|
 


 

Ruchi Mehrotra, Alliance Business Academy

 |review of Chapter - 2
ï Nature of Banking Business
ï Meaning of |aying Banker
ï Mandatory Functions of |aying Banker
ï Statutory |rotection to |B
ï Dishonor of Cheques
ï Various NIs
 Nature of Banking Business
ï BRAct 1949, defines in Sec 5b what banks
have to do.

Collect deposits Lend money so

from public Collected /invest
 Nature of Banking Business
DE| SITS

Demand deposits Time deposits

Withdrawn anytime by - Are made in 2 types of
Cheque or normal slip A/cs current / Savings
DDs/Telegraph/transfers
payorders
 |aying Banker
ï Bank ± Savings a/c, current a/c, deposit a/c
ï Thus the banker has contractual obligation to
honor customer¶s cheque across the counter.
ï The banker who pays the value of instrument is
called paying banker or drawee bank.
ï The payment to be made by him has arisen due to
the contractual obligation, as the cheque is drawn
on him so he is called as drawee bank.
 |aying banker
ï Sec31 of NI Act ± the drawee of a cheque,
having sufficient funds of the drawer in his
hands properly applicable to the payment of
such a cheque, must pay the cheque when
duly reqd. to do so & in default of such
payment must compensate the drawer for
any loss or damage caused by such default.
 á  
|

  

|
  

|   |
  ffice of þ  ß


Ô  Amount
    drawing  



Material Legal ¢



Signature Endorsements Restrictions
alteration 

 Legal restrictions
ï Invalid cheques should not be honored at all
ï Invalidity will take place into forms ±
1. By countermanding by customer himself ± stop
payment of cheque. Telegram, phone but express
agreement ± writing
2. Caused by death, lunacy, by serving garnishee
order, insolvency etc
 Statutory protection
ï  ¢   


ï  
 
 
 

 

   
!  "   
#
ï $"#% &!
! 

 '#
 Statutory protection
ï NI Act - Sec 85, 89, 128 deals with role of
|B
ï For instruments like bank draft, cheque
ï Sec 85 (1)± regularity of endorsement ± no
break in the chain of endorsements ± |B is
not concerned with genuineness
ï Sec 85(2) ± all endorsements on a bearer
cheque are meaningless (once a bearer is
always a bearer)
 Statutory protection
Sec 85(a) ± protection similar to Sec 85(1) &
Sec 85(2) are available for a bank draft
ï Sec 89 ± cheq. With material alteration
which is not visible
ï Sec 128 ± for a crossed cheque, if payment
is in due course, the |B gets protection
   
¢  
     


 

   

  



 


   
 

!
ß   



"#   

  
   
 !ß   
 


 


 |recautions
#      $
%ßÔ %¢¢
%


  
 
 
  
 
$ 
  
"#  
& 

 
 
 
 

° %  
° Ô 
 |recautions
¢

  

   



"



  
 È    
 

 
 |


  
      

 

    
    

  
       
 
 
   


 !
" |      
 !
#   
|
 
$%& !' (
  


 Crossed cheques
ï |rotection given to |B regarding the payment of
crossed cheques to a person other than the true
owner is given u/s 128 of NI Act
ï This provision states that when the |B makes
payment in due course regarding the crossed
cheque he is discharged of the liability as he is
deemed to have paid the value to the true owner.
 Materially altered cheques
ï Where a promissory note, B E, or wher a
cheque has been altered but does not appear
to have been altered or
ï Where a cheque is presented for payment
which does not at the same time of
presentation appear to be crossed or have
had a crossing
 Materially altered cheques
|rotection
ï |rotection± |B is protected of any payment
made regarding materially altered cheques
provided
the material alteration is not noticeable even
by careful examination
the payment is a payment in due course
What is payment in due course ?
ï Sec10 states that payment in accordance
with the apparent tenor of the instrument in
good faith & without negligence to any
person in possession 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.
What is payment in due course ?
ï |ayment in accordance with the apparent
tenor of instrument ± banker should pay as
per instruction given by drawer like no
partial payment, or payment of crossed one
at counter or beyond/prior date
ï In good faith & without negligence ±
sincere & honest payment
What is payment in due course ?
ï |erson in possession thereof ± legitimate
person, legal holder of person or else its a
wrong payment
ï Under circumstances which don¶t afford a
reasonable ground for believing that he is
not entitled to receive payment of amt.
ï |ayment in
money only it may mean legal
money/BoE/|N if payee agrees to pay in this form
 Dishonor of cheques - á ¢(
ï When countermand by customer
ï Banker receives notice of death of customer
ï rder of insolvency of customer
ï Lunatic condition of customer
ï Garnishee order in absolute
 $)  dishonor of cheque?
ï 
 ! 
ï %
! 
&

ï á) 
 

ï *!" 
ï +"  !   

$ ±   dishonor of cheque?
ï Any violation of F REX rules ± RBI
norms, for currency conversion
ï þ !   
 
 "  
!
 Closure of accounts
ï Savings by choice of customer / by force
ï Current
‡ If customer is erratic
‡ Irregular
‡ Criminal record
‡ Reasonable good
 +"  á,-dishonored
ï Funds at the credit is insufficient in one
account
ï Signature does not tally with specimen
ï Not dated cheque, post dated or bears
incomplete date or impossible date
ï |resented after banking hours
ï Irregular endorsements
 +"  á,-dishonored
ï Amount only in words
ï Mutilated cheque not confirmed by drawer
ï Not drawn in proper form
ï Not written in clear terms
ï Having material alteration
ï |resented in other branch where collection
is not possible
 +"  á,-dishonored
ï Acount is subject to set-off or bank has
marked lien over it
ï Cheque is not signed by all authorized
signatories in case of joint accounts
operated by joint holders
 + 

ï Refer to drawer - RD
ï Effect not cleared - ENC
ï Not sufficient balance ± credit ± NS
ï Endorsement irregular ± EI
ï No account ± NA
ï No effect ± NE
 + 
 contd.
ï No funds ± NF
ï Not arranged for ± NAF
ï Exceeds arrangements ± EA
ï Discharge required ± DR
ï Words & figures differ ± W & FD
ï Drawer deceased ± DD
 + 
 contd.
ï Drawer inslvent ± DI
ï Drawer insane ± DI
ï Account closed
ï Irregularly drawn
ï Stop payment by court order
ï Countermanded by customer
ï Sign. ± different
 Mandate
ï Means simple , unstamped , written
authority given by a customer to the banker
authorizing his agent to operate on his bank
account
ï This legally permits the bank to honor
cheques signed by the mandatory (agent) or
by the person to whom such power to sign
is granted by customer
 Mandate
ï Itcan be for specific operations , time etc
ï Deviations made by banker can make him
fall into trouble
ï He cannot further delegate to any one else
ï Mandate ceases when a/c holder goes
lunatic, dies insolvent etc
ï Specifc inst. In case of joint a/cs
 |
 
 


¢
  .

ï Due to insufficiency of FUNDS in drawer¶s

account which was earlier upto one year
imprisonment or with fine has been
increased upto two years imprisonment or
with fine.
ï For a holder, the period to issue notice to
the drawer of dishonored cheque has been
increased from 15 days to  .
 |
 
 


¢
  .

ï Cognizance can now be taken even if compliant

is made after the expiry of the stipulated period
of one month provided the complainant satisfies
the court that he has sufficient cause for not
making the complaint within such period.
ï Mode of service of summons : The summons
can be served by speed post/ authorized courier
services & if not accepted will be treated as
duly served.
  
ï |rovisions of summary trail in the code of
criminal procedure 1973 made it applicable
& offences shall be tried by Class I Judicial
Magistrate or by a Metropolitan Magistrate
ï Trial to be concluded as expeditiously as
possible & the effort to be made to conclude
the trail within six months.
  
ï Incase of conviction (certainty) in a trial,
the Magistrate has been empowered to pass
a sentence not exceeding 1 yr imprisonment
& fine not exceeding Rs 5000.
ï ffences under the Act made
compoundable
  
ï Directors of Companies who are nominated
directors in the in the employment of central
/ state govt. or FIs, owned or controlled by
central/state govt. are exempted from
prosecution.
¢ þ" 
ï Sec 138 ± drawers liability for cheque
returned unpaid for insufficient funds
ï Sec 139 ± unless proved otherwise, it will
be presumed that the cheque has been
issued for discharge of a debt/liability
ï Sec 140 ± the drawer cannot plead that he
did not expect the cheque to be dishonored
¢ þ" 
ï Sec 141 ± offences made by companies
ï Sec 142 ± Cognizance of offences
ï Sec 143 ± power of courts to try cases
summarily
ï Sec 144 ± Mode of service of summons
¢ þ" 
ï Sec 145 ± Evidence of affidavit
ï Sec 146 ± Bank slip prima facie evidence of
certain facts
ï Sec 147 ± ffences to be compoundable
Banker has protections when to pay &
when to dishonor ± but if without
negligence (wrongful dishonor) as a
paying banker it has make good the
loss of customer.