Origin of the word "Bank"
Definition : "Bank"
Statutory Definition
Banking Company
"Banks" and "Banking Companies" : Distinction
Exception of banking company
Accepting of deposits by unincorporated companies etc.
Approved Securities
Business of banking (Section 6)
Non-banking business
"Banker"
No satisfactory definition
Money lenders are not banker
Difference between banking and money lending
Who can be a Banker or Bank
I. Section 3 of Negotiable Instruments Act, 1881
II. Section 11 of the Companies Act, 1956
III. The Reserve Bank of India Act, 1934
IV. The Banking Regulation Act, 1949
Mere accepting deposit is not Banking
Essentials of Banking Company
Restriction on acceptance of deposits
Banking business by Co-operative Societies : S. 56(o) read with S. 22
Money Lender not a Banker
Financial Institutions as a banker
Is Co-operative Banks or Co-operative Societies are Banking Company Under Section 5(c)?
Application of the Act (Banking Regulation Act) to Co-operative Banks
TO WHICH CO-OPERATIVE SOCIETIES THE ACT DOES NOT APPLY?
Name of the Banking Company
Restrictions on use of "banker", "bank" and "banking" (Section 7) Exceptions
Application to Co-operative Society (Section 7)
RBI Circular binding on Co-operative Societies
Social Control of the Banking Companies
Two Significant Event
1) Social Control of the Banking Companies
History
Social Control
National Credit Council
Functions of N.C.C.
(2) Nationalisation of Banking Companies
I. First Phase of 14 Banks
II. Second Phase of six banks
Objects of Nationalisation
Why Nationalisation was preferred in spite of Social Control?
Nationalisation : Unconstitutional
"Rustam Cawasjee Cooper v. Union of India"—(Bank Nationalisation Case)
Ordinance Replaced : Validity of Nationalisation Upheld
Arguments for Nationalisation
Arguments against Nationalisation of banks
Reserve Bank’s policy on New Banks
Reserve Bank on Rural Banking
Minimising the Number of Banks (Planning of keeping only 7 Nationalised Banks)
Powers and Functions of Reserve Bank
1. As to Reserve Fund (S. 17)
2. As to cash reserve (S. 18)
2a. As to ‘repo’ and ‘reverse repo’ rate—See Sec. 12-AB of R.B.I. Act
3. As to loans and advances (S. 20)
4. As to licensing of banking companies (S. 22)
5. As to opening of new, transfer of existing, place of business etc. (S. 23)
6. As to maintenance of a percentage of assets (Ss. 24, 25)
7. As to monthly return, accounts and balance sheet
8. As to inspection (Power of Reserve Bank) (S. 35)
9. Power of the Reserve Bank to give direction (S. 35-A)
10. Further powers and functions of Reserve Bank (S. 36)
11. Power of control over management
12. Supersession of Board of Directors of Banking Company.
13. Acquisition of undertaking of Banking Companies (S. 36AE)
14. Power as to Suspension and winding up of Banking Companies (Ss. 36-B, 37 to 45) and (Ss. 45-A to 45-X)
15. Power as to Reconstruction and Amalgamation of Banking Companies (S. 44-A, 44-B, S. 45)
16. As agent of the Central Government or the State— See in RBI.
Commercial Banks
(A) Indian Banks and Foreign Banks
Foreign Banks in India
A new deal for Foreign Banks
The major theme
Origin of policy
(B) Scheduled Commercial Banks and Non-Scheduled Commercial Banks
Scheduled Commercial Banks
Conditions for inclusion in 2nd Schedule
Privileges and Facilities of Scheduled Banks
(C) Commercial Banks in Public and Private Sector
Public Sector Banks (PSBs)
Private Sector Banks
Private Sector Banks in India
Autonomy For Commercial Banks
Parameters for additional autonomy
Banking Company : Legal States
State of Public Authority
Guidelines for New Private Banks
Functions of Commercial Banks
I. Essential/Primary Functions
II. Subsidiary Functions
III. Miscellaneous Functions Services
(1) Accepting of Deposits
(2) Lending of Money
(3) Issuing of Notes
(4) Remittance of Funds
(5) Use of Cheque
(6) Agencies Services
(7) General Utility Services : Community
(8) General Utility Services
(9) International Banking Services
(10) Merchant Banking Services
PARA-BANKING ACTIVITIES/SERVICES
What are para-banking activities/services?
Purpose of formation of subsidiary companies
Para Banking Companies : N.B.F.C.
Foreign Exchange business/Services
New banking facility for urban slum dwellers in Bhopal
Step to promote IT-enabled financial inclusion package
Licensing of Banking Companies
(1) Necessity of License
At the Commencement of the Act
(2) Procedure of License
(3) Condition for license : [Section 22(3)1
(4) Cancellation of License : Section 22(4)
(5) Appeal and remedy against cancellation [Section 22(5)]
Banking Licence to Postal Department
Unlicensed Banking
Opening of New Branches and Transfer of Existing Place of Business : (Section 23)
Exception
1. Temporary New Branch
2. Change of place of business
Conditions for granting permission [Section 23(2)]
Revocation of permission [Section 23(4)]
Place of business
Restrictions on Opening of New Branches by Co-operative Societies
R.B.I. Circular is binding
Liability of Reserve Bank
LIBERALISED BRANCH AUTHORISATION POLICY
OPERATIONAL GUIDELINES OF BRANCH LICENSING
System of Banking
(1) Central Banking
(2) Unit Banking
Advantage of Unit Banking
Disadvantages of Unit Banking
(3) Branch Banking
(4) Group Banking
(5) Chain Banking
Proxy Banking in India
Reasons for setting-up of Proxy Banking
Benefits to rurals
(6) Merchant Banking Service
Banker’s Merchant Bankers
(7) Universal Banking
Objective
RBI guidelines on Universal Banking
(8) Narrow Banking
What is narrow banking?
What are advantages
What is status of narrow banking in India?
(9) Retail Banking
Background
Basic characteristics
(10) Weekly Banking
RBI releases new rules for private players in banking sector
Minimum equity
Draft rules
RBI’s concern over rising instances of frauds in retail banking
Rating of Banks
Rating Criteria
CAMELS rating criteria
Parameters for rating a bank
Rating Symbols—Domestic Banks
Internet Banking (E-Banking)
Definition
Internet banking in India—NET Banking
Services through E-Banking
Advantage of Internet Banking
Security Precautions
RBI proposes new payment systems
PROVISIONS RELATING TO CERTAIN OPERATIONS OF BANKING COMPANIES
(1) Preservation of records (S. 45-Y)
(2) Return of paid instruments (S. 45-Z)
(3) (i) Nomination for payment of deposit money (S. 45-ZA)
Who can be nominee
Can a minor be a nominee
Rights of nominee
Rights of successor of the depositor
(ii) Notice of claims of other persons regarding deposits not receivable (S. 45-ZB)
(iii) Nomination for return of articles kept in safe custody (S. 45-ZC)
(iv) Notice of claims of other persons regarding articles not receivable (S. 45-ZD)
(v) Nomination for release of contents of safety lockers (S. 45-ZE)
(vi) Notice of claims of other persons regarding safety lockers not receivable (S. 45-ZF)
Chapter IV
Banks and Customers Relation
I. Who is a bank or banker?
II. Who is a Customer?
Frequency anticipated
Dealing to be of a Banking Nature
Essential requisite of Relation
Account—Is Nexus of Relation
Contractual Relation
III. Services rendered by Banks : (Banking Services)
(i) General Services : [Services to depositors and borrowers]
(ii) Ancillary Service
(iii) Special Banking Services
(iv) General Utility Services for all
IV. Relationship Between Banker and Customer
1. Debtor and Creditor
Deposit amount as a debt
Nature of Fixed Deposit : "A Debt"
Fixed Deposit "either or survivor" clause : Meaning
Instructed deposit : not debt
Conditions for payment of deposit amount
Favoured or Privileged Debtor
Taking re-possession by use of force—Unlawful
Discounting of Cheques
Collection of Cheques
2. Trustee and beneficiary
Banker as a trustee and customer as a beneficiary Ccestui que trust)
Deposit of money with Specific Instruction
Safe Custody in Lockers : [See in the Chapter of Bailor and Bailee]
3. Principal and Agent
Other Agency Services
No bank provides service without authority of the customer
4. Trader and Customer (Consumer)
Continuance of Banker’s Service
Mortgage of Joint FDR
5. Bailee and Bailor Relation
Deposit in the account does not amount bailment
Safe Custody of Customer’s valuables
Knowledge of the contents of the lockers
(i) Locker user register
(ii) Safe Custody register
(iii) Withdrawl of articles register
6. Guarantor and Beneficiary
Bank Guarantee
7. Mortgager and Mortgagee
8. Pawnor and Pawnee
9. Lessor and Lessee
Termination of Banker and Customer Relationship
(A) Termination by the customer
(B) Termination by the Banker
I. Under the operation of Law
II. Undesirable Accounts
Reasonable notice to close account
Commercial Viability for maintaining account :
Undesirable Account
Dormant Account
Inoperative (others)
Inoperative (10 years and over) unclaimed deposits
Non-performing Account (NPA)
Non-performing Assets (NPA)
Introduction
NPAs, what is?
INTRODUCTION TO NPA
Types of NPA
Reasons Behind NPA
Effects of NPA on Banks & Financial Institutions
Bad loan of some big banks
Obligations (duties) and rights of banker and customer
I. Banker’s Obligations : Statutory duties of Banks
1. Obligation (duty) to honour cheques
(i) There must be sufficient funds
(ii) The funds must be properly applicable to the payment of the cheque
(iii) The banker must be duly required to pay
(iv) Presentation of cheques within working hours of business
(v) Presentment of cheque within a reasonable time
(vi) Presentment of cheque at the branch where account is kept
(vii) Not a case of justified dishonour
Application of the Garnishee Order to Various Types of Accounts
Rights of the Attaching Creditor
Attachment Order Issued by Income-Tax Authorities
Extension of Liability
2. Obligation to maintain Secrecy of Accounts. '
I. Disclosure of Information Required by Law
II. Disclosure Permitted by Banker’s Practices and Usages
Risks of Unwarranted and Unjustifiable Disclosure
3. Obligation to honour guarantee
4. Obligation to honour letter of Credit
5. Obligation as to recovery of debts
6. Dropping of cheques in drop boxes for collection
Remedies for refusal
Depositing of Cheques by Phone
Common Seal
REGISTRATION, MODIFICATION AND SATISFACTION OF CHARGE
Registration of charges created on the assets of a company
COMPROMISE SETTLEMENT THROUGH LOK ADALATS
R.B.I. GUIDELINES ON LOK ADALATS
DRT LOK ADALATS
HYPOTHECATION
Legal aspects in Hypothecation
GUARANTEE
Guarantee as a security for Banker’s advance
Economic Functions of the Guarantee
Essential features of Guarantee
Contract of Indemnity
Indemnity and guarantee distinguished
Kinds of guarantee
Liability under bank guarantee
Letters of Credit and Bank Guarantees
No Arbitration about Bank Guarantee
Surety’s liability co-extensive with that of the principal debtor
Banker’s claim against a bankrupt surety’s estate
Surety’s Rights and Liabilities
Condition precedent to liability
Cheque given as security
Discharge of Surety’s liability
Effect of Debt Relief Act
Restrictions on power to remit Debts
Surety’s Rights
Rights against the principal debtor
Right against the creditor
Right against Co-sureties
IX
Management of Banking Companies
(1) Constitution of the Board of Directors
(2) Prohibition Employment of Managing Agents
(3) Prohibition Employment of Certain Person
(4) Prohibition to be managed by certain persons (Section 10)
Prohibition to be managed by Political Persons
(5) Prohibition of Common Directors
(6) Appointment of Whole-time Chairman
Chairman on part-time basis
Qualification of Chairman
Disqualification of Chairman
Powers of Reserve Bank of India
Control over Management
1. Election of New Directors Added by Act 95 of 1956 w.e.f. (14-1-1957). :
2. Power of Reserve Bank to remove managerial and other persons (Section 36-AA) Section 36-AA provides
3. Amendments of provisions relating to appointments of managing directors, etc. to be subject to previous approval of Reserve Bank. (Section 35-B)
Overriding effect of this part II-A
4. Power of Reserve Bank to appoint additional directors (Section 36-AB)
5. PART II-AB
Supersession of Board of Directors of Banking Company
Acquisition of the undertaking of Banking Companies Power of Central Government Maintenance of a percentage of assets (Section 24).
Return unclaimed Deposits
Monthly returns and power to call for other returns and information (Section 27).
Suspension and Winding up of Banking Companies
(A) Suspension of Banking Business
(1) By High Court
Appointment of special Authority [Section 37(3)]
Powers of Reserve Bank [Section 37(4)]
(2) By Central Government (Section 45)
Effect of Moratorium
Duration of Moratorium
(B) Winding up of the Banking Companies
Inspection
Powers of Reserve Bank [Section 35(4), (5) and (6)]
Circumstances when a Banking Company deemed unable to pay its debts
Voluntary Winding up
Proceedings of Winding up
Appointment of Court Liquidator (Section 38-A).
Special Provisions for Speedy Disposal of Winding up Proceedings
(C) Reconstruction and Amalgamation of Banking Companies
Forms of reconstruction and amalgamation
Powers and Functions of Reserve Bank of India
Procedure for amalgamation of banking companies (Section 44-A)
Restriction on compromise or arrangement between banking company and creditors
Power of Reserve Bank to apply to Central Government for suspension of business by a banking company and to prepare scheme of reconstitution or amalgamation (Section 45)
MERGERS & ACQUISITIONS
Issues in Mergers
Constitution of Tribunal: Banking Tribunal
Tribunal to have powers of Civil Court
MISCELLANEOUS
Letters of Credit (Documentary Credits)
Definition
Circular Notes
Circular Cheques
Travellers’ Cheques
Special Features of travellers’ Cheque
Difference between Traveller’s cheque and Circular cheque
Kinds of Letters of Credits
Basic Features
(i) Traveller’s Letter of Credit
Essential features of Traveller’s Letter of Credit
(ii) Letters of Commercial Credit
Parties to the Letters of Credit
(1) In case of Travellers' Letter of Credit
(2) In case of letter of Commercial Credit
Classifications of Letter of Commercial Letters of Credit
(1) Revocable and Irrevocable Letters of Credit
As per Article 1 of the Uniform Customs and Practice for Documentary Credits
(2) Fixed and Revolving Credit
(3) Documentary and Clean Credit
(4) With and Without Recourse" Credit
(5) Transferable and Non-transferable Credit
(6) Confirmed and Unconfirmed Letters of Credit
Performance guarantees
Advantage of a Letter of Credit
(A) To the beneficiary
(B) Advantages of Letter of Credit to the Buyer (or Importer)
THE LIABILITY OF THE ISSUING BANKER
Distinction between Irrevocable Letter of Credit and Bank Guarantee
OPENING OF A LETTER OF CREDIT
UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS
General Provisions
A. Form and Notification of Credits
B. Liabilities and Responsibilities : Examination of Documents
C. Documents
D. Miscellaneous Provisions relate to :
E. Transfer
Computer Banking : E-Banking
BANKING THROUGH TECHNOLOGY
A Shift Towards A Cashless Society
STANDS-ALONE COMPUTER SYSTEM
MULTI-USER SYSTEMS
BRANCH AUTOMATION
COMPUTER
CLASSIFICATION OF COMPUTERS
GENERATIONS OE COMPUTER
USE OF COMPUTERS
COMPONENTS OF COMPUTER
HARDWARE
INPUTS DEVICES
OUTPUT DEVICES
STORAGE DEVICES
STORAGE SYSTEM
Floppy disk
Magnetic tape
Hard disk
Optical disk or compact disk (CD)
BANKNET
RBINET
I-net
NICNET
IBA SWADHAN NETWORK
INFINET
Intra-bank
Inter-bank
INTERNET
Face-Book
CORE BANKING SOLUTIONS
Essential requirement of CBS
Advantages
Customer
Banks
ELECTRONIC PAYMENT SYSTEM & RELATED ISSUES
REAL TIME GROSS SETTLEMENT SYSTEM (RTGS)
Process of RTGS
Present status of RTGS in India
AUTOMATED TELLER MACHINE (ATM)
HAWK
Personal Identification Number (PEN)
PLASTIC CARDs (PLASTIC MONEY)
CHARGE CARD
CREDIT CARD
DEBIT CARD
GOLD CARD
SMART CARD
SWITCH CARD
CO-BRANDED CARD
ELECTRONIC PURSE
Advantages of plastic cards
ELECTRONIC CASH
CHEQUE TRUNCATION
ELECTRONIC CHEQUES
BANKING SERVICES THROUGH INFORMATION
TECHNOLOGY : Applications
Mobile ATM
UPDATION OF TRANSACTIONS IN BANKS
SIGNATURE STORAGE & RETRIEVAL
BANK AUTOMATION
INTERNET BANKING IN INDIA—RESERVE BANK OF INDIA GUIDELINES
Technology and Security Standards
Legal Issues
Regulatory and Supervisory Issue
IMPACT OF COMPUTER TECHNOLOGY
Impact on customer services
Impact on Employees
Impact on services
Impact on organizational structure and orientation
INFORMATION TECHNOLOGY ACT, 2000
Validity of eCom in india
Banking through Mobiles
Mobile Banking Service
Mobile Way to Financial Inclusion
RBI’s Draft norms on mobile payments
Long-term goal
Infrastructure
Registration
DIGITAL SIGNATURES
E-COMMERCE
ELECTRONIC FUNDS TRANSFER
Procedure
SPECIAL ELECTRONIC FUNDS TRANSFER SYSTEM
PARTICIPANTS
SEFT-PROCESS FLOW
Transmission/Submission of SEFT Data File to the SEFT centre
Receiving NCC transmitting NCC Data File to the beneficiary banks
Data validation at receiving SEFT Service Branch
IBA’s ELECTRONIC CLEARING SERVICE
MAGNETIC INK CHARACTER RECOGNITION (MICR)
Banking Ombudsman
What is Banking Ombudsman
Nature of Jurisdiction
Rationale of Appointing Banking Ombudsman.
Jurisdiction of the Banking Ombudsman
PREREQUISITE FOR COMPLAINT WITH OMBUDSMAN
AWARD BY THE BANKING OMBUDSMAN
Procedure of filing complaint
Special Feature of Complaint
Ombudsman washes hands of Internet banking frauds
COMPROMISE SETTLEMENT THROUGH LOK ADALATS
IMPORTANT ASPECTS
DEBTS RECOVERY TRIBUNALS (DRT)
RATIONALE FOR SETTING UP DRT
DRT APPLICABILITY
CONSTITUTION OF DRT
DEBTS RECOVERY APPELLATE TRIBUNAL
DRT NOT A CIVIL COURT
PROCEDURE FOLLOWED BY THE TRIBUNALS
Debts Recovery Tribunal (DRT) and Banking Ombudsman
Order of DRT is not a decree
Reserve Bank of India
Royal Commission
THE RESERVE BANK OF INDIA ACT, 1934
CHAPTER I—PRELIMINARY
CHAPTER II—INCORPORATION CAPITAL, MANAGEMENT AND BUSINESS
Business which the Reserve Bank of India may transact (S. 17)
Central Banking System in India
Nationalisation of Reserve Bank of India
CHAPTER III—POWER AND FUNCTIONS OF RESERVE BANK
(A) Power and Functions under the Reserve Bank of India Act, 1934
(1) Issuance of Currency : Monopoly of note-issue Distribution of Currency Notes and Coins PIL for seeking proper distribution of currency
and coins : S. 38 of RBI Plastic Money
(2) Banker to the Government
(3) Banker’s Bank
(4) Control of Banks
(5) Controller of Credits
(6) Compliance of Statutory Reserves
(7) Collection of information
BOARD FOR FINANCIAL SUPERVISION (BFS)
(8) Maintenance of external value
(9) Monetary Controller of the Country
Dealing in repo or reverse repo (S. 12-AB)
(10) Other promotional and developmental function
(11) As agent of the Central Government
The acting of agent of Central Government (S. 11-A)
The Reserve Bank of India and its Promotional Role
Reserve Bank of India as Controller of Commercial Banks
Master Circular (S. 35)
Supervisory Functions : Separated
Non-Banking Financial Institutions : Control and Regulations
RBI grants licences to 10 small banks
RBI for large co-operative to turn into banks
1. Definition of ‘Deposit’
Restrictions on accepting ‘Deposits’
2. Requirement of registration and net owned fund (S. 45-LA).
3. Maintenance of percentage of assets (S. 45IB).
4. Reserve fund (S. 45IC).
5. Bank to regulate or prohibit issue of prospectus or advertisement soliciting deposits of money (S. 45IJ).
6. Power of Bank to determine policy and issue directions (S. 45JA).
7. Power of Bank to collect information from non-banking institutions as to deposits and to give directions
(S. 45K).
8. Power of Bank to call for information from financial institution and to give direction (S. 45L).
9. Duty of non-banking institutions to furnish statements etc., required by Bank (S. 45-M).
10. Power and duties of auditors (S. 45-MA).
11. Power of Bank to prohibit acceptance of deposit and alienation of assets (S. 45-MB).
12. Power of Bank to file winding up petition (S. 45-MC).
13. Inspection (S. 45N).
14. Deposits not to be solicited by unauthorised person (S. 45-NA).
15. Disclosure of information (S. 45-NB).
16. Power of bank to exempt (S. 45-NC).
17. Chapter IIIB to override other laws (S. 45Q).
18. Power of Company Law Board to offer repayment of deposit (S. 45-QA).
19. Nomination by depositors (S. 45-QB).
20. Power to issue search warrants (S. 45-T).
21. Not to open subsidiaries abroad
REGULATION OF TRANSACTIONS IN DERIVATIVES, MONEY MARKET INSTRUMENTS, SECURITIES, ETC.
CHAPTER IV—GENERAL PROVISIONS
CHAPTER IV—PENALTIES
THE NEGOTIABLE INSTRUMENTS ACT, 1881
Introduction
Act 26 of 1881
Statement of Objects and Reasons of the Negotiable
Instruments (Amendment and Miscellaneous Provisions) Act, 2002
Negotiable Instruments
Definition of Negotiable Instruments
Salient features or essential characteristics of a Negotiable Instrument
Negotiable Instrument as Assets of the holder
Instrument v. Document
"Negotiable Instruments are luggage without carrier"
I. Promissory Note
Promissory Note or Receipt
What constitutes promissory notes
I.O.U.
Specimen of Promissory Note
Essentials of Promissory Note
(1) In writing
(2) An undertaking to pay
(3) Unconditional promise or undertaking to pay
Denial of borrower
(4) Signed by the maker
(5) The sum must be certain
(6) Money only
(7) Parties must be certain
(8) Must be stamped
Rebuttal of presumption of consideration Liability of the Successor under the pronote Exceptions
Bank Notes or Currency Notes
II. The Bill of Exchange (Section 5)
Definition
Specimen of Bill of Exchange
Parties to Bill of Exchange
Essentials of Bill of Exchange
Drawee must be certain
Payee must be certain
Fictitious or non-existing payee
Bearer bill payable on demand
Of Bills in Sets
Five certainties of a bill of exchange
Difference between Promissory note and Bill of Exchange
III. Cheque
Definition
Definition According to English Law
All Cheques are bills but all bills are not cheques
Specimen of Cheque
Essential feature of a cheque
Parties to a cheque
Cheque in foreign currencies
Difference between Cheques and Bills of Exchange
Difference between cheque and Promissory Notes
Kinds of Negotiable Instruments
(1) Inland and Foreign Instruments
Inland Instruments (Section 11)
Foreign instruments (Section 12)
(2) Ambiguous and Clean Instruments (Section 17)
(3) Bearer or order instruments (Section 13)
Payable to order
Payable to bearer
Once a bearer always a bearer
Exception
(4) Inchoate Instrument (Section 20)
Is Filling of inchoate instrument a material alteration?
(5) Time and demand instrument
Demand instruments
‘At sight’, On presentment, "After sight"
Instrument payable on demand
(6) Open Cheques and Crossed Cheques
Digital Cheques (Inserted by Amendment 2002)
Truncated cheque [(Section 6(b)]
"Cheques in electronic form" [Section 6(a)]
Electronic Cheque "Golden Cheques"
Validity of Cheques
"Stale Cheque"
Antedated and Postdated cheques
Antedated cheque
Postdated cheque
Postdated Cheque and Cheating
Clone Cheque and Fraud
‘Stop Payment’ of Postdated Cheque
Maturity of the Instrument
Importance of maturity
Maturity the meaning (Section 22)
Instrument payable on demand
"At sight", "on presentment" and "on demand"
"After Sight", after date"
Instrument payable on demand (Section 19)
Maturity of "time" or "usance" instruments
Usance Bill
Rules of Maturity of Usance bill
Days of Grace
English law
Essentiality of days of Grace
Calculation of Maturity
(1) Bill and note payable many months after date or sight : Usance (Section 23)
(2) Bill and note payable many days after date or sight
"Next preceding business day"
For example
What are Negotiable Instruments?
Quasi-Negotiable Instruments
English Law
Bill of Lading or Airway Bill
Railway Receipt (R/R)
Share Certificate
Share Warrant
Dividend Warrant
Treasury bill or note
Share and debentures
Fixed Deposit Receipt
Letter of Credit
Government Promissory Notes
Postal orders and Money orders
Traveller’s Cheque
"Liability of the paying banker"
Life Insurance Policy
Currency Notes
Hundi
Banker’s Drafts/Demand Drafts
Is Banker’s Draft a Negotiable Instrument?
Is Banker’s Draft a Cheque?
Countermanding (stop payment of draft)
Issue Duplicate Draft
Payment of Bank Draft
A. Parties to Instrument
B. Capacity to Parties
Minor
Position of Minor
Agency
Express Agency
Parties to Instruments
Maker and Drawer
Drawer and Drawee in case of need
Drawee
Acceptor and Acceptor for honour
Acceptor for honour
Payee
Fictitious name as act of forgery
Holder and Holder in due Course
Conditions for holder
A thief and finder cannot be holder
De jure holder
Right of holder
Holder in due course
Conditions for holder in due course
(1) and (2) Possessor, payee or endorsee
Whether original payee can be a holder in due course
Indian Position
(3) Consideration
(4) Before maturity
Exception : Accommodation bill
Demand Instruments
Cheque payable on demand
(5) Without notice and good faith Due care and caution
Irregular Endorsement negates holder in due course
"Good faith"
"Due Care and Caution" as Test of Good Faith
Rule of gross negligence
Rules of Honesty
Modem law (Rules of Honesty)
"Holder for Value"
Presumption of "Holder in Due Course"
Privileges of a Holder in due course
Difference between Holder and Holder in due course
Rights of Holder
Privileges of a Holder in Due Course
(C) Liability of the Parties of the Instruments Liability of drawer of bill and cheque (Section 30)
Liability of maker of the note acceptor of the bill
Liability of the maker of note (Section 32)
Liability of the acceptor of the bill (Section 32)
(1) Acceptor bound, although endorsement forged (Section 41)
(2) Acceptance of a bill drawn in fictitious name (Section 42)
(3) Acceptor or endorser bound notwithstanding previous alteration (Section 88)
Liability of drawee of cheques (Section 31)
Liability of the drawee of the bill
Who can accept
Position of drawee in case of need after acceptance
Holder and Holder in due course
Liability of Endorser and Endorsee
(D) Discharge from liability on Notes, Bills and Cheques
Discharge from liability
(I) Discharge of the Instrument
(1) By cancellation
(2) By Release [Section 82(b)]
(3) By payment
Payment in due course
(i) Apparent tenor
Re-issuing of the bill
(ii) Payment in good faith
(iii) Without negligence
(iv) and (v) To any person in possession and to any person who is entitled to receive payment.
To whom payment should be made
Order instrument
Forged endorsement
(4) By acceptor becoming holder of the bill (Section 90)
(5) Where cheque not duly presented and drawer damaged thereby (Section 84)
(II) Discharge of some parties
(1) Cancellation of endorser’s liability [Section 82(a)]
(2) By Release of endorser’s liability [Section 82(b)]
(3» By allowing drawee more than 48 hours for acceptance (Section 83)
4 By qualified acceptance (Section 86)
Examples of qualified acceptance
(5) For non-presentment for acceptance of a bill of exchange. (S. 61)
(6) By Material Alteration (Sections 87, 88 and 89)
(i) Intentional alteration
(ii) Alteration must be material
English Law
Examples of material alteration
(iii) Alteration to carry-out the intention of original parties
(iv) Alteration not apparent
Promissory note is not required to be filled up by the maker himself
Extinction of debt (Suit on consideration)
As to truncated cheques
Alteration by a stranger
Alteration which does not affect validity of the instruments
Is Revalidating of Cheque Material Alteration?
Is completion of inchoate cheque material alteration?
Acceptor or endorser bound notwithstanding previous alteration (Section 88)
Effect of Material Alteration (Section 87)
Chapter XVI
Negotiation
Difference between "Transfer" and "Negotiation" "Negotiation"
"Negotiation" and "assignment" distinguished
(1) As to title
(2) Presumption of Consideration
(3) Mode of transfer
(4) Notice of transfer
(5) No stamping
Modes of Negotiation
How Negotiation is made?
A thief or finder cannot be holder
Delivery of the Instrument
Exception
(1) Negotiation by Delivery (Section 47)
Exception
(2) Negotiation by endorsements (Section 48)
Limitations of Sections 47 and 48
Application of Section 58 to Sections 47 and 48
(i) Negotiation (endorsement) of lost instrument
(ii) Instrument obtained by means of an offence
(a) By an offence i.e., by theft
(b) and (c) by fraud and unlawful consideration
Endorsement
1. Definition and Essential features
Place of endorsement
Essential features of Endorsement
Who can endorse
Minor as endorser
2. Kinds of Endorsement
(A) Blank or Full Endorsement
Blank Endorsement
Effects of Blank endorsement
(1) Conversion of order instrument into bearer instrument
(2) Negotiation by delivery
(3) Conversion into full (Section 49)
Full Endorsement
(B) Restrictive or Conditional Endorsement
Restrictive Endorsement (Section 50)
Conditional Endorsement (Section 52)
Conditional endorsement and conditional delivery
Some Examples of conditional endorsement
(C) Whole or Partial Endorsement (Section 56)
(D) Facultative Endorsement
3. General Principles of Endorsement, or Conditions to a valid Endorsement, or Rules of Endorsement.
Other Forms of Endorsements
Effects of Endorsement
Duration of Negotiability (Section 60)
Payment before maturity
Chapter XVII
Presentment
What is presentment
Kinds of Presentment
(1) Presentment for Acceptance (Section 61)
(a) To whom presented and by whom accepted
(b) Time and place of acceptance
(c) Presentment through post-office
(d) Within reasonable time
When presentment for acceptance is necessary
Purpose of presentment of acceptance
When presentment for acceptance is not necessary
Effects of non-presentment of acceptance
(2) Presentment of promissory note for sight (Section 62)
(3) Presentment for payment
Instrument Payable on demand (Section 74)
Instrument payable after date or sight (Section 66)
Presentment for payment of promissory note payable by instalments (Section 67)
Rules as to presentment of payment
(a) Place of Presentment
(b) Hours of Presentment
(c) Within reasonable time Excuse of delay
(d) To whom presentment for acceptance be made
(4) Presentment of cheque in order to charge the drawee
Bank
Presentment of cheque for payment
Presentment of Truncated Cheque [(Section 64(2)]
Waiver of presentment [Section 76(c)]
Effects and consequences of non-presentment
Dishonour and Notice thereof
(A) Dishonour by Non-Acceptance (Section 91)
(B) Dishonour by Non-Payment Notice of dishonour
By and to whom notice should be given (Section 93)
Mode in which notice may be given (Section 94)
Party receiving must transmit notice of dishonour (Section 95)
Agent for presentment (Section 96)
When party to whom notice is given is dead (Section 97)
When notice of dishonour is unnecessary (Section 98)
Of Noting and Protest
Noting (Section 99)
Protest (Section 100)
Contents of protest (Section 101)
Notice of protest (Section 102)
Protest for non-payment after dishonour by non-acceptance (Section 103)
Protest of foreign bills (Section 104)
When noting equivalent to protest (Section 104-A)
Of Reasonable Time
Reasonable time (Section 105)
Reasonable time of giving notice of dishonour (Section 106)
Reasonable time for transmitting such notice (Section 107)
Of Payment and Interest
To whom payment should be made (Section 78)
Interest when rate specified (Section 79)
Interest when no rate specified (Section 80)
Of Compensation
Rules as to compensation (Section 117)
Special rules of Evidence
Presumptions as to negotiable instruments of consideration (Section 118)
Presumption on proof of protest (Section 119)
Estoppel against denying original validity of instrument (Section 120)
Estoppel against denying capacity of payee to indorse (Sec. 121)
Estoppel against denying signature or capacity of prior party (Section 122)
Chapter XVIII
Crossing of Cheques
Legal Recognition of Crossing
Object of the Crossing : Why crossing?
What is Crossing
Kinds and modes of crossing
(A) General Crossing (Section 123)
Essential of general crossing
(B) Special Crossing (Section 124)
Essentials of special crossing
(1) as to name of a Specific Bank
(2) As to drawing of parallel lines
(3) As to payment
Effects of Crossing
Who may Cross (Section 125)
(1) The following persons may cross a cheque
(2) Crossing of Cheques after issue Payment of Crossed Cheques
(a) Payment of generally crossed cheques
To a Banker : Collecting Banker
(b) Payment of specially crossed cheques
To a Specified Banker : Collecting Banker
(c) Payment in due course of crossed cheque
(d) Payment out of the due course of crossed cheques (Sec. 129)
"Not Negotiable’ Crossing Section 130)
Effects of ’not negotiable" crossed cheque
"Account Payee' or "Account Payee only" crossing
Examples of Account Payee Crossing
Directions of the Reserve Bank of regarding Account Payee cheque
Opening of Crossing (Cancellation of Crossing)
Precautions by paying Banker
Obliteration or erasing of crossing
Crossing as a material part of cheque
Whether crossing constitutes material part of the cheque?
Protection of Collecting Banker (Section 131)
Who is Collecting Banker?
The essential conditions for protection
(1) For a customer
(2) For Crossed Cheques
(3) As agent
(4) Good faith and without negligence
Marking of Cheques
PART IV
Chapter XIX
Law of Dishonour of Cheques
Ss. 138 to 142 by Act of 1988 : Ss. 143 to 147 by Act of 2002
Statutory Provisions
Aims and objects of the Chapter
Regulatory Offence
Cheque as speedy vehicle of commerce
Object of Ss. 143 to 147
Justified Dishonour : When Banker may Dishonour the Cheques?
Answers in Case of Dishonoured Cheques
Dishonour of Cheques : A New Era
Cheque Bouncers Beware
Nature of Dishonour of Cheques (S. 138)
Who is Liable for Dishonour of Cheques :
Application of Doctrine of Double Jeopardy
Conditions for Constituting Offence and Prosecution
(A) Condition for Commission of Offence
1. Issuance of Cheque for Discharge of Debt or Liability
Debt or Other Liability
Presumption of Debt or Liability : S. 139
No mens rea
"Denial of Consideration" : No proof of Debt or Liability
Purpose behind presumption
2. Presentment of Cheque for Payment [Section 138(a)]
Presentment at drawee bank
Public Holiday is to be excluded
Successive Presentment of Cheques
Successive presentment even after giving notice under
Section 138(b)
Presentment and Depositing of Cheque
Tips for Safe Deposit of Cheques
Revalidation of a Stale Cheque
3. Cheque is returned unpaid by the Bank
‘Stop Payment’ or ‘Account Closed’
Deemed Dishonour
"Stop payment" of post dated cheque
‘Account Blocked’
Drawer’s Notice not to Present Cheque
Cheque drawn on a closed account
4. Notice of Demand for payment [Section 138(b)]
(i) Notice in Writing
Separate notice to each director not required
Mode of Notice
Presumption of Service of Notice : Deemed service of notice
No deemed service of notice
(ii) By the Payee or Holder in Due Course
Sole Proprietor as a payee/holder in due course
(iii) Demand for Payment
(iv) Notice within Statutory Period of 30 days : Sec. 138(c)
To whom notice is to be sent
As Protection to drawer
Cause of Action : When arises
Cognizance
(B) Conditions for taking Cognizance of Offence
(1) Upon a complaint : complaint case
Who can be Complainant
Complaint by holder of Power of Attorney
Complaint Sans (without Signature
Purchaser of cheque
Cheque drawn an a joint account
Endorsee far coflectaon of a cheque
(2) Complaint within statutory period
Directions
Premature Complaint : Before cause of Action arises
No complaint no cognizance : See above.
New law on Premature complaint
Premature Complaint under Section 142
Calculation of statutory period
A Controversy Resolved: As to Calculation of statutory period
A Controversy Resolved
Condonation of Delay
Condonation of Delay : No Retrospective effect
Clubomr of cases of dishonour
(3) By a Metropolitan Magistrate, or Magistrate of the First Class
Offence by Companies
Company as a Drawer
Section 141 is a Deeming Provision
Company’s prosecution sine qua non
Company must be arrayed as Principal Offender
Averment of in-charge of and responsible to the conduct of company—Necessary
At the time of commission of offence
Vicarious Liability
Constructive liability
Cheque drawn in personal capacity by the Managing Director
Defences by Officers of the Company
1. Without Knowledge
2. Exercise of due diligence
3. Nominated Directors
4. Resigned from directorship
5. Not duly charge
Jurisdiction of Court to try Cases
Jurisdiction : New Principle established
Place of presentation of cheque does not confer jurisdiction
Time limit to conclude trial
Complaint supported by sworn affidavit
Evidence on Affidavit : S. 145
Non obstante Clause
Summary Trial
Procedure for summary trials
Judgment in cases tried summarily
Compounding of offences : [Section 147]
Relation of S. 147 of N.I. Act and S. 320 of Cr.P.C.
Compounding at appellate stage
Guidelines for compounding of offences
Exception : Where Dishonour of Cheque no Offence
1. Dishonour of cheques other than insufficient fund
2. Without consideration
3. No debt or liability
4. Cheques are given as security or guarantee Cheque issued qua security
Liability of indeminifier
5. In case of compounding
6. Non-compliance of conditions of dishonour
7. Non-compliance of conditions of prosecution.
Section 482 of Cr.P.C. and quashing of complaints
Quashing of Proceedings under Section 138
Quashing of proceedings under Section 138 read with S. 141
Punishment and award of sentence
Award of sentence
Award of Compensation to the Complainant
Constructive approach
Running of sentence: Whether Concurrent or Consecutively
"Fast track Courts to be established
Object of N.I. Act defeated
Banks Generally used abbreviations
Chapter XX
Banking Services and Consumer Law
Object of Consumer Protection Act
Object of the Act Strengthened
Sections 138 and 142 are constitutional
Petitioner’s argument
‘Fallen on bad times’
Scope and Extent of the Act
(1) Additional Remedy—‘No Bar’
(2) Supplementary Remedy
(3) Alternative Remedy—‘No Bar’
Legislative Competence of Parliament
Arbitration Clause
Interpretation in Favour of Complainant (Consumer)
‘Any Other Law’ for the Time Being in Force
Railway Claims Tribunal Act, 1987
Employees’ State Insurance Act, 1948
Construing the Provisions of the Act
Limitation of the Act
Option of Relief
Banking Services
As to cheques
Duty to honour cheques
Collection of cheques, etc.
Payment of cheque despite stop notice
Duty to inform customer if cheque returned
Loss of cheque delivered for collection
Dishonour of Cheque
Dishonour of cheque without justification amounts to deficiency in services
Dishonour of Bank Draft
Defective bank draft
Delay in issuing duplicate bank draft
Locker
Complication about locker
Encashment of bank guarantee and letter of credit
Over Draft Facility
Credit Card
Suppressing letters of credit
Cancellation of credit card
Fixed deposit service
Claims of Interest
Bank’s service charges
MICR Cheques (Magnetic Ink Character Recognition)
Operation of deceased account
Realisation of security
Withdrawal without Pass Book
Payment Despite Stop Payment
Complex question of law and fact
rorum is Competent to Decide Complex Cases
No Abuse of the Process
WHO CAN FILE A COMPLAINT?
APPEALS
Liability of Bank for damages
Need guidelines for speedy Justice : 38 Lakhs cheque bouncing cases are pending across the country
Annexure
Banking Terminology
Adhar Rate
ACH
Accommodation Endorsement
