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

Banking law and negotiable instruments act

SHORT QUESTIONS

1. Overdraft
An overdraft occurs when there isn't enough money in an account to cover a
transaction or withdrawal, but the bank allows the transaction anyway. Essentially, it's an
extension of credit from the financial institution that is granted when an account reaches zero.
The overdraft allows the account holder to continue withdrawing money even when the
account has no funds in it or has insufficient funds to cover the amount of the withdrawal.
Basically, an overdraft means that the bank allows customers to borrow a set amount of
money. There is interest on the loan, and there is typically a fee per overdraft.

➢ An overdraft occurs when an account lacks the funds to cover a withdrawal, but the bank
allows the transaction to go through anyway.
➢ The overdraft allows the customer to continue paying bills even when there is insufficient
money.
➢ An overdraft is like any other loan: The account holder pays interest on it and will typically
be charged a one-time insufficient funds fee.
➢ Overdraft protection is provided by some banks to customers when their account reaches
zero; it avoids insufficient funds charges, but often includes interest and other fees.

2. Appropriation of payment
The expression 'Appropriation of payments' means," adjusting the payment towards
the debts". When a debtor owes several distinct debts to a creditor, and makes a payment not
sufficient to clear/discharge all the debts, the question, that arises is, against which debt/debts
the payment is to be adjusted/ appropriated? Similarly, when the customer takes more than
one loan, he owes to the banker different debts. Later, the customer may make payment, which
is not adequate to clear all such distinct debts. Here, also the question of appropriation arises.
To answer this question, four rules were laid down in the Clayton's case. Hence, it came to be
known as "The Rule in Clayton's Case'. These rules are embodied in Sections 59 to 61 of the
Indian Contract Act, 1872, as follows:

(1) When the debtor intimates, against what debt/debts (in full or in part) the payment is to
be appropriated/adjusted, the creditor has to adjust appropriate accordingly under Section 59
of ICA, 1872.
(2) When the debtor (while making payment) does not indicate as to appropriation, the
circumstance so implies that the payment is to be appropriated against a particular debt
(implied appropriation). Eg The payment may imply appropriation towards a debt which is
about to be barred by limitation period.
(3) When the debtor does not indicate as to appropriation, the creditor has a discretion to
appropriate the payment against any debt including time barred, but not disputed one under
Section 60 of ICA, 1872
(4) Where neither of the parties appropriates, the payment shall be applied to discharge the
debts including time barred ones in chronological order i.e. in order of time. If the debts are of
equal standing, the payment shall be appropriated proportionately.

The Rule in Clayton's Case: The rule in Clayton's case is of great importance to the Bankers.
The above four rules were laid down in the case of Devaynes Vs. Noble (1816) 1 Meriavale 530,
535 (popularly known as 'Clayton's Case’. Hence, the above rules as to the appropriation of
payment, came to be known as "The Rule in Clayton's Case'.
Facts of the case: A firm of Bankers Devaynes, Daives, Noble & Co. had five partners. Devaynes,
a senior partner died. The surviving partners continued the business. After one year, the firm
became bankrupt and the creditors claimed against the estate of the deceased partner.
N.Clayton, a creditor (customer) continued to deal with the firm even after the death of
Devaynes. Clayton had a credit balance on the death of partner. Later, he withdrew in excess of
the balance and also paid in, so as to arrive at credit balance. Mr. Clayton claimed that the
payments in should be appropriated against the withdrawals so as to leave the credit balance
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intact at the time of partner’s death. The court rejected his contention and denied the claim
and laid down the above rules.
Thus, in case of death, retirement or insolvency of a partner, the existing debt (due from the
firm) is adjusted by making subsequently credit made in account. Then the banker has no right
to claim such debt from the assets of the deceased/retired partner.

In M/s. Kharavela Industries Pvt Ltd vs. Orissa State Financial Corporation & others
It was held that in the case of a debt due with interest, any payment made by the debtor
should be adjusted first towards satisfaction of interest and thereafter towards the principal
unless there is an agreement, to the contrary.

3. E- Banking
Electronic banking has many names like e banking, virtual banking, online banking, or
internet banking. It is simply the use of electronic and telecommunications network for
delivering various banking products and services. Through e-banking, a customer can access
his account and conduct many transactions using his computer or mobile phone.
Banks offer various types of services through electronic banking platforms. These are of three
types:
1. This is the basic level of service that banks offer through their websites. Through this
service, the bank offers information about its products and services to customers. Further,
some banks may receive and reply to queries through e-mail too.
2. In this level, banks allow their customers to submit instructions or applications for different
services, check their account balance, etc. However, banks do not permit their customers to do
any fund-based transactions on their accounts.
3. In the third level, banks allow their customers to operate their accounts for funds transfer,
bill payments, and purchase and redeem securities, etc.
In India, since 1997, when the ICICI Bank first offered internet banking services, today, most
new-generation banks offer the same to their customers. In fact, all major banks provide e-
banking services to their customers.
Popular services under e-banking in India Importance of e-banking
1. Lesser transaction costs
1. ATMs (Automated Teller Machines) 2. A reduced margin for human error
2. Telephone Banking 3. Lesser paperwork /environment-friendly.
3. Electronic Clearing Cards 4. Reduced fixed costs
4. Smart Cards 5. More loyal customers /customer-friendly
5. EFT (Electronic Funds Transfer) System banks
6. ECS (Electronic Clearing Services) 6. Convenience – a customer can access his
7. Mobile Banking account and transact from anywhere
8. Internet Banking 24x7x365.
9. Telebanking 7. Lower cost per
10. Door-step Banking 8. No geographical barriers
9. Account reviews -accounts quickly using
an online banking interface.
10. Better productivity
11. Reduced fraud

4. Demonetization
Demonetization: Demonetization is an act of cancelling the legal tender status of a currency
unit in circulation. Anticipating positive changes on the liquidity structure as a whole, nations
often adopt Demonetization policy as a measure to counterbalance the current economic
condition. Countries across the globe have used Demonetization at some or the other point to
control situations such as inflation and to boost economy. In 9 November 2016, Indian
government banned the high denomination notes of Rs.1000 and Rs.500 as move to curb
counterfeiting and money laundering.
Effects of Demonetization on various sections of Indian Economy
Demonetization, that sent a shockwave across the Indian economy, completes one month since
its announcement on the midnight of November 9. To uproot the problems of corruption, black
money, and counterfeiting, Prime Minister Narendra Modi orchestrated this master plan
which has reportedly swept off a mammoth portion of India’s monetary base. It is anticipated
that this surgical strike on black money will also increase cashless transactions in the country
and untie all knots in tax collection. But on the other hand, rural households and elder citizens
have been worst hit due to the sudden monetary reform. The decision to scrap all Rs.1000 and
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Rs.500 notes have made it to headlines all over the world, attracting both positive and
negative comments.
Impact of Demonetization on Indian economy
In a country where 85% of transactions take place by cash, cancelling the legal tender
character of two high denomination banknotes arises a lot of questions. The service sector in
the country that depends mostly on cash transactions will be adversely hit because of
Demonetization. Not to mention, the consumption activity of India has come to a screeching
halt. This drop in economic activity from demonetization 2016 and as a result, GDP could fall
significantly from the previous year’s values.

5. Bill of Exchange
A bill of exchange is written and signed order directing the person named in it to pay a certain
sum of money only to, or to the order of a certain person or to the bearer. Bills of exchanges
arise in business transactions. They normally arise when goods are sold on credit. The seller
(creditor) draws bill on the buyer (debtor or buyer) to pay the amount specified in the bill of
exchange normally after a specified period of time. The title of the bill of exchange can be
transferred by endorsement and delivery/delivery or it can be discounted with a banker. It
can also be sent to a banker for collection.
According to Section 5 of the Negotiable Instruments Act, 1881 "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 or to the order of a certain person, or to the
bearer of the instrument",
In a bill of exchange one person makes an order to another person to pay a certain sum of
money to someone. A bill of exchange is different from a promissory note in so far as in a
promissory note there is a promise made by the maker of a promissory note to pay a certain
sum of money whereas in a bill of exchange there is an order to pay. The other requirements in
a bill of exchange are similar to those in the case of a promissory note.
In a bill of exchange the order should be unconditional, it must be to pay money only, the sum
payable should be certain, the instrument should be in writing and signed by the person who
makes it and the payee should also be certain.
Essentials of a bill of exchange:
(1) It must be in writing.
(ii) It must contain an order or undertaking to pay certain sum of money.
(iii) The order to pay must be unconditional.
(iv) There are three parties viz. Drawer, Drawee and Payee.
(v) It must be signed by the drawer.
(vi) The sum payable must be certain.
(vii)It must be stamped according to Stamp Act, 1940.

6. Minor Account
A banker invites the public to open an account with the bank. Opening of an account with a
bank, is creation of a special contract so that the principles of contract viz. capacity to contract,
free consent etc. are strictly adhered to. Therefore a banker must be very careful, while
opening an account in the name of the 'Special Types of Customers' as:
1. Minor 6. Joint Hindu Family
2 Illiterate 7. Trust account
3. Lunatic 8. Clubs, Societies and Charitable Institutions
4. Married woman 9. Partnership Firm and
5. Joint account 10. Joint Stock Companies.
A minor is a person, who has not completed 18 years of age. The minority extends to 21 years,
if a guardian of his person or property is appointed by the Court (Sec. 3 of Indian Majority Act,
1875). Before 1969, in England, the age of minority was 21 years. The age of minority is
reduced to 18 years after passing of the Family Law Reforms Act, 1969. In other words, in
England also, a person who has not completed the age of 18 years is a minor.
According to Sec. 11 of the Indian Contract Act, 1872, a minor is not competent to contract. A
contract entered into by a minor is void ab initio i.e. invalid from the very beginning (as laid
down by the Privy Council in Mohri Bibi vs. Dharmadas Ghose (1903). However, a contract with
a minor for supplying of necessaries to minor or his dependants is valid and enforceable(Sec.
68, Indian Contract Act, under the Principle of Equity).
According to Sec. 26 of the Negotiable Instruments Act, 1881 a minor may draw endorse,
deliver and negotiate such instruments so as to bind all the parties, except himself. He need
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not incur any liability under the negotiable instrument, but he can acquire rights over the
instruments. However, the minor is bound by the withdrawals made by him and the bank can
legally debit his account.
Therefore, a Banker may open an account in the name of a minor in the following ways
(a) In the name of the minor or
(b) In the joint names of the minor and his guardian or
(c) In the name of the guardian.
In the first case an account can be operated by the minor himself and there is nothing
unlawful, since, Sec. 26 of the NI Act, 1881 allows the minor to do so. In the second case, an
account can be operated jointly by the minor and his guardian. In the third case, when the
account is operated on behalf of the minor, the Minor should have completed 14 years and he
must be capable of reading and writing.
As the minor is immune from liability under the contract, the Banker must be very careful and
should take the following precautions while dealing with the Minor.
(1) He (the banker) may open savings bank account (and not a current account) in the name of
a minor.
(ii) The bank records the date of birth of the minor as given by the minor or his/her guardian.
When the minor attains majority, the banker has to close the account and should open a new
account in his name as major (i.e. in the name of the minor, who became the major). The credit
balance if any (from the account closed) should be transferred/ credited to the new account.
(iii) In case the minor dies, the guardian can be permitted to withdraw the amount. In case of
joint account in the names of minor and his/her guardian, the balance will be held at the
absolute disposal of the guardian.
(iv) There is no risk involved so long as the minor's account shows credit balance. In case, the
minor's account is overdrawn even by mistake or unintentionally, the banker cannot recover
the amount. Even if the minor has pledged some asset as security, such pledge itself is invalid.
and the Banker cannot exercise any lien over it. The reason is, a minor can be a promisee or
beneficiary but cannot be a promisor.
(v) The Banker should not grant an advance to a minor even against the guarantee by a third
person, who is a major since the contract with minor itself is void, the guarantor or surety also
is not liable unless there is some specific provision to that effect.
(vi) A minor may draw, endorse or negotiate a cheque or a bill but he cannot be held liable on
such cheque or bill. He cannot be sued in respect of a bill accepted by him during his minority.
Such bill or cheque, nevertheless, will be a valid instrument and all other parties will be liable
in their respective capacities (Section 26 of the Negotiable Instruments Act, 1881). The banker
should, therefore, be very cautious in dealing with a negotiable instrument, to which a minor is
a party.

7. Endorsement
According to Section 14 of the Negotiable Instruments Act, 1881 “when promissory note, bill
of exchange or a cheque is transferred to any person, so as to constitute that person, the
holder theof, the instrument is said to be negotiated.”
Section 15 NI Act says that ‘when the maker or holder of a negotiable instrument signs the
same, otherwise than as such maker, for purpose of negotiation, on the back or face thereof, or
on a slip of papr annexed thereto, 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 and is called the
indorse. “Endorsement is a form of negotiation. Before explaining in detail about the
Endorsement, it is necessary to know in brief about the negotiation.
The word ‘endorsement’ under the Negotiable Instruments Act means, the writing of one’s
name on the back of the instrument (cheque) or any paper attached to it with the intention of
transferring the rights therein. The person who effects an endorsement is called an ‘endorser’,
and the person to whom negotiable instrument is transferred by endorsement is called the
‘endorsee’.
Essentials of a valid endorsement
1. The endorsement may be on the back or face of the instrument (cheque) and if no space is
left it may be made on a separate paper attached to it called allonage.
2. It must be made by the maker or holder of the instrument. A stranger cannot endorse it.
3. It must be signed by the endorser. Full name is not essential. Initials may suffice.
4. It may be made either by the endorser, merely signing his name on the instrument (it is a
blank endorsement) or by any words showing an intention to endorse or transfer the
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instrument to a specified person (it is an endorsement in full). No specific form of words is

prescribed for an endorsement. But intention to transfer must be present.
5. It must be an endorsement of the entire bill. A partial endorsement i.e. which purports to
transfer to the endorse a part only of the amount payable does not operate as a valid
endorsement.

For example: A bearer cheque (of State Bank of India, Parliament Street New Delhi Branch) is
drawn by Mr. X in favour of Mr. Y. And Mr. Y endorses the same to Mr. Z. Now in case, Mr. Z
wants to liquidate the amount of cheque in cash, he has to present the cheque in State Bank of
India-Parliament Street New Delhi Branch only. If Mr. Z presents this in some other branch,
amount would be paid in his account and not in cash.

8. Pass Book
The banks supply his customer either with a pass-book or with statements of account at
regular intervals. The banker is expected to high standard of accuracy in their book-keeping
and in writing up of pass-books or preparation of statements.
Pass-book is a booklet issued by the banker to his customer, wherein all the transactions
between the banker and the customer are recorded. It is the replica of the customer's account
in the banker's books.
In other words, Pass-Book is a book, which passes between the Banker and customer
periodically (from time to time), containing the record of customer's account. It appears in
banker's books, containing a copy of the customer's ledger account. The reason why it is called
pass book is, it passes between banker and customer and from the customer to the banker. It
is also known as 'Statement of Account'.
Sir John Paget, in his 'Law of Banking' says "Its proper function is to constitute a conclusive
and unquestionable record of the transactions between banker and customer and it should be
recognized as such".
The main purpose of the passbook is to enable the customer:-
(i) To acquaint himself with the banker,
(ii) To know/check whether entries as to day to day transactions are properly
entered/recorded in the passbook.
(iii) To prepare bank reconciliation statement.
(iv) To treat the account got settled.
Features of Pass Book:
(i) Entries in the pass book are to be made by the bank staff only. The customer cannot make
any entry in the pass book.
(ii) It must be sent by the customer periodically to the banker to up-to date entries.
(iii) In case of a Savings Account, the pass book must accompany the withdrawal slip, unless
there is cheque book facility.
Now a days some banks particularly the new private sector banks and foreign banks send
statements of account periodically (monthly) in lieu of pass book. Is Pass Book a Conclusive
Proof of evidence of entries made therein.
According to Sir John Paget, a learned writer, the proper function of a pass book is to
constitute a conclusive and unquestionable record of the transactions. between the banker and
the customer and it should be recognized as such (Devaynes vs. Noble). He also added that on
delivery of the Pass Book to the customer, he examines it and if there appears any error or
omission brings it back to be rectified, or if not, his silence is regarded as an admission that the
entries are correct. This view appears to be reasonable and ideal.

9. Current Account
The primary function of banks is borrowing and lending. Banks borrow money from the public
by accepting various kinds of deposits at lower rate of Interest and lend the same funds to the
industrialists, businessmen, traders and other members of the public by sanctioning loans and
advances at higher rates of interest and thereby earn profits. The deposit accounts, accepted
by the banks may be broadly categorized under the following heads:-
1. Savings Bank Account
2. Current Deposit Account
3. Fixed Deposit Account and
4. Recurring Deposit Accounts
Current deposit accounts or Current Accounts are also known as "Demand Deposits,
Current Accounts are generally opened by the persons of higher income, namely industrialists,
businessmen, trusts, partnership firms, companies, educational institutions etc. Current
account means "money withdrawable without any notice". There is no any restriction with
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regard to number of withdrawals. Generally, banks may or may not pay interest on current
account deposits. The rate of interest if paid, is very meager and less than the rate of interest
paid on savings bank deposits. The customer must maintain a minimum balance of Rs. 5,000/-
in respect of current deposit accounts (the minimum balance requirement may differ from
bank to bank). The customer is issued a cheque book containing 50 to 100 leaves. The bank
may extend overdraft facility to the current account holders.

10. Banker
The person who performs the banking activities such as accepting of deposits, lending money,
withdrawing facilities, exchanging of money is known as a banker. In other words, the person
who directly related to the banking business is called banker. Banker manages all the activities
of a bank.
Generally, the proprietor or the directors of the bank are said banker. That means who takes
responsibility to run a bank or who runs the banking business is known as a banker. Simply,
who do banking is a banker. Person or institution that does banking activities directly is a
banker. All persons relating to banking business is the banker.

11. Cheque
Dr. Hart, in his Law of Banking defines a cheque as 'an unconditional order in writing drawn
on a banker signed by the drawer, requiring the banker to pay on demand a sum certain in
money to or to the order of a specified person or bearer and which does not order any act to
be done in addition to the payment of money'.
A cheque is also a bill of exchange with two additional features:
1. It is always drawn on a specified banker.
2. It is always payable on demand.
Section 6 of the Negotiable Instruments Act, 1881 defines cheque as "a bill of exchange drawn
on a specified banker and not expressed to be payable otherwise than on demand and it
includes electronic image of a truncated cheque and a cheque in the electronic form".
The definition of the cheque has been enlarged by the Negotiable Instruments (Amendment)
Act, 2002 so as "to include electronic image of a truncated cheque and a cheque in the
electronic form".
Cheque can be signed using digital signature and asymmetric crypto system. A cheque is a bill
of exchange with the following distinctive features:
(i) It is always drawn on some bank. It means that the drawee of a cheque is always a bank.
(ii) A cheque is always payable on demand. A bill of exchange other than a cheque may be
either payable on demand or may not be payable on demand.
(iii) After the amendment of the act in 2002, a cheque may also be in "electronic form".
Period of validity of a cheque: A cheque is valid for payment within a period of six months
from the date on which it is drawn. According to the banking practice a cheque remains valid
for payment for six months from the date on which it is drawn. Thereafter it becomes stale and
then the drawee bank can refuse to pay the same.
Sometimes the drawer mentions a period of less than 6 months for which the cheque is to
remain valid. For instance, there may be a mention "valid for 3 months only". In such a case the
validity period of the cheque would be 3 months from the date of its issue. Similarly, for
example, a cheque dated 1" January may mention "Valid upto 30th April". Then the validity of
the cheque will be upto the specified date.
Revalidation of stale cheque : A cheque which has become stale by the expiry of the period of
validity can be revalidated by the drawer. A revalidated cheque gets a new lease of life and
remains valid for the extended period of validity.
Validity of a post-dated cheque: In case of post dated cheque the period of validity is to be
counted from the date which has been put on the cheque because that date is to be considered
as the date of issue of cheque rather than the date on which the cheque has been drawn (Shri.
Ishar Alloys Steel Ltd v. Jayaswala NECO Ltd., AIR 2001 S.C. 1161).
A post dated cheque is not a cheque on the date on which it is drawn. It becomes a cheque on
the date written on it and till that date the instrument remains a Bill of Exchange (Ashok
Yeshwant Badave v. Surendra Madhavrao, AIR, 2001 SC 1315).
For the purpose of offence of dishonour of cheque the pre-requisite is presentation of the
cheque within 6 months from the date it is drawn. Thus, the period of 6 months for the post
dated cheque starts from the date written on the cheque.
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12. Payment in due course

Payment against negotiable instrument (cheque/bill etc.) should be made to the right person
by the banker (or acceptor of the bill). The payment is said to be in due course provided it is
made under section 10 of the Negotiable Instruments Act. The Act provides protection for such
payment (i.e. payment in due course).
Definition: According to Section 10 of the Negotiable Instruments Act, "Payment in due course
means payment in accordance with the apparent tenor of the instrument in good faith and
without any negligence to any person in possession thereof under circumstances, which do not
afford a reasonable ground for believing that he is not entitled to receive payment of the
amount therein mentioned."
According to Sec. 10, payment is said to be a payment in due course, when the banker makes
such payment under (good faith) a belief that the person (payee) is a bonafide holder and that
there is no circumstance to believe that he is making such payment negligently.
Essential Features:
A payment to be a payment in due course, the following conditions are to be satisfied.
(i) It(the payment) should be made in accordance with the apparent tenor i.c. in accordance
with intention of the parties.
(ii) It should be made in good faith and without any negligence.
(iii) It should be made to the person in possession of the instrument without any suspicion as
to title.
Following payments are not payments in due course :
(i) Payment of crossed cheque against counter (like a bearer cheque);
(ii) Payment against post dated cheque;
(iii) Payment against forged instrument;
(iv) Payment against cheque containing alteration and corrections.

13. KYC
Since 2004, the Reserve Bank of India made it compulsory for all Indian financial institutions
to verify both the identity and address of all customers carrying out financial transactions with
them. Thus, the KYC process was introduced by the RBI as the only mode of verification.
KYC means to ‘know your customer’ which is an effective way for an institution to confirm and
thereby verify the authenticity of a customer. For this, the customer is required to submit all
KYC documentation before investing in various instruments. All financial institutions are
mandated by the RBI to do the KYC process for all customers before giving them the right to
carry out any financial transactions. Whether the customer uses KYC online verification or
opts for offline KYC, this is a simple one-time process.
KYC is an important tool as it looks after the financial bodies and keeps illegal activities in
check. Many non-individual customers use financial services like trading and mutual fund
investment. With KYC, banks have the right to verify the legal status of that entity which also
includes cross-checking customers’ operating addresses and verifying the identities of their
beneficial owners and authorized signatories.
Additionally, the KYC process also requires the nature of employment as well as the business
carried out by the customer which is useful in verifying the authenticity of an individual
and/or company.
There are two types of KYC verification processes. Both are equally good which are Aadhar-
based KYC and another is In-Person based KYC.

14. Liquidation of Bank

Liquidation of Bank means The process of permanently closing a bank and its branches, selling
off any assets and using the proceeds to settle as many of the bank’s remaining liabilities as
possible. Typically, customer accounts are closed and checks are mailed to account holders for
the amount of their insured deposits.
Nothing in the Companies Act, 1956, shall apply to the Bank and the Bank shall not be placed
in liquidation save by order of the Central Government and in such manner as it may direct.

15. Joint Account

When two or more persons open an account jointly, it is called a joint account. Such accounts
may be opened by any two persons for the sake of convenience of operation of account and
also for withdrawal of money after the death of any one of them. The banker should take the
following precautions in opening and dealing with a joint account:
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(1) The application for opening a joint account must be signed by all the persons intending to
open a joint account.
(2) The banker should obtain clear instructions in writing, signed by all the joint account-
holders, regarding the operation of the account. The joint account may be operated in any of
the following ways:
(a) By all the depositors jointly
(b) By either or survivor of them
(c) By former or survivor of them.
(3) The joint account holder, who is authorized to operate the joint account, himself alone
cannot appoint an agent or attorney to operate the account on this behalf. Such attorney or
agent may be appointed with the consent of all the joint account holders.
(4) Any joint account holder (including the one who is not authorized to operate the account)
can stop payment of a cheque issued on a joint account. Banker must honour such order even
if an agent or attorney has been appointed to operate the account.
(5) The full name of the account must be given in all the documents furnished to the banker,
even if the account is to be operated upon by one or a few of the joint account-holders.
(6) The banker should be given clear instructions regarding the withdrawal of securities in the
joint account and the power conferred upon the person operating the account to pledge the
securities. In case the shares are in the joint names, all such persons must sign the transfer
form.
(7) A joint account may be operated by either of the joint account-holders. But if a cheque is
drawn and signed by one of them, any alterations therein should also be done by the same
person and not the other one. The alteration should bear the signature of the drawer.
(8) The persons opening a joint account are also required to give a mandate, in the application
form itself, specifying the person to whom the balance in the account shall be payable. The
balance in a joint account may be payable to -
(a) Both or all of them or the survivor or survivors of them; or
(b) Either or any one or more of them or the survivor or survivors of them.

16. Special Customers

The term 'customer' of a bank is not defined by law. Ordinarily a person who has an account in
a bank is considered its customer. There is no statutory definition of “customer”, and so one
has to refer the decisions of the courts in order to discover the principle which determines
whether or not a person is a customer. Simply customer means, 'any person having an account
with a banker.
According to section 45-Z of the Banking Regulation Act, 1949, “Customer” includes a
government department and a corporation incorporated by or under any law.
The banker invites the public to open an account with the bank. Opening of an account with a
bank, is creation of a special contract so that the principles of contract viz. capacity to contract,
free consent etc. are strictly adhered to. Therefore a banker must be very careful, while
opening an account in the name of the 'Special Types of Customers' as:
1. Minor 6. Joint Hindu Family
2 Illiterate 7. Trust account
3. Lunatic 8. Clubs, Societies and Charitable Institutions
4. Married woman 9. Partnership Firm and
5. Joint account 10. Joint Stock Companies.

17. Right to secrecy

Banking secrecy is the heart and soul of the trust the client attributes the banker. The client
trusts that his account, that intangible creation which quantifies the accumulated
funds and rights he entrusted the banker (or borrowed from him), will be exposed to the
banker’s eyes only.
The Banker is under an obligation to take utmost care to maintain the secrecy of his
customer’s accounts. Secrecy in the sense, the banker should not disclose the position of his
customers' accounts to any member of the public or Government official except under
statutory or lawful authority (Eg. Garnishee Order).
Section 13 of the 'Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970,
imposes on Banker, such obligation to maintain secrecy of his customer's account. The duty to
maintain the secrecy of the customer's account starts the moment the relationship between
the banker and customer is established. This duty is not only limited to the bank accounts, but
also it extends to all other facts, which may come to the notice/knowledge of the banker from
 9

any other sources. The duty/obligation to maintain secrecy of the customer's account was
legally imposed on banker in 1924 in a leading case:
Tournier vs. National Provincial and Union Bank of England (1924)
In this case it was held that the banker must not disclose the position of the customer's
account except on reasonable and proper occasions and he should not disclose the state of
customer's account even after the account is closed.
Tournier was the plaintiff and National Provincial and Union Bank of England Ltd was the
defendant. The plaintiff was working in M/s. Kenyon & Co. on temporary basis and his
employment was to be permanent. He overdrew from the defendant bank to a sum of 9
pounds 8 cents 6 d., and he agreed to pay by weekly installments of 1 pound. Out of this
amount, he paid some amount to a bookmaker towards the purchase of certain goods.
On one day, Tournier did not come to duty. The Directors of the Kenyon & Co. telephoned the
Bank Manager of the defendant company to know the plaintiff's address. In the conversation,
the Bank Manager passed the information that the plaintiff was overdrafted and he made the
payment to a bookmaker. The Directors misled the information that the plaintiff was a
gambler and was in practice of betting, and also he was insolvent. Therefore, they did not
permanent the plaintiff and ousted him from the employment. This caused grievance to the
plaintiff, who filed a suit against the bank for not keeping the secrecy of the customer, and for
the compensation of the job he lost.
The lower court dismissed his petition. He preferred appeal. The Court of Appeal allowed his
appeal and gave the judgement in his favour opining that the

18. Banker’s right to Lien

Banker's right of lien is an important special feature of banker-customer relationship. The
term 'lien' means "the right of a creditor to retain in his possession the goods and securities
owned by the debtor until the debt has been discharged, but not the right to sell". In simple,
lien means right to retain the goods or securities till the debt is cleared.
Kinds of Lien: Lien is of two kinds namely –
(1) Particular Lien : A particular lien gives the right to retain possession only of goods in
respect of which the charges or dues have arisen. Eg. - A tailor's right to retain the clothes till
the stitching charges are paid.
(ii) General Lien: A General Lien is one, which gives right to retain possession until the whole
balance of the account is paid. It extends not only towards goods pledged as security but also
in respect of others. A Banker exercises/ possesses the right of 'General Lien'.
Banker's Right of General Lien: It confers on Banker (as a creditor) right to retain the goods
and other securities owned by the debtor until the debt due from him, is repaid.
For instance, when a bank sanctions loan to a customer against a particular security. At the
time of repayment/to clear off the loan, the security pledged/mortgaged is not sufficient to
meet the liability, the banker may proceed (exercise lien) against other securities (movable or
immovable) pertaining to the customer (debtor). Where as a particular lien confers right over
a particular debt only. The general lien is applicable to all debts due from debtor to the
creditor.
Section 171 of the Indian Contract Act, 1872 confers on Banker, the right of general lien. The
banker can exercise his right of lien on all goods and securities entrusted to him in the capacity
as a banker. The Banker cannot exercise his right of lien in respect of:
(i) the goods and securities entrusted to him as a trustee or an agent; and
(ii) the goods and securities entrusted to him for some specific purpose.
Banker's lien: An Implied Pledge: If goods are delivered as security by one person to another, it
is called 'Pledge'. Eg. - If a farmer delivers 100 bags of paddy or wheat for securing a loan from
the bank, it is called 'Pledge'. The former is pledger and the banker is pledgee. In pledge, the
pledgee (creditor) can exercise the right of sale. With the right of lien, the banker can sell the
goods and securities in case of default by the customer. However, he cannot sell the title deeds
of an immovable property. Therefore, the Delhi High Court in Vijay Kumar vs. Jullunder Body
Builders & Others, (1983), the banker's lien has judicially been defined as an Implied Pledge.

19. Online Banking

Online banking means the bank accounts managing with a computer or mobile device. This
includes transferring funds, depositing checks and paying bills electronically.
Traditional banks and credit unions with branches typically let customers access their
accounts via the internet, too. But online banks and providers offer primarily mobile access.
 10

Customer won’t meet a banker face to face, but with a mobile device or computer, he can reach
his account anytime. Here's a closer look at online banks.
Online banking has many names like E-Banking, virtual banking, or internet banking. It is
simply the use of electronic and telecommunications network for delivering various banking
products and services. Through e-banking, a customer can access his account and conduct
many transactions using his computer or mobile phone.
Banks offer various types of services through electronic banking platforms. These are of three
types:
1. This is the basic level of service that banks offer through their websites. Through this
service, the bank offers information about its products and services to customers. Further,
some banks may receive and reply to queries through e-mail too.
2. In this level, banks allow their customers to submit instructions or applications for different
services, check their account balance, etc. However, banks do not permit their customers to do
any fund-based transactions on their accounts.
3. In the third level, banks allow their customers to operate their accounts for funds transfer,
bill payments, and purchase and redeem securities, etc.
In India, since 1997, when the ICICI Bank first offered internet banking services, today, most
new-generation banks offer the same to their customers. In fact, all major banks provide e-
banking services to their customers.
Popular services under Online Banking Importance of Online Banking
11. ATMs (Automated Teller Machines) 12. Lesser transaction costs
12. Telephone Banking 13. A reduced margin for human error
13. Electronic Clearing Cards 14. Lesser paperwork /environment-friendly.
14. Smart Cards 15. Reduced fixed costs
15. EFT (Electronic Funds Transfer) System 16. More loyal customers /customer-friendly
16. ECS (Electronic Clearing Services) banks
17. Mobile Banking 17. Convenience – a customer can access his
18. Internet Banking account and transact from anywhere
19. Telebanking 24x7x365.
20. Door-step Banking 18. Lower cost per
19. No geographical barriers
20. Account reviews -accounts quickly using
an online banking interface.
21. Better productivity
22. Reduced fraud

20. Nationalization
Nationalisation is a process by which ownership and management is transferred from private
individuals to the Government. The main object of the nationalization is, to serve better, the
needs of economic development in consonance with national priorities and objectives. Its
main aim is to render the largest good to the largest number of people.
The Indian government adopted a planned economic development for the betterment of the
country. The government of India under the leadership of the then Prime Minister Indira
Gandhi issued an ordinance to nationalize 14 largest commercial banks in India with effect
from July 19, 1969, under the regulatory authority of the Reserve Bank of India. These 14
banks contained up to 85 percent of bank deposits in the country and most of them were
privately owned. During 1980, 6 more commercial banks followed the suit and came under
nationalized cover. Till the 1990s, their growth grew at a snail's pace of around 4% annually.
During early 1990's, the government of India adopted the policy of liberalization and licensed
a small number of private banks in the country which helped for the rapid growth of the
economy of India.
Reasons for the Nationalization of Banks
➢ For Social Welfare
➢ For Developing Banking Habits
➢ For Expansion of Banking Sector
➢ For Controlling Private Monopolies
➢ To Reduce Regional Imbalance
➢ For Prioritizing Sector Lending
List of nationalized banks in India The Central Bank of India - RBI, in its official website has
listed the following 19 banks as nationalized banks.
1. Andhra Bank 1980 11. Indian Overseas Bank 1969
 11

2. Allahabad Bank 1969 12. Oriental Bank of Commerce 1980

3. Bank of Baroda 1969 13. Punjab & Sind Bank 1969
4. Bank of India 1969 14. Punjab National Bank 1969
5. Bank of Maharashtra 1969 15. Syndicate Bank 1969
6. Canara Bank 1969 16. UCO Bank 1969
7. Central Bank of India 1969 17. Union Bank of India 1969
8. Corporation Bank 1980 18. United Bank of India 1969
9. Dena Bank 1969 19. Vijaya Bank 1969
10. Indian Bank 1969
The major nationalized banks in India are State Bank of India (SBI), Punjab National Bank
(PNB), Bank of Baroda (BOB), Canara Bank, Union Bank of India and so on.

21. Crossing of Cheque

Chapter XIV containing sections 123 to 131 of the Negotiable Instruments Act, 1881 lay down
the provisions relating to crossing of cheques. Cheques may be classified into two categories
namely:-
(1) Bearer or open or counter cheques, and
(ii) Crossed cheques.
Bearer cheque can be encashed directly through the counter while the crossed cheque can be
cashed only through a bank account.

A crossed cheque is one which has two transverse parallel lines, marked across its face, with
or without the words 'and company' or any abbreviation thereof. Crossing is an instruction
from the drawer to the paying banker to pay the amount of a cheque through bank only and
not directly to the person presenting it at the counter.
Crossing may be hand-written, stamped, printed or perforated. Crossing does not effect the
negotiability of the instrument. Therefore, a crossed cheque is negotiable by delivery in case it
is payable to bearer and by endorsement and delivery where it is payable to order. A crossed
cheque can only be encashed through bank of which the payee of a cheque is a customer. The
holder of a cheque who has no account can also obtain the amount by endorsing in favour of
some person who has got an account with the banker. The relevant rules regarding the
crossing are given under sections 123 to 131 of N.1.Act.

22. Garnishee Order

When a creditor who has lent money fails to recover the money, he may file a suit against the
debtor and obtain a decree from the court for payment of the debt. Sometimes, the creditor
may not find any property in the possession or debtor for execution of decree. Yet, there may
be some person who is in possession of debtor's property. In such cases the creditor may
request the court to issue an order attaching the debtor's property in the hands of the third
party. If the court issues such order, such order is called 'Garnishee Order".
The word 'Garnishee' is derived from a Latin word 'garnir' which means to warn the third
party. Since it is a warning to the third party with regard to property of others in his hand, it is
named as gamishee order. Section 60 of the Code of Civil Procedure, 1908, lays down the
provisions relating Garnishee Order.
The banker has an obligation to honour his customer's cheques, and is liable for wrongful
dishonour. Similarly, the Banker has an obligation to stop payment by dishonouring his
customer's cheque, when he receives Garnishee Order against his customer's account.
According to section 60 of the Code of Civil Procedure, 1908, debts due to a judgement debtor
by third parties are liable to attachment in execution of the decree of Civil Courts. Garnishee
Order is an order of the court, issued under Order XXI, Rule 46 of the Code of Civil Procedure,
1908, directing the banker to stop payment to a particular customer, whose name is
mentioned in the order.
When a debtor fails to repay his creditor, the latter (creditor) may apply to the court for the
issue of a Garnishee Order on the banker of his debtor. By Garnishee Order, the debtor's
account with the banker stands suspended and the debtor (customer) will not be allowed to
draw, though he has a credit balance The creditor at whose request, the order is issued is
called 'the judgement Creditor', the customer is called judgement debtor, and the banker
(debtor of the judgement debtor) is called "Garnishee".
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23. Lending facilities to agriculturists

NABARD is a single integrated organisation which looks after the credit requirements of all
types of agricultural and rural development activities. Providing financial support to banks for
increasing their credit facilities to agriculturists in the rural areas.
(i) Short-term Credit: It provides short-term credit facilities to state cooperative banks for
financing seasonal agricultural operations, marketing of crops, pisciculture activities;
production/procurement and marketing activities of weavers cooperatives, Production and
marketing activities of industrial cooperatives, financing individual rural artisans through
PACs, purchase and distribution of fertilizers, marketing activities etc.
(ii) Medium-term Credit: Medium term facilities are provided to St.CBs and RRBs for
converting short-term loans into medium-term loans. During 2005-06, NABARD sanctioned
total credit limit aggregating Rs. 13,099 crore as against Rs. 13,230 crore during 2004-05.

(iii) Long-term Credit: Long term loans are granted to State Governments.

24. Credit card system

A credit card is a card issued by a financial institution, typically a bank, and it enables the
cardholder to borrow funds from that institution. Cardholders agree to pay the money back
with interest, according to the institution’s terms. Credit cards are issued in the following
variety of categories: Standard cards, Premium cards, Rewards cards, Balance transfer cards,
Secured credit cards, Charge cards. Credit card users can reap cash, discounts, travel points,
and many other perks unavailable to debit cardholders.

25. Notice of Dishonour

Dishonour means, When a promissory note or bill of exchange or cheque is rejected by the
drawee for payment, then it amounts to dishonour of the instrument.
Dishonour is of two types: (i) Dishonour by non-acceptance and (ii) Dishonour by non-
payment.
(i) Dishonour by non-Acceptance (Sec. 91 of NI Act,1881): The following are the instances
which amounts to dishonour by non-acceptance.
(a) When drawee refuses to accept
(b) When drawee becomes incompetent
(e) When drawee gives qualified acceptance
(d) When drawee's present is excused.
(ii) Dishonour by Non-Payment: It is common for every instrument when any person in the
negotiable instrument fails to pay the money to the person entitled in it, then it amounts to
dishonour by non-payment. Whenever any negotiable instrument is dishonoured, a notice on
the part of that claimant is necessary. It is nothing but to warn the drawee or other persons for
its dishonour. So notice of dishonour should be served to the parties responsible in the
instrument.
Effects of omission to give notice: Sec. 38 and 35 of Negotiable Instruments Act, 1881
requires the notice of dishonour to the endorsee as well as endorser respectively without
which they are not responsible.
Mode of Notice: There is no proper procedure for Notices. It may be oral or in writing.
Only thing required here is the information should reach the responsible person.

26. Safety Deposit Locker

The safe-deposit locker refers to a bank locker that is rented out to the depositors of a bank.
The bank maintains it for periodic rent, usually collected annually. It is used to keep valuables,
important documents, and keepsakes locked under security.
Safety deposit locker is an individually protected container of a metal material. It is a part of
the safe or vaults of a bank that is insured. They are designed to endure natural disasters, such
as fires, floods, cyclones, or earthquakes. When customer rent out a safe deposit locker with
the bank, a key is given to access the locker. Also, the banker holds a second 'guard key' to the
locker box. With the technological adoption in recent times, a keyless system, such as
biometric and access cards, have been introduced in the banking system.
Coming to the things that one can store in a safe deposit box would be something that is hard-
to-replace or precious belongings. These include documents, such as contracts and business
papers, physical stock and bond certificates, jewellery, small collectables, and family
heirlooms.
 13

Bank vaults are guarded by video cameras and burglar alarms. Items kept in a safe deposit
locker are protected from water and fire damage as well. It is vital for people who are not
comfortable storing their things in the digital environment.

27. Promissory Note

Section 4 of the Negotiable Instruments Act, 1881 defines promissory note as "an instrument
in writing (not being a bank note or currency note) containing an unconditional undertaking,
signed by the maker to pay a certain sum of money only to, or to the order of, a certain person,
or to the bearer of the instrument". In short, it is called 'Pronote'.
The promissory note contains a promise or undertaking to pay a certain sum of money. The
Act does not prescribe any particular form for a valid promissory note, but it is essential that it
must satisfy the requirements of Section 4 of NI Act, 1881.
Essentials of Pronote:
(i) The promissory note must be in writing;
(ii) It must contain a promise/undertaking to pay certain sum of money;
(iii) The promise must be unconditional and certain;
(iv) It must be duly signed and delivered by the maker;
(v) The parties must be certain;
(vi) It must be stamped according to the provisions of the Stamp Act, 1940.
Specimen format of promissory note contains- Place, Date, Sum barrow amount, rate of
interest and promise on demand as I, promise to pay Sri. Narayana Swamy or order the sum of
Rupees Twenty Thousand only for value received with interest at 12 per cent per annum. And
duly affixed revenue stamp and signed by who execute the pronote.

28. Holder in due course

A holder in due course is in a privileged position and has a good title, though the transferor has
a defective title.
According to section 9 of the Negotiable Instruments Act, 1881 'holder in due course' means
any person who for consideration became the possessor of a promissory note, bill of exchange
or cheque, if payable to bearer, or the payee or endorsee thereof, if payable to order before the
amount mentioned in it became payable (and without having sufficient cause to believe that
any defect existed in the title of the person from whom he derived the title).
Example: When a person has obtained a negotiable instrument by theft of fraud or for an
unlawful consideration, the title of the person having such possession is defective. If he
transfers it to a holder in due course, the title of the holder in due course is good. If he further
transfers, such transferee's title also is good. Therefore, according to section 36 of the
Negotiable Instruments Act, every prior party to a negotiable instrument is liable thereon to a
holder in due course until the instrument is duly satisfied (prior party in the sense, maker of
promissory, drawer of bill of exchange or cheque, the drawee or acceptor of a bill and
endorsers of the instrument)
Conditions: A person to be a holder in due course, the following conditions are to be satisfied.
(i) He must have received the instrument for a valuable consideration.
(ii) The instrument should be obtained before its maturity.
(iii) The instrument should be complete and regular on its face.
(iv) He should have taken the instrument in good faith (without the knowledge of defective
title).

29. Forgery
Forgery is the false making or materially altering of records with intent to defraud, of any
writing which if genuine, might apparently be of legal efficacy or the foundation of legal
liability. Forgery is a false making of any writing instrument for the purpose of fraud or deceit,
including every alteration of or addition to a true instrument. In the nutshell can say that
forgery is the fraudulent making or alteration of any record, deed writing, register, stamp,
instrument etc.
Forgery in banking sector has been in existence from centuries and become a big business.
Over the years, forgery in this sector has been known and increasing day by day due to
increase in number of private and foreign banks i.e. increase in number of branches, increase
in number of employees, increase in volume of business, increase in customers and spread
of operation. Increase in banking sector has given rise to the white collar crime through
forgery done by the employees of the bank or by the outsiders or by financial institution.
There is a contractual relationship between banker and customer and bank is held liable for
 14

any fraudulent transaction. Bank must take remedial measure for prevention and detention of
forgery. The fraud, forgery is generally found in exchange of services rely on information and
technology and the absence of physical bank branches to provide these services to the
customers. Forgery has been defined under section 463 of Indian Penal Code 1860, Section
464 of Indian Penal Code 1860 defines making of a false document and Section 465 of Indian
Penal Code provides punishment for committing forgery.

30. Sans Recourse endorsement

The word ‘endorsement’ under the Negotiable Instruments Act means, the writing of one’s
name on the back of the instrument (cheque) or any paper attached to it with the intention of
transferring the rights therein. The person who effects an endorsement is called an ‘endorser’,
and the person to whom negotiable instrument is transferred by endorsement is called the
‘endorsee’.
‘Sans recourse’ endorsement is an endorser may be express word exclude his own liability
thereon to the endorser or any subsequent holder in case of dishonour of the instrument. Such
an endorsement is called an endorsement sans recourse (without recourse). Thus ‘Pay to
A or order sans recourse, ‘pay to A or order without recourse to me,’ are instances of this type
of endorsement. Here if the instrument is dishonoured, the subsequent holder or the indorsee
cannot look to the indorser for payment of the same. An agent signing a negotiable instrument
may exclude his personal liability by using words to indicate that he is signing as agent only.
The same rule applies to directors of a company signing instruments on behalf of a company.
The intention to exclude personal liability must be clear. Where an endorser so excludes his
liability and afterwards becomes the holder of the instrument, all intermediate endorsers are
liable to him.
Example: A is the holder of a negotiable instrument. Excluding personal liability by an
endorsement without recourse, he transfers the instrument to B, and B endorses it to C, who
endorses it to A. A can recover the amount of the bill from B and C.

31. Innovation in banking Sector

Innovation enables banks to Meet changing customer expectations. Streamline internal
processes. Maintain their market share. In banking sector various innovations in banking and
financial sector are ECS, RTGS, EFT, NEFT, ATM, Retail Banking, Debit & Credit cards, free
advisory services, payments of utility bills, fund transfers, internet banking, telephone
banking, mobile banking, selling insurance products, issue of free cheque books, travel
cheques and many more value added services which reduce the customers efforts in paying
cash to different parties. This also created an intense competition among the banks as result
this banking sector are trying to redefined the concept of the entire banking system. The banks
are looking for new methods to attract and to retain the customers and gain competitive
advantage over their competitors.

32. Customer
The expression 'Customer' in the simple sense means, one who transacts himself with the
bank subject to certain terms and conditions as imposed by the Banker. In other words, a
person, who maintains an account with the bank may be regarded as customer. The term
'customer of a bank' has not been defined in the Banking Regulation Act, 1949 or any other
Act. By the term it is generally understood or mean an account holder of a bank. But this
general understanding of the term has been qualified by banking experts and judgements of
law courts. Hence, there is no satisfactory definition for the term "customer". However, some
attempts were made to define the term 'customer' as:-
According to Dr. Hart, "a customer is one, who has an account with a banker or for whom a
banker habitually undertakes to act as bank". According to him, a single transaction is
sufficient to constitute a customer. Therefore, to constitute customer, the following two
conditions are to be satisfied:
(a) He must open an account with the Bank to have a dealing with the Bank;
(b) The nature of such dealing must be in form of a banking transaction.
The Kerala High Court in Central Bank of India Ltd, Bombay vs. Gopinathan Nair & others, AIR
1979 Ker. 74, has laid down: "Broadly speaking, a customer is a person who has the habit of
resorting to the same place or person to do business. So far as banking transactions are
concerned he is a person whose money has been accepted on the footing that the banker will
 15

honour upto the amount standing to his credit, irrespective of his connection being of short or
long standing."
In this very sense the statement in the question has been made that "to constitute a customer
there must be some recognizable course or habit of dealing in the nature a regular banking
business."
A customer of a bank need not necessarily be a person/individual. An individual, a group of
individuals (joint account), a firm, a company (private or public ltd.) or Government can
become, a customer of a bank by opening an account with the banker.

33. Dishonour of Cheque

A cheque is said to be honoured if the banks give the amount to the payee. While, if the bank
refuses to pay the amount to the payee, the cheque is said to be dishonoured. In other words,
dishonour of cheque is a condition in which the bank refuses to pay the amount of cheque to
the payee.
Whenever the cheque is dishonoured, the drawee bank instantly issues a ‘Cheque Return
Memo’ to the payee banker specifying the reasons for dishonour. The payee banker provides
the memo and the dishonoured cheque to the payee. The payee has an option to resubmit the
cheque within three months of the date specified on the cheque after fulfilling the reason for
the dishonour of the cheque.
Moreover, the payee has to give notice to the drawer within 30 days from the date of receiving
the “Cheque Return Memo” from the bank. The notice should state that the cheque amount will
be paid to the payee within 15 days from the date of receipt of the notice by the drawer.
However, if the drawer fails to make a fresh payment within 30 days of receiving the notice,
the payee has the right to conduct a legal proceeding against the defaulter as per Section 138
of the Negotiable Instruments Act.

Reasons for Dishonour of Cheque

1. If the cheque is overwritten. Know ‘How to write a Cheque’
2. If the signature is absent or the signature in the cheque does not match with the specimen
signature kept by the bank.
3. If the name of the payee is absent or not clearly written.
4. If the amount written in words and figures does not match with each other.
5. If the account number is not mentioned clearly or is altogether absent.
6. If the drawer orders the bank to stop payment on the cheque.
7. If the court of law has given an order to the bank to stop payment on the cheque.
8. If the drawer has closed the account before presenting the cheque.
9. If the fund in the bank account is insufficient to meet the payment of the cheque.
10. If the bank receives the information regarding the death or lunacy or insolvency of the
drawer.
11. If any alteration made on the cheque is not proved by the drawer by giving his/her
signature.
12. If the date is not mentioned or written incorrectly or the date mentioned is of three
months before.

34. Account of Partnership Firm

When two or more persons (subject to a maximum of 10 in Banking and 2 in non-banking)
carry on business to share profits and losses equally or in proportion of capitals, it is called
'Partnership business'. The Indian Partnership Act, 1932 defines partnership as "the relation
between the persons who have agreed to share the profits of the business carried on by all, or
by any one of them acting for all." The persons are called 'Partners' and the business is called
'Partnership Firm'. In partnership, the liability of partners is unlimited.
Features of Partnership: The following are the essential features of a partnership firm.
(i) The existence of written or implied agreement to do lawful business.
(ii) To share profits.
(iii) Dual role of every partners as principal and agent.
(iv) Partner's implied authority to bind all other partners by his conduct in the ordinary
course of the business.
(v) The maximum number of partners is 20 and the minimum number is 2.

35. Bankers Right to stop accounts

Apart from the obligations, the banker has certain rights also. Following are the major rights
that a banker can exercise on his customer.
➢ Right of Lien
 16

➢ Right of set-off
➢ Automatic right of set off
➢ Right of Appropriation
➢ Right to charge interest
➢ Right to charge service charges
The banker has the right to set off the accounts of its customer. This enables a debtor (Bank) to
set off a debt owed to him by a creditor (customer) before the latter recovers a debt due to
him from the debtor. Banks can merge two accounts in the name of the same customer and set
off the debit balance in one account with the credit balance in the other. But the funds should
belong to the customer.
The right of set-off can be exercised only if there is no agreement express or implied that is
divergent to this right. It can be exercised only after a notice is served on the customer
informing the customer that the banker is going to exercise the right of set-off. To be on the
safe side bankers must take a letter of set-off from the customer authorizing the bank to
exercise the right of set-off without giving him any notice.

36. Pay order

Pay to order describes a check or draft that must be paid via endorsement and delivery. Pay-
to-order instruments are negotiable checks or drafts that are generally written as "pay to X or
pay to the order of X." The name entered here indicates the specific person, group, or
organization that the payer authorizes to receive the money. Pay-to-order instruments stand
in contrast to pay-to-bearer instruments, which do not require an endorsement.

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