED BANKING

UNIT : I

Banker and customer meaning and definitions Relationship between

Banker and customer General and special obligations ; (i) 70 honour customer is

cheque ii) To right to set off Garnishee order.

UNIT : II

Operations of Bank accounts Opening of different types of deposit accounts

in a Bank Special types of Banker is customers New deposit saving schemes

introduced by banks cash certificate amity, deposit, Reinvestment plants,

Perennial plan an non-Resident (General) accounts scheme.

UNIT : III

Law reading to Negotiable instruments meaning and features of cheques,

bill of exchange and promissory note Holder in the course privilege of holder in

due course Requisites of cheque crossing different forms of cheque crossing

and their significance Endorsement essentials of a valid endorsement

different innovative financial services offered by commercial banks new types of

credit cards scraps, LOC, IBPS, any where banking etc.,

UNIT IV

Paying Banker meaning duties and responsibilities statutory protection

payment in due coulee refusal of payment consequences of wrongly dishonor

collecting banker Banker as a holder for value banker as agent statutory

protection duties and responsibilities.

UNIT : V

Loan advances landing polices from of advances loans over doubt and

cash credits secured Advances General principles carious methods of creating

charge lien, pledge, hypothecation & montage Advances against goods,

documents, bill of loading, Grail ways receipts stock exchange securities.

UNIT I

DEFINITION OF BANKING :

The Banking Regulation Act 1949 section 5(b) defines Banking a accepting

for the purpose of lending or investment, of deposits of money from the public,

repayable on demand or otherwise, and withdraw able by cheque, draft, order or

otherwise.

BANKING AND CUSTOMER

BANKER :

A person who is dong the banking business is called a banker.

DEFINITIONS :-

1. Banker includes a body of persons whether in corporate or not who carry

on the business of banking.

2. The Bill of exchange Act 1882 A banker is one who in the ordinary

couple of his business honours cheques drawn upon him by persons from

and for whom he occupies money on current accounts.

Dr.L.Hart

3. The Banking Regulation Act 1949 section defines banker as a company

which transacts the business of banking in India.

CUSTOMER :-

A person who has an account in a bank is considered its customers.

DEFINITIONS :-

1. To constitute a customer there must be some recognizable course or

habit of dealing in the nature of regular banking business.

Sir Tohn paged

2. a customer is one who has an account with a banker or for whom a

banker habitually undertakes to act as such .

.. Dr.L.Hart.

THE RELATIONSHIP BETWEEN BANKER AND CUSTOMER :

Any dispute between the Banker and customer can be settled only on the

hasps of the nature of the existing relationship between the hanker and customer.

The relationship between a banker and his customer depends upon the nature of

service provided by a banker.

The relationship between banker and customer falls under two broad

categories viz.

i) General relationship and

ii) Special relationship

i) General relationship :

a) Relationship as debtor and creditor :-

The relationship between a banker and his customer is mainly that of

debtor and creditor, the respective position is determined by the state of the

account, this means when a banker receive deposit from a customer, the banker

becomes a debtor and the customer creditor.

Ordinarily in all saving accounts shows that customers account is in credit

balance. So, that banker is the debtor and the customer is a creditor in some times,

the banker considered as a creditor when the customer borrows from the bank or

when a customers enjoys over draft or cash credit facility.

ii) SPECIAL RELATIONSHIP :

a) Relationship as Bailor and Bailee:

A banker becomes a bailee when he receives gold ornaments and

important documents for safe custody. In that case he cannot make use to them to

his best advantages because he is hound o return the identical articles on demand.

The banker does not get the ownership of there articles. The ownership remains

with the customer. A banker does not allow any interest on there articles it is only

the customer who has to pay rent or the lockers.

b) Relationship as principal and Agent :-

Section 182 of the Indian contract Act depends an agent as one

employed to do any dealing with third person.

When a banker act as an agent of his customer and performs a number of a

agency functions for the convenience of his customer. When banks undertake to

purchase (or) sell securities, collect, cheques, bills, interest, dividends, etc., and

pay insurance premium, subscriptions, etc., on behalf of his customer.

c) Relationship as foresee and Beneficiary : -

A Banker becomes a trustee only under certain circumstances for

instance, when money is deposited for a specific purpose , till that purpose is

fulfilled the banker is regarded as a trustee for that money.

The banker is a trustee whenever he undertakes to collect cheques gives for

collection. Once the cheques are realized, the banker is a trustee and the customer

is a beneficiary. But when the amount is credited to the account is creditor to the

account of the customer. The relationship changes when in the banker becomes a

debtor and the customer creditor. It is also an deposit on money and safe custody

of valuable securities.

d) Relationship as assignor and Assignee :-

Whenever a bank gives loan against life banker is the assignee and

the customer the assignor under assignment, the actionable claim of the customer

is transported to the bank as security for loan. Thus, assignment is done by

customers whenever they taken loan against insurance policy or book debts.

Statutory Obligation Of A Banker (Or) Special Features Of Relationship

Between A Banker And Customer :-

The primary relationship between a banker and his customer is that of a

debtor and creditor. The following are the additional obligations of a banker.

i) Obligation to honour the customer is cheque.

ii) Obligation to maintain secrecy of Account.

2) Obligation to honour the customer is cheque :-

The deposit accepted by a banker are his liabilities repayable on demand or

otherwise. The banker is, there fare, a statutory obligation to honour his customers

cheques in the usual course action 31 of the negotiable instruments Act 1881, lays

down that.

The drawee of a cheque having sufficient funds of the drawer in his hands,

property applicable to the payment of such cheques, must pay the cheque when

duly required to do so and in default o such payment must compensate the drawer

for any loss or damage caused by such default.

Thus, the banker is bound to honour his customers cherubs provided the

following conditions are fulfilled.

i) There may be sufficient funds to the drawer in the funds of the drawee. By

sufficient funds is meant funds at least equal to the amount o the cheque

presented.

ii) The funds must be properly applicable to the payment of the cheque for

instance it thus bunds are with drawn by a cheque for private use, the banker will

not honour it.

3) The banker must be duly required to pay. This means that the cheque, complete

in order, must be presented before the banker at the proper time.

Dishonour of cheques :-

The bank has a right to dishonor cheques under the following grounds.

1) rate :-

a) Part dated cheques,

b) State cheques.

Port dated cheques are share which carry a date which is yet to come. If a banker

honours a post dated cheque, he will not only lose statutory protection but will be

sued by the customer.

State cheques means, when the cheque is more than 6 months old, it is no more a

cheque.

2) Payee When the payee is not clear (or) wrong person.

3) Amount in words and figures differ.

4. If the signature is not according to the specimen signature on differers from the

specimen.

5) The endorsements appearing n the cheque is not proper.

6) If there are insufficient funds.

7) Over writing or cancellation which are no approved by the drawn by his but

signatures on the cheque, at the place o such overwritten., The cheque will be

dishonored.

II. Obligation to maintain secrecy of Accounts :-

A banker is expected to maintained secrecy of his customers account. The

banker should hot disclose his customer financial position and the details nature

and the details nature and the details of his accounts. If a customer suffers any

loss on accounts of the unwanted is closure of his account the banker will be

compelled to compensate for the loss suffered by his customer.

The duty of secrecy is not a statutory one only the nationlise banks in India

are compelled, under section 13 of the Banking comparing [Acquisition and transfer

of undertakings] Act, 1970, to maintain secrecy of the customers Accounts.

Sir Tohn paged goes to the extent of saying that this secrecy should be

maintained even after the accounts is closed and even after the death of the

customer. It is immaterial whether the account is in debts or credit. This duty of

secrecy goes beyond the rate of the account.

Thus, the general rule about the secrecy of customers accounts may be

dispensed with in the following circumstances.

1. Disclosure under compulsion of law.

2. Where there is duty to its disclose.

3. Where the interest of the bank required disclosured.

4. Where the disclosure is made by the express (or) implied of the customer.

1) Disclosure under compulsion of law :-

A banker is under statutory obligation to disclose the information relating to

his customers accounts when the law specifically requires him to do so. The

following are done of the stationary provisions that fall in the category.

a) Section 131 & 285 of the income tax Act 1961.

b) Section 234 & 240 of the companies Act 1956

c) Section 4 of the bankers Book Evidence Act 1891

d) Section 45 B of the RBI Act, 1934.

e) Section 26 of the Banking Regulation Act 1949.

f) Section 86 of the Gift Tare Act 1950.

g) Section 94(3) of the criminal procedure code.

h) Section 43 of the foreign exchange Regulation Act 1973.

i) Section 29 of the IDBI Act 1975.

2. Where there is duty to the public to disclose :-

As between individual interest and public interest, public interest is more

important and so the individual interest should be sacrificed for the sale to the

public interest. Hence, a banker is Instrified in disclosing the date of his customers

account in the interest of the public. The following grounds generally fall under the

category;

a) It is a customer is engaging in the prohibited trading activity.

b) Disclosure of the account o an unlawful association.

c) Disclosure of the account of energy in times of war.

d) It is customer is receiving sizable funds from a foreign country.

3) Where the interest of Bank :-

A bank, in order to protect its own interest may have to general the secrecy of

customers account. Any prodent banker will safeguard his position before fulfilling

his obligations.

The following are the instances of this kinds,

a) Disclosure of the account of the customer who has failed to repay the loan

to the guarantor.

b) Bankers amongst themselves have the practice of exchanging information

about customers for the sake o common courtesy.

4) Disclosure under he express on implied consent of customer :-

The Banker will be justified in disclosing any information relating to his

customers accounts with customers content. The consent of the customer may be

express or implied. Express consent exists in case the balance in his account or

any other information to his agent, employee or consultant, the banker would be

Justified in furnishing to such person only the required information and no more.

BANKERS LIEN

Another special feature of the relationship existing between a banker and his

customer is that a bank can exercise the right of lien on all goods an securities

entrusted to him as a banker.

Lien :-

Lien means the right to retain goods belonging to others until the debt due to

him is fully repaid for instance, a creditor who has in his possession, goods of his

debtor, many have a lien over the goods in respect of the money due by the debtor.

There are two kinds of lien,

1. Particular lien, and

2. General lien

i) Particular lien :-

Particular lien confers upon the creditor the right to retain the particular

security offered for the particular debt.

For example :-

A watchmaker has a lien own the watch till the repair charges due from the

owner of the watch are paid to him.

2. General lien :-

A general lien is applicable in respect of all amounts due from the debtor to

the creditor section 171 of the Indian contract Act, 1872, confers the right of general

lien on the bankers as follows.

Bankers.. may in the absence of a contract to the contrary, retain as a

security for a general balance of amount any goods bailed to them.

A Bankers lien is always a general lien. A banker has a general lien confers

upon him the right to retain the securities in respect of the general balance due from

the customers.

CIRCUMSTANCES OF EXERCISING LIEN :-

If the following conditions are fulfilled, a banker can exercise his right of lien.

1) There must not be any agreement in consistent with the right of lien.

2) The property must come into the hands of a banker in his capacity as a

banker.

3) The possession should be lawfully obtained in his capacity as a banker.

4) The property should not be entrusted to the banker for a specific purpose.

Bankers Lien As An Implied Pledge :-

A bankers lien is generally described as an implied pledge. It means that a

lien not only gives a right to retain the goods but also gives a right to sell the

securities and goods of the customers after giving a reasonable notice to him, when

the customer does not take any steps to clear his arrears.

This right of sale is normally available only in the case of pledge. That is why

lien is regarded as an implied pledge. This right o sale is available only is

exceptional circumstances in the case of lien.

Right of appropriation [Claytons Rule]

This is the right of a banker to appropriate the money paid by the customer to

any one of the loan including a time barred debt. The customer has more tan once

account on has taken more than one loan from the banker. At the time, the

question of appropriation of the money subsequently deposited by him are arises,

section 59 to 61 of the Indian contract Act, 1872 contain provisions regarding the

right of appropriation of payment in such cases. According to the right of

appropriation.

1. When payments are made by debtor to the creditor the debtor has a right to

inform the creditor as toward which loan he is making payment [section 59].

2. When the debtor has not exercised his right, the creditor ha the right to

appropriate the payment made by debtor towards any loan according to the

discretion of the creditor [section 60].

3. When neither debtor or creditor exercises their right for appropriation, then it

is the chronological order in which the debit entries have arises in the same

sequence the credit entries will go to discharge the debit entries [section 61]

4. In case of debt due with interest, any payment made by the debtor in the first

instant is to be applied towards satisfaction of interest and agreement to the

contrary.

The relevance of apocopation arises in the case of death, insolvency or

retirement of a partner of a firm. Here, the banker will close the old account and

open a new account in the name of rosining partners. This enables the banker to

decide the liability of the deceased, retired an insolvent partners. The loan can be

recovered even from the estates of the deceased partner.

C.laytons care :-

A firm of bankers known as Reuagners, Dalies, Noble by co had five

partners. Devaijnes, the senior partner, died and the spurning partners carried on

the business of banking under the same name After a year the firm because

bankrupt and various clarred of creditors of the firm placed their claims against the

estate of revenges the deceased partner .

N. Clayton was one of those creditors who continued to deal with the

surviving partners by making payments to and receiving payment from the bank. At

the time of death of revenges, claytons balances was 1,713. During the net few

days he with drew several times and thus the balance was reduced to & 453.

Thereafter surviving partner paid more than & ,1713 to him and subsequently his

deposits with the firm largely exceeded the amounts with drawn by him and thus his

credit balance at the time of bankruptcy of the firm was larger then the amount

which was due to him at the time of deposable of deafness, clayton claimed that the

amount of Z 45s was due to him from the estate of the deceased partner, It is

contention was that.

i) The withdrawals from the amount after the death of the partner were paid out of

the deposits made in the same period, and

ii) The credit balance standing at the time of the partners death was reconcilable

from the deceased partners assents.

There arguments were not accepted by the court and claytons claim was

rejected.

RIGHT OF SET OFF:-

The mutual claims of debtor and creditor are adjusted together and only the

reminder amount is payable this right off set off which enables him to combine two

accounts in the name of the same customer and to adjust the debit balance in one

account with the credit balance in the other.

For example :-

A banker has allowed on overdraft to Mr.x. amounting to Rs. 25000 and Mr. x

s savings Bank account shows a credit balance of Rs. 10,000. In case x fails to

pay the overdraft, the banker can execs his right of et off by combining both

accounts by which the banker can claim the net difference of Rs. 15,000 from his

customer. The mutual adjustment of debit and credit balances is called set off.

The right of set-off can be exercised subject to the fulfillment of the following

conditions :-

1) The capacity of the parties both in the debit and credit accounts should be

one and the same i.e., the same customer should have the deposit account

and loan account.

2) The loan must he outstanding and over due where a loan amount is not over

due, right of set off cannot he expertise.

3) The right can be exercised in respect of debts due and not in respect of

future debts.

4) There should not be any agreement controls to due right of set off.

A banker has the automatic right of let of in the following cases.

i) On the death in slovenly and inanity of the customer.

ii) On receiving a notice of assignment of a customers credit balance.

iii) On insolvency of a firm on winding up of a company.

iv) On the receipt of a garnishee order from the court.

v) On the receipt of notice of second charge over securities montage.

Garnishee order

The bankers obligation to honour a customers cheques is extinguished on

receipt of a court odder know as the Garnishee order, issued under order 21, Rule

46 of the ill procedure code, 1908.

If a debtor fails to pay the debt owed by him to his creditor, the creditor may

apply to the court for the issue of a Garnishee order on the banker of his debtor.

Such order attaches the debts not secured by negotiable instrument, by prohibiting

the customer from receiving the debt ad the debtor from making payment thereof.

The amount of the customer with the banker, thus becomes suspended and the

banker is under an obligation not to make any payment from the account concerned

after the receipt of the Garnishee order.

The creditor at whose request the order issued is called judgment creditor

the debtor whose money is forzen is called Judgment debtor and the banker who is

the debtor of the Judgment debtor is called the Garnishee.

This order issued in two parts :

a) The court directs the banker to stop payment out of the account of the

Judgment debtor. It is an order called order wise also seeks explanation from the

banker as to why the funds in the Sid account should not be utilized for meeting the

Judgment creditors claim. The banker is prohibited from paying the amount due to

his customers on the date of receipt of the order ill.

b) After the banker files his explanation, if any the court issues the final order

called order absolute whereby the funds in the account are attached to be

attached to be handed over to the judgment creditor. The judgment account may

be received after payment has been made to the judgment creditor as per the

directions of the court.

Effects of Garnishee order :-

When Garnishee order is issued, the following will be the effect on the

banker.

i) The banker has to suspend operation of the account of the Judgment debtor.

ii) The cheques drawn by the judgment debtor on the garnishee account should not

be honoured after the order is issued on the bank.

iii) When the order is made absolute the balance available should be made over to

the Judgment creditor as per the direction of the count. If the customers balances

is not sufficient to over the dues, then the banker has to pay whatever is available

on the judgment debtors account.

iii) The suspended account of the judgment debtor may be received after

payment has been made to the judgment creditor as per the direction of

the court.

Rights And Duties Of A Banker :-

i) Bankers lien.

ii) Bankers right of set off.

iii) Bankers right of appropriation

iv) Law of limitation.

v) Bankers Right to charge compound internet.

vi) Bankers Right of incidental expenses.

Iii) Law O Limitation :-

Under Actual 22 of part of the schedule to the limitation Act, 1963 the period

of limitation for the refund of bank deposits in three years with effect from the date a

customer makes a demand for his money. A debt a customer makes a demand for

his money. A debt a customer makes a demand for his money. A debt becomes

time barred if it is not repaid with in three years after it is contracted. The three

years conditions is not considered when the date of money deposited in bank

without any transitions having taken place, the debt due by the bank will not be time

barred.

Iv) Bankers Right To Charge Compound Indirect :-

A banker grants loan and advances to customers and charges internet on the

same. bankers usually debit the customers account when a customer ails to pay

the interest amount every month. Afro period of thee months, the interest will be

added on the principal amount and the principal amount inflated Internet will now he

charged on the new principal amount. This kind of Interest added will the principal

is called compound internet and the banker has every right to do so.

Ii) Bankers Right To Claim Incidental Charges :-

As long as the relation of a banker and customers exists, the banker has an

implied right to claim commission, interest and other incidental charges for the

services rendered to the customers. They are not payable in cash but are debited

in the accounted as and when they become due. If a customer is unable to keep a

gemunezatiue credit balance, the banker in India charges Rs.10 to Rs 50 per half

year.

UNIT II

Deposit Account : -

The relationship between the banker and his customer begins with the

opening of account by the customer in a bank. Initially all the accounts are open-

ended with a deposit of money by the customer and rice this accounts are called

deposit accounts.

Different types of deposit account :-

Deposit Accounts are classifier into caprices types. Some of fee classified

are as follows,

1. Final deposit Accounts,

2. Earning deposit accounts,

3. Current accounts, and

4. Recurring deposit accounts.

Fixed deposit Account :-

A fixed deposit is one which is repayable after the expiry of a preen

determined period fixed by the customer himself. A deposit Account can be opened

for a period of more then three years and in that care the rate of interest remains

the same level. This deposits are not repayable on demand but they are with

drabble subject to a period of notice. Hence, it is properly known as time deposits

are time liabilities.

ii) Savings deposit Accounts :-

A saving banks Account is mint for the people of the lower and middle

classes who wish to save a part of this current incomes to meet tier futures needs

and also intent to earned an income from this savings. This is restoration on with

drawls in a month. Heavy with drawls are pomaded only against prior notes gently.

The number of with drawls is permitted is 50% per half year.

iii) Current deposit Accounts :-

A current Accounts is on Account which is opened for their convenueiens.

Money can deposited an withdrawn at any time. Money can be withdrawn by only

by means of cheques usually a hank does not allowed any interest an this account.

Even then, people come formed to deposit money on current Account because of

two important pricilegeges which type can enjoy in a current A/c.

a) over draft facilities.

b) Other facilities like close of cheques gofer of money, Gendering agency and

gendered utility services.

iv) Recurring deposit Account :

It is one of the farm of saving deposit. Depositor save and deposit regularly

even month a fixed installment so that they assured of the sizeable amount at a

later period. This will enable the depositors to meet contingent expenses. Many

people would not have sawed if this deposits had not b introduced. This deposit

works on the maxim little drops of water make a big ocean.

Opening and operating of fixed deposit Accounts :-

i) Rate of Interest :-

Interest at a specified Rate is admissible on the amount hold in the deposit

account for the contract period. Interest is not allowed with expirer of the deposit

period unless it. Geneva the rate of interest and other terms and conditions on

which the Bank accept is deposits are Regulated by the RBI.

ii) Payment of Interest :-

The banker usually pay interest quarterly or half yearly. Interested will be

payable by the Bankers on the deposits for the over due period onyx the deposits

Renewed. Wit drawl of Interest or the principal through cheque of is not permitted

through cheques is not permitted. At the request of the customer the Banker may

credit the amount of Interest of the principal who is savings or current Accounts

from which he may with draw the same through cheques.

iii) Payment before due date :-

Through a fixed deposits is payable at the expiry of the specified period,

Banker also permit encased of such deposits even before he due date.

if the depositors so distress, If a customer to want to with draw a fixed deposit

before maturity be should for go 1% less then the Rake of applicable interest to the

period for which deposit as remind in the Bank.

iv) Renewable before maturity :-

The reserve Bank as permitted the Banker to renew an existing term deposit

before maturate, with out involving tee penalty provided.

v) Loss of fixed deposit receipt :-

Were a deposit Receipt is lost, generally, a Banker demands the customer to

sign an identity Bond with a guarantee. it will pretext the Banker against losses in

future. In extra ordinary cases, the courtiers may be asked to go though the court

and seek its authorization.

vi) Exception from stamp duty :-

A fixed deposit Receipt, thought an Important document is excepted from

stamp duty under the Indian stamp Act this is just to popularized the deposits

Accounts other wise any Receipt exceeding Rs.20 Requires to be stamped.

vii) Dictation of the at source :

Section 194 (A) of the Income tax Act provinces for deduction of take at

source from Interest on time deposit, payment by a Bank o co-operative security

where it exits Rs. 5000 in a financial gear.

Opening of current and savings Account :-

Before opening a new Accounts a Banker should take certain prevention the

following are the general precaution to taken by a Bank. In opening of new

Account.

i) Application on the presented from :

The Request for opening a savings a or current A/c is made on the present

from the Bank concerned Banks provide separate Application forms of opening

savings and current Accounts for individual, prater ship forms and companies, the

customer mention is named, trust, occupations, specimen signature and the name

and signature of a person for References.

ii) Introductions of the application :-

It is always advisable on the part of the Banker to always the prospective

customer to open an account only with a proper instruct the usual practice for the

banker is to demand a letter of instructions from a responsible person know to both

the particles.

iii) Specimen signature :

Every new customer is excepted to give three on more specimen signatures,

usually they are obtained on cards, which are filed alphabetically for Ready

Referees. Each bank maintains a signature Book for this purpose thus specimen

signature protect the bankers against forgery.

iv) Past port size photo graph :-

Nowdays Banks incite upon the prospective customers to abele their

passport size photo graph on the application firm at the time of opening Accounts.

v) Safety against wrong full over draft granted :-

It a Banker grants an overdraft even by mistake, to a customer who is not

prosperity introduction the risk of losing case it is not repaid by the customer, In

such a care the amount can be creative only is the customer is a respectable

solvent party.

vi) Mad date writing :-

If a new party wants in accounts to be operated by come party else, the

Banker should demand a mandate from his customers in writing the man date

contains the agreement between the two regarding he operation of the account, the

specimen signature of the authorized person and the power delegated to him.

vii) Amount in cash :-

After the above calamities are over the time of opening an account. The

minimum amount is Rs. 500 with cheque and 250 for with out cheques facility for

savings Bank accounts.

Operating of current and savings account :-

Operating a bank means that the customer deposits for there sums of money,

cheques etc into the bank and with dreams money according to his need on

convenience so the Banker hands over to the customer.

i) Cheque book.

ii) Paying-in-slip book and

iii) Pass Book

i) Cheque Book :-

The cheque Book contains Bank forms of cheques which are used as an

Instrument to with draw money form the Bank.

The cheque may be in favor of the customer himself of in favor of third party.

he must write the amount both in words and figures the book will dishonor a cheque

if there is any defect in it.

ii) Pay in slip :-

The pay-in-slip contains with counter foils to be failed in by the deposit for

himself on by his agent at the time of depositing cash, calques, draft, bills, etc., to

the credit of his account. Though the size and define such slips by from bank to

bank.

iii) Pass Book :

The Pas Book is a small handy book which count ions the record of

transitions in depts. and credit returns a Baker and his courtier. it is called a pass

Book because it passes between the hands of customer and banker. If refuels the

customers A/c in the bankers laager.

Special Types Of Bankers Customers :-

When a Banker opens an account in the name of customer this arises a

counteract between the two. This contract will be valued one only when the Both

the parties are component to enter into counteracts. Some different special types

of customers are as follows.

i) Minor (or) infant

ii) Married women

iii) illiterate person

iv) lunatics

v) executions, administrators and urinates

vi) Joint account

vii) Partnership form

viii) Joint stock companies

ix) Club, society and Non trading associations.

i) Minor or infant :-

A person who has not completed 18 years of age is a minor. if a guardian, of

his person are property appointed by the court before he completes 18th years , he

remains manor till he completes his 21st year. According Indian counteract act

1872. A minor his not capably of entering into a valid counteract and a contact

entered into by a minor his void. A counteract for he supply of necessary of life to a

minor, however, a valid counteract.

ii) Married women :-

A Bank may open an account in the married women. The married women

were allowed to open accounts only after getting consent of their husband

moreover, all their became the properties of her husband on her husband, she was

not allowed to hold property in her hold name.

A married women cannot make her husband responsible for the debts

incurred by her expect in some cases. If she is authorized to act has on agent of

other husband, then the husband can be made liable for the debts in the follow

cases.

a) If the loan taken with his contend of authority and,

b) If the debts is taken for the supply of necessary of life to the wife incase the

husband defaults in supply in the same to her.

3) Illiterate person :-

The bankers can open account in the name of illiterate person who cannot

sign but banker can take his thump impression as a substitute for signature. The

banker should also take session potlograntr attended by a first class magistrate for

the purpose of Indintification. While drawing cash from the bank such person

should to the bank and get cash in the presents of a ditties in the office of the bank

manager.

4) Lunatic :-

Lunatic is a person of an unfound mind and hears he is incompetent into

enter into a valid contract under the Indian counteract act, 1872, since a lunatic

does not understand what is right? and what is wrong? so, the counter enter into

him is void.

5) Executors, administers and trustee :-

Exactors and ammoniates are persons who are appointed to content the

faired of a person after his death. When a person know as dictator, [maker of will]

appoints another person for this purpose through a will, he is know as a exactors, if

the will of the testator does not mention the name of the exactor, (or) if the person

appointed as executer dies (or) refuses to act, the court appoints the person. For

the purpose that is know as administered. A trustee is a person in whose care he

control of an estate is placed under an instrument of trust on trust deed.

6) Joint Accounts :-

A joint Account is one which is opened by two or more indigos, who are not

partners in a farm (or) who are not joint trustee. While opening the joint Account,

the Banker must get a clear man date in writing, countering instructions as to, how

the account is to be apprised. The Banker should get specific interactions

regarding the operate of the account and the major of the powers delegated to the

authorized person. In the assertion of a man date, all joint holders must jointly

opportunity the account.

7) Partnership form :-

According to section 4 of the Indian partnership Act, 1932, A partnership is

The relaxation between persons who have agreed to share the profit of a business,

carried by on by all (or) any of them acting for all.

Unit III

NEGOTIABLE INSTRUMENTS:

Many documents are rued in the mordent commercial world, but, certain

documents are freely used in commercial transfer which are called Negotiable

Instruments.

Definitions:

The negotiable stunts in India are governed by the Negotiable Instruments

act of 1881. This Act does not define a negotiable Instruments reaction 13 of

negotiable instrument simply states that @ A Negotiable Instrument means priming

note, Bill of exchange, (or) cheque payable either to order (or) to Bearer.

One the property in which is acquired by any one who takes it benefited and

for value not-with-standing any defect of title in the person from where he took it?

---- JUSTICE K.C.WILLS

FEATURES OF NEGOTIABLE INSTRUMENTS :-

i) Free transfer :-

There is know formality to he complied with the transfer of Negotiable

Instruments. It can be crassly either by more delivery or by endorsement and

delivery Transplant is on geranial feature of a amegable instrument . But all

transaxle Instruments are not negotiable instruments.

ii) Free from defects :-

A person who takes Negotiable instrument from another person, who had

stolen it from somebody heals, will have absolute and dispute little to instrument

provide. He rescues the same for value. [i.e. after paying its full value]. The

transferee is called the holder in due course and his interest in the instrument his

well proceed by the law.

iii) No notes to Transfer :-

The transferor of a negotiable transmit can simply transfer the documents,

with out shrilling any notes of transform to the party who is liable on the instrument

to pay.

iv) Right of action :-

A holder of a Negotiable instrument being a holder in due course gets the

Right of action to such open the instrument in his own name.

Types of Negotiable instruments :-

In India, Negotiable instrument classifier into three, viz.,

i) Promissory Note.

ii) Bill of exchange

iii) Cheque.

i) Promissory Note :-

According to section (4) of negotiable Instrument Act of 1881, promissory

Note is all instrument in writing containing an unconditional under taking, righted by

the Maker to pay a certain some of money only to (or) to the order of a certain

person, (or) to the Bearer of the Instrument.

Thus, the promise not count ions promise by the detour to the creditor to

pay certain sum of money after a certain date. else it is always drawn by the

holder. he is called the matter of the Instrument.

Specimen of a profiling Note :

Rs. 10,000/- Chennai-600 082

20th July 2007

Three months after date, I promise to pay maha (or ) order the sum of

Rupees ten thousand, for

To Maha Stamp

II Bill of exchange :-

According to section (S) A bill of exchange is a An installment in writing count

ion an uncoundiral order, signed by me matter, Directing a certain person to pay a

certain sum of Money only to, (or) to order of, A person or to the bearer of the

Instrument@.

A bill of exchange continued an order from the creditor to the editor to pay a

specified amount to a person mentioned therein. The maker of a Bill is called the

drawer. person on whom it is drawn is called drawee. (or) acceptor and the

person to whom the amount is payable is called the payee some times the drawer

himself is the payee.

Specimen of a ill o exchange.

Rs. 10,000/- Chennai-600 082

20th July 2007

Three months after date, pay to Mr.Ram (or) order the sum of Rupees ten

thousand, for value revised.

Accepted

To Stamp

G. Eany,

7th Cross,

Krishnagiri

Features Of A Bill Of Exchange And Promises Note :-

i) Instrument in written :-

A bill of exchange are promisser note must be in writing only. oral order (or)

promise dont make a value instrument.

ii) Un conditional order :-

The promise (or) order must be unconditinal if any condign are applied

destroys the Negotiable crater of an instrument. But promise (or) order to pay at a

partum place (or) after a specie time (or) on the happening an event retuning to

happen his moot conditioner.

Corn example :- 7 promise to pay Rs. 1,000 days after x is retirement is not

conditional.

3) Drawn on a certain person :-

A Bill is always drawn on a certain person, preferably, by the seller n his

courtier., hence the drawee must be a sorting person.

4) A certain sum of money :-

The order have o the drawer of a Bill and the promise by the written of a

promise note must be to pay a retain sum of money and not any thing heals. (ex. )

foods and sectary.

5) Payee to be certain:-

A bill or promising note is drawn payable to a certain person or to his order

(or) to the Berea of the instrument. Thus the payee his certain, however promise

note are Bill of exchange or not the made payable to bazaar on demand.

6) Payable on demand (or) after certain date :-

A Bill (or) promise note may be payable on demand in which care it is called

demand Bill (or) it may be payable afar a refaced period and such bill are called

Time Bills. In case of time bill, acceptance is essential and usually three days

grace is allowed in the case of payment of a Bill.

7) Signature of the drawn (or) Promising :-

A bill of exchange (or) a provision note is valid only it if hears the signature of

the drawn (or) the provision.

8) Stamping of promission Notes and Bills :-

The Indian Stamp act 1899 requires that the promiser note and the Bill of

exchange must be stamped, otherwise it cannot be addimtted in evidence.

CHEQUE :-

A cheque, being a Negotiable instancing be passed from hand to hand easily

and so it has become a popular made of payment a cheque is the most economic

and safe method of money transaction because the transfer cost is very low and

also the portability of loss is minimum.

DEFINITION :

Section (6) of the Negotiable insurer act defines a cheque as follows. A cheque is a bill of exchange drawn on a suicidal harden and not exposed to be payable otherwise then on demand. Specimen of cheque :- Date : ___________ Pay _____________________________________________________ ________________________________ or bearer.

Rs.

A/c No :

Cheque No :

The person who draws a cheque i.e. the court one of the Bank is called the

drawer, and the Bank upon whom the cheque is drawn in know as the drawee (or)

Payee.

M.I.C.R. Cheque :-

The reserve bank of India as introduced mechanized cheque processing

system using M.I.C.R. [Magnetic Ink character Recognition] Technology box sec

purpose of seeding up the cheque clearing process both local as well as inter-city.

Under this system the chorus are processed at high speed on machine, Bank

issue cheque, draftee and other payment instilment in M.I.C.R. format using the

special quality paper and printing specifications on M.I.C.R. instilments, their is

code line at the bottom cautioning information printed in Magnetic Ink, which is

required for mechanical prosing. The code lines containing the following

information.

i) Trieste six number cheque number :

ii) Next three number indigent city code.

iii) Next three numbers indict Bank code.

iv) next thee numbers indict Branch code.

After some space their is the Number for transition code [that is thither the

transition is for saving on current account.

M.I.C.R. cheque books provide for record sleeps at the end which are used

for recording the details of every cheque issued.

Essential Features Of A Cheques :-

i) Instrument in waiting :-

A cheque must be an instrument in writing oval orders their fore do note

constitute a cheque. Their is know special rule regarding the writing materials to be

diesel. If may the done by means of a nice, Renal a typewriter are any other

printed charter.

2) An unconditioal order (or) promise :-

A cheque count ions a promise by the maker to his customer. A Negotiable

instrument is always unconditional a cheque is an order to pay and it is not request.

The honoring of the cheque was not he made to depend upon the happening (or)

occurrence of a purtune even or on the fulfillment of any count ions.

3) Drawn on a specified banker :-

A cheque is always drawn only on a prune hander. usually the name of

address of the banker is clearly printed on the cheque leaf itself.

4) Payable on demand :-

The cheque should not be expressed to be payable otherwise on demand it

is not necessary that the words On demand should appraiser on the cheque. As

per section 19 of a negotiable instrument act, unless a time factor is special by the

drawee. The cheque is always payable on demand

5) Payee to be certain :-

The payee must be a certain person be may he human being on an artificial

person. A cheque may payable due to two on more indulges in which care, all of

them must sign the cheque before the encasing it.

vi) A certain sum of money :-

A cheque is slay drawn for a definite sum of money. Indefiniteness has know

place in monetary transactions. any phase like lese then Rupees one hundred

only (or) above Rupees two hundred only. Does not give a clear and concrete

idea to the parties concord and it will creator foe cheque involved.

vii) To be signed by the drawer :-

The cheque must be signed by the drawer i.e. customer. The drawer

normally puts his signaler at the right hand corner of the cheque. When the

signature differs from the specified (or) it is slightly different, the Banker need not

honor the cheque.

DIFFERENCE BETWEEN CHEQUE AND BILL OF EXCHANGE.

Cheque Bill of exchange

A cheque is always drawn on a

printed form

A bill need not be drawn on a

printed form

cheque is always supposed to be

drawn against the funds in the

bands of the banker

Thin is no such supposed

A cheque can only be drawn

payable on demand and not

otherwise.

A bill may be drawn payable on

demand or the expery of a sertion

period after date are sight.

The banker need not accepted a

cheque

Accepteneens by the drawee is

essential

A Cheque is an instument for

immidet payment

It is drawn for a specific period.

In case is an instument for immidet

payment

Where s three days of grace are

allowed in care of bills.

The liability of the drawee

countionus for 6 months.

Unresanable delay in the presation,

will discharge the Bill

Cheques are exampled from

stamping.

It requres spansing depending on

value and duration of the Bill.

It may be raised to enqure safety. It cannot be raised.

In case dishoner, Notice of dishoner

to the draver is not essential.

Notice of dishoner must be sent to

hold the party liable.

HOLDER IN DUE COURSE :-

HOLDER :-

According to section (8) of the Negotiable instrument act defines a Holder o

a promiser note, Bill of exchange or cheque means any person entitled in his own

name to the passion of the instrument and to receive (or) require the amount due

thereon from the panties thereof.

Clause two of the same section says, the person who has entitled to receive

payment at the time the instrument was lost, will counting to be regarded as its

holder, the oinker does not became its holder. A person his called a holder of a

regional instrument if toe following counter are stadiums.

(i) He must be entail to the possession of the instrument in his own name nod

under a leangle title. Actual posses o the instilment is not essential.

ii) He should have right to receive (or) require the amount from the parties counted

his own name.

Holder in due counsel :-

According to section (9) of the Negotiable instrument act defines a. holder in

due course means any person who, for counter became the possessor of a

promiser notes Bill of exchange (arc) Cheque, if payable to bearer, (or) The payee

(or) endocrine thereof if payable to order, happen the amount mentioned init

became payable and without having sufficient course to believe that depict existed

in the title of the person from who he derived his title.

A person becomes holder in due course of Negotiable instrument, if he

fulfilled the following conditions.

1) He must be a holder as defined in section 8. i.e. he must be entitle to passion of

the instrument in his own name and he should have the right to cursive (or) require

the amount. 2) The Negotiable instrument must be regular and complete in all

respects. holder in due coerce. The instrument must have been properly delivered

to the holder in due course.

3) The instilment must have be upturn was valuable contras that is by Paying its full

value for example a person crevices a cheque as a gift will not be called it holder is

due in because he did not Alan any available contain. So, the contradiction should

be legal and adequate.

4) The instrument must have been required before its maturity. If he takes its after

a due date, he will require the instrument with all defects in the instruments. If the

intent is payable on demand, he should have acquired it within a resemble time

after it is required.

5) A holder in due course must obtain the a limit with out having efficient cause to

between that nay defect existed in the title of the transferor section (9) lays heavy

secretenlity on the person excepting a negostiablstment in this regard. So a person

requiry an instument in good faith nd without lengligence.

So, the about define and coundioons total that,every holder in due course is

a holder, But a every holder is not holder in due course.

For all legal pongus, the of the holder in due course is supers ion to that of

the true owner. But, if fee instilment count ions a barberry, then his title is lost.

True owners title will became super son.

Privileges of holder in due course.

The following are the some of the rights and receileges of holder in due coerces

Better littlie free from debits

Section 53 states that, holder of a negotiable instrument who derives title

from a holder in due coerce has the right their on of that holder in due coerce. A

holder in due coupe is entitled to reburied the amount of the instument from any or

all of the prices parties. The good ill of the holder in due cause is effected if he

himself was party to the ford (or) illegality which effected instument early. so, a

holder induce course poser better tactile free from all defects.

Liability of prior parties to hidden in due coerce according to section 36,

every prior party is a negotiable instument, is liable their on to holder in due cop

uncle until he instument is duly satisfied. it means that holder in due court can

require the amount of lllneoreau installment from any on all of the pries parties to

the instument.

In case of incomplete instument according.

According to section 20, if a negotiable interment was originally an compel

instument and a sequent transferor, completed the treatment foray sum greater

then behalf was the intoner of the matter, the right of a hidden in due coerce of

require the money of the instrument is not at all effected.

iv) Right in case of fictitious bills :-

If a Bills of exchange is drawn on behalf oaf fireside person and his payable

to his order, the accepter his not relieved of his liability to holder in due council

because of such fictitious name but it essential that the holder in due coerce. Profits

that the documents hers the endorsement with signaler in the same hand has that

of the driver and the purporting to he made by the driver.

v) Right in case of unlawful consideration :-

According to section 58, A person liability and a negotiable instument cannot

defend himself against a holder in due came on the ground that the instument was

lot or upturned from him by means of an offence or far an unlawful cauterization

example: the Bill drawn through the amount lost in gambling. So it is holed in due

coerce.

vi) Stopple against defying original validity of the instument :-

Section 120 provides that. know maker of a promise note and no driver of a

Bill of exchange or cheque and No exception of a Bill of exchange for the homer of

the drawn shall in suit their on by the holder in due coerce, he primate deny the

validity of the instument as originally made or drawn.

example : Ram is the maker of a promising note for Rs.1000 payable to rattan, who

endorse it to Rain for a unable counter an its due date it is disnatured. Ray fails a

shut for the require of the comment for cannot deny that the instument as drawn by

him was not a valid one that is we cannot dispute that know amount was due from

him on the prosody note.

vii) centuple against denying capacity of payee to endorse :-

According atop section 121, the claim of the holder in due coerce cannot be

denied on the plea that the payee ha no capacity to enclose.

viii) Centuple against denying signaler (or) capacity of prison party :-

According to section 122, No enclose of a negotiable instument is primate to

deny the signaler or capacity of any primary party to the instument in case o a suet

by a holder in due council. Example : defrayal a hale of exchange on y infamous

of z to enclosures the same to A. a minor. A enclosures it to be and ;B to c who

becomes it holder in due coerce. It is disorder on the due date C the holder in due

course as the right to faille a suet against all or any of the parties to the bill expect

A, the minor, now B the endorser cannot plead that a was a minor and had know

capacitive to enclose the Bill and hens the bill is valued one he will rewind liable on

the to C.

Crossing of cheque.

Section 123 to 131 of the remittable instrument act count ion provocation

realizing to crossing.

Crossing a cheque means drawing to parallel transevense lines on the left

hand top corner of a cheque. Crossing on a cheque is a direction to the paying

banker by the drawer that payment should not be made across the counter. The

payment should not be made across the counter. The payment on a crossed

cheque can be collected only through a banker. Therefore, crossing probates the

holder o the cheque and reduce the portability of found.

TYPES OF CROSSING :-

Crossing of cheques is of two type

(i) General crossing

(ii) Special crossing

i) General crossing :-

Section 123 of a negolatable instument act 1881 defines ender l crossing has

follows.

Where a cheque bears accuse its for an addition of the words and

company (or) any abreaction their of between two parallel transducers lines.

Simply, either with are with out he not negotiable that addition shall be denied to

be a crossing, and he cheque shall be to demand to be crossed generally.

Forms of general cross :-

a) b) c) d) e)

SIGNIFICANCE OF GENERAL CROSSING :-

A generally crossed cheques notes the drawer and also the payee. The

following are the significance of general.

i) Effect of general crossing is that it gives a direction to the paying banker.

ii) The directions is that, the paying banker should not pay the cheque at the

counter. It should be pained only to a bellow banker that is payment is made they

an account and not at the counter.

iii) The main indention of crossing a cheque is to give protection to it. When

a cheques crossed generally, A person who is not entitled to receive its payment is

prevented from getting that cheque case or the paying bank.

Distinction between Bill of exchange and a raillery Note.

Basic Bill of exchange Premolar Note

No. of parties

There are three parties the

drawer, the drawee and the

payee.

There are two particles the

promiser and he payee

P rawer The credit ion is the

drawers The debtor is the drawer

Promise and order If contains an order to pay If contains a promises to pay

Acceptance

If should Abe accepted by

the drawee by the drawee

before it handing upon him

except in return cases.

It is signed by the person

liable to pay and as sub no.

acceptance is necessary

Liability

It is drawer is liable only

when the drawee does not

accept or pay the amount

due.

It is maker is primarily liable

Nothing of

protester

In case dishonored it would

be better to get in noted for

non payment

In these case nothing is not

necessary

Copies

In case of foreign Bill thus

are usually draw in the

three copies

Here only care copy is

prepared when it is foreign

on local.

Relationship

Here the drawer stares

immediate relationship with

the acceptor and not to be

the payee

In this case the maker

stanzas in an immaterial

relationship to the payee.

Stamps

The Bill payable on

demand need not be

stamped but otherwise

stamps would be

necessary

This has to be stamped in

any case.

Special crossing :

Section 124 of the negotiable internal act 1881 defines a special crossing as

Where a cheque Bears across it is face, an addition to the name of a Banker, with

are without the words Not Negotiable. that addition shall be deemed a crossing,

and the cheque shall be deemed to be crossed specially and to be crossed to that

banker.

Farms of special crossing :-

1) 2) 3) 4)

Essentials of special crossing :-

i) Two parallel thane safe lines are not at all essential for a special crossing.

ii) The name of the Banker must be necessary specified across the face of

the cheque the name of banker itself counties special crossing.

iii) If must appears of the left head lied, preferably on the corner so is not to

obliterate the printed number of the cheque.

iv) The two Burial transfer lines and the words not negotiable may be added

to special crossing.

Significance of special crossing :-

i) Special crossing is the direction to the paying Banker. The direction is

that the paying Banker should pay the cheque only to the Banker, whose

name appears in the crossing or to his agent.

ii) If a cheque specially crossed to a Bank his presented by another Bank,

not in the capacity of its agent, the paying Banker his justified in Return in

the cheque.

iii) A special crossing gives more production to the cheque then a general

crossing. It makes a cheque still safer because, A person who does not

have a retail claim for it, would find it defile to upturned payment.

iii) A/c payee crossing :-

This is know revision in law regarding this type of crossing. But, it has been

dwelled in practice. If the words, Account payee are added to a crossing, It

becomes an account payee crossing.

These types of crossing give a further production to a cheque. This crossing

gives a direction to the collecting Banker. This direction is that, the collecting

banker should not collect it for pay person then the payee. If a collecting banker

collects such a years cheque for any person other then the payee. He will lose the

statutory production gives under section of the Act 131.

Forms of A/c payee crossing :-

a) b) c) d)

IMPORTANCE OF ACCOUNT PAYEE CROSSING :-

i) If payment is made by mans of crossed cheque, respect need not be

obtained.

ii) Account payee crossed cheque makes sure that only the particular person

to whom the cheques are draw can resave payment.

iii) If a crossed cheque is lost Nothing lost because the finder of cheque

cannot encase it without the help of the Bank.

4) Not Negotiable crossing :-

Section 130 of the Indian Negotiable instrument act lays down that, A person

taking a cheque crossed tenderly by specially, bearing in a either case the words

not negotiable shall not have and shall be callable of giving a better little to the

cheque then that which the person from who he took if had.

Not negotiable does not mean not thundering negotiability is something

different from transit. Negoslibility is a broader term which includes tharability. As

per law. Negorhablity mans transablity by more delivery on endorsement and

deliveyr place tharablity free from defects. But, transability does not possess the

transfer free from defects.

Forms of Not negotiable crossing :-

For example :-

A draus a crossed cheque on his banker in favour of B without the words

not negotiable their in C steals it from the of B and endoures it to D who crivies it

for value and in good faith. [C had no title to the cheque]. D will be it is holder in

due couree and will have valued little, though his transferor [endorser] have know

title their to.

In case the cheque hearse thin words memorable in the crossing, the title of

C his defective he cannot transfer to D title better then what he himself possess.

So, the cannot be its holder in due coerce.

Double crossing :-

Section 125 of the act provide that where a cheque is crossed special the

Banker to whom it is crossed, pay again cross it specially to another Banker his

agent for collection.

A specially crossed cheque is to be collected only through the Banker

specifically their in. Therefore, Especially crossed cheque cannot be crossed

specially again to another banker. i.e. a cheque cannot be crossed specially twice,

because the every purpose of first special crossing is trusted by the second one.

However, there is one expectation to this rule for specie purpose. If the

Banker, to whom a cheque is specially crossed, does not have a branch at the

Place of the paying Banker. So, the cheque crossed specially another Banker, who

acts his agent for the purpose o collection of the cheque. In such a case, the later

crossing, must specified hat the banker to whom it has been specially crossed

again shall act as the agent of the first banker for the purpose of collection of the

cheque.

For example :-

It is necessary that the words as agent for collection must be included in the

special crossing. Section 127 provides that where a cheque is crossed specially to

more than one banker receipt when crossed to an agent for the purpose collection,

the Banker on whom it is drawn shall reface payment their of.

The special crossed cheque with out the word as agent for collection shall not

be honoured by the paying banker. But, the collecting banker cannot reface to

collect such a cheque.

For example :

ENDORSEMENT :-

Endorsement is derived from the Latin word, dorsum. meaning upon

the back which indicates that the useful place of an endorsement is on back of the

instrument.

Along :-

If the space available on the back has been completely covered, A piece

of paper may safely be attached to the instrument and the subsequent

endorsement may be made on that paper. The paper so attached is know as

Along.

Negotiation :-

The Terrence of Negotiation, thus likes not in more transferee the

instrument from one person to another but also in the fault that the transferee that

get the right as the holder of the instrument. If the transferee of an instrument get

not be called its holder the instrument s not said to have been negotiation.

Delimitation Of Endorsement :-

According to sec 15, when the maker (or) holder of a negotiable

instrument signs the same, other wise then as us maker, for the purposes of

negotiation on ate back of face on face there or on a slip annexed their two or so

sighs for the same purpose a stamped paper indented to the completed as a

negated instrument, he is laid to have endured the same and is called endorser.

Legal provision regarding endorsement :-

Effect of endorsement :-

Section 50 provides that the endorsement of a memorable instrument

followed by delivery transfers to the endorsee the value their in with the right of

further negation. those the endorse acquires the property and also the right in the

instrument as its holder and he can also negotiate it feather also primes.

i) To encloses the instrument further (or)

ii) To receive its amount for tenders on for some other special person.

For example :

(A) Pay C for my use.

(B) Pay C (or) order for the A/c o B.

Endorser :-

Every sole maker, power payee (or) endorses on all of special joint

makers, drawers, payee (or) endorses of a Negotiable instrument may endorse and

Negotiate the same. This is subject to the condition that the right to negotiate as

not her resented or excluded. Thus incase the instrument is held jointly by a

number of person, endorsement by all of them is essential one can not recipient for

other.

The absence of the words or order in the instrument (or) endearment,

thereon does not restive other Migration. For sample : A bill is drawn payable to A

or order. A endorses it to B. But, he endorsement does contain the words or

order. it does not restorative Bs further Evocation B may further Negotiate the

instrument.

iii) Time :-

According to section 60, A memorable instrument may be negotiated until

its payment has been made by the banker, drawee (or) acceptor at maturity but not

their after.

iv) Endorsement for a part of amount :-

Section 56 provides that if an endorsement his made on the instrument

for transforming only a part of the amount appearing to be due on the instrument,

the endorsement is not value. Their fore, the instrument must be endorsement for

its ender amount. But in case un instrument has been partly paid. It may be

negotiated for the balance of amount provided a note to that effect is given on

instrument.

v) Death of enclose :-

If the endorser dies for after endorsing the instrument payable to order

but with out delivery the same to the enclose, such endorsement shall not be

valued and his legal represent ate can not complete its regulation by near delivery

their fore.

Essential of valid endorsement :-

An endorsement must be regular and valid in order to be effective. The

following rule are essential of a valid endorsement.

i) Signature of the endorsement :-

The instrument must be signed by the endorses. If the endorser signs in

block letters, it will not be considered a regular endorsement.

ii) Spelling :-

The endorser should spell his name in the same way as his name

appears on the cheque (or) Bill as its payee (or) endorsee. If his name is miss spelt

(or) has designation has been given in correctly he should singe the instrument in

the same manner ha given the instrument.

iii) No addition (or) omission of initial of the name :

A initial of name should mightier he added NOG omitted from the name

of the payee (or) enclose as given the cheque.

iv) Prefixes and suffixes of he excluded :-

The prefixes and suffixes to the names of the payee (or) enclose need not

be included in the endorsement for example :- the words, Mr. Messer, shirk,

chromate, general, Dr.Manager, etc., need not be given by the endorser otherwise

the endorsement will not be regular.

INNOVATION FUNCTIONS OF COMMERCIAL BANK :

i) Teller system

ii) ATM

iii) Home baking

iv) Green land

v) Factoring

vi) Mutual funds

vii) Electronic clearing system

viii) Gold and platinum card

ix) Gold banking

x) E-banking.

i) Teller system :-

Under the system, when a customer presents a cheque a counted clerk

will make payment immediately. So, the customer, need not wait for a long time for

with drawly of money. The counter clerk will have their specimen signature of he

customer and updated amount cased by his lied.

ii) ATM Automatic teller system :-

In ATM system a customer can with drawn money by using his cards.

The customer who wants to avail ATM facilities will be given a code number which

will be secrete by the customer.

iii) Home Banking :-

Instead of going to the Bank for with drawl of money or for deposits of

cheques a customers can do his banking business by sitting at home for this

purpose the personal computer of the customer will be collected with the banks

computer through a net work. The customer will have a secrete code for operating

his amount from home.

iv) Green land :-

In India, credit card facilities is given to the farmers by issue green card to

them this will enable them to by all their input by using the Green card. They can b

seeds, fertilizers, and participles through this cards.

v) Factoring :-

Commercial banking in India are under baking factory business under this

the bills drawn by customers on the bank the will be handed over to the bank for

collection. The bank will pay 80% and balance 20% will be paid after reaching the

bill from the buyer for this purpose the bank will be received the factoring

commission.

vi) Mutual funds :-

To enable the customers to anvil the a bank of installment bankers, in

India have standard mutual funds. They saying of the customers are indented in

mutual funds by purchase o units, the bank, after mobilizing the funds, incorrect the

same in serious company seventies.

vii) Electronic clearing system :-

The telephone charges are being paid through this system. The banks

are connected to the telephone department through a network by which, the

telephone charges of the customers are paid. The customers will present there

telephone bills to the bank which in tomatoes electronically to the telephone

department and the bills are paid by the bank.

viii) Gold and Platinum card :

Certain restriction are induced in credit card facilities, But in gold or

platinum card, the credit limit restriction will not be their, customer who are very rub,

and who have a high local status evil not be provided gold or platinum and a gold or

platinum card holder can go to any part of the world for the purchase of valuable

items through this card.

ix) Gold Banking :-

It is a scheme introduced in 2000 01 Budget a by the union finances

minister and SBI is the first bank in India to introduce Gold deposit scheme

Account 13,000 tones of gold are estimated to be ramble in India, out of

13,000 tones SBI has initially special 4.54 tons from 3051 individually this gold

deposit will be used giving loan by the Jeweler industry under metal loans scheme.

x) E-banking :-

E-banking reapers to electronic banking scheme in the entire operation

are done by the customer through his computer system by using code, which

maintained necessary of transaction. The computer will be instructing the banker

through the computer with regard to transfer instrument and repayment of loans or

appropriation of different payment.

xi) Credit cards :-

The credit cards act as on instrument of credit. The credit card holders

held not carry cash. They may purchases goods from many authorized dealers,

using the credit cards. The credit cards can also be used to settee accounts with

the merchant as the cards offer the power and flexcibility to plan payments in easy

installments. The customer may have to pay certain service charges to the bank

when he makes use of this card, apart from paying interest on the outstanding

balances.

xii) Travelers cheque :-

A travelers cheque is a presented cheque of a particular denomination.

A banker may issue travelers cheque at the request of the customer after

captaining the customer signature. When he travels either with in the country or out

of the country, he may pay by travelers cheque.

xiii) Merchant banking :-

Some commercial banks have also started merchant banking in order to

assisted new industrys to upturned types of impartation and plan out their proposal

activities banks also under right loaned and of companies.

xiv) Debit card :-

Debits cards are generally used by customers for with drivel of cash from

ATM. debit card refers from the customers credit cards in the sends the debit card

holders account gets install mentally debit un like in the case of credit cards were

as the card holders are given a credit cards fixed period.

xv) Electronic fund transpiring system :-

Electron fund transfer system uses, computer and electronic technology

as the substitute cheques and other paper transition funds are transferred

installment among varies branches at varies locations in the country through the net

work, using latest commission technology.

xvi) Any time banking :-

Any time banking have helped the customers to over come the time

libations of four hours of customer services the customer are given a host of

banking services including departs withdrawal. required and transfers.

xvii) Any where banking :-

With the introduction of tale banking and networking of all brands through

comma network, customer becomes the customer entire hand credit a branch has

all the branches are connected by satellite inter system commodity of at has

safecilated with drawn from other station as serious usefully for frequent travelers.

xviii) Letters of credit :- [LOC]

A letter of credit is a document (or) order by a banker by one place,

authorizing some other banker in some other place, to honour the drafts

exchequers of a person named in the document up to the amount stated in the

letter and the issuing handed himself hands to pay the money paid. Inbound a

letter of credit carries a promise (or) an under taking by me issuing banking which is

honoured thought out the world.

UNIT IV

1. Meaning of Paying Banker

A Paying banker is one who is a drawee of a cheque. He takes the responsibility of

making payment on a cheque to the true owner. Any wrong payment will make the paying

banker liable to the true owner of cheque and also to the drawer of the cheque (one who

has drawn the cheque).

2. Payment in due course (Section 10)

Section 10 of the Negotiable Instruments Act, 1881 clearly mentions the manner in

which the paying banker should make payment on a cheque when presented to him and

demanded payment. Section 10 defines 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.

3. Conditions given under payment in due course

(i) Payment in accordance with apparent tenor: When a paying banker receives cheques,

he has to carefully go through the instructions given by the drawer. For example, if the

drawer has issued a cheque dated 10th June 2000, Payment cannot be made before

the date. If the cheque is crossed, then the banker cannot make payment across the

counter.

(ii) In good faith : The paying banker will make payment to a person whose ownership is

certain. In other words, the person presenting the cheque creates absolute good faith

in the minds of the banker regarding the ownership.

(iii) Without negligence : The paying banker has to go through the contents of cheque

before making payment. If the cheque contains any alteration, overwriting or

cancellation, payment cannot be made. Sometimes, the cheque may also contain

material alteration.

(iv) To the person in possession: Paying banker can make payment to a holder in due

course only when he is in possession of the instrument. Possession is a must for a

holder in due course. For a holder it is not a must. Thus, a paying banker should make

payment only to that person who is in possession and presents the cheque for

payment.

(v) Circumstances : Even though the person presenting the cheque may fulfils all

conditions, but still creates a doubt in the minds of the paying banker at the time of

making payment, the paying banker must get it clarified before making payment. There

are instances where the amount of the cheque and the status of the presenting the

cheque are inconsistent.

Duties and Responsibilities of a Paying Banker

Section 31 of the Negotiable Instruments Act provides that the drawee of a

cheque having sufficient funds of the drawer in his hands, properly applicable to the

payment of such cheque must pay the cheque when duly required to do so, and in default

of such payment must compensate the drawer for any loss or damage caused by such

default.

Obligation of Paying Banker to Honour Cheques

The paying banker is under an obligation to honour cheques subject to the fact that

certain conditions are satisfied.

(a). There must be sufficient funds in the customers account and only in the account on

which the cheque is drawn. The amounts in the credit of the customers account in other

branches will not be considered.

(b). The funds should be properly applicable to the payment of such cheques.

(c). The cheque should be properly drawn and should not be irregular or ambiguous.

(d). Cheques should be presented during the banking hours of the bank.

(e). Cheques should be presented for payment within a reasonable time. They should be

presented within six months of their issue. Usually, cheques presented after six months of

their issue are considered stale.

CONDITIONS FOR DISHONOUR OF A CHEQUE BY A PAYING BANKER

(i) Open or crossed cheques: When a cheque is presented for payment, the banker

should verify as to whether it is an open cheque or a crossed one and whether the

cheque is in printed from. There is no provision in the Banking Regulation Act

preventing a customer from drawing his own cheque.

(ii) Drawn on the specific branch: Cheques should be drawn on the particular branch at

which they are presented. If they are presented at a different branch were an account

is not maintained by a customer, the banker should refuse payment, because he/she

has no means of knowing the state of the customers account and cannot verify the

genuineness of the customers signature.

(iii) Mutilated cheque: The banker should also verify whether a cheque is mutilated, torn or

cancelled. If it is torn in such a way as to give an impression that the customer had

desired its cancellation, the banker should return the cheque with the remark,

Mutilated Cheque. When a cheque is torn accidentally, the banker can pass it for

payment after obtaining the drawers confirmation on the cheque.

(iv) Date of the cheque: A cheque must also ways bear a date because the mandate of the

customers to the banker given in the form of cheque becomes legally valid on the date

mentioned therein. If no date is written and still presented for payment, the banker

must refuse payment.

(v) Words and figures differ: When the amount stated in words and figures differs in a

cheque, the banker follows the practice of returning the cheque with a remark to that

effect.

(vi) Material alteration: Changing the date, amount, name of the payee, removal of

crossing, etc., affect the credibility of the instrument. The banker should refuse

payment of a materially altered cheque unless it is confirmed by the drawer.

(vii) Proper endorsement: It should be ensured whether the cheque presented for

payment requires endorsement or not and if so, whether the endorsement made

thereon is regular or not.

(viii) Chronological order of payment : The banker generally follows the rule of making

payment of the cheques in the chronological order of their receipt. It means that the

cheque received first on an account will be paid first and the rule for making payment is

not based on the serial member of the cheque or the date of its issue.

(ix) Garnishee order: The banker should not honour a cheque received by him after the

issue of the Garnishee order by the court authorities.

Section 31 of the Negotiable Instruments Act, 1881 provides that The drawee of a cheque

having sufficient funds of the drawer in his hands, properly applicable to the payment of

such cheques must pay the cheque when duly required to do so, and in default of such

payment, must compensate the drawer for any loss or damage caused by such

default.

CONSEQUENCES OF WRONGFUL DISHONOR OF CUSTOMERS CHEQUE

(i) Gibbons vs. Westminster Bank A Housewife issued a cheque to a departmental store

for purchases made by her. When the cheque was presented by the departmental

store, the banker negligently dishonored the cheque. When the account holder sued

the bank, it was held that the bank must pay the cheque, dishonored negligently.

(ii) Davidson vs. Barclays Bank: Davidson is a book maker and he issued a cheque for

15sh-10d to a client as part of dividend. When the cheque was presented by the client,

the banker, negligently dishonored it. Davidson sued the bank for negligence. The

court observed that the bank by dishonoring the cheque with a paltry sum of {}{}{15sh-

10d has brought damage toe the reputation of the businessman. The smaller the

amount of the cheque dishonored.

I.V.RAJAGOPAL VS. CANARA BANK

In this case, Raja opal was employed as a liaison officer by a group of companies

at Delhi. He gave a cheque for Rest. 294.40 towards telephone charges to the telephone

department. When the cheque was presented to Canada Bank, it was dishonored

negligently. Consequently, the telephone line was disconnected for non-payment and the

employers of I.V Raja opal dismissed him from service, taking it as his negligence.

GROUNDS FOR REFUSING PAYMENT OF A CUSTOMERS CHEQUE

Dishonoring a cheque is different from refusing payment on a cheque. Dishonour

takes place when there is defect in the instrument or when there are insufficient funds in

the accounts. Refusing payment of a cheque takes place on the happening of certain

events. We can see the grounds under which a bank refuses payment.

(1) Countermanding of payment: When a customer after having issued the cheque to third

party, instructs the banker to stop payment on the cheque before the instrument is

presented, it is called countermanding of payment. It is the responsibility o f the

customer to infor