1

JAFFER S.S
M.A, (L.L.B)

Banking law and negotiable instruments act

1. Define the banker and customer? Elaborate the relationship between banker and
customer.
Banker:
Banking in the simple sense means ‘carrying on business with money’ the term ‘Bank’ denotes
“any person or firm or company, which transacts banking business”. A bank is an institution
which deals with money and credit. It accepts deposits from the public, makes the funds
available to those who need them, and helps in the remittance of money from one place to
another.
There is no satisfactory definition, since it is very difficult to define the term "Banking' or
'Banker". However, many attempts were made to define th term. Following are some of the
prominent definitions:
(1) General Definition: "A bank is what a bank does". It implies that the nature of a bank can be
better understood by studying the fictions performed by a bank. Among all definitions, this
definition is the simplest.
(2) According to section 3 of Negotiable Instruments Act, 1881 "Banker includes a person,
corporation or company acting as a banker". This definition not satisfactory.
(3) Sir Hubert L. Hart: He says that "A banker is one, who in the ordinary course of his
business, honours cheques drawn upon him by persons from and for whom he receives money
on current accounts." This definition is based upon the dicta given in a number of decisions.
Customer
The expression 'Customer' in the simple sense means, one who transacts himself with the
bank subject to certain terms and conditions as imposed by the Banker. In other words, a
person, who maintains an account with the bank may be regarded as customer. The term
'customer of a bank' has not been defined in the Banking Regulation Act, 1949 or any other
Act. By the term it is generally understood or mean an account holder of a bank. But this
general understanding of the term has been qualified by banking experts and judgements of
law courts. Hence, there is no satisfactory definition for the term "customer". However, some
attempts were made to define the term 'customer' as:-
According to Dr. Hart, "a customer is one, who has an account with a banker or for whom a
banker habitually undertakes to act as bank". According to him, a single transaction is
sufficient to constitute a customer. Therefore, to constitute customer, the following two
conditions are to be satisfied:
(a) He must open an account with the Bank to have a dealing with the Bank;
(b) The nature of such dealing must be in form of a banking transaction.
[A] General Relation between Banker and Customer
1. Relationship as Debtor and Creditor
On the opening of an account, the banker assumes the position of a debtor. A depositor
remains a creditor of his banker so long as his account carries a credit balance.
The relationship with the customer is reserved as soon as the customer account is overdrawn.
The banker becomes a creditor of the customer who has taken a loan from the banker and
continues in that capacity fills the loan is repaid.
2. Banker as a Trustee
Ordinally a banker is a debtor of his customer in the report of the deposit made by the letter,
but in certain circumstances, he acts as trustee also.
A trustee holds money or asset and performs certain functions to benefit some other person
called the beneficiary.
For example: If the customer deposits securities or other values with the banker for safe
custody, the letter acts as a trustee of his customer.
3. Banker as an Agent
A banker acts as an agent of his customer and performs a number of agency functions for the
convenience of his customer.
For example: he buys or sells securities on behalf of his customer, collects checks/cheques, and
pays various customer dues.
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[B] Special relationship with customer/obligation of a banker:

The primary relationship between a banker and his customer is a debtor and a creditor or vice
versa. The special features of this relationship, as a note above, impose the following
additional obligations on the banker.
The obligation to honor the Check/Cheques
The deposit accepted by a banker is his liabilities repayable on demand or otherwise.
Therefore, the banker is under a statutory obligation to honor his customer’s check/cheque in
the usual course.
According to section 31 of the negotiable instruments. Act 1881, the banker is bound to honor
his customer’s check/cheque provided by following conditions are fulfilled:
➢ Availability of sufficient funds of the customer.
➢ The correctness of the check/cheque.
➢ Proper presentation of the check/cheque.
➢ A reasonable time for collection.
➢ Proper drawing of the check/cheque.

The obligation to maintain the secrecy of the customer accounts

The banker is obligated to take the utmost care in keeping secrecy about his customer’s
account. By keeping secrecy is that the account books of the bank will not be thrown open to
the public or government officials if the following reasonable situation does not occur,
1. Discloser of information required by law.
2. Discloser permitted by bankers’ practice and wages. The practice and wages are customary
amongst bankers to permit disclosure of certain information and the following
circumstances.
➢ With express or implied consent of the customer.
➢ Banker reference.
➢ Duty to the public to disclose.

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2. Discuss the advantages and disadvantages of nationalization of bank in the
present LPG era?
There are three phenomena in which banking in India can be divided. The pre-Independence
phase which is before 1947. The second phase – 1947 to 1991. And the third phase from 1991
and beyond.
India made LPG reforms in 1991. LPG reforms are also known as liberalisation, privatisation
and globalisation reforms. They have transformed the way India as an economy works and
opened the country up to the world for trade and commerce.
The first bank in India to be nationalized was the Reserve Bank of India which happened in
January 1949. Further, 14 other banks were nationalized in July 1969. Bank of India, PNB, and
many others were part of this nationalization. While the next phase of nationalization saw 6
other commercial banks were nationalized in 1980. These included Vijaya bank, a new bank of
India, Corporation Bank, and others.
The third phase started from the year 1991 till date. The policy of Liberalization was duly
followed in this period and as a result of that a small number of these banks got licensed. They
were known as the New generation tech-savvy banks which later merged with the Oriental
bank of commerce, IndusInd Bank, UTI bank, ICICI bank and HDFC bank. The three sectors of
banks i.e. Government, Private, Foreign contributed their best to the overall growth of the
economy. As a result of liberalization of banking policies, a lot of private banks also came into
effect.
The needs for nationalization of banks arose due to many reasons. These were catering to the
needs of big business houses and large industries. Further, sectors such as exports, agriculture,
and the small-scale industries were lagging behind. The moneylenders used to export the poor
masses in India. These all were taken into consideration during the nationalization of banks.
Also, for a rural section of India, the regional rural banks (RRBs) were formed. The objective
was to serve large masses of the unreserved rural population.
Further, the specific requirements of sectors like foreign trade, housing, and agriculture were
met. This was met by establishing NABARD, NHB, SIDBI, and EXIM.
ADVANTAGES OF NATIONALIZATION OF COMMERCIAL BANKS
Some of the advantages of Nationalization of Commercial Banks are as follows:
1. To Check on Creation of Industrial Monopoly
Before nationalization of commercial banks credit was concentrated to few hands and this
formed Industrial Monopoly. No person except big Industrialist could get loan and advances.
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This neglected the other smaller industrialist. So, commercial banks were nationalized to curb
the monopolizing tendencies.
2. Credit Facility to Priority Sector
Agriculture sector is backbone of India. This sector was neglected at that time. There was no
credit facility available to agriculture sector before nationalization.
3. Reduction of Regional Imbalance
Regional imbalances had existed in India for a long time in area of banking facilities. After
nationalization, branches opened in backward states like Assam, Bihar, Uttar Pradesh than in
developed states like Gujarat, Tamil Nadu etc. These banks reduced the Regional Imbalances.
4. Collection of Saving
Before the Nationalization, the banks did not attract more saving from public. Because people
did not trust banking system . But After nationalization of commercial Banks, the deposits
were increased. Because public believed in public sector Bank then private sector Banks.
5. To check on Black Money
In order to avoid income tax, people kept money with banks. For the solution of this problem
the banks were nationalized.
6. Economic Growth
Before nationalization of banks, economy of country was not growing due to antisocial
practices, speculation and hoarding. The country’s economy suffered badly. In order to solve
this problem banks were nationalized.
7. Export Promotion
Commercial Banks also promotes export. Because there is need to promote export for earn
Foreign exchange. So, Banks give Finance to Exporter at concessional rates.
8. Credit Card Facility
Credit card facility is provided by these Banks which has made our life easy. people can buy
necessary things through credit card an make payment later on.
9. Promote Small Scale Industry
Nationalized commercial Banks encouraged small scale Industry by granting Loans. These
bank grant short term and long term loan to purchase machinery and equipment

DISADVANTAGES OF NATIONALIZATION OF COMMERCIAL BANKS

1. Low performance
The biggest problem of nationalized banks has been their low performance. Banks are
required to keep minimum capital to risk asset ratio which known as capital adequacy ratio. It
should be 9%.Most of public sector banks had negative ratio. Only four banks maintained ratio
during 1999-2000.
2. Favouritism
Another limitation of commercial banks was favouritism in granting loan. They harass certain
small industrialist and same time banks grant loan to big industrialist on easy terms and
conditions. They follow the policy of partiality which affected the trust of client in banks
working.
3. Unbalanced Distribution of Credit
In initial years, Agriculture sector got priority and other sector were neglected. Bank do not
advance loan to weaker section such as laborer, worker and small trader due to lack of
security.
4. Financial Crisis
After nationalization, some banks were operating under losses .This is because banks advance
loan without adequate security. Banks grant non performing loans which interest has not been
received for 180 days. The recovery of loan was poor which lead to losses. This is main reason
for failure of banks.
5. Political Interference
Another limitation of nationalized commercial banks was increasing the political interference
in granting loans, appointment of banks personnel, opening of new branches etc.
6. Inadequate Facilities
Nationalized commercial banks have failed to provide adequate facilities and services to
population living in rural and sub urban area. Banks failed to mobilize rural deposit.

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3. What are different types of securities which may be acceptable to the bank while
giving loan.
Securities in the Banking Sector is nothing but a document certifying compliance with the
prescribed form and the mandatory information about property rights, the exercise, or
transfer shall be possible only upon its presentation.
➢ Securities in the banking sector are the safety or guarantee that may be personal, verbal, or
in the form of any property.
➢ When a creditor lends a loan, it is essential for them to secure the same through different
kinds of securities.
➢ Thereby, security becomes the right of a creditor in the form of property or anything that
can convert the same into cash in case the debtor fails to repay the amount advanced with
the interest.
➢ Currently the types of securities in the banking sector are bonds, notes, cheques,
certificates, banking books, and promotions.
Security in the banking sector can be defined as a financial instrument or asset that can be
easily traded in the open market. For instance, stocks, bonds, options, shares, contracts, etc.
are the examples of securities.
Securities have the ability to be exchanged and/ or traded as financial instruments in order to
raise capital in both private as well as public markets.
Securities are mostly drawn on standard forms of strict accountability. They must consists of
appropriate laws required details including:
➢ Name of the security
➢ Date of registration of the security (deposit money)
➢ Full name and address of the legal entity (the issuer)
➢ Nominal value of the security
➢ Name of the owner (only registered securities)
➢ Time of payment
➢ Kind of yield securities is the interest that specify the interest rate and the amount of
interest pending, discount, interest-free
➢ Additional information based on the purpose and type of the security

Types of Securities in the Banking Sector

There are four most popular types of securities in the banking sector as under:
Lien
Lien is the first type of security which is the right of holding the goods of the borrower until
they repay the borrowed funds. It comes under the Indian Contract Act 1872. Although the
borrower is the owner of the goods, the possession is given to the lender. The lien agreement
suggests whether it relates to a particular debt or debts.
When it comes to the ordinary lien, the creditor only has the right to possession of goods. The
creditor does not possess any right to sell the goods, but the banker’s lien is not the same. The
banker possesses a right to sell the goods after issuing a proper notice.
Mortgage
It is another type of security that can be understood as “the reassigning of interest in the
particular fixed property for the reason of protection of payment of funds advanced by means
of a loan, and presenting of future balanced due, or the act of commitment which may rise to a
financial liability.
Mortgage comes under the transfer of Property Act 1882. It is used when the borrower has the
actual possession of the assets, for which the borrower is granted a loan. The transferor is
known as a mortgager, while the transferor is the mortgagee. A mortgage contract is treated as
a mortgage deed.
Pledge
Another important type of securities, pledge can be understood as “bailment of goods as
protection for payment of money owing or act of a promise”. That means, there should be a
bailment of goods, which has to be done on behalf of the debtor or an intending debtor. The
borrower is known as a pledger and the banker is called a pledge.
Pledge comes under the Indian Contract Act 1872. It is used when the bank takes the actual
possession of the securities like gold, goods, certificates, etc. Bank keeps the securities with
itself and provides the loans to the customers.
Bank returns the securities to the customer after they repay all the borrowed funds to the
bank. In case the customer is not able to repay the amount, the bank has the right to sell off the
assets and recover the borrowed amount along with the interest.
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Hypothecation
Lastly, hypothecation is another type of securities which can be known as “A lawful
transaction of essential goods is always accessible as security for a balance due without
transferring either the property or the possession to the lender.”
Hypothecation comes under the SARFAESI Act 2002. Under this, the borrower has the actual
possession of the asset for which they take out the loan.
Usually, hypothecation is imposed against advances for movable assets, that is, vehicle loans.
Hence, the assets (any vehicle) remains with the borrower and that asset is hypothecated to
the bank for the loan granted.
In case a customer is not able to repay the borrowed funds, the bank possesses the right to sell
the asset (possessed by the customer) and recover the total amount along with the interest.
Check all the Bank PO Exam details here!
Types of Securities in Banking
Further, types of securities in banking can be categorized as:
Bonds
It is a debt obligation issued by the state or the company under certain obligations with
disbursement of the home loan and gives its holder (owner) interest in the form of a fixed
percentage of its face value.
Bills
This security confirms the unconditional cash unilateral debt obligation of the issuer (the
bank) to pay when due a certain amount of money note holder (owner of the notes).
Bank bill usually has the nature of the deposit and is given by the bank, that is, the issuer of the
client on the basis of the deposit in the bank.
Cheque
It is a security consisting of an unconditional order to pay the bank drawer of the cheque
amount to the cheque holder.
Certificate of Deposit
It is a security certifying the amount of the contribution made to the bank, and the rights of the
depositor (certificate holder) to receive, at maturity. This amount includes both the principal
and interest amounts pending on the certificate in the bank that has produced the certificate.
Action
It is issued by a joint stock company and consolidates the right of the owner (shareholder) to
withdraw part of the profits of the company. These profits can be in the form of dividends, to
be a part in the management of the company and part of the property left behind after it has
been liquidated.
Letter of Credit
It is a kind of document that assures the buyer’s payment to the sellers. Letter of credit is
provided by a bank and guarantees the timely and full payment to the seller.
If the buyer is not able to complete the payment, then the bank is responsible to cover the full
or the remaining payment on behalf of the buyer.
Bill of Exchange
As per the Negotiable Instruments Act, 1881, a bill of exchange can be noted as “an instrument
in written consisting an unconditional order, signed by the maker, asking a certain person to
pay a particular amount of money only to, or to the order of a certain person or to the bearer
of the instrument.
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4. Discuss about statutory protection of paying banker and collecting banker under
Negotiable Instrument Act, 1881.
Paying Banker, in the simple sense means the banker, who makes payments against his
customers' cheques. A Banker has a statutory obligation to honour customer's cheques.
Payment of cheques involves great risk, since the banker is liable for wrongful dishonour. In
order to minimize such risks and losses to paying banker, the Negotiable Instruments Act,
1881 provides statutory protection to him.
Statutory protection to the paying banker : There are certain risks incurred by a paying
banker, for which statutory protection is not available under the Act.
(1) Forgery of drawer's signature and
(ii) Fraudulent alterations of the cheque such as alteration of the amount, payee etc.
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Protection in case of Order Cheques (Sec. 85(1):

Where a banker makes payment against an order cheque with forged endorsement, the
drawee (paying banker) is discharged from liability. After insertion of Sec. 16(2) this
protection is extended to other endorsements also. To avail the statutory protection under
section 85(1) the following two conditions are to be satisfied:
(1) The endorsement must be regular, and
(ii) The payment must be in due course (i.e. U/s.10)
United Bank of India v. A.T. Ali Hussain & Co.(AIR 1978 Cal. 169)
The plaintiff paying banker made payment of Rs. 5200/- against a forged cheque to A.T.A.
H.Co. through their banker Union Bank of India. It was found that the forgery could not be
detected even by authorised signatory (A/c holder) or trained expert. Calcutta High Court
granted protection to the plaintiff bank.
Protection in case of Bearer Cheque (Sec. 85(2): According to Sec. 85(2) the paying banker is
not required to verify the regularity of endorsements on bearer cheques. In such cases, the
banker is discharged from the liability. Even if the banker makes payment against stolen
bearer cheque, he is discharged from liability.
Protection in case of crossed cheques (Sec. 128): Section 128 protects paying banker in case of
payment against crossed cheques. Crossing of cheques denotes payment in accordance with
the instruction of the drawer. The protection under section 128 is available if the following
two conditions are satisfied:
(i) If the payment is made in due course U/s. 10 and
(ii) Such payment is made in accordance with the requirement of crossing under sec. 126 i.e.
through any banker in case of general crossing and through the particular banker in case of
special crossing.
Exceptions: The protection U/s. 128 is not available to paying banker in the following cases:
(1) If the payment against crossed cheque is made in case there is irregular endorsement, or
(ii) If there is a material alteration on the cheque, or
(iii) Forged signature of the drawer.
Liability of paying banker: The paying banker is under statutory obligation to honour his
customer's cheques. Otherwise, he is liable under section 31 of the Act to compensate the
drawer (customer) for any loss he may suffer. This duty/liability under section 31 of the Act is
subject to the fulfillment of the following conditions:
(i) There must subsist the banker and customer relationship, i.e. the account must not have
been closed.
(ii) The customer must have sufficient funds to honour the cheque.
(iii) The banker is under obligation to pay the cheque "only when duly required to do so".
It means
(i) the cheque is presented in the branch, where his account is kept,
(ii) it is presented during banking hours, and
(iii) the funds are properly applicable to the cheque.
Liability for wrongful dishonour: If the paying banker wrongfully dishonours a customer's
cheque, he is liable for damages to the customer.

Statutory Protection to the Collecting Banker:

Collecting banker is one, who in discharge of agency services, collects cheques/bills of
exchange etc., on behalf of his customers. Collection of cheques involves great risk and hence
the collecting banker has been provided statutory protection under the Negotiable
Instruments Act, 1881 (Section 131).
Conditions: A collecting banker is entitled to statutory protection, provided the following
conditions are fulfilled.
(i) The Cheque must be crossed:
The collecting banker gets statutory protection in case of crossed cheques only. The crossing
may be general or special. Otherwise, he is liable for conversion, defective title (of the cheque)
etc. (Sec. 128). Section 131-A extends this protection to crossed bank drafts also.
(ii) Collection for customer only:
The statutory protection is available to the collecting banker if he collects the cheque as an
agent of the customer, not as a holder for its value (holder for value means when a customer
presents an outstation cheque for collection and the banker gives immediate credit to his
customer's account without waiting for its clearance, then the position of banker is holder for
value). A customer is one, who has an account with the banker and his dealings with the
banker in the nature of banking business.
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(iii) In good faith and without negligence:

The collecting banker is entitled to avail statutory protection when he receives payment in
good faith and without negligence. A thing is deemed to be in good faith when it is done
honestly.
Conversion: Section 131 affords protection to collecting banker, that he is not liable to the true
owner for conversion even though his customer's title to the cheque proves defective provided
the following conditions are satisfied:
(i) It is a crossed cheque;
(ii) he has received payment as an agent for collection, and not on his own behalf as a holder;
(iii) he has collected the cheque for a customer in good faith and without any negligence.
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5. What is garnishee order? Explain with the suitable illustrations and case material.
The concept ‘garnishee order’ was incorporated under the CPC by the amendment of 1976 and
it was a historic and remarkable amendment in the legislation. A garnishee order is passed by
the competent court ordering a garnishee not to pay a certain amount directly to the judgment
debtor since he is the person who is indebted to the decree-holder. The purpose of this order
is to protect the interest of the decree-holder and prompt payment of certain debts to him.
A garnishee order is issued by the court of law to the third party in a suit, compelling him to
pay a certain amount directly to the creditor instead of paying it to the debtor. A garnishee
order is always beneficial to the creditor as it protects him from the loss due to unavailability
of funds with the judgment debtor. It acts as an alternative mechanism of receiving the unpaid
amount from the debtor if he fails to provide the same within the stipulated time as mentioned
in the contract between the parties. A garnishee order can be made by the court to the
financial institutions or banks to pay the debt amount directly to the creditor instead of paying
it to the principal debtor.
Garnisher is a decree-holder or creditor who initiates and introduces the garnishment action
for his own benefit to reach out the judgment debtor’s property which is in possession or held
by the third party or garnishee. Here, the court in the case of debt which is attached under
Civil Procedure Code, 1908 Order XXI, Rule 46 of other than the debt secured by charge or
mortgage, upon the application issued by the decree-holder, compels the garnishee to pay the
debt either to the court directly or satisfy the debt amount and cost of the execution of the
decree and if he is unable to do so, then he needs to show cause in the court of law that why he
should not do so.
Illustration: A owes B Rs. 2000/’-, A refuses to repay the amount to B and B sues A. He obtains
a decree in his favour. Here, B is a Judgment Creditor and A is Judgment Debtor. B comes to
know that A has some money in a bank account and would like to have his decree satisfied by
attaching it in the hands of A’s bank. For this purpose, he approaches a court and obtains a
garnishee order attaching the fund at the bank standing to the credit of A.
Order 21 Rule 46-A has been inserted in the Code of Civil Procedure, 1908 by the amendment
of 1976 and gives discretionary powers to the court to pass an order compelling garnishee not
to pay a certain amount directly to the judgment debtor to protect the interest of the judgment
creditor. Prior to the amendment, the court had no power to grant an order to the garnishee to
pay the debt in the court of law. It was not allowed to call upon the third party to pay a certain
debt in the court of law and give it to the judgment creditor.
In the cases of:
Kazim Jawaz Jung v. Mir Mohammad Ali Jafari and Anr. (1972)
The court held that where a judgment debtor has no right to claim the debt amount from the
garnishee then decree-holder has no right to recover the amount from him. it was held that
money in the hands of a garnishee which is payable to the judgment-debtor only in certain
contingencies cannot be recovered by the decree-holder.
Syndicate Bank v. Vijay Kumar (1992)
The court held that the bank can set off the liability of the party and if the fixed property is
attached to the bank garnishee has to go to the court. The balance amount shall be claiming to
satisfy the decree. However, the bank has the right to raise an objection before the court of law
that no amount is due to the judgment debtor and the bank is not liable to pay the due amount
to the creditor.

Krishna Singh v. Mathura Ahir (1980)

The Supreme Court held that there are certain conditions needed to fulfil for the execution of a
decree and the court can grant decree in the favour or against the party according to the
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situation of the case. Thus, a garnishee order is an important and significant role in the
execution of a decree.
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6. Explain the features and differences between promissory note, bill of exchange and
cheque.
Negotiable instrument is a piece of paper that entitles a person to a certain sum of money,
transferable from one person to another by mere delivery or by endorsement and delivery.
The person on transfer of the negotiable instrument also becomes entitled to the money and
the right to further transfer it. Negotiable instruments are documents that are exchangeable
and have a monetary value which is two of their main characteristics.
The negotiable instruments and all their aspects are governed by the Negotiable Instruments
Act, 1881 in India. This Act defines these instruments and has provisions for each type of
them individually. Negotiable instruments must contain important information such as the
date, the signature of the payer, the principal amount and also the interest rate.

(I) PROMISSORY NOTE

A promissory note is basically an informal loan or the document of an informal loan. It is an
instrument given in writing with an unrestricted guarantee to pay a certain amount of money
to a certain individual or to the bearer of the instrument and signed by the maker of it. It
thereby creates a debt on the maker of the promissory note.
According to Section 4 of the Negotiable Instruments Act, 1881 a note is an instrument in
writing but not being a bank or a currency note that contains an unconditional undertaking,
signed by the maker to pay a certain amount of cash, or to the order of, to a particular person
or the bearer of the instrument. The limitation period for a promissory note to file a suit is
three years from the date of execution or from the date of acknowledgement.
Sometimes we take or give loans to our friends, relatives and known people. But in the case of
failed payment, there are chances of getting a dispute in the relations, so in such a situation a
promissory note that is a proper legal financial instrument can be used to recover the amount
from the defaulter.
Example: Ajay wants to purchase some goods from Ashok and has an immediate requirement
for them, but he has no money to pay Ashok for the goods instantly. So, in such a situation, he
can issue a promissory note to Ashok that makes a written promise that he will pay the
specific money on a particular date or on the demand to Ashok.
Parties to a promissory note
There are mainly three parties in the promissory note, that are a drawee, a payee, and a
drawer:
1. Drawer: An individual who makes the written promise to pay the amount on a certain date
or on the demand by the drawee is called the drawer. The drawer is also known as, the
maker, or promisor,
2. Drawee: The person to whom the promise has been made, or the person in whose favour
the promissory note is drawn is called drawee or promise.
3. Payee: A payee is a third party to whom the payment is made. The payee and drawee are
the same people to whom the amount is paid.

Features of a promissory note

1. Written or printed agreement: A promissory note should always be written and cannot
be an oral promise to pay money.
2. Pay defined amount: It’s a promise to pay the money on a particular date or when
demanded by the drawee. However, the amount mentioned can neither be subtracted nor
added.
3. Detailed Information: A promissory note must have all the specified information such as
the name of the drawer, drawee and payee, date of maturity, terms of repayment, issue
date, name, and signature of the drawer, the principal amount, and the rate of interest.
4. Unconditional promise: The promise to pay the drawee the amount of money mentioned
in the promissory note must be unconditional because a conditional instrument will not be
negotiable even after the fulfilment of the condition.
5. Duly signed and delivered by the maker: A promissory note is incomplete without the
signature of the drawer and it is required to authenticate and give effect to the contract
contained in the document. The promissory note can be signed in any part of the
document. In case the maker cannot write their name, it may have their thumb impression
also.
6. Stamp duty for promissory note: A promissory note must be stamped with revenue
stamps available from the post office. In case of a promissory note made for a large sum of
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money, a non-judicial stamp paper should be used. It is important for all promissory notes
to be stamped with the proper revenue stamp or non-judicial stamp paper as per Section
13 of the Indian Stamp Act, 1899, a promissory note that is not properly stamped or
insufficiently stamped is considered an invalid document and not admissible in Court.

(II) BILL OF EXCHANGE

A ‘bill of exchange’ is one of the most common types of negotiable instruments and a type of
written order/notice used for international trade that binds one party to pay another party a
definite amount of money on demand or at a pre-decided date. It is mostly used in
international trade to help importers and exporters fulfil their transactions. A bill of exchange
however is different from a contract but can be used by the parties involved to specify the
terms and conditions of a transaction. Although bills of exchange are similar to the promissory
note, many differences exist between them.
The definition of a bill of exchange is given in Section 5 of the Negotiable Instruments Act,
1881 as a negotiable instrument that is in writing and holds an unconditional order by the
bill’s maker to pay a certain amount of money either to a specific person or its bearer.
Bill of exchange is also defined in Section 2(2) of the Indian Stamps Act, 1899 and the bill of
exchange payable on demand has been explained in Section 2(3) of the Indian Stamps Act,
1899.
Example: Ajay sold goods to Ashok on credit for Rs. 50,000 for six months. To ensure the
return of his payment on the due date Ajay draws a bill of exchange upon Ashok for Rs. 50,000
payable after six months. Before it is accepted by Ashok the document will be called a draft. It
will become a bill of exchange only after Ashok writes the word “accepted” and appends the
draft with his signature to communicate his acceptance.
Parties to a bill of exchange
1. Drawer: This person is the maker of a bill of exchange, who is a seller/creditor and who is
authorised to receive money from the debtor.
2. Drawee: In contrast to the drawer, the drawee is the person, who is a purchaser or debtor
who has been directed to pay the sum of money mentioned in bill
3. Payee: Either the drawee or a person who will be receiving the money is called the payee.
The drawer of the bill becomes the payee if he/she keeps the bill with him/her till the date
of its payment.
4. Acceptor: This is the person who signs the bill of exchange as a mark of his acceptance and
generally, the acceptor is the drawee but a stranger may accept it too.
5. Holder: Payee of the bill of exchange is generally the holder. It may also be another person
to whom the payer endorses the bill. In the case of the bearer of the bill, the bearer himself
is the holder.
6. Endorser: A bill holder becomes an endorser when he endorses the bill to another person.
7. Endorsee: This is the person to whom a bill of exchange has been endorsed by the
endorser.

Features of a bill of exchange

1. Written or printed agreement: To be a valid bill of exchange it must be in writing. An
oral direction to make the payment cannot be considered a bill. The language of the bill
has no bar but the document so reduced to writing must adhere to all the conditions laid
down in Section 5 of the Negotiable Instruments Act, 1881.
2. Unconditional order to pay: The order to pay must be without any condition whatsoever
except under certain circumstances. However, the direction of the drawer to the drawee
must be unconditional. The acceptor or the endorser may make his own liability
conditional in a bill. When a negotiable instrument becomes bad as a bill it may still be
used by the drawee as an authority to make payment to the payee. If properly stamped,
even a bad bill can be used as evidence of an agreement between the parties. So, a bill of
exchange needs to have an order to pay and the order should be express and
unconditional.
3. Detailed information: All the entities, payee, drawer and drawee must be definite
individuals. Although the drawer and the drawee cannot be the same person the drawer
and payee, generally are the same person as the drawer usually draws the bill in his or her
favour. Names of the drawer, the drawee and the payee must be definitely mentioned in
the bill. The fixed date for the amount to be paid and the date of payment are some other
essentials of the bill.
4. The drawer must be certain and sign the instrument: The bill is considered complete
only after it is signed by the maker. Without his/her signature, it remains incomplete. The
amount of money must be certain.
 10

(III) CHEQUE
A cheque is a negotiable instrument under Section 6 of the Negotiable Instruments Act,
1881. By a cheque one individual/party orders the bank to transfer the money to the bank
account of another individual/party in whose name the cheque has been issued. A cheque
ensures safe, secure, and stress-free payment because it is a convenient option as there is no
involvement of hard cash during the transfer process.
In other words, a cheque is a bill of exchange drawn on a bank payable always on demand and
the bank is always the drawee in the case of a cheque. It is generally written in a specially
printed form. According to Section 6 of the Negotiable Instruments Act, 1881, a cheque is a bill
of exchange drawn on a specified banker payable only on demand. In the case of cheques, the
drawer and payee may be the same person.
Parties to a cheque
1. Drawer: It is the person who draws/writes the cheque, signs it and orders the bank to pay
the amount to someone.
2. Drawee: It is the banker of the drawer or the bank on which the cheque is drawn or who is
directed to pay/transfer the specified sum written on the cheque to somebody.
3. Payee: Payee is the beneficiary/person to whom the amount written in the cheque is
issued or to whom the amount is to be paid. The payee could draw himself or any other
person.
4. Endorser: When the payee transfers his/her right to take the payment to another person,
he/she is called the endorser.
5. Endorsee: The person in whose favour, the right is transferred is called the endorsee.
Features of a cheque
1. Written order: A cheque, just like a bill of exchange and the promissory note has to be
written and an oral order to pay does not institute a cheque.
2. Drawn on a banker: A cheque has to be drawn on a bank where the drawer has an
account, be it a savings bank account or a current account.
3. Unconditional: A cheque is not a request but an order to pay and it must be unconditional.
The order should be to pay a definite amount of money and if the cheque is drawn to do
something other than pay money then it cannot be a cheque.
4. Signature and date: A cheque without the date and signature of the issuer is invalid.
5. Payable to the drawer: Cheques may be payable to the drawer and maybe drawn also
payable to the bearer on demand unlike a bill or a promissory note.
6. Specific banker only: A cheque is drawn always by a specific banker and these days the
name, address of the banker and the bank’s IFS (Indian Financial System) code are printed
on the cheque leaf itself.
7. Stamp: Unlike a bill of exchange and promissory note, no revenue stamp is required to be
affixed on cheques.
..................................................................................................................................................................................................
7. Write a note on indorsement with references to Holder for value with suitable
examples.
When the maker or holder of a negotiable instrument signs the same, otherwise than as such
maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed
thereto, or so signs for the same purpose a stamped paper intended to be completed as a
negotiable instrument, he is said to indorse the same, and is called the "indorser".
By other words is made on an instrument for the purpose of
(i) Negotiating the instrument,
(ii) Restricting payment of the instrument, or
(iii) incurring indorser’s liability on the instrument,
But regardless of the intent of the signer, a signature and its accompanying words are an
indorsement unless the accompanying words, terms of the instrument, place of the signature,
or other circumstances unambiguously indicate that the signature was made for a purpose
other than indorsement. For the purpose of determining whether a signature is made on an
instrument, a paper affixed to the instrument is a part of the instrument.
For the purpose of determining whether the transferee of an instrument is a holder, an
indorsement that transfers a security interest in the instrument is effective as an unqualified
indorsement of the instrument.
If an instrument is payable to a holder under a name that is not the name of the holder,
indorsement may be made by the holder in the name stated in the instrument or in the
holder’s name or both, but signature in both names may be required by a person paying or
taking the instrument for value or collection.
 11

According to Section 52 of The Negotiable Instruments Act, 1881. ‘Indorser who excludes his
own liability or makes it conditional’ - The indorser of a negotiable instrument may, by
express words in the indorsement, exclude his own liability thereon, or make such liability or
the right of the indorsee to receive the amount due thereon depend upon the happening of a
specified event, although such event may never happen. Where an indorser so excludes his
liability and afterwards becomes the holder of the instrument all intermediate indorsers are
liable to him.
Illustrations
(a) The indorser of a negotiable instrument signs his name, adding the words— “Without
recourse”. Upon this indorsement he incurs no liability.

(b) A is the payee and holder of a negotiable instrument. Excluding personal liability by an
indorsement “without recourse”, he transfers the instrument to B, and B indorses it to C, who
indorses it to A. A is not only reinstated in his former rights, but has the rights of an indorsee
against B and C.
..................................................................................................................................................................................................
8. Trace the history of the Banking in India, What are the various types of Banking
Services provided in the Indian Banking System.
Banking in India forms the base for the economic development of the country. Major changes
in the banking system and management have been seen over the years with the advancement
in technology, considering the needs of people.
The banking sector development can be divided into three phases:
Phase I: The Early Phase which lasted from 1770 to 1969
Phase II: The Nationalisation Phase which lasted from 1969 to 1991
Phase III: The Liberalisation or the Banking Sector Reforms Phase which began in 1991 and
continues to flourish till date
Pre Independence Period (1786-1947)
The first bank of India was the “Bank of Hindustan”, established in 1770 and located in the then
Indian capital, Calcutta. However, this bank failed to work and ceased operations in 1832.
During the Pre Independence period over 600 banks had been registered in the country, but
only a few managed to survive. Following the path of Bank of Hindustan, various other banks
were established in India. They were:
➢ The General Bank of India (1786-1791)
➢ Oudh Commercial Bank (1881-1958)
➢ Bank of Bengal (1809)
➢ Bank of Bombay (1840)
➢ Bank of Madras (1843)

During the British rule in India, The East India Company had established three banks: Bank of
Bengal, Bank of Bombay and Bank of Madras and called them the Presidential Banks. These
three banks were later merged into one single bank in 1921, which was called the “Imperial
Bank of India.”
The Imperial Bank of India was later Nationalised in 1955 and was named The State Bank of
India, which is currently the largest Public sector Bank.
Banks which were established during the Pre-Independence period: Allahbad Bank-1865,
Punjab National Bank-1894, Bank of India-1906, Central Bank of India-1911, Canara Bank-
1906, Bank of Baroda-1908.
Reasons as to why many major banks failed to survive during the pre-independence period,
Indian account holders had become fraud-prone, Lack of machines and technology, Human
errors & time-consuming, Fewer facilities, Lack of proper management skills.

Post Independence Period (1947-1991)

At the time when India got independence, all the major banks of the country were led privately
which was a cause of concern as the people belonging to rural areas were still dependent on
money lenders for financial assistance.
With an aim to solve this problem, the then Government decided to nationalise the Banks.
These banks were nationalised under the Banking Regulation Act, 1949. Whereas, the Reserve
Bank of India was nationalised in 1949.
Following it was the formation of State Bank of India in 1955 and the other 14 banks were
nationalised between the time duration of 1969 to 1991. These were the banks whose national
deposits were more than 50 crores.
 12

List of 14 Banks nationalised in 1969:

1. Allahabad Bank 8. Indian Overseas Bank
2. Bank of India 9. Indian Bank
3. Bank of Baroda 10. Punjab National Bank
4. Bank of Maharashtra 11. Syndicate Bank
5. Central Bank of India 12. Union Bank of India
6. Canara Bank 13. United Bank
7. Dena Bank 14. UCO Bank
In the year 1980, another 6 banks were nationalized:
1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Comm.
5. Punjab & Sind Bank
6. Vijaya Bank
Apart from the above mentioned 20 banks, there were seven subsidiaries of SBI which were
nationalised in 1959:
1. State Bank of Patiala
2. State Bank of Hyderabad
3. State Bank of Bikaner & Jaipur
4. State Bank of Mysore
5. State Bank of Travancore
6. State Bank of Saurashtra
7. State Bank of Indore
All these banks were later merged with the State Bank of India in 2017, except for the State
Bank of Saurashtra, which merged in 2008 and State Bank of Indore, which merged in 2010.
Impact of Nationalisation
The Government chose to nationalise the banks. Given below is the impact of Nationalising
Banks in India:
➢ This lead to an increase in funds and thereby increasing the economic condition of the
country
➢ Increased efficiency
➢ Helped in boosting the rural and agricultural sector of the country
➢ It opened up a major employment opportunity for the people
➢ The Government used profit gained by Banks for the betterment of the people
➢ The competition decreased, which resulted in increased work efficiency
This post Independence phase was the one that led to major developments in the banking
sector of India and also in the evolution of the banking sector.
Liberalisation Period (1991-Till Date)
Once the banks were established in the country, regular monitoring and regulations need to be
followed to continue the profits provided by the banking sector. The biggest development was
the introduction of Private sector banks in India. RBI gave license to 10 Private sector banks to
establish themselves in the country. These banks included:
1. Global Trust Bank 6. IndusInd Bank
2. ICICI Bank 7. Centurion Bank
3. HDFC Bank 8. IDBI Bank
4. Axis Bank 9. Times Bank
5. Bank of Punjab 10. Development Credit Bank
Other services provided include:
➢ Setting up of branches of the various Foreign Banks in India
➢ No more nationalisation of Banks could be done
➢ The committee announced that RBI and Government would treat both public and private
sector banks equally
➢ Any Foreign Bank could start joint ventures with Indian Banks
➢ Payments banks were introduced with the development in the field of banking and
technology
➢ Small Finance Banks were allowed to set their branches across India
➢ A major part of Indian banking moved online with internet banking and apps available for
fund transfer
Thus, the history of banking in India shows that with time and the needs of people, major
developments have been brought about in the banking sector with an aim to prosper it.
..................................................................................................................................................................................................
 13

9. What is ‘Holder’ and ‘Holder in due course’ explain what it’s differences.
While talking about negotiable instruments such as cheques, bills of exchange and promissory
note, the terms holder and holder in due course, quite commonly.
‘Holder’ refers to a person, mean the payee of the negotiable instrument, who is in possession
of it. He/She is someone who is entitled to receive or recover the amount due on the
instrument from the parties thereto.
On the other hand, the ‘Holder in due course’ (HDC) implies a person who obtains the
instrument bonafide for consideration before maturity, without any knowledge of defect in the
title of the person transferring the instrument.
Definition of Holder
As per Negotiable Instrument Act, 1881, a holder is a party who is entitled in his own name
and has legally obtained the possession of the negotiable instrument, i.e. bill, note or cheque,
from a party who transferred it, by delivery or endorsement, to recover the amount from the
parties liable to meet it.
The party transferring the negotiable instrument should be legally capable. It does not include
the someone who finds the lost instrument payable to bearer and the one who is in wrongful
possession of the negotiable instrument.
Definition of Holder in Due Course (HDC)
Holder in Due Course is defined as a holder who acquires the negotiable instrument in good
faith for consideration before it becomes due for payment and without any idea of a defective
title of the party who transfers the instrument to him.
Therefore, a holder in due course when the instrument is payable to bearer, HDC refers to any
person who becomes its possessor for value, before the amount becomes overdue. On the
other hand, when the instrument is payable to order, HDC may mean any person who became
endorsee or payee of the negotiable instrument, before it matures. Further, in both the cases,
the holder in both the cases he must acquire the instrument, without any notice to believe that
there is a defect in the title of the person who negotiated it.
Differences Between Holder and Holder in Due Course
The significant differences between holder and holder in due course:
A person who legally obtains the negotiable instrument, with his name entitled on it, to receive
the payment from the parties liable, is called the holder of a negotiable instrument. A person
who acquires the negotiable instrument bonafide for some consideration, whose payment is
still due, is called holder in due course.
1. A holder can possess negotiable instrument, even without consideration. As opposed to a
holder in due course, possess the negotiable instrument for consideration.
2. A holder cannot sue all the prior parties whereas a holder in due course, has the right to
sue all the prior parties for payment.
3. A holder may or may not have obtained the instrument in good faith. On the other hand,
the holder in due course must be a bonafide possessor of the negotiable instrument.
4. A holder in due course as against a holder enjoys more privileges in many situations like in
the case of inchoate instruments, fictitious bills and so on.
5. A person can become a holder, before or after the maturity of the negotiable instrument.
On the contrary, a person can become a holder in due course, only before the maturity of
the negotiable instrument.
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10. Discuss the liability of parties to negotiable instrument in the case of
dishonouring of a cheque for in sufficiency of funds.
A Negotiable instrument is a specialized type of "contract" for the payment of money that is
unconditional and capable of transfer by negotiation. As payment of money is promised later,
the instrument itself can be used by the holder in due course frequently as money. It is a
transferable, signed document that promises to pay the bearer a sum of money at a future date
or on demand.
Example: Include checks, bills of exchange, and promissory notes. A “negotiable instrument”
means a promissory note, bill of exchange or cheque payable either to order or to bearer.
When a cheque is dishonoured, the drawee bank immediately issues a ‘Cheque Return Memo’
to the banker of the payee mentioning the reason for non-payment. The payee’s banker then
gives the dishonoured cheque and the memo to the payee. The holder or payee can resubmit
the cheque within three months of the date on it, if he believes it will be honoured the second
time.
However, if the cheque issuer fails to make a payment in sufficiency of funds, then the payee
has the right to prosecute the drawer legally.
 14

The payee may legally sue the defaulter / drawer for dishonour of cheque only if the amount
mentioned in the cheque is towards discharge of a debt or any other liability of the defaulter
towards payee.

If the cheque was issued as a gift, towards lending a loan or for unlawful purposes, then the
drawer cannot be prosecuted in such cases.
Legal action
The Negotiable Instruments Act, 1881 is applicable for the cases of dishonour of cheque. This
Act has been amended many times since 1881.
According to Section 138 of the Act, the dishonour of cheque is a criminal offence and is
punishable by imprisonment up to two years or with monetary penalty or with both.
If payee decides to proceed legally, then the drawer should be given a chance of repaying the
cheque amount immediately. Such a chance has to be given only in the form of notice in
writing.
The payee has to sent the notice to the drawer with 30 days from the date of receiving “Cheque
Return Memo” from the bank. The notice should mention that the cheque amount has to be
paid to the payee within 15 days from the date of receipt of the notice by the drawer. If the
cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the payee
has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act.
However, the complaint should be registered in a magistrate’s court within a month of the
expiry of the notice period. It is essential in this case to consult an advocate who is well versed
and experienced in this area of practice to proceed further in the matter.
Significant Points u/s 138 NI Act, 1881:-
1. Legally, certain conditions have to be fulfilled in order to use the provisions of Section 138.
2. The cheque should have been drawn by the drawer on an account maintained by him.
3. The cheque should have been returned or dishonoured because of insufficient funds in the
drawer's account.
4. The cheque is issued towards discharge of a debt or legal liability.
5. After receiving the notice, if the drawer doesn't make the payment within 30 days from the
day of receiving the notice, then he commits an offence punishable under Section 138 of the
Negotiable Instruments Act.
6. On receiving the complaint, along with an affidavit and relevant paper trail, the court will
issue summons and hear the matter. If found guilty, the defaulter can be punished with
monetary penalty which may be twice the amount of the cheque or imprisonment for a term
which may be extended to two years or both. The bank also has the right to stop the cheque
book facility and close the account for repeat offences of bounced cheques.
7. If the drawer makes payment of the cheque amount within 15 days from the date of receipt
of the notice, then drawer does not commit any offence. Otherwise, the payee may proceed to
file a complaint in the court of the jurisdictional magistrate within one month from the date of
expiry of 15 days prescribed in the notice.
..................................................................................................................................................................................................
11. What are the powers given to the Reserve Bank of India under the Banking
regulation act.
Under Banking Regulation Act, 1949 the RBI enjoys the following powers:
Section 10 BB – Power of Reserve Bank to appoint Chairman of the Board of Directors
appointed on a whole-time basis or a Managing Director of a banking company.
Section 21 – Power of Reserve Bank to control advances by banking companies: Reserve Bank
has the powers to determine policies and direct banking companies to follow the same.
Section 22 – Licensing of banking companies: All Banking companies need to get a licence
from RBI and it issues licence only after ‘tests of entry’ are fulfilled.
Section 24A- Power to exempt a Co-operative bank : Without prejudice to the provisions of
section 53, the RBI by notification in the Official Gazette, declare that, the whole or any part of
the provisions of section 18 or section 24, as may be specified therein, shall not apply to any
co-operative bank.
Section 27 – Monthly returns and power to call for other returns and information: At any
time, the RBI may direct a banking company to furnish it with such statements and
information relating to the business or affairs of the banking company (including any business
or affairs with which such banking company is concerned) as RBI may consider necessary or
expedient to obtain for the purposes of this Act, apart from calling for information every half-
 15

year regarding the investments of a banking company and the classification of its advances in
respect of industry, commerce and agriculture.
Section 29A – Power in respect of associate enterprises :The RBI may direct a banking
company to annex to its financial statements or furnish to it separately, within such time or
intervals, necessary statements and information relating to the business or affairs of any
associate enterprise of the banking company. It can also conduct an inspection of any associate
enterprise of a banking company and its books of account jointly by one or more of its officers
or employees or other persons along with the Board or authority regulating such associate
enterprise.
Section 30 – Power to order Special audit : In the public interest or in the interest of the
banking company or its depositors, the RBI may at any time by order direct that a special audit
of the banking company’s accounts.
Section 35 – Inspection of Banking Companies : Reserve Bank on its own or being directed so
to do by the Central Government, inspect any banking company and its books and accounts
and supply to the banking company a copy of its report on such inspection.
Section 35A – Power of the Reserve Bank to give directions : In the public interest or in the
interest of Banking policy RBI has powers to issue, modify or cancel as it deems fit, and the
banking companies or the banking company, are bound to comply with such directions.
Section 36 – Further powers and functions of Reserve Bank : RBI may caution or prohibit
banking companies or any banking company in particular against entering into any particular
transaction or class of transactions
➢ On a request by the companies concerned and subject to the provision of section 44A,
assist, in the amalgamation of such banking companies.
➢ Give assistance to any banking company by means of a loan or advance in terms of under
section 18 of the RBI Act.
➢ Direct the banking company to
In addition to the above the RBI has also been vested with powers to remove managerial and
other persons from office(section 36AA), to appoint additional Directors (section 36AB), to
issue directions in respect of stressed assets (Section 35AB), Supersede Board of Directors in
certain cases(Section 36ACA),Supersede Board of Directors of a multi-State Co-operative bank
(Section 36AAA) and also to impose penalty (Section 47).
In addition to the above, RBI also enjoys certain powers vis-a-vis banks under RBI Act as per
the following table
1 Power of direct discount.
2 Power to require returns from co-operative banks.
3 Power to collect credit information.
4 Power to call for returns containing credit information
5 Power to determine policy and issue directions
6 Power to call for information from financial institutions and to give directions.
Power to regulate transactions in derivatives (excluding capital market derivatives), money
7
market instruments
8 Power of Bank to depute its employees to other institutions
9 Power of the (RBI’s) Central Board to make regulations
..................................................................................................................................................................................................
12. Define the term cheque and mentioned various kinds of cheque.
A cheque is a piece of document/paper which orders the bank to transfer money from the
bank account of an individual or an organisation to another bank account.

The definition of cheque is an instrument, most commonly used means of making payments in the
commercial and business world. It is defined under Section 6 of Negotiable Instruments Act as a bill
of exchange, issued by the drawer to the banker. Cheque is issued with the purpose of guiding the
banker to pay a certain sum of money when demanded by the specific person. A cheque is a
tripartite transaction involving at least 3 parties one of them always being a bank.

The person who writes the cheque is called the “drawer” and the person in whose name the
cheque has been issued is called the “payee”. The amount of money that needs to be
transferred, payee’s name, date and signature of the drawer are all mentioned in a cheque.
 16

Essentials of a Cheque:
➢ A cheque is an unconditional order.
➢ A cheque’s payment is always in cash.
➢ A cheque is always drawn on a particular Bank.
➢ A cheque is always payable on demand.
➢ Signature on the exchequer is mandatory and should be only by the maker.
➢ The amount is always a certain sum of money from one’s account.
➢ This cash amount is to be paid to the person mentioned therein, or order, or the bearer.

Kinds of Cheques:-
1. Bearer Cheque:
The bearer cheque is a type of cheque in which the bearer is authorised to get the cheque
encashed. This means the person who carries the cheque to the bank has the authority to ask
the bank for encashment.
This type of cheque can be used for cash withdrawal. This kind of cheque is endorsable. No
kind of identification is required for the bearer of the cheque.
For example: A cheque has been signed by Arjun (drawer) and the payee for the cheque is
Varun. Varun can either go to the bank himself or can send a third person to get encashment
for the cheque. No identification shall be required for the bearer’s name.
2. Order Cheque
This type of cheque cannot be endorsed, i.e., only the payee, whose name has been mentioned
in the cheque is liable to get cash for that amount. The drawer needs to strike the “OR
BEARER” mark as mentioned on the cheque so that the cheque can only be encashed to the
payee.
For Example: If a cheque has been signed with the name of Varun, then only the payee can visit
the bank to get an encashment for the same for a order cheque.
3. Crossed Cheque
In this type of cheque, no cash withdrawal can be done. The amount can only be transferred
from the drawer’s account to the payee’s account. Any third party can visit the bank to submit
the cheque.
In case of a crossed cheque, the drawer must draw two lines at the left top corner of the
cheque.
4. Account Payee Cheque
This is the same as the account payee cheque but no third party involvement is required. The
amount shall be transferred directly to the payee’s account number.
To ensure that it is an account payee cheque, two lines are made on the left top corner of the
cheque, labelling it for “A/C PAYEE”.
5. Stale Cheque
In India, any cheque is valid only until 3 months from the date of issue. So if a payee moves to
the bank to get withdrawal for a cheque which was signed 3 months ago, the cheque shall be
declared a stale cheque.
For example: If a cheque is dated January 1, 2021, and the payee visits the bank for withdrawal
on May 1, 2021, his/her request shall be denied and the cheque is declared stale.
6. Post Dated Cheque
If a drawer wants the payee to apply for withdrawal or transfer of money after the present
date, then he/she can fill a post dated cheque.
For example: If the date on which the drawer is filling the cheque is May 10, 2021, but he wants
the payment to be done later, he/she can fill the cheque dates as May 30, 2021. It shall be
called a post-dated cheque.
7. Ante Dated Cheque
If the drawer mentions a date prior to the current date on the cheque, it is called ante dated
cheque.
For example: If the current date is January 30, 2021, and the drawer dates the cheque as
January 1, 2021. It shall be considered as an ante-dated cheque.
8. Self Cheque
If the drawer wishes cash for himself he can issue a cheque where in place of the Payee’s name
he can write “SELF” and get encashment from the branch where he owns an account.
For example: If a person wants Rs.1,00,000/- in cash, he can issue a self cheque and visit his
bank branch where he owns an account and get encashment in place of a cheque.
 17

9. Traveller’s Cheque
As the name suggests, the Traveler’s cheque can be used when a person is travelling abroad
where the Indian currency is not used.
If a person is travelling abroad, he can carry the traveller’s cheque and get encashment for the
same in abroad countries.

10. Mutilated Cheque

If a cheque reaches the bank in a torn condition, it is called a mutilated cheque. If the cheque is
torn into two or more pieces and the relevant information is torn, the bank shall reject the
cheque and declare it invalid, until the drawer confirms its validation.
If the cheque is torn from the corners and all the important data on the cheque is intact, then
the bank may process the cheque further.

11. Blank Cheque

When a cheque only has a drawer’s signature and all the other fields are left empty, then such
a type of a cheque is called a blank cheque.

Jaffer ss (ex-army),
Student of Sri prasunna law college, Kurnool,
3years llb. (2019-2022)