Have a Great day: July 2019

Unit -1

Banker and Customer – Definition – Relationship – Functions of Commercial Banks – Recent Development in Banking

Introduction to Banker and Customer

The relationship between a banker and a customer depends on the activities; products or services provided by the bank to its customers or availed by the customer. Thus the relationship between a banker and customer is the transactional relationship. Bank’s business depends much on the strong bondage with the customer. “Trust” plays an important role in building a healthy relationship between a banker and customer.

Who is Banker?

The term banking may define as accepting of deposit of money from the public for the purpose of lending or investing investment of that money which are repayable on demand or otherwise and with a draw by cheque, draft or order.

Who is Customer?

A a person who has a bank account in his name and for whom the banker undertakes to provide the facilities as a banker is considered to be a customer.

Definition for Banker

In 1899, the United States Supreme Court (Austen) used these words:

"A banker ... is a trader who buys money, or money and debts, by creating other debts, which he does with his credit - exchanging for a debt payable in the future one payable on demand.

"The the first business of a banker is not to lend money to others but to collect money from others.

"A banker (is) a dealer in the capital, or, more properly, a dealer in money. He is an intermediate party between the borrower and the lender. He borrows one party and lends to another."

Definition of a Customer:

There is no statutory definition of a customer, but banks appear to rely upon to recognize a customer:

For a person to be known as a customer of the bank there must be either a current account or any sort of deposit account like saving, term deposit, recurring deposit, a loan account or some similar relation.

Banker-Customer Relationship:

Banking is a trust-based relationship. There are numerous kinds of relationship between the bank and the customer. The relationship between a banker and a customer depends on the type of transaction. Thus the relationship is based on contract, and on certain terms and conditions.

General Relationship:

1. Debtor-Creditor: When a 'customer' opens an account with a bank, he fills in and signs the account opening form. By signing the form he enters into an agreement/contract with the bank. When a customer deposits money in his account the bank becomes a debtor of the customer and customer a creditor. The money so deposited by the customer becomes the bank’s property and the bank has a right to use the money as it likes. The bank is not bound to inform the depositor of the manner of utilization of funds deposited by him. Bank does not give any security to the depositor i.e. debtor. The bank has borrowed money and it is only when the depositor demands, banker pays. Bank’s position is quite different from normal debtors.

2. Creditor-Debtor: Lending money is the most important activities of a bank. The resources mobilized by banks are utilized for lending operations. Customer who borrows money from bank owns money to the bank. In the case of any loan/advances account, the banker is the creditor and the customer is the debtor. The relationship in the first case when a person deposits money with the bank reverses when he borrows money from the bank. Borrower executes documents and offers security to the bank before utilizing the credit facility.

Special Relationship:

1. Bank as a Trustee: As per Sec. 15 of the ‘Indian Trust Act, 1882 ‘A trustee is bound to deal with the trust-property as carefully as a man of ordinary prudence would deal with such property if it were his own; and, in the absence of a contract to the contrary, a trustee so dealing is not responsible for the loss, destruction or deterioration of the trust-property.’ A trustee has the right to reimbursement of expenses (Sec.32 of Indian Trust Act.).

2. Bailee – Bailor: Sec.148 of Indian Contract Act, 1872, defines "Bailment" "bailor" and "bailee". A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

The person delivering the goods is called the "bailor". The person to whom they are delivered is called, the "bailee".

3. Lessor and Lessee: Sec.105 of ‘Transfer of property Act 1882’ defines lease, Lessor, lessee, premium, and rent. As per the section “A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.”

Definition of Lessor, lessee, premium, and rent:

(1)The the transferor is called the lessor,

(2)The the transferee is called the lessee,

(3)The price is called the premium, and

(4)The money, share, service or other things to be so rendered is called the rent.”

The relationship between the bank and the customer is that of lessor and lessee. Banks lease (hire lockers to their customers) their immovable property to the customer and give them the right to enjoy such property during the specified period i.e. during the office/ banking hours and charge rentals. Bank has the right to break open the locker in case the locker holder defaults in payment of rent. Banks do not assume any liability or responsibility in case of any damage to the contents kept in the locker. Banks do not ensure the contents kept in the lockers by customers.

4. Agent and Principal: Sec.182 of ‘The Indian Contract Act, 1872’ defines “an agent” as a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done or who is so represented is called “the Principal”.

Thus an agent is a person, who acts for and on behalf of the principal and under the latter’s express or implied authority and the acts done within such authority are binding on his principal and, the principal is liable to the party for the acts of the agent.

Banks collect cheques, bills, and makes payment to various authorities viz., rent, telephone bills, insurance premium, etc., on behalf of customers. Banks also abide by the standing instructions given by their customers. In all such cases bank acts as an agent of its customer, and charges for these services. As per Indian contract, Act agent is entitled to charges. No charges are levied in the collection of local cheques through clearing house. Charges are levied in only when the cheque is returned in the clearinghouse.

5. As a Custodian: A custodian is a person who acts as a caretaker of something. Banks take legal responsibility for a customer’s securities. While opening a Demat account bank becomes a custodian.

6. As a Guarantor: Banks give a guarantee on behalf of their customers and enter into their shoes. A guarantee is a contingent contract. As per sec 31, of Indian contract Act guarantee is a " contingent contract ". A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.

Commercial Banks

Introduction

Commercial banks are the most important components of the whole banking system.

A commercial bank is a profit-based the financial institution that grants loans, accepts deposits and offers other financial services, such as overdraft facilities and electronic transfer of funds.

Commercial banks play a significant role in fulfilling the short-term and medium-term financial requirements of industries. They do not provide, long-term credit, so that liquidity of assets should be maintained. The funds of commercial banks belong to the general public and are withdrawn at a short notice; therefore, commercial banks prefer to provide credit for a short period of time backed by tangible and easily marketable securities. Commercial banks, while providing loans to businesses, consider various factors, such as nature and size of the business, financial status, and profitability of the business, and its ability to repay loans.

According to Culbertson,

“Commercial Banks are the institutions that make short make short term bans to business and in the process create money.”

Commercial banks are of three types, which are as follows:

(a) Public Sector Banks:

Refer to a type of commercial banks that are nationalized by the government of a country. In public sector banks, the the major stake is held by the government. In India, public sector banks operate under the guidelines of the Reserve Bank of India (RBI), which is the central bank. Some of the Indian public sector banks are State Bank of India (SBI), Corporation Bank, Bank of Baroda, Dena Bank, and Punjab National Bank.

(b) Private Sector Banks:

Refer to a kind of commercial banks in which major part of share capital is held by private businesses and individuals. These banks are registered as companies with limited liability. Some of the Indian private sector banks are Vysya Bank, Industrial Credit and Investment Corporation of India (ICICI) Bank, and Housing Development Finance Corporation (HDFC) Bank.

(c) Foreign Banks:

Refer to commercial banks that are headquartered in a foreign country, but operate branches in different countries. Some of the foreign banks operating in India are Hong Kong and Shanghai Banking Corporation (HSBC), Citibank, American Express Bank, Standard & Chartered Bank, and Grindlay’s Bank. In India, since financial reforms of 1991, there is a rapid increase in the number of foreign banks. Commercial banks mark significant importance in the economic development of a country as well as serving the financial requirements of the general public.

Functions of Commercial Banks:

Commercial banks are institutions that conduct business for profit motive by accepting public deposits for various investment purposes.

The functions of commercial banks are broadly classified into primary functions and secondary functions, which are shown in Figure-1:

The functions of commercial banks (as shown in Figure-1) are discussed as follows:

(a) Primary Functions:

Refer to the basic functions of commercial banks that include the following:

(i) Accepting Deposits:

Implies that commercial banks are mainly dependent on public deposits.

There are two types of deposits, which are discussed as follows:

(1) Demand Deposits:

Refer to kind of deposits that can be easily withdrawn by individuals without any prior notice to the bank. In other words, the owners of these deposits are allowed to withdraw money anytime by simply writing a check. These deposits are part of the money supply as they are used as a means for the payment of goods and services as well as debts. Receiving these deposits is the main function of commercial banks.

(2) Time Deposits:

Refer to deposits that are for a certain period of time. Banks pay higher interest on time deposits. These deposits can be withdrawn only after a specific time period is completed by providing written notice to the bank.

(3) Advancing Loans:

Refers to one of the important functions of commercial banks. The public deposits are used by commercial banks for the purpose of granting loans to individuals and businesses. Commercial banks grant loans in the form of overdraft, cash credit, and discounting bills of exchange.

(b) Secondary Functions:

Refer to the crucial functions of commercial banks. The secondary functions can be classified under three heads, namely, agency functions, general utility functions, and other functions.

These functions are explained as follows:

(1) Agency Functions:

Implies that commercial banks act as agents of customers by performing various functions, which are as follows:

(i) Collecting Checks:

Refer to one of the important functions of commercial banks. The banks collect checks and bills of exchange on the behalf of their customers through clearing house facilities provided by the central bank.

(ii) Collecting Income:

Constitute another major function of commercial banks. Commercial banks collect dividends, pension, salaries, rents, and interests on investments on behalf of their customers. A credit voucher is sent to customers for information when any income is collected by the bank.

(iii) Paying Expenses:

Implies that commercial banks make the payments of various obligations of customers, such as telephone bills, insurance premium, school fees, and rents. Similar to a credit voucher, a debit voucher is sent to customers for information when expenses are paid by the bank.

(2) General Utility Functions:

Include the following functions:

(i) Providing Locker Facilities:

Implies that commercial banks provide locker facilities to its customers for safekeeping of jewelry, shares, debentures, and other valuable items. This minimizes the risk of loss due to theft at homes.

(ii) Issuing Traveller’s Checks:

Implies that banks issue traveler’s checks to individuals for traveling outside the country. Traveler’s checks are a safe and easy way to protect money while traveling.

(iii) Dealing in Foreign Exchange:

Implies that commercial banks help in providing foreign exchange to businessmen dealing in exports and imports. However, commercial banks need to take permission of the central bank for dealing in foreign exchange.

(iv) Transferring Funds:

Refers to transferring of funds from one bank to another. Funds are transferred by means of the draft, telephonic transfer, and electronic transfer.

(3) Other Functions:

Include the following:

(i) Creating Money:

Refers to one of the important functions of commercial banks that help in increasing the money supply. For instance, a bank lends Rs. 5 lakh to an individual and opens a demand deposit in the name of that individual.

Bank makes a credit entry of Rs. 5 lakh in that account. This leads to the creation of demand deposits in that account. The point to be noted here is that there is no payment in cash. Thus, without printing additional money, the supply of money is increased.

(ii) Electronic Banking:

Include services, such as debit cards, credit cards, and Internet banking.

Recent Trends in Banking

Already the Indian banking sector is making a substantial investment in forming the digital infrastructure to offer various solutions like mobile banking, e-wallets and virtual cards, etc. Payment Systems have paved the way for New Banking Paradigms by bringing new financial technology driven instruments with customer’s satisfaction and risk mitigation techniques.

Technology that is driven by innovation and its ability to design new products and services is dynamic and hard to predict precisely. One would not have thought about making transactions in simple touches, but technology has made it possible. Today, mobility and customer ease are viewed as the basic factors of growth and banks are continually evolving with new technology. Markets for banks are completely customer driven and hence technology needs to be customer-centric ease of use and safety of transactions. Technology thus plays an enabler role in providing a win-win tool for both the banks and their customers.

The major trends that are expected to influence the Indian banking sector in 2018 will be:

Digital-only/Virtual Banking: Digital-only banks are paperless, branchless and signature-less. In India, these banks are running on the Aadhar’ s infrastructure and providing end-to-end services through digital platforms like mobile, tablets and internet.

Biometric Technology: Linking of Aadhaar number to accounts has enabled banks to recognize their customer by evaluating one or more distinguishing biological traits like face, hand, retina, voice, and ear features in the wake of an issue. The growth of such technology is far more reliable and will continue to spread across in the times to come since it can eliminate the requirement of multiple passwords and PINs.

Artificial Intelligence: Artificial Intelligence has provided personalized services by dealing with each customer and focusing on his or her specific requirements. It will be used to collect information and automatically build models based on that information. Large banks have already introduced this in their services, others are likely to follow.

Blockchain Technology: NITI Aayog is creating ‘IndiaChain’- India’s largest blockchain network, to reduce fraud, speed up contract enforcement and increase transparency in India. As Blockchain is virtually un-hackable due to time stamps that mark a data entry in a distributed ledger, banks will explore options to leverage the power of blockchain to transform backend operations.

Bitcoin: In India, the RBI hasn’t yet authorized the use of bitcoins cautioning the users, holders and traders of bitcoins about the potential financial, operational, legal, customer protection, and security-related risks. Despite this, bitcoin exchange platforms like BTCX India, Coinsecure, Unocoin and Zebpay are operating in India.

Augmented Reality: Today, AR mobile app has been launched by banks listing all dining destinations, property lists, shopping centers, bank ATMs and branches, etc. with pictures along with distance and directions. It is majorly prevalent in the private banking sector as of now. Going forward, installation of Bluetooth beacons at bank branches will allow banks to integrate physical and mobile channels to provide effective communication.

Cloud and IoT Technology: It is the only technology that supports many other disruptive technologies such as big data, artificial intelligence (AI), and blockchain. Banks have begun to realize the degree of agility it brings into business, a fact that has already been evident through the success of fintech companies. As a result, business models for banks in the future are expected to give much greater emphasis to cloud computing.

Banking innovations are driven by technology, government regulations, and private players are leading to greater financial inclusion, as everyone will get access to advanced banking services and a wide range of financial offerings. The aforementioned trends are sure to play a key role in banking transitions.

Unit – II

Negotiable Instrument Act – Crossing – Endorsement – Material Alteration – Payment of Cheques – Circumstances for dishonor – Precautions and statutory Protection of paying and collecting Banker.

Meaning of Negotiable Instrument

Whenever one thinks of negotiable instruments meaning (or NIs) the thoughts of cheques and bills of the exchange comes to mind.

In India, the Negotiable Instruments Act, 1881 is responsible for governing NIs. This law defines these instruments and also deals with each type of them individually.

It governs the use of cheques, promissory notes, and bills of exchange. There are other customary payment methods similar to NIs in India (like Hundis) but this law does not cover them.

Other modes of transactions can also be similar to NIs if they fulfill certain basic requirements. For example, any instrument can be a NI if it is freely transferable by delivery or endorsement. Furthermore, it should carry certain rights, like the right of the holder to use for it in his own name.

What are Negotiable Instruments?

A a negotiable instrument is actually a written document. This document specifies payment to a specific person or the bearer of the instrument at a specific date. So we can define a bill of exchange as “a document signifying an unconditional promise signed by the person giving promise, requiring the person to whom it is addressed to pay on demand, or at a fixed date or time, a certain sum to or to the order of a specified person, or to bearer.”

Features of Negotiable Instruments

Easily Transferable: A negotiable instrument is easily and freely transferable. There are no formalities or much paperwork involved in such a transfer. The ownership of an instrument can transfer simply by delivery or by a valid endorsement.

Must be Written: All negotiable instruments must be in writing. This includes handwritten notes, printed, engraved, typed, etc.

Time of Payment must be Certain: If the order is to pay when convenient then such an order is not a negotiable instrument. Here the time period has to be certain even if it is not a specific date. For example, it is acceptable if the time of payment is linked with the death of a specific individual. As death is a certain event.

Payee also must be certain: The person to whom the payment is to be made must be a specific person or persons. Also, there can be more than one payee for a negotiable instrument. And “person” includes artificial persons as well, like body corporates, trade unions, chairman, secretary, etc.

Types of Negotiable Instruments

Let us take a look at some of the most common types of negotiable instruments.

Promissory Note: In this case, the debtor is the one who makes the instrument. And he promises unconditionally to the creditor (or the bearer of the document) a certain sum of money on a specific date.

Bills of Exchange: This is an order from the creditor to the debtor. This instrument instructs the drawee (the debtor) to pay the payee a certain amount of money. The bill will be made by the drawer (the creditor)

Cheque: This is just another form of a bill of exchange. Here the drawer is a bank. And such a cheque is only payable on demand. It is basically the depositor instructing the bank to pay a certain amount of money to the payee or the bearer of the cheque.

Others: There are other instruments such as government promissory notes, railway receipts, delivery orders, etc. These can be negotiable instruments by custom or practice of the trade.

The crossing of Cheque (or) Nis

A cheque is a negotiable instrument. It can either be open or crossed. An open cheque is the bearer cheque. It is payable over the counter on presentment by the payee to the paying banker. While a crossed cheque is not payable over the counter but shall be collected only through a banker. The amount payable for the crossed cheque is transferred to the bank account of the payee.

Crossing a Cheque

A crossing is an instruction to the paying banker to pay the amount of cheque to a particular banker and not over the counter. The crossing of the cheque secures the payment to a banker.

It also traces the person so receiving the amount of cheque. Addition of words ‘Not negotiable’ or ‘Account Payee only’ is necessary to restrain the negotiability of the cheque. The crossing of a cheque ensures security and protection to the holder.

However, we can negotiate a crossed bearer cheque by delivery and a crossed order cheque by endorsement and delivery.

Types of Cheque Crossing (Sections 123-131 A):

1. General Crossing – cheque bears across its face an addition of two parallel transverse lines.

2. Special Crossing – cheque bears across its face an addition of the banker’s name.

3. Restrictive Crossing – It directs the collecting banker that he needs to credit the amount of cheque only to the account of the payee.

4. Non-Negotiable Crossing – It is when the words ‘Not Negotiable’ are written between the two parallel transverse lines.

Endorsement of Instruments

The act of a person who is a holder of a negotiable instrument in signing his or her name on the back of that instrument, thereby transferring title or ownership is an endorsement. An endorsement may be in favor of another individual or legal entity. An endorsement provides a transfer of the property to that other individual or legal entity. The person to whom the instrument is endorsed is called the endorsee. The person making the endorsement is the endorser. Let us discuss the Endorsement of Instruments here in detail.

1. Blank Endorsement or General Endorsement

An endorsement is blank or general where the endorser signs his name only, and it becomes payable to bearer. Thus, where a bill is payable to “Ram or order”, and he writes on its back “Ram”, it is an the endorsement in blank by Ram and the property in the bill can pass by a mere presentation.

We can convert a blank endorsement into an endorsement in full. We can do so by writing above the endorser’s signature, a direction to pay the instrument to another person or his order.

2. Special or Full Endorsement

An endorsement “in full” or a special the endorsement is one where the endorser puts his signature on the instrument as well, as writes the name of a person to whom order the payment is to be made.

A bill made payable to Ram or order, and endorsed “pay to the order of Shyam” would be specially endorsed and Shyam endorses it further. We can turn a blank endorsement into a special one by adding an order making the bill payable to the transferee.

3. Restrictive Endorsement

An endorsement is restrictive which restricts the further negotiation of an instrument.

Example of restrictive endorsement: “Pay to Mrs. Geeta only” or “Pay to Mrs. Geeta for my use” or “Pay to Mrs. Geeta on account of Reeta” or “Pay to Mrs. Geeta or order for collection”.

4. Partial Endorsement

An endorsement partial is one which allows transferring to the endorsee a part only of the amount payable on the instrument. This does not operate as a negotiation of the instrument.

Example: Mr. Mohan holds a bill for Rs. 5,000 and endorses it as “Pay Sohan or order Rs. 2500”. The endorsement is partial and invalid.

5. Conditional or Qualified Endorsement

Where the endorser puts his signature under such writing which makes the transfer of title subject to fulfillment of some conditions of the happening of some events, it is a conditional endorsement.

Material Alteration

What is Material alteration?

The term ‘material alteration indicates alteration or change in the material parts of the instrument. It may be defined as any change, which alters the very nature of the instrument. Thus, it is the alteration, which changes and destroys the legal identity of the original instrument and causes it to speak a different language in legal effect from that which it originally spoke.

A material alteration makes the instrument void, i.e., inoperative and affects the rights and obligations of the parties to the instrument. It, however, does not affect one who becomes a party to an instrument subsequent to its material alteration, if any.

Accordingly, an alteration can be termed as material alteration, if it is such that it alters or attempts to alter the the character of the instrument and effects or attempts to affect the contract, which the instrument contains. It may arise not only by means of altering, changing, or erasing a certain thing already written on the instrument, but also by a new insertion.

Instances of Material Alteration

The following are considered as a material alteration.

1. Alteration of the date of the instrument

2. Alteration of the amount payable

3. Alteration in time of payment

4. Alteration of the place of payment

5. Alteration of the rate of interest or any change of party thereto, if any

6. Tearing of the material part of the instrument

7. Where a bill is accepted generally, the insertion of a place of payment

8. Addition of a new party to the instrument

9. Addition of words to a bill of exchange endorsed in blank so as to convert the same into a special endorsement.

Payment of Cheques

As per section 31 of the Negotiable Instrument Act, 1881 the provision is given as follows.

 “the drawee of a cheque having sufficient funds of the drawer in his hands, properly applicable to the payment of such cheque, must pay the cheque when duly required to do so and in default, such payment must compensate the drawer for all loss or damage caused by such default”

 It means the banker is bound to honor the cheque is drawn by the customer.

 The term ‘applicable to the payment cheque’ implies that the cheque should fulfill the necessary conditions.

 This obligation of the banker is very delicate and crucially important. The banker should also keep himself safe while honoring the cheque. The banker has to see that the cheque is paid to the proper payee.

Dishonor of cheque meaning:

A cheque is said to be honored if the banks give the amount to the payee. While, if the bank refuses to pay the amount to the payee, the cheque is said to be dishonored. In other words, dishonor of cheque is a condition in which a bank refuses to pay the amount of cheque to the payee.

Whenever the cheque is dishonored, the drawee bank instantly issues a ‘Cheque Return Memo’ to the payee banker specifying the reasons for dishonor. The payee banker provides the memo and the dishonored cheque to the payee. The payee has an option to resubmit the cheque within three months of the date specified on the cheque after fulfilling the reason for the dishonor of cheque.

Moreover, the payee has to give notice to the drawer within 30 days from the date of receiving “Cheque Return Memo” from the bank. The notice should state that the cheque amount will be paid to the payee within 15 days from the date of receipt of the notice by the drawer.

However, if the drawer fails to make a fresh payment within 30 days of receiving the notice, the payee has the right to conduct a legal proceeding against the defaulter as per Section 138 of the Negotiable Instruments Act.

Reasons for Dishonour of Cheque

1. If the cheque is overwritten.

2. If the signature is absent or the signature in the cheque does not match with the specimen signature kept by the bank.

3. If the name of the payee is absent or not clearly written.

4. If the amount is written in words and figures do not match with each other.

5. If the account number is not mentioned clearly or is altogether absent.

6. If the drawer orders the bank to stop payment on the cheque.

7. If the court of law has given an order to the bank to stop payment on the cheque.

8. If the drawer has closed the account before presenting the cheque.

9. If the fund in the bank account is insufficient to meet the payment of the cheque.

10. If the bank receives the information regarding the death or lunacy or insolvency of the drawer.

11. If any alteration made on the cheque is not proved by the drawer by giving his/her signature.

12. If the date is not mentioned or written incorrectly or the date mentioned is of three months before.

 The following are the precautions that a banker has to take at the time of honoring the cheque.

A. Precautions regarding Genuineness of the Cheque:

1. A proper form of the cheque: As defines by The Negotiable Instrument Act, there is no prescribed form for the cheque generally available. It is also not clear that the cheque must be handwritten or it must be in printed form. But it is generally accepted by all the banks that the cheque must be drawn on a bank’s printed forms and the bank reserves its right to refuse payment of any Cheques drawn otherwise.

2.Date of the cheque: A cheque without a date will not create any obligation on the part of banker for the payment of that cheque. As the mandate will create the obligation only after the date mentioned on the cheque. So the date on a cheque drawn must be written by the drawer. Here, we must consider the point of the alteration as the cheque without a date is not invalid as the holder of the instrument can fill the date and can present the same for the payment.

3. The proper place for presentation: The cheque must be presented in the branch of the drawee bank only. If the cheque is presented in such a branch of the bank where the specimen signature of the drawer is not available, the encashment process becomes somewhat lengthy. Here the withdrawal is to show from the customer’s account at the original first branch.

4. Presentation at the proper time: The cheque for the payment must be presented on a working date and during working hours.

5. Amount of Cheque: The amount on the cheque must be certain. Amount in words and figures should tally. If it does not match each other, the bank will reject the payment. In some cases, the amount written in words will be taken for consideration and the cheque may be accepted. (sec. 18)

6. The crossing of the Cheque: The payment of the crossed cheque is made according to the instructions conveyed in the cheque by the drawer through the crossing. The crossing provides the protection under section 128.

7. Material Alteration: the drawer can alter the details of the cheque by countersigning or initials. The alteration without countersign makes it invalid. The alteration of date, name of the payee, amount or of any crossing would be material. However, the banker is protected under Sec. 84 if he pays the cheque with the alterations under the following circumstances:

- if the alteration is not apparent

- if the payment is according to the the apparent tenor of the instrument.

8. Signature of a customer on a cheque: The paying banker should carefully ascertain that the cheque bears a genuine signature of the drawer after comparing the same with his specimen signature. The drawer must sign the cheque at its face and not on the back side. The account holder can change the signature by giving the new specimen signature to the bank any time. Cheque with a different sign will not be accepted by the bank.

9. Name of a payee endorsement: when a cheque payable to order has a meaning to be endorsed by or on behalf of the payee, the drawer is discharged by payment in due course. For such protection to the banker, following two conditions must be satisfied:

◦ The endorsement must be Regular: when the the endorsement is made with the signature-containing same name and signature of the payee, it is said to be regular.

◦ Payment must be made in due course.

10. A cheque should not be void or torn or mutilated: A cheque torn at the corner can be accepted but if a part of the cheque is missing then it can be rejected by the banker.

Have a Great day

Wednesday, July 10, 2019

Strategic Management Study Materials

Banking Insurance and Law Unit 1 & 2

Banking Insurance and Law

Dr. R.A.Ayyapparajan