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Bank draft or Demand Draft
DD is drawn by one branch of bank on
another branch of the same bank instructing the
latter to pay a specified sum of money to a
named payee or to his order.
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Features of DD
It is drawn by a banks branch on another
branch.
It cannot be made payable to bearer.
Its payment cannot be stopped orcountermanded.
It is always payable on demand.
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Magnetic ink character recognition
MICR technology has been introduced by
the RBI for speeding up the cheque clearing
process. The scheme has been initially
introduced in four metropolitan cities-Bombay, Calcutta, Madras and New Delhi.
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STEPS IN MICR PROCESS
Standardization of quality/size, printing of cheques or
drafts with suitable space for encoding information at
the bottom.
Encoding in magnetic ink specific details on the
cheque itself, to facilitate mechanical sorting. The
code line contains the following information:
First 6 nos indicate cheque number
Next 3 nos indicate city code
Next 3 nos indicate bank code
Next 3 nos indicate branch code.
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After some space there is number for transaction
code i.e. whether the transaction relates to a
savings or a current account.
MICR cheques should not be folded, pins etc.
should be put at the top left corner of the
cheque. The signature of the drawer, rubber stamp etc
should should be affixed above the code line.
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AMBIGUOUS INSTRUMENT
An instrument which in form or terms is
such that it may either be treated as a bill of
exchange or as a promissory note, is anambiguous instrument.
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Following are the cases the instrument
is taken as ambiguous
Where drawer and drawee are the same
person.
Where drawee is a fictitious persons
Where drawee is a person incapable ofentering into a contract.
the holder will have to decide, once for all
whether to take the ambiguous instrument asa promissory note or a BOE.
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INSTRUMENT PAYABLE ON
DEMAND
A Pronote or a BOE in which no time for
payment is specified (sec 19).
A cheque (6).
A note or BOE expressed payable ondemand or at sight or on presentment (Sec
31).
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INCHOATE INSTRUMENT
The term inchoate instrument means and
incomplete instrument.
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at sight on presentment after sight
(sec21)
in a promissory note or bill of exchange the
expression at sight and
on presentment means on demand.
after sight means in a PN after presentmentfor sight and in a BOE, after acceptance, or
noting for non-acceptance or protest for non-
acceptance.
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ESCROW
A bill, endorsed or delivered to a person
subject to the understanding that it will be
paid only if certain conditions are fulfilled, is
called an escrow.
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PAYMENT IN DUE COURSE
Acc to sec.10 payment in due course
means payment in accordance with the
apparent tenor of the instrument, in good faith
and without negligence, to any person inpossession thereof, under circumstances
which do not afford a reasonable ground for
believing that he is not entitled to receive
payment of the amount mentioned therein.
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Analysis of the definition:
Payment must be in accordance with theapparent tenor of the instrument.
In good faith without negligence.
Person in possession thereof. Payment should not be made under
circumstances which afford reasonableground for believing that the person was not
entitled to receive the amount mentioned inthe instrument.
Payment of money only.
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Maturity of the negotiable instrument
NI except cheque may be made payable either on
demand or on a specified date or after a specified
period of time.
Cheques, however are always payable on demand.
The date on which a NI fall due for payment is called
the date of maturity of the instrument.
Demand Instrument fall due for payment the moment
they are presented to the acceptor or drawee
payment.
Time instrument are given 3 days of grace period.
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Rules for determination of maturity
If a NI has been made payable after a stated
number of months after date or after sight
or after a certain event the period stated
shall be held to terminate on the day of themonth which corresponds with the day on
which the instrument is dated.
IF the maturity day of NI come out to be a
public holiday, the instrument shall bedeemed to be due on the next preceding
business day (sec.25)
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STATUTORY PROTECTION TO A
PAYING BANKER UNDER NI ACT 1881
Order cheque having forged endorsementof payee and endorsee.
U/S 85(1): According to this sec the PB is
protected in case of payment of an ordercheque with forged banker endorsement. This
protection is given on the grounds that, PB will
not be knowing exactly who the endorsee is.
payment has to satisfy certain condition:
There should be regular endorsement.
The payment must be payment in due course.
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U/S 16(2): it extends protection to the PB even
when the signature of endorsee are forged, as aPB cannot verify the signature.
The conditions are:
Endorsement is regular.Payment must be payment in due course.
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Bearer cheques
U/S 85(2) it indicates that the PB is
discharged from the liability by honouring a
bearer cheque according to the principle
once a bearer cheque is always a bearercheque.
The conditions are:
there was no suspicion about the bearer.
the payment made as per payment in due
course.
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Order draft with forged endorsement
U/S 85A: this provision gives protection to thepaying banker regarding the draft having a
forged endorsement.
The conditions are:the endorsement should be regular
the payment should be made in due course.
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Crossed cheque
U/S 128: the protection given to PB regardingthe payment crossed cheque to a person
other than the true owner is given under this
section. This provision states when the PBmakes payment in due course regarding a
crossed cheque, he is discharged of the
liabilities as he is deemed to have paid the
value to the true owner
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Materially altered cheque
U/S 89: the PB also gets protection regardingthe payment made to a materially altered
cheques provided
The material alteration is not noticeable evenby careful examination
Payment made in due course.
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DISHONOUR OF CHEQUES
it means non payment of a cheque across
the counter or through the account ( in case
of crossed cheque)
circumstances may be classifiedunder which the PB must dishonour cheque.
Under which the PB may dishonour cheque.
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Circumstance in which PB must
When the cheque is countermanded by the customer.
When the banker receives the notice of death ofcustomer
When the banker receives the order adjudicationconfirming the insolvency of the customer.
When the banker receives garnishee order absoluteagainst the A/c of a customer.
Holding of a defective title
Misuse of trust funds.
Forged cheque
Cheque without the signature of the drawer.
In case of cheque drawn by a foreigner, if there is a warin drawers country.
Closure of account.
Ci i hi h h b
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Circumstances in which cheque may be
dishonoured
The funds at the credit of the customer is insufficient. The signature on the cheque does not tally with the
specimen signature of the drawer.
A cheque is not dated, post dated. Or bears anincomplete date, or an impossible date.
A cheque is presented for payment after the bankinghours.
The words and figures stated in the cheque differ.
A mutilated cheque not confirmend by the drawer.
Cheque not drawn in proper form. Cheque not written in clear terms.
A customers a/c subjected to banker; lien or set off.
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