Foreign Exchange Definition:

Question : 01 :: What is the meaning of Advising Bank ?

Ans: Advising Bank means the bank that advises the credit at the request of the issuing bank.

Question : 02 :: What is the meaning of Applicant ?

Ans: Applicant means the party on whose request the credit is issued. ‘Applicant’ may or may not be a ‘customer’of the issuing bank. But ‘Applicant’ is not a party in the DC although named as a ‘party’ in the article-2 of UCPDC 600.

Question : 03 :: What is the meaning of Banking day ?

Ans: Banking day means a day on which a bank is regularly open at the place.

Question : 04 :: What is the meaning of Beneficiary?

Ans: Beneficiary means the party in whose favour a credit is issued.

Question : 05 :: What is the meaning of Complying presentation?

Ans: Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.

Question : 06 :: What is the meaning of ISBP?

Ans: The fact that ICC has a publication named ISBP, it does not mean that the ‘international standard banking practice’ as termed in the article refers only to the contents of that publication but also includes the international banking practices that are in place or may become in place within the scope of its application.

Question : 07 :: What is the meaning of Confirmation?

Ans: Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honour or negotiate a complying presentation.

Question : 08 :: What is the meaning of confirming bank ?

Ans: Confirming bank means the bank that adds its confirmation to a credit upon the issuing bank’s authorization or request.

Confirming bank must either honour or negotiate a complying presentation

Confirming bank adds its confirmation only at the request/authorization of the issuing bank.

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Question : 09 :: What is the meaning of credit?

Ans: Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.

Question : 10 :: What is the meaning of Honour?

Ans: Honour means:

a. to pay at sight if the credit is available by sight payment.

b. to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment.

c. to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity if the credit is available by acceptance.

Question : 11 :: What is the meaning of Issuing bank?

Ans: Issuing bank means the bank that issues a credit at the request of an applicant or on its own behalf.

Question : 12 :: What is the meaning of Negotiation?

Ans: Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.

Question : 13 :: What is the meaning of Nominated bank?

Ans: Nominated bank means the bank with which the credit is available or any bank in the case of a credit available with any bank.

Please note that UCP 600 does not provide any guidance with regard to the scope of recourse that may be available and a nominated bank would be well advised to document the basis under which recourse will occur and make this available to the beneficiary.

Question : 14 :: What is the meaning of Presentation?

Ans: Presentation means either the delivery of documents under a credit to the issuing bank or nominated bank or the documents so delivered.

Question : 15 :: What is the meaning of Presenter?

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Ans: Presenter means a beneficiary, bank or other party that makes a presentation.

Question : 16 :: What is the articles of 5 of UCPDC 600?

Ans: Banks deal with documents and not with goods, services or performance to which the documents may relate.

Question : 17 :: What do you mean “An applicant’s undertaking or counter-indemnity “?

Ans: An applicant’s undertaking or counter-indemnity to an issuing bank should usually indicate that the applicant:

1.undertakes to accept the documents, when presented, irrespective of any discrepancies;2. indemnifies the bank against all actions, proceedings, damages or costs in relation to the issue of the release or order;3. undertakes that, should the goods released form part of a larger consignment, it will accept such larger consignment and pay the full value thereof; and 4. gives the issuing bank irrevocable authority to debit its account or an undertaking that it will transfer funds to the issuing bank on first demand (where no account is held with the issuing bank).

Question : 18 :: What do you mean “Reimbursing bank “?

Ans: "Reimbursing bank" means the bank instructed or authorized to provide reimbursement pursuant to a reimbursement authorization issued by the issuing bank.

Question : 19 :: What do you mean “Reimbursement authorization “?

Ans: "Reimbursement authorization" means an instruction or authorization, independent of the credit, issued by an issuing bank to a reimbursing bank to reimburse a claiming bank or, if so requested by the issuing bank, to accept and pay a time draft drawn on the reimbursing bank.

Question : 20 :: What do you mean “Reimbursement Amendment “?

Ans: "Reimbursement Amendment" means an advice from the issuing bank to a reimbursing bank stating changes to a reimbursement authorization.

Question : 21 :: What do you mean “Claiming Bank “?

Ans: "Claiming Bank" means a bank that honours or negotiates a credit and presents a reimbursement claim to the reimbursing bank. "Claiming Bank" includes a bank authorized to present a reimbursement claim to the reimbursing bank on behalf of the bank that honours or negotiates.

Question : 22 :: What do you mean “Reimbursement Claim “?

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Ans: "Reimbursement Claim" means a request for reimbursement from the claiming bank to the reimbursing bank.

Question : 23 :: What do you mean “Reimbursement undertaking “?

Ans: "Reimbursement undertaking" means a separate irrevocable undertaking of the reimbursing bank, issued upon the authorization or request of the issuing bank, to the claiming bank named in the reimbursement authorization, to honour that bank's reimbursement claim, provided the terms and conditions of the reimbursement undertaking have been complied with.

Question : 24 :: What do you mean “Reimbursement undertaking amendment “?

Ans: "Reimbursement undertaking amendment" means an advice from the reimbursing bank to the claiming bank named in the reimbursement authorization stating changes to a reimbursement undertaking.

Question : 25 :: What is the Responsibility of the Issuing bank ?

Ans: Responsibility of the Issuing bank: The issuing bank is responsible for providing the information required in these rules in both the reimbursement authorization and the credit, and is responsible for any consequences resulting from non-compliance with this provision.

Question : 26 :: What is the Expiry of a Reimbursement Authorization?

Ans: Expiry of a Reimbursement Authorization: Except to the extent expressly agreed to by the reimbursing bank, the reimbursement authorization should not be subject to an expiry date or latest date for presentation of a claim, except as indicated in Article 9.A reimbursing bank will assume no responsibility for the expiry date of a credit and, if such date is provided in the reimbursement authorization, it will be disregarded.The issuing bank must cancel its reimbursement authorization for any unutilized portion of the credit to which it refers, informing the reimbursing bank without delay.

Question : 27 :: What do you know about Amendment or Cancellation of Reimbursement Authorization ?

Ans: Amendment or Cancellation of Reimbursement AuthorizationExcept where the issuing bank has authorized or requested the reimbursing bank to issue a reimbursement undertaking as provided in Article 9 and the reimbursing bank has issued a reimbursement undertaking:a. the issuing bank may issue a reimbursement amendment or cancel a reimbursement authorization at any time upon sending notice to that effect to the reimbursing bank.b. the Issuing bank must send notice of any amendment to a reimbursement authorization that has an effect on the reimbursement instructions contained in the credit to the nominated bank or,

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in the case of a a credit available with any bank, the advising bank. In case of cancellation of the reimbursement authorization prior to expiry of the credit, the issuing bank must provide the nominated bank or the advising bank with new reimbursement instructions.c. The issuing bank must reimburse the reimbursing bank for any reimbursement claims honoured or draft accepted by the reimbursing bank prior to the receipt by it of a notice of cancellation or reimbursement amendment.

Question : 28 :: What do you know about Application of URR?

Ans: Application of URRThe Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits ("rules"), ICC Publication No. 725, shall apply to any bank-to-bank reimbursement when the text of the reimbursement authorization expressly indicates that it is subject to these rules. They are binding on all parties thereto, unless expressly modified or excluded by the reimbursement authorization. The issuing bank is responsible for indicating in the documentary credit ("credit") that reimbursement is subject to these rules.

In a bank-to-bank reimbursement subject to these rules, the reimbursing bank acts on the instructions and under the authority of the issuing bank.

These rules are not intended to override or change the provisions of the Uniform Customs and Practice for Documentary Credits.

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Exchange Rate to different Foreign Exchange Transactions

Question : 1 :: What do you mean by Foreign Exchange Market “?

Ans: The foreign exchange market is the market in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors.

Question : 2 :: What is Exchange Rate?

Ans: Exchange Rate: The price of a nation’s currency in terms of another currency. An exchange rate thus has two components, the domestic currency and a foreign currency.

Factors that influence exchange rate include:

(1) interest rates, (2) inflation rate, (3) trade balance, (4) political stability, (5) internal harmony, (6) highdegree of transparency in the conduct of leaders and administrators, (7) general state of economy, and (8) quality of governance.

Question : 3 :: What is Exchange Rate Quotation?

Ans: Exchange Rate Quotation:

Exchange Rate can be quoted either directly or indirectly.

Direct quotation: the price of a unit of foreign currency is expressed in terms of the domestic currency. In other words, it involves a quote in fixed units of foreign currency against variable amounts of the domestic currency.

A direct quote of the BDT against the U.S dollar in Bangladesh will be US $ 1.00= BDT 78.90

Indirect quotation:the price of a unit of domestic currency is expressed in terms of the foreign currency. In other words, the domestic currency is the base currency in an indirect quote, while the foreign currency is the counter currency. An indirect quote is the opposite or reciprocal of a direct quote.

An Indirect quote of the BDT against the U.S dollar in Bangladesh will be BDT100.00= US $ 1.27

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The foreign exchange quotation will also be determined by the date of delivery i,e the date on which the transaction is completed. The delivery under a foreign exchange contract can be made in one of the following ways:

Ready or Cash : Delivery on the same day i, e on the deal date.

TOM : Delivery made on the next working day after deal date.

SPOT : Delivery on the second working day after deal date.

Forward : Delivery subsequent to SPOT date.

Question : 4 :: What are the main Types of Foreign Exchange Rates systems?

Ans: Main Types of Foreign Exchange Rates systems:

Fixed Exchange Rate System (or Pegged Exchange Rate System). Flexible Exchange Rate System (or Floating Exchange Rate System). Managed Floating Rate System.

Fixed Exchange Rate System:

Fixed exchange rate system refers to a system in which exchange rate for a currency is fixed by the government. The basic purpose of adopting this system is to ensure stability in foreign trade and capital movements. Under this system, each country keeps value of its currency fixed in terms of some ‘External Standard’.

Flexible Exchange Rate System:

Flexible exchange rate system refers to a system in which exchange rate is determined by forces of demand and supply of different currencies in the foreign exchange market.The value of currency is allowed to fluctuate freely according to changes in demand and supply of foreign exchange. There is no official (Government) intervention in the foreign exchange market.

Managed Floating Rate System:

It refers to a system in which foreign exchange rate is determined by market forces and central bank influences the exchange rate through intervention in the foreign exchange market.It is a hybrid of a fixed exchange rate and a flexible exchange rate system.

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Question : 5 :: What types of Exchange Rate?

Ans:

Types of Exchange Rates:

Question : 6 :: What do you mean selling and buying rates?

Ans:

Selling and Buying Rates:

A foreign exchange transaction is either a sale or purchase transaction. That means a transaction could be either a sale transaction in which case conversion of domestic currency into foreign currency takes place or a purchase transaction in which case conversion of foreign currency into domestic currency takes place. The bank would, therefore quote two different rates of exchange (i) Selling rate i.e., a rate of exchange at which it would put through a sales transaction, and (ii) Buying rate i.e., a rate of exchange at which it would put through a purchase transaction.

Selling Rates:

Sales transactions are classified into two groups, (a) Clean sales, i.e. issue of T.Ts, M.T. drafts, letter of credit, traveler cheques, etc and (b) Sales arising out of import bills. There are, therefore two types of selling rates:-

(i) Clean sales i.e. sales arising out of import bills, e.g., sales resulting from foreign outward remittance. The exchange rate quoted in this group is known as T.T & O.D. selling rate.

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Exchange Rate Spot Selling RateTT & ODBCSpot Buying RateTT CleanTT DocOD SightOD Transfer

(ii) B.C sales i.e. sales arising out of import bills.

Buying Rates:

The buying rates are generally divided into four groups. These are:- (i) T.T. Clean buying rate.(ii) T.T.Doc buying rate.(iii) O.D. Sight export bills buying rate.(iv) O.D. Transfer buying rate.

Application of Above Mentioned Rates:

Question : 7 :: What do you mean TT & OD rates?

Ans: TT & OD: TT selling rate is applicable to clean sales, it is to be used for all transactions which do not involve handling of documents by the bank and for which no special rate are prescribed. Such as for -Issue of draft, Mail transfer etc.

Question : 8 :: What do you mean B.C (Bills for Collection) Rate?

Ans: B.C (Bills for Collection) Rate: Sales arising out of import bills. It is to be used for transactions which involve handling of documents by the bank. B.C selling rate is applied for sale transactions against import documents, irrespective of whether the remittance is effected by TT, Draft or Bill of Exchange.

Question : 9 :: What do you mean Spot Selling Rate?

Ans: Spot Selling Rate:

1. TT & OD: TT selling rate is applicable to clean sales, it is to be used for all transactions which do not involve handling of documents by the bank and for which no special rate are prescribed. Such as for -Issue of draft, Mail transfer etc.

2. B.C (Bills for Collection) Rate: Sales arising out of import bills. It is to be used for transactions which involve handling of documents by the bank. B.C selling rate is applied for sale transactions against import documents, irrespective of whether the remittance is effected by TT, Draft or Bill of Exchange.

Question : 10 :: What do you mean TT Clean Rate?

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Ans: TT Clean Rate: Applicable to TTs (clean) in which the handling of documents is not involved. The TT (Clean) rate is the basic rate from which all the other buying rates are worked. This rate is applicable for purchase of TT or any other clean instrument i,e DD, MT against which fund has already been covered by the issuing bank.

Question : 11 :: What do you mean TT (Doc) Rate?

Ans: TT (Doc) Rate: Applicable to TTs (Doc) rate in which the handling of document is involved. Bank recovers handling charges on the transaction. It is a documentary transaction.

Question : 12 :: What do you mean OD Sight Rate?

Ans: OD Sight Rate: It is the TT (Clean) buying rate loaded with interest for the transit period. This Rate applies to transactions, such as purchase or negotiation of export bills, in which there is a time-lag between giving out of the value at one end and being compensated there from at the other end.

Question : 13 :: What do you mean OD Transfer Rate ?

Ans: OD Transfer Rate: OD buying rates are quoted for the transaction of purchase of personal cheque, PO, Draft, TC etc. In purchasing a draft of this nature, the bank makes the payment immediately, but is reimbursed at the foreign centre after some days where draft documents are paid by the drawee.

Question : 14 :: What do you mean Spot Buying Rate?

Ans: Spot Buying Rate:

1. TT Clean Rate: Applicable to TTs (clean) in which the handling of documents is not involved. The TT (Clean) rate is the basic rate from which all the other buying rates are worked. This rate is applicable for purchase of TT or any other clean instrument i,e DD, MT against which fund has already been covered by the issuing bank.

2. TT (Doc) Rate: Applicable to TTs (Doc) rate in which the handling of document is involved. Bank recovers handling charges on the transaction. It is a documentary transaction.

3. OD Sight Rate: It is the TT (Clean) buying rate loaded with interest for the transit period. This Rate applies to transactions, such as purchase or negotiation of export bills, in which there is a time-lag between giving out of the value at one end and being compensated there from at the other end.

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4. OD Transfer Rate: OD buying rates are quoted for the transaction of purchase of personal cheque, PO, Draft, TC etc. In purchasing a draft of this nature, the bank makes the payment immediately, but is reimbursed at the foreign centre after some days where draft documents are paid by the drawee.

Besides the above rate, there are others rate applicable in specific purpose:

Question : 15 :: What do you mean Cross Rate ?

Ans: Cross Rate: The exchange rate between two currencies that are not the official currencies of the country that the exchange was quoted in.

The cross rate is the exchange rate between currency A and currency C derived from actual exchange rate between currency A and currency B and between currency B and currency C.

Formula

A = A × BC B C

Question : 16 :: What do you mean Long rate?

Ans: Long rate: Long rate is used for purchase of usance bill. In our country, the transaction usually involved, purchase of Export bills payable 30,60,120 and 180 days after sight i,e in case of discounting the bills.

Question : 17 :: What do you mean Tel Quel (T.Q) Rate?

Ans: Tel Quel (T.Q) Rate: Long bills presenting for discounting of which a part of usance have already run and in this case premium discount is taken into account only for the remaining period of maturity of the bill I,e the rate quoted for the bill with broken period of usance are called Telquel rate. For example a 90 days bill is presented for discounting 50 days after acceptance.

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IMPORT

Question : 1 :: What is Import?

Ans: Import may be defined as bringing of visible item to the country from abroad through

letter of credit or the Authorization form (LCAF) paying foreign Currency to that of exporting

country.

Question : 2 :: What is the classification of Importers?

Ans: Classification of Importers:

1. Personal Importer (User): - They need no registration from CCI & E. For import up to

USD 5000/- needs no permission. For above USD 5000/- permission has to be taken from

CCI & E.

2. Commercial Importer: - Those who import the goods to sell-out the same to the market for

earning profit is called commercial importer.

3. Industrial Importer: - Those who Import the goods for their Industrial Consumption is

called Industrial Importer.

Question : 3 :: How to obtain IRC?

Ans: Requisites for obtaining Import Registration Certificate (IRC)

The CCI & E authority sometimes at the time of declaration of import policy or through public

notice invites applications from the persons or institutions that are interested to become importer.

These persons are given IRC if they fulfill the criteria as per announcement.

In response to the advertisement of the CCI & E, the interested persons/institutions submit

application to the CCI & E along-with the following papers.

1. Nationality Certificate

2. Certificates from the Chamber of Commerce & Industry/Registered Trade Association

3. Bank Solvency Certificate

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4. Trade License

5. Income tax paid certificate

6. Any other documents required by CCI & E

The applicants will submit the above noted papers through their nominated banks to CCI & E.

The CCI & E will again scrutinize the papers/documents. On being satisfied, IRC to Industrial

consumers/commercial Importers will be issued by CCI & E with their entitlement, half

yearly/Annually-mentioning item of commodities.

In consideration of annual Import limit importers have been divided into four categories.

Importer will pay the registration & renewal fee in accordance to the concerned category.

Pass Book: Bank will hold the Pass Book of the importer. They will import only the items

mentioned in the Pass Book of the industrial import. In case of Commercial import bank may

import the categories mentioned in the Pass Book or any item as per import policy.

Question : 3 :: How to Import?

Ans: An importer may import through letter of credit or the Authorization form (LCAF) paying

foreign Currency to that of exporting country.

Question : 4 :: What do you know about Letter of Credit & its Classification?

Ans: Letter of Credit & its Classification:

A Letter of Credit is a conditional undertaking of payment by the issuing bank to the beneficiary.

In consideration of source of payment there are mainly two types of L/C, Sight L/C and Usance

or deffered L/C. If a third bank adds their undertaking for payment in addition to the undertaking

of issuing bank then the L/C is called Add Confirmed L/C.

Types of L/Cs are:

1. Irrevocable

2. Revocable

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3. Confirmed

4. Transferable

5. Revolving

6. Restricted

7. Red Clause

8. Green Clause

9. With recourse

10. Without recourse

11. Back to Back

12. Divisible

Question : 5 :: How may parties are involved on Letter of Credit?

Ans: The following party’s are involved on Letter of Credit

1. Importer / Applicant / Buyer2. Exporter / Beneficiary / Supplier3. Issuing Bank / Opening Bank4. Advising Bank / Notifying Bank5. Negotiating Bank6. Reimbursement Bank7. Confirming Bank

Question : 6 :: What is required to submit by an Importer to open a Letter of Credit?

Ans: Application for Import:

A valid importer will submit the following paper/documents to his bank to open L/C.1. L/C Application form duly signed by the importer; with adhesive Stamp for Tk. 150/-2. Indent / proforma invoice3. Insurance cover note with money receipt4. LCAF duly filled in & Signed by the importer5. Membership Certificate from Chamber of Commerce/Trade Association6. TIN Certificate and up to date Tax payment declaration7. Charge documents, including Musharaka / Murabaha agreement8. IMP & TM form9. IRC10. VAT Certificate11. Export L/C in case of Back-to-Back L/C 12. Trade license13. Memorandum & Articles of Association14. Partnership Deed

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15. Resolution of the Board16. Photograph 17. Others, if any

Question : 7 :: How to authenticat /Registration Of LCAF:

Ans: When the importer submit LCAF (Letter of Credit Authorisation Form) with other papers to the bank to open L/C, Bank will Authenticate the LCAF, confirming the following:1. IRC is valid, renewal fee paid (if required)2. Item to be imported is eligible as per import policy/Pass Book.3. LCAF is duly filled in & signed by the importer.4. H.S. Code to be inserted into LCAF

Bank will endorse the value with particulars & equivalent Taka on the back of exchange control copy of LCAF.Procedure for Registration:

i) a) The LCAF set of 6 copies duly filled in and signed by the importer is to be submitted to the Bank with a forwarding letter. The branch, on receipt, will carefully scrutinize the same in details, verify the signature of the importer, and furnish the required particulars and information certifying the entitlement as per current Import policy under their seal and dated signature. The LCAF is entered into the relevant register and submitted to the Area Registration Unit of Bangladesh Bank directly under cover of a forwarding schedule in duplicate for registration.

b) The LCAFs are registered by the Bangladesh Bank Registration Unit subject to observance of usual bill. The officer-in-charge of the Bangladesh Bank Registration unit will give the Registration number on all the copies of LCAFs under his signature. Therefore, the same will be embossed with the security seal of the registration unit. No letter of credit will be opened unless an LCAF, which has been registered with the Bangladesh Bank, bears the impression of the security seal.

c) After registration the original and duplicate copies of the LCAFs will be delivered to the authorized representatives of the banks from whom the same were received by the Registration Unit. Triplicate and quadruplicate copies of the form will be passed on to the concerned licensing office. Quintuplicate copy of the form will be retained in the record of the Registration Unit of the Bangladesh Bank.

d) The customs copy is to be handed over by the branch to the importer, but Exchange Control copy is retained by the branch for further action at the time of opening L/C etc. the Exchange control copy of LCA form acts as the basis on which imports into Bangladesh is permitted, while the customs copy is required at the time of clearance of the goods from the customs on importation.

ii) a) In case of imports against barter/loan/aid etc. where registration of L.C. Authorisation forms will not be needed, the nominated bank of the importer will submit the form directly to the designated bank. The designated bank will countersign the form under their seal with date. The

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designated bank will retain the original and duplicate copies of the form and send triplicate and quadruplicate copies to the concerned licensing office and quintuplicate copy to the importer’s bank.

b) The authorized Dealer branches will not issue blank L.C. Authorisation Forms to their clients.

The LCA forms are required to be properly filled in and duly signed by the importer in presence of concerned official of the branch. The branch is required to keep proper records of the stocks and issuance of each set of LCA form. For this purpose the following registers are to be properly maintained:

i) LCA form Stock Registerii) LCA form Issuing Registeriii) LCA form Forwarding Register

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Cheque

Question : 1 :: What is Cheque?

Ans: In the Negotiable Instruments Act, 1881, the definition of ‘Cheque’ is given in Section – 4 of the same Act. In the light of Section – 4, the definition of cheque is as follows –

“A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand” (section 6). A cheque is a bill of exchange which is always (i) drawn on a banker specified their in, and (ii) payable on demand.

Actually a cheque is a written order of the account holder (drawer) to the concerned bank (drawee) to make payment of the amount mentioned therein

Question : 2 :: What is M.I.C.R. Cheque?

Ans: M.I.C.R. Cheque:

Magnetic Ink Character Recognition (M.I.C.R.) is a character recognition system that uses special ink and characters. When a document that contains this ink is to be read it is passed through a machine with a magnetic field that recognizes the characters. It is mostly used by banks to facilitate processing of cheques. The main purpose is to enhance security and avoid losses caused by fraudulent cheques or coloured photocopied cheques , because when a coloured photocopied cheques is scanned the magnetic field will not be able to read the ink.

With a view to speeding up the cheque clearing process, the Bangladesh Bank is working towards introducing mechanized cheque processing system using MICR(Magnetic Ink Character Recognition). Under this system, the cheques are processed at high speed on machines. Banks issue cheque draft and other payment instruments in MICR format using the special quality paper and printing specifications. On MICR instruments, there is code line at the bottom containing information printed in magnetic ink, which is required for mechanical processing.

Question : 2 :: What is the Obligation to honour the cheques?

Ans: Obligation to honour the cheques:

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By accepting deposits payable on demand or otherwise the Banker is under a statutory obligation to honour his customer’s cheques in the usual course. Saction 31 of the Negotiable Instruments Act, 1881.

Question : 3 :: What is the Procedure of issuance of cheque Book?

Ans: Procedure of issuance of cheque Book

Fresh checkbook is issued to the account holder only against requisition on the prescribed requisition slip attached with the checkbook issued earlier, after proper verification of the signature of the account holder personally or to his duly authorized representative against proper acknowledgment.

1.On receipt of the request / requisition from the accountholder to issue cheque book, the concerned officer entrusted with the task of issuing Cheque Book will first verify the signature of the Account holder given in the requisition Slip. If the Account holder’s signature is found correct, he will examine where there is adequate balance in the account & there is any shortfall of requisite Papers/ documents or shortfall required information or not.

2.Thereafter the detailed information of account such as account name, account number, Branch name, number of Book, number of leaf, etc is posted in the computer and then we transmit all these information to Head Office.

3. Within 4.00 pm each day the requisition related information is sent for printing MICR cheque to Head Office through mail.

4. The concerned Officer will also confirm over telephone whether the mail received and matched with delivery report by Head Office or not.

5. If the information is sent properly, then the printed copy of delivery report is to be maintained properly.

6. Persuasion to be continued to get the delivery of the printed cheque books within 3 (Three) days.

7. After receipt cheque books, the officer will count each and every leaf of the printed cheque books with the delivery report sent by Head Office.

8. Thereafter officer will ensure whether the customer’s name and account number is entered in the security register.

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9. The officer concerned then informs the client for collecting the cheque Book.

10. Before delivering the Cheque Book to the client / account holder, the concerned officer will write the new cheque series in the requisition slip, make posting in computer and preserve the requisition Slip properly.

11. Finally, the concerned officer makes an inventory of stock in the computer at the day end.

Question : 4 :: What is the Procedure of issuance of duplicate cheque Book?

Ans: Procedure of issuance of duplicate cheque Book

1) Primarily, the client shall inform the bank about the lost Cheque Book with a request to mark stop Payment against the lost leaves of the cheque Book . Then he will request for issuance duplicate cheque book.

2) Ensure GD entry from respective Police Station and submit the copy to the branch.3) The client will sign the new requisition Slip and the concerned officer mail with the

details of the client to Head Office to get the cheque book.4) After getting cheque Book the concerned officer will write the cheque series on the

requisition Slip, make posting in computer and preserve the same properly.

Question : 5 :: What is Custody and Maintenance of cheque book?

Ans: Custody and Maintenance Procedure Cheque book.

Custody means keeping under control. In a banking Institution, branch custody means taking care, supervision and control of the banking related important affairs by the In-charge officials of the branch, as assigned by the management & set rules of the bank and maintenance means utmost care, supervision and handling as per procedures.

1. Cheque books received from Central store Department/ Head Office generally by the authorized officer who will initial the cover of each book as token of having counted and checked.

2. Cheque book shall be kept in safe in the Strong Room under dual control after necessary entry in the Cheque Book Stock Register

3. A few cheque books duly verified for current consumption of the deposit section shall be taken out from the main stock after necessary entry by the Officer In- Charge deposit section against his acknowledgment.

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4. The first and last serial numbers of each book shall be entered in the cheque book issue register.

5. Separate folios in the cheque book issue register shall be allotted for Al-Wadeah Current A/C. Mudaraba Savings A/c. & Mudaraba Short Notice Deposit A/c.

6. Stocks of Cheque books are to be kept under lock and key in security box by the in- charge of deposit section.

7. The customer may at the time of opening of A/c shall sign a requisition slip requesting the manager to issue a cheque book of required denomination of the respective A/c. If formalities for opening of A/c are fully completed the cheque book may be issued.

8. All subsequent cheque books shall be issued against the cheque requisition slip extracted from previous cheque book and the following procedures will be adopted.

a) The requisition slip shall be sent to passing official of the concerned section to ascertain the number, the average balance maintained the manner in which the A/c is operated on, whether previous issued cheque book have been properly consumed, cheques are returned frequently for want of fund, payment of cheque is not frequently stopped it is not dormant A/c etc. over & above signature of the A/c holder has been agreed for assessing the correctness the requirement as per requisition.

b) If any defect is found by the passing official he shall may remark to that effect on the requisition slip and forward it to the section in-charge/ manager for decision.

9. In other cases the passing officer shall verify the signature on the slip, cancel it and send it to the cheque book issued section.

10. Fresh cheque book shall be issued to dormant A/c. holder only when he calls on personally and the manager is fully satisfied.

11. In case of slightest suspicion arisen, proper enquiries shall be made by contracting the drawer.

12. In case, where a requisition slip extracted from previous cheque book is not presented every possible care shall be exercised to establish the genuineness of the case particularly when the address of the constituent is recently changed and or a simultaneous request to change the address is made.

13. If the cheque book requisition slip is reported lost then ascertaining co-operation position explained earlier a cheque book may be issued on obtaining a fresh requisition slip.

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Question : 6 :: What are types of cheque?

Ans: Types of Cheques

Cheque

Open Cheque Crossed Cheque

Bearer Cheque Order Cheque Crossed Generally Crossed Specially

Question : 7 :: What is Bearer Cheque?

Ans: Bearer Cheque

When the words “or bearer” is seen after the name of the payee in the cheque, that cheque is known as Bearer Cheque. In case of a Bearer Cheque, the payment can be received by any person who is the bearer of the instrument.

Question : 8 :: What is Order Cheque?

Ans: Order Cheque

When the words “or order” is seen after the name of the payee in the cheque, the cheque is termed as Order Cheque. A Bearer Cheque can also be converted into an Order Cheque simply by canceling the words “or bearer”. An Order Cheque is paid over the counter on being satisfied about the true identity of the presenter of the cheque.

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Question : 9 :: How does Cheque Crossed Generally?

Ans: Cheque Crossed Generally

Crossed Generally

Where a Cheque bears two parallel transverse lines on its left upper corner with or without the

words , the cheque is said to be Crossed Generally.

In such a cheque, the payment cannot be paid otherwise than a bank account. That is, the payment of a cheque cannot be made over the counter.

Question : 10 :: How does Cheque Crossed Specially?

Ans: Cheque Crossed Specially

When a cheque bears across its face (in the left upper corner) an addition of the name of a banker

either with or without the words , the cheque is said to be Crossed Specially.

In case of Special Crossing, the payment must be collected through the bank whose name is seen alongside the left upper corner.

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Question : 11 :: What is Stale Cheque?

Ans: Stale Cheque

If a cheque is not presented for payment within 6 (six) months after the date of its issuance, it is known as Stale Cheque. In case of a Stale Cheque, if the drawer updates the cheque under his full signature then it has may good for payment.

Question : 12 :: What is Ante-dated Cheque?

Ans: Ante-dated Cheque

If a cheque bears a date, earlier to the date of writing a cheque, it is known as Ante-dated cheque. For example, a cheque is issued on 20th July, 2012 but the drawer writes 20th June, 2012 in the cheque. But such cheque is valid for payment till 6 (six) months from the date of its issuance.

Question : 13 :: What is Post-dated Cheque?

Ans: Post-dated Cheque

A post-dated cheque is one which carries date subsequent to the date of its issuance. If a cheque is presented for payment on 20th July, 2012 but the cheque bears 30th October, 2012 as its date. A post-dated cheque becomes valid for payment from the date of the cheque.

Question : 14 :: What is Mutilated Cheque?

Ans: Mutilated Cheque

A Mutilated Cheque is one which is torn into two or more pieces. If a cheque is slightly torn but there is no material alteration, then it becomes valid for payment. If the material fact of the cheque is erased or concealed, then payment cannot be made.

Question : 15 :: What are the Salient Features of a Cheque?

Ans: The Salient Features of a Cheque

Cheque

A cheque is a document of great importance in the business world. It can be passed from one hand to another easily and so it has become a popular mode of payment. A cheque is the most economical and safe method of money transaction because the transfer cost is very low and also the possibility of loss is minimum.

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According to section 6 of the N.I. Act, 1881 “a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.”

 The Salient Features of a Cheque:

1. Instrument in writing: a cheque must necessarily be an instrument in writing.2. An unconditional order: a cheque is an order to pay and it is not a request. The order must

be unconditional. If any condition is attached to the order, the instrument can no longer be called a cheque.

3. On a specified banker:- a cheque is always drawn only on a particular banker. A cheque drawn on a particular branch of a particular bank can’t be encashed at another branch of the same bank unless there is an agreement between the parties.

4. Payee to be certain: a cheque must be payable to the order of a certain specified person or to his agent or bearer thereof. The payee is the person to whom the amount of the cheque is payable. So, the payee must be a certain person. He may be a human being or an artificial person i.e. a company.

5. A certain sum of money: a cheque is usually drawn for a definite sum of money, which is to be written both in words and figure.

If there is any difference between the amount in figures and words the banker can return the cheque, since, the amount is not certain. However, see. 18 of the N.I.A. permit the banker to honor the cheque to the extent of the amount stated in words.

1. Payable on demand: a cheque is payable only on demand. As per section 19 of the N.I.A 1881 unless a time factor is specified by the drawer, the cheque is always payable on demand.

2. To be signed by the drawer: a cheque must be signed by the drawer i.e., the account holder or his authorized agent.

Question : 15 :: What are the Salient Features of a Cheque?

Ans:  Difference between a Cheque and a bill of exchange:

The distinguishing features of a Cheque and a bill of exchange are as follows:

Cheque Bill of exchange1. A cheque is always drawn on a

printed form.2. A bill need not be drawn on a printed

form.3. The drawee (banker) need not accept

a cheque.4. Acceptance by the drawee is

essential.

1. A bill is subject to Ad-Valorem stamp duty

2. It is not drawn in sets.3. Foreign bills are always drawn in

sets4. It may be crossed to ensure safety.5. It cannot be crossed6. A cheque may be countermanded.

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Cheque Bill of exchange5. A cheque is always supposed to be

drawn against the funds in the hands of the banker.

6. There is no such supposition.7. A cheque is an instrument for

immediate payment.8. It is drawn for a specified period and

so it is intended for circulation. Therefore, it is entitled to days of grace.

9. The liability of the drawer usually continues for 6 months.

10. Unreasonable delay in the presentation will discharge the bill.

11. A cheque is free from stamp duty.

7. Countermanding of a bill is not possible.

8. It is not protested or noted on dishonor.

9. It is usually protested and noted for dishonor.

10. In case of dishonor, notice of dishonor to the drawer is not essential.

11. Notice of dishonor must be sent to hold the party liable.

12. Statutory protection as given under Sec. 85 and Sec. 131 of the Negotiable Instruments Act applies only to cheque.

13. Statutory protection is not available in the case of bills.

The Salient Features of a Cheque

Difference between a Cheque and a bill of exchange:

The distinguishing features of a Cheque and a bill of exchange are as follows:

Cheque Bill of exchange

1. A cheque is always drawn on a printed form.

1. A bill need not be drawn on a printed form.

2. The drawee (banker) need not accept a cheque.

2. Acceptance by the drawee is essential.

3. A cheque is always supposed to be drawn against the funds in the hands of the banker.

3. There is no such supposition.

4. A cheque is an instrument for immediate payment.

4. It is drawn for a specified period and so it is intended for circulation. Therefore, it is entitled to days of grace.

5. The liability of the drawer usually continues for 6 months.

5. Unreasonable delay in the presentation will discharge the bill.

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Cheque Bill of exchange

6. A cheque is free from stamp duty. 6. A bill is subject to Ad-Valorem stamp duty

7. It is not drawn in sets. 7. Foreign bills are always drawn in sets

8. It may be crossed to ensure safety. 8. It cannot be crossed

9. A cheque may be countermanded. 9. Countermanding of a bill is not possible.

10. It is not protested or noted on dishonor. 10. It is usually protested and noted for dishonor.

11. In case of dishonor, notice of dishonor to the drawer is not essential.

11. Notice of dishonor must be sent to hold the party liable.

12. Statutory protection as given under Sec. 85 and Sec. 131 of the Negotiable Instruments Act applies only to cheque.

12. Statutory protection is not available in the case of bills.

Basically a cheque is a bill of exchange with two additional qualifications:

(a) It is always drawn on a specified banker.

(B) It is always payable on demand.

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Question : 16 :: What do you know about crossing of Cheque?

Ans:  Crossing of Cheque

A cheque may be classified as:

(a) an open cheque which is payable over the counter

(b) a crossed cheque which is payable only through a collecting banker.

A cheque (also a bankers draft) can be crossed generally or specially to a banker by the drawer, or the holder thereof. There can not be any general crossing without transverse and parallel lines, with or without any words, whereas, the name of a banker without the lines is sufficient to constitute a special crossing.

Crossing is a unique feature associated with a cheque affecting to a certain extent the obligations of the paying banker and also its negotiable character. It is a peculiar method of modifying the instruments to the banker for payment of the cheque. Crossing on a cheque is a direction to the paying banker by the drawer, not to pay the cheque over the counter but to pay the money generally to a banker (incase of general crossing) or a particular banker (in case of special crossing).

The crossing is a material part of any cheque. It may be written, stamped, printed or perforated.

Significance of crossing:

The addition of a crossing on a cheque provides security and protection for the drawer (or holder) since the drawee bank (i.e. the paying bank) can not pay out cash against a crossed cheque. As payment of a crossed cheque is required to be made through a banker it can ,therefore, be easily detected to whose use the money has been received.

 Crossing of a cheque protects a customer in four ways

(a) It makes it more difficult for the thief to obtain the proceeds of a stolen cheque (because a crossed cheque must go through a bank account – that of the payee unless the cheque has been endorsed).

(b) It increases the time available for discovering the theft and stopping payment since the cheque must be cleared.

(c) The thief and/or his accomplice may be traced back to the collecting banker (where the cheque was paid in).

(d) A ‘not negotiable’ crossing and special crossings have special protections.

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It is further to be noted that the crossing of a cheque does not affect its transferability and negotiability (except “not negotiable” crossing). Crossed cheques are negotiable by delivery if they are payable to bearer and by endorsement and delivery where they are payable to order. Holder of a crossed cheque, who has no account in any bank can obtain payment by endorsing it in favour of some person (except “A/c payee” crossing) who has got an account in a bank.

 

Types of crossing

Crossing may be either (1) General or (2) Special

 General Crossing

The term general crossing implies the addition of two parallel transverse lines. Sec. 123 of the N.I. Act, says; “Where a cheque bears across its face an addition of the words ‘and company’ or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words ‘not negotiable’ that addition shall be deemed to be a crossing and the cheque shall be deemed to be crossed generally.”

If the words ‘not negotiable’ are added the crossing is still remains a “general” one.

It is to be noted that the bill of exchange or the promissory notes can not be crossed generally.

Absence of words such as “and company” or its abbreviation ‘& Co’ or the words not negotiable’ does not affect the validity of the general crossing. It is important to note that the addition of the words ‘& Co’ in a crossing does not have any legal significance. But the addition of words ‘not negotiable’ has significant legal effects.

Special crossing A special crossing implies the specification of the name of a banker on the face of the cheque. Sec. 124 of the N. I Act, 1881 reads: “Where a cheque bears across its face an addition of the name of banker with or without the words ‘not negotiable’, that addition shall be deemed a crossing, and the cheque shall be deemed crossed specially, and to be crossed to that banker.”

Drawing of two transverse and parallel lines is not necessary in case of a special crossing. When a cheque has been specially crossed, the banker upon whom it has been drawn will make the payment only to that banker in whose favour it has been crossed.

The words “not negotiable” can also be added to the special crossing.

Significance of General Crossing

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

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(ii) The direction is that, the paying banker should not pay the cheque at the counter. It should be paid only to a fellow banker. In other words, payment is made through an account and not at the counter. Sec. 126 of the N.I. Act clearly lays down that, “where a cheque is crossed generally, the banker on whom it is drawn, shall not pay it otherwise than to a banker.”

(iii) If a crossed cheque is paid at the counter in contravention of the crossing:

(a) the payment does not amount to payment in due course. So, the paying banker will lose his statutory protection,

(b) he has no right to debit his customer’s account, since, it will constitute a breach of his customer’s mandate;

(c) he will be liable to the drawer for any loss, which he may suffer,

(d) he will be liable to the true owner of the cheque who may be a third party, irrespective of the fact, that, there is no contract between the banker and the third party. As a general rule, a banker is answerable only to his customer and this liability to a third party here is an exception.

(iv) The main intention of crossing a cheque is to give protection to it. When a cheque is crossed generally, a person who is not entitled to receive its payment, is prevented from getting that cheque cashed at the counter of the paying banker. But. it gives only a limited protection, in the sense, that, if the thief is not the customer of the paying banker, he can encash that cheque through his banker, by forging the signature of the payee. However, it can be detected. To avoid this danger, special crossing was introduced.

 

Significance of Special Crossing

(i) It is also a direction to the paying banker. The direction, is the, that paying banker should pay the cheque only to the banker, whose name appears in the crossing or to his agent. Sec 126 of the N. I. Act clearly lays down that “where a cheque is crossed specially the banker on whom it is drawn, shall not pay it, otherwise than to the banker to whom it is crossed or his agent for collection.”

(ii) If a cheque specially crossed to a bank is presented by another bank, not in the capacity of its agent, the paying banker is justified in returning the cheque.

(iii) A special crossing gives more protection to the cheque than a general crossing. It makes a cheque still safer because a person, who does not have a real claim for it, would find it difficult to obtain payment. In special crossing, the cheque is specially crossed to the payee’s banker. Hence, the banker, in whose favour the cheque has been crossed, knows the payee and his specimen signature well. So, he will not collect it for any person other than the payee. If there is any forgery, it can be easily detected by the banker. But, we can not say that, it gives full protection in the sense, that, an unscrupulous person, who has an account in the same bank but at

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a different branch, can encash it by forging the signature of the payee. It can also be detected. However, there is some danger in special crossing also. To overcome this danger, ‘Not Negotiable’ and ‘A/c payee’ crossings have been introduced.

“Not Negotiable” crossing and its significance

As stated earlier, Secs, 123 and 124 of the Act permit the use of the words ‘Not Negotiable” in the crossing. This type of crossing is termed as ‘Not Negotiable’ crossing.

‘Not Negotiable’ does not mean not transferable. ‘Not negotiable’ crossing does not affect the transferability, but, it kills only the ‘negotiability’. Negotiability is something different from transferability. Negotiability is a broader term which includes transferability. As per law, negotiability means transferability by mere delivery or endorsement and delivery plus transferability free from defect. But, transferability does not possess the second quality namely transfer free from defect. So, one part of the negotiability is the transferability. In other words, if a document is a negotiable one, a bonafide transferee who receives it in good faith and for value paid, can obtain a good title, despite the fact that, the document has prior defects. But, in case a document is a not negotiable instrument, the transferee cannot obtain a good title, when there is a prior bad title. Hence, no one can be a holder in due course in the case of a not negotiable instrument. In Hibernian Bank Ltd. Vs. Gysin and Hansan, it was held that the words ‘Not Negotiable’ when they appear on a bill must be assigned their ordinary meaning in law i.e., the instrument it deprived of one of the most important characters of negotiable instruments namely, transferability free from defects.

Thus, a cheque crossed ‘Not Negotiable’ can be transferred like any other cheque. But, the transferee can not obtain a better title than that of the transferor. It has been provided in Sec. 130 of the Negotiable Instruments Act that “A person taking a cheque crossed generally or specially, in either case bearing the words “not negotiable”, shall not have and shall not be capable of giving a better title to the cheque than that, which the person from whom he took it had.”

The words ‘Not Negotiable’ do not impose any additional duty on either the collecting banker or the paying banker. But, it is a warning to the person, who takes this document, that, he should be very careful in receiving it. In Commissioners of State Savings Bank of Victoria Vs. Parmewan Wright and Co., learned Judge Griffith the opined that words ‘Not Negotiable’ on a crossed cheque are a danger signal held out before every person invited to deal with it and are equivalent to saying, “take care, this cheque may be stolen.” Thus, a cheque crossed ‘not negotiable’ is just like a stolen property, where good title can not be passed on to others. If that cheque is offered, the transferee should know the previous endorsers and their good title to that cheque. Otherwise, he will be compelled to give it back to the true owner, if that cheque happens to be a forged one. That is why Sir John Paget rightly says that the words ‘Not Negotiable’ have no special meaning as far as a banker is concerned, and so, he can justifiably ignore it.

The object of this type of crossing is to give protection to the true owner of the cheque by preserving his right against any subsequent holder. So, this type of crossed cheques can safely be sent through post.

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To put it in a nutshell, if a cheque is crossed ‘not negotiable,’ it is taken out of the category of negotiable instruments. But, it can be transferred subject to the title of the transferor.

‘A/c Payee’ crossing and its significance

There is no provision in law regarding this type of crossing. But it has been developed in practice. If the words, ‘A/c payee’ are added to a crossing, it becomes an ‘A/c payee’ crossing.

‘A/c payee’ crossing does not restrict the transferability of cheques. In British Bank of Middle East Vs. Abmal Brothers, the drawer of a cheque (Abmal Brothers) pleaded that, since, the cheque had been marked A/c payee only, the negotiation on it was null and void. But it was held that ‘A/c payee’ crossed cheque can be negotiated. But, if the words “or order” which appear immediately after the payee’s name, are struck through and if the cheque is crossed ‘A/c payee’, that cheque will be considered to be not transferable.

This type of crossing gives a further protection to a cheque. This crossing gives a direction to the collecting banker. The direction is that, the collecting banker should not collect it for any person other than the payee. In other words, a collecting banker should ensure that, the cheque is credited only to the account of the payee. Hence, practically speaking, such cheques can not be negotiated further.

If a collecting banker collects such a crossed cheque for any person other than the payee, it will constitute negligence on the part of the collecting banker, and so, he will lose the statutory protection given under Sec. 131 of the Act.

The paying banker is not concerned with this type of crossing, However, if such a cheque bears any endorsement other than that of the payee, the safest method will be to return it. It is so because, if the words ‘A/c payee’ were put on by the drawer, and if the banker honours it, it would amount to disobeying his customers mandate.

The safest form of crossing will be a combination of ‘Not Negotiable’ and ‘A/c payee’ crossings, which give the fullest protection to a cheque.

 

Double Crossing

When a cheque bears two separate special crossing, it is said to have been doubly crossed, Sec. 125 of the N.1. Act, states that “Where a cheque is crossed specially, the banker to whom it is crossed, may again cross it specially to another banker, his agent for collection.” According to Section 127 “where a cheque is crossed specially to more than one banker, except when crossed to an agent for the purpose of collection, the banker on whom it is drawn shall refuse payment thereon.” Thus, a paying banker shall pay a cheque doubly crossed only when the second banker is acting only as the agent of the first collecting banker and this has been made clear on the instrument. Such crossing may be done in those cases where the banker in whose favour the

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cheque has been specially crossed does not have a branch at the place where the cheque is to be paid.

2. Who Can Cross A Cheque

(a) A cheque may be crossed generally or specially by the drawer.

(b) Where a cheque is uncrossed, the holder may cross it generally or specifically.

(c) Where a cheque is crossed generally or specially the holder may add ‘not negotiable’.

(d) Where a cheque is crossed generally the holder may cross it specially.

(e) Where a cheque is crossed specially the banker to whom it is crossed may again cross it specially to another banker for collection.

(f) Where an uncrossed cheque or a cheque crossed generally is sent to a banker far collection he may cross it specially to himself.

 3. Obliterating a crossing

Hence, crossing is a material part of the cheque it must not be the subject of an authorized alteration. However, a banker is protected in law paying a cheque where the crossing has been fraudulently obliterated.

Section 89 provides protection to a collecting banker of a cheque whose crossing is obliterated or erased by dishonest persons. In case of such cheques the paying bank shall be discharged from its liability if:

(i) the cheque does not appear to be a crossed one or obliteration of crossing is not apparent at the time of its presentation for payment, and

(ii) the payment has been made in due course as required under section

Opening of crossing

As crossing is a material part of the cheque, law does not make any provision for the cancellation of a crossing. But the conciliation of crossing has been arisen out of custom and it is commonly termed as “opening of crossing”. When a drawer wants to cancel the crossing, he writes the words ‘Pay cash’ upon the cheque, followed by his full signature. The drawer alone has a right to cancel the crossing.

Liability of the paying banker on crossed cheques

The paying banker should make payment of a crossed cheque only through the collecting banker. In case of special crossing the payment of cheque should be done only to the banker whose name

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has been mentioned between the two transverse parallel lines. In case the paying banker makes payment of a crossed cheque in contravention of the above rules, its liability will be as follows:

(i) The paying banker will have to reimburse the true owner for any loss that he might have suffered on account of payment being made to a wrong person.

The paying banker shall not be entitled to debit his customer’s account with the amount of payment in case payment has been made to a wrong person since it has not followed the mandate of the customer. Such payment will not be taken as a “payment made in due course”.

Question : 17 :: What is the meaning of negotiable instrument?

Ans : Negotiable Instrument (section-13)A negotiable instrument means a promissory note , bill of exchange or cheque payable either to order or bearer. A negotiable instrument may be made payable to two or more payees jointly or it may be made payable in the alternative to one or two or one or some of several payees.

Question : 18 :: What is the meaning of Bill of Exchange?

Ans : Bill of Exchange (sec-5)

A bill of exchange is an instrument is an instrument in 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 he instrument.

Drawer- A maker of bill of exchange or a cheque is called the drawerDrawee- A person thereby directed to pay is called the drawee i.e. a Bank.Payee- The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid.Holder - A holder of a promissory note, bill of exchange or a cheque means any person entitle in his own name to the possession thereof and to receive or to recover the amount due hereon from the drawee.

Amount in words and figure differ (sec-18)

If the amount undertaken or ordered to be paid is stated differently in figures and words, the amount stated in words shall be the amount undertaken or order to be paid.

Liability of Drawer (30/1)

The drawer of a bill of exchange by drawing it engaged that on due presentation it shall be accepted and paid according to its tenor and if it were dishonored he will compensate the holder or any endorse who is compelled to pay it.

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A drawer of a cheque be drawing it, engaged that in the case of dishonor by the drawee he will compensate the holder.

Liability of drawee of cheque (sec-31)

The drawee of a cheque having sufficient fund of the drawer in his hand properly applicable to the payment of such cheque must pay the cheque when duly required so to do and in default of such payment must be compensate the drawer for any loss or damage caused by such default.

Cheque payable to order (sec-85)

Where a cheque payable to order purports to be endorsed by or on behalf of the payee, the drawee is discharged by payment in due course. Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof.

Notwithstanding any endorsement whether in full or in blank appearing thereon and not withstanding that any such endorsement purport to restricts or exclude further negotiation.

Effect of Material alteration (sec-87)

Any material alteration of a negotiable instrument renders the same void as against any one who is partly thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties.

Material alteration in relation to promissory notes, bill of exchange or cheque includes any alteration of the date, the sum of payable, the time of payment, the place of payment, and where any such instruction has been accepted generally the addition of a place of payment without the acceptor’s assent.

Cheque crossed General (sec-123)

When a cheque bears across its face an addition of the word ‘and company’/ & co or any other abbreviation thereof between two parallel transverse lines or two parallel lines simply either with or without the word ‘Not negotiable’ that addition deemed a crossing & the cheque shall be deemed to be crossed generally.

Cheque crossed Account Payee (sec-123.A)

Where a cheque crossed generally bears across its face an addition of words ‘Account Payee’ between two parallel transverse lines constituting to general crossing, the cheque besides being crossed generally is said to be crossed ‘Account payee’

Where a cheque is crossed ‘A/C payee only’, it ceased to be negotiable and it shall be the duty of the banker collecting payment of the cheque to credit the proceeds thereof only to the Account of the payee named in the cheque.

Cheque crossed Specially (sec-124)

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Where a cheque bears a cross its face and in addition of the name of he banker with or without the word ‘Not negotiable’ that addition shall be deemed a crossing and cheque shall be deemed to be crossed specially & to be crossed to that banker named in special crossing.

Crossing after issue (sec-125)

Where a cheque is uncrossed, the holder may cross it generally or specially. Where a cheque is crossed generally, the holder may cross it specially. Where a cheque is crossed generally or specially, the holder may add the words ‘Not negotiable’. Where a cheque is crossed specially the banker to whom it is crossed may again cross it specially to another banker, his agent for collection.

When an uncrossed cheque or a cheque crossed generally is sent to a banker for collection, he may cross it specially to himself.

Crossing a material part of cheque (sec-125)

A crossing authorized by this act is a material part of the cheque, it shall not be lawful for any person to obliterate or except as authorized by this act to add to or alter, the crossing.

Payment of cheque crossed generally (sec-126)

Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise that to a banker

Payment of cheque crossed Specially (sec-126)

Where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise that to a banker to whom it is crossed or his agent for collection.

Stale or out dated Cheque

Validity of a cheque is only 6- months from the date of issue, and payment will be made with in the period other wise deemed a stale cheque and bank is not bound to make payment, unless revalidated by the drawer.

Post dated Cheque

When a cheque is issued on the future date, placed in the counter and bank is not bound to make payment.

Here issue means the first delivery of a promissory note, bill of exchange or cheque complete in form to a person who takes it as a holder.

Dishonour of cheque for insufficiency, etc. of funds in the account (Sec- 138)

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made

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with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished

Stop Payment of Cheque

Stop payment instruction must be receive from the A/C holder / drawer in writing under his proper signature and it is to be recorded in respective register and as well as in the account.

Issuance of cheque Book

After opening the account chequebooks issued as the ‘Application for Cheque Book’ i.e F-5 and later on issued on the basis of cheque requisition slip enclosed in respective chequebook. For both the cases recipient signature is to be obtained both in the Application/ slip and in the respective register.

There is no scope to issue duplicate chequebooks through F-5 without prior approval from the competent authority of the Branch

Duplicate Cheque Book and its delivery

In the event of Loss of cheque Book, fresh chequebook may be issued after Branch Manager’s approval against written request from the A/c holder. He should lodge General Dairy (GD) in local police station and Original copy of GD shall be enclosed with the request letter and pay charges for lost instrument. Branch should mark the matter in the computer cheque posting folio. The A/C holder himself must receive the Duplicate chequebook.

Cheque Return If the cheque is returned, the cheque is to be delivered duly entered in the Cheque Return Register along with Return memo, duly signed by the Authorized Officer.

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