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UNIT-IV

CHEQUE, CROSSING, ENDORSEMENT:

CHEQUE:

It is a negotiable instrument. Transferable from one to another.

DEFINITION OF CHEQUE:

According to section 6 of the Negotiable Instrument Act 1881, “A bill of exchange drawn on specified banker and not expressed to be payable otherwise than demand.

REQUISITIES OF A VALID CHEQUE:

1. It must be an instrument in writing.2. It must be an order.3. The order must be unconditional.4. It must be drawn on a specified banker.5. Payee must be a certain person.6. Amount must be certain.7. It must be dated.8. It must be signed by the drawer.9. Payable on demand.

CROSSING:

(It is a indication that don’t pay at the counter, only pay through a particular bank account)

1. Two parallel transfers lines.2. On the left hand side top corner.3. With or without any words.4. Payment will be made only through bank account, not at the counter.5. It does not affect its negotiability.6. It can be handwritten or stamped or printed or perforated.

TYPES OF CROSSING:

1. General crossing.2. Special crossing.

GENERAL CROSSING (Section 123 of the Negotiable Instrument Act 1881)

1. Two parallel lines.2. Crosswise direction.3. Words are “& CO” or “AND COMPANY” or NOT NEGOTIABLE” or “ACCOUNT PAYEE” etc.,

4. Cash not at counter.5. If the banker pays at counter, they will lose their statutory (legal) protection.

SPECIAL CROSSING (Section 124 of the Negotiable Instrument Act 1881)

(In addition to the above given in the general crossing)

1. Specify the Banker name.2. General words may be required.3. Words may be “ICICI Bank LTD” or “ICICI BANK LTD NOT NEGOTIABLE” or “ICICI BANK LTD

A/C PAYEE”.

GENERAL AND SPECIAL CROSSING OF CHEQUES:

Crossing means putting two parallel transverse lines across the face of a cheque, It is an instruction to the paying banker to pay the amount of cheque through a banker only and not to the person presenting it at the counter of bank. In other words crossed cheque can paid through banker only. Crossing can be done by drawer, banker or holder. A general crossing can be converted into a special crossing. Crossing of cheque is of 2 types.

1. General Crossing – It is a cheque which bears across its face two parallel transverse lines without any words as (‘and company’ ‘or & Co.’) written in between these two lines.

2. Special Crossing – It is a cheque in which the name of the bank is written between the two parallel lines and hence it can be paid to that specific banker only.

ADDITIONAL/OTHER TYPES OF CROSSING:

Not Negotiable crossing:

1. Word “Not Negotiable”.2. Can be transferred (In some situations)3. Transferee will not get better title.4. To get better title:

(a) Receive the cheque for consideration.(b) There should not be any prior bad title.

“Account payee” crossing:

1. General crossing with the words “Account Payee only”.2. Banker has to accept for the person only.3. Law does not restrict the endorsements.

Double crossing: (Banker is doing this)

1. Banker in whose favour the cheque is drawn may cross it again in favour of another banker being his agent for collection.

2. Allow where there is no branch- Otherwise as per the section 127 of the Negotiable Instrument Act, double crossing is invalid.

OBLITERATING A CROSSING:

1. Erasing a crossing.2. If the obliteration is not apparent, (noticeable) banker will not be liable.3. Opening of crossing: (taking off a crossing)

(a) Cancellation of crossing.(b) Only the drawer can do.(c) Striking of the crossing, write “Pay cash” and the full signature of the drawer.

ENDORSEMENT:

FEATURES OR SIGNIFICANCE OF ENDORSEMENT:1. Ownership transferred to endorsee.2. Endorsee will get the right to sue.3. Endorsee will get the right to recover the money.4. Endorsee will get the right to further Negotiation.

RULES REGARDING ENDORSEMENT:1. Done by endorser or an agent with signature.2. Endorsement should be in ink.3. For married women – Husband’s name.4. For illiterate person – Thump impression.5. For Joint Stock Company – Authorized person.6. For partnership concern – Authorized person.7. For deceased person – Legal representative.8. Endorsement completed by delivery of the instrument.

KINDS/TYPES OF ENDORSEMENT:

1. Blank /General Endorsement: Endorser sign on the back without mentioning anything.2. Full/Special Endorsement: Endorser mention the name of the person to whom the transfer is

made.3. Partial Endorsement: Endorsement is done only for the part of the amount. It’s only for Bill of

Exchange, for a cheque it is not possible.

Transferring the instrument.Bearer instrument – Delivery.Order instrument – Endorsement & delivery.Endorser – who transfers.Endorsee – To whom the transfer made.Endorsement – On its back.Endorsement is done on the back of the financial instrument.ALLONGE – (attaching) the additional piece of paper attached with the cheque for further endorsement.

4. Restrictive Endorsement: Restrict the endorsee from further negotiations.(Ex) Pay Mr. Vicky only Raguram.(Ex) Pay Mr. Vicky for my use Raguram.5. Conditional /Qualified Endorsement:

1. It limits the liability of the endorser.2. It imposes certain conditions.

6. Per Pro Endorsement: (per pro –On behalf of)1. Endorsement done by an agent.2. Inform the banker regarding the appointment of agent/delegation of authority.

(Ex)Pay Mr. Vicky (endorsee) Divagar (agent) Per pro Mr. Venkat (Owner)

7. Facultative Endorsement: The endorser excuses the endorsee from performing any duty in case of dishonour. (ex) Pay to Vicky notice of dishonour waived -Venkat (Owner/endorser) Endorsee

UNIT-IVPAYING BANKER & COLLECTING BANKER

PAYING BANKER: Banker to whom the cheque is drawn and presented for payment.

PRECAUTIONS TO BE TAKEN BY THE PAYING BANKER:

1. Form of cheque.2. Date of cheque.3. Amount of cheque.4. Sufficiency of funds.5. Material alteration.6. Drawer’s signature.7. Mutilation. (crushed, toned cheque)8. Payment during the business hours or banking hours9. Open or crossed cheque. (Crossed cheque- Payment should be made only through the bank a/c).10. Endorsement if any.11. Legal restrictions if any.12. Countermanding order. (Drawer himself stops payment)13. Notice of death or insanity or insolvency of a customer.

It is being done in two types1. Sans Recourse – Endorser free from liability. He won’t take up any liability

on behalf of this endorsement. (ex) Pay Mr. Vicky without recourse to me.2. Sans Frais – Endorser free from any expenses incurred. (ex) Pay Mr. Vicky

without expenses to me.

DISHONOURING A CHEQUE:

1. Countermanding of payment.2. Death of the drawer.3. Insolvency of the Drawer.4. Insanity of the Drawer.5. Receipt of Garnishee order. (Garnishee – Order issued by court)6. Receipt of Notice of Assignment.7. Postdated or stale cheque.8. Insufficiency of funds.9. Improper format.10. Materially altered cheque.11. Forged signature.

STATUTORY PROTECTION TO THE PAYING BANKER:

1. Protection in case of order cheque [Section 85(1)]a) Verify the endorsement.b) Payment made in due course.

2. Protection in case of Bearer cheque [Section 85(2)]a) Payment at the counter.b) No need to verify the endorsement.

3. Protection in case of Crossed cheque[section 128]a) Payment through account.b) Payment made in due course.

COLLECTING BANKER: The banker who undertakes the responsibility of collection.

He can do this in the capacity of:1. Holder for value.2. Agent for collection.

COLLECTIONG BANKER AS HOLDER FOR VALUE:

The banker will allow the customer to make use of the amount before the execution of collection.

Various circumstances:

1. Lends on the strength of a cheque.2. He pays the amount or part of it before it is collected.3. Permit to draw before it is collected.4. Receive the cheque to reduce the OD.

RIGHTS OF BANKER AS HOLDER FOR VALUE:

1. If the endorsement is forged he (banker) can recover the money.2. If the cheque is dishonoured, the bank can sue.

COLLECTING BANKER AS AN AGENT FOR COLLECTION:

While the banker undertakes the collection, he will act as an agent.

DUTIES OF COLLECTING BANKER:

1. Exercise the process with reasonable care.2. Present the cheque for payment within a reasonable time.3. Remittance of proceeds.4. Notice of dishonour.

STATUTORY PROTECTION OF COLLECTING BANKER:

Under Section 131 of the Negotiable Instrument Act, banker can claim against the collection of crossed cheque if the following conditions are satisfied.

1. Collection for customer.2. Collection in good faith without any negligence.

Section 131 A of the Negotiable Instrument Act, gives protection for collection against demand draft, if the following condition is satisfied.

He collects crossed Demand Draft in good faith without negligence.

UNIT-III

BANKER AND CUSTOMER

DEFINITION OF BANKER:

“Banker is one who in the ordinary course of his business honour cheques drawn upon him by persons from and for whom he receipts money on current accounts.

-Herbert L. Heart.

DEFINITION OF CUSTOMER:

“To constitute a customer, there must be some negotiable course or habit of dealing in the nature of regular banking business.

-Sir. John Beget.

RELATIONSHIP BETWEEN BANKER AND CUSTOMER:

GENERAL RELATIONSHIP:

1. Debtor – Creditor Relationship.For deposits – Banker is Debtor and customer is a Creditor.For Loan- Banker is Creditor and customer is a Debtor.Depends on what transaction we do the relationship will change.

2. Trustee- Beneficiary Relationship.Trustee- the person who manages or runs the trust or organizing the service.Beneficiary- Who are all eligible to get the benefits.(Ex) Safe custody.

3. Agent – principal Relationship.Agent- Acting on behalf of us.

4. Bailor- Bailee Relationship. Bailment-Pledging something and get money or loan.

Till the customer repays the money the document should be kept safely by the banker.Here bailor is customer and bailee is banker. Bailee can also be called as pledgee.

5. Assignor – Assignee Relationship.Under one special circumstance this relationship will arise i.e., When the customer pledges his insurance policy to get loan.(When a banker give loan against life insurance policy or bank debts or supply bills etc.,)Here customer is the assignor and banker is the assignee.If the customer died of something before he repays the loan the policy will directly go the bank in that way one agreement will be prepared and registered.

SPECIAL RELATIONSHIP:

Special relationship can arise because of

1. Rights2. Duties or Obligations

RIGHTS OF A BANKER (The Rights that reserve with the bank)

1. Right of set off (This will be carried out only after informing the customer)2. Right of lien: Conditions to be fulfilled:

o Overdue amount on customer account.o Bank must have obtained the security.o Transparency in the action.o There is no previous agreement against.o Property must belong to customer.

Banker cannot exercise this right of lien under the following conditions or it can otherwise be called as Exceptions of lien.Exceptions of lien:

o If any goods given by customer for a specific purpose.o If customer left anything negligently with the bank.o It cannot be exercised by a banker on bill of exchange, Promissory note, or deposit of

cash.o There should be no agreement against.

3. Right of Appropriation4. Right to charge interest, commission, brokerage etc.,5. Right to close the account on undesirable customer.

OBLIGATIONS /DUTIES OF THE BANKER:

1. Duty to honour the customer cheque.The cheque will be honoured under these cases only.

a) During the business hours.b) Within the validity period .c) Without any damage.

2. Duty to maintain the secrecy of customers’ accounts.3. Duty to maintain proper accounts.

TYPES OF ACCOUNTS:

1. Fixed Deposit a/c.2. Savings bank a/c3. Recurring deposit or cumulative Deposit.4. Current a/c.

FIXED DEPOSIT A/C:

1. Any Individual can open.

2. Premature withdrawal allowed.3. High Interest rate.4. For fixed no of periods.5. Introduction is necessary.6. ID card proof, address proof, passport size photo, signature are required.7. Fill the Chelan while deposit.

SAVINGS BANK A/C:

1. Any Individual can open.2. This account is mainly concerned with increasing the banking habit of the people.3. Introduction is not necessary.

RECURRING DEPOSIT OR CUMULATIVE DEPOSIT:

1. Savings on regular basis.2. Fixed no of period.3. Ask for Nominee.4. Pre-mature withdrawal allowed but interest rate will be reduced.

CURRENT A/C:

1. Purely meant for business people.2. Account will be opened in the name of the business not in the name of the person.3. In current a/c third party cheque can be deposited.4. Over draft facility available.5. The O/D limit will be decided based on the credibility of the customer.6. Another current a/c holder has to introduce you.7. Zero interest. 8. No restriction on the no of withdrawals.9. Minimum balance will be higher compared to other accounts.10. Penalty in case of not maintaining the minimum balance.

SAVINGS BANK A/C VS RECURRING DEPOSIT A/C:

Savings bank a/c Recurring Deposit a/c

1. ATM facility is available for SB a/c holders. 1. RD a/c holders cannot enjoy the services of ATM.

2. Introduction is necessary. 2. Introduction is optional.

3. Joint a/c possible in SB. 3. Not possible.

4. Don’t ask for nominee. (optional) 4. Ask for nominee.

TYPES OF CUSTOMERS:

1. MINOR:Precautions to be taken by the banker when they deal with minor.

1. Type of account.2. Date of Birth.3. Death or parent or guardian.4. Loans to minor on the guarantee of third party.5. Liability regarding negotiable instrument.6. Minor as a partner 7. Minor as an agent.

Guardian

Natural Guardian Testamentary Guardian Guardian appointed by court(Among the Relation) (Appointed by parents)

2. MARRIED WOMEN:

Precautions to be taken:

1. Any type of account.2. Enquire about her personal Estate.3. Husband Assets can be taken as collateral.

3. LUNATIC: (lunatic –unsound mind)


1. Suspend the operation of the account.2. Confirm with proper evidence.3. Operation only after the court order.

4. DRUNKARD:


1. Legal position of a person disturbed by liquor or drugs.2. Dishonour the presented cheque.(the third party cheque)

5. ILLITERATE PERSON:


1. Left hand thumb impression.2. Two Identification marks, two photographs.3. Explain the operational condition.4. Withdrawal- Imperson with passbook.

6. TRUSTEE:

Trust-The properties of deceased person.Manager- Trustee.Beneficiary- For whom the trust is formed.


1. Careful study of the trust deed. (Bye-laws)2. Authorized person to operate the account.3. Death or Retirement of Trustee.4. Insolvency of trustee.5. Loan to trustee. (Banker won’t be interested in giving loan to a trust)

7. EXECUTOR AND ADMINISTRATOR:

Executor- Appointed by the will of a deceased person to settle his account.

Whoever has son/daughter this concept will not be applicable.


1. Examination of documents.2. Style of accounts-what type of account the person can open and operate.3. Operation of the account.4. Misappropriation of funds.5. Borrowing powers of executor/administrator.

8. ATTORNEY:

It has to be handwritten and stamped and registered.

Attorney

General Special

General refers to all transactions. Special refers to a particular transaction.

Precautions to be taken by the banker:

1. Examination of power of Attorney or document.2. Time period of the power.3. No loan or O/D unless there is a special power. (unless otherwise there is a special power in the

document.4. The Real owner can cancel the power of Attorney at any time.

9. JOINT HINDU FAMILY:

A family which is governed by the Hindu law. (where group of people living together)

Precautions to be taken by the banker: JHF

1. Knowledge of law and custom.2. Dealing with KARTA. Trading JHF JHF3. KARTA personally liable. (KARTA-leader ,the senior most person in age)4. Members liable to the extent of their share.5. Purpose of loan. Involved in business6. For Trading JHF- Manager & KARTA can pledge & borrow.

10. PARTNERSHIP FIRM:

It is governed by Indian partnership Act 1932.


1. Study the partnership deed.2. Opening of Account.3. Letter or Mandate from partners. (Mandate-Financial rights of partners)4. Revocation of Authority and stop payment of cheque.5. Firm’s cheque endorsed in favour of a partner.6. Implied Authority of a partner.7. Borrowing powers of partners.8. Order of payment of firm’s debt & personal debts.9. Reconstruction of a firm.

11. JOINT STOCK COMPANY:

Artificial person by companies Act 1956.

Separate existence & it can sue & be sued by others.


1. Verify the certificate of incorporation.2. Verify the certificate of commencement of business.3. Verify the MOA & AOA.4. Obtain a copy of MOA & AOA.5. Obtain a copy of financial statements.6. Obtain a copy of Board of Resolution.7. Borrowing powers of the company.

12. SOCIETIES & OTHER NON-TRADING ASSOCIATIONS:

An Artificial person- by societies Registration Act or the co-operative societies Act.

(Ex) Educational Institutions, Hospitals, Clubs, Other Associations etc,

Precaution to be taken by the banker:

1. Verify the Registration.2. Get the copies of Memorandum & Article.3. Check the Objective.4. Check the rules and bye-laws.5. Get a copy of resolution.6. Person to operate the account.7. Borrowing powers.

13. LOCAL AUTHORITIES:

An Artificial person by government provisions. (Ex) Panchayat, Municipality, corporation etc.,


1. Study the provision which is given in the special Act.2. Different accounts for each section.3. Copy of Resolution.4. Borrowing power for O/D.5. The person to operate the a/c.

OPENING & CLOSING OF ACCOUNTS:

OPENING OF ACCOUNTS:

1. Application.2. Style of account or type of account.3. Fill in the application.4. ID proof.5. Address proof.6. Two photographs.

7. Introduction if necessary.8. Fill in the Chelan.9. Submission of application.10. Remittance of cash.11. Obtaining the passbook & cheque book if necessary.

CLOSING OF ACCOUNTS:

1. Closure by the customer.2. Closure by the Banker.3. Closure by legal procedure/ Order of court.

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