Risks facing by the Financial Institutions . Part-2

Name  the  financial  statements  prepared  by  a  bank.

The  financial  statement  has  prepared  by  a  bank  are  listed  in  4  categories:

1.  Balance  Sheet:

It  presents  the  financial  position  at  a  given  date  by-
 Assets
  Liabilities
  Equity.

2.  Income  Statement:

It represents  the  company's  financial  performance  in terms  of  net  profit  or  loss  that  composed Income - Expense.

3.  Cash  Flow  Statement: 

It  presents  the  movement  in  cash  and  bank  balances by
  Operating  Activities
  Investing  Activities
  Financing  Activities.

4.  Statement  of  Retained Earnings: 

It  presents  the  movement  in  owners' equity  that  derived  by-
  Net  Profit  or  loss
  Share  capital  issued  or  repaid
  Dividend  payments
  Gains  or  losses  recognized  directly  in  equity
 Effects of a change or correction in accounting policy or error.

Describe  the  functions  of  Credit  Administration  Department  of  a bank.

A  typical  credit  administration  unit  performs  following  functions:

1.  Documentation: 

To guarantee that all security documentation conforms to the terms of approbation and is enforceable

2.  Disbursement: 

To control office distributions strictly when all terms and states of approbation have been met, and all security documentation is set up.

3.  Credit  Monitoring: 

Stay informed concerning borrowers' consistence with credit terms, recognizing early indications of anomaly, leading occasional valuation of guarantee and checking convenient reimbursements.

4.  Custodial  Duties: 

Capacity of security reports ought to be brought together. Proper protection scope ought to be kept up on resources promised as guarantee.

5.  To  maintain  control  over  all  security  documentation

6.  Compliance  monitoring: 

To screen borrower's consistence with pledges and concurred terms and conditions, and general checking of record behaviour /execution.

What  are  the  principal  money  market  and  capital  market instruments  available  to  the  banks  in  Bangladesh?

The  financial  market  in  Bangladesh  is  mainly  of  following  types :

1.  Money  Market: 

The  instruments  that  are  generally  traded  in  the  money market  constitute:  

a)  treasury  bills

b)  short-term  bonds  of  govt.  &  central  bank  

c)  negotiable  certificates  of  deposits

d)  bankers  acceptances  

e)  commercial  papers   -  bills  of  exchange   -  promissory  notes -  mutual  funds

2.  Capital  Market: 

The  instruments  that  are  generally  traded  in  the  capital market  for  medium  and  long  term  and,  in  cases  such  as  equities,  for unspecified  periods  are  constitute:  

a)  long-term  government  securities 

b)  corporate  bonds

c)  stocks

d)  municipal  bonds  issued  by  state  and  local  government  units e) mortgages.

What  are  the  sources  &  uses  of  funds  of  depository  financial institution ?

Deposits  and  others  funding  sources,  depository  institutions  both  make  direct loans  to  various  entities  and  invest  in  securities.  Income  is  derived  from  2 sources-
 i) income generated from the loans .
 ii) fee income.

What  are  the  sources  &  uses  of  funds  of  a  non-bank financial institution ?

Sources  of  funds  of  NBFIs:

1.  Capital,  reserves  and  profit

2.  Currency

3.  Demand  deposits

4.  Other  deposits :

a.  Banking  and  financial  institutions

b.  Public  sector

c.  Private  sector

d.  Foreign.

5.  Borrowings.

6.  Funds  from  other  financial  institutions :

a.  Domestic

b.  Foreign.

7.  Insurance,  provident  and  pension  funds.

8.  Other  liabilities Uses  of  funds  of  NBFIs:

i.  Currency

ii.  Deposits  with  other  financial  institutions:

a.  Domestic

b.  Foreign

iii.  Loans  and  advances:

a.  Banking  and  financial  institutions

b.  Public  sector

c.  Private  sector

d.  Foreign

iv.  Securities: 

a.  Treasury  bills

b.  Commercial  bills

c.  Malaysian  Government  Securities  (MGS)

d.  Corporate o  Private  Debt  Securities  (PDS) o  Equities

e.  Foreign

f.  Others.

v.  Gold  and  forex  reserves

vi. Other assets.

Risks facing by the Financial Institutions . Part-1

Risks facing by the Financial Institutions . Part-2

Risks facing by the Financial Institutions . Part-3

Risks facing by the Financial Institutions . Part-4

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Negotiation or Endorsement of Cheques.

Negotiation or Endorsement of Cheques:

Endorsement of cheque means giving signature for transferring. It is an idea of many people that, The word endorsement came from the Latin word 'Indorsum'. Here 'In' means  above and 'dorsum' means backside. Thus, to give sign on or back side of bearer or ordered cheque for transferred is called Negotiation or endorsement of Cheques.

"Endorsement is signing, for the purposes of negotiation or face of negotiable instrument or on a slip of paper annexed there to with the intention to make it so". ( Sec. 15 of negotiable instrument act 1881)

"Endorsement of Cheques is a signature on the back of a cheque making it payable to person who signed it". (Oxford Dictionary of finance and banking)

"An Endorsement is the signature of the drawer or holder of negotiable instrument for the purpose of negotiation". (Shekhar and shekhar)

Types / Classification of Endorsement

The different types / Classification of endorsement are given beneath :

1. Ordinary or blank endorsement: 

On the off chance that the endorser signs his name just and does not indicate the name of the endorsee, the underwriting is said to be blank endorsement. Sec. 16(1). The impact of a blank endorsement is to change over the request instrument into bearer instrument (Sec. 54), which may be exchanged just by conveyance.

2. Special or Full Endorsement :

In the event that the endorser, notwithstanding his mark, likewise adds a bearing to pay the sum specified in the instrument to, or to the request of, a predetermined individual the underwriting is said to be in full [Sec. 16(1)].

On the off chance that, for instance, A, the holder of a bill of trade, needs to make an endorsement in full to B, he would compose along these lines: "Pay to B then again arrange, SdA4." After such an endorsement it is just the endorsee, i.e., B, why should entitled get the instalment of the instrument & to further arrange the instrument by his support.

A clear endorsement can without much of a stretch be changed over into an endorsement in full, As per Section 49, the holder of a debatable instrument embraced in clear might, without marking his own particular name, by composing over the endorser's signature a heading to pay to some other individual as endorsee, change over the endorsement in clear into an underwriting in full; and since such holder does not sign himself on the instrument he doesn't subsequently acquire the obligation of an endorser.

3. Partial Endorsement: 

Section 56 express that negotiable

instrument can't be embraced for a part of the sum seeming, by all accounts, to be expected on the partial instrument. As such, an partial endorsement which exchanges the rights to get just a part instalment of the sum due on the instrument is invalid. Such an endorsement has been proclaimed invalid in light of the fact that it would subject the earlier gatherings to majority of activities (one activity by holder for part esteem and another activity by endorsee for part esteem) "and will in this way reason disservice to them.

Additionally, it would likewise meddle with the free flow of negotiable instruments. It might be noticed that a support which indicates to exchange the instrument to two or more supports independently, and not together is additionally regarded as incomplete 

support and consequently would be invalid. In this way, where A holds a bill for $ 2,000 and supports it for B for $1,000 & for C for the remaining $ 1,000, the support is halfway and invalid. Sec. 56, in any case, further gives that where an instrument has been paid partially, a note to that impact mama; be supported on the instrument & it might then be arranged for the parity. Consequently, if in the above outline the acceptor has officially paid $ 1,000 to A, the holder of the charge, A can then make an support saying "Pay B or request" $ 1,000 being the unpaid build-up of the bill." Such a support would be legal.

4. Restrictive Endorsement: 

Expressing the impact of support, Section 50 gives that "the support of negotiable instrument took after by conveyance exchanges to the endorsee the property thus with the privilege of further arrangement." However, Section 50 permits restrictive endorsement. A support which, by express words, forbids the endorsee from further arranging the instrument or limits the endorsee to manage his instrument as coordinated by the endorser is called restrictive endorsement. The endorsee under a restrictive endorsement gets all the privileges of an endorser with the exception of the privilege of further arrangement. At the end of the day, such an support qualifies the endorsee for getting the instalment on due date and sue the gatherings for it yet he can't further arrange the instrument

.

Illustration :

(a) B, the holder of the bill, makes an support on the bill saying "Pay C just." It is a restrictive endorsement as C can't arrange the bill further.2

(b) B, the holder of the bill, makes an endorsement on the bill, saying "Pay C for my utilization or "Pay C or request for the record of B." In either case there is a restrictive endorsement  as the privilege of further transaction by C has been barred consequently. The individual subject on the slope must pay by attracting a check the name of the holder (or the endorser) B. On the off chance that he makes the instalment to C all alone record, he will still be subject to B, the endorser; Hence C can't embrace the bill further in his own name.

5. Conditional Endorsement : 

On the off chance that the endorser of a Conditional Endorsement, by express words in the endorsement, makes his obligation, subject to the event of a predefined occasion, despite the fact that such occasion might never happen, such Endorsement  is known as a Conditional Endorsement (Sec. 52).

The law allows a Conditional Endorsement furthermore, subsequently it doesn't in any capacity influence the debatability of the instrument. Therefore, supports can truly be made in the taking after terms:

(i) "Pay B or request on his marriage;"

(ii) "Pay B on the landing of Pear less boat at any specified place."

On account of a Conditional Endorsement the obligation of the endorser would emerge just upon the incident of the occasion indicated. Be that as it may the endorsee can sue other earlier gatherings, e.g, the creator, acceptor, and so forth., if the instrument is not rightfully met at development, despite the fact that the predefined occasion did not happen.

6. Sans recourse endorsement(Sec.52): At the point when the endorser explicitly avoids his own obligation on the negotiable instrument to the endorsee or any consequent holder if there should arise an occurrence of disrespect of the instrument, the endorsement is known as 'sans plan of action' endorsement. Such an endorsement is for the most part made by including the words 'sans response' or 'without response.' Thus, "Pay X or request sans response" or "Pay X without plan of action to me" or "Pay X or request at his own particular danger" is cases of this kind of endorsement.

7. Facultative endorsement: 

At the point when the endorser explicitly surrenders some of his rights under the  instrument, the support is known as a "facultative" support. Therefore, "Pay X or request, notification of disrespect waived" is a facultative support. As an aftereffect of such an underwriting the endorsee is alleviated of his obligation to give notification of disrespect to the endorser and the last stays subject to the endorsee for the non-instalment of the instrument, despite the fact that no notification of disrespect has been given to him.

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Guarding Against Account Hacking

It is the fastest growing form of identity theft and it can have the most devastating effect onus. It is called ACCOUNT HACKING and some 2 million people are victimized yearly. Account hijacking occurs when a criminal obtain your personal banking information and uses it to take over your bank accounts. It can take weeks or months to discover. Fortunately, there are steps you can take to protect yourself.

STEP 1 - Protecting Yourself - Understand the Threat

Hijacking by phishing deceives customers into providing their user names, passwords, and account numbers via deceptive e-mails, fake Web sites, or both. The classic phishing attack involves a deceptive e-mails, fake Web sites or both. The classic phishing attack involves a deceptive e-mail that tends to be from a legitimate financial institution. The e-mail typically tells the customer that there is some sort of problem with customer's account, and instructs the recipient to click on the included hyper link to "fix" the problem. In reality, the fake Web site is simply collecting customer user names and passwords in order to hijack  accounts. Hijacking with Spyware works by inserting malicious software, often referred to as "Spyware," on a person's personal computer. Spyware can be loaded when a user opens a seemingly harmless e-mail attachment or clicks on a pop-up advertisement. The spyware collects selected information (user names, passwords, and account numbers) and forwards that information to the fraudster.

STEP 2 - Protecting Yourself - Fortify Your System

Password Protection - 

If your password is easy for you to remember, the chances are good it is also easy for an Internet hacker to figure out. Experts advise a combination of letters , numbers and avoiding pet names, your home address, and similar easy-to-crack codes. 

Phishing Awareness - 

If you receive an unexpected email, or one that you consider suspicious, delete it. REMEMBER: Your bank will NEVER email you and ask you to go to another site to "verify information". 

Anti-Virus - 

Your computer's antivirus software is like a vaccine - it works at first, but you need to keep it up-to-date to guard against new strains. 

Anti-Spyware - 

Anti-spyware programs are readily available, and every computer connected to the Internet should have the software installed...and updated regularly.

STEP 3 - Protecting Yourself - Vigilance Pays

Chances are you will never be victimized by account hijacking identity theft. But if you are victimized, early detection is critical. 

Check Your Statements Regular - 

If something seems irregular, contact your banker to discuss it. A recent study showed that customers who monitor their account on-line discover problems

sooner.

Check Your Credit Report At Least Annually -

You are entitled to one free credit report annually from each of the three major credit bureaus. If a hijacker is misusing your credit, clues are likely to show up here. For a free report: www.annualcreditreport.com . Quick Facts About Account Hijacking An estimated 2 million people are hit with account hijacking each year; most say it was from a phishing scam. Overall account fraud totals more than $2.4 billion annually, $1,200 per victim. People who monitor their accounts on-line (rather than just with mailed statements) can detect hijacking earlier. In one report, victims' losses were one-eighth of those who detected the crime via paper statements due to early detection. Return to the top Tips for Travellers Planning Ahead Can Help You Keep Your Money Safe! Washington, D.C. (May 23, 2011) - With the kick off of summer less than a week away and many Americans planning to hit the road or the skies for their much- anticipated summer vacation, the Independent Community Bankers of America (ICBA) and the nation's more than 7,000 community banks want consumers to have the information they need before they leave home so they can keep their money safe. "Nothing can ruin a vacation faster than losing your wallet or running out of funds, so plan ahead and talk to your community banker about how you can protect your money while travelling both domestically and abroad, "said Sal Marranca, ICBA chairman and president and CEO of Cattaraugus County Bank, Little Valley, N.Y. "Since community banks are relationship bankers who

work one-on-one with their customers, they can help customers be better prepared for travel emergencies. And in the event that something unfortunate does happen, they are ready and willing to help." Financial professionals agree that the safest and most convenient way to travel with your money is to take a small amount of cash with you. It's also a good idea to carry a debit, credit or ATM card. These cards are convenient while travelling because they are easy to carry, easy to use and often offer the lowest fees and the best exchange rates. However, travellers still need to plan ahead to be prepared. To help, ICBA offers these tips to consumers about what they need to take care of before they take off :

1. Let your community bank know when and where you will be travelling so that you will avoid any potential for fraud alerts when out-of-the-ordinary transactions are posted.

2. Call or stop by your community bank to find out what ATM or debit card fees you may be subject to in this country and abroad.

3. If you're travelling overseas, keep in mind that ATMs in many countries only accept four digit personal identification numbers (PINs) and some countries have keyboards with numbers only, while

others do not acknowledge zeros. Ask your community bank if you should create a new PIN for your account before you take your trip.

4. Carry a back-up card that you keep in a separate place. Families or couples may get even greater back-up coverage if each person takes a different card.

5. Make copies of all the cards you'll be carrying. Be sure to copy the front and back of the card.Take a copy with you and give a copy to someone you trust back home. Be sure to also include the security code for the card and the customer-service phone number.

6. Bring a list of emergency phone numbers, but remember, 800 numbers can only be used in the United States and Canada. Be sure to get a number for your bank that you can call if you're out of the country.

7. Many credit cards provide travel accident insurance and traveller's assistance. Ask your community bank what special services are available through your card.

8. Check your balance before you leave. Know the limits on how much you can withdraw. Save all your receipts. "Whether your destination is overseas or closer to home, it really is better to be safe than sorry. And your community bank can help you make sure that you're safe," Marranca said. Return to the Top ATM & Debit Card Safety Information provided by: Bank Stuffer and Financial Education Corporation. With the banking convenience made possible with Automated Teller Machines (ATM s) and other Point of Sale terminals comes an increased need for security and personal caution. It's no longer enough to take measures to protect your physical safety and your cash after a transaction at the ATM - now you must be aware of cameras and skimming devices that secretly record (steal) your bank account numbers and PIN numbers. Here are some other tips for safer transactions:

Electronic Safety:

Protect Your Card -
Report lost or stolen cards IMMEDIATELY. Don't write your Personal Identification Number (PIN) on your card or give the number out to anyone, including friends and family and DO NOT reveal it to anyone over the phone. Avoid using number that are easily identified with your personal identity.

Conduct Your Transactions Privately -

When you use the ATM conduct your business quickly and efficiently, make sure no one watches you key in your PIN number. Use your body and free hand to shield the ATM keypad during the transaction. This simple step prevents a camera or remote reader from recording your personal information including card numbers.

Be Watchful for "Skimmers" -
Do not swipe your card in machines that claim to clean, re-magnetize or renew your card. If the machine looks like it has been tampered with, re-manufactured or has any loose parts don't use it. This machine could be a "skimmer" which is used to copy identifying information from the magnetic strip on your card.

Take the Receipt With You -
NEVER leave the receipt behind, even after an incomplete transaction. Discarded receipts can lead to identity theft and account hijacking.

Check Your Debit Card Account Frequently -
If you find any irregularities in your statement, e.g. charges made for items that you didn't order, cash withdrawals that you didn't make. Then contact your bank immediately to report the incident. Your liability under federal law for unauthorized use of your ATM or debit card depends on how quickly you report the loss.

Personal Safety:

walk to the ATM, turn off your ignition and lock your car. If you use a drive-up ATM, be sure to roll up passenger windows and lock your car doors.

Observe Lighting and Landscape -
Use extra caution when using an ATM at night. If the lights at the ATM are not working, don't use it. If shrubbery has grown up,or if a tree blocks the view, select another ATM and notify the bank. In fact, it's always a good idea to let the bank know whenever you notice anything our of the ordinary at an ATM. ATM at night, consider taking a friend along. completed your ATM transaction, put your money away immediately and leave the ATM premises. It's best to count your money later.

BOTTOM LINE:
Always use common sense when using an ATM and be aware of your surroundings, whether at your bank ATM or other point of sale device.

Deposit Safety Tips

Counterfeit Cashier's Checks-

Cashier's check fraud has become more prominent as on-line auction sites, chat rooms, and classified ads have become more popular. Typical fraud scenarios involve buyers from overseas claiming someone in the United States owes them money after a purchase has been made. The person who owes the buyer money then offers to send you a cashier's check for an amount over the purchase price and asks that you wire back the difference to the buyer. You agree, so you deposit the cashier's check once you receive it and wire the leftover sum to the buyer. Days later your bank informs you that the cashier's check was fraudulent and you are now responsible for the money you've drawn against it. You've now lost your money and merchandise to a scam .

REMEMBER: 

Use caution when dealing with foreign buyers and sellers. Also, banks can take up to 10 days to determine if a check is counterfeit; do not be rushed into any transaction. No legitimate company will offer to pay you by arranging to send you a check and asking you to wire some money to their bank. If that's the pitch, it's a scam. Fake Check Scams: Can a bank tell if a check or money order is fraudulent when it is deposited? Fake checks and money orders often look so real that even bank tellers may be fooled. Many times, the name listed on the check is a legitimate business name, but is matched up with a fake bank or account number. Under federal law, banks must make the funds available to the customer within one to five days. So just because the funds show up in your account, doesn't mean the check is good. Forgeries can take weeks to be discovered. If you suspect a check may be fraudulent, ask the teller if they can verify funds with the issuing check’s bank. It’s better to be safe than sorry.

Fake Check Scams:
If the check is fake, is it the customer's problem? Every customer is responsible for the items they deposit. "The customer is in the best position to determine how risky the transaction is" (Fraud Alert: Fake Check Scams). When a check or money order is returned, you owe your bank the money you deposited or withdrew. The bank may recover the funds by debiting your account. "In some cases, law enforcement authorities could bring changes against the victims" (Fraud Alert: Fake Check Scams).

Direct Deposit:

If you don’t already have your pay check set up with direct deposit, you should consider the benefits. Direct deposit is safe, reliable, quick, and convenient. Direct deposit puts money in your account on time, every time. It can’t get lost or stolen because it will never be in your possession. You won’t have to make that special trip to the bank or pay for the stamp to mail your deposit, your pay check will be credited to your account and available for you to use immediately.  Check with your employer

about direct deposit today!

Tax Refund Direct Deposit

Sixty-six million taxpayers are already using direct deposit for their tax refund. So why should you? The IRS can electronically transmit your refund directly into your account. It’s safe, easy, and fast. You can also select up to three financial accounts for direct deposit of your tax refund. You can choose IRA accounts, checking and savings as well as Health Savings Accounts, Cover dell education accounts or medical savings accounts. To arrange direct deposit use IRS Form 8888 to split your refund. Use the appropriate line under “Refund” on Form 1040 to deposit into a single account.

Loan Safety Tips-

Advance Fee Loan Scams-

Advance fee loan scams target clients who use their legitimate looking Web sites. After filling out an on-line loan application, the client quickly receives verification that their loan has been approved and can obtain their funds after first wiring a deposit or fee. After doing so, the victim quickly realizes that the loan never materializes; leaving the client vulnerable to identity theft.

REMEMBER:
It is illegal for a lender to ask you to pay a fee before you get a loan. Your best defence is to do business with an institution you know and trust, such as your bank. Return to the top

Partnership for Safe On-line Banking

Information provided by:

Bank Suffers and Financial Education Corporation On-line banking has grown rapidly from a niche service to a major new way to bank. In fact, some surveys show that far more people prefer to bank on-line than in the traditional ways. This phenomenal growth was made possible by increases in technology, of course, but even more so by increases in the safety and security measures undertaken by banks and their customers. This partnership for safe on-line banking means that you can access your account whenever and wherever you want. But care should be taken because cyber criminals are always looking for new ways to electronically break into the bank and steal your money.

Safe on-line banking depends on continuing and strengthening this safe on-line partnership between the bank and customer .

Banks Role:

1. Ensure the security and confidentiality of customer information.

2. Protect against any anticipated threats to the security of customer information.

3. Protect against unauthorized access that would result in substantial harm or inconvenience to any customer.

Customers Role:
Some common sense and easily implemented precautions can help you safeguard your personal Information from Identity theft and account fraud:

1. Strong passwords -
Security begins with a strong password, which only you know. Experts advise a combination of letters and numbers, and advise against using easily guessed passwords such as birthdays or home addresses.

2. Anti-Virus Protections -
Make sure the anti-virus software on your computer is current and scans your email as it is received. This simple step is critical to your personal safety and security when on-line.

3. Email Safety -
Email is generally not encrypted so be wary of sending any sensitive information such as account numbers or other personal information in this way. If you receive an unscheduled or unsolicited email

purporting to be from your bank be cautious - take the time to call your bank and make sure the email was sent from your banker.

4. Sign Off and Log Out -
Always log off by following the bank's secured area exit procedures to ensure the protection of your personal information.

5. Don't Get Phished -
Crooks are always trying to get your personal information, and they employ some ingenious methods.

Don't respond to any unusual email requests for personal information - when you opened your bank accounts you already gave it. When in doubt, call your bank.

6. Monitor Your Accounts -
When you check your accounts regularly, you can let your bank know immediately if you encounter anything that does not seem right. Doing this has the added benefit of keeping you aware of recurrent transactions going through your account for services you no longer use, such as a gym membership or

club.

Business Role:

1. Use a dedicated computer for on-line transactions.

2. Business account holders to conduct periodic assessment of their internal controls.

3. Use layered security for system administrators.

4. Initiate enhanced controls for high- dollar transactions.

5. Provide increased levels of security as transaction risks increase.

6. Offer customers multi-factor authentication.

Online/Internet Safety Tips-

On-line 101:
Identifying the Threats Phishing-
This usually happens in the form of fraudulent e-mails, which appear to be from a trusted source, such as your bank. The fraudulent e-mail usually directs you to a site that is designed to appear like the company they are trying to imitate. Once at the site, the customer is directed to verify their information, such as their name, account, credit card numbers, and passwords. Your personal information is then used to hijack your accounts and your identity.

Pharming- This fraudulent activity happens when a user is at a legitimate site and is then redirected to a fraudulent site and fooled into entering personal information. It is different from phishing because the user does not have to click on a link in an e-mail to go to the page, they are simply redirected by the attacker from the legitimate site to the malicious web site.

Malware- This is software that is designed to damage a computer system without the user knowing it is present. This includes computer viruses, worms, trojan horses, spyware, and adware.
REMEMBER: 

Be aware of the website you are using when entering in personal information. If you receive an e-mail from your bank directing you to click on a link, verify with your bank that the e-mail is legitimate before doing so. Safe On-line Shopping Important things to remember when shopping on-line.

Secure Connection-
Look for signs of a secure connection on your browser. The address bar should have an https or shttp instead of http and a picture of a lock should be shown at the bottom of your browser.

Public Computers -
Use a personal computer to make on-line purchases. Never use a public computer to make purchases because it is hard to tell who may be watching you. Hackers sometimes install software, which cannot be detected, on public computers to gather customer information when entered in on the computer.

Understand the Terms-
Always read important merchant information; such as, return policies, refunds, shipping costs and privacy protection, before making a transaction from an on-line business.

Responding to Information-
Often times companies will send you an e-mail confirmation of your purchase after completing the transaction. These e-mails are good to keep record of  because they often list information about your purchase. Usually these e-mails specifically say, Do not Respond to this E-mail. If you do receive an e-mail saying a merchant needs to confirm your billing information, beware. These e-mails are usually fraudulent and when entering your information, you are leaving yourself susceptible to identity theft.

Review Statements-
When shopping on-line make sure you check your monthly statements issued by your billing company. This will help you identify any unauthorized transactions that may have been placed on your account. If a transaction is present that was not authorized by you, call your bank or credit card company to report the fraudulent activity immediately. Information provided by McGlasson, Linda. "Do's and Don't s for Safe On-line Shopping" December 14, 2007.

IRS Scan & E-Mail Fraud-

With the tax season in full swing, it is important to protect yourself from scams aimed at taxpayers. Several fraud related e-mails have been sent out to taxpayers to try and acquire personal and financial information by stating they are entitled to a tax refund check. Another scam involves a downloadable form that the taxpayer is to use in filing their taxes. Individuals are told that if they do not use this form, they will be subject to an IRS audit. By downloading this form, spyware is then placed on the individuals computer that can obtain passwords and other valuable information. Some scams are even

coming through phone calls, instead of e-mail, with the caller claiming to be an IRS agent. It is important to remember that you should only access tax information by going directly to the IRS’s website, www.irs.gov  Information provided by Krebs, Brian. “IRS Warns of Scams to Steal Data With Offer of Tax Rebate”. www.washingtonpost.com Jan. 31, 2008.

Malware Targeting Online Banking Users-

We have been informed of a new malware that is affecting online banking users. This has not affected any of our Citizen’s State Bank online users directly, but we want our customers to be aware of what is going on. Once the malware is present, it attempts to trick the user by popping up fraudulent login screens. These pop up screens acquire personal data such as usernames, passwords, challenge questions, token challenge numbers and other information. Please report any suspicious activity or anything that looks different on the login window. These could be signs that the computer has been affected by the malware. As a precaution, please close all other browsers and tabs before logging into your online banking.

Safe Online Banking-

Online banking has been an added convenience to our everyday lives in several different ways, but it is important to be safe when using this helpful device
.

1. Passwords.
Use a strong password and do not share it with anyone else. By using a combination of numbers and letters, (and not using easily guessed words) hackers will have a harder time trying to figure out your password.

2. Anti-Virus Protection.
Make sure the anti-virus software on your computer is up-to-date.

3. E-Mail Communication.
E-mail is generally not encrypted, so be cautious about sending personal information (account numbers & social security numbers) through your e-mail.

4. Log Off .
Always make sure you log off your account, especially if you’re using a public computer.

Consumer Information Safety Tips-

Know Your Credit Report In today’s world, credit is a privilege. It is important to have good credit as several decisions can be based on this statistical number.

1. Monitor your Credit Report-
The three national credit reporting agencies offer free credit reports every year. Take advantage of this and order a report from a different company every four months to monitor any new activity year round. Go towww.annualcreditreport.com  to get your free credit report.

2. Improve your Credit Score-.
If your credit score isn’t as high as you’d like it to be, take these steps to improve your credit score: Pay bills on time, keep credit card balances low, consider close unused accounts, and pay off debt.

3. Correct your Credit Report-
When looking at your credit report, verify that all information is correct. If you notice something that is wrong on your credit report, you have the right to dispute any discrepancy. Credit bureaus are required by law to investigate any written complaint within 30 days.

Save Time When Paying Bills-

There are two advances in electronic banking that will allow you to save time and pay bills faster and easier.

Direct Payment-
Bills are paid automatically every month from your bank account to the company you wish to pay. you have a reoccurring monthly bill and tell them you want to set your bill up on direct payment bank’s routing number.

Authorize the amount and payment date-

By setting your monthly bills up on direct payment, you not only save valuable time, but you will no longer have to pay for postage, checks, or late fees.

On-Line Bill Payment-
Pay bills by using your computer. you to pay bills online and the amount you wish to pay

deducted from your account upon your approval By paying your bills online, you save money on postage and checks.

Warning Signs of Financial Stress-

Here are a few warning signs that show you might be in financial stress:

* You pay the minimum payment amount each month. (This includes credit cards, bills, and loan payments.)

* Important payments are late. (Like your mortgage payment.) Taking out a loan to pay-off another loan elsewhere.

* Taking cash advances for everyday living expenses.

* Getting a new credit card because your other credit cards are mixed out.

* Running out of cash before your next pay day.
Holiday Budget

To help get back on track, sit down and write out your budget so you know where your money is going and see what areas you can maybe cut back on. It is important to seek professional help if you believe your finances may be in trouble. It’s that time of year again to be thinking about your upcoming holiday budget. Here are a few tips to help you get through this holiday season.

* Make a list of all the people to plan to buy a gift for. Next to each name make a note of what you plan to buy that person and how much you want to spend. This will help you keep track of what items need to be bought and the amount you will be spending.

* Once you have your list made, start watching for sales. Look at different stores and compare prices on different items. If shopping online, purchase multiple items from one online store to cut down on shipping costs.

* Review your receipts from last years purchases. This will give you an idea of how much you spent last year, so you can better calculate your spending for this year.

* Save your receipts from your purchases made for this holiday season and add them up to see if your spending is on track. By totalling your receipts weekly, it will help you keep a better grasp on the amount you have spent.

* And finally, start saving for next year. It’s never to early to get ahead on your holiday budget. Holiday Shopping It is important to take certain precautions when shopping during the holiday season to avoid being a victim or identity theft or fraud.

* Look at your bank and credit card statements every month to make sure each transaction was authorized by you. If not, contact your bank or credit card company immediately.

* If shopping online, use a secure site, which is indicated with a lock symbol or https in the url address.

* Only give out your checking or credit card information if you initiated the transaction. Do not respond to e-mails or phone calls asking for your billing information.

* Shred information that has your name, account number, or other personal information to avoid identity theft. It is also important to get a free copy of your credit report to check for fraudulent activity and that accounts are being reported with the correct status. Stop Identity Theft With identity theft on the rise, here are three important things to remember:

1. Never provide personal information to someone if you did not initiate the contact, including over the internet and telephone. If someone does call you requesting personal information, do not feel pressured to give them the information even if they claim dire consequences. Get the name of the company and verify their phone number, the key is that YOU should be the one to initiate the contact.

2. Never click on a link in an e-mail from an unknown source, it could contain a virus or steal your personal information. Type in the company’s website or use a previous bookmark instead if you are unsure of the legitimacy.

3. Report lost or stolen checks immediately so your bank can put a watch on your account and block payment on the checks. Guard your ATM PIN number and ATM receipts and shred any bank statements before throwing them away.

4. Watch your mail for any suspicious activity. If you do not receive a bill contact the company and place all outgoing mail in a secure collection box.

5. Act immediately if you fall victim to identity theft. Contact your financial institution, place fraud alerts on your credit files. Report any suspicious e- mails or calls to the Federal Trade Commission at http://www.ftc.gov/bcp/edu/microsites/idtheft/ , or call 1-877- IDTHEFT.

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Fraud & Forgery of Cheque.

Definition of fraud & forgery of cheque:

Fraud means a false representation by means of statement or conduct, in order to gain a material advantage.

Bankers safeguards or precautions against fraud & forgery of cheque :

1. At fast banker will see whether the signature of drawer is present or not.

2. Similarity of drawers signature with the signature held on card must be massed by the banker. If it is not similar like signature card, bank will not pay.

3.  Banker will see whether the cheque is of the bank & branch or not. If that cheque is of the branch of the bank, only then banker will pay otherwise not.

4. Banker will see, whether the client wrote the date perfectly  or not/ whether the date is post dated or previous dated, if it is previous dated then banker will see whether it is stale or not that means 180 days have already been over or not. If stale banker won't pay.

5. The drawer is to write the amount  in word and figured. Banker has to make intimated the both. If it is similar then banker will pay otherwise not.

6. Banker has to commemorate , whether the cheque issued by the bank at past whether it is right or wrong.

7. Banker has to remember, whether the account number provided by the bank at past is written or not. If it so then whether it is right or wrong.

8. Banker is to consciously see Whether the amount written by drawer is available in his account or not.

9. Genuine payee.

10. Accuracy of cheque drafting.

11. Alternation in cheque.

12. Torn cheque.

13. whether endorsement is legal, accurate or not.

14. Whether crossing in cheque is available or not.

15. Is there any legal notice against cheque.

16. Is there any notice given by drawer against cheque or not.

17. Death or bankruptcy of customer.

18. Whether the cheque is stolen or lost cheque.

19. whether it is Error free cheque or not.

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Advantages / Objectives / Importance / Cause of popularity of Cheque.

Advantage of Cheque

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A cheque is an order written by a drawer to a banker to pay on demand a specific sum of money to the parson or persons named as payee on the cheque. Advantages / Objectives / Importance / Cause of popularity of Cheque are given below :

1. More safety & secured.

2. Easy medium of exchange.

3. Easy preservation.

4. Easy transferability.

5. Increasing translations.

6. Credit control.

7. Proper utilization of funds.

8. Reducing risk.

9. Easy counting.

10. Alteration of money.

11. Creation of credit deposit.

12.Proof able document.

13.Facilities of account keeping.

14. Safety from forgery.

15. Archiving Economy.

Dishonour of Cheque. Causes /Reasons for Dishonour of Cheque.

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Dishonour of Cheque.

Dishonour of Cheque means the refusal of drawee bank to pay its customers cheque. It means to fail to pay its customers cheque. when a paying banker must refuse payment of cheques in due of insufficiency of funds, drawing mistake etc. is called Dishonour of Cheque. Moreover it means to fail to pay a cheque when the account of drawer does not have sufficient funds to cover it.

Causes /Reasons for Dishonour of Cheque:

* Insufficiency of funds in account.

* If signature of client is absent in cheque.

* If signature of client in cheque isn't similar to the signature on signature card.

* Account number is absent or wrong.

* signature of drawer is not clear.

* If the date is not composed or composed mistakenly alternately the date given is of three months prior or if the advance date is given.

* If the name of the payee is not composed or not composed plainly.

* If the requested or crossed checks are exchanged without fitting underwriting and  conveyance.

* If the sum is not composed in words and figures or composed mistakenly or if the sum written in words and figures does not coordinate with one another.

* If the change made on the check is most certainly not demonstrated by the drawer giving mark.

* If the record number is not said or on the off chance that it is not clear or in the event that it is not specified unmistakably.

* If the signature is not given or if the mark given in the check does not coordinate with the signature given on the mark detail card kept by the bank.

* If the sum specified on the check is more than the sum that the drawer has in his ledger or if according to bank's govern the least adjust in the record of the drawer can not remain.

* If the weigh is not found in legitimate condition then again it is discovered wet, torn or spotted.

* If the drawer has offered request to the bank to stop instalment of the check.

* If the bank has got the data in regards to the passing or indebtedness or lunacy of the drawer of investor.

* If the court of law requests the bank to stop instalment of the check.

* If the bank equalization remains lack on record of not gathering the check saved.

* If the drawer has shut his/her record before introducing the check.

* If drawer is death.

* If drawer is mentally imbalanced.

* If drawer is bankruptcy.

* If drawer gives advanced  notice to bank not to pay.

* If money payment from drawer account is forbidden.

* If Condition is not fulfilled in case of conditional cheque.

* If direct crossed cheque is placed to bank.

* If drawer disputes on a cheque has already been picked up or lost.

* If re-approval of bank is needed.

* If dual signatures are not given in case of dual signed account

.

* If seal is not placed on the cheque in case of official account.

* If the specified order of drawer is not obeyed.

* If the serial number on leaf of cheque is absent or that number is not similar to issued numbers.

* If actual receiver doesn't submit the cheque.

* If any pre-conditions given by bank to clients account is hold.

* If cheque is placed by disqualified holder.

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NEGOTIABLE INSTRUMENTS ACT -1881.

(It's an internationally recognized act. So I have no right to edit it. This is why the actual Act has been placed here. )

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Definition of a Negotiable Instrument.

The law relating to negotiable instruments is contained in the Negotiable Instruments Act, 1881. It is an Act to define and amend the law relating to promissory notes, bills of exchange and cheques. The Act does not affect the custom or local usage relating to an instrument in oriental language i.e., a Hundi.

The term "negotiable instrument" means a document transferable from one person to another. However the Act has not defined the term. It merely says that "A .negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer. [Section 13(1)]

A negotiable instrument may be defined as "an instrument, the. property in which is acquired by anyone who takes it bona fide, and for value, not withstanding any defect of title in the person from whom he took it, from which it follows that an instrument cannot be negotiable unless it is such and in such a state that the true owner could transfer the contract or engagement contained therein by simple delivery of instrument"

According to this definition the following are the conditions of negotiability:

(i) The instrument should be freely transferable. An instrument cannot be negotiable unless it is such and in such state that the true owner could transfer by simple delivery or endorsement and delivery.

(ii) The person who takes it for value and in good faith is not affected by the defect in the title of the transferor.

(iii) Such a person can sue upon the instrument in his own name.

Negotiability involves two elements namely, transferability free from equities and transferability by delivery or endorsement. But the Act recognises only three types of instruments are- Promissory Note, a Bill of. Exchange and a Cheque as negotiable instruments. However, it does not mean that other instruments are not negotiable instruments provided that they satisfy the following conditions of negotiability:

1. The instrument should be freely transferable by the custom of trade.

Transferability may be by 

(i) delivery, or 

(ii) endorsement and delivery.

2. The person who obtains it in good faith and for consideration gets it free from all defects and can sue upon it in his own name.

3. The holder has the right to transfer. The negotiability continues till the maturity.

Effect of Negotiability

The general principle of law relating to transfer of property is that no one can pass a better title than he himself has (nemodat quad non-habet). The  exceptions to this general rule arise by virtue of statute or by a custom. A negotiable instrument is one such exception which is originally a creation of mercantile custom. Thus a bonafide transferee of negotiable instrument for consideration without notice of any defect of title, acquires the instrument free on any defect, i.e., he acquires a better title than that of the transferor.

Important Characteristics of Negotiable Instruments

Following are the important characteristics of negotiable instruments:

(1) The holder of the instrument is presumed to be the owner of the property contained in it.

(2) They are freely transferable.

(3) A holder in due course gets the instrument free from all defects of title of any previous holder.

(4)The holder in due course is entitled to sue on the instrument in his own name.

(5) The instrument is transferable till maturity and in case of cheques till it becomes stale (on the expiry of 6 months from the date of issue).

(6) Certain equal presumptions are applicable to all negotiable instruments unless the contrary is proved.

Classification of Negotiable Instruments

The negotiable instruments may be classified as under: 

(1) Bearer Instruments

A promissory note, bill of exchange or cheque is payable to bearer when (i) it is expressed to be so payable, or (ii) the only or last endorsement on the instrument is an endorsement in blank, A person who is a holder of a bearer instrument can obtain the payment of the instrument.

(2) Order Instruments

A promissory note, bill of exchange or cheque is payable to order (i) which is expressed to be so payable; or (ii) which is expressed to be payable to a particular person, and does not contain any words prohibiting transfer or indicating an intention that it shall not be transferable.

(3) Inland Instruments (Section 11)

A promissory note, bill of exchange or cheque drawn or made in India, and made payable, or drawn upon any person, resident in India shall be deemed to be an inland instrument. Since a promissory note is not drawn on any person, an inland promissory note is one which is made payable in India. Subject to this exception, an inland instrument is one which is either:

(i)drawn and made payable in India, or

(ii) drawn in India upon some persons resident therein, even though it is made payable in a foreign country.

(4) Foreign Instruments

An instrument which is not an inland instrument, is deemed to be a foreign instrument. The essentials of a foreign instrument include that:

(i) it must be drawn outside India and made payable outside or inside India; or

(ii) it must be drawn in India and made payable outside India and drawn on a person resident outside India.

(5) Demand Instruments (Section 19)

A promissory note or a bill of exchange in which no time for payment is specified is an instrument payable on demand.

(6) Time Instruments

Time instruments are those which are payable at sometime in the future. Therefore, a promissory note or a bill of exchange payable after a fixed period, or after sight, or on specified day, or on the happening of an event which is certain to happen, is known as a time instrument. The expression "after slight" in a promissory note means that the payment cannot be demanded on it unless it has been shown to the maker. In the case of bill of exchange, the expression "after sight" means after acceptance, or after noting for non-acceptance or after protest for non-acceptance.

Ambiguous Instruments (Section 17)

An instrument, which in form is such that it may either be treated by the holder as a bill or as a note, is an ambiguous instrument. Section 5(2) of the English Bills of Exchange Act provides that where in a bill, the drawer and the drawee are the same person or where the drawee is a fictitious person or a person incompetent to contract, the holder may treat the instrument, at his option, either as a bill of exchange or as a promissory note.

Bill drawn to or to the order of the drawee or by  an agent on his principal, or by one branch of a bank on another or by the direction of a company or their cashier are also ambiguous instruments. A promissory note addressed to a third person may be treated as a bill by such person by accepting it, while a bill not addressed to anyone may be treated as a note. But where the drawer and payee are the same e.g., where A draws a bill payable to A's order, it is not an ambiguous instrument and cannot be treated as a promissory note. Once an instrument has been treated either as a bill or as a note, it cannot be treated differently afterwards.

Inchoate or Incomplete Instrument (Section 20)

When one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments, and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives primafacie authority to the holder thereof to make or complete, as the case may be ,upon it a negotiable instrument, for any amount specified therein, and not exceeding the amount, covered by the stamp. Such an instrument is called an inchoate instrument. The person so signing shall be liable upon such instrument, in the capacity in which he signs the same, to any holder in due course for such amount. provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereon.

The authority to fill up a blank or incomplete instrument may be exercised by any "holder" and not only the first holder to whom the instrument was delivered. The person signing and delivering the paper is liable both to a "holder" and a "holder-in-due-course". But there is a difference in their respective rights. A "holder" can recover only what the person signing and delivering the paper agreed to pay under the instrument, while a "holder-in- due-course" can recover the whole amount made payable by the instrument provided that it is covered by the stamp, even though the amount authorised was smaller.

Kinds of Negotiable Instruments

The Act recognizes only three kinds of negotiable instruments under Section 13 but it does not exclude any other negotiable instrument provided the instrument entitles a person to a sum of money and is transferable by delivery. Instruments written in oriental languages i.e. hundis are also negotiable instruments. These instruments are discussed below:

(i) Promissory Notes

A "promissory note" is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money to, or to the order of, a certain person, or only to bearer of the instrument. (Section 4)

Parties to a Promissory Note:

A promissory note has the following parties:

(a) The maker: the person who makes or executes the note promising to pay the amount stated therein.

(b) The payee: one to whom the note is payable.

(c) The holder: is either the payee or some other person to whom he may have endorsed the note.

(d) The endorser.

(e) The endorsee.

Essentials of a Promissory Note:

To be a promissory note. an instrument must possess the following essentials:

(a) It must be in writing. An oral promise to pay will not do.

(b) It must contain an express promise or clear undertaking to pay. A promise to pay cannot be inferred. A mere acknowledgement of debt is not sufficient. If A writes to B "I owe you (I.O.U.) Rs. 500",there is no promise to pay and the instrument is not a promissory note.

(c) The promise or undertaking to pay must be unconditional. A promise to pay "when able", or "as soon as possible", or "after your marriage to I?", is conditional. But a promise to pay after a specific' time or on the happening of an event which must happen, is not conditional, e.g. "I promise to pay Rs. 1,000 ten days after the death of B", is unconditional.

(d)  The maker must sign the promissory note in token of an undertaking to pay to the payee or his order.

(e)  The maker must be a certain person, Le., the note must show clearly who is the person engaging himself to pay.

(f)  The payee must be certain. The promissory note must contain a promise to pay to some person or persons ascertained by name or designation or to their order.

(g) The sum payable must be certain and the amount must. not be capable of contingent additions or subtractions. If A promises to pay Rs. 100 and all other sums which shall become due to him, the instrument is not a promissory note.

(h) Payment must be in legal money of the country. Thus, a promise to pay Rs.    500  and deliver 10 quintals of rice is not a promissory note.

(i) It must be properly stamped in accordance with the provisions of the India Stamp Act. Each stamp must be duly cancelled by maker's signature or initials.

(j) It must contain the name of place, number and the date on which it is made. However, their omission will not render the instrument invalid, e.g. if it is undated, it is deemed to be dated on the date of delivery.

Note: 

A promissory note cannot be made payable or issued to bearer, no matter whether it is payable on demand or after a certain time (Section 31 of the RBI Act).

(ii) Bills of Exchange

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. (Section 5)

The definition of a bill of exchange is very similar to that of a promissory note and for most of the cases the rules which apply 10 promissory notes are in general applicable to bills. There are however, certain important points of distinction between the two.

Parties to bills of exchange

The following are parties to a bill of exchange:

(a) The Drawer: the person who draws the bill.

(b) The Drawee: the person on whom the bill is drawn.

(c) The Acceptor: one who accepts the bill. Generally, the drawee is the acceptor but a stranger may accept it on behalf of the drawee.

(d) The payee: one to whom the sum stated in the bill is payable, either the drawer or any other person may be the payee.

(e) The holder: is either the original payee or any other person to whom, the payee has endorsed the bill. In case of a bearer bill, the bearer is the holder.

(f) The endorser: when the holder endorses the bill to anyone else he becomes the endorser.

(g) The endorsee: is the person to whom the bill is endorsed.

(h) Drawee in case of need:
Besides the above parties. another person called the "drawee in case of need", may be introduced at the option of the drawer. The name of such a person may be inserted either by the drawer or by any endorser in order that resort may be had to him in case of need, i.e., when the bill is dishonoured by either non-acceptance or non-payment.

(i) Acceptor for honour:
 Further, any person may voluntarily become a party to a bill as acceptor. A person, who on the refusal by the original drawee to accept the bill or to furnish better security, when demanded by the notary, accept the bill supra protest in order to safeguard the honour of the drawer or any endorser, is called the acceptor for honour.

Essentials of a Bill of Exchange: 

(1) It must be in writing.

(2) It must contain an unconditional order to pay money only and not merely a request

(3) It must be signed by the drawer.

(4) The parties must be certain.

(5) The sum payable must also be certain.

(6) It must comply with other formalities e.g. stamps, date,etc.

Distinction between Bill of Exchange and Promissory Note

The following are the important points of distinction between a bill of exchange

and a promissory note:

(a) A promissory note is a two-party instrument, with a maker (debtor) and a payee (creditor). In a bill. there are three parties-drawer, drawee and payee, though any two out of the three capacities may be filled by one and the same person. In a bill; the drawer is the maker who orders the drawee to pay the bill to a person called the payee or to his order. When the drawee accepts the bill he is called the acceptor,

(b) A note cannot be made payable to the maker himself, while in a bill, the drawer and payee may be the same person.

(c) A note contains an unconditional promise by the maker to pay to the payee or his order; in a bill there is an unconditional order to the drawee to pay according to the directions of the drawer.

(d) A note is presented for payment without any prior acceptance by the maker. A bill payable after sight must be accepted by the drawee or someone else on his behalf before it can be presented for payment.

(e) The liability of the maker of a pro-note is primary and absolute, but the liability of the drawer of a bill is secondary and conditional.

(f) Foreign bill must be protested for dishonour but no such protest is necessary

in the case of a note.

(g) When a bill is dishonoured, due notice of dishonour is to be given by the holder to the drawer and the intermediate endorsee, but no such notice need to be given in the case of a note.

(h) A bill can be drawn payable to bearer provided it is not payable on demand. A promissory note cannot be made payable to bearer, even if it is made payable otherwise than on demand.

How Bill of Exchange Originates - Forms of Bills of Exchange.

Bills of exchange were originally used for payment of debts by traders residing in one country to another country with a view to avoid transmission of coin. Now-a-days they are used more as trade bills both in connection with domestic trade and foreign trade and are called inland bills and foreign bills respectively.

Inland Bills (Sections 11 and 12)

A bill of exchange is an inland instrument if it is (i) drawn or made and payable in India, or (ii) drawn in India upon any person who is a resident in India, even though it is made payable in a foreign country. But a promissory note to be an inland should  be drawn and payable in India, as it has no drawee.

Two essential conditions to make an inland instrument are:

(1) the instrument must have been drawn or made in India; and

(2) the instrument must be payable in India or the drawee must be in India.

Examples: A bill drawn in India, payable in USA, upon a person in India is an inland instrument. A bill drawn in India and payable in India but drawn on a person in USA is also an inland instrument  or made in India

Foreign Bills

All bills which are not inland are deemed to be foreign bills. Normally foreign billsare drawn in sets of three copies.

Trade Bill

A bill drawn and accepted for a genuine trade transaction is termed as a trade bill. When a trader sells goods on credit, he may make use of a bill of exchange. Suppose A sells goods worth Rs. 1,000 to B and allows him 90 days time to pay the price, A will draw a bill of exchange on B, in the following terms: "Ninety days after date pay A or order, the sum of one thousand rupees only for value received". A will sign the bill and then present it to B for acceptance. This is necessary because, until a bill is accepted by the drawee, nobody has either rights or obligations. If B agrees to obey the order of A, he will accept the bill by writing across its face the word "accepted" and signing his name underneath and then delivering the bill to the holder. B, the drawee, now becomes the acceptor of the bill and liable to its holders. Such a bill is a genuine trade bill.

Accommodation Bill

All bills are not genuine trade bills, as they are often drawn for accommodating a party. An accommodation bill is a bill in which a person lends or gives his name to oblige a friend or some person whom he knows or otherwise. In other words, a bill which is drawn, accepted or endorsed without consideration is called an accommodation bill. The party lending his name to oblige the other party is known as the accommodating or accommodation party, and the party so obliged is called the party accommodated. An accommodation party is not liable on the instrument to the party accommodated because as between them there was no consideration and the instrument was merely to help, But the accommodation party is liable to a holder for value, who takes the accommodation bill for value, though such holder may not be a holder in due course. Thus, A may be in need of money and approach his friends B and C who, instead of lending the money directly, propose to draw an "Accommodation Bill" in his favour in the following form:

"Three months after date pay A or order, the sum of Rupees one thousand only  B to  C If the credit of Band C is .good, this device enables A to get an advance of Rs. 1,000 from his banker at the commercial rate of discount. The real debtor in this case is not C, but A the payee who promises to reimburse C before the period of three months only. A is here the principal debtor and Band C are mere sureties. This inversion of liability affords a good definition of an accommodation bill "If as between the original parties to - the bill the one who should prima facie be principal is in. fact the surety whether he be drawer, acceptor, or endorser, that bill is an accommodation bill".

\

Bills in Sets (Section 132 and 133)

Foreign bills are usually drawn in sets to avoid the danger of loss. They ar:e drawn in sets of three, each of which is called "Via" and as soon as anyone of them is paid, the others become inoperative. All these parts form one bill and the drawer must sign and deliver all of them to the payee. The stamp is affixed only on one part and one part is required to be accepted. But if the drawer mistakenly accepts all the parts of the same bill, he will be liable on each part accepted as if it were a separate bill.

Right to Duplicate Bill

Where a bill of exchange has been lost before it was overdue, the person who was the holder to it may apply to the drawer, to give him another bill of the same tenor. It is only the holder who can ask for a duplicate bill, promissory note or cheque.

Bank Draft

A bill of exchange is also sometimes spoken of as a draft. It is called as a bank draft when a bill of exchange drawn by one bank on another bank, or by itself on its own branch, and is a negotiable instrument. It is very much like the cheque with three points of distinction between the two. A bank draft can be drawn only by a bank on another bank, usually its own branch. It cannot so easily be counter-manded. It cannot be made payable to bearer.

_____________________________________________________________________

Specimen of a Bank Draft

        A.B.C. Bank 

       X.Y.Z. Branch

No.....................                                                                          Date...................

On demand pay 'A' or order the sum of rupees one thousand five hundred only for value received.

                                                                                                               Rs. 1,500/- 

To                                                                                                                                                             Manager

'B' Branch, (Place)

In the above demand draft the drawer is X.Y.Z. Branch, the drawee is 'B' branch and the payee is 'A'.

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(iii) Cheques

Section 6 of the Act provides that a cheque is a bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand. Simply stated, a cheque is a bill of exchange drawn on a bank payable always on demand. Thus, a cheque is a bill of exchange with two additional qualifications, namely: (i) it is always drawn on a banker, and (ii) it is always payable on demand. A cheque being a species of a bill of exchange, must satisfy all the requirements of a bill; it does not, however, require acceptance.

Note: By virtue of Section 31 of the Reserve Bank of India Act, no bill of exchange hundi can be made payable to bearer on demand and no promissory note or a bank draft can be made payable to bearer at all, whether on demand or after a specified  time. Only a cheque can be payable to bearer on demand.

Parties to a cheque

The following are the parties to a cheque:

(a) The drawer: The person who draws the cheque.

(b) The drawee: The banker of the drawer on whom the cheque is drawn.

(c) The payee,
(d) Holder,
(e) endorser, and (f) endorsee: same as in the case of a bill.

Essentials of a Cheque

(1)It is always drawn on a banker.

(2) It is always payable on demand.

(3) It does not require acceptance. There is, however, a custom among banks to mark cheques as good for purposes of clearance.

(4) A cheque can be drawn on bank where the drawer has an account.

(5) Cheques may be payable to the drawer himself. It may be made payable to bearer on demand unlike a bill or a note.

(6) The banker is liable only to the drawer. A holder -has no remedy against  the banker if a cheque is dishonoured.

(7) A cheque is usually valid for fix months. However, it is not invalid jf it is post dated or ante-dated.

(8) No Stamp is required to be affixed on cheques.

Distinction between Cheques and Bills of Exchange

As a general rule, the provisions applicable to bills payable on demand apply to cheques, yet there are few points of distinction between the two, namely:

(a) A cheque is a bill of exchange and always drawn on a banker, while a bill may be drawn on anyone, including banker.

(b) A cheque can only be drawn payable on demand, a bill may be drawn payable on demand, or on the expiry of a specified' period after sight or date.

(c) A bill payable after sight must be accepted before payment can be demanded, a cheque does not require acceptance and is intended for immediate payment.

(d) A grace of 3 days is allowed in the case of time bills, while no grace is given, in the case of a cheque, for payment.

(e) The drawer of a bill is discharged, if it is not presented for payment, but the drawer of a cheque is discharged only if he suffers any damage by delay in presentment for payment.

(f) Notice of the dishonour of a bill is necessary, but not in the case of a cheque.

(g) The cheque being a revocable mandate, the authority may be revoked by countermanding payment, and is determined by notice of the customer's death or insolvency. This is not so in the case of bilt

(h) A cheque may be crossed, but not a bill.

A cheque is a bill of exchange drawn on a specified banker and always payable on demand. A cheque is always drawn on a particular banker and is always payable on demand. Consequently, all cheques are bills of exchange but all bills are not cheques.

Specimen of a Cheque

Banker

A banker is one who does banking business. Section 5(b) of the Banking Regulation Act, 1949 defines banking as, "accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft or otherwise." This definition emphasises two points:
(1) that the primary function of a banker consists of accepting of deposits for the purpose of lending or investing the same;
(2) that the amount deposited is repayable to the depositor on demand or according to the agreement. The demand for repayment can be made through a cheque, draft or otherwise, and not merely by verbal order.

Customer

The term "customer" is neither defined in Indian nor in English statutes. The general opinion is that a customer is one who has an account with the bank or who utilises the services of the bank. The special features of the legal relationship between the banker and the customer may be termed as the obligations and rights of the banker. These are:

1. Obligation to honour cheques of the customers.

2. Obligation to collect cheques and drafts on behalf of the customers.

3. Obligation to keep proper record of transactions with the customer.

4. Obligation to comply with the express standing instructions of the customer.

5. Obligation not to disclose the state of customer's account to anyone else.

6. Obligation to give reasonable notice to the customer, if the banker wishes to close the account.

7. Right of lien over any goods and securities bailed to him for a general balance of account.

8. Right of set off and right of appropriation.

9. Right to claim incidental charges and interest as per rules and regulations of the bank as communicated to the customer at the time of opening the account.

Liability of a Banker

By opening a current account of a customer, the banker becomes liable to his debtor to the extent of the amount so received in the said account and undertakes to honour the cheques drawn by the customer so long as he holds sufficient funds to the customer's credit. If a banker, without justification, fails to honour t1is customer's cheques, he is liable to compensate the drawer for any loss or damage suffered by him. But the payee or holder of the cheque has no cause of action against the banker as the obligation to honour a cheques is only towards the drawer. The banker must also maintain proper and accurate accounts of credits and debits. He must honour a cheque presented in due course. But in the following circumstances, he must refuse to honour a cheque and in some others he may do so.

When Banker must Refuse Payment

In the following cases the authority of the banker to honour customer's cheque comes to an end, he must refuse to honour cheques issued by the customer:

(a) When a customer countermands payment Le., where or when a customer, after issuing a cheque issues instructions not to honour it, the banker must not pay it.

(b) When the banker receives notice of customer's death.When customer has been adjudged an insolvent.

(d) When the banker receives notice of customer's insanity.

(e) When an order (e.g., Garnishee Order) of the Court, prohibits payment.

(f) When the customer has given notice of assignment of the credit balance of his account.

(g) When the holder's title is defective and the banker comes to know of it.

(h) When the customer has given notice for closing his account.

When Banker may Refuse Payment

In the following cases the banker may refuse to pay a customer's cheque:

(a) When the cheque is post-dated.

(b) When the banker has not sufficient funds of the drawer with him and there is no communication between the bank and the customer to honour the cheque.

(c) When the cheque is of doubtful legality.

(d) When the cheque is not duly presented, e.g., it is presented after banking hours.

(e) When the cheque on the face of it is irregular, ambiguous or otherwise materially altered.

(f) When the cheque is presented at a branch where the customer has no account.

(g) When some persons have joint account and the cheque is not signed jointly by    all or by the survivors of them.

(h) When the cheque has been allowed to become stale, Le., it has not been presented within six months of the date mentioned on it.

Protection of Paying Banker (Sections 10, 85 and 128)

Section 85 lays down that where a cheque payable to order purports to be endorsed by or on behalf -of the payee the banker is discharged by payment in due course. He can debit the account of the customer with the amount even though the endorsement turns out subsequently to have been forged, or the agent of the payee without authority endorsed it on behalf of the payee. It would be seen that the payee includes endorsee. This protection is granted because a banker cannot be expected to know the signatures of all the persons in the world. He is only bound to know the signatures of his own customers.

Therefore, the forgery of drawer's signature will not ordinarily protect the banker but even in this case, the banker may debit the account of the customer, if it can show that the forgery was intimately connected with the negligence of the customer and was the proximate cause of loss.

In the case of bearer cheques, the rule is that once a bearer cheque, always a bearer cheque. Where, therefore, a cheque originally expressed by the drawer himself to be payable to bearer, the banker may ignore any endorsement on the cheque. He will be discharged by payment in due course. But a cheque which becomes bearer by a subsequent endorsement in blank is not covered by this Section. A banker is discharged from liability on a crossed cheque if he makes  payment in due course.

Payment in due Course (Section 10)

Any person liable to make payment under a negotiable instrument, must make the payment of the amount due thereunder in due course in order to obtain a valid discharge against the holder.

A payment in due course means a payment in accordance with the apparent tenor of the instrument, in good faith and without negligence to any person in possession thereof. 

A payment will be a payment in due course if:

(a) it is in accordance with the apparent tenor of the instrument, i.e. according to what appears on the face of the instrument to be the intention of the parties;

(b) it is made in good faith and without negligence, and under circumstances which do not afford a ground for believing that the person to whom it is made is not entitled to receive the amount;

(c)it is made to the person in possession of the instrument who is entitled as holder to receive payment;

(d) payment is made under circumstances which do not afford  a reasonable ground believing that he is not entitled to receive payment of the amount mentioned in the instrument; and

(e) payment is made in money and money only.

Under Sections 10 and 128, a paying banker making payment in due course is

protected.

Collecting Banker

Collecting Banker is one who collects the proceeds of a cheque for a customer. Although a banker collects the proceeds of a cheque for a customer purely as a matter of service, yet the Negotiable Instruments Act, 1881 indirectly imposes statutory obligation, statutory in nature. This is evident from Section 126 of the Act which provides that a cheque bearing a "general crossing" shall not be paid to anyone other than banker and a cheque which is "specially crossed" shall not be paid to a person other than the banker to whom it is crossed. Thus, a paying banker must pay a generally crossed cheque only to a banker thereby meaning that it should be collected by another banker. While so collecting the cheques for a customer, it is quite possible that the banker collects for a customer, proceeds of a cheque to which the customer had no title in fact. In such cases, the true owner may sue the collecting banker for "conversion". At the same time, it cannot be expected of a banker to know or to ensure that all the signatures appearing in endorsements on the reverse of the cheque are genuine. The banker is expected to be conversant only with the signatures of his customer. A customer to whom a cheque has been endorsed, would request his banker to collect a cheque. In the event of the endorser's signature being proved to be forged at later date, the banker who collected the proceeds should not be held liable for the simple reason that he has merely collected the proceeds of a cheque. Section 131 of the Negotiable Instruments Act affords statutory protection in such a case where the customer's title to the cheque which the banker has collected has been questioned. It reads as follows:

"A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specifically to himself -shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason of only having received such payment. Explanation: A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that he credits his customer's account with the amount of-the cheque before receiving payment thereof."

The requisites of claiming protection under Section 131 are as follows:

(i) The collecting banker should have acted in good faith and without negligence. An act is done in good faith when it is done honestly. The plea of good faith can be rebutted on the ground of recklessness indicative of want of proper care and attention. Therefore, much depends upon the facts of  the case. The burden of proving that the cheque was collected in good faith and without negligence is upon the banker claiming protection. Failure to verify the regularity of endorsements, collecting a cheque payable to the account of the company to the credit of the director, etc. are examples of negligence.

(ii) The banker should have collected a crossed cheque, i.e., the cheque should have been crossed before it came to him for collection.

(iii) The proceeds should have been collected for a customer, i.e., a person who has an account with him.

(iv)That the collecting banker has only acted as an agent of the customer. If he had become the holder for value, the protection available under Section 131 is forfeited - Where for instance, the banker allows the customer to withdraw the amount of the cheque before the cheque is collected or where the cheque has been accepted in specific reduction of an overdraft, the banker is deemed to have become the holder for value and the protection is lost. But the explanation to Section 131 says that the mere crediting of the amount to the account does not imply that the banker has become a holder for value because due to accounting conveniences the banker may credit the account of the cheque to the customer's account even before proceeds thereof are realised.

Overdue, Stale or Out-of-date Cheques

A cheque is overdue or becomes statute-barred after three years from its due date of issue. A holder cannot sue on the cheque after that time. Apart from this provision, the holder of a cheque is required to present it for payment within a reasonable time, as a cheque is not meant for indefinite circulation. In India, a cheque, which has been in circulation for more than six months, is regarded by bankers as stale. If, as a result of any delay in presenting a cheque, the drawer suffers any loss, as by the failure of the  bank, the drawer is discharged from liability to the holder to the extent of the damage.

Liability of Endorser

In order to charge an endorser, it is necessary to present the cheque for payment within a reasonable time of its delivery by such endorser. 'A' endorses and delivers a cheque to B, and B keeps it for an unreasonable length of time, and then endorses and delivers it to C. C presents it for payment within a reasonable time after its receipt by him, and it is dishonoured. C can enforce payment against B but not against A, as qua A, the cheque has become stale.

Rights of Holder against Banker

A banker is liable to his customer for wrongful dishonour of his cheque but it is not liable to the payee or holder of the cheque. The holder has no right to enforce payment from the banker except in two cases, namely,
(i) where the holder does not present the cheque within a reasonable time after issue, and as a result the drawer suffers damage by the failure of the banker in liquidation proceedings; and
(ii) where  banker pays a crossed cheque by mistake over the counter, he is liable to the owner for any loss occasioned by it.

Crossing of Cheques

A cheque is either "open" or "crossed". An open cheque can be presented by the payee to the paying banker and is paid over the counter. A crossed cheque cannot be paid across the counter but must be collected through a banker. A crossing is a direction to the paying banker to pay the money generally to a banker or to a particular banker, and not to pay otherwise. The object of crossing is to secure payment to a banker so that it could be traced to the person receiving the amount of the cheque. Crossing is a direction to the paying banker that the cheque should be paid only to a banker or a specified banker. To restrain negotiability, addition of words "Not Negotiable" or "Account Payee Only" is necessary. A crossed bearer cheque can be negotiated by delivery and crossed order cheque by endorsement and delivery. Crossing affords security and protection to the holder of the cheque.

Modes of Crossing (Sections 123-131A)

There are two types of crossing which may be used on cheque, namely:
(i) General, and 

(ii) Special. To these may be added another type, Le. Restrictive crossing.

It is general crossing where a cheque bears across its face an addition of two parallel transverse lines and/or the addition of the words "and Co." between them, or addition of "not negotiable". As stated earlier, where a cheque is crossed generally, the paying banker will pay to any banker. Two transverse parallel lines are essential for a general crossing (Sections 123-126).
In case of general crossing, the holder or payee cannot get the payment over the counter of the bank but through a bank only. The addition of the words "and Co." do not have any significance but the addition of the words "not negotiable" restrict the negotiability of the cheque and in case of transfer, the transferee will not give a better title than that of a transferor.

Where a cheque bears across its face an addition of the name of a banker, either with or without the words "not negotiable" that addition constitutes a crossing and the cheque is crossed specially and to that banker. The paying banker will pay only to the banker whose name appears across the cheque, or to his collecting agent. Parallel transverse lines are not essential but the name of the banker is the insignia of a special crossing.

In case of special crossing, the paying, banker is to honour the cheque only when it is prescribed through the bank mentioned in the crossing or it's agent bank.

Account Payee's Crossing: Such crossing does, in practice, restrict negotiability of a cheque. It warns the collecting banker that the proceeds are to be credited only to the account of the payee, or the party named, or his agent. If the collecting banker allows the proceeds of a cheque bearing such crossing to be credited to any other account, he will be guilty of negligence and will not be entitled to the protection given to collecting banker under Section 131. Such crossing does not affect the paying banker, who is under no duty to ascertain that the cheque is in fact collected for the account of the person named as payee.


Specimen of a special crossing

Not Negotiable Crossing

A cheque may be crossed not negotiable by writing across the face of the cheque the words "Not Negotiable" within two transverse parallel lines in the case of a general crossing or along with the name of a banker in the case of a special crossing. Section 130 of the Negotiable Instruments Act provides "A person taking a cheque crossed generally or specially bearing in either case with the words "not negotiable" shall not have and shall not be capable of giving, a better title to the cheque than that which the person from whom he took it had". The crossing of cheque "not negotiable" does not mean that it is non-transferable. It only deprives the instrument of the incident of negotiability. Normally speaking, the essential feature of a negotiable instrument as opposed to chattels is that a person who takes the instrument in good faith, without negligence, for value, before maturity and without knowledge of the defect in the title of the transferor, gets a good title to the instrument.
In other words, he is called a holder in due course who acquires an indisputable title to the cheque. (When the instrument passes through a holder-in-due course, it is purged of all defects and the subsequent holders also get good title). It is exactly this important feature which is taken away by crossing the cheque "not negotiable". In other words, a cheque crossed “not negotiable" is like any other chattel and therefore the transferee gets same title to the cheque which his transferor had. That is to say that the transferee cannot claim the rights of a holder-in-due-course. So long as the title of the transferors is good, the title of the transferees is also good but if there is a taint in the title to the cheque of one of the endorsers, then all the subsequent transferees' title also become tainted with the same defect-they cannot claim to be holders-in-due-course.
The object of this Section is to afford protection to the drawer or holder of a cheque who is desirous of transmitting it to another person, as much protection as can reasonably be afforded to him against dishonestly or actual miscarriage in the course of transit. For example, a cheque payable to bearer is crossed generally and is marked "not negotiable".
It is lost or stolen and comes into the possession of X who takes it in good faith and gives value for it, X collects the cheque through his bank and paying banker also pays. In this case, both the paying and the collecting bankers are protected under Sections 128 and 131 respectively. But X cannot claim that he is a holder-in-due course which he could have under the normal circumstances claimed. The reason is that cheque is crossed "not negotiable" and hence the true owner's (holder's) right supersedes the rights of the holder-in-due-course. Since X obtained the cheque from a person who had no title to the cheque (Le. from one whose title was defective) X can claim no better title solely because the cheque was crossed "not negotiable" and not for any .other reason. Thus "not negotiable" crossing not only protects the rights of the true owner of y,the cheque but also serves as a warning to the endorsees' to enquire thoroughly before taking the cheque as they may have to be answerable to the true owner thereof if the endorser's title is found to be defective.

"Not negotiable" restricts the negotiability of the cheque and in case of transfer, the transferee will not get a better title than that of a transferor. If the cheque becomes "not negotiable" it lacks negotiability. A cheque crossed specially or generally bearing the words "not negotiable” lacks negotiability and therefore is not a negotiable instrument in the ,true sense. It does not restrict transferability but restricts negotiability only.

Maturity

Cheques are always payable on demand but other instruments like bills, notes, etc. may be made payable on a specified date or after the specified period of time. The date on which payment of an instrument falls due is called its maturity. According to Section 22 of the Act, "the maturity of a promissory note or a bill of exchange is the date at which it falls due". According to Section 21 a promissory note or bill of exchange payable "at sight" or "on presentment" is payable on demand. It is due for payment as soon as it is issued. The question of maturity, therefore, arises only in the case of a promissory note or a bill of exchange payable "after date" or "after sight" or at a certain period after the happening of an event which is certain to happen.

Maturity is the date on which the payment of an instrument falls due. Every instrument payable at a specified period after date or after sight is entitled to three days of grace. Such a bill or note matures or falls due on the last day of the grace period, and must be presented for payment on that day and if dishonoured, suit can be instituted on the next day after maturity. If an instrument is payable by instalments, each instalment is entitled to three days of grace. No days of grace are allowed for cheques, as they are payable on demand.

Where a note or bill is expressed to be payable on the expiry of specified number of months after sight, or after date, the period of payment terminates on the day of the month which corresponds with the date of instrument, or with the date of acceptance if the bill be accepted or presented for sight, or noted or protested for non-acceptance. If the month in which the period would terminate has no corresponding day, the period shall be held to terminate on the last day of such month.

Illustration

(i) A negotiable instrument dated 31 st January, 2001, is made payable at one months after date. The instrument is at maturity on the third day after the 28th February, 2001, Le. on 3rd March, 2001.

(ii) A negotiable instrument dated 30th August, 2001, is made payable three months after date. The instrument is at maturity on.3rd December, 2001.

(iii) A negotiable instrument. dated the 31 st August, 2001, is made payable three months after date. The instrument is at maturity on 3rd December, 2001.

If the day of maturity falls on a public holiday, the instrument is payable on the proceeding business day. Thus if a bill is at maturity on a Sunday. It will be deemed due on Saturday and pot on Monday.

The ascertainment of the date of maturity becomes important because all these instruments must be presented for payment on the last day of grace and their payment cannot be demanded before that date. Where an instrument is payable by instalments, it must be presented for payment on the third day after the day fixed for the payment of each instalment.

Holder

According to Section 8 of the Act a person is a holder of a negotiable instrument who is entitled in his own name
(i) to the possession of the instrument, and
(ii) to recover or receive its amount from the parties thereto. It is not every person in possession of the instrument who is called a holder.
To be a holder, the person must be named in the instrument as the payee, or the endorsee, or he must be the bearer thereof. A person who has obtained possession of an instrument by theft, or under a forged endorsement, is not a holder. as he is not entitled to recover the instrument. The holder implies de jure (holder in law) holder and not de facto (holder in fact) holder. An agent holding an instrument for his principal is not a holder although he may receive its payment.

Holder in Due Course

Section 9 states that a holder in due course is (i) a person who for consideration, obtains possession of a negotiable instrument if payable to bearer, or (ii) the payee or endorsee thereof, if payable to order, before its maturity and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. In order to be a holder in due course, a person must satisfy the following conditions:

(i) He must be the holder of the instrument.

(ii)He should have obtained the instrument for value or consideration.

(iii) He must have obtained the negotiable instrument before maturity.

(iv)The instrument should be complete and regular on the face of it.

(v) The holder should take the instrument in good faith.

A holder in due course is in a privileged position. He is not only himself protected against all defects of the persons from whom he received the instrument as current coin, but also serves as a channel to protect all subsequent holders. A holder in due course can recover the amount of the instrument from all previous parties, although, as a matter of fact, no consideration was paid by some of the previous parties to the instrument or there was a defect of title in the party from whom he took it. Once an instrument passes through the hands of a holder in due course, it is purged of all defects. It is like current coin. Whoever takes it can recover the amount from all parties previous to such holder.

Capacity of Parties

Capacity to incur liability as a party to a negotiable instrument is co-extensive with capacity to contract. According to Section 26, every person capable of contracting  according to law to which he is subject, may bind himself and be bound by making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque. Negatively, minors, lunatics, idiots, drunken person and persons otherwise disqualified by their personal law, do not incur any liability as parties to negotiable instruments. But incapacity. of one or more of the parties to a negotiable instrument in no way, dim1nishes the abilities and the liabilities of the competent parties. Where a . minor is the endorser or payee of an instrument which has been endorsed all the parties accepting the minor are liable in the event of its dishonour.

Liability of Parties

The provisions regarding the liability of parties to negotiable instruments are laid down in Sections 30 to 32 and 35 to 42 of the Negotiable Instruments Act. These provisions are as follows:

1. Liability of Drawer (Section 30)

The drawer of a bill of exchange or cheque is bound, in case of dishonour by the drawee or acceptor thereof, to compensate the holder, provided due notice of dishonour . has been given to or received by the drawer. The nature of drawer's liability is that by drawing a bill, he undertakes that (i) on due presentation, it shall be accepted and paid according to its tenor, and (ii) in case of dishonour, he will compensate the holder or any endorser, provided notice of dishonour has been duly given. However, in case of accommodation bill no notice of dishonour to the drawer is required.The liability of a drawer of a bill of exchange is secondary and arises only on default of the drawee, who is primarily liable to make payment of the negotiable instrument.

2. Liability of the Drawee of Cheque (Section 31)

The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required to do so and, or in default of such payment, he shall compensate the drawer for any loss or damage caused by such default. As a cheque is a bill of exchange, drawn on a specified banker, the drawee of a cheque must always be a banker. The banker, therefore, is bound to pay the cheque of the drawer, i.e., customer, if the following conditions are satisfied:

(i) The banker has sufficient funds to the credit of customer's account.

(ii) The funds are properly applicable to the payment of such cheque, e.g., the funds are not under any kind of lien etc..

(iii) The cheque is duly required to be paid, during banking hours and on or after the date on which it is made payable. If the banker is unjustified in refusing to honour the cheque of its customer, it shall be liable for damages.

3. Liability of "Maker" of Note and ''Acceptor' of Bill (Section 32)

In the absence of a contract to the contrary, the maker of a promissory note and the acceptor before maturity of a bill of exchange are bound to pay the amount thereof at maturity, according to the apparent tenor of the note or acceptance respectively. The acceptor of a bill of exchange at or after maturity is bound to pay the amount thereof to the holder on demand:

It follows that the liability of the acceptor of a bill corresponds to that of the maker of a note and is absolute and unconditional but the liability under this Section is subject to the contract to the contrary (e.g., as in the case of accommodation bills) and may be excluded or modified by a collateral agreement. Further, the payment must be made to the party named in the instrument and not to any-one else, and it must be made at maturity and not before.

4. Liability of endorser (Section 35)

Every endorser incurs liability to the parties that are subsequent to him. Whoever endorses and delivers a negotiable instrument before maturity is bound thereby to every subsequent holder in case of dishonour of the instrument by the drawee, acceptor or maker, to compensate such holder of any loss or damage caused to him by such dishonour provided (i) there is no contract to the contrary; (ii) he (endorser) has not expressly excluded, limited or made conditional his own liability; and (iii) due notice of dishonour has been given to, or received by, such endorser. Every endorser after dishonour, is liable upon the instrument as if it is payable on demand. He is bound by his endorsement notwithstanding any previous alteration of the instrument. (Section 88)·

5. Liability of Prior Parties (Section 36)

Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied. Prior parties may include the maker or drawer, the acceptor and all the intervening endorsers to a negotiable instrument. The liability of the prior parties to a holder in due course is joint and several. The holder in due course may hold any or all prior parties liable for the amount of the dishonoured instrument.

6. Liability interse

Various parties to a negotiable instrument who are liable thereon stand on a different footing with respect to the nature of liability of each one of them.

7. Liability of Acceptor of Forged Endorsement (Section 41)

An acceptor of a bill of exchange already endorsed is not relieved from liability by reason that such endorsement is forged. if he knew or had reason to believe the endorsement to be forged when he accepted the bill.

8. Acceptor's Liability on a Bill drawn in a Fictitious Name

An acceptor of a bill of exchange drawn in a fictitious name and payable to the drawer's order is not, by reason that such name is fictitious, relieved from liability to any holder In due course claiming under an endorsement by the same hand as the drawer's signature, and purporting to be made by the drawer.

Negotiation (Section 14)

A negotiable instrument may be transferred by negotiation or assignment. Negotiation is the transfer of an instrument (a note, bill or cheque) for one person to another in such a manner as to convey title and to constitute the transferee the holder thereof. When a negotiable instrument is transferred by negotiation, the rights of the transferee may rise higher than those of the transferor, depending upon the circumstances attending the negotiation. When the transfer is made by assignment, the assignee has only those rights which the assignor possessed. In case of assignment, there is a transfer of ownership by means of a written and registered document.

Negotiability and Assignability Distinguished

A transfer by negotiation differs from transfer by assignment in the following respects:

(a) Negotiation requires mere delivery of a bearer instrument and endorsement   and delivery of an order instrument to effectuate a transfer. Assignment requires a written document signed by the transferor.

(b) Notice of transfer of debt (actionable claim) must be given by the assignee to the debtor in order to complete his title; no such notice is necessary in a transfer by negotiation.

(c) On assignment, the transferee of an actionable claim takes it subject to all the defects in the title of, and subject to all the equities and defences available against the assignor, even though he took the assignment for value and in good faith. In case of negotiation the transferee, as holder-in-due course, "takes the instrument free from any defects in the title of the transferor.

Importance of Delivery

Negotiation is effected by mere delivery of a bearer instrument and by endorsement and delivery of an order instrument. This shows that "delivery" is essential in negotiable instruments. Section 46 expressly provides that making acceptance or endorsement of negotiable instrument is not complete until delivery,adual or constructive, of the instrument. Delivery made voluntarily with the intention of passing property in the instrument to the person to whom it is given is essential.

Negotiation by Mere Delivery

A bill or cheque payable to bearer is negotiated by mere delivery of the instrument. An !instrument is payable to bearer:

(i) Where it is made so payable, or

(ii) Where it is originally made payable to order but the only or the last endorsement is in blank.

(iii)Where the payee is a fictitious or a non-existing person

(iv) These Instruments do not require signature of the transferor. The person who takes them is a holder, and can sue in his own name on them. Where a bearer negotiates an instrument by mere delivery, and does not put his signature thereon,-he is not liable to any party to the instrument in case the instrument is dishonoured, as he has not lent his credit to it. His obligations are only towards his immediate transferee and to no other holders.

A cheque, originally drawn payable to bearer remains bearer, even though it is subsequently endorsed in full. The rule is once a bearer cheque always a bearer cheque.

 Negotiation by Endorsement and Delivery

An instrument payable to a specified person or to the order of a specified to a specified person or order is an instrument payable to order. Such an instrument can be negotiated only by endorsement and delivery. Unless the holder signs his endorsement on the instrument, the transferee does not become a holder. Where an instrument payable to order is delivered without endorsement, it is merely assigned and not negotiated and the holder their of is not entitled to the rights of a holder in due course, and he cannot negotiate it to a third person.

Endorsement (Sections 15 and 16)

Where 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 (called Allonge), or so, signs for the same purpose, a stamped paper intended to be completed as a negotiable instrument, he is said to endorse the same (Section 15), the person to whom the instrument is endorsed is called the endorsee.

In other words, 'endorsement' means and involves the writing of something on the back of an instrument for the purpose of transferring the right, title and interest therein to some other person.

Classes of endorsement

An endorsement may be (a) Blank or General, (b) Special or Full, (c) Restrictive,

or (d) Partial, and (e) Conditional or Qualified.

(a) Blank or General:
 An endorsement is to be blank or general where the endorser merely writes his signature on the back of the instrument, and the instrument so endorsed becomes payable to bearer, even though originally it was payable to order. Thus, where bill is payable to "Mohan or order", and he writes on its back "Mohan", it is an endorsement in blank by Mohan and the property in the bill can pass by mere delivery, as long as the endorsement continues tobe a/blank. But a holder of an instrument endorsed in blank may convert the endorsement in blank into an endorsement In full, by writing above the endorser's signature, a direction to pay the instrument to another person or his order.

(b) Special or Full:
If the endorser signs his name and adds a direction to pay the amount mentioned in the instrument to, or to the order of a specified person, the endorsement is said to be special or in full. A bill made payable to Mohan or Mohan or order, and endorsed "pay to the order of Sohan" would be specially endorsed and Sohan endorses it further. A blank endorsement can be turned into a special one by the addition of an order making the bill payable to the transferee.

.

(c) Restrictive:
An endorsement is restrictive which prohibits or restricts the further negotiation of an instrument. Examples of restrictive endorsement: "Pay A only" or "Pay A for my use" or "Pay A on account of B" or "Pay A or order for collection"

(d) Partial:
An endorsement partial is one which purports to transfer to the   endorsee a part only of the amount payable on the instrument. A partial endorsement does not operate as negotiation of the instrument. A holds a bill for Rs. 1,000 and endorses it as "Pay B or order Rs. 500". The endorsement is partial and invalid.

(e) Conditional or qualified:
An "endorsement is conditional or qualified which limits or negatives the liability of the endorser. An endorser may limit his liability in any of the following ways:

(i) By sans recourse endorsement, Le. by making it clear that he does not incur the liability of an endorser to the endorsee or subsequent holders and they should not look to him in case of dishonour of instrument. The endorser excludes his liability by adding the words "sans recourse" or "without recourse", e.g., "pay A or order same recourse".

(ii) By making his liability depending upon happening of a specified event which may never happen, e.g., the holder of a bill may endorse it thus: "Pay A-or order on his marrying B". In such a case, the endorser will not be liable until. A mafries B.

It is pertinent to refer to Section 52 of the Negotiable Instruments Act, 1881 here. It reads "The endorser of a negotiable instrument may, by express words in the endorsement exclude his own liability thereon, or make such liability or the right of the endorsee to receive the amount due thereon depend upon the happening of a specified event, although such event may never happen.

Negotiation Back

Where an endorser negotiates an instrument and again becomes its holder, the instrument is said to be negotiated back to that endorser and none of the intermediary endorsees are then liable to him. The rule prevents a circuity of action. For example, A, the holder of a bill endorses it to a, B endorses to C, and C to D, and endorses it again to A. A, being a holder in due course of the bill by second endorsement by,D, can recover the amount thereof from B, C, or D and himself being a prior party is liable to all of them. Therefore, A having been relegated by the second endorsement to his original position, cannot sue B, C and D.

Where an endorser so excludes his liability and afterwards becomes the holder of the instrument, all the intermediate endorsers are liable to him. " the italicised portion of the above Section is important. An illustration will make the point clear. A is the payee of a negotiable instrument. He endorses the instrument 'sans recourse' to B, B endorses to C, C to D, and D again endorses it to A. In this case, A is not only reinstated in his former rights but has the right of an endorsee against B, C and D.

Negotiation of Lost Instrument or that Obtained by Unlawful Means

When a negotiable instrument has been lost or has been obtained from any maker, acceptor or holder thereof by means of an offence or fraud, or for an unlawful consideration, no possessor or endorsee, who claims through the person who found or obtained the instrument is entitled to receive the amount due thereon from such maker, acceptor, or holder from any party prior to such holder unless such possessor or endorsee is, or some person through whom he claims was, a holder in due course.

Forged Endorsement

The case of a forged endorsement is worth special notice. if an instrument is endorsed in full, it cannot be negotiated except by an endorsement signed by the person to whom or to whose order the instrument is payable, for the endorsee obtains title only through his endorsement. Thus, if an instrument be negotiated by means of a forged endorsement, the endorsee acquires no title even though he be a purchaser for value and in good faith, for the endorsement is a nullity. Forgery conveys no title. But where the instrument is a bearer instrument or has been endorsed in blank, it can be negotiated by mere delivery, and the holder derives his title independent of the forged endorsement and can claim the amount from any of the parties to to the instrument.
For example, a bill is endorsed, "Pay A or order". A endorses it in blank, and it comes into the hands of B, who simply delivers it to C, C forges B's endorsement and transfer it to D. Here, D, as the holder does not derive his title through the forged endorsement of B, but through the genuine endorsement of A and can claim payment from any of the parties to the instrument in spite of the intervening forged endorsement.

Acceptance of a Bill of Exchange

The drawee of a bill of exchange, as such, has no liability on any bill addressed to him for acceptance or payment. A refusal to accept or to pay such bill gives the holder no rights against him. The drawee becomes liable only after he accepts the bill. The acceptor has to write the word 'accepted' on the bill and sign his name below it.. Thus, it is the acceptor who is primarily liable on a bill. The acceptance of a bill is the indication by the drawee of his assent to the order of the drawer. Thus, when the drawee writes across the face of the bill the word "accepted" and signs his name underneath he becomes the acceptor of the bill.

  An acceptance may be either general or qualified. A general acceptance is absolute and as a rule, an acceptance has to be general. . Where an acceptance is made subject to some condition or qualification, thereby varying the effect of the bill, it is a qualified acceptance. The holder of the bill may either refuse to take a qualified acceptance or non-acquiescence in it. Where he refuses to take it, he can treat the bill as dishonoured by non-acceptance, and sue the drawer accordingly.

Acceptance for Honour

When a bill has been noted or protested for non-acceptance or for better security, any person not being a party already liable thereon may, with the consent of the holder, by writing on the bill, accept the same for the honour of any party thereto. The stranger so accepting, will declare under his hand that he accepts the protested bill for the honour of the drawer or any particular endorser whom he names.
 The acceptor for honour is liable to pay only when the bill has been duly presented at maturity to the drawee for payment and the drawee has refused to pay and the bill has been noted and protested for non-payment. Where a bill has been protested for non-payment after having been duly accepted, any person may intervene and pay it supra protest for the honour of any party liable on the bill. When a bill is paid supra' protest, it ceases to be negotiable. The stranger, on paying for honour, acquires all the right of holder for whom he pays.

Presentment for Acceptance

It is only bills of exchange that require presentment for acceptance and even these of certain kinds only. Bills payable on demand or on a fixed date need not be presented. Thus, a bill payable 60 days after due date on the happening of a certain event may or may not be presented for acceptance. But the following bills must be presented for acceptance otherwise, the parties to the bill will not be liable on it:

(a) A bill payable after sight. Presentment is necessary in order to fix maturity of the bills; and

(b) A bill in which there is an express stipulation that it shall be presented for acceptance before it is presented for payment. Section 15 provides that the presentment for acceptance must be made to the drawee or his duly authorised agent. If the drawee is dead, the bill should be presented to his legal representative, or if he has been declared an insolvent, to the official receiver or assigner. The following are the persons to whom a bill of exchange should be presented:

(i) The drawee or his duly authorised agent.

(ii)If there are many drawees, bill must be presented to all of them.

(iii)The legal representatives of the drawee if drawee is dead. 

(iv)The official receiver or assignee of insolvent drawee.

(v) To a drawee in case of need, if there is any. This is necessary when the     original drawee refuses to accept the bill.

(vi) The acceptor for honour. In case the bill is not accepted and is noted or protested for non-acceptance, the bill may be accepted by the acceptor for honour. He IS a person who comes forward to accept the bill when it is dishonoured by non-acceptance.

The presentment must be made before maturity, within a reasonable time after it is drawn, or within the stipulated period, if any, on a business day within business hours and at the place of business or residence of the drawee. The presentment must be made by exhibiting the bill to the drawee; mere notice of its existence in the possession of holder will not be sufficient.

When presentment is compulsory and the holder fails to present for acceptance, the drawer and all the endorsers are discharged from liability to him.

Presentment for Acceptance when Excused

Compulsory presentment for acceptance is excused and the bill may be treated as dishonoured in the following cases:

(a) Where the drawee cannot be found after reasonable search.

(b) Where drawee is a fictitious person or one incapable of contracting.

(c) Where although the presentment is irregular, acceptance has been refused

on some other ground.

Presentment for Payment

All notes. bills and cheques must be presented for payment to the maker, acceptor or drawee thereof respectively by or on behalf of the holder during the usual hours of business, and if at banker's within banking hours.

Presentment for Payment when Excused

No presentment is necessary and the instrument may be treated as dishonoured in the following cases:

(a) Where the maker, drawer or acceptor actively does something so as to intentionally obstruct the presentment of the instrument, e.g., deprives th holder of the instrument and keeps it after maturity.

(b) Where his business place is closed on the due date.

(c) Where no person is present to make payment at the place specified for payment.

(d) Where he cannot, after due search be found. (Section 61)

(e) Where there is a promise to pay notwithstanding non-presentment.
(f) Where the presentment is express or impliedly waived by the party entitled to presentment.

(g) Where the drawer could not  possibly have suffered any damage by non-presentment.

(h) Where the drawer is a fictitious person, or one incompetent to contract.

(i) Where the drawer and the drawee are the same person.

m Where the bill is dishonoured by non-acceptance.

(k) Where presentment has become impossible, e.g., the declaration of war between the countries of the holder and drawee.

(I) Where though the presentment is irregular, acceptance has been refused on some other grounds.

Dishonour by Non-Acceptance,

Section 91 provides that a bill is said to be dishonoured by non-acceptance:

(a) When the drawee does not accept it within 48 hours from the time of

presentment for acceptance.

(b) When presentment for acceptance is excused and the bill remains unaccepted. 

(c) When the drawee is incompetent to contract.

(d) When the drawee is a fictitious person or after reasonable search can not    be found.

(e) Where the acceptance is a qualified one.

Dishonour by Non-payment (Section 92)

A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same. Also, a negotiable instrument is dishonoured by non-payment when presentment for payment is excused and the instrument when overdue remains unpaid.

If the bill is dishonoured either by non-acceptance or by non- payment, the drawer and ail the endorsers of the bill are liable to the holder, provided he gives notice of such dishonour. The drawee is liable only when there is dishonour by non-payment.

Notice of Dishonour (Sections 91-98 and Sections 105-107)

When a negotiable instrument is dishonoured either by non-acceptance or by non-payment, the holder or some party liable thereon must give notice of dishonour to all other parties whom he seeks to make liable. Each party receiving notice of dishonour must in order to render any prior party liable to himself, give notice of dishonour to such party within a reasonable time after he has received it. The object ot giving notice is not to demand payment but to whom the party notified of his liability and in case of drawer to enable him to protect himself as against the drawee or acceptor who has dishonoured the instrument issued by him. Notice of dishonour is so necessary that an omission to give 'it discharges all parties other than the maker or acceptor. These parties are discharged not only on the bill or note, but also in respect of the original consideration. Notice may be oral or in writing, but it must be actual formal notice. It must be given within a responsible' time of dishonour.

Notice of Dishonour Unnecessary

No notice of dishonour is necessary:

(a) When it is dispensed with or waived by the party entitled thereto, e.g. where an endorser writes on the instrument such words as "notice of dishonour waived" ,

(b) When the drawer has countermanded payment.

(c) When the party charged would not suffer damage for want of notice.
(d) When the party entitled to notice cannot after due search be found.

(e) When the omission to give notice is caused by unavoidable circumstances, e.g., death or dangerous illness of the holder.

(f) Where the acceptor is also a drawer, e.g., where a firm draws on its branch.
(g) Where the promissory note is not negotiable. Such a note cannot be endorsed.

(h) Where the party entitled to notice promises to pay unconditionally.

Noting and Protest (Sections 99-104 A) 
Noting

Where a note or bill is dishonoured, the holder is entitled after giving due notice of dishonour, to sue the drawer and the endorsers. Section 99 provides a convenient method of authenticating the fact of dishonour by means of "Noting". Where a bill or note is dishonoured, the holder may, if he so desires, cause such dishonour to be noted by a notary public on the instrument, or on a paper attached thereto or partly on each. The noting or minute must be recorded by the notary public within a reasonable time after dishonour and must contain the fact of dishonour, the date of dishonour, the reason, if any, assigned for such dishonour if the instrument has not been expressly dishonoured the reasons why the holder treats it dishonoured and notary's charges.

Protest

The protest is the formal notarial certificate attesting the dishonour of the bill, and based upon the noting which has been effected on the dishonour of the bill. After the noting has been made, the formal protest is drawn up by the notary and when it is drawn up it relates back to the date of noting.

Where the acceptor of a bill has become insolvent, or has suspended payment, or his credit has been publicly impeached, before the maturity of the bill, the holder may have the bill protested for better security. The notary public demands better security and on its refusal makes a protest known as "protest for better security".

Foreign bills must be protested for dishonour when such protest is required by the law of the place where they are drawn. Foreign promissory notes need not be so protested. Where a bill is required by law to be protested, then instead of a notice of dishonour, notice of protest must be given by the notary public.

A protest to be valid must contain on the instrument itself or a literal transcript thereof,the names of the parties for and against whom protest is made, the fact and reasons for dishonour together with the place and time of dishonour and the  signature of the notary public. Protest affords an authentic evidence of dishonour to the drawer  and the endorsee.

Discharge

The discharge in relation to negotiable instrument may be either (i) discharge of the instrument or (ii) discharge of one or more parties to the instrument from liability.

Discharge of the Instrument

A negotiable instrument is discharged:

(a) by payment in due course;

(b) when the principal debtor 'becomes the holder;

(c)by an act that would discharge simple contract;

(d) by renunciation; and

(e) by cancellation.

Discharge of a Party or Parties

When any particular party or parties are discharged, the instrument continues to be negotiable and the un-discharged parties remain liable on it. For example, the non-presentment of a bill on the due date discharges the endorsers from their liability, but the acceptor remains liable on it.

A party may be discharged in the following ways :

(a) By cancellation by the holder of the name of any party to it with the intention of discharging him.

(b) By release, when the holder releases any party to the instrument

(c) Discharge of secondary parties, Le., endorsers.

(d) By the operation of the law, Le., by insolvency of the debtor.

(e) By allowing drawee more than 48 hours to accept the bill, all previous parties are discharged.

(f) By non-presentment of cheque promptly the drawer is discharged. 

(g) By taking qualified acceptance, all the previous parties are discharged. 

(h) By material alteration.

 Material Alteration (Section 87)

An alteration is material which in any way alters the operation of the Instrument and the liabilities of the parties thereto. Therefore, any change in an instrument which causes it to speak a different language in.legal effect from that which it originally spoke, or which changes legal character of the instrument is a material alteration.

A material alteration renders the instrument void, but it affects only those persons who have already become parties at the date of the alteration. Those who take the altered instrument cannot complain. Section 88 provide$ that an acceptor or endorser of a negotiable instrument is bound by his acceptance or endorsement notwithstanding any previous alteration of the instrument..

Examples of material alteration are:

Alteration
(i) of the date of the instrument
(Ii) of the sum payable,
(iii) in the time of payment,
(iv) of the place of payment,
(v) of the rate of interest,
(vi) by addition of a new party,
(vii) tearing the instrument. in a material part.

There is no material alteration and the instrument is not vitiated in the following cases :

(i) correction of a mistake,
(ii) to carry out the common Intention of the parties,

(iii) an alteration made before the instrument is issued and made with the consent of the parties,
(iv) crossing a cheque,
(v) addition of the words "on demand" in an instrument where no time of payment is stated.

Retirement of a Bill under Rebate

An acceptor of a bill may make payment before maturity, and the bill is then said to .be retired, but it is not discharged and must not be cancelled except by the acceptor when it comes into his hands. It is customary in such a case to make allowance of interest on the money to the acceptor for the remainder of the time which the bill has to run. The interest allowance Is known as rebate.

Hundis

Hundis are negotiable instruments written in an oriental language. They are sometimes bills of exchange and sometimes promissory notes, and are not covered under the Negotiable Instruments Act, 1881. Generally, they are governed by the customs and usages in the locality but if custom is silent on the point in dispute before the Court, this Act applies to the hundis. The term "hundi" was formerly applicable to native bills of exchange. The promissory notes were then called "teap". The hundis were in circulation in India even before the present Negotiable Instrument Act, 1881 came into operation. The usages attached to these hundis varied with the locality in which they were in circulation. Generally understood, the term "hundi" includes all indigenous negotiable instruments whether they are bills of exchange or promissory notes. An instrument in order to be a hundi must be capable of being sued by the holder in his own name, and must by the custom of trade be transferred like cash by delivery. Obviously the customs relating to hundis were many. In certain parts of the country even oral.

Acceptance was in vague.

The following types of hundis are worth mentioning :

1. Shah Jog Hundi

"Shah" means a respectable and responsible person or a man of worth in t~e

bazar. Shah Jog Hundi means a hundi which is payable only to a respectable holder,as opposed. to a hundi payable to bearer. In other words the drawee before paying the same has to satisfy himself that the payee is a 'SHAH'.

2. Jokhmi Hundi

A "jokhmi" hundi is always drawn on or against goods shipped on the vessel mentioned in the hundi. It implies a condition that money will be paid only in the event of arrival of the goods against which the hundi is drawn. It is in the nature of policy of insurance. The difference, however, is that the money is paid before hand and is to be recovered if the ship arrives safely.

3. Jawabee Hundi

According to Macpherson, "A person desirous of making a remittance writes to the payee and delivers the letter to a banker, who either endorses it on to any of his correspondents near the payee's place of residence, or negotiates its transfer. On the arrival, the letter is forwarded to the payee, who attends and gives his receipt in the form of an answer to the letter which is forwarded by the same channel of the drawer or the order." Therefore, this is a form of hundi which is used for remitting money from one place to another
.

4. Nam jog Hundi

It is a hundi payable to the party named in the bill or his order. The name of the payee is specifically inserted in the hundi. It can also be negotiated like a bill of exchange. Its alteration into a Shah Jog hundi is a. material alteration and renders it void.

5. Darshani Hundi

This is a hundi payable at sight. It is freely negotiable and the price is regulated by demand and supply. They are payable on demand and must be presented for payment within a reasonable time after they are received by the holder.

6. Miadi Hundi

This is otherwise called muddati hundi, that is, a hundi payable after a specified period of time. Usually money is advanced against these hundis by shroffs after deducting the advance for the period in advance. There are other forms of hundis also like.

Dhani Jog Hundi -
A hundi which is payable to "dhani" Le., the owner. Firman Jog Hundi - which is payable to order if can be negotiated by endorsement and delivery.

Presumptions of Law

A negotiable instrument is subject to certain presumptions. These have been recognised by the Negotiable Instruments Act under Sections 118 and 119 with a view to facilitate the business transactions. These are described below:

It shall be presumed that:

(1) Every negotiable instrument was made or drawn for consideration irrespective of the consideration mentioned in the instrument or not.

(2) Every negotiable instrument having a date was made on such date.

(3) Every accepted bill of exchange was accepted within a reasonable time before its maturity.

(4) Every negotiable instrument was transferred before its maturity.

(5) The instruments were endorsed in the order in which they appear on it.

(6) A lost or destroyed instrument was duly signed and stamped.

(7) The holder of the instrument is a holder in due course.

(8) In a suit upon an instrument which has been dishonoured, the Court shall

Presume the fact of dishonour, or proof of the protest.

However these legal presumptions are rebuttable by evidence to the contrary. The burden to prove to the contrary lies upon the defendant to the suit and not upon the plaintiff.

Payment of Interest in case of dishonour

The Negotiable Instruments Act, 1881 was amended in the year 1988, revising the rate of interest as contained in Sections 80 and 117, from 6 per cent to 18 per cent per annum payable on negotiable instruments from the due date in case no rate of interest is specified, or payable to an endorser from the date of payment on a negotiable instrument on its dishonour with a view to discourage the withholding of payment on negotiable instruments on due dates.

Penalties in case of dishonour of cheques

Chapter XVII of the Negotiable Instruments Act provides for penalties in case of dishonour of certain cheques for insufficiencies of funds in the accounts. Sections 138 to 142 deal with these aspects.

The provisions contained in this Chapter provide that where any cheque drawn by a person for discharge of any liability is returned by the bank unpaid for the reason of insufficiency of the amount of money standing to the credit of the account on which the cheque was drawn or for the reason that it exceeds the arrangement made by the drawer of the cheque with the banker for that account, the drawer of such cheque shall be deemed to have committed an offence. In that case, the drawer, without prejudice to the-6fher provisions of the Act, shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both.

In order to constitute the said offence 

(a) such cheque should have been presented to the bank within a period of six

months from the date on which it is drawn or within the period of its validity, whichever is earlier; and

(b) the payee or holder in due course of such cheque should have made a demand for the payment of the said amount of money by giving notice, in writing, to the drawer of the cheque within fifteen days of the receipt of information by him from the bank regarding the return of the cheque unpaid; and

(c) the drawer of such cheque should have failed to make the payment of the said amount of money to the payee or the holder in due course of the cheque within fifteen days of the receipt of the said notice.

It has also been provided that it shall be presumed, unless the contrary is proved, that the holder of such cheque received the cheque in the discharge of a liability. Defences which mayor may not be allowed in any prosecution for such offence ha~e also been provided to make the provisions effective. The Supreme Court in Modi Cements Ltd. v. K.K. Nandi, (1988) 28 CLA 491, held that merely' because the drawer issued a notice to the drawee or to the Bank for 'stop payment', it would not preclude an action under Section 138 by the drawee or holder in due course. Usual provisions relating to offences by companies have also been included in the said new Chapter. In order to ensure that genuine and h9nest bank customers are not harassed or put to inconvenience, sufficient safeguard's have also been provided in the new Chapter,

as under:

(a) that no Court shall take cognizance of such offence except on a complaint in writing, made by the payee or the holder in due course of the cheque;

(b) that such complaint is made within one month or the date on which the cause of action arises;

(c) that  Court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any such offence.

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