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Banking Awareness Topic Wise - Negotiable Instruments

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23 views5 pages

Banking Awareness Topic Wise - Negotiable Instruments

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shek93
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Banking Awareness Topic Wise - Negotiable Instruments

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Banking Awareness Topic Wise - Negotiable Instruments

1. Negotiable Instrument Act, 1881


 These are written documents.
 Transferable from one person to another merely by delivery in case of “bearer instrument”
and transferable by endorsement in case of “order instrument”.
 The owner is the “bonafide holder for value”.

2. Bill of Exchange
 It must be in writing and duly signed by its drawer.
 It should contain an order to pay.
 The parties to the transaction must be certain.
 A bill of exchange is used in transactions pertaining to goods as well as services. It is
signed by a party who owes money (called the payer) and given to a party entitled to
receive money (called the payee or seller), and thus, this could be used for fulfilling the
contract for payment.
3. Promissory Note
 A promissory note is an unconditional commitment made in writing and signed by a debtor
to make payment to a specified person or to the order within a specified period.
 It is always in writing. No verbal promise is accepted.
 It is drawn for specified duration for specified sum of money.

4. Cheque
 A cheque is an negotiable instrument. It contains an unconditional order to pay a certain
sum of money.
 It contains instructions in writing given by the account holder to his bank for payment of
money from his account. There is a statutory obligation on the part of a banker to make
payment if,
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Banking Awareness Topic Wise - Negotiable Instruments

 It is drawn by the drawer.


 It is drawn upon a specified banker.
 It is payable on demand to a specific person or his order or to the bearer of the instrument.
Cheque should be properly dated.
 It should be signed by the maker/drawer
 There are three parties in the cheque transaction
Drawer: The maker of a bill of exchange or cheque
Drawee: The person thereby directed to pay
Payee: A payee is a party in an exchange of goods or services who receives payment.
 If it is self-cheque, payee will be the drawer only.
CHEQUE ISSUED TO ANOTHER PERSON

5. Associated with cheque


Order cheque ------>A cheque payable to a particular person or his order.
Bearer cheque ------->A cheque payable to a person who so ever bears.
Blank cheque ------->Except signature, all other columns are blank.
Stale cheque ------->Which is more than three months old.
Mutilated cheque ---->The cheque is torn into two or more pieces.
Post-dated cheque----->A cheque which bears a date later than the date of issue.
Open cheque ---->Cheque which has not been crossed.
Crossed cheque ----->Cheque which carries two parallel transverse lines across the face of
the cheque.
6. MICR Code On Cheque
 It is Magnetic Ink Character Recognition (MICR).
 It is a 9 digit code.
 First three digits … city / district
 Next three digits … name of bank
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Banking Awareness Topic Wise - Negotiable Instruments

 Last three digits … location of branch / branch name

0 5 9 7 3 1 0 5 2

MUMBAI ICICI Rohit Nagar Branch

7. Crossing of Cheque
 This is to prevent the possibility of the cheque falling into the hands of wrong or
unauthorized parties. Hence crossing is required.
 If a cheque is crossed direction to the bank not to pay across the counter in cash, but
should be paid to the account holder only
Types of Crossing of Cheque:

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

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

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

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

Endorsement of Cheque:

Endorsement means signature of the holder (An individual who has lawfully received
possession) made with object of transferring the document. The signature & message on the
back of a cheque to either cash it, deposit it or to handover the rights of the cheque to
someone else.
8. Demand draft/ cheque
 It is a Bill of Exchange drawn by a bank on another bank or by itself to its other branch to
pay to the third party.
 It is not mentioned in the Negotiable Instruments Act.
 Due to its nature, it is classified under Bill of Exchange.
 Demand drafts along with cheques are commonly used by the customers of banks.

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Banking Awareness Topic Wise - Negotiable Instruments

CHEQUE
DEMAND DRAFT

Drawer is individual account Drawer is normally a scheduled bank


holder

No certainty of payment Payment is certain

Drawer can stop it by issuing No one can stop it


order

Defined in NI Act, 1881 Not defined in NI Act, 1881

9. CTS - 2010
 It is Cheque Truncation System – 2010
 Truncation is the process of stopping the flow of the physical cheque.
 The physical instrument will be truncated at some point enroute to the drawee branch and
it will be verified digitally.
 Hence the need to move the cheque physically will be eliminated.

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