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PRACTICE & LAW OF BANKING

Negotiable Instrument Act 1881

This Act defines and amends laws relating to Negotiable

Instrument.

Followings are negotiable instruments:-

Promissory Notes.

Bills of Exchange.

Cheques.

Followings are Quasi Negotiable Instruments:-

Railway Receipt (R.R)

Truck Receipt (T.R)

Post Parcel Receipt (PPR)

Bill Of Lading (B.L)

Airway Bill/Air Consignment Note (AWB/ACN)

On first instance the three instruments are real negotiableinstruments and these are subject to the negotiability of Money

only, where as under the second instance (Quasi) the negotiabilityis of Goods or Merchandise.

PROMISSORY NOTE

Section 4 of Negotiable Instrument Act 1881 defines PromissoryNote as Promissory Note is an instrument in writing, (not beingCurrency Notes or Bank Notes) containing an unconditionalundertaking signed by the maker, to pay on demand or at a fixedor determinable future time, a certain sum of money; only to or tothe order of a certain person or the bearer of instrument

ESSENTIALS OF PROMISSORY NOTE

It must be in writing.

It must be signed by the maker.

It must contain an undertaking to pay money only.

The sum payable must be certain.

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The payable amount if includes interest or mark-up withcertain amount mentioned can be considered as certainamount.

The sum of money must be payable to or to the order ofcertain person (In our forthcoming session we mustdiscuss this bold line in future)

The sum of money can be paid on demand or at a fixed or

determinable future period.

A promissory note payable on demand is known as Demand P/N,and that payable in future is known as Usance P/N.

Another thing is that undertaking can be given by individual,jointly or Joint and Several Liability.

A single person can sign P/N, two or more person jointly can sign,

and if two or more person

SPECIMENS

Promissory Note Payable on Demand

Rs. 50,000/- LahoreNovember 05, 2007

On Demand I promise to pay to Mr. Saeed Ahmed or the order the

sum of Rupees Fifty Thousand only.

(Signature of SohrabSheikh)

(Whether word on demand is written or not, but if future time isnot written, it can be considered as demand P/N. If written as Ipromise to pay Mr. Saeed Ahmed or the order the sum of Rs. Fifty

Thousand only)

Promissory Note Payable after Date

Rs. 50,000/- LahoreNovember 05, 2007

STAMP

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One month after date I promise to pay to Mr. Saeed Ahmed or theorder the sum of Rupees Fifty Thousand only.

(Signature of SohrabSheikh)

Which of the followings are narrations of a qualified PromissoryNote?

I promise to pay Mr. Saeed Ahmed or order a sum of Rs.

50,000/-

On demand I promise to pay eldest son of Mr. Saeed Ahmed

Rs. 50,000/-

On demand I promise to pay Mr. Saeed Ahmed Rs. 50,000/-

I acknowledge myself indebted to Mr. Saeed Ahmed for Rs.

50,000/- to be paid on demand.

I promise to pay Mr. Saeed Ahmed Rs. 50,000/- or any

amount payable till next three months.

I promise to pay Mr. Saeed Ahmed Rs.50, 000/- on demand

after deducting my commission.

I promise to pay Mr. Saeed Ahmed Rs. 50 million if he

marries his daughter with me.

I promise to pay Mr. Saeed Ahmed if Pakistan wins ODI

match on November 08, 2007.

Promissory Note can be written on plain paper and by affixingRevenue Stamp or it can be written on a Stamped Paper (Printed).

There are two parties in a Promissory Note.

MakerA person who promises to pay and signs it is called Maker

STAMP

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PayeeA person to whom promise is made is called Payee.

While concluding it is stated that for every matter where there isneed of assurance for any monetary transaction or dealinginvolving monetary transaction; the basic or primary document

which can be referred as evidence or proof, and which could beprovided to the court of law for the legal recourse is PromissoryNote.

For having better position it is advisable that at least twowitnesses may be taken for favourable decision.

Bills Of Exchange

Section 5 of Negotiable Instrument Act 1881, defines, a Bill of Exchange as an

instrument writing, containing an unconditional order, signed by the maker,

directing a certain person, to pay on demand or at a fixed or determinable future

time, a certain sum of money only to or to the order of certain person or to the

bearer of the instrument.

Essentials of Bills of Exchange

It must be in writing.

It must be signed by a person. It must contain unconditional Instructions or order.

The Instructions must be to pay money only.

The person, to whom instructions are being given, should be instructed to

pay on demand, or future fixed or determinable time.

The amount should be payable to or to the order of certain person or bearer

of instrument.

Demand bill of exchange. A bill of exchange which when presented to drawee

must be paid or refused. When paid, we call that bill has been honoured, and whenthere is refusal we call that the bill has been dishonoured. A bill of exchange that

must be honoured or dishonoured at its presentation immediately and instantly is

known as demand bill of exchange. It is also known as Sight bill of exchange as it

must be paid or refused at its first sight, and any delay is considered as not

honoured or refused.

While drawing such bill; the maker may write as: -

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On demand Pay Mr. Saeed Ahmed or order Rs. 50,000/-

Or

Pay Mr. Saeed Ahmed or order Rs. 50,000/-

This shows that whether word demand is written or not, if no future fixed or

determinable date is given, it is considered as demand bill of exchange.

Usance bill of exchange. A bill of exchange which is to be paid at future fixed ordeterminable time is known as usance bill of exchange.

Such bill of exchange is drawn as: -

90 days after the date pay Mr. Saeed Ahmed or order Rs. 50,000/-

06 months after the date pay Mr. Saeed Ahmed or order Rs. 50,000/-

02 years after the date pay Mr. Saeed Ahmed or order Rs. 50,000/-

The date on which a usance bill of exchange becomes payable after counting the

given days, months or years is known as date of maturity or due date.

FOR EVERY USANCE BILL OF EXCHANGE THE MOST IMPORTANT THING

IS THAT THIS BILL OF EXCHANGE MUST BE PRESENTED FIRST TO THE

DRAWEE FOR HIS ACCEPTANCE, BEFORE IT IS PRESENTED FORPAYMENT ON MATURITY. IF THE ACCEPTANCE HAS NOT BEEN TAKEN BY

THE DRAWEE AND HE REFUSES TO PAY ON MATURITY, IT COULD NOT BE

CONSIDERED AS DISHONOUR, AND HE WOULD NOT BE LIABLE FORSUCH DISHONOUR.

SO USANCE BILL IS PRESENTED TO DRAWEE TWICE; FIRST FORACCEPTANCE AND THEN FOR PAYMENT ON MATURITY.

ANOTHER THING TO BE NOTED IS THAT IF THE DRAWER OF USANCE

BILL REFUSES TO ACCEPT BILL THEN IT WOULD NOT BE PRESENTED

FOR PAYMENT ON DUE DATE OR MATURITY AS HE HAS ALREADYREFUSED TO ACCEPT TO PAY THEN WHY WOULD HE PAY ON DUE DATE.

In above stated situation dishonour of bill would be of two types:-

1. Dishonour for acceptance; it is the situation of dishonour when drawee

refuses to give acceptance to pay on maturity or due date.

2. Dishonour for payment; it is situation when drawee had already accepted

the bill or gave his acceptance to pay, but on due date refuses to pay it.

Again being repeated a bill not accepted or not presented for acceptance; if not

paid or honoured on due date would not be considered as Dishonour for Payment

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Parties to a bill of exchange

According to section 7 of NIA, there are three parties to a bill of exchange. Those

are:-

Drawer, a person who signs at the face of the instrument and who gives

instructions is known as Drawer.

Drawee, a person to whom instructions are given is known as Drawee.

Payee, a person to whom or to whose order sum of money is to be paid is known

as Payee.How bill of exchange is being dealt in local and International Trading?

For secure and safe local and International trading; where both sellers and buyers

are settled far flung from each other and both seller and buyer are reluctant to have

any risk. Buyer would like to have goods first and seller the money and both are

not ready to depart from their assets.

Then comes any intermediary, usually the bank and acts agent of seller. Seller

sends goods not to buyer but his banker and advises the banker to deliver the goods

to seller: -

In case of Cash Trading (non-credit) after getting money from the buyer, and in

case of credit deal after taking assurance of payment from buyer.

The document which authorizes the banker to get money from the buyer or to get

assurance from the seller isBill Of Exchange.

The seller would draw bill of exchange on buyer and would instruct him either to

pay money to the bank or give acceptance on the back of the bill that payment

would be made on future fixed or determinable period.

The Demand Bill of Exchange so drawn would be:-

DEMAND BILL OF EXCHANGE

Rs. 50,000/- November 07, 2007.

On demand pay United Bank limited or order sum of Rs. fifty thousand for

value received.

To: - (Signature)

Haji Noor Muhammad. Saleem Ahmed

281-Z, Gulberg-8, 898-Jodia Bazar.

Lahore. Karachi

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USANCE BILL OF EXCHANGE

Rs. 50,000/- November 07, 2007.

Two months after date pay United Bank limited or order sum of Rs. fifty

thousand for value received.

To: - (Signature)

Haji Noor Muhammad. Saleem Ahmed

281-Z, Gulberg-8, 898-Jodia Bazar.

Lahore. Karachi

In both the cases drawer is Saleem Ahmed (Seller), Drawee is Haji Noor

Muhammad (Buyer) and Payee is United Bank Limited (Agent) or order.

Under first bill of exchange Haji Noor Muhammad would make payment to UBL,

and UBL would write at the reverse of bill Payment Received and would deliver

documents title to goods to Haji Noor Muhammad, and later on remit the money to

Saleem Ahmed.

Under second bill of exchange Haji Noor Muhammad would write at the reverse of

bill of exchange Accepted to pay on_________ or simply Accepted ; bank would

deliver the documents title to goods to Haji Noor Muhammad and would keep this

bill of exchange till it paid. On maturity if it is paid, then again UBL would get thepayment, would write at the reverse of bill Payment Received and deliver it to

buyer, Haji Noor Muhammad. Later on the ,money will be remitted to seller,

Saleem Ahmed. In both the cases the transaction was accomplished through a

document known as Bill of Exchange.

Other related Parties: -

Acceptor

Acceptor for honour.

Drawee in case of need.

Other related Parties in a bill of exchange

Acceptor

Acceptor for honour.

Drawee in case of need.

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Acceptor Drawee of usance bill of exchange when accepts the bill his title is

changed from drawee to acceptor

Acceptor for honour In case the original drawee of a usance bill of exchange is

not in a position to accept it and obviously reason being that due to his financial

constraint or deficiency his cannot commit himself for the payment on due date

then for the sake of honour of this original drawee any body else if accepts it he

becomes acceptor for honour.

In this situation the real drawee becomes free from any responsibility and acceptor

for honour becomes fully liable for the payment of bill. In case acceptor for honour

does not fulfill his commitment then suit can be moved against acceptor for honour

and not real drawee.

Drawee in case of need. Sometime when any demand or usance bill of exchange

is drawn instead of one; another persons is also shown as drawee. The first one is

known as drawee and the other is known as drawee in case of need.

Name of real Drawee comes first and before the name of next person words

Drawee in case of need must be written. The bill must be present to the real or

first drawee, and if he refuses to pay or accept only then it is presented to drawee

in case of need.

Under this situation the primary responsibility is of first drawee, and if both of

them refuse to pay or accept the bill then suit could be filed against first drawee

and not against drawee in case of need. But once the drawee in case of need gives

his acceptance then first drawee becomes free from any liability, and if suit needsto be filed it would be against Drawee in case of need and not drawee. Again

repeat that first drawee is primarily responsible in case of non payment by both,

but when drawee in case of need gives his consent then he becomes liable and

makes the first drawee free from any liability.

SPECIMEN OF DRAWEE IN CASE OF NEED BILL OF EXCHANGE

Rs. 50,000/- November 07, 2007.

On demand pay United Bank limited or order sum of Rs. fifty thousand for

value received.

To: -

Haji Noor Muhammad.

281-Z, Gulberg-8,

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Lahore.

Drawee in case of need:- (Signature)

Mr. Zahid Sheikh. Saleem Ahmed

888-F-Defence Phase 50 898-Jodia Bazar

Lahore Karachi

CHEQUE

Section 6 of Negotiable Instrument Act 1881 defines Cheque as Cheque is a bill

of exchange, drawn on a specified banker, not expressed to be payable otherwise

on demand.

In simple words; characteristically or formation wise, Cheque is similar to a bill of

exchange with a difference that it can only be drawn on a banker only, and is

always payable on demand.

No doubt bill of exchange and Cheque are similar in formation, but with vast

difference as far as the drawee and its mode of payment is concerned. Bill of

exchange can be drawn on an individual, firm or corporate body, but Cheque will

be drawn on banker only. As far as mode of payment is concerned, a bill of

exchange can be drawn as demand and usance, but Cheque will always be drawn

as demand only.

No one has seen any Cheque where the account holder (drawer) has written anyCheque with instruction to pay after so many days or months. It is always assumed

that either it will always be paid or dishonoured only and only when presented to

the banker.

In bill of exchange there are always three parties; drawer drawee and payee and all

would be different persons, whereas in a Cheque there can be three or two persons.

When account holders intends to make payment to other person than there are three

parties, but when he himself presents Cheque for payment, then there are two

parties as he himself becomes drawer and payee.

Essentials of Cheque

Almost same as of Bill of exchange, with the difference as stated above.

SPECIMEN OF A CHEQUE

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HAJVERI BANK LIMITED

Industrial Estate Branch. Cheque #

Lahore. Date_______

PAY____________________________________________ OR BEARER

RUPEES___________________________________________________

(AMOUNT IN FIGURE)

SIGNATURE

TYPES OF CHEQUES

Relating to the Payee point of view a Cheque can be brawn as:-

BEARER

ORDER

Bearer

A printed cheque book is provided by the banker to the customer and in addition to

other contents, there is a line where the instructions from the account holder

(drawer) regarding to whom payment is to be made is printed as:-

PAY_____________________________________________ OR BEARER

Under this instruction (remember one thing that a cheque contains instructions

from account holder to pay money to whom he desires and as desires) the account

holder desires that its payment to be made to a person; whose name will be written

on the blank line or any person who presents this cheque to the banker. So the

cheque would be drawn as: -

PAY Mr. Saeed Ahmed OR BEARER

When cheque is drawn in this shape, it is named asBEARER CHEQUE, which

means that the payment against this cheque is to be made to Mr. Saeed Ahmed or

any person who presents it. Further more the bank would not need to verify the

identification of Mr. Saeed Ahmed, if he himself presents it or even who so ever

presents it.

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ORDER CHEQUE

When drawer (Account Holder) cuts words Bearer and either he writes Order

or not, the cheque is supposed to be drawn as Order.

Under this situation the banker would make payment to the first Payee or

subsequent payee, only and only order verification that its payment must be

collected by the first payee himself, and if the first payee transfers the title (After

writing Pay to________or order) then the second or subsequent payeesverification is done.

Illustration

PAY Mr. Saeed Ahmed OR BEARER

PAY Mr. Saeed Ahmed OR BEARER Order

This is order cheque.

If Mr. Saeed Ahmed goes for payment, bank must verify that it is being presented

by Saeed himself, and also to verify identity. If Saeed transfers the title in favour of

Shahid, then he has to transfer it by writing the words Pay to the order of Shahid

or Pay Shahid or Order. So if Shahid goes to collect payment, banker would verify

the identity of Shahid.

How verification is done?

In both cases, who so ever present cheque, bank would ask him that some one

known to the bank, preferably account holder should verify his signature. That

person when verify the signature, it would mean that the verifying person confirms

that the signature is of the genuine payee. Later on officer of the bank would verify

signature of the person who verified the signature of presenter or payee.

All bankers cheques are drawn as Order and not bearer. Bankers very common

cheque is Demand Draft and Travelers Cheque. Theses cheques are printed in

order form just to secure the ownership of the Payee.

FORMS OF CHEQUE

Crossed Cheque.

Open Cheque.

Negotiable Instrument Act 1881 defines: - Two transverse parallel lines across the

instruments with or without words there in. Law is silent as where those lines can

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be drawn, but as per practice, in Pakistan, these lines are drawn on the upper left

corner. The reason is the If drawn on upper right corner, lower left or right corner

or completely across the instrument, it could destroy or interrupt the material parts

of instrument.

For the sake of knowledge, it is submitted that material parts are: - Date, Name of

Payee, Amount in words, Amount in figure and Signature of drawer.

As we already know that cheque contains instructions from drawer (Account

Holder) to drawee (Banker) to pay the cheque, so these two lines known as

crossing carries some additional instructions. These lines gives instructions to the

ban that the payment of this cheque should not be made on counter in shape of

cash, but its payment is to be made by crediting the account of payee or any other

person.

This payment in shape of crediting the account can be given within the same

branch of the bank, other branch of the bank, in other bank within the city, within

the country or outside country. What ever could be the situation but crossed

cheques payment will be done by crediting the account and not paying cash on the

counter.

(Students should know how lines were drawn and what was written between lines

when we had session in class. Those not attended must consult with other students)

Open Cheque

Cheque which is not crossed is known as open cheque. Its payment is notprohibited to be paid on counter. The payee may collect payment in the shape of

cash from counter or can get its credit in his account.Please remember on thing

that it not necessary that its payment must be made on counter only. It depends

upon payee what he desires.

TYPES OF CROSSING

Simple Crossing. When nothing is written between two lines or words & Co is

written, the crossing is known as simple crossing.

Significance of simple crossing. When cheque is crossed with simple crossing, the

purpose is that it cannot be paid on counter and can be credited in any person

account.

Bearer cheque with simple crossing can be credited in any persons account and no

words are to be written at the back of instrument if credited in the account of

person other than the payee.

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Order cheque with simple crossing can also be credited in any persons account,

but if not credited in the account of first payee, then its title must be transferred by

the first payee by writing the words Pay ________ or order When the title is

once transferred it cannot be credited in the account of first payee, but MUST be

credited in the account of second or any subsequent Payee.

Restrictive Crossing. In between two lines, when words Payees Account Onlyor Payees A/C Only or Account Payee Only or A/C Payee Only are

written the cheque is known to have restrictive crossing.

Significance of Restrictive Crossing.

As it appears from name, the only and only purpose of this crossing is that it

prohibits or restricts transfer of title from first Payee to any next payee. When

cheque bears such crossing the instructions are that the cheque should not be paid

on counter, but in the account of first payee only. First payee cannot transfer its

title in favour of any else payee.

We must remember that we had known that bearer cheques payment can be

collected by any person, but once the cheque is crossed with restrictive crossing, it

must be credited in the account of payee only and bearerororderbecomes

meaningless and insignificant.

Special Crossing.In between two lines when name of bank and its branch nameare written, or only banks name is written, the crossing is termed as special

crossing. Before we discuss the purpose or significance of this crossing, let us haveknowledge of two basic terms related to this crossing and those are: -

Collecting Banker. When a customer deposits his cheque to his banker, which is

drawn on other branch of that bank within the city, out of city or country, or other

bank within the city, out of city or outside country, to collect its payment and credit

his account; the bank where such instrument is deposited is termed as collecting

banker. Collecting banker means it collects instrument from its customer to get

payment on his behalf against the instrument he deposited, and credit his account.

Bank after collecting that instrument sends it to the bank or branch, where it has

been drawn, gets payment from there and credits the account of his customer.

Paying Banker. When collecting bank collects an instrument, it sends it to the

bank on which the cheque is drawn, so that it may get payment from it. The bank

on which the instrument is drawn is known as paying banker. It is the bank that

has to make the payment against the cheque sent or lodged by the collectingbanker.

Now we can proceed to the purpose and significance of Special Crossing.

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The first purpose of such crossing is that as soon as such crossing stamp is affixed,

it establishes the ownership and possession of collecting banker. Any cheque that

bears special crossing shows that the ownership lies with the bank and branch

whose name is written between two lines. In case it is lost or stolen, no one else

can claim its payment, unless such crossing is cancelled.

The other and ultimate purpose is that it is direction from collecting banker to thepaying banker, not to make payment to other than the bank that has its special

crossing.

Who can cross a cheque? Who can cancel crossing and how crossing can be

cancelled?

Who can cross?

Cheque drawn by an Account Holder can be crossed by himself when written and

before to be delivered to payee.

If not drawn by the account holder it can be crossed by the payee or any

subsequent payee or holder of cheque.

Suppose Imran Khan has drawn a cheque and has written as:-

Pay to Saeed Ahmed or bearer

Here Imran Khan before delivers it to Saeed Ahmed can cross himself; in this caseit may be considered as crossed by the drawer or account holder.

If Imran does not cross it and delivers it to Saeed Ahmed and Saeed Ahmed for his

own protection put these two lines himself then we may say that it has been

crossed by the payee.

If Saeed Ahmed himself does not want to cash the cheque, but delivers it to Sohail

uncrossed and Sohail puts crossing then the crossing is done by the subsequent

payee or holder of cheque.

All above crossings those can be done by account holder, payee, subsequent payee

or holder; those would be simple crossing or restrictive crossing.

Concluding, we can say that Simple crossing can be done by the drawer (Account

holder), first payee and subsequent payee or holder.

Special Crossing can be done only and only by a banker and the banker would be

collecting banker. (For the students not aware of collecting banker must refer

previous notes)

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Who can cancel simple and restrictive crossing.

Simple and restrictive crossing, no doubt can be drawn by any one, but for

cancellation, it must be cancelled by the drawer only. The drawer would cancel it

on the face of the cheque and would put his full signature. If drawer has not

crossed it, even then the cancellation must be done by him.

Who can cancel special crossing? And how?

Since special crossing is drawn by collecting banker, its cancellation can also be

done by the collecting banker. Collecting banker needs to cancel crossing only andonly when cheque is returned unpaid from the paying banker and it has to be

returned to the account holder, who deposited the cheque. Sometime account

holder may request the collecting banker to return him the cheque before it is sent

to the paying banker.

Under every situation collecting banker should cancel the crossing before it is

delivered to the account holder.

Unlike simple and restrictive crossing, special crossing is cancelled in a way that

the crossing remains on the face of the instrument (cheque), bit at the back of the

cheque banker would affix a stamp Our all stamps stand cancelled or Our

Crossing stands cancelled below this writing officer of the bank would put his

signature to authenticate the cancellation.

NON-INTEREST BANKING.

Before Non-interest banking in Pakistan, our banking system as it is prevailing in

other countries was based on Interest. Interest was paid to the depositor andinterest was charged or taken from the borrower.

Banks funds are collected from the depositor and bank later on lends it to the

borrower. Bank has to pay to the depositor for keeping his money, and has to

charge or collect from the borrower for using the money. As stated above before

non-interest based system of banking what we would pay to the depositor used to

be interest and what we used to collect from the borrower was interest.

Since interest is against Islamic system; so a system was developed that bank had

not to pay interest to the depositor and not to charge interest from the borrower.

Now, what we pay to depositor is Profit, and what we charge from the

borrower is Mark-up or Mark-down.

In Pakistan, every bank; either incorporated in Pakistan or outside Pakistan

(Foreign Based Banks) they are maintaining accounts of depositors on Profit and

Loss Sharing Basis. No doubt the rate of profit is pre-determined, but the condition

stands that these funds are being kept on the basis of Profit and Loss sharing.

If the banks would earn profit, it would be shared with the depositor, and in case of

loss too, it would be shared by the depositor.

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But fact is that no bank has ever shown such loss and never shared any loss with

the depositors, reason being if it ever happens; it would be the last day of the

bank.

Recent history shows that after the introduction of Profit and Loss sharing banking,

there has been tremendous decline in the rate of return that was being paid to the

depositor.

An account where public used to deposit there small savings, known as Saving

Bank Account, and now named as PLS. S. B. Account (Profit and Loss SharingSaving Bank Account) has shown drastic decline in the rate of return. Before PLS,

it used to be 7.5% to 10%, at that time the word interest was used. But now in the

same type of account the rate ranges from 0.75% to 2%, and interest is not paid but

Profit

Other type of account which is mostly meant for commerce class, for business

purpose, the account is called current account and principally no profit id paid in

that type of account.

With operation point of view, banks are maintaining two types of accounts.

Multiple operational accounts.

Single Transaction accounts.

Saving bank accounts and current accounts are multi transactional accounts.

Cheque book is provided to the account holder, and account holder can deposit and

withdraw in that account with unlimited number of times, and there would br no

restriction. All such transaction would be done in that single account right from the

day it was opened till it is closed. Account holder can deposit money even more

than 100 times in a day and can withdraw through 1000 or more times through

cheques in a single day. Cash and cheques both can be deposited in that account.

So these accounts are multi transactional accounts.

Notice Deposit Accounts, Term Deposit Account, Fixed deposit accounts are

single transactional accounts. Cheque book is not provided, but certificate or

receipt is issued for every deposit, and when withdrawal is done the account is to

be closed. For every deposit separate account is to be opened and for every

withdrawal account is to be closed. These accounts are single transactional

accounts.

Notice deposit accounts are those accounts, where depositor deposit money with

the condition that before withdrawing the funds, prior notice must be given to them

bank as when those funds are to be withdrawn.

One is called 7 days notice deposit account and other is 30 days notice deposit

account. For 7 days notice deposit account, bank must be informed in writing 7

days prior to withdrawal, and for 30 days notice deposit account, bank is to be

informed 30 days before. Rate of profit is higher for 30 days deposit account than 7

days notice account.

For 7 days notice account, funds must remain more than 7 days with the bank;

otherwise no profit would be paid. For 30 days notice deposit funds must remain

more than 30 days; otherwise funds would be returned without profit.

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Other single operational accounts are term deposit or fixed deposit accounts, where

notice is not required before withdrawal, but it is pre-determined that the funds

would be kept for a certain term i.e. 03 months, 06 months, 01 year, 05 years 10

years etc.

Rate of profit for term deposit is more than notice deposit, also more is the period

higher would be the rate of profit. Rate of profit for 03 months be least, and rate of

profit for 10 years would be the highest. (For students those would study the

money market in future, I must state that is phenomena depends nature ofmoney market that prevails. It is the present condition of Pakistan, but may

be in other countries where money market behaves in different way, the rate

of return would be higher for lesser period and less for the maximum period)

ANSWER TO A CHEQUE

When a cheque is presented to the banker, it has got only two options; either to pay

it or to return it and both options are available instantly. It means the payment

cannot be delayed if not paid. When cheque is not paid from the banker the term

used is dishonour of cheque or return of cheque.

But when cheque is to be dishonoured or returned unpaid, the banker must give the

reason in writing and the reason is to be authenticated by the officer of the branch

from where the cheque is being returned.

We must also know that for a banker; two blunders are never forgiven and are

subject to be sued by the account holder and those two events are:-

Not keeping secrecy of account holder. Wrongful dishonour of cheque.

Wrongful dishonour means that cheque was supposed to be paid but was

dishonoured, and if account holder sues the bank for damages, and if it is proved

then banker would be in hot waters and has to pay the damages; what so ever

claimed by the account holder. The amount claimed is not necessarily to be

matched with the amount of cheque returned wrongfully. Even a customer may sue

for damages in million if his cheque is returned having figure in thousands. Only

the account holder knows how much damage has been done to his reputation or

business for a cheque wrongly returned.

So much care is to be taken before returning and also giving proper reason for the

return.

The reason to be given while returning a cheque is now named as Answer to a

Cheque.

The reason could be any and please note that for return of cheque it is not

necessary that funds are not available in the account, but there could be numerous

other reasons. But the reason should be genuine and true.

Some of the reasons are: -

8/6/2019 Lpb Cheque

18/18

Refer to Drawer. (Now not in practice in Pakistan)

Insufficient Balance.

Not arranged for.

Exceeds arrangements.

Effects not clear, may be presented again after 02 days or after ____ date.

Cheque not properly drawn.

Cheque is mutilated.

Cheque is post dated.

Cheque is stale dated.

Cheque is anti-dated.

Cutting requires drawers authentication.

Cheque is crossed.

Cheque crossed to two banks.

Collecting bankers crossing required.

Not drawn on us.

Account deceased. Account attached.

Account frozen.

Cheque contains extraneous matter.

Drawers signature differs.

Drawer Signature required.

Payment stopped by the drawer.

(TO EXPLAIN THEM IN DETAIL IS ASSIGNMENT FOR ALLSTUDENTS)