D - Negotiable Instrument- Old

8/11/2019 D - Negotiable Instrument- Old

1/78

Business Laws

- Premananda Shetty
http://en.wikipedia.org/wiki/File:Supreme_court_of_india.JPGhttp://en.wikipedia.org/wiki/File:Supreme_court_of_india.JPGhttp://en.wikipedia.org/wiki/File:Supreme_court_of_india.JPG


2/78

Negotiable Instrument Act

1881

An introduction
http://en.wikipedia.org/wiki/File:Supreme_court_of_india.JPG


3/78

1. What is a Negotiable Instrument?

Definition

The Negotiable Instruments Act 1881, does not define a

negotiable instrument but merely states, a negotiable

instrument means a promissory note, bill of exchange orcheque payable either to order or bearer.(Section 13).

Thus, a Negotiable Instrument is a document which

entitles a person to a sum of money and which is

transferable from one person to another by mere delivery

or by indorsement and delivery.


4/78

Characteristics of Negotiable Instruments

a. A negotiable instrument is freely transferable which

means that it can be transferred from one person toanother by a simple process, i.e. by mere delivery if itis payable to bearer, and by indorsement and deliveryif it is payable to order

b. The holder in due course (one who acquires theinstrument in good faith and consideration) gets it freefrom all defects.

c. He can sue up on the instrument in his own name.

d. The transferee of the instrument need not give noticeof transfer to the party liable to pay.

e. Consideration is presumed to have been given for the

instrument.


5/78

Presumptions:

Applicable to negotiable instruments (Secs. 118 and 119).

a. Consideration

Every negotiable instrument is presumed to have beenmade, drawn, accepted, indorsed, negotiated ortransferred, for consideration

b. Date

Every negotiable instrument bearing date is presumedto have been drawn on such date.

c. Time of acceptance

When a bill of exchange has been accepted, it is presumedthat it was accepted within a reasonable time of itsdate and before its maturity.


6/78


7/78

h. Proof of protestIn a suit upon an instrument which has been dishonored

the core, on proof of the protest, presumes the fact ofdishonor, until such fact is disapproved.

Types of Negotiable Instruments

1.

Negotiable by Statute (Sec. 13) Promissory notes,bills of exchange and cheques.

2. Negotiable by custom or usage Instruments which

have acquired the character of negotiability by usage

or custom of trade.

E.g.. Government promissory notes, bankers drafts and

pay orders, hundis, delivery orders and railway

receipts for goods etc.


8/78

Promissory Note

Bill of Exchange

Cheque


9/78

Promissory Note

Definition :

According to Section 4, a promissory note is an

instrument in writing ( not being a bank note or

currency note) containing an unconditional undertaking

signed by the maker, to pay a certain sum of moneyonly to, or to the order of a certain person, or to the

bearer of the instrument.

The person who makes the promissory note is called the

maker, the person to whom the payment is to be made is

called payee.


10/78

Essential Elements

For an instrument to become a promissory note by

following essential elements are required.

1. It must be in writing

2. It must contain an express undertaking or promise to pay

3. The promise to pay should be definite and unconditional4. It must be signed by the maker

5. The parties i.e. the maker and the payee, must be certain

6. The sum payable must be certain7. It must contain a promise to pay money only

8. A bank note or currency note is not a promissory note


11/78

Bill of Exchange :

Definition:

As per Section 5, a bill of exchange is an instrument in

writing containing an unconditional order, signed by the

maker, directing a certain person to pay a certain sum of

money only to, or to the order of, a certain person, or to

the bearer of the instrument. The person who makes the bill is called the drawer.

The person who is directed to pay is called a drawee.

The person to whom the payment is to be made is calledpayee.

When the drawee accepts the bill is called acceptor


12/78

The drawer or the payee who is in possession of the bill

is called the holder

When the holder indorses the bill, note or cheque he iscalled the indorser.

The person to whom the bill, note or cheque is indorsed

is called the indorsee

When in the bill or in any indorsement thereon the

name of any person is given in addition to the drawee to

be referred to incase of need, such person is called a

Drawee in case of need ( Section 7).


13/78

Distinction between Bill of exchange and

Promissory note

Bill of Exchange

1. There are three parties -

The drawer, drawee and

the payee

2. Contains an

unconditional order to

pay

Promissory Note

There are two parties-

Maker and the Payee

Contains an unconditional

promise to pay


14/78

3. The Drawer of the bill is

the creditor who directs

the drawee to pay ( hisdebtor)

4. The acceptor may

accept the billconditionally because he

is not the originator of

the bill.

Themaker of a note is

the debtor and he

himself undertakes topay

The maker of a note

corresponds in generalto the acceptor of a

bill But, he cannot

undertake to pay

conditionally.


15/78

5. The liability of the

drawer of the bill is

secondary and

conditional

6. In a bill the drawer and

payee may be one and the

same person7. A bill payable after sight

or after a certain period

must be accepted by the

drawee before it is

presented for payment

The liability of the maker

of a note is primary &

absolute.

A note cannot be made the

payable to the maker

himself.A note requires no

acceptance as it is signed

by the person who isliable to pay


16/78

8. A Bill can be so drawnbut in no case can a note

or bill be drawn payableto bearer on demand

9. The drawer of a billstands in immediate

relation with the acceptorand not the payee

10. Provisions likeacceptance, presentmentfor acceptance etc. areapplicable

A note cannot be drawnpayable to bearer

The maker of a note standsin immediate relation

with the payee.

These are not applicable to

bills


17/78

11.Notice of dishonor must

be given to all persons

who are to be made liableto pay.

12. Foreign bills must be

protested for dishonor

when such protest is

required by the law of the

place where they are drawn

No such notice is required

to be given to the maker

in the case of dishonor ofa bill

No such protest is requiredin the case of a note.


18/78

Cheque

Definition: According to Section 6 of NI Act. 1981, acheque is a bill of exchange drawn on a specified

banker and payable on demand.

Distinction between a bill of exchange and a

cheque

Bill of e change

Cheq e


19/78

Bill of exchange

1. May be drawn on anyperson including abanker

2. Must be accepted beforethe Drawee can becalled upon to makepayment

3. A bill which is notexpressed to be payableon demand is entitled tothree days of grace

4. A bill may be payableon demand or after theexpiry of a certainperiod after date or sight

Cheque

It is always drawn on abanker

a cheque requires noacceptance

a cheque is not entitled toany grace period

a cheque is always payableon demand

5 A bill m st be d l The dra er of a cheq e is


20/78

5.A bill must be dulypresented for payment tothe acceptor or else thedrawer of the bill be

discharged from liability.

6. A bill may not be crossed

7. A bill, except in certaincases must be stamped

8. Payment of a bill cannotbe countermanded.

9. A bill may be noted or

protested for dishonour

The drawer of a cheque isnot necessarilydischarged from hisliability by delay of the

holder in presenting it forpayment.

a cheque may be crossed

a cheque does not requireany stamp.

The payment of a chequemay be countermandedby the drawer.

A cheque is not required to

be noted or protested fordishonour


21/78

Crossing of Cheques

There are two types of cheques

- Open Cheques

- Crossed Cheques

A Cheque which is payable in cash across the counter

of a bank is called an open cheque.

A crossed cheque is one on which two parallel

transverse lines with or without the words & Co.

are drawn. The payment of such a cheque can be

obtained only through a banker.


22/78

Types of crossing

1. General crossing

A cheque is said to be crossed generally where it bears

across its face an addition of the words and

company or any abbreviation thereof between two

parallel transverse lines, either with or without the

words notnegotiable; or

ll l li i l i h i h i h


23/78

2.Two parallel transverse lines simply, either with or withoutwords not negotiable (Sec. 123)

Specimen of General crossing :

(1)

(2)

(3)

S i l i


24/78

2.Special crossing :

As per Sec. 124, Where a cheque bears across its face an

addition of the name of a banker, either with or without

the words not negotiable, the cheque is deem to be

crossed specially.

Transverse lines are not necessary in case of special

crossing. The payment of specially crossed cheque can

be obtained only through the particular banker whose

main appears across the face of the cheque or between

the transverse lines, if any.

S i f i l i


25/78

Specimen of special crossing :

3 R t i ti i I ddi i h b


26/78

3. Restrictive crossing. In addition to the above two

types of crossings there is another type which has been

adopted by the banking usage. In this type crossing the

words A/c Payee are added to the general or specialcrossing.


27/78

4.Not negotiable crossing.

(Sec. 130), the effect of the words not negotiable on a

crossed cheque is that the title of the transferee of such

a cheque cannot be better than that of its transferor.

Who may a cross a cheque?

A cheque may be crossed by a drawer or the holder or the

banker.

Classification of negotiable instruments


28/78

Classification of negotiable instruments

Barer and order instruments

Inland and foreign instruments

Demand and time instruments

Accommodationbill is a bill drawn, accepted orindorsed without any consideration.

Ambiguous instrument is an instrument is an instrumentwhich owing to its faulty drafting can be interpretedeither as a promissory note or a bill of exchange.

Inchoate instrument is an instrument which isincomplete in some respect

Bill in sets is a bill of exchange drawn in parts generallythree. Each part known as via, is sent separately.

Mat rit and da s of grace


29/78

Maturity and days of graceWhen promissory note or bill of exchange is payable after

a specified period the date on which it falls due, is

known as date of maturity. Every instrument is payable otherwise than on

demandis entitled to three days of grace time.

PAYMENT IN DUE COURSEAccording Sec. 10, payment in due course means payment

in accordance with the apparent tenor of the instrumentin good faith and without negligence to any person in

possession thereof under circumstances which do notafford a reasonable ground for believing that he is notentitled to receive payment of the amount thereinmentioned.

P ti t N ti bl I t t


30/78

Parties to Negotiable Instruments

1. Parties to a Promissory Note

PayeeMaker Holder Indorsee Indorser

2 P ti t bill f h


31/78

2. Parties to bill of exchange

Drawer

Drawee Acceptor

Payee

Holder Indorser

Indorsee

Drawee incase of need

Acceptor for honour

3 Parties to a cheque


32/78

3. Parties to a cheque

Drawer

Drawee

Payee

Holder

Indorser

Indorsee

4 Holder in due course (Sec 9)


33/78

4. Holder in due course (Sec. 9)

Means any person who for consideration became the

possessor of a promissory note, bill of exchange orcheque, if payable to bearer, or the payee or indorseethereof if payable to order, before the amountmentioned in it became payable, and without havingsufficient cause to believe that any defect existed in

the title of the person from whom he derived his title.

Privileges of a holder in due course

i.

can fill in an inchoate stamped instrument for anyamount provided the stamp is sufficient to cover theamount.[Sec.20]

ii E i i bl i i li bl


34/78

ii. Every prior party to a negotiable instrument is liablethereon to a holder in due course until the instrument

is duly satisfied.

iii. If a bill or note is negotiated to a holder in due course,

the other parties to the bill or note cantavoid liability

on the ground that the delivery of the instrument wasconditional or for a specific purpose only.

iv. Once a negotiable instrument passes through the hands

of a holder in due course it gets cleansed of all itsdefects

v The defences on the part of a person liable on a negotiable


35/78

v. The defences on the part of a person liable on a negotiable

instrument that it has been lost, or obtained from him by

means of an offence or fraud or unlawful consideration,

cannot be setup against a holder in due coursevi. The law presumes that every holder is a holder in due

course, although the presumption is rebuttable.

vii. In a suit on a negotiable instrument by a holder in due

course, the validity of the instrument as originally made

or drawn cannot be denied

viii. No indorser of a negotiable instrument is, in a suit thereon

by a subsequent holder, permitted to deny the signature orcapacity to contract any prior parties to the instrument.

Liabilities of Parties (Sec 30 to 32 & 35 to 45)


36/78

Liabilities of Parties (Sec. 30 to 32 & 35 to 45)

Liability of the Drawer Liability of Drawee of a cheque

Liability of maker of note and acceptor of bill

Liability of indorser Liability of prior parties of a holder in due course

Negotiation of Negotiable Instruments


37/78

Negotiation of Negotiable Instruments

1. Transfer by negotiation,( sec. 14) or

When a promissory note, bill of exchange or cheque is

transferred by one party to another, so as to constitute the

transferee the holder thereof, the instrument is said to be

negotiated.There are two types of transfer by negotiation

a.Negotiation of delivery b. negotiation by indorsement and

delivery

2. By assignment

When a person transfers his right to receive the payment of a

debt, assignment of the debt takes place.

Di i i b i i d


38/78

Distinction between negotiation and

assignment

negotiation

Consideration ispresumed

The title of the transferee(i.e., the holder in duecourse) is better than thatof the transferor

Notice of transfer to thedebtor by the transferee is

not necessary. Theacceptor of a bill and themaker of a note are liableon maturity to the holderin due course of the

Instrument

assignment

Consideration must be proved

The title of the assignee is

subject to the defects andequities in the title of theassignor

An assignment does not bindthe debtor until notice of

assignment had been givenby the assignee to thedebtor, and the debtor hasexpressly or impliedly,assented to it.


39/78

4. Instruments payable to

bearer are negotiated by

mere delivery andinstruments payable to

order are negotiated by

indorsement and delivery

An assignment can only

be made in writing

either on instrumentitself or in a separate

document transferring

to the assignee thetransferors rights in

the instrument.

Indorsement (Sec 15)


40/78

Indorsement (Sec. 15)

It means writing of a persons name (otherwise

than as maker) on the phrase or back of anegotiable instrument or on a slip of paper (

called allonge) annexed thereto, for the

purpose of negotiation.

The person who so signs the instrument is called

the indorser. and the person whom theinstrument is indorsed is called the indorsee.

Types of Indorsement


41/78

Types of Indorsement1. Blank or General Indorsement When the indorser

signs his name only.

E.g.. A bill is payable to the order of Ram. Ram signs onthe back of the bill. This is an indorsement is blank.

2. Full or special indorsement When the indorser signshis name and had a direction to pay the amountmentioned in the instrument to, or to the order of, aspecified person, the indorsement is said to be full.

E.g.. An indorsement payRam or order,or payto Ramfollowed in both the cases by the signature of theindorser is an indorsement in full.

3. Restrictive Indorsement


42/78

3. Restrictive IndorsementAn indorsement is said to be restrictive when it prohibits

further negotiation of the instrument.

Eg: 1. Pay the contents to C only.2. Pay C for my use

3. Pay C or order for the account of B

4. Partial Indorsement

When an indorsement purports to transfer to the indorseea part only of the amount of the instrument, theindorsement is said to be partial.

Eg. A is the holder of the bill for Rs. 1,000. He indorses it

as Pay B or order Rs.500. This is a partialindorsement.

5. Conditional indorsement

An indorsement is called conditional or qualified, if itlimits or negatives the liability of the indorser.

Instruments obtained by unlawful means


43/78

Instruments obtained by unlawful means Stolen and lost instruments

A person who steals or finds a lost negotiable instrument

doesnt acquire a title to the instrument as against therightful owner. He cannot enforce payment on it againstany party thereto. If he obtains payment on it, he isliable to the true owner. If the bill or note is payable tobearer, he can negotiate it to a bona fide transferee for

value who acquires a good title to it. But if the bill ornote is payable to order, and the thief or finder forgesthe indorsement of the rightful owner, even a bone fidetransferee for value doesntacquire a title to it.

Instruments obtained by fraudIf a negotiable instrument is obtained by fraud, the person

defrauding is not entitled to recover anything. But thedefence of fraud cannot in general be set up against a

holder in due course.

Forged instruments


44/78

Forged instruments

Forgery is the fraudulent making or alteration of anegotiable instrument to the prejudice of another mans

rights. If any of the signatures on the instrument isforged, the signature in question is wholly inoperativeand no person, even if acting in good faith, can acquirerights under the instrument.

The most common species of a forgery are :

Fraudulently writing the name of an existing person

Signing the name of a fictitious or a non-existing

person, with a fraudulent intention including belief thatthe instrument was signed by a real person, or

Signing ones own name with the intention that thesignature should pass for the signature of the another

person of the same name.


45/78

Dishonour and Discharge, relationbetween a Banker and a Customer

A drawer of a dishonoured cheque shall be deemed to


46/78

qhave committed an offence. For this offence, he shallbe punished with imprisonment for a term which mayextend to two years. [increased from one year to twoyears by the Negotiable Instruments (Amendment andMiscellaneous) Act,2002] or with a fine which mayextend to twice the amount of the cheque or with both

provided :-1. The cheque has been dishonoured due to insufficiency

of funds in the account maintained by him with abanker for payment of any amount of money to

another person from out of that account2. The payment for which the cheque was issued, should

have been in discharge of a legally enforceable debtor liability in whole or in part of it;

3. The cheque should have been presented by the payee


47/78

q p y p yor the holder in due course with in a period of sixmonths from the date on which it is drawn or withinthe period of its validity which ever is earlier.

4. The payee or the holder in due course of the chequeshould have given notice demanding payment within30 days from the drawer on receipt of information ofdishonour of cheque from the bank.

5. The drawer is liable only if he fails to make paymentwithin 15 days of such notice period and

6. The payee or holder in due course of the chequedishonoured should have made a complaint withinone month of cause of action arising under Sec. 138


48/78

Dishonour of a negotiable Instrument

Dishonour by non-acceptance Dishonour by non-payment

(Sec. 91) (Sec. 91) A bill may be dishonoured by non-acceptance or by non-

payment.

A promissory note and a cheque dishonored by non-

payment only. The negotiable instrument is dishonoured, the holder must

give a notice of dishonour to all the prior parties in orderto make them liable on the installment.

If he fails to do so, except in cases when notice of


49/78

, pdishonour may be excused, he forfeits his right of actionagainst the prior parties entitled to the notice of dishonour(Sec. 93).

Dishonour by non-acceptance (Sec. 91)

A bill of exchange is dishonoured by non-acceptance in anyone of the following reason :

If the drawee does not accept the bill within forty-eighthours from the time of presentment through it is dulypresented for acceptance.

If there are several drawees and all of them do not accept

When presentment for acceptance is excused, and the billis not accepted

When the drawee is incompetent to contract

When the drawee gives a qualified acceptance

NOTICE OF WHOM


50/78

NOTICE OF WHOM

Notice to all parties whom the holder seeks to make liable

Notice to party or his agent, or to legal representative or

assignee

FORM OF NOTICE

The notice of dishonour may be oral or written. If

it is written, it may be sent by post. If I is dulydirected and sent by post, it would be a food notice

even though it is miscarried

It may be in any form but it must clearly indicatethat the instrument has been dishonoured and in

what way, and that the party to whom it is being

given will be liable on the instrument.

It must be given within a reasonable time at the place of


51/78

g p

business or at the residence of the party for whom it is

intended (Sec. 94). Delay caused by circumstances

beyond the control of the party desiring to serve notice isexcused provided it is not imputable to his default,

misconduct or negligence [Beveridge v. Burgis, (1812) 3

Camp. 262].

What is a Reasonable time?

For giving notice of dishonour, regard must be had to

the nature of the instrument and the usual course of

dealing with respect to similar instruments. Incalculating such time, public holidays shall be

exclude [Sec. 105].

Duties of the holder upon dishonour


52/78

Duties of the holder upon dishonour

Notice of dishonour

Noting and protesting

Suit for money

Instrument acquired after notice of dishonour

The holder of a negotiable instrument, who has acquired itafter dishonour, whether by non-acceptance or non-

payment, with notice thereof, has only, as against the

other parties, the rights of his immediate transferor

(Sec. 59). Same is the case when the instrument is

acquired after maturity.


53/78

NOTING AND PROTESTING

NOTING :


54/78

When a promissory note or bill of exchange isdishonoured, the holder can, after giving due notice ofdishonour, sue any or all prior parties liable thereon.

But before he does that, he may get the fact ofdishonour authenticated by noting by a NotaryPublic.

Notingmeans the recording of the fact of dishonour by aNotary Public upon the instrument, or upon a paperattached thereto or partly upon each, with in areasonable time after dishonour(Sec.99)

Noting must contain the following particulars :

i. The fact of dishonour

ii. The date of dishonour

iii. The reasons, if any, assigned for such dishonour

iv. If the instrument has not been expressly dishonoured,


55/78

p y ,

the reason why the holder treats it as dishonoured;

and

v. The Notarys charges (Sec. 99)

Protest

When a promissory note or bill of exchange has beendishonoured by non-acceptance or non-payment, the

holder may, within a reasonable time, cause such

dishonour to be noted and certified by a Notary

Public. Such certificate is called a protest(Sec. 100)

The protest is the formal notarial certificate attesting the

dishonour of a bill or note.


56/78

Contents of Protest

The instrument or a literal transcript of the instrument

The name of the person for whom and against whom

the instrument has been protested

The fact of, and reason for, dishonour

The place and time of dishonour

The signature of the Notary Public

In case of acceptance for honour or payment for

honour, the name of the person accepting or paying

and the name of the person for whose honour it is

accepted or paid (Sec. 101)

Rules as to Compensation


57/78

p

The compensation payable in case of dishonour of anegotiable instrument includes, besides the

principal amount and interest due, and all properexpenses for noting, protesting or for exchange.

An indorser who has paid the amount on theinstrument is entitled to the amount paid with

interest at the rate of 18% per annum from thedate of payment until tender or realization of theinstrument and all proper expenses caused by thedishonour.

The party entitled to compensation may draw abill on any party liable to compensate him. Such abill is referred to as a re-draft. The re-draftmust be accompanied by the dis-honoured bill andits protest, if any.

DISCHARGE OF A NEGOTIABLE INSTRUMENT


58/78

DISCHARGE
http://www.google.co.in/imgres?imgurl=http://www.topnews.in/files/court-gavel_0.jpg&imgrefurl=http://www.topnews.in/indonesia-court-upholds-acquittal-spy-activist-murder-case-2187819&h=484&w=640&sz=51&tbnid=vi3vHoY-VACCDM:&tbnh=104&tbnw=137&prev=/images%3Fq%3Dcourt%2Bimages&hl=en&usg=__9bF7kKfHIaTvTSbgjbGD--r7OYM=&ei=MXP3S_3NCIW2rAeY6p3NCg&sa=X&oi=image_result&resnum=4&ct=image&ved=0CA8Q9QEwAw


59/78

Discharge of the Instrument Discharge of one or more of

the parties from liability thereon

An instrument is said to be discharged when all rates of

action under it are completely extinguished and when

it ceases to be negotiable.

Modes of dischargei. By payment in due course

ii. By maker or acceptor becoming the holder

iii. By express waiver

iv. By cancellation. It may also be discharged like a


60/78

y y gcontract for the payment of money.

v. By discharge as a simple contractA negotiable

instrument may be discharged in the same waysas any other contract for the payment of money

Discharge of a Party or Parties

A Party to a negotiable instrument may be dischargedfrom liability

By payment

By cancellation

By release


61/78

By allowing drawee more than 48 hours

By non-presentment of cheque

By material alteration

By Operation of law

By payment of altered instrument


62/78

Banker and Customer

Relationship Between Banker and a Customer
http://www.syndicatebank.in/scripts/ourprofile.aspx


63/78

Definition : No statutory definition of the term bankerand customer.

Banker :

The business of a banker in ordinary course consists inreceiving money from or on account of a customer

and repaying the same on demand or when drawn bya cheque.

The negotiable instrument Act, defines a bankerincluding any person acting as a banker.

The Banking Regulation Act, 1949 defines a bankingcompany as companywhich transacts the businessof banking in India.

The term bankinghas been defined as accepting,


64/78

for the purpose of lending or investment, of deposits

of money from the public repayable on the demand

or otherwise, and withdraw able by cheque bycheque, draft, order or otherwise.

Customer

Is a person who has some sort of account, either

deposit or current account with the banker.

Legal relationship between banker and customer


65/78

1. The relationship between a banker and his customers is

essentially contractual and is that of debtor (banker)

and creditor (the customer). This relationship issometimes reversed. When the banker lends money to

the customer. The relationship also partakes many

aspects of relationship of agent and principal.Special features of Legal Relationship

Obligation to honour cheques

Obligation to keep proper record of transactions Obligation to abide by the express instructions of the

customer

Obligation not to disclose the state of his customers


66/78

account or affairs

Right of general lien

Right to discharge incidental charges and interest on

money lent

Right to set-off

Right of appropriation

2. Trustee Beneficiary


67/78

f y

The position of a bank will be that of a trustee;

a) A person having no account with a bank, deposit amoney with instruction to retain it till further

instruction

b) The customer instruct a bank to debit his accountor deposit an amount for utilizing it for a specific

purpose or for remitting to other branch / bank

c) Managers properties of its customers

3. Agent Principal


68/78

g p

When the banker accepts bills etc for collection on behalf

of his customer, he acts as an agent and the

constituents in such cases the bank is duty bound as

per sec. 151 of the Indian Contract Act 1872, to act

with reasonable diligence and skill as per instruction

of the principal. Failing which, to make good the laws,if any as per sec. 211 and 212 of Indian Contract Act.

4. Bailee Bailor

When a bank accepts article for safe custody, its legalposition is that of bailer, who is duty bound to take as

much care of the goods bail to him as man of ordinary

prudence would under similar circumstances, take off

Sec. 152 of the same Act says that the bailee, in the


69/78

absence of any contract to the contrary is not

responsible for any laws if the bailee has taken care as

required in terms of Sec. 151 of the Act.

5. Lessor -Lessee

On hiring out of locker bank becomes lessor and the

hirer a lessee and the relationship is that of land lordand tenant. The lesser is not responsible for any loss

or damage. Suitable class to the effect is also

incorporated in the lease deed and hirers are advised,in their own interest to insure their valuables

deposited in the locker

Obligations / Duties of a banker


70/78

g f k

1. Primary Duty of a banker is to honour cheque of its

customer subject to certain conditions.

2. Sec. 31 of NI Act says that the drawee (bank) of a

cheque having sufficient funds of the drawer, property

applicable to the payment of such cheque must pays

such cheque. For wrongful dishonour the customermay claim damage for any laws due to it

Erroneous Credit

If some money is paid into the account of a customer by a

third party even through erroneously the bank cant

refuse to credit it into the account of the customer

without the customersspecific authority / consent.

Pass Book / Statement of Accounts


71/78

f

The customer is under no obligation to examine the

pass book or statement of accounts to acknowledge

that the entries their in or correct and report in

accuracy if any.

A banker is obliged to maintain secrecy of the state of

accounts even after the closure of the accounts of itscustomer, unless required to do so (a) by law, (b) in

public interest ( c) in banks interest (d) as per consent

of the customer

Disclosure under compulsion of law is required in

circumstances as stated below :

a. BankersBooks Evidence Act 1981:


72/78

b. Code of Civil / Criminal procedures

c. Company Act 1956

d. Tax Laws

e. The Reserve Bank of India Act, Banking Regulation

Act

3. The Banking is responsible to the customer for fraud

committed by its employees

4. An instrument with forged signature no mandate at all

and hence bank cant debit its customers account insuch a case

Right of Banker


73/78

R g f k1. Bankers lien

2. Right of Set off : Banker has right to combine two ormore accounts if one of them is in debit of customer

in the same name and same right

Right of Appropriation Eg a deposit without specifying account to which is

meant, may be credited to an account of the customer

showing debit balance. With regard to deposit in one

account the credit entries are appropriated against

debit in chronological order as per ClaytonsRule

Garnishee order and attachment order: when the

d b f il h d b hi di h l


74/78

debtor fails to pay the debt to hi creditor, the latter

may approach the court for issuance of garnishee

order on the banker of the debtor. A garnishee order isan order issued by court under provision of Order 21

rule 46 of the code of Civil Procedure 1908 .

Claytons RuleIn case of multiple debts, credits will be appropriated:

To discharge the particular debt as per the instructions

of the debtor If debtor doesnt intimate or the circumstances do not

indicate, as per the discretion of the creditor

When neither party indicates, to discharge of debts in

Protection of paying Banker
http://www.google.co.in/imgres?imgurl=http://seshdotcom.files.wordpress.com/2008/04/lic_logo.gif&imgrefurl=http://seshdotcom.wordpress.com/2008/04/10/lic-not-to-support-ranbaxy-takeover-of-orchid/&h=156&w=109&sz=5&tbnid=kt4QbKFlcB5SyM:&tbnh=97&tbnw=68&prev=/images%3Fq%3Dlife%2Binsurance%2Bcorporation%2Bof%2Bindia%2Blogo&hl=en&usg=__tR0QBLvgrc7KLWxHw_Jw43ge-zU=&ei=-3H3S6y1D8zGrAfkjPX3Cg&sa=X&oi=image_result&resnum=4&ct=image&ved=0CBEQ9QEwAw


75/78

Protection of Paying Banker
http://www.google.co.in/imgres?imgurl=http://seshdotcom.files.wordpress.com/2008/04/lic_logo.gif&imgrefurl=http://seshdotcom.wordpress.com/2008/04/10/lic-not-to-support-ranbaxy-takeover-of-orchid/&h=156&w=109&sz=5&tbnid=kt4QbKFlcB5SyM:&tbnh=97&tbnw=68&prev=/images%3Fq%3Dlife%2Binsurance%2Bcorporation%2Bof%2Bindia%2Blogo&hl=en&usg=__tR0QBLvgrc7KLWxHw_Jw43ge-zU=&ei=-3H3S6y1D8zGrAfkjPX3Cg&sa=X&oi=image_result&resnum=4&ct=image&ved=0CBEQ9QEwAw


76/78

Where a cheque payable to order purports to be indorsed

by or on behalf of the payee, the drawee is discharged

by payment in due course (i.e. in good faith and

without negligence in accordance with the provision

of Sec. 126). Where a cheque is originally expressedto be payable to bearer, the drawer is discharged by

payment in due course to the bearer thereof,

notwithstanding that any such indorsement purports

to restrict or exclude further negotiation (Sec. 85)

Protection of Collecting Banker

Th ll ti b k ll t d f h i


77/78

The collecting banker may collect proceeds of a cheque inthe capacity of an agent of his customer, or of aholder in due course.

Collecting banker has an agent

The position of collecting banker has an agent may bestudied in relation to crossed cheques and open

cheques.Crossed Cheques :

A banker who has in good faith and without negligencereceived payment for a customer of a cheque crossedgenerally or specially to himself, does not, in case thetitle to the cheque proves defective, incur any liabilityto the true owner of the cheque by reason only of

having received such payment (Sec. 131)

Collecting banker as a holder in due course


78/78

If a collecting banker acquires a cheque for value in good

faith he collects it for himself and has all theprivileges of a holder in due course.

D - Negotiable Instrument- Old

Documents

Transcript of D - Negotiable Instrument- Old