JAIIB - LAST MINUTE JAIIB LEGAL IMPORTANT::
☑ 1. As per section 26 of the Negotiable Instruments Act, a Minor can draw, endorse, accept a negotiable instrument but he can not : bind himself
☑ 2. A has granted Irrevocable Power of Attorney in favour of B for one year. After 3 months, A revokes the Power of Attorney. A cheque signed by B is presented for payment_ What will you do? The cheque will not be paid because POA can be withdrawn before maturity and once it is revoked, no cheque signed by agent can be debited to account of Principal
☑ 3. What is the Doctrine of Ultra Vires in the context of a limited company?: Any act by the directors beyond the object of the company is considered ultra vires the company and company is not bound by such act.
☑ 4. A minor who was admitted to the benefits of partnership has become major. Within how much period, he has to decide to remain partner in the firm or not?: within 6 months of attaining majority or 6 months of knowing that he is the partner in the firm whichever is later.
☑ 5. If on a cheque words "Account Payee" is written between two parallel lines or with the name of a bank, then: the cheque can not be endorsed.
☑ 6. Which type of crossing is required to be done if the drawer wants that in case of endorsement, the title of transferee of the cheque should not be better than the title of the transferor: Not Negotiable Crossing
☑ 7. In the case of dishonour of a cheque due to insufficient funds, for enforcing rights under section 138 of the Negotiable Instruments Act 1881, the holder should send a notice to the drawer within: 30 days from the date of receipt of notice regarding dishonour of the instrument.
☑ 8. The Limitation period for filing case in case of dishonour of cheque due to insufficient funds is: 1 month from the date of cause of action.
☑ 9. Objectives for which a company has been formed are given in: Memorandum of Association
☑ 10. Full form of BCBS is Basel Committee on Banking Supervision.
☑ 11. Direct Impact of increase in CRR is : Controlling Liquidity
☑ 12. Banks can not issue Demand Draft payable to Bearer as per provisions of : Section 31 of the RBI Act
☑ 13. Grace Period is allowed in the case of : Usance Bills and Usance Promissory Notes
☑ 14. Indian Banks are required tomaintainminimumCapital AdequacyRatio of : 9%
☑ 15. In the case of individuals and HUF, tax will be deducted at source if the interest on term deposit in a financial year is : more than Rs 10,000
☑ 16. If Power of Attorney is executed outside India it should be stamped within:90 days of its first arrival in India
☑ 17. For its implementation, the complainant should accept the award given by Ombudsman within: 30 days of the receipt of the copy of the award.
☑ 18. When proceeds of cheque are given before clearance of the cheque the banker will be called: Holder for Value
☑ 19. In the case ofWrongful dishonour of cheque, towhomthe bank is liable?:Drawer
☑ 20. If date on a cheque is prior to the date of its presentation, it is called: Ante Dated cheque
☑ 21. What isminor's liability in HUF Account:Minor is not liable
☑ 22. When does the right of nominee starts in respect of a deposit account?: After death of all depositors
☑ 23. For injectingmoney in themarket which type of transaction is undertaken?: (a) Repo (b) ReverseRepo
☑ 24. RBI controlsmoney supply through: change in CRR
☑ 25. Loan given to a director can be waived: after ermission of RBI.
☑ 26. Under the Ombudsmen scheme, the Bank has to reply to the objection of the complainant within: one month
☑ 27. A post dated cheque is passed in the account of a customer. But another cheque which was in order was dishonoured due to insufficient funds. What is the liability of the Banker?: Bank is liable to the drawer for paying post dated cheque as bank is not justified in paying post dated cheque. The bank will be liable to drawer for damages on account of wrongful dishonour of cheque.
☑ 28. Which type of preferential shares are treated as part of Tier I capital of the Bank?: Perpetual Non Cumulative Preference Shares.
☑ 29. As per RBI guidelines, all banks are required classify business in various business segments with effect from 31-03-2008. The segments are: (a) Treasury (b)Corporate /Whole sale Banking, (c)Retail Banking, (d)Other Banking Business. The geographical segments are 'domestic' and 'international'.
☑ 30. Customer of your bank asks for cash payment of crossed DD. What would you do? Generally payment only through bank account. However, bank can pay after duly satisfying the genuineness of the draft and payee but bank will continue to be liable to true owner if recipient is not true owner.
☑ 31. A cheque is presented for payment in which the amount in words and figures is different. Bank
should pay which amount?: amount written in words will be paid.
☑ 32. Whether a Private Limited company can be a partner with Public Limited company to forma Partnership?Yes
☑ 33. In the context of Nomination, which is correct statement?:Signatures of nominee not required on nomination form. Nominee's name should be mentioned on FDR if agreed by the customer.
☑ 34. A bearer cheque of Rs.7,000/- was presented. The cashier informed that the cheque can not be passed as
the balance is less by Rs.700/-. The tenderer credited the amount of shortfall and the cheque was paid. Customer disputed the transaction. Whether bank is liable?: Yes. For disclosing balance to third party, bank is liable to account holder.
☑ 35. When an order passed by Banking Ombudsman is accepted by the complainant, the same should be complied within: 1 month from the date of receipt of acceptance from the complainant.
☑ 36. Penalty for delay is per day if information is not furnished within prescribed time under Right to Information Act: Rs. 250 per day with maximum being Rs. 25,000/
☑ 37. A crossed DD was paid by cash. What risk is there for the Bank: Bank will be liable to true owner of the DD if payment made to a person other than true owner (Section 129 of N I Act).
☑ 38. A cheque is written in English and Regional Language. Whether it can be paid?: Yes. A cheque written in different language can be paid if otherwise in order.
☑ 39. Who cannot become a partner in a firm as per Supreme court judgment HUF
☑ 40. Introducers liability / responsibility in case of an account holder defrauding Bank is : To assist the Bank in locating the a/c holder - does not have legal liability
☑ 41. Nomination -Minor can be a nominee.
☑ 42. Inoperative accounts: 2 Years&above not operated.
☑ 43. RTI Act - party seeking information need not disclose the reasons for which the information sought for.
☑ 44. Counterfeit notes returned after police verification, the same has to be preserved for 3 years subject to half yearly verification.
☑ 45. Validity period of cheque reduced to 3months from1.4.12 as per : RBI Guidelines under sec 35A of B R Act
☑ 46. Crossed cheque payment across the counter to the authorized Officer of collecting Bank - can be made and there are no violation as per NI Act. 255.
☑ 47. The consequence of non registration of Partnership - firm cannot sue others for its dues.
☑ 48. Banks are required to implement the award of Ombudsman unless a decision is taken to appeal against the same within one month from the date of receipt of acceptance of the award by the complainant.
☑ 49. Account holder A & B want to substitute their name with the name of their sons C & D in the account. What should the bank do?: Substitution of all names is not allowed. At least one of the original account holder should be retained in the account.
☑ 50. When only image of cheque is sent to the paying bank while sending cheque for collection instead of sending the physical cheque, the process is called: Cheque Truncation
☑ 51. A Cheque partly written in English &partly in regional language is presented for-payment What should the bank do?:May be paid, if otherwise in order and the language other than.English is the regional language of the area where the cheque is presented.
☑ 52. An authority has been granted in an account You have received information about the death of the Principal. Today, you receive a cheque signed by the agent which is dated prior to the death of the Principal.What should the bank do? : Cheque can not be paid as authority of agent comes to end with the death of the Principal.
☑ 53. You are maintaining current account in the name of the Trust.You receive notice of death of one of the trustees. After this notice, a cheque signed by the deceased trustee is presented for payment.What should the bank do?: Cheque may be paid, if otherwise in order.
☑ 54. As per Consumer Protection Act, the period for filing appeal to State Commission against decision of the District Forum is: maximum 30 days
☑ 55. Who can not be full fledged partner:Minor
☑ 56. Can Karta of HUF appoint Agent or delegate the powers to other co-parcener: Yes, he can do so.
☑ 57. Money deposited after receiving order may be attached in the case of: attachment order
☑ 58. Original & duplicate draft presented simultaneously for payment: Duplicate should be paid &
original should be returned.
☑ 59. Company has registered office at Delhi, factory at Kolkata & loan taken at Mumbai. For creating equitable mortgage title deeds can be deposited at: any notified city.
☑ 60. Reasons for avoiding advance to Un-Registered Partnership Firm: Firm can not sue against Any one for recovery of its debts but anyone can sue against the firm.
☑ 61. What is the effect of 'Not Negotiable Crossing'?: Transferee does not get better title than the transferor.
☑ 62. Payment of cheque can be stopped by: only Drawer of the cheque
☑ 63. Account payee crossing defined in:-Not defined anywhere
☑ 64. What is the current rate of interest paid on CRR?:NIL
☑ 65. How can be the transferability of Bill of exchange can be restricted? Bymaking restrictive endorsement
☑ 66. If on a Bill-of Exchange, two parallel lines are drawn and not negotiable is written between the lines,what kind of the crossing will be there: Provisions relating to crossing are not applicable to Bill of Exchange.
☑ 67. Within priority sector,what is the allocation to weaker section?: 25%
☑ 68. Maximum time with in which reply must be given under Right to information act? 30 days
☑ 69. What is the status of Nominee? Trustee of Legal heirs
☑ 70. Safe deposit vault is governed by provisions of: Transfer of Property act
☑ 71. A cheque signed by agent has been presented after his death for payment. What should the bank do?: The cheque will be paid if otherwise in order.
☑ 72. Purpose of star series notes: To replace defectively printed notes
☑ 73. Customer-bank relationship in locker account: Lessee-Lessor
☑ 74. Uptowhat amount District forumcan be approached under Consumer ProtectionAct?: Rs.20 Lacs
☑ 75. Appeal against the award of Ombudsman can be made by the bank within: 30 days of receiving the acceptance from the complainant.
☑ 76. Cheque issued by director of a company and presented after his death will be: Passed if in order
☑ 77. What would be the action of central bank in recession?: create liquidity by decreasing CRR and lower the repo rate.
☑ 78. Ante dated cheque like cheque dated 15.12.07 is presented for payment on 1.1.08 whereas_____ the account was opened on 20.12.07 : Cheque should be passed
☑ 79. If amount in words and figures differ on a cheque and amount written in words is higher than the amount written in figures, then as per sec.18 of NI Act, which amount should be paid?: amount written in words
☑ 80. Nomination facility is not available in the case of : Trust A/c.
☑ 81. customer service Committee meeting held on :Monthly basis
☑ 82. A person wants to open a joint account with his wife in such a way that the account can be operated by him only during his lifetime and she should be able to operate the account only after his death. The account has to be opened with the instructions: 'Former or survivor
☑ 83. For wrong ful dishonour of the cheque the bank is liable to: the drawer of the cheque
☑ 84. Banks print cheque books having similar particulars. The format of cheque is prescribed by which Act : Not defined in any Act. It is as per practice. CTS 2010 advised by RBI
☑ 85. Which crossing takes away the feature of assumption of defective free title available to the transferee : Not negotiable crossing
☑ 86. Who is appointed to tackle public complaints against the public authorities : Ombudsman
☑ 87. The facility of nomination is not available to Trust account because it is account : Non-individual (facility of nomination is available only in the case of individual(s).
☑ 88. The true owner of a cheque has been deprived of his right by collection of the cheque for a different person. This is called Conversion
☑ 89. As per recent RBI/Govt. guidelines, pensioners can open account jointly with: spouse, to be operated as either or survivor or former or survivor.
☑ 90. While paying a bearer cheque, signatures are obtained on the back side of the cheque. Why ? : As evidence of payment
☑ 91. Whether Minor can nominate ? no. On his behalf nomination will be done by a person legally competent to act on his behalf.
☑ 92. Cheque is dated before date of its presentation is called: Antedated cheque
☑ 93. An endorsement inwhich endorser excludes his liability is called : sans recourse
☑ 94. When a company is financed against the security of hypothecation ormortgage of its movable property, the company is required to file particulars of charge with: Registrar of Companies
☑ 95. Who is called as Holder as per N I Act?: Who is entitled to possession of the instrument in his own name (actual possession is not necessary).
☑ 96. If a cheque is dishonoured due to insufficient funds, then as per section 138 of N I Act, court may award imprisonment up to: 2years
☑ 97. On the face of a cheque, the name of a bank is written without two parallel lines. This will amount to : special crossing
☑ 98. A/c payee crossing is defined in : it is not defined in any Act. It is as per practice
☑ 99. Nomination facility for deposit accounts is available under: 45ZA&45 ZB of the BR act
☑ 100. Maximum amount of deposit which a bank may ask while allowing locker facility to a customer: Advance rent for 3 years and locker breaking charges
☑ 101. Asolicitor has account in his name and in the name of his client.Garnishee order is received in the name of the solicitor.Whether the samewill be applicable in the name of client also: No because two accounts are not in the same right and same capacity.
☑ 102. Which of the following is not amaterial alteration? Changing bearer to order
☑ 103. A bill issued without consideration is called: Accomodation Bill
☑ 104. There is a joint account in the name ofA&B.Acheque is drawn byAbut the alteration in the amount is authenticated by B.Whether bank can pay the cheque: Yes provided the operation is either or survivor.
☑ 105. The term used for conversion or transfer of property derived from a criminal offense for the purpose of concealing, or disguising, the illicit origin of the property is called: Money laundering
☑ 106. In which of the following situations bank will not be a holder in due course?: When bank credits the account of the customer after receipt of funds on account of cheque sent for collection
☑ 107. The rate at which RBI rediscounts the usance bills of banks is called: Bank Rate
☑ 108. In the case of IPO, the company is required to allot shares ormake refund within: 30 days of the closure of the issue in case of fixed price public issues; 15 days in case of book built issues and 15 days in case of right issues
☑ 112. Bank can charge collection charges of not more than for_outstation cheques of Rs.10000 to Rs1 lac in saving bank:Rs.100
☑ 113. Which of the following cheques can not be paid by the bank? : A cheque on which signatures of drawer have been forged irrespective of the cleverness in forgery and though these appear to be same as that of the drawer.
☑ 114. FIU stands for : Financial Intelligence Unit (India)
☑ 115. Two cheques have been presented to you as paying banker.One is dated prior to opening the account and other is dated prior to issue of cheque book.What will you do as paying banker?: Both chequeswill be paid.
☑ 116. KYC and FIU in India are associated with: preventing money laundering
☑ 117. Articles of Association mentions: directors' powers
☑ 118. Garnishee order is not applicable on: (a)cash received after two hours of receipt of Garnishee order (b) amount received for safe custody (c) undrawn balances in cash credit accounts
☑ 119. A person having locker has expired. The nominee comes. A sealed cover is found. What will you do ? : It will be delivered to him as part of locker contents without opening the packet.
☑ 120. A bill was presented on 10.5.2005 and accepted on 12.5.2005. The bill was due for payment on 29.07.2005 and was returned. The last date for filing suit in this case is : 29.07.2008
☑ 121. A listed bank has to prepare and publish balance sheet on quarterly basis as per: SEBI guidelines
☑ 122. There are certain instruments defined as negotiable instruments under lawand certain instruments used as negotiable instruments as per practice.Which of the following is not a negotiable instrument as perNI Act: Dividend warrant
☑ 123. On repayment of_debt of a company, satisfaction of charge shbuld be filedwith ROCwithin: 30 days
☑ 124. A Trust Deed is silent about loans by the trust. The trustee approaches for a loan. Under these circumstances what should the bank do?: No loan can be raised
☑ 125. Which of the following un/under-stamped document can not be revalidated by paying penalty: None of these as all documents can be revalidated. (However, as per question Demand Promisory note cannot be revalidated).
☑ 126. A person of 65 years of age can not nominate which of the following persons: Trust
☑ 127. The aggregate limit for capital market exposure of a Bank is: 40 0/0 of net worth at the end of previous year
☑ 128. A minor approaches for a loan. Which type of loan can be given to him: loan can not be sanctioned
other than for necessities.
☑ 129. Which of the following does not match in banker/customer relation : Locker facility - Bailee/Bailor
☑ 130. Committee on Procedures and Performance Audit of Public Services (CPPAPS) was headed by: S.S. Tarapore
☑ 131. Customer service code has been mentioned in : Banking Codes and Standards Board of India.
☑ 132. Cheque received in clearing signed by whom will not be passed out of the following: signed by a person who has ' been declared insolvent.
☑ 133. Whether a customer can approach Ombudsman without first approaching the Bank : Approaching the bank first is a pre-condition.
☑ 134. In case a forged note is detected in the cash tendered at bank counter, what should the bank do?: The Note should be impounded and not returned to the tenderer.
☑ 135. If a guardian is appointed by court, minor will become major at the age of: 21 years
☑ 136. A Cheque with forged signatures is presented for payment and is paid. Bank will be liable to:Customer (Drawer of the cheque)
☑ 137. Protection is available to the collecting banker in case of : Crossed cheques
☑ 138. Which is not a General Crossing: Name of a bank written between two parallel lines
☑ 139. If time is not mentioned on a Bill of Exchange, it will be payable: on demand
☑ 140. In an account of Club with you, cheque has been been presented for payment signed by the secretary who has died. What should the bank do?: It will be paid if it not dated subsequent to date of death.
☑ 141. Garnishee order is applicable for: credit balance in OD and not for cheque sent for collection.
☑ 142. Bank Guarantees are issued as per provisions of : Indian Contract Act
☑ 143. cheque truncation means: converting physical cheque to electronic image and stopping physical flow of a paper cheque. 660_ Foreign currency paid to taxi driver, shop keeper, can be accepted by:Authorised persons.
☑ 144. A bank cannot acquire either as owner or as pledgee shares in a company more than:- As per Section 19 of the Banking Regulation Act 1949, no bank can hold more than 30% of the paid up capital of a company or 30% of its own paid up capital and reserves, whichever is less, whether it is a pledgee, absolute owner or as mortgagee
☑ 145. For formation of a company, Registrar of Companies will issue : certificate of incorporation
☑ 146. Co is in liquidation, funds are at the disposal of : Liquidator
☑ 147. Guardian appointed by will of the father is called: testamentary guardian
☑ 148. Which of the following documents does not constitute document of title to goods:Airway bill
☑ 149. DD can be revalidated within: any time (practice may differ In different banks)
☑ 150. Which crossing is a Special Crossing : Name of Bank is written in the cheque with or without parallel lines
☑ 151. Supervision of banks is done by RBI under which act: RBI Act / BR Act / Jilani Committee Report / NI Act: Banking RegulationAct
☑ 152. A minor is aged 15 years, who is illiterate. Which type of self operated a/c can be opened -SB/ RD /FD none
☑ 153. Which of the following can open SB a/c? State Electricity Board/ Indian Bank Association/Municipal corporation: Indian Bank Association.
☑ 154. In a Flying club, the Secretary&Treasurer are authorized to sign.ACheque is presented for payment across the counter. In between it has been informed that Secretary has died,what youwill do? :Will be paid, if otherwise inorder
☑ 155. Revival of limitation for recovery of a time barred loan is possible by: obtaining fresh promise to
pay under provisions of Indian Contract Act.
As per Supreme court decision,HUF cannot be a partner because:HUF is not a natural or legal person
☑ 156. As per Prevention of Money laundering Act, preservation of records relating to closed accounts upto: 5 yr from date of closure of account.
☑ 157. Banks can provide information about the customer to another Bank: General in nature, without any responsibility
☑ 158. Board of Directors want to borrow money in excess of paid up capital and reserves of the company: can be done through a resolution passed by shareholders in the general meeting
☑ 159. Other than a Bill of exchange or promissory note, the document which was executed abroad is required to be stamped on its arrival in India within: 3 months of its arrival
☑ 160. Administrator is appointed in case of: to realize assets and pay off liabilities of a person who has died without writing a will.
☑ 161. Under Ombudsman scheme, which type of case not entertained?: advocate representing the customer
☑ 162. Which of the following is not a valid cheque for payment by the bank-l)different ink & handwriting 2) cheque with prior date 3) cheque with impossible date 4) Mutilated cheque:- Mutilated cheque
☑ 163. The liability of the drawer of bills of exchange is prime till it is not accepted by the drawee after that prime liability becomes of Drawee.
☑ 164. Whether Pvt Ltd. Co. can be partnerwith Partnership Firm: Yes
☑ 165. Counterfeit note received at the counterwhat to be done?: Impound the currency note.
☑ 166. No noting on currency note, directions issued byRBI under section 35Aof BR Act.
☑ 167. Cross cheque can be paid at counter if presented by other bank.
☑ 168. Payments of a forged draft.Who will lodge FIR paying or collecting bank: Paying Bank.
☑ 169. Borrowing powers of board of directors are contained in: Articles of Association
☑ 170. Locker can be broken open after notice to the hirer if the same is not operated for:more than three years for mediur-n risk category or one year for a higher risk category, and the locker-hirer does not respond nor operates the locker.
☑ 171. If a complainant is not satisfied with the award or his complaint is rejected by the Banking ombudsmen, he can prefer an appeal to DeputyGovernor, RBIwithin: 30 days of the of the date of receipt of communication regarding award or rejection of the complaint.
☑ 172. In case ofwrongful dishonour of cheque, bank is liable to: account holder only
☑ 173. Who can seek information under.Right to InformationAct:Any citizen of India can ask for information
☑ 174. The Garnishee Order is applicable on the account of a customer when the relationship between banker customer is: Debtor & Creditor.
☑ 175. A private limited company with Registered office at Bangalore has raised loan from a branch located at Mumbai. For creating equitable mortgage, title deeds can be deposited at: Mumbai, Kolkatta, Chennal or any other notified place.
☑ 176. A cheque is presented for payment in which amount in figures is mentioned as Rs 10,000 where as the amount inwords is mentioned as Rs Ten lakh only. In terms of section 18 of the NI Act,what should the bank do?: The amount written in words should be paid.
☑ 177. When a letter is signed by the borrower and based on that letter bank delivers the document of title to goods to the borrower, such letter is called as: Trust Receipt
☑ 178. How much charges are charged in addition to normal collection charges and out of pocket expenses for providing instant credit facility for outstation cheques:Nil
☑ 179. A limited company has registered office at Chennai whereas loan has been raised from bank branch at Mumbai. The charge will be registered with the ROC at: Chennai
☑ 180. A partnership firm conducting business other than the banking business has more than 20 members as partners. Whether this is allowed?: Such association is called illegal association as per Companies Act
☑ 181. Under Prevention of Money Laundering Act, banks are required to send cash transaction report in respect of cash deposit or withdrawal of more than Rs 10 lakh in a month from one account within: 15 days from the close of the month.
☑ 182. Who is primarily liable on Bill of exchange which has been accepted?: Acceptor (Drawee) of the Bill.
☑ 183. A cheque crossed specially to a bank is presented by the same bank to paying bank for cash payment. What should the paying bank do? Bank can make cash payment.
☑ 184. Who can make nomination in the deposit account of a minor?: Guardian on behalf of the minor.
☑ 185. Who can be a nominee?: Only an individual
☑ 186. If a depositor dies, payment to nominee or legal heirs should be made within: 15 days of completion of formalities.
☑ 187. What is the relationship between bank and customer if he has left certain goods with the bank by mistake: Bank is trustee and Customer is beneficiary
☑ 188. Appeal against the award of the Banking Ombudsman can be made to Deputy Governor, RBI within days of the receipt of copy of award from the Ombudsman: 30 days
☑ 189. A cheque was dishonoured despite sufficient balance in the account. The bank will be liable to:Drawer of the cheque and not to the payee.
☑ 190. Maximum amount of fine under section 138 of N I Act for dishonour of cheque due to insufficient funds is: twice the amount of cheque.
☑ 191. Bearer uncrossed cheque can be paid to whom: To the bearer
☑ 192. On, other than a negotiable instrument, what is the time period for payment of stamp duty, if the ocument is executed outside India : 3 months
☑ 193. May I help you counter is to be provided by bank branches other than : Small branches
☑ 194. In case of a jointly operated joint account, the nominee can obtain payment, when : none of the account holder is alive
☑ 195. A bank branch receives a counterfeit note of Rs.500, which customer wants back. What the bank should do : Impound the currency note, but No credit of full amount to customer.(No credit to customer’s account is to be given for counterfeit notes) Master Circular DCM(FNVD)G - 4/16.01.05/2017-18 dated July 20, 2017
☑ 196. When rate of interest is expressed by adjusting the impact of inflation, this is called : Real rate of Interest
☑ 197. Banks can ask for deposit of advance rent on hiring a locker for a period up to : 3 years
☑ 198. The crossing on a cheque is required to be can celled.Who can do so: Drawer
Note: if any thing wrong answer correct yourself with revelvant RBI guide line
All Banking LEGAL Points You must know
Legal Aspects of Banking
1. NI Act, BR & RBI ACT
Definitions
The Negotiable Instruments Act is applicable in whole of India including J&K. The Act came
into force w.e.f. Mar 01, 1882. Latest amendment was in Dec 2015. Total sections in NI Act
are 147.
As per Section 13 of the N I Act, NI means and includes promissory note (PN), bill of
exchange (BoE) and cheque.
Promissory Note, Bill of Exchange, Cheque & DD are negotiable instruments as per NI Act
Negotiable Instruments as per Section 137 of Transfer of Property Act: Documents of title
to goods such as Railway Receipt, Bill of Lading, Warehouse Receipt, Dock warrant,
Wharfinger certificate etc.
Negotiable Instruments as per practice and usage: Treasury Bills, Certificate of Deposit,
Commercial Paper, Govt. Promissory Note.
Documents which are not negotiable – FDR, life insurance policy, currency notes, bank
notes, postal orders, NSCs, airway bill, letter of credit etc.
Features of Negotiable Instrument: (i) it is freely transferable and (ii) the title of the
transferee will be better than the transferor if the transferee took the instrument for value
and in good faith under circumstances when he did not have suspicion about any defect in
the title of the transferor. Such a transferee is called holder in due course and is defined in
Section 9 of the Act.
Promissory Note: defined in Section 4 of N I Act. It 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 only to, or to the order of, a certain person, or the bearer of
the instrument. There are two parties in a PN i.e. promisor and promisee or maker and
payee. Currency notes and bank notes are not promissory notes as per sec 4.
Bill of Exchange: defined in Section 5 of N I Act. 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. In a Bill of Exchange, the person ordering for payment is called Drawer and the
person directed to pay is called Drawee. The beneficiary is called payee. If a Bill is lost,
holder can obtain duplicate of the same as per section 45A of N I Act.
Cheque: defined in Sec 6 of NI Act. It is a bill of exchange but always payable on demand
and drawee is always a banker. Thus, a cheque is similar to a Bill of Exchange. Further, any
bill which is payable on demand and in which drawee is a banker will be called cheque. The
definition includes cheques in electronic form and truncated cheques.
Demand & Usance PN or BOE: The promissory note or bill of exchange can be payable on
demand or after some time. If no time is mentioned then the same will be treated as
Demand promissory note or Demand Bill of Exchange. If these are payable after sometime
called as Usance PN or BOE.
Bearer or Order: A negotiable instrument can be payable to bearer or order. If neither bearer
nor order is written it is treated as payable to order. If both bearer or order are written it is
treated as payable to bearer.
On demand bearer instruments: As per Section 31 of RBI Act, 1934, no person other than
Central Government or Reserve Bank of India or any other person authorized in this behalf
can issue bearer promissory notes and a demand bill of exchange payable to bearer.
Presumption of N I: As per Section 118 of N i Act, N I is presumed to be (i) made, drawn,
accepted, endorsed and negotiated or transferred for consideration (ii) executed on the date
appearing on the instrument and (iii) every holder is a holder-in due course (iv) every
transfer of Nis was made before maturity.
Inchoate instrument: defined in section 20 of the NI Act. It is an instrument on which date,
payee or amount is not mentioned. It can be completed by the Holder and the completion
will not be treated as material alteration. An instrument without signatures is not treated as
an instrument at all.
Ambiguous instrument: defined in Section 17 of N I Act. An instrument which can be
treated as Bill of Exchange or Promissory Note is called as Ambiguous instrument. Holder
can treat it PN or BOE as per his discretion.
Holder: defined in section 8 of the NI Act. Holder of a promissory note, bill of exchange or
cheque means any person entitled in his own name to the possession, thereof and to receive
the amount due thereon from parties thereto.
Holder in Due Course: defined in Section 9 pf the NI Act. Holder in due course is a person
who became possessor of a NI for valuable consideration, in good faith, before becoming
due, and without having any reason to believe that the person transferring the instrument
was not entitled thereto.
Transfer of a Negotiable Instrument and Endorsement
Transfer of a Negotiable instrument: by assignment (under Transfer of Property Act) or by
Negotiation (under NI Act).
Negotiation of a Bearer instruments: A bearer instrument is negotiated by mere delivery and
no endorsement is required.
Negotiation of an order instrument: An order instrument can be negotiated by endorsement
followed by delivery. Legal heirs cannot complete the negotiation of a negotiable instrument
with endorsement by the deceased merely by delivery.
Endorsement: Signing of an instrument on the back or face thereof or on a slip of paper
annexed thereto for the purpose of negotiation is called endorsement (Section 15). The
person who transfers the instrument is called endorser and the person to whom it is
transferred is called endorsee. Endorsement can be done by drawer, holder, payee.
Blank Endorsement: In a blank endorsement the endorser just signs his name without
indicating endorsee. It can be converted into full by writing name of a person above
signatures. The effect of an endorsement in blank is that it makes an instrument dawn
originally payable to order to bearer instrument for the purpose of negotiation which can be
further negotiated by mere delivery.
Endorsement in Full: When, the endorser indicates the name of the endorsee it is called full
endorsement.
Sans Recourse Endorsement: An endorsement in which endorser excludes his liability is
termed 'sans recourse' or without recourse endorsement. In case of dishonour of
instrument, the amount can’t be recovered from such endorser.
Facultative endorsement: An endorsement in which endorser waives the notice of dishonour
is called Facultative endorsement. But this is not applicable to other parties to the
instrument.
Restrictive endorsement: An endorsement which restricts further right of negotiation is
called as restrictive endorsement. For example if it is written in the endorsement as "Pay to
Hari for my use" it is restrictive endorsement.
Conditional Endorsement: When along with endorsement, condition is imposed by endorser.
For example, pay to C on completion of studies. Paying bank not to ensure compliance of
condition. Condition binds endorser and endorsee only.
Back to Back Endorsement: An endorsement in which the endorser himself becomes
endorsee is called as back to back endorsement and in such a case, the endorsee can
recover the amount only from parties prior to his own endorsement.
Negotiation Back: When the drawer of a cheque himself becomes endorsee, it is called
"Negotiation Back" and this cheque is treated as satisfied.
Partial Endorsement: The endorsement can be made only for full amount but in case part
payment has been received and a note to that effect is made on the instrument, then the
same can be endorsed for the balance amount.
Regular endorsement: Which appears to have been made by holder. Paying bank gets
protection u/s 85(1) of N I Act only when endorsement is regular even though it may not be
genuine.
PAYMENT OF CHEQUES:
Protection to paying banker: A paying banker gets protection under Section 85 of the NI Act.
In case of order cheques, protection is available under section 85(1) and for bearer cheques
it is available under section 85(2) of NI Act. In the case of drafts it is available under section
85A.
As per section 85(1) of the Act a paying banker is discharged by payment in due course of a
cheque payable to order and which purports to be endorsed by or on behalf of payee. It
means paying banker is concerned about regularity of endorsement and not its genuineness
or forgery.
As per section 85(2) of the NI Act, a bank will be discharged of its liability by making
payment in due course of a cheque payable to bearer if the payment is made in due course
notwithstanding any endorsement. If the cheque is endorsed, the bank is not required to
take note of any such endorsement. Thus as per section 85(2), 'Once a bearer always a
bearer' Payment in due course is defined in Sec 10 of the Act and means (i) payment is
accordance with the apparent tenor of the instrument (ii) in good faith and without
negligence (iii)to any person in possession thereof (iv) under circumstances which don't
afford a reasonable ground for believing that the-is not entitled to receive payment of the
amount therein mentioned.
Payment of a cheque: While making payment of a cheque, bank is required to take certain
precautions.
(a) Form of the cheque has not been given in the Act. It is simply as per practice.
However, RBI has prescribed format at centres where cheque truncation has started. RBI
has prescribed the new cheque standards "CTS-2010.
(b) Different ink: A cheque can be drawn in different inks, handwritings or different
scripts. Thus, a cheque presented with different ink, handwriting or script can be paid.
(c) Language: The cheque should be written in Hindi, English or Regional language. Bank
is within its powers to return a cheque written in a language other than the language of
that region.
(d) Signatures on Back: When a cheque is presented for payment signatures of the
presenter are taken on the back as a witness of payment. if the presenter refuses to
sign, the bank can take receipt on a separate paper.
(e) Date: Ante dated: A cheque dated prior to its date of presentation is called ante dated
cheque and can be paid within 3 months from the date of issue. Post dated cheque
means a cheque which is dated subsequently to the date of presentation. Both antedated
and post-dated cheques are valid in law. A postdated cheque can be passed only
on the date written on it or within 3 months thereof. The drawer may further reduce
validity and can revalidate the cheque any number of times. Impossible Date: A cheque
with impossible date like 31.11.10 should be paid on the last day of the month or within
3 months of the last day of the month. Cheque dated prior to opening the account: A
cheque dated prior to the date of opening the account or issue of cheque book can be
paid if otherwise in order.
(f) Amount: (i) The amount should be written both in words and figures. (ii) Amount in
words is called legal amount and amount written in figures is called courtesy amount.
(iii) As per Sec 18 of the NI Act, if the amount written in words and figures differ, the
amount written in words will be the amount intended to be payable. (iv) If the balance in
the account is just equal to the amount of the cheque, the cheque will be paid. (v) If the
balance in the account is insufficient to pay the cheque, it should not be paid relying on
the - balance in some other account or transferring the amount from other account
unless there is an arrangement to that effect. (vi) If number of cheques are presented at
the same time and the balance is not sufficient to pay all the cheques, then normally
priority is given to cheques favouring revenue authorities, then to cheques favouring
public authorities. If balance is left, maximum number of cheques should be passed
taking care that cheque of very small amount is not dishonoured.
Banking hours: As per section 65 of the Act, presentment for payment of a cheque must
be made within banking hours. If a cheque presented after banking hours is paid, it will
not be a payment in due course. However, the payment of a reasonable amount can be
made to drawer even after banking hours. Further, the presentment should be within
banking hours. Actual payment may be even after banking hours. Mutilation: if there is
any mutilation of cheque, it should be confirmed by drawer.
Material alteration: (i) Any change in date, amount or name of payee is called material
alteration. (ii) The change from order to bearer, or cancellation of crossing or converting
special crossing to general crossing is also material alteration. (iii) However, bearer to
order or crossing a cheque or converting general crossing to special crossing is.not
material alteration. (iv) If there is any material alteration on a cheque it can be paid only
after confirmation from drawer. In the case of joint accounts with "either or survivor"
clause any of the account holders can confirm material alteration. (v) The confirmation
should be under full signatures as per specimen signatures (vi) With effect from 1st Dec
2010, in case of clearing houses where image based cheque truncation has started,
cheques with material alteration will not be acceptable even if the same has been
authenticated. This rule does not apply to change in date. (vii) Under Section 89 of the
NI Act, 1881 paying banker gets protection in case of payment of materially altered
cheques if the alteration is not apparent at the time of payment and payment has been
made in due course.
Payee: If the payee is fictitious person then the cheque can be paid to bearer if it is
payable to bearer but if the cheque is payable to order, it can be paid only to the drawer.
Forged signatures: (i) if there is a forgery in the signatures, such an instrument is null
and void. Paying banker will not get protection if it pays such a cheque even though the
drawer might have been careless in custody of the cheque book or bank might have sent
statement of accounts and the customer did not point out the mistake. (ii) However, if
the cheque has been signed by the drawer himself but in a different fashion, the banker
will not be liable.
Crossing: (a) General Crossing: if a cheque or a draft bears across its face addition of two
parallel transverse lines with or without addition of words 'and company' or any
abbreviation thereof, it is called General Crossing (Section 123). (b) General Crossing is a
direction to the paying banker to pay the cheque/draft through some bank. (c) Even if the
name of a city is written between two parallel lines like "Indere'', it will continue to be a
general crossing and the cheque can be paid to any bank. Such cheque can be paid at any
station to a bank and not necessarily at indore. (d) Special Crossing: When a cheque/draft
bears the name of a bank across its face with or without two parallel transverse lines either
with or without the words 'not negotiable', it is said to be specially crossed (section 124). (e)
As per section 126, A cheque with special crossing can be paid only to the named bank or
his authorized agent for collection. (f) A cheque crossed to two banks has to be returned
unpaid unless crossed by one bank to another as his agent for collection (Section) 27). (g)
For special crossing, two branches of a bank are considered as same bank. The special
crossing is in favour of a bank and not in favour of a particular branch. Hence a cheque
favouring PNB Bhopal, can be paid to a branch of PNB at any other place also. (h) For special
crossing it is not necessary that the cheque should bear two parallel lines. The Act does not
restrict the payment of a crossed cheque to the banker in cash.
Applicability of provisions relating to Crossing: Provisions relating to crossing are
applicable to cheques and drafts only and not to Promissory Notes or Bill of Exchange.
Therefore, if any Bill or Promissory note is having addition of two parallel lines or name of a
banker, it does not have any effect.
Who can cross a cheque: The Crossing can be done by drawer, payee or holder or a banker.
Account payee crossing : (i) Account payee crossing is not recognised by law but is a long
standing practice amongst bankers. (ii) It is .a direction to the collecting banker. (iii) Such a
cheque can be collected for credit of the named payee and cannot be endorsed.
Not negotiable crossing takes away an important characteristic of negotiability. A cheque
with Not negotiable crossing remains freely transferable and can be endorsed. But a person
taking a cheque crossed generally or specially bearing in either case 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 (Section 130). Nobody will be a holder in
due course of a cheque bearing Not Negotiable Crossing. However, paying bank will pay the
cheque in normal course.
Cancellation of crossing can be done by drawer only under his full signatures by writing the
words crossing cancelled. In such cases, the payment is made in cash to a person known to
the bank.
Under Section 128 of the NI Act. The paying banker is will get protection in respect of
crossed cheques or drafts provided the instrument has been paid in accordance with the
requirement of the crossing and payment has been made in due course.
As per Section 129 of the N I Act, if a banker pays a cheque in violation of the crossing
direction, it will not be a payment in due course and bank shall be liable to the true owner
of the cheque for any loss he may sustain owing to payment of the cheque.
Others
a) Instruments returned unpaid should have a signed / initialed objection slip on which a
definite and valid reason for refusing payment must be stated.
b) When cheque valuing rupees one crore and above drawn on a particular account of the
drawer is dishonoured on four occasions during the financial year for want of sufficient funds
in the account, no fresh cheque book should be issued.
c) The payment of cheque should not be made in case of (a) death, insolvency, insanity of
customer or insolvency of partner or firm or liquidation of company (b) stop payment (c)
receipt of garnishee/attachment order (d) post dated and (e) stale cheque.
d) However, payment of a cheque signed by agent can be made in case of death of agent,
trustee, director of a company, office bearer of society if cheque is dated prior to date of death.
e) Cheque signed in representative capacity can be paid if it is not dated prior to date of
authority.
PROTECTION TO BANKERS
85-1 Paying banker protected by payment in due course of order cheque that bears regular
endorsement. Genuineness of endorsement is not to be ensured by the paying bank.
85-2 Protection to paying banker in case of a bearer cheque. Endorsement on a bearer
cheque to be ignored.
85-A Protection to paying banker in case of Bank drafts.
89-Protection to paying bank for materially altered instrument when alteration not visible.
128- Protection for payment in due course of crossed cheques.
131 - Protection to collecting bank for crossed cheques subject to compliance of conditions
COLLECTION OF CHEQUES
Protection to Collecting Banker:
Under section 131 of the Act a collecting banker gets protection for collection of cheques
and under section 131A for collection of drafts.
The protection is against risk of conversion i.e. illegal interference with rights of true owner
of the instrument inconsistent with his right of ownership.
Such protection is available to the banker when: (i) the cheque/draft is crossed (ii) the bank
receives the payment for its customer (iii) the bank acts as agent for collection and not
holder for value (iv) it receives the payment in good faith and without negligence.
To get protection as a collecting banker the bank must ensure that there is no negligence
involved. Examples of negligence could be opening of accounts without proper introduction,
ignoring 'not negotiable or 'account payee' crossing, collecting cheques payable to firm, Ltd
Co, Trust, Institutions in the personal accounts of partner, director, trustee or the office
bearer.
DISHONOUR OF CHEQUES DUE TO INSUFFICIENT BALANCE
Section 138 to 142 deals with bouncing of cheques and these provisions are equally
applicable for dishonor of electronic funds transfer instructions as per provisions of
Payment and Settlement Systems Act 2007.
Liability of drawer: The drawer of a cheque which is returned unpaid due to insufficiency of
funds, is deemed to have committed criminal liability under Section 138 to 142 of NI Act
1881. He can be prosecuted. The pre-requisites for prosecution are as under;
The cheque has been issued to discharge a liability. (gift cheque will not fall in the
framework).
The cheque should be presented within validity period
Cheque is dishonoured for insufficiency of funds.
The holder should give notice to drawer within 30 days of his receiving information,
demanding payment.
The drawer can make payment within 15 days of the receipt of notice. If he fails to do
so, prosecution could take place.
The suit is to be filed within one month of the cause of action (period can be extended
by the court if there is sufficient reason for not making the complaint within such
period). By another presentation of the cheque, a new cause of action can arise, if
drawer fails to pay. (sec 142).
No court inferior to that of Metropolitan Magistrate or Judicial Magistrate of 1st class will
try the offence.
Place to file suit – where payee (holder) or drawer maintains the account.
Punishment – imprisonment may extend up to 2years or fine up to twice the amount of
cheque or both. All offences are compoundable (Sec 147). In case of compounding court can
impose a fine up to Rs.5000.00/imprisonment up to 1 year.
Mode or service of summons – The summons can be served by speed post or by authorized
courier services and if not accepted, will be treated as duly served.
BILL OF EXCHANGE
Demand Bill: A bill of exchange payable on demand or at sight or on presentment is called
Demand Bill.
Usance Bill: A bill of exchange payable after some time is called Usance Bill.
Documentary bill is one which is accompanied by document of title to goods like railway
receipt, bill of lading, etc.
Clean bill: is one which is not accompanied by any document of title to goods.
Inland bill: is one which is drawn or made in India and is either payable in India or on a
person6. Foreign bill: is one which is not an inland Bill i.e. it is drawn outside India or if
drawn in India is payable outside India on a person resident outside India. Foreign Bills are
issued in more than one part.
Accommodation Bill: means a bill issued without consideration and dealing in such bills is
called kite flying
Interest Rate: if in a bill of exchange or promissory note, interest rate is not mentioned, it
will be 18% p.a.
CALCULATION OF DUE DATE
Usance bills should be presented for acceptance within a reasonable time.
As per section 105, reasonable time means as per usage and practice of the area.
The drawee is allowed 48 hours excluding public holiday to accept the bill.
If a Usance bill is payable after date, its due date is calculated from date of the bill and if it
is payable after sight, its due date is calculated from the date of acceptance.
As per section 22 of the N I Act, three days of grace are allowed in the case of Usance bills
and Usance promissory notes. But if the due date is fixed on a particular day or days of
grace are specifically prohibited, the same need not be given.
As per Section 25 of the Act, if a bill or promissory note matures for payment on public
holiday under NI Act, 1881 (Sunday or any day declared to-be public holiday by the Central
Government) it falls due on immediate next preceding business day.
If the period of usance is given in days, then the day from which due date is to be calculated
is excluded. Due consideration should be given to leap year in which February has 29 days
If the period of usance is given in months and there is no corresponding day in the month
in which bill matures, last day of the month is taken into account.
DISHONOUR OF A BILL
If the drawee does not accept the bill within stipulated period it is treated as dishonoured
by non acceptance. In such case, drawee will not be liable on the bill. In certain cases, such
bill is required to be presented to a person named in the bill called as Drawee in case of
need. If a bill after being accepted is not paid on due date, it is said to have been
dishonoured due to non payment.
Noting and Protesting: Under section 99 of the Act, when a promissory note or bill of
exchange has been dishonoured by non-acceptance or non-payment, the holder may get the
dishonour noted by a notary public upon the instrument within a reasonable time after
dishonour. If the dishonour is got certified from the Notary public, such certificate is called
a pretest.(Sec 100).
while noting and protest is optional in case of Inland bills, foreign bills of exchange must be
protested for dishonour when such protest is required by the law of the place where they
are drawn (Section 104). Noting and Protesting is done only in the case of dishonour of
demand or usance bills or promissory notes and not in the case of dishonor of a cheque.
A person accepting the bill to save the honour of a party to the bill is called "Acceptor for
Honour".
Liabilities of the parties: If a bill is dishonoured by non acceptance, then holder can recover
the amount from all prior parties except drawee. In this case, the drawer will be the
principal debtor. If a bill is dishonoured due to nonpayment (it means it was accepted), then
the holder can recover the amount from all prior parties including the acceptor of the bill
(previously called the drawee), In this case, acceptor (drawee) will be the principal debtor.
Stamping of a Bill: A demand bill need not be stamped but a usance bill is stamped as per
provisions of the Indian Stamp Act. The value of stamps on a usance bill or promissory note
depends on tenor and amount of the bill. However, if the usance period of a bill is up to 3
months, no stamp duty is levied if the bill is for genuine trade transaction and bank is a
party to the bill.
SUMMARY OF IMPORTANT SECTIONS OF NI ACT
Section 4 - Definition of Promissory note
Section 5 - Definition of Bill of exchange
Section 6 - Definition of Cheque including Electronic &Truncated cheque
Section 7 - Definition of Drawer, drawee, drawee in case of need, acceptor
Section 8 - Definition of Holder
Section 9 - Definition of Holder in due course
Section 10 - Payment in due course
Section 11 - Inland instruments
Section 12 - Foreign instruments
Section 13 - Definition of Negotiable instruments
Section 14 - Negotiation defined
Section 15 - Endorsement defined
Section 16 - Endorsements in blank and full
Section 17 - Ambiguous instruments
Section 18 - Amount in words and figures, if differs
Section 19 - Instruments payable on demand defined
Section 20 - Inchoate instruments
Section 21 - Instruments payable after sight
Section 22 - Maturity date of Promissory notes/bills of exchange; Days of Grace
Section 25 - Bill maturing on a holiday will be due on preceding business day
Section 26 - Capacity of the minor - A minor can draw, endorse and deliver and negotiate a
negotiable instrument so as to bind all parties except himself
Section 31 - Obligation of the Paying Banker to pay cheque
Section 51 - Who can negotiate?
Section 65 - Hours of presentment
Section 80 - Interest rate when no rate specified in the instrument will be 18%
Section 85(1) - Protection to Paying Banker for order cheques
Section 85(2) - Protection to Paying Banker for Bearer cheques
Section 85 A - Protection to Paying Banker for payment of drafts
Section 87 - Effect of Material Alteration
Section 89 - Payment of instrument on which alternation is not apparent; protection to banker
Section 99 - Noting of Bill of Exchange & Promissory Note
Section 100 - Protesting.of BOE & PN
Section 105 - Reasonable Time for Presentment etc.
Section 123 - General Crossing
Section 124 - Special Crossing
Section 125 - Who can cross
Section 126 - Effect of crossing
Section 128 - Payment in due course of crossed cheque
Section 129 - Payment of crossed cheque out of due course; liability to true owner
Section 130 - Not Negotiable Crossing
Section 131 - Protection to collecting banker
Section 138 - Dishonour of a cheque for insufficiency of funds
Section 139 - Presumption in favour of holder'
Section 140 - Defence not allowed in prosecution u/s 138
Section 141 - Offence by companies’ u/s 138.
Banking Regulation Act, 1949
The law relating to banking came into force on 16.03.1949 under the name of the Banking
Companies Act, 1949. W.e.f. 01.03.1966 its name was changed to Banking Regulation Act,
1949. Originally the Act was not applicable to the State of J&K. In 1956 it was made
applicable to J&K also.
The Banking Regulation Act, 1949 does not apply to primary agricultural credit societies,
cooperative land mortgage banks and non-agricultural primary credit societies with paid up
capital and reserves of less than Rs.1 lakh.
Section 5b: 'Banking' means the '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 order or otherwise. 'Demand Liabilities' means liabilities which must be
met on demand and 'time liabilities' means liabilities which are not demand liabilities.
Section 6: lays down the forms of business in addition to the business of banking in which
a bank may engage.
Section 7: prohibits use of words 'bank' banker' or banking company by a company other
than a banking company.
Section 8: prohibits trading activities for a bank except in connection with realisation of
security given to or held by it.
Section 9: a banking company cannot hold any immovable property, howsoever acquired
except such as is required for its own use, for a period exceeding 7 years from the
acquisition thereof. The aforesaid period of 7 years can be extended by RBI by a period not
exceeding 5 years where it is satisfied that such extension would be in the interest of
depositors of the banking company.
Section 13: payment of commission, brokerage, discount or remuneration in respect of any
shares by a banking company shall not be more than 2.5% of the paid up value of said
shares. (being changed as per Banking Companies Amendment Law Bill.
Section 17: a banking company is required to transfer to Reserve Fund 20% of the profits
before declaring dividend. As per current guidelines of RBI a scheduled bank is required to
transfer 25% of the profit before providing for bonus and declaring dividend.
Section 19(2): no banking company can hold shares in another company whether as
pledgee, mortgagee or absolute owner of an amount exceeding 30% of the paid up. share
capital of that company or 30% of its own paid up share capital and reserves, whichever is
less.
Section 20(a): banks cannot grant loan against security of their own shares.
Section 21:RBI can issue directive to banks for loan policy (purpose, margin, extent, interest
rate or other conditions).
Section 21A: Rate of Interest charged by banks are not subject to scrutiny of courts.
Section 22: Licence for Bank - obtaining of licence from RBI is essential.
Section 23: Branch licencing : RBI authority on branch licensing.
Section 24: banks are required to maintain Statutory Liquidity Ratio as prescribed by RBI.
Maximum SLR will be 40% of NDTL. As per amendment to Banking Regulation Act, the
condition of minimum SLR of 25% of NDTL has been removed. Thus, RBI has liberty to fix
minimum SLR.
Section 26: banking companies are required to submit a return of all deposit accounts
which have not been operated for the last 10 years. The return is submitted as on 31st
December and within one month
Section 35: Inspection of banks - RBI authorised to inspect banks and give directions, as
deemed appropriate. RBI has directed banks to round-off transactions to nearest rupee u/s
21 and Section 35.
Section 35A: RBI can issue directions to banks in public interest / banking policy.
Section 45 Y relates to power granted to Central Govt. to make rules for preservation of
records.
Section 45Z relates to return of paid instruments to customers after keeping a true copy of
all relevant parts of such instruments.
Section 45ZA to 45 ZF relate to nomination in deposits, safe custody and locker accounts.
Section 49A: Other than a banking company/RBUSBI, no person can accept deposits of
money withdraw able by cheque
Reserve Bank of India Act, 1934
Reserve Bank of India Act, 1934 came into force on 01.04.1935.
RBI was established on the recommendations of the Hilton Young Commission.
Section 2(e): Scheduled Bank means a bank whose name is included in the 2nd schedule of
RBI Act 1934
Section 4 : The capital of RBI shall be 5 crores of rupees.
Section 21: RBI has the right to transact Govt. business in India i.e. remittance, exchange,
keeping deposit free of interest etc.
Section 22: confers sole right on RBI to issue bank notes.
Section 24: RBI can issue bank notes of denomination of 2, 5, 10, 20, 50, 100, 500, 1000,
5000, 10000. Central Govt. may direct discontinuance or non-issue of bank note of any
denomination.
Section 26: Bank notes issued by RBI shall be legal tender and shall be guaranteed by
Central Govt.
Section 27 lays down that RBI shall not reissue bank notes which are torn, defaced or
excessively spoiled.
Section 28: RB1'can frame rules for refunding value of mutilated, soiled or imperfect notes
as a matter of grace.
Section 29: exempts RBI from stamp duty on Bank notes.
Section 31: prohibits drawing, accepting, making or issue of any bill of exchange, hundi,
promissory notes payable to bearer on demand except by Central Govt or RBI. Promissory
Note can’t be issued payable to _bearer even if it is payable after some time.
Section 33: lays down that assets of the issue department of RBI shall consist of gold coin,
gold bullion, foreign securities, rupee coins and rupee securities. The aggregate value of
gold coin, gold bullion and foreign securities held shall not at anytime be less than Rs.200
crore of which gold coin and gold bullion not less than Rs.115 crore
Section-42(1) deals with cash reserves ratio to be maintained by scheduled commercial
banks.
Section: 45-A to F - Empowers RBI to collect credit information. (Section 45-C — Return :
last Friday of Apr & Oct giving information on borrowers enjoying secured credit limits of
Rs.10 lac and above and-unsecured limits of Rs.5 lac and above). RBI also collects details
(1/2yearly March/Sept) of all doubtful, loss and suit filed accounts with aggregate
outstanding of Rs.100 lac and above and circulates the information amongst banks and
financial institutions.
Section 49 requires RBI to publish bank rate from time to time.
CASH RESERVE RATIO
Scheduled Commercial Banks are required to maintain CRR as per section 42(1) of RBI Act.
Banks are required to maintain certain percentage of Net Demand & Time Liabilities as cash
with RBI.
With effect from 1st April 2007, the RBI* can prescribe the Cash Reserve Ratio (CRR) for
Scheduled Commercial Banks without any floor rate or ceiling rate. Accordingly, there is no
minimum or maximum CRR as per RBI Act and RBI will fix CRR.
Banks are required to maintain the prescribed CRR based on their NDTL as on the last
Friday of the second preceding fortnight.
The actual balance on any day of the fortnight (14 days) may be more or less than the
required balance. However, cash balance with RBI on any day of the fortnight should not fall
below 90 per cent of the required average daily cash balance.
RBI will not pay any interest on the CRR balances with effect from 31st March 2007.
In cases of default in maintenance of CRR requirement on a daily basis, which is presently
90% of the total Cash Reserve Ratio requirement, penal interest will be recovered for that
day at the rate of three per cent per annum above the bank rate on the amount by which the
amount actually maintained falls short of the prescribed minimum on that day and if the
shortfall continues on the next succeeding day/s, penal interest will be recovered at a rate
of five per cent per annum above the bank rate.
RBI has prescribed statutory returns i.e. Form A return (for CRR) to be sent fortnightly
within 7 days and final Form A within 20 days.
STATUTORY LIQUIDITY RATIO
Statutory Liquidity Ratio is maintained as per section 24 of Banking Regulation Act.
RBI is free to fix minimum SLR. However, it can be increased to maximum of 40% of NDTL.
SLR can be kept in the form of (a) cash (b) gold valued at a price not exceeding the current
market price, (c) unencumbered approved securities valued at a price as specified by the RBI
from time to time (d) cash balance with other banks (e) excess cash balance with RBI.
For calculation of SLR, banks are required to send monthly statement on Form VIII under
Section 24 of the B R Act.
If a bank fails to maintain SLR on any day of the fortnight, RBI will charge penal interest for
that day at the rate of three per cent per annum above the bank rate on the amount of
shortfall. If the shortfall continues on the next succeeding day/s, penal interest will be
recovered at a rate of five per cent per annum above the bank rate.
TOOLS OF MONETARY CONTROL
CRR-Cash Reserve Ratio
Statutory Liquidity Ratio: it has three objectives - To restrict expansion of banks' credit to
increase banks' investment in approved securities. To ensure the solvency of banks.
Increasing SLR will have the effect of reduction in the lending capacity of banks by preempting
a certain portion of DTL for Govt. and other securities. It has therefore a
deflationary impact on the economy, not only by reducing the loanable funds but also by
increasing the lending rates in the face of increasing demand for bank credit. And vice-versa
when SLR is reduced.
Bank Rate - is the standard rate at which RBI rediscount BE or other eligible commercial
papers from banks. Bank Rate is tool used by the RBI to affect the cost-and availability of
refinance and to change the loanable funds of banks. Change in Bank Rate will affect the
interest rates on loans and deposits in the banking.
Open Market Operations (OMO):- are the sales or purchase of Govt. securities by RBI in open
market with a view to increase or decrease the liquidity in the banking system and thereby
affect the loanable funds of banks. The pricing policy under OMO cans 'also alter the
interest rate" "structure.
Selective Credit Control (SCC):-RE31 stipulates certain restrictions on bank advances against
specified sensitive commodities with the, objective of preventing speculative holding of
essential commodities.
Regulatory Restrictions on Lending:- as per RBI directives or the Banking Regulation Act are:
No loans and advances can be granted against the security of bank's own shares.
No bank shall hold shares in a company, 3.As pledgee or mortgagee in excess' of the limit of
30% of the paid-up capital that company or 30%of the Bank's pait-up capital + reserves
whichever is less.
In the management of which MD or Manager the Bank is interested.
Banks' aggregate investment in shares, CDs, bonds etc. Should not exceed the limit of 40%of
bank's net owned funds as on the previous year.
2. CUSTOMERS & THEIR ACCOUNTS
Banker Customer Relationship and Accounts of Customers
Banker Customer Relationship
Bank is one which conducts business of banking. Banking has been defined in Section 5 of
Banking Regulation Act. Customer is not defined in any Act. However, it is defined in KYC
norms. As per various court decisions, any person for whom bank agrees to open an account is
called as customer of the bank.
Various types of relationships
Type of Transaction Bank Customer
Deposit in the bank (CR balance in account) Debtor Creditor
Loan from. Bank (Debit balance in account) Creditor Debtor
Safe Deposit-Locker Lessor (Licensor) Lessee (Licensee)
Safe custody Bailee Bailor
Issue of draft (after issue of draft) Debtor Creditor
Payee of draft Trustee Beneficiary
Collection of cheque & Standing Instruction Agent Principal
Goods left negligently by customer Trustee Beneficiary
Purchase of cheque from customer Holder for value Endorser
Purchase/sale of securities on behalf of customer Agent Principal
Money deposited. No instructions for its disposal. Trustee Beneficiary
Pledge pawner (Pledgee) Pawner (Pledger)
Mortgage Mortgagee Mortgagor
Hypothecation Hypothecatee Hypothecator
Assignment Assignee Assignor
Banker's Obligations
There are two main duties of a bank i.e. (1) Duty to maintain secrecy of customer's account (ii)
Duty to honour cheques.
Duty to maintain secrecy:
A bank has duty to maintain secrecy of customer's account as per Implied Contract.
Moreover, as per Section 13 of Banking Companies (Acquisition and Transfer of
Undertaking) Act also, the bank is required not to disclose any information relating to
affairs of its customers.
The duty to maintain secrecy continues even after closure of account.
Balance in the account of an employee should not be disclosed to employer. Similarly
balance in the account of wife not to be disclosed to husband and vice versa.
If bank discloses customer's affair (e.g. in case of insufficient balance in the account
advising the presenter of cheque to deposit deficit amount), bank will be liable to customer
for resultant loss.
Exceptions to rule of secrecy:
Courts: As per Banker's Book Evidence Act, bank may be required to produce certified
copies of record in the court.
Police: Officer in charge of a police station may issue a written order for production of
documents in connection with trial or investigation. Police can even seize records against
proper receipt.
The information may also be required to be parted to inspector appointed to investigate
affairs of a limited company under section 235/237 or under FEMA.
Revenue Authorities: Bank may be required to produce to income Tax Authority, record
pertaining to transaction of a customer. However, roving enquiries should not be made
except in case of cash transactions of Rs 1 lac and above.
RBI: As per Banking Regulation Act or RBI Act, Reserve Bank may seek information from
bank.
Banking Practice: Banks have the practice of sharing information in general among
themselves. The information should be given in confidence and without any responsibility
on the part of supplying bank.
Consent of customer: For example, information is given to a Credit Information Company as
per express consent of customer.
To protect bank's interest.
Duty to honour cheques
As per section 31of N I Act, a bank is under obligation to pay cheques issued by customer
provided there is a sufficient balance in the account (ii) the cheque is otherwise in order (iii)
the funds are properly applicable i.e. not attached by Garnishee order or attachment order.
If a bank dishonour a cheque drawn by a customer despite satisfaction of aforesaid
conditions, bank will be liable to Drawer (and not to payee or true owner) for damages
suffered by him.
Banker’s Rights: Bank has three rights namely (i) Right of Lien (ii) Right of Set Off (iii) Right
of Appropriation
Right of Lien:
Lien is the right of creditor to retain possession of goods and securities belonging to the
debtor till the debts due to him (creditor) are paid. This right is available only on goods and
securities and not on balances in the accounts. Lien entitles retention of possession of
goads but the creditor cannot sell the goods.
Lien can be Particular lien (Sec 170 of the Indian Contract Act) or General Lien. Right of
General Lien, is available only to bankers, factors, wharfingers, attorneys (Section 171 of the
Indian Contract Act).
Banker's Lien is also a general lien but it is an implied pledge because the banker has right
to retain as well as sell goods of the borrower after giving him reasonable notice.
For exercising right of lien, (a) the goods or securities and debt should be in the same right
and same capacity (b) Loan should be due or overdue and lawful (c) Reasonable notice is
given.
Further, Right of Lien is available on the goods and securities received in the ordinary
course of business.
It is not available when the goods or securities have been deposited for a specific purpose;
goods received for safe custody or lying in safe deposit vault or goods left by the debtor
negligently.
However, in the case of loans against pledge of jewellery, bank can exercise right of general
lien on the ornaments left in the possession of the bank after adjustment of the jewellery
loan in case some other advance is outstanding.
Negative lien is a declaration from the borrower to the effect that securities/goods offered
as security are not encumbered and that the borrower will not create any charge over them
without bank's permission. This undertaking does not create any charge in favour of the
bank and therefore advance against negative lien are treated as dean advance.
Right of Set Off:
Set off is the right to combine two or more accounts having debit and credit balance.
It is not defined in any Act.
This right arises when two parties are debtor as well as creditor to each other i.e. one
account should be in debit and another account should be in credit.
In the case of banks, this right arises when wants to combine its loan due from a borrower
with his deposit accounts. For exercising right of set off following conditions should be
satisfied (i) Both accounts should be in same right and same capacity (ii) The debt should be
due and not accruing due. Reasonable notice should be sent to the depositor before
exercising set off.
Right of set off can be exercised even in case of loans which are time barred.
It can be applied on fixed deposit when it matures and not on FD which is not due as yet.
Similarly it can’t be applied for adjusting term loan or CC or overdraft which are regular
and not overdue. If a loan is in the name of an individual, set off can be exercised on credit
balance in his individual account and sole proprietorship account. Set off can not be
exercised on deposit accounts which are held jointly with other individuals, or partnership
in which the borrower is partner, or client account maintained by a solicitor or account of
minor under guardianship where borrower is the guardian or on the credit balance of a
trust in which borrower is trustee.
If loan is in joint names, set off can be exercised on credit balance in joint account as well
as credit balance in individual accounts of joint borrowers.
If loan is in the name of a partnership firm then set off can be exercised on credit balance in
the name of firm, partners and any other partnership firm which has just same partners as
are in the borrowing firm.
For exercising right of set off, all branches of a bank are considered as one.
Right of Appropriation
Section 59,60,61 of Indian Contract Act, deal with appropriation of payments.
Clayton's Rule is related to appropriation of payments. This rule is applicable in case of
death, insolvency, insanity of a joint borrower or partner or guarantor or retirement of a
partner or revocation of guarantee by guarantor.
Clayton's rule is applicable in case of running borrowal accounts like cash credit or
overdraft.
As per Clayton's rule, credit entry will set off debits in the chronological order of time. This
means that first item on the debit side will be discharged first by a credit and so on.
Garnishee Order
A Garnishee Order is an order issued by court under section 60 (Order 21, Rule 46) of the
Code of Civil Procedure, 1908. Through this order the court attaches the deposit of a
particular depositor with the bank. The bank upon whom the order is served is called
Garnishee. The depositor who owes money to another person is called judgement debtor
while the person to whom money is due is called judgement creditor.
The court first issues order Nisi requiring the bank to explain as to why the funds in the
account not be utilised to meet the judgement creditor's claim. After this order, the order
Absolute is issued directing the bank to freeze the entire balance or a portion of credit
balance in the account of the judgement debtor.
Upon receipt of Garnishee Order Nisi, the operation in the account are suspended, the bank
has to earmark desired balance in the account of the judgement debtor.
Garnishee Order applies to existing debts as also debts accruing due i.e. SB/CD/RD/FD.
Garnishee Order applies only.to those accounts of Judgement Debtor which have credit
balance.
The relationship between bank and judgement debtor is of debtor and creditor. Bank is the
debtor of Judgement Debtor who is a creditor of the bank.
Garnishee order does not apply to money deposited subsequent to receipt of Garnishee
order. It also does not apply to cheques sent for collection but yet to be realized. But if
credit was allowed in the account before realization with power to withdraw to customer,
GO will be applicable on this amount.
Garnishee order does not apply to unutilized portion of overdraft or cash credit account of
the borrower as no debt is due to judgement debtor.
Bank can exercise right of set off before applying Garnishee Order.
Garnishee order is-applicable only if both debts are in same right and same capacity.
Garnishee order issued in a single name does not apply to accounts in the joint names of
judgement debtor with other person(s). But if Garnishee order is issued in joint names, it
will apply to individual accounts also of the same debtors. When Garnishee Order is in the
name of a partner it will not apply to partnership account but when Garnishee order is in
the name of firm, accounts of individual partners are covered.
Garnishee Order can be served on Head Office of the bank and it can take reasonable time
to communicate the same to its branches, If amount is not specified in the order, then it will
be applicable on the entire balance in the account. However, if it is for specific amount, the
cheques can be paid from the balance available after setting aside the amount as mentioned
in the Garnishee order. Garnishee order is applicable on accounts of deceased persons but
not applicable if depositor declared insolvent.
Garnishee order not applicable on fixed deposit taken as collateral security.
Income Tax Attachment Orders
Income Tax Authorities issue Attachment Orders in terms of Section 226(3) of Income Tax
Act, 1961. On receipt of this order, banker is required to remit the desired amount to
income tax authorities. An order without mentioning the amount is not a valid order.
Attachment Order is different from Garnishee order in following respects (i) Attachment
order applies to money deposited in the account after receipt of order also till it is fully
satisfied whereas Garnishee order does not apply to subsequent deposits. (ii) Attachment
Order in single name applies to joint accounts also proportionately unless the contrary is
proved whereas Garnishee order in single name does not apply to joint accounts.
In case banker fails to comply with Attachment Order, it will be liable for the amount of
order and deemed as an assessee in default. However, right of set off is available to bank
before applying the order.
When both Garnishee order and Attachment Order are received simultaneously, priority
should be given to attachment order.
ACCOUNTS OF CUSTOMERS
Accounts of Minors
A minor is a person who has not attained the age of 18 years. A person will become major
at the age of 18 whether guardian is natural or appointed by a court of law.
There could be three types of guardians — natural, testamentary and legal guardian. The
guardian appointed by will is called Testamentary Guardian and the one appointed by court
is called legal guardian.
As per section 11 of the Indian Contract Act, 1872 a minor is not competent to enter into a
contract. A minor cannot ratify an agreement after attaining majority.
A minor cannot appoint an agent. However, a minor can be appointed as an agent and he
can make principal liable by his actions. A minor can’t delegate authority in his self
operated account.
Banks do not grant overdraft / loan to a minor, even if security is provided because a
contract with minor being void, the bank will not be able to recover the loan. Even when
loan has been raised on a term deposit in the name of a major person, his request for
addition of the name of the minor cannot be entertained. However, if loan is given for
necessity, it can be recovered.
If a minor misrepresents age for raising a loan bank cannot recover loan from him.
Loan given to a minor is guaranteed then bank cannot recover loan from guarantor.
According to Section 26 of NI Act, a minor can draw or endorse or negotiate a cheque or a
bill but he cannot be held liable on such cheque or bill. However, other parties will be liable
in their respective capacities.
A minor can’t appoint nominee. However, minor can be appointed nominee.
As minor does not incur any personal liability, he cannot be declared insolvent.
Minor as a partner: A minor cannot be partner in a partnership concern. As per Indian
Partnership Act, 1932 a minor may be admitted to benefits of partnership with the consent
of all partners. However, the liability of the minor partner will be limited to his share in the
business of the firm. On attaining majority, a minor has to give public notice within six
months of attaining majority or when it comes to his knowledge after becoming major
whichever is lesser, whether he wants to continue as a partner. If he chooses to become a
partner, he will be held liable as a partner from the date he has been admitted to the benefit
of the partnership firm and his profit sharing ratio will continue as it was existing before
becoming major.
In case of Hindus, father is the natural guardian of a Hindu minor boy or an unmarried girl
and after him, the mother. In case of a married Hindu minor girl, her husband is the natural
guardian. If the husband is minor or minor girl becomes widow, her father in law and after
him the mother in law will be the guardians. When guardian of a Hindu minor ceases to be a
Hindu he/she ceases to be natural guardian. Testamentary guardian will come into picture
only on the death of father as well as mother.
In case of Muslims, father is the natural guardian. A Muslim father can appoint a
testamentary guardian and even mother of a Muslim child can be testamentary guardian. If
the father dies without leaving behind a will, father's father i.e. paternal grandfather is the
guardian. On the death of paternal grandfather, the person appointed by the will of the
paternal grandfather will be guardian.
Accounts of a minor: A minor can have account under guardianship as well as self operated
account.
In the case of accounts under guardianship, the account will be operated by the guardian
during minority of the child and once the minor becomes major the debit in the account will
be allowed only with the consent of minor who has become major. If guardian dies during
minority, next guardian will operate the account. In case the minor dies, the balance in the
account will be paid to the legal heirs of the minor.
Minor's Account with Mother as Guardian: RBI has allowed mother to open and operate all
types of deposit accounts even though the father is alive.
A minor can open self-operated deposit account provided he has completed the age of 10
years and is literate. He cannot appoint nominee in this account. On his behalf nomination
will be done by a person legally competent to act on his behalf. Joint account is also allowed
in the name of two minors provided both are of 10 years of age, are literate, belong to the
same family and operation is jointly.
Minor's account can be a joint account with the guardian also. In jointly operated accounts
with minor, till attainment of majority by minor, guardian will sign for himself as well as on
behalf of minor When minor becomes major, account will be operated jointly by guardian
and minor who has become major.
A bearer cheque presented for cash payment by a minor may be paid as a minor can give a
valid discharge in the capacity of the payee.
Minor can obtain premature payment of FOR as he can give valid discharge but cannot raise
loan against security of FDR.
Joint accounts
Joint accounts can be opened with various types of operating instructions like Either or
Survivor, Joint Operation or Former or Survivor or Either or Joint or Survivor. The position
in such cases as under:
Either or Survivor (E or S): It means anyone can operate the account till both are alive. After
the death of either of them, the bank can pay the balance to the survivor without any
formality.
To be operated jointly: Account will be operated by both jointly till both are alive and, if one
of the two expires, the bank would pay the final balance to the survivor, along with all the
legal heirs of the deceased.
Jointly or by Survivors: Account can be operated by both / all the person jointly during their
lifetime and, in the event of death of any one, the balance is payable to the surviving
persons jointly.
Former or Survivor: Till the first named person is alive, the second named person has no
right to withdraw/operate the account. After the death of the first named person, the
payment will be made to second named person.
In case of "either" or "either or survivor" or "joint" operation any one of the account holders
can stop payment of the cheque. The revocation in case of either or either or survivor can
be done by either but in case of joint operation, revocation has to be done by all jointly. In
case of Former or Survivor accounts, stop payment of cheque can be done by Former and
revocation of stop payment can also be done by Former.
In case of "either of survivor" alteration on the cheque can be confirmed by any of the
account holders.
Any authority to a third party has to be with the consent of all joint account holders.
Joint accounts are joint property. Therefore, unless there is clear mandate in the account
opening form that anyone can undertake the following functions, these should be done by
all joint account holders jointly under signatures of all (a) opening the account (b) closure of
account (c) making or altering nomination (d) raising loan against term deposit (e)
premature payment of term deposit (1) addition or deletion of names.
In case of joint accounts with either or survivor instruction, if any of the account holders
becomes insane, the balance will be paid jointly to the account holders other than who has
become insane and guardian of the insane minor appointed by court.
In all types of joint accounts, Garnishee order issued in joint names will be applicable on
joint accounts but Garnishee order issued in the name of one of the account holders will
not be applicable on joint account.
Partnership Firms
As per section 4 of the Indian Partnership Act, 1932 partnership is the relation between
persons who have agreed to share the profits of a business carried on by all or any of them
acting for all.
Minimum partners: A partnership firm should have minimum 2 partners.
Maximum partners: As per Companies Act 2013, an association of more than 100 persons
which is not registered as Company or Society will be an illegal association. Therefore,
maximum number of partners can be 100. (As per Companies. Act 1956, maximum number
of partners could be 20 for any business other than banking and 10 for banking business).
In case of Limited Liability Partnerships, there is no limit on maximum number of partners.
Who can become a partner? Only a person competent to contract can become partner.
Minor, insolvent, insane cannot become partners A company and a firm can become partner
in another firm.
Who can’t become a partner?: HUF can’t become partner as per judgement of the Supreme
Court because HUF is neither a legal person nor a natural person and can’t be liable for
action of others.
Partnership Deed: Partnership can be oral or in writing. Therefore, banks do not insist on
partnership deed while opening accounts of a partnership concern.
Registration of Partnership: A partnership firm is registered with registrar of firms. Though,
it is not necessary that the firm be registered yet registration is, preferred because an
unregistered firm can’t sue others in its own name for recovery of its dues while others can
sue it in its name. Therefore, while granting loans banks prefer that the firm should be
registered one.
Implied authority of partner: As per section 19 of the Partnership Act, 1932, a partner of a
firm has implied authority to act on behalf of the firm for the normal business of the firm
and bind the firm. Alt actions of the partner in the ordinary course of business are actions
of all partners. However, in the absence of any usage or custom of the trade to the contrary,
a partner's implied authority does not cover '(a) admission of any liability in a suit against
the firm (b) withdrawal of any suit filed on behalf of the firm (c) acquire/transfer any
immovable property on behalf of the firm (d) submitting a dispute relating to the business
of the firm to arbitration (e) opening a bank account on behalf of the firm in his own name
(f) compromising on behalf of a firm (g) entering into partnership on behalf of the firm. But
if all partners agree for these issues—and authorize anyone in this regard, these jobs can be
undertaken by the said partner.
Liability of partner: As per section 25 of the Indian Partnership Act, 1932 every partner is
liable, jointly with all other partners and also severally, for all acts of the firm while he is a
partner. Thus, liability of a partner is unlimited. In case of Limited Liability Partnership, the
liability of partner is limited up to the amount agreed to be contributed by him.
Account of Partnership firm: For opening account of a partnership firm, all partners are
required to sign Account opening form except minor who is admitted for benefits of firm.
In Partnership accounts operation authority is given by all partners. Any change in the
operational authority is also with the consent of all partners including those who were
earlier not authorized to operate. Every partner including a sleeping partner has authority
to stop payment of a cheque issued by another partner of the firm. The revocation of stop
payment of cheque will be as per operational authority.
As per section 18, a partner is the agent of the firm for the purpose of business-of the firm.
Being an agent, he can't delegate his authority to an outsider without the written consent of
all other partners.
Death, insolvency, insanity of partner: On the death, insolvency or insanity of a partner, the
partnership is dissolved and operations are stopped. The cheques signed by the deceased,
insane or insolvent partner will not be paid. If the account is in credit, operations are
allowed for winding up of the firm. In such case operations are allowed on the basis of a
fresh mandate. It the account is in debit, operations in the account should be stopped to
retain liability of the deceased /insolvent partner or his/her estate and to avoid operations
of the Clayton's rule.
Limited Liability Partnership
Limited Liability Partnership is governed by Limited Liability Partnership Act 2008.
It is registered with Registrar of Companies. 3. Minimum number of partners is 2 but there
is no limit on number of partners. An individual or a 15-Ody coporate can be a member of
an LLP. Liability of partner is limited to the extent of his contribution in the firm. A partner
shall not be personally liable.
Accounts of Limited Companies
A limited company is an artificial person with perpetual succession incorporated under the
Companies Act.
Number of members: As per Companies Act 2013, in the case of a private limited company,
minimum number of members should be 2 and maximum number of members excluding
employees can be 200. For public limited company minimum number of shareholders
should be 7 and there is no ceiling on maximum number
Number of Directors: Minimum Directors in a public limited company should be three, in a
private limited company 2 and in One Person Company one. Maximum directors in all types
of companies can be 15. However, company may appoint more than 15 directors by passing
a special resolution. An individual cannot be director of more than 20 companies at one
time out of which public co should not be more than 10.
Shareholders are owners of the company, directors are agents of the company and
debenture holders are creditors of the company.
Documents for opening_ account: For opening account of a limited company bank should
obtain the following: Memorandum of Association: It contains name of the Company, its
authorised capital, registered office and liability of shareholders, objects of the company
etc. Anything done by the directors beyond the objects stated in the memorandum of
association is called ultravires the company and can't be ratified even in a general body
meeting. Directors can borrow only for the objects mentioned in the MOA. if any loan is
given for objects other than those mentioned in Memorandum of Association, company will
not be liable for such loans.
Articles of Association: lays down the internal working of the company like rights and
powers of the directors, rules of conducting meetings, borrowing power of directors etc.
Certificate of incorporation : It is equivalent to birth registration certificate of the company.
This is the most important document. A company does not exist without it. Certificate of
commencement of business: used to be issued by Registrar of companies. Earlier it was
required by public limited companies only. Now it is not required by either public limited
company or private limited company. Resolution of Board of Directors which is passed by
the Board of Directors authorizing opening and operation of the account by named officials
of the company. A copy of the resolution should be attested by its Company Secretary and /
or Chairman of the meeting at which resolution was passed.
While opening account of a limited company, no introduction is required as Certificate of
incorporation is sufficient for that purpose. However, KYC norms are required to be applied
on all persons authorized to operate the account of company.
As per doctrine of 'Constructive Notice' anybody dealing with company is assumed to have
knowledge of Memorandum and Articles of Association.
Operational Authority: The operational authority is decided by Board Resolution. Any
change in operational authority is also as per Board Resolution. Stop payment of a cheque
and revocation of stop payment will be as per operational authority. The directors can not
delegate their authority to any other person.
In case a director dies, the cheques signed by him presented for payment can be paid if
these are otherwise in order and are dated prior to his death.
Common Seal of the Company is to be affixed on documents as per Articles of Association
or Board Resolution.
Borrowing powers of Directors: The borrowing powers of company arise from Memorandum
of Association. The Borrowing powers of directors are given in the Articles of Association. If
it is not mentioned in Articles of Association, it is equal to paid up capital and reserves of
the company. The Board of Directors of a public limited company or a private limited
company which is a subsidiary of public limited company can't borrow in excess of its paidup
capital and free reserves. If the directors want to borrow more than the paid up capital
and reserves of the company, consent of the shareholders is required in the General Body
meeting.
Winding up of company: Winding up can be (a) voluntary (b) Compulsory by court (c)
through court supervision.
Registration of Charge
When to be registered: Under section 77 of the Companies Act, 1956, a charge other than
created by way of pledge or lien, by a company is required to be registered with Registrar of
Companies (ROC).
Modification: Whenever, there is a change in terms and conditions of the loan, then the
particulars of Modification of charge should be filed with the ROC.
Satisfaction: When loan is repaid, particulars of satisfaction of charge should be filed with
ROC , within 30 days of the satisfaction of charge.
ROC with whom particulars to be filed: The particulars of the charge should be filed with
the Registrar of companies in whose jurisdiction the Registered Office of the Company is
located.
Forms: For filing particulars of fresh charge, Form No. CHG 1 is required. Form used for
modification of the charge is same as that for fresh registration. For satisfaction of charge,
Form No. CHG 4 is to be submitted.
Period for filing particulars: Particulars of charge are required to be filed within 30 days of
creation of charge.
Extension of Period of Registration: ROC can grant extension of 270 days in filing
particulars of charge. The company will be required to pay additional fees not exceeding 10
times the specified fees. Beyond this period permission is required from Company Law
Board.
Duty to file particulars of charge: It is the primary duty of the company to get the charge /
modification of charge / satisfaction of the charge registered with ROC. However, if the
company does not get the charge registered, bank in its own interest can file particulars of
charge.
Consequence of non filing the particulars: In case the particulars of charge are not filed, the
bank becomes the unsecured creditor against the official liquidator.
Priority of charge: The priority of the charge is reckoned from the date of creation of charge
(i.e. date of documents) and not from the date of registration if the charge is registered
within the stipulated period.
Accounts of Hindu Undivided Family (HUF)
HUF is neither a legal person nor a natural person, It is not created by agreement. 1t is not
incorporated under any Act. It is from—a-eornmon ancestor and membership is by birth or
adoption. The eldest coparcener including daughter is the Karta and continues to be Karta
even when he/she lives outside India.
Operational authority to operate the account is with Karta. Karta can appoint any other
coparcener or third party to conduct business of HUF and/or operate the account. Co
parcener cannot stop payment of the cheque unless he is authorized to operate the account.
In case of death, insanity or insolvency of Karta, next senior most member of family
becomes Karta. The liability of Karta is unlimited while that of co-parceners is limited up to
their share in the firm.
Account of Trusts
Types of Trusts: Trusts can be of two types - private trusts where beneficiaries are certain
specified individuals or groups and public trusts where beneficiary is public at large. The
document creating a trust is called 'trust deed'. Public Trusts are registered with the Charity
Commissioner.
Operational Authority: The operation and other aspects of the bank account are to be
conducted as per the Trust Deed. Unless otherwise provided for in the trust deed, all
trustees have to operate the account jointly. Trustees can't delegate their powers to an
outsider even by mutual consent.
Loan to a trust: Unless specifically provided for in the trust deed, no trustee can raise loan
against the security of the assets of the trust. Loan should be for the objects as mentioned
in the Trust Deed.
On the death of a trustee, the trust property is passed on to the next trustee while in the
event of death of sole trustee or last surviving trustee, the court can appoint a trustee.
Death or insolvency of a trustee does not affect the trust property-and the bank can pay
cheques issued by the deceased trustee prior to his death.
Stop payment of a cheque and revocation of stop payment as per operational authority.
Account of Executors and Administrators
An executor is a person named by the deceased in his will to mange his estate whereas an
administrator is appointed by the court of law for the same purpose where the deceased
dies without leaving behind a will.
Executors and administrators are treated as one person. On opening a bank account,
therefore, executors/administrators can authorize any one or more of them to operate the
account. On the death of an executor or administrator, the surviving executor(s) or
administrator(s) can continue to operate the account unless otherwise provided for in the
will or letter of administration.
While opening the account of an executor, bank should obtain letter of probate, which is an
official confirmation of the will of the deceased by a court of law. For opening account in
the name of administrator(s), letter of administration is required which is issued by the
court of law.
Societies and Clubs
Societies and Clubs are non-profit making organizations.
These can be registered under Societies Registration Act 1860 with Registrar of Societies.
Societies can also be registered with Registrar of Companies under section 25 of Companies
Act which pertains to nonprofit making companies.
Documents to be obtained while opening the account: (i) Copy of Registration Certificate (ii)
Copy of Bye laws which contain rules and regulations (iii) Copy of resolution passed by the
Managing Committee which should include authority to open the account and operational
authority.
Cheques presented after death of Secretary or Office Bearer: Any cheque signed by the
Secretary of Club or Society or any other office bearer who is authorized to operate the
account and presented after his death can be paid provided if is otherwise in order and
dated prior to his death.
Mandate and Power of Attorney
When an account holder authorizes another person through a simple letter of authority, it is
called mandate. On the other hand, power of attorney is executed on stamped paper and
may cover any other transactions besides opening/operation of an account. Bank generally
accepts mandates. However, Power of Attorney is also acceptable. A mandate does not
require witnessing or stamping. On the other hand, power of attorney is stamped as per the
State Stamp Rules of the state where it is executed. It must either be registered with a
Registrar of Documents or attested by Notary Public.
The account holder can revoke mandate or power of attorney any time even if it is stated to
be irrevocable.
Any cheque signed by the agent and presented after cancellation of authority shall not be
paid irrespective of date on the cheque.
Any cheque signed by agent and dated prior to delegation of authority will not be paid.
Power of attorney or mandate is revoked by death, insanity, insolvency of the Principal. Any
cheque signed by the principal or agent presented after the death, insanity or insolvency of
the principal will not be paid.
In case Cheque issued by the agent is presented for payment after his death, insanity or
insolvency, the same can be paid provided the same is dated prior to the date of death or
insanity of the agent.
Death of a Customer and Settlement of Claims
In the case of death of individual customer, operation in the account should be stopped.
The person named in the will or probate is called Executor. When a person dies without
writing will, he is said as having dies intestate.
For making payment of balance in the account of deceased customer to legal heirs of the
deceased, Succession certificate is not mandatory for any amount.
While delivering contents of locker or safe custody, inventory should be prepared. If some
sealed packet is found in the locker of safe custody, it should be delivered as it is without
opening the same.
The claim should be settled and payment should be made within 15 days from the date of
receipt of completed papers.
If any credit is received in the account after death of customer, it should be credited to a
separate account in the name of customer with the permission of legal heir or nominee.
Otherwise it should be returned to remitter under intimation to the legal heir or-nominee.
Pre-mature payment of term deposit can be allowed but no loan can be allowed.
Interest in case of current account should be paid at Saving rate from date of death till date
of payment.
In case of term deposits, up to due date interest should be paid at contracted rate. For
overdue period. Interest should be paid at applicable rate on date of maturity if the death
was before maturity and at saving rate if the depositor died after maturity.
Nomination Facilities in Customers' Accounts
Nomination facility was introduced on the recommendation of Talwar Committee.
Nomination facilities are available in deposit accounts (Sec 45 ZA & 45ZB of Banking
Regulations Act), articles deposited for safe custody with the bank (Sec 45ZC & 45ZD) and in
locker accounts (45ZE & 45ZF).
Sections 45ZA, 45 ZC, 45ZE relate to nomination change in nomination and cancellation of
nomination. Sections 45ZB, 45 ZD, 45ZF state that bank will be discharged of liability by
making payment/delivery to nominee.
Where facility is available: All types of deposit accounts like SB, CA, FD, RD, NRE, FCNR(B)
and NRO.
Who can nominate: Individual, joint account of individuals or a sole proprietorship firm.
Who cannot nominate: Partnership firm, HUF, clubs/societies/limited companies/trusts. A
minor cannot appoint a nominee. On his behalf, nomination facility can be exercised by the
person legally competent to act on behalf of the minor.
Who can be nominee: Only an individual including minor. If nominee is a minor, the
depositor has to appoint a major person to receive deposit amount / articles in the safe
custody / locker etc. on behalf of the minor nominee.
Number of nominees: Deposit accounts — only one; Safe Custody — only one but if articles
are deposited by more than one person, nomination facility is not available; Safe Deposit
Locker – single names or in joint names with either or survivor instruction only one; Locker
in joint names with joint operation - more than one nominee (max 2).
When does the right of nominee start?: In case of joint accounts, right of a nominee starts
only after death of all depositors. The only exception is the nominee(s) in case of jointly
operated lockers.
Status of nominee: The status of nominee is just like trustee of legal heirs.
Legal Heir versus nominee: bank will make payment to the nominee unless there is a court
order to make payment to legal heirs. Bank gets a valid discharge by payment to nominee.
In case of term deposits, there is no need of fresh nomination in the case of renewal of FDR.
While making nomination, the thumb impression of the accountholder should be attested
by two witnesses. However, signatures of the accountholders in forms DA1, DA2 and DA3
need not be attested by witnesses.
In the case of accounts in the name of single persons, nomination must be obtained. If the
depositor does not want to nominate anybody, he should give in writing.
Banks should incorporate the legend "Nomination Registered' on every pass book or deposit
receipt. In addition to the legend "Nomination Registered", banks should also indicate the
name of the Nominee in the Pass Books / Statement of Accounts / FDRs, in case the
customer is agreeable to the same.
Nomination can be made any time. It can be cancelled and changed any time.
SETTLEMENT OF CLAIMS IN RESPECT OF MISSING PERSONS
As per the provisions of Section 108 of the Indian Evidence Act, presumption of death can
be raised only after a lapse of seven years from the date of his/her being reported missing,
As such, the nominee / legal heirs have to raise an express presumption of death of the
subscriber under Section 107/108 of the Indian Evidence Act before a competent court. If
the court presumes that he/she is dead, then the claim in respect of a missing person can
be settled on the basis of the same.
Banking Ombudsman Scheme 2006.
The Scheme was introduced in 1995 under Section 35A of Banking Regulation Act.
Scheme is applicable to all Scheduled Commercial Banks including private sector, public
sector, foreign banks, RRBs, Scheduled Co operative Banks throughout India including J&K.
Ombudsman is appointed by RBI. The appointment will be for 3 years at a time.
The Chief General Manager / General Manager of RBI can be Banking Ombudsman.
The expenses of the Ombudsman will be borne by RBI.
Scope: Complaints relating to deficiency in service in deposit, ancillary services, non
adherence of RBI guidelines on advances, credit card, internet banking, non-adherence to
the provisions of the fair practices code for lenders or the Code of Bank's Commitment to
Customers issued by the Banking Codes and Standards Board of India (BCSBI).
Period for filing complaint: if no reply is received from the bank within one month of
lodging the complaint with bank or reply received is not satisfactory. Maximum period is 1
year from the date of receiving the reply from the bank and 13 months from the date of
making the complaint to the bank if reply not received.
Ombudsman will not entertain a complaint where (a) case is pending in the court (ii) case
has already been decided by the court (iii) similar case has already been decided
Ombudsman.
The role of the Ombudsman is that of Arbitrator with mutual consent.
Amount of Award: actual loss suffered by the complainant subject to a maximum of Rs 10
lakh; In case of credit cards, up to Rs 1 lakh.
Period for acceptance: 30 days of receipt of the copy of the award.
Period for implementation by bank: 1 month of receipt of acceptance from the complainant.
Appeal: Complainant can file an appeal to the Appellate authority (Deputy Governor, RBI)
within 30 days of the of the date of receipt of communication regarding award or rejection
of the complaint. Bank may also file appeal with Deputy Governor, RBI within thirty days
from the date of receiving acceptance from complainant. Appeal may be filed by a bank
only with the previous sanction of the CMD or ED or CEO of the bank.
If the bank does not implement the award it should inform Customer Service Committee of
the Board and also give a note to this effect in the Annual Report of the Bank.
The Scheme does not include certain banking transactions, such as, failure to honour bank
guarantee or letter of credit and misbehavior of staff.
Other issues relating to Customer service
Banks should submit a statement of all the complaints received at the Head Office /
Controlling Office level/branch level. However, where the complaints are redressed within
the next working day, banks need not include the same in the statement of complaints.
Delays in Cheque Clearing: For local cheques credit and debit shall be given on the same
day or at the most the next day of their presentation in clearing. Timeframe for collection of
cheques drawn on state capitals / major cities / other locations to be 7/10/14 days
respectively. If there is any delay in collection beyond this period, interest at the rate
specified in the Cheque Collection Policy of the bank, shall be paid.
Customer Committees: Branch level committees include their customers including senior
citizen. The Branch Level Customer Service Committee may meet at least once a month.
Cheque Drop Box: Both the drop box facility and the facility for acknowledgement of the
cheques at the regular collection counters should be available to customers and no branch
should refuse to give an acknowledgement if the customer tenders the cheque at the
counters. Banks should invariably display on the cheque drop-box itself that "Customers
can also tender the cheques at the counter and obtain acknowledgment on the pay-in-slips".
The above message should he displayed in English, Hindi and the concerned regional
language of the State.
Code for Banking Service: Salient features
Changes in Fees & Charges: If bank increases any of charges or introduce a new charge, it
will be notified one month prior to the revised charges being levied / becoming effective.
Changes to Terms and Conditions: (i) normally, changes will be made with prospective
effect giving notice of one month. (ii) If any change is made without notice, bank will notify
the change within 30 days. If such change is to customer's disadvantage, customer may
within 60 days and without notice, dose account or switch it without having to pay any
extra charges or interest. Bank will immediately update on its website, any changes in the
terms and conditions.
Chapping customer's account: (a) If customer is not happy about choice of current / savings
account, within 14 days of making first payment into the account, he can switch to another
account or Bank will give customer's money back with any interest it may have earned. If
customer decides to close his current/savings account, Bank will close account within three
working days of receiving customer's instructions.
Savings/Current Accounts: Bank will inform of any change in minimum balance to be
maintained 30 days in advance.
Consumer Protection Act
Consumer Protection Act was implemented with effect from April 15, 1987. The Act is not
applicable in J&.K.
A complaint can be filed by the consumer, voluntary consumer association, Central or State
Government.
Objective: to address consumer's grievances against deficiency in the quality of goods or
services for consideration.
Limitation period for lodging the complaint is 2 years from the date of cause of action.
The Forum operates at three levels i.e. District, State or National. For claims up to Rs 20 lac,
complaint will be lodged with Distt. Forum, for claims over Rs 20 lac up to Rs 100 lac with
State Commission and for claims more than Rs 100 lac with the National Commission.
Admissibility of complaint to be decided within 21 days of the receipt of complaint;
decision within 3 months without analysis and within 5 months with analysis.
Appeal from one forum to another can be made within 30 days of the order. For making
appeal against decision of District Forum to State Forum, amount to be deposited is 50% or
Rs 25,000 whichever is less, to National Forum it is 50% or Rs 35,000 whichever is less and
for making appeal against decision of National Commission to Supreme Court the amount
to be deposited is 50%or Rs 50,000 whichever is less.
Punishment for Frivolous complaint: Imprisonment 1 month to 3 years and fine Rs.2000 to
Rs.10000
1. NI Act, BR & RBI ACT
Definitions
The Negotiable Instruments Act is applicable in whole of India including J&K. The Act came
into force w.e.f. Mar 01, 1882. Latest amendment was in Dec 2015. Total sections in NI Act
are 147.
As per Section 13 of the N I Act, NI means and includes promissory note (PN), bill of
exchange (BoE) and cheque.
Promissory Note, Bill of Exchange, Cheque & DD are negotiable instruments as per NI Act
Negotiable Instruments as per Section 137 of Transfer of Property Act: Documents of title
to goods such as Railway Receipt, Bill of Lading, Warehouse Receipt, Dock warrant,
Wharfinger certificate etc.
Negotiable Instruments as per practice and usage: Treasury Bills, Certificate of Deposit,
Commercial Paper, Govt. Promissory Note.
Documents which are not negotiable – FDR, life insurance policy, currency notes, bank
notes, postal orders, NSCs, airway bill, letter of credit etc.
Features of Negotiable Instrument: (i) it is freely transferable and (ii) the title of the
transferee will be better than the transferor if the transferee took the instrument for value
and in good faith under circumstances when he did not have suspicion about any defect in
the title of the transferor. Such a transferee is called holder in due course and is defined in
Section 9 of the Act.
Promissory Note: defined in Section 4 of N I Act. It 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 only to, or to the order of, a certain person, or the bearer of
the instrument. There are two parties in a PN i.e. promisor and promisee or maker and
payee. Currency notes and bank notes are not promissory notes as per sec 4.
Bill of Exchange: defined in Section 5 of N I Act. 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. In a Bill of Exchange, the person ordering for payment is called Drawer and the
person directed to pay is called Drawee. The beneficiary is called payee. If a Bill is lost,
holder can obtain duplicate of the same as per section 45A of N I Act.
Cheque: defined in Sec 6 of NI Act. It is a bill of exchange but always payable on demand
and drawee is always a banker. Thus, a cheque is similar to a Bill of Exchange. Further, any
bill which is payable on demand and in which drawee is a banker will be called cheque. The
definition includes cheques in electronic form and truncated cheques.
Demand & Usance PN or BOE: The promissory note or bill of exchange can be payable on
demand or after some time. If no time is mentioned then the same will be treated as
Demand promissory note or Demand Bill of Exchange. If these are payable after sometime
called as Usance PN or BOE.
Bearer or Order: A negotiable instrument can be payable to bearer or order. If neither bearer
nor order is written it is treated as payable to order. If both bearer or order are written it is
treated as payable to bearer.
On demand bearer instruments: As per Section 31 of RBI Act, 1934, no person other than
Central Government or Reserve Bank of India or any other person authorized in this behalf
can issue bearer promissory notes and a demand bill of exchange payable to bearer.
Presumption of N I: As per Section 118 of N i Act, N I is presumed to be (i) made, drawn,
accepted, endorsed and negotiated or transferred for consideration (ii) executed on the date
appearing on the instrument and (iii) every holder is a holder-in due course (iv) every
transfer of Nis was made before maturity.
Inchoate instrument: defined in section 20 of the NI Act. It is an instrument on which date,
payee or amount is not mentioned. It can be completed by the Holder and the completion
will not be treated as material alteration. An instrument without signatures is not treated as
an instrument at all.
Ambiguous instrument: defined in Section 17 of N I Act. An instrument which can be
treated as Bill of Exchange or Promissory Note is called as Ambiguous instrument. Holder
can treat it PN or BOE as per his discretion.
Holder: defined in section 8 of the NI Act. Holder of a promissory note, bill of exchange or
cheque means any person entitled in his own name to the possession, thereof and to receive
the amount due thereon from parties thereto.
Holder in Due Course: defined in Section 9 pf the NI Act. Holder in due course is a person
who became possessor of a NI for valuable consideration, in good faith, before becoming
due, and without having any reason to believe that the person transferring the instrument
was not entitled thereto.
Transfer of a Negotiable Instrument and Endorsement
Transfer of a Negotiable instrument: by assignment (under Transfer of Property Act) or by
Negotiation (under NI Act).
Negotiation of a Bearer instruments: A bearer instrument is negotiated by mere delivery and
no endorsement is required.
Negotiation of an order instrument: An order instrument can be negotiated by endorsement
followed by delivery. Legal heirs cannot complete the negotiation of a negotiable instrument
with endorsement by the deceased merely by delivery.
Endorsement: Signing of an instrument on the back or face thereof or on a slip of paper
annexed thereto for the purpose of negotiation is called endorsement (Section 15). The
person who transfers the instrument is called endorser and the person to whom it is
transferred is called endorsee. Endorsement can be done by drawer, holder, payee.
Blank Endorsement: In a blank endorsement the endorser just signs his name without
indicating endorsee. It can be converted into full by writing name of a person above
signatures. The effect of an endorsement in blank is that it makes an instrument dawn
originally payable to order to bearer instrument for the purpose of negotiation which can be
further negotiated by mere delivery.
Endorsement in Full: When, the endorser indicates the name of the endorsee it is called full
endorsement.
Sans Recourse Endorsement: An endorsement in which endorser excludes his liability is
termed 'sans recourse' or without recourse endorsement. In case of dishonour of
instrument, the amount can’t be recovered from such endorser.
Facultative endorsement: An endorsement in which endorser waives the notice of dishonour
is called Facultative endorsement. But this is not applicable to other parties to the
instrument.
Restrictive endorsement: An endorsement which restricts further right of negotiation is
called as restrictive endorsement. For example if it is written in the endorsement as "Pay to
Hari for my use" it is restrictive endorsement.
Conditional Endorsement: When along with endorsement, condition is imposed by endorser.
For example, pay to C on completion of studies. Paying bank not to ensure compliance of
condition. Condition binds endorser and endorsee only.
Back to Back Endorsement: An endorsement in which the endorser himself becomes
endorsee is called as back to back endorsement and in such a case, the endorsee can
recover the amount only from parties prior to his own endorsement.
Negotiation Back: When the drawer of a cheque himself becomes endorsee, it is called
"Negotiation Back" and this cheque is treated as satisfied.
Partial Endorsement: The endorsement can be made only for full amount but in case part
payment has been received and a note to that effect is made on the instrument, then the
same can be endorsed for the balance amount.
Regular endorsement: Which appears to have been made by holder. Paying bank gets
protection u/s 85(1) of N I Act only when endorsement is regular even though it may not be
genuine.
PAYMENT OF CHEQUES:
Protection to paying banker: A paying banker gets protection under Section 85 of the NI Act.
In case of order cheques, protection is available under section 85(1) and for bearer cheques
it is available under section 85(2) of NI Act. In the case of drafts it is available under section
85A.
As per section 85(1) of the Act a paying banker is discharged by payment in due course of a
cheque payable to order and which purports to be endorsed by or on behalf of payee. It
means paying banker is concerned about regularity of endorsement and not its genuineness
or forgery.
As per section 85(2) of the NI Act, a bank will be discharged of its liability by making
payment in due course of a cheque payable to bearer if the payment is made in due course
notwithstanding any endorsement. If the cheque is endorsed, the bank is not required to
take note of any such endorsement. Thus as per section 85(2), 'Once a bearer always a
bearer' Payment in due course is defined in Sec 10 of the Act and means (i) payment is
accordance with the apparent tenor of the instrument (ii) in good faith and without
negligence (iii)to any person in possession thereof (iv) under circumstances which don't
afford a reasonable ground for believing that the-is not entitled to receive payment of the
amount therein mentioned.
Payment of a cheque: While making payment of a cheque, bank is required to take certain
precautions.
(a) Form of the cheque has not been given in the Act. It is simply as per practice.
However, RBI has prescribed format at centres where cheque truncation has started. RBI
has prescribed the new cheque standards "CTS-2010.
(b) Different ink: A cheque can be drawn in different inks, handwritings or different
scripts. Thus, a cheque presented with different ink, handwriting or script can be paid.
(c) Language: The cheque should be written in Hindi, English or Regional language. Bank
is within its powers to return a cheque written in a language other than the language of
that region.
(d) Signatures on Back: When a cheque is presented for payment signatures of the
presenter are taken on the back as a witness of payment. if the presenter refuses to
sign, the bank can take receipt on a separate paper.
(e) Date: Ante dated: A cheque dated prior to its date of presentation is called ante dated
cheque and can be paid within 3 months from the date of issue. Post dated cheque
means a cheque which is dated subsequently to the date of presentation. Both antedated
and post-dated cheques are valid in law. A postdated cheque can be passed only
on the date written on it or within 3 months thereof. The drawer may further reduce
validity and can revalidate the cheque any number of times. Impossible Date: A cheque
with impossible date like 31.11.10 should be paid on the last day of the month or within
3 months of the last day of the month. Cheque dated prior to opening the account: A
cheque dated prior to the date of opening the account or issue of cheque book can be
paid if otherwise in order.
(f) Amount: (i) The amount should be written both in words and figures. (ii) Amount in
words is called legal amount and amount written in figures is called courtesy amount.
(iii) As per Sec 18 of the NI Act, if the amount written in words and figures differ, the
amount written in words will be the amount intended to be payable. (iv) If the balance in
the account is just equal to the amount of the cheque, the cheque will be paid. (v) If the
balance in the account is insufficient to pay the cheque, it should not be paid relying on
the - balance in some other account or transferring the amount from other account
unless there is an arrangement to that effect. (vi) If number of cheques are presented at
the same time and the balance is not sufficient to pay all the cheques, then normally
priority is given to cheques favouring revenue authorities, then to cheques favouring
public authorities. If balance is left, maximum number of cheques should be passed
taking care that cheque of very small amount is not dishonoured.
Banking hours: As per section 65 of the Act, presentment for payment of a cheque must
be made within banking hours. If a cheque presented after banking hours is paid, it will
not be a payment in due course. However, the payment of a reasonable amount can be
made to drawer even after banking hours. Further, the presentment should be within
banking hours. Actual payment may be even after banking hours. Mutilation: if there is
any mutilation of cheque, it should be confirmed by drawer.
Material alteration: (i) Any change in date, amount or name of payee is called material
alteration. (ii) The change from order to bearer, or cancellation of crossing or converting
special crossing to general crossing is also material alteration. (iii) However, bearer to
order or crossing a cheque or converting general crossing to special crossing is.not
material alteration. (iv) If there is any material alteration on a cheque it can be paid only
after confirmation from drawer. In the case of joint accounts with "either or survivor"
clause any of the account holders can confirm material alteration. (v) The confirmation
should be under full signatures as per specimen signatures (vi) With effect from 1st Dec
2010, in case of clearing houses where image based cheque truncation has started,
cheques with material alteration will not be acceptable even if the same has been
authenticated. This rule does not apply to change in date. (vii) Under Section 89 of the
NI Act, 1881 paying banker gets protection in case of payment of materially altered
cheques if the alteration is not apparent at the time of payment and payment has been
made in due course.
Payee: If the payee is fictitious person then the cheque can be paid to bearer if it is
payable to bearer but if the cheque is payable to order, it can be paid only to the drawer.
Forged signatures: (i) if there is a forgery in the signatures, such an instrument is null
and void. Paying banker will not get protection if it pays such a cheque even though the
drawer might have been careless in custody of the cheque book or bank might have sent
statement of accounts and the customer did not point out the mistake. (ii) However, if
the cheque has been signed by the drawer himself but in a different fashion, the banker
will not be liable.
Crossing: (a) General Crossing: if a cheque or a draft bears across its face addition of two
parallel transverse lines with or without addition of words 'and company' or any
abbreviation thereof, it is called General Crossing (Section 123). (b) General Crossing is a
direction to the paying banker to pay the cheque/draft through some bank. (c) Even if the
name of a city is written between two parallel lines like "Indere'', it will continue to be a
general crossing and the cheque can be paid to any bank. Such cheque can be paid at any
station to a bank and not necessarily at indore. (d) Special Crossing: When a cheque/draft
bears the name of a bank across its face with or without two parallel transverse lines either
with or without the words 'not negotiable', it is said to be specially crossed (section 124). (e)
As per section 126, A cheque with special crossing can be paid only to the named bank or
his authorized agent for collection. (f) A cheque crossed to two banks has to be returned
unpaid unless crossed by one bank to another as his agent for collection (Section) 27). (g)
For special crossing, two branches of a bank are considered as same bank. The special
crossing is in favour of a bank and not in favour of a particular branch. Hence a cheque
favouring PNB Bhopal, can be paid to a branch of PNB at any other place also. (h) For special
crossing it is not necessary that the cheque should bear two parallel lines. The Act does not
restrict the payment of a crossed cheque to the banker in cash.
Applicability of provisions relating to Crossing: Provisions relating to crossing are
applicable to cheques and drafts only and not to Promissory Notes or Bill of Exchange.
Therefore, if any Bill or Promissory note is having addition of two parallel lines or name of a
banker, it does not have any effect.
Who can cross a cheque: The Crossing can be done by drawer, payee or holder or a banker.
Account payee crossing : (i) Account payee crossing is not recognised by law but is a long
standing practice amongst bankers. (ii) It is .a direction to the collecting banker. (iii) Such a
cheque can be collected for credit of the named payee and cannot be endorsed.
Not negotiable crossing takes away an important characteristic of negotiability. A cheque
with Not negotiable crossing remains freely transferable and can be endorsed. But a person
taking a cheque crossed generally or specially bearing in either case 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 (Section 130). Nobody will be a holder in
due course of a cheque bearing Not Negotiable Crossing. However, paying bank will pay the
cheque in normal course.
Cancellation of crossing can be done by drawer only under his full signatures by writing the
words crossing cancelled. In such cases, the payment is made in cash to a person known to
the bank.
Under Section 128 of the NI Act. The paying banker is will get protection in respect of
crossed cheques or drafts provided the instrument has been paid in accordance with the
requirement of the crossing and payment has been made in due course.
As per Section 129 of the N I Act, if a banker pays a cheque in violation of the crossing
direction, it will not be a payment in due course and bank shall be liable to the true owner
of the cheque for any loss he may sustain owing to payment of the cheque.
Others
a) Instruments returned unpaid should have a signed / initialed objection slip on which a
definite and valid reason for refusing payment must be stated.
b) When cheque valuing rupees one crore and above drawn on a particular account of the
drawer is dishonoured on four occasions during the financial year for want of sufficient funds
in the account, no fresh cheque book should be issued.
c) The payment of cheque should not be made in case of (a) death, insolvency, insanity of
customer or insolvency of partner or firm or liquidation of company (b) stop payment (c)
receipt of garnishee/attachment order (d) post dated and (e) stale cheque.
d) However, payment of a cheque signed by agent can be made in case of death of agent,
trustee, director of a company, office bearer of society if cheque is dated prior to date of death.
e) Cheque signed in representative capacity can be paid if it is not dated prior to date of
authority.
PROTECTION TO BANKERS
85-1 Paying banker protected by payment in due course of order cheque that bears regular
endorsement. Genuineness of endorsement is not to be ensured by the paying bank.
85-2 Protection to paying banker in case of a bearer cheque. Endorsement on a bearer
cheque to be ignored.
85-A Protection to paying banker in case of Bank drafts.
89-Protection to paying bank for materially altered instrument when alteration not visible.
128- Protection for payment in due course of crossed cheques.
131 - Protection to collecting bank for crossed cheques subject to compliance of conditions
COLLECTION OF CHEQUES
Protection to Collecting Banker:
Under section 131 of the Act a collecting banker gets protection for collection of cheques
and under section 131A for collection of drafts.
The protection is against risk of conversion i.e. illegal interference with rights of true owner
of the instrument inconsistent with his right of ownership.
Such protection is available to the banker when: (i) the cheque/draft is crossed (ii) the bank
receives the payment for its customer (iii) the bank acts as agent for collection and not
holder for value (iv) it receives the payment in good faith and without negligence.
To get protection as a collecting banker the bank must ensure that there is no negligence
involved. Examples of negligence could be opening of accounts without proper introduction,
ignoring 'not negotiable or 'account payee' crossing, collecting cheques payable to firm, Ltd
Co, Trust, Institutions in the personal accounts of partner, director, trustee or the office
bearer.
DISHONOUR OF CHEQUES DUE TO INSUFFICIENT BALANCE
Section 138 to 142 deals with bouncing of cheques and these provisions are equally
applicable for dishonor of electronic funds transfer instructions as per provisions of
Payment and Settlement Systems Act 2007.
Liability of drawer: The drawer of a cheque which is returned unpaid due to insufficiency of
funds, is deemed to have committed criminal liability under Section 138 to 142 of NI Act
1881. He can be prosecuted. The pre-requisites for prosecution are as under;
The cheque has been issued to discharge a liability. (gift cheque will not fall in the
framework).
The cheque should be presented within validity period
Cheque is dishonoured for insufficiency of funds.
The holder should give notice to drawer within 30 days of his receiving information,
demanding payment.
The drawer can make payment within 15 days of the receipt of notice. If he fails to do
so, prosecution could take place.
The suit is to be filed within one month of the cause of action (period can be extended
by the court if there is sufficient reason for not making the complaint within such
period). By another presentation of the cheque, a new cause of action can arise, if
drawer fails to pay. (sec 142).
No court inferior to that of Metropolitan Magistrate or Judicial Magistrate of 1st class will
try the offence.
Place to file suit – where payee (holder) or drawer maintains the account.
Punishment – imprisonment may extend up to 2years or fine up to twice the amount of
cheque or both. All offences are compoundable (Sec 147). In case of compounding court can
impose a fine up to Rs.5000.00/imprisonment up to 1 year.
Mode or service of summons – The summons can be served by speed post or by authorized
courier services and if not accepted, will be treated as duly served.
BILL OF EXCHANGE
Demand Bill: A bill of exchange payable on demand or at sight or on presentment is called
Demand Bill.
Usance Bill: A bill of exchange payable after some time is called Usance Bill.
Documentary bill is one which is accompanied by document of title to goods like railway
receipt, bill of lading, etc.
Clean bill: is one which is not accompanied by any document of title to goods.
Inland bill: is one which is drawn or made in India and is either payable in India or on a
person6. Foreign bill: is one which is not an inland Bill i.e. it is drawn outside India or if
drawn in India is payable outside India on a person resident outside India. Foreign Bills are
issued in more than one part.
Accommodation Bill: means a bill issued without consideration and dealing in such bills is
called kite flying
Interest Rate: if in a bill of exchange or promissory note, interest rate is not mentioned, it
will be 18% p.a.
CALCULATION OF DUE DATE
Usance bills should be presented for acceptance within a reasonable time.
As per section 105, reasonable time means as per usage and practice of the area.
The drawee is allowed 48 hours excluding public holiday to accept the bill.
If a Usance bill is payable after date, its due date is calculated from date of the bill and if it
is payable after sight, its due date is calculated from the date of acceptance.
As per section 22 of the N I Act, three days of grace are allowed in the case of Usance bills
and Usance promissory notes. But if the due date is fixed on a particular day or days of
grace are specifically prohibited, the same need not be given.
As per Section 25 of the Act, if a bill or promissory note matures for payment on public
holiday under NI Act, 1881 (Sunday or any day declared to-be public holiday by the Central
Government) it falls due on immediate next preceding business day.
If the period of usance is given in days, then the day from which due date is to be calculated
is excluded. Due consideration should be given to leap year in which February has 29 days
If the period of usance is given in months and there is no corresponding day in the month
in which bill matures, last day of the month is taken into account.
DISHONOUR OF A BILL
If the drawee does not accept the bill within stipulated period it is treated as dishonoured
by non acceptance. In such case, drawee will not be liable on the bill. In certain cases, such
bill is required to be presented to a person named in the bill called as Drawee in case of
need. If a bill after being accepted is not paid on due date, it is said to have been
dishonoured due to non payment.
Noting and Protesting: Under section 99 of the Act, when a promissory note or bill of
exchange has been dishonoured by non-acceptance or non-payment, the holder may get the
dishonour noted by a notary public upon the instrument within a reasonable time after
dishonour. If the dishonour is got certified from the Notary public, such certificate is called
a pretest.(Sec 100).
while noting and protest is optional in case of Inland bills, foreign bills of exchange must be
protested for dishonour when such protest is required by the law of the place where they
are drawn (Section 104). Noting and Protesting is done only in the case of dishonour of
demand or usance bills or promissory notes and not in the case of dishonor of a cheque.
A person accepting the bill to save the honour of a party to the bill is called "Acceptor for
Honour".
Liabilities of the parties: If a bill is dishonoured by non acceptance, then holder can recover
the amount from all prior parties except drawee. In this case, the drawer will be the
principal debtor. If a bill is dishonoured due to nonpayment (it means it was accepted), then
the holder can recover the amount from all prior parties including the acceptor of the bill
(previously called the drawee), In this case, acceptor (drawee) will be the principal debtor.
Stamping of a Bill: A demand bill need not be stamped but a usance bill is stamped as per
provisions of the Indian Stamp Act. The value of stamps on a usance bill or promissory note
depends on tenor and amount of the bill. However, if the usance period of a bill is up to 3
months, no stamp duty is levied if the bill is for genuine trade transaction and bank is a
party to the bill.
SUMMARY OF IMPORTANT SECTIONS OF NI ACT
Section 4 - Definition of Promissory note
Section 5 - Definition of Bill of exchange
Section 6 - Definition of Cheque including Electronic &Truncated cheque
Section 7 - Definition of Drawer, drawee, drawee in case of need, acceptor
Section 8 - Definition of Holder
Section 9 - Definition of Holder in due course
Section 10 - Payment in due course
Section 11 - Inland instruments
Section 12 - Foreign instruments
Section 13 - Definition of Negotiable instruments
Section 14 - Negotiation defined
Section 15 - Endorsement defined
Section 16 - Endorsements in blank and full
Section 17 - Ambiguous instruments
Section 18 - Amount in words and figures, if differs
Section 19 - Instruments payable on demand defined
Section 20 - Inchoate instruments
Section 21 - Instruments payable after sight
Section 22 - Maturity date of Promissory notes/bills of exchange; Days of Grace
Section 25 - Bill maturing on a holiday will be due on preceding business day
Section 26 - Capacity of the minor - A minor can draw, endorse and deliver and negotiate a
negotiable instrument so as to bind all parties except himself
Section 31 - Obligation of the Paying Banker to pay cheque
Section 51 - Who can negotiate?
Section 65 - Hours of presentment
Section 80 - Interest rate when no rate specified in the instrument will be 18%
Section 85(1) - Protection to Paying Banker for order cheques
Section 85(2) - Protection to Paying Banker for Bearer cheques
Section 85 A - Protection to Paying Banker for payment of drafts
Section 87 - Effect of Material Alteration
Section 89 - Payment of instrument on which alternation is not apparent; protection to banker
Section 99 - Noting of Bill of Exchange & Promissory Note
Section 100 - Protesting.of BOE & PN
Section 105 - Reasonable Time for Presentment etc.
Section 123 - General Crossing
Section 124 - Special Crossing
Section 125 - Who can cross
Section 126 - Effect of crossing
Section 128 - Payment in due course of crossed cheque
Section 129 - Payment of crossed cheque out of due course; liability to true owner
Section 130 - Not Negotiable Crossing
Section 131 - Protection to collecting banker
Section 138 - Dishonour of a cheque for insufficiency of funds
Section 139 - Presumption in favour of holder'
Section 140 - Defence not allowed in prosecution u/s 138
Section 141 - Offence by companies’ u/s 138.
Banking Regulation Act, 1949
The law relating to banking came into force on 16.03.1949 under the name of the Banking
Companies Act, 1949. W.e.f. 01.03.1966 its name was changed to Banking Regulation Act,
1949. Originally the Act was not applicable to the State of J&K. In 1956 it was made
applicable to J&K also.
The Banking Regulation Act, 1949 does not apply to primary agricultural credit societies,
cooperative land mortgage banks and non-agricultural primary credit societies with paid up
capital and reserves of less than Rs.1 lakh.
Section 5b: 'Banking' means the '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 order or otherwise. 'Demand Liabilities' means liabilities which must be
met on demand and 'time liabilities' means liabilities which are not demand liabilities.
Section 6: lays down the forms of business in addition to the business of banking in which
a bank may engage.
Section 7: prohibits use of words 'bank' banker' or banking company by a company other
than a banking company.
Section 8: prohibits trading activities for a bank except in connection with realisation of
security given to or held by it.
Section 9: a banking company cannot hold any immovable property, howsoever acquired
except such as is required for its own use, for a period exceeding 7 years from the
acquisition thereof. The aforesaid period of 7 years can be extended by RBI by a period not
exceeding 5 years where it is satisfied that such extension would be in the interest of
depositors of the banking company.
Section 13: payment of commission, brokerage, discount or remuneration in respect of any
shares by a banking company shall not be more than 2.5% of the paid up value of said
shares. (being changed as per Banking Companies Amendment Law Bill.
Section 17: a banking company is required to transfer to Reserve Fund 20% of the profits
before declaring dividend. As per current guidelines of RBI a scheduled bank is required to
transfer 25% of the profit before providing for bonus and declaring dividend.
Section 19(2): no banking company can hold shares in another company whether as
pledgee, mortgagee or absolute owner of an amount exceeding 30% of the paid up. share
capital of that company or 30% of its own paid up share capital and reserves, whichever is
less.
Section 20(a): banks cannot grant loan against security of their own shares.
Section 21:RBI can issue directive to banks for loan policy (purpose, margin, extent, interest
rate or other conditions).
Section 21A: Rate of Interest charged by banks are not subject to scrutiny of courts.
Section 22: Licence for Bank - obtaining of licence from RBI is essential.
Section 23: Branch licencing : RBI authority on branch licensing.
Section 24: banks are required to maintain Statutory Liquidity Ratio as prescribed by RBI.
Maximum SLR will be 40% of NDTL. As per amendment to Banking Regulation Act, the
condition of minimum SLR of 25% of NDTL has been removed. Thus, RBI has liberty to fix
minimum SLR.
Section 26: banking companies are required to submit a return of all deposit accounts
which have not been operated for the last 10 years. The return is submitted as on 31st
December and within one month
Section 35: Inspection of banks - RBI authorised to inspect banks and give directions, as
deemed appropriate. RBI has directed banks to round-off transactions to nearest rupee u/s
21 and Section 35.
Section 35A: RBI can issue directions to banks in public interest / banking policy.
Section 45 Y relates to power granted to Central Govt. to make rules for preservation of
records.
Section 45Z relates to return of paid instruments to customers after keeping a true copy of
all relevant parts of such instruments.
Section 45ZA to 45 ZF relate to nomination in deposits, safe custody and locker accounts.
Section 49A: Other than a banking company/RBUSBI, no person can accept deposits of
money withdraw able by cheque
Reserve Bank of India Act, 1934
Reserve Bank of India Act, 1934 came into force on 01.04.1935.
RBI was established on the recommendations of the Hilton Young Commission.
Section 2(e): Scheduled Bank means a bank whose name is included in the 2nd schedule of
RBI Act 1934
Section 4 : The capital of RBI shall be 5 crores of rupees.
Section 21: RBI has the right to transact Govt. business in India i.e. remittance, exchange,
keeping deposit free of interest etc.
Section 22: confers sole right on RBI to issue bank notes.
Section 24: RBI can issue bank notes of denomination of 2, 5, 10, 20, 50, 100, 500, 1000,
5000, 10000. Central Govt. may direct discontinuance or non-issue of bank note of any
denomination.
Section 26: Bank notes issued by RBI shall be legal tender and shall be guaranteed by
Central Govt.
Section 27 lays down that RBI shall not reissue bank notes which are torn, defaced or
excessively spoiled.
Section 28: RB1'can frame rules for refunding value of mutilated, soiled or imperfect notes
as a matter of grace.
Section 29: exempts RBI from stamp duty on Bank notes.
Section 31: prohibits drawing, accepting, making or issue of any bill of exchange, hundi,
promissory notes payable to bearer on demand except by Central Govt or RBI. Promissory
Note can’t be issued payable to _bearer even if it is payable after some time.
Section 33: lays down that assets of the issue department of RBI shall consist of gold coin,
gold bullion, foreign securities, rupee coins and rupee securities. The aggregate value of
gold coin, gold bullion and foreign securities held shall not at anytime be less than Rs.200
crore of which gold coin and gold bullion not less than Rs.115 crore
Section-42(1) deals with cash reserves ratio to be maintained by scheduled commercial
banks.
Section: 45-A to F - Empowers RBI to collect credit information. (Section 45-C — Return :
last Friday of Apr & Oct giving information on borrowers enjoying secured credit limits of
Rs.10 lac and above and-unsecured limits of Rs.5 lac and above). RBI also collects details
(1/2yearly March/Sept) of all doubtful, loss and suit filed accounts with aggregate
outstanding of Rs.100 lac and above and circulates the information amongst banks and
financial institutions.
Section 49 requires RBI to publish bank rate from time to time.
CASH RESERVE RATIO
Scheduled Commercial Banks are required to maintain CRR as per section 42(1) of RBI Act.
Banks are required to maintain certain percentage of Net Demand & Time Liabilities as cash
with RBI.
With effect from 1st April 2007, the RBI* can prescribe the Cash Reserve Ratio (CRR) for
Scheduled Commercial Banks without any floor rate or ceiling rate. Accordingly, there is no
minimum or maximum CRR as per RBI Act and RBI will fix CRR.
Banks are required to maintain the prescribed CRR based on their NDTL as on the last
Friday of the second preceding fortnight.
The actual balance on any day of the fortnight (14 days) may be more or less than the
required balance. However, cash balance with RBI on any day of the fortnight should not fall
below 90 per cent of the required average daily cash balance.
RBI will not pay any interest on the CRR balances with effect from 31st March 2007.
In cases of default in maintenance of CRR requirement on a daily basis, which is presently
90% of the total Cash Reserve Ratio requirement, penal interest will be recovered for that
day at the rate of three per cent per annum above the bank rate on the amount by which the
amount actually maintained falls short of the prescribed minimum on that day and if the
shortfall continues on the next succeeding day/s, penal interest will be recovered at a rate
of five per cent per annum above the bank rate.
RBI has prescribed statutory returns i.e. Form A return (for CRR) to be sent fortnightly
within 7 days and final Form A within 20 days.
STATUTORY LIQUIDITY RATIO
Statutory Liquidity Ratio is maintained as per section 24 of Banking Regulation Act.
RBI is free to fix minimum SLR. However, it can be increased to maximum of 40% of NDTL.
SLR can be kept in the form of (a) cash (b) gold valued at a price not exceeding the current
market price, (c) unencumbered approved securities valued at a price as specified by the RBI
from time to time (d) cash balance with other banks (e) excess cash balance with RBI.
For calculation of SLR, banks are required to send monthly statement on Form VIII under
Section 24 of the B R Act.
If a bank fails to maintain SLR on any day of the fortnight, RBI will charge penal interest for
that day at the rate of three per cent per annum above the bank rate on the amount of
shortfall. If the shortfall continues on the next succeeding day/s, penal interest will be
recovered at a rate of five per cent per annum above the bank rate.
TOOLS OF MONETARY CONTROL
CRR-Cash Reserve Ratio
Statutory Liquidity Ratio: it has three objectives - To restrict expansion of banks' credit to
increase banks' investment in approved securities. To ensure the solvency of banks.
Increasing SLR will have the effect of reduction in the lending capacity of banks by preempting
a certain portion of DTL for Govt. and other securities. It has therefore a
deflationary impact on the economy, not only by reducing the loanable funds but also by
increasing the lending rates in the face of increasing demand for bank credit. And vice-versa
when SLR is reduced.
Bank Rate - is the standard rate at which RBI rediscount BE or other eligible commercial
papers from banks. Bank Rate is tool used by the RBI to affect the cost-and availability of
refinance and to change the loanable funds of banks. Change in Bank Rate will affect the
interest rates on loans and deposits in the banking.
Open Market Operations (OMO):- are the sales or purchase of Govt. securities by RBI in open
market with a view to increase or decrease the liquidity in the banking system and thereby
affect the loanable funds of banks. The pricing policy under OMO cans 'also alter the
interest rate" "structure.
Selective Credit Control (SCC):-RE31 stipulates certain restrictions on bank advances against
specified sensitive commodities with the, objective of preventing speculative holding of
essential commodities.
Regulatory Restrictions on Lending:- as per RBI directives or the Banking Regulation Act are:
No loans and advances can be granted against the security of bank's own shares.
No bank shall hold shares in a company, 3.As pledgee or mortgagee in excess' of the limit of
30% of the paid-up capital that company or 30%of the Bank's pait-up capital + reserves
whichever is less.
In the management of which MD or Manager the Bank is interested.
Banks' aggregate investment in shares, CDs, bonds etc. Should not exceed the limit of 40%of
bank's net owned funds as on the previous year.
2. CUSTOMERS & THEIR ACCOUNTS
Banker Customer Relationship and Accounts of Customers
Banker Customer Relationship
Bank is one which conducts business of banking. Banking has been defined in Section 5 of
Banking Regulation Act. Customer is not defined in any Act. However, it is defined in KYC
norms. As per various court decisions, any person for whom bank agrees to open an account is
called as customer of the bank.
Various types of relationships
Type of Transaction Bank Customer
Deposit in the bank (CR balance in account) Debtor Creditor
Loan from. Bank (Debit balance in account) Creditor Debtor
Safe Deposit-Locker Lessor (Licensor) Lessee (Licensee)
Safe custody Bailee Bailor
Issue of draft (after issue of draft) Debtor Creditor
Payee of draft Trustee Beneficiary
Collection of cheque & Standing Instruction Agent Principal
Goods left negligently by customer Trustee Beneficiary
Purchase of cheque from customer Holder for value Endorser
Purchase/sale of securities on behalf of customer Agent Principal
Money deposited. No instructions for its disposal. Trustee Beneficiary
Pledge pawner (Pledgee) Pawner (Pledger)
Mortgage Mortgagee Mortgagor
Hypothecation Hypothecatee Hypothecator
Assignment Assignee Assignor
Banker's Obligations
There are two main duties of a bank i.e. (1) Duty to maintain secrecy of customer's account (ii)
Duty to honour cheques.
Duty to maintain secrecy:
A bank has duty to maintain secrecy of customer's account as per Implied Contract.
Moreover, as per Section 13 of Banking Companies (Acquisition and Transfer of
Undertaking) Act also, the bank is required not to disclose any information relating to
affairs of its customers.
The duty to maintain secrecy continues even after closure of account.
Balance in the account of an employee should not be disclosed to employer. Similarly
balance in the account of wife not to be disclosed to husband and vice versa.
If bank discloses customer's affair (e.g. in case of insufficient balance in the account
advising the presenter of cheque to deposit deficit amount), bank will be liable to customer
for resultant loss.
Exceptions to rule of secrecy:
Courts: As per Banker's Book Evidence Act, bank may be required to produce certified
copies of record in the court.
Police: Officer in charge of a police station may issue a written order for production of
documents in connection with trial or investigation. Police can even seize records against
proper receipt.
The information may also be required to be parted to inspector appointed to investigate
affairs of a limited company under section 235/237 or under FEMA.
Revenue Authorities: Bank may be required to produce to income Tax Authority, record
pertaining to transaction of a customer. However, roving enquiries should not be made
except in case of cash transactions of Rs 1 lac and above.
RBI: As per Banking Regulation Act or RBI Act, Reserve Bank may seek information from
bank.
Banking Practice: Banks have the practice of sharing information in general among
themselves. The information should be given in confidence and without any responsibility
on the part of supplying bank.
Consent of customer: For example, information is given to a Credit Information Company as
per express consent of customer.
To protect bank's interest.
Duty to honour cheques
As per section 31of N I Act, a bank is under obligation to pay cheques issued by customer
provided there is a sufficient balance in the account (ii) the cheque is otherwise in order (iii)
the funds are properly applicable i.e. not attached by Garnishee order or attachment order.
If a bank dishonour a cheque drawn by a customer despite satisfaction of aforesaid
conditions, bank will be liable to Drawer (and not to payee or true owner) for damages
suffered by him.
Banker’s Rights: Bank has three rights namely (i) Right of Lien (ii) Right of Set Off (iii) Right
of Appropriation
Right of Lien:
Lien is the right of creditor to retain possession of goods and securities belonging to the
debtor till the debts due to him (creditor) are paid. This right is available only on goods and
securities and not on balances in the accounts. Lien entitles retention of possession of
goads but the creditor cannot sell the goods.
Lien can be Particular lien (Sec 170 of the Indian Contract Act) or General Lien. Right of
General Lien, is available only to bankers, factors, wharfingers, attorneys (Section 171 of the
Indian Contract Act).
Banker's Lien is also a general lien but it is an implied pledge because the banker has right
to retain as well as sell goods of the borrower after giving him reasonable notice.
For exercising right of lien, (a) the goods or securities and debt should be in the same right
and same capacity (b) Loan should be due or overdue and lawful (c) Reasonable notice is
given.
Further, Right of Lien is available on the goods and securities received in the ordinary
course of business.
It is not available when the goods or securities have been deposited for a specific purpose;
goods received for safe custody or lying in safe deposit vault or goods left by the debtor
negligently.
However, in the case of loans against pledge of jewellery, bank can exercise right of general
lien on the ornaments left in the possession of the bank after adjustment of the jewellery
loan in case some other advance is outstanding.
Negative lien is a declaration from the borrower to the effect that securities/goods offered
as security are not encumbered and that the borrower will not create any charge over them
without bank's permission. This undertaking does not create any charge in favour of the
bank and therefore advance against negative lien are treated as dean advance.
Right of Set Off:
Set off is the right to combine two or more accounts having debit and credit balance.
It is not defined in any Act.
This right arises when two parties are debtor as well as creditor to each other i.e. one
account should be in debit and another account should be in credit.
In the case of banks, this right arises when wants to combine its loan due from a borrower
with his deposit accounts. For exercising right of set off following conditions should be
satisfied (i) Both accounts should be in same right and same capacity (ii) The debt should be
due and not accruing due. Reasonable notice should be sent to the depositor before
exercising set off.
Right of set off can be exercised even in case of loans which are time barred.
It can be applied on fixed deposit when it matures and not on FD which is not due as yet.
Similarly it can’t be applied for adjusting term loan or CC or overdraft which are regular
and not overdue. If a loan is in the name of an individual, set off can be exercised on credit
balance in his individual account and sole proprietorship account. Set off can not be
exercised on deposit accounts which are held jointly with other individuals, or partnership
in which the borrower is partner, or client account maintained by a solicitor or account of
minor under guardianship where borrower is the guardian or on the credit balance of a
trust in which borrower is trustee.
If loan is in joint names, set off can be exercised on credit balance in joint account as well
as credit balance in individual accounts of joint borrowers.
If loan is in the name of a partnership firm then set off can be exercised on credit balance in
the name of firm, partners and any other partnership firm which has just same partners as
are in the borrowing firm.
For exercising right of set off, all branches of a bank are considered as one.
Right of Appropriation
Section 59,60,61 of Indian Contract Act, deal with appropriation of payments.
Clayton's Rule is related to appropriation of payments. This rule is applicable in case of
death, insolvency, insanity of a joint borrower or partner or guarantor or retirement of a
partner or revocation of guarantee by guarantor.
Clayton's rule is applicable in case of running borrowal accounts like cash credit or
overdraft.
As per Clayton's rule, credit entry will set off debits in the chronological order of time. This
means that first item on the debit side will be discharged first by a credit and so on.
Garnishee Order
A Garnishee Order is an order issued by court under section 60 (Order 21, Rule 46) of the
Code of Civil Procedure, 1908. Through this order the court attaches the deposit of a
particular depositor with the bank. The bank upon whom the order is served is called
Garnishee. The depositor who owes money to another person is called judgement debtor
while the person to whom money is due is called judgement creditor.
The court first issues order Nisi requiring the bank to explain as to why the funds in the
account not be utilised to meet the judgement creditor's claim. After this order, the order
Absolute is issued directing the bank to freeze the entire balance or a portion of credit
balance in the account of the judgement debtor.
Upon receipt of Garnishee Order Nisi, the operation in the account are suspended, the bank
has to earmark desired balance in the account of the judgement debtor.
Garnishee Order applies to existing debts as also debts accruing due i.e. SB/CD/RD/FD.
Garnishee Order applies only.to those accounts of Judgement Debtor which have credit
balance.
The relationship between bank and judgement debtor is of debtor and creditor. Bank is the
debtor of Judgement Debtor who is a creditor of the bank.
Garnishee order does not apply to money deposited subsequent to receipt of Garnishee
order. It also does not apply to cheques sent for collection but yet to be realized. But if
credit was allowed in the account before realization with power to withdraw to customer,
GO will be applicable on this amount.
Garnishee order does not apply to unutilized portion of overdraft or cash credit account of
the borrower as no debt is due to judgement debtor.
Bank can exercise right of set off before applying Garnishee Order.
Garnishee order is-applicable only if both debts are in same right and same capacity.
Garnishee order issued in a single name does not apply to accounts in the joint names of
judgement debtor with other person(s). But if Garnishee order is issued in joint names, it
will apply to individual accounts also of the same debtors. When Garnishee Order is in the
name of a partner it will not apply to partnership account but when Garnishee order is in
the name of firm, accounts of individual partners are covered.
Garnishee Order can be served on Head Office of the bank and it can take reasonable time
to communicate the same to its branches, If amount is not specified in the order, then it will
be applicable on the entire balance in the account. However, if it is for specific amount, the
cheques can be paid from the balance available after setting aside the amount as mentioned
in the Garnishee order. Garnishee order is applicable on accounts of deceased persons but
not applicable if depositor declared insolvent.
Garnishee order not applicable on fixed deposit taken as collateral security.
Income Tax Attachment Orders
Income Tax Authorities issue Attachment Orders in terms of Section 226(3) of Income Tax
Act, 1961. On receipt of this order, banker is required to remit the desired amount to
income tax authorities. An order without mentioning the amount is not a valid order.
Attachment Order is different from Garnishee order in following respects (i) Attachment
order applies to money deposited in the account after receipt of order also till it is fully
satisfied whereas Garnishee order does not apply to subsequent deposits. (ii) Attachment
Order in single name applies to joint accounts also proportionately unless the contrary is
proved whereas Garnishee order in single name does not apply to joint accounts.
In case banker fails to comply with Attachment Order, it will be liable for the amount of
order and deemed as an assessee in default. However, right of set off is available to bank
before applying the order.
When both Garnishee order and Attachment Order are received simultaneously, priority
should be given to attachment order.
ACCOUNTS OF CUSTOMERS
Accounts of Minors
A minor is a person who has not attained the age of 18 years. A person will become major
at the age of 18 whether guardian is natural or appointed by a court of law.
There could be three types of guardians — natural, testamentary and legal guardian. The
guardian appointed by will is called Testamentary Guardian and the one appointed by court
is called legal guardian.
As per section 11 of the Indian Contract Act, 1872 a minor is not competent to enter into a
contract. A minor cannot ratify an agreement after attaining majority.
A minor cannot appoint an agent. However, a minor can be appointed as an agent and he
can make principal liable by his actions. A minor can’t delegate authority in his self
operated account.
Banks do not grant overdraft / loan to a minor, even if security is provided because a
contract with minor being void, the bank will not be able to recover the loan. Even when
loan has been raised on a term deposit in the name of a major person, his request for
addition of the name of the minor cannot be entertained. However, if loan is given for
necessity, it can be recovered.
If a minor misrepresents age for raising a loan bank cannot recover loan from him.
Loan given to a minor is guaranteed then bank cannot recover loan from guarantor.
According to Section 26 of NI Act, a minor can draw or endorse or negotiate a cheque or a
bill but he cannot be held liable on such cheque or bill. However, other parties will be liable
in their respective capacities.
A minor can’t appoint nominee. However, minor can be appointed nominee.
As minor does not incur any personal liability, he cannot be declared insolvent.
Minor as a partner: A minor cannot be partner in a partnership concern. As per Indian
Partnership Act, 1932 a minor may be admitted to benefits of partnership with the consent
of all partners. However, the liability of the minor partner will be limited to his share in the
business of the firm. On attaining majority, a minor has to give public notice within six
months of attaining majority or when it comes to his knowledge after becoming major
whichever is lesser, whether he wants to continue as a partner. If he chooses to become a
partner, he will be held liable as a partner from the date he has been admitted to the benefit
of the partnership firm and his profit sharing ratio will continue as it was existing before
becoming major.
In case of Hindus, father is the natural guardian of a Hindu minor boy or an unmarried girl
and after him, the mother. In case of a married Hindu minor girl, her husband is the natural
guardian. If the husband is minor or minor girl becomes widow, her father in law and after
him the mother in law will be the guardians. When guardian of a Hindu minor ceases to be a
Hindu he/she ceases to be natural guardian. Testamentary guardian will come into picture
only on the death of father as well as mother.
In case of Muslims, father is the natural guardian. A Muslim father can appoint a
testamentary guardian and even mother of a Muslim child can be testamentary guardian. If
the father dies without leaving behind a will, father's father i.e. paternal grandfather is the
guardian. On the death of paternal grandfather, the person appointed by the will of the
paternal grandfather will be guardian.
Accounts of a minor: A minor can have account under guardianship as well as self operated
account.
In the case of accounts under guardianship, the account will be operated by the guardian
during minority of the child and once the minor becomes major the debit in the account will
be allowed only with the consent of minor who has become major. If guardian dies during
minority, next guardian will operate the account. In case the minor dies, the balance in the
account will be paid to the legal heirs of the minor.
Minor's Account with Mother as Guardian: RBI has allowed mother to open and operate all
types of deposit accounts even though the father is alive.
A minor can open self-operated deposit account provided he has completed the age of 10
years and is literate. He cannot appoint nominee in this account. On his behalf nomination
will be done by a person legally competent to act on his behalf. Joint account is also allowed
in the name of two minors provided both are of 10 years of age, are literate, belong to the
same family and operation is jointly.
Minor's account can be a joint account with the guardian also. In jointly operated accounts
with minor, till attainment of majority by minor, guardian will sign for himself as well as on
behalf of minor When minor becomes major, account will be operated jointly by guardian
and minor who has become major.
A bearer cheque presented for cash payment by a minor may be paid as a minor can give a
valid discharge in the capacity of the payee.
Minor can obtain premature payment of FOR as he can give valid discharge but cannot raise
loan against security of FDR.
Joint accounts
Joint accounts can be opened with various types of operating instructions like Either or
Survivor, Joint Operation or Former or Survivor or Either or Joint or Survivor. The position
in such cases as under:
Either or Survivor (E or S): It means anyone can operate the account till both are alive. After
the death of either of them, the bank can pay the balance to the survivor without any
formality.
To be operated jointly: Account will be operated by both jointly till both are alive and, if one
of the two expires, the bank would pay the final balance to the survivor, along with all the
legal heirs of the deceased.
Jointly or by Survivors: Account can be operated by both / all the person jointly during their
lifetime and, in the event of death of any one, the balance is payable to the surviving
persons jointly.
Former or Survivor: Till the first named person is alive, the second named person has no
right to withdraw/operate the account. After the death of the first named person, the
payment will be made to second named person.
In case of "either" or "either or survivor" or "joint" operation any one of the account holders
can stop payment of the cheque. The revocation in case of either or either or survivor can
be done by either but in case of joint operation, revocation has to be done by all jointly. In
case of Former or Survivor accounts, stop payment of cheque can be done by Former and
revocation of stop payment can also be done by Former.
In case of "either of survivor" alteration on the cheque can be confirmed by any of the
account holders.
Any authority to a third party has to be with the consent of all joint account holders.
Joint accounts are joint property. Therefore, unless there is clear mandate in the account
opening form that anyone can undertake the following functions, these should be done by
all joint account holders jointly under signatures of all (a) opening the account (b) closure of
account (c) making or altering nomination (d) raising loan against term deposit (e)
premature payment of term deposit (1) addition or deletion of names.
In case of joint accounts with either or survivor instruction, if any of the account holders
becomes insane, the balance will be paid jointly to the account holders other than who has
become insane and guardian of the insane minor appointed by court.
In all types of joint accounts, Garnishee order issued in joint names will be applicable on
joint accounts but Garnishee order issued in the name of one of the account holders will
not be applicable on joint account.
Partnership Firms
As per section 4 of the Indian Partnership Act, 1932 partnership is the relation between
persons who have agreed to share the profits of a business carried on by all or any of them
acting for all.
Minimum partners: A partnership firm should have minimum 2 partners.
Maximum partners: As per Companies Act 2013, an association of more than 100 persons
which is not registered as Company or Society will be an illegal association. Therefore,
maximum number of partners can be 100. (As per Companies. Act 1956, maximum number
of partners could be 20 for any business other than banking and 10 for banking business).
In case of Limited Liability Partnerships, there is no limit on maximum number of partners.
Who can become a partner? Only a person competent to contract can become partner.
Minor, insolvent, insane cannot become partners A company and a firm can become partner
in another firm.
Who can’t become a partner?: HUF can’t become partner as per judgement of the Supreme
Court because HUF is neither a legal person nor a natural person and can’t be liable for
action of others.
Partnership Deed: Partnership can be oral or in writing. Therefore, banks do not insist on
partnership deed while opening accounts of a partnership concern.
Registration of Partnership: A partnership firm is registered with registrar of firms. Though,
it is not necessary that the firm be registered yet registration is, preferred because an
unregistered firm can’t sue others in its own name for recovery of its dues while others can
sue it in its name. Therefore, while granting loans banks prefer that the firm should be
registered one.
Implied authority of partner: As per section 19 of the Partnership Act, 1932, a partner of a
firm has implied authority to act on behalf of the firm for the normal business of the firm
and bind the firm. Alt actions of the partner in the ordinary course of business are actions
of all partners. However, in the absence of any usage or custom of the trade to the contrary,
a partner's implied authority does not cover '(a) admission of any liability in a suit against
the firm (b) withdrawal of any suit filed on behalf of the firm (c) acquire/transfer any
immovable property on behalf of the firm (d) submitting a dispute relating to the business
of the firm to arbitration (e) opening a bank account on behalf of the firm in his own name
(f) compromising on behalf of a firm (g) entering into partnership on behalf of the firm. But
if all partners agree for these issues—and authorize anyone in this regard, these jobs can be
undertaken by the said partner.
Liability of partner: As per section 25 of the Indian Partnership Act, 1932 every partner is
liable, jointly with all other partners and also severally, for all acts of the firm while he is a
partner. Thus, liability of a partner is unlimited. In case of Limited Liability Partnership, the
liability of partner is limited up to the amount agreed to be contributed by him.
Account of Partnership firm: For opening account of a partnership firm, all partners are
required to sign Account opening form except minor who is admitted for benefits of firm.
In Partnership accounts operation authority is given by all partners. Any change in the
operational authority is also with the consent of all partners including those who were
earlier not authorized to operate. Every partner including a sleeping partner has authority
to stop payment of a cheque issued by another partner of the firm. The revocation of stop
payment of cheque will be as per operational authority.
As per section 18, a partner is the agent of the firm for the purpose of business-of the firm.
Being an agent, he can't delegate his authority to an outsider without the written consent of
all other partners.
Death, insolvency, insanity of partner: On the death, insolvency or insanity of a partner, the
partnership is dissolved and operations are stopped. The cheques signed by the deceased,
insane or insolvent partner will not be paid. If the account is in credit, operations are
allowed for winding up of the firm. In such case operations are allowed on the basis of a
fresh mandate. It the account is in debit, operations in the account should be stopped to
retain liability of the deceased /insolvent partner or his/her estate and to avoid operations
of the Clayton's rule.
Limited Liability Partnership
Limited Liability Partnership is governed by Limited Liability Partnership Act 2008.
It is registered with Registrar of Companies. 3. Minimum number of partners is 2 but there
is no limit on number of partners. An individual or a 15-Ody coporate can be a member of
an LLP. Liability of partner is limited to the extent of his contribution in the firm. A partner
shall not be personally liable.
Accounts of Limited Companies
A limited company is an artificial person with perpetual succession incorporated under the
Companies Act.
Number of members: As per Companies Act 2013, in the case of a private limited company,
minimum number of members should be 2 and maximum number of members excluding
employees can be 200. For public limited company minimum number of shareholders
should be 7 and there is no ceiling on maximum number
Number of Directors: Minimum Directors in a public limited company should be three, in a
private limited company 2 and in One Person Company one. Maximum directors in all types
of companies can be 15. However, company may appoint more than 15 directors by passing
a special resolution. An individual cannot be director of more than 20 companies at one
time out of which public co should not be more than 10.
Shareholders are owners of the company, directors are agents of the company and
debenture holders are creditors of the company.
Documents for opening_ account: For opening account of a limited company bank should
obtain the following: Memorandum of Association: It contains name of the Company, its
authorised capital, registered office and liability of shareholders, objects of the company
etc. Anything done by the directors beyond the objects stated in the memorandum of
association is called ultravires the company and can't be ratified even in a general body
meeting. Directors can borrow only for the objects mentioned in the MOA. if any loan is
given for objects other than those mentioned in Memorandum of Association, company will
not be liable for such loans.
Articles of Association: lays down the internal working of the company like rights and
powers of the directors, rules of conducting meetings, borrowing power of directors etc.
Certificate of incorporation : It is equivalent to birth registration certificate of the company.
This is the most important document. A company does not exist without it. Certificate of
commencement of business: used to be issued by Registrar of companies. Earlier it was
required by public limited companies only. Now it is not required by either public limited
company or private limited company. Resolution of Board of Directors which is passed by
the Board of Directors authorizing opening and operation of the account by named officials
of the company. A copy of the resolution should be attested by its Company Secretary and /
or Chairman of the meeting at which resolution was passed.
While opening account of a limited company, no introduction is required as Certificate of
incorporation is sufficient for that purpose. However, KYC norms are required to be applied
on all persons authorized to operate the account of company.
As per doctrine of 'Constructive Notice' anybody dealing with company is assumed to have
knowledge of Memorandum and Articles of Association.
Operational Authority: The operational authority is decided by Board Resolution. Any
change in operational authority is also as per Board Resolution. Stop payment of a cheque
and revocation of stop payment will be as per operational authority. The directors can not
delegate their authority to any other person.
In case a director dies, the cheques signed by him presented for payment can be paid if
these are otherwise in order and are dated prior to his death.
Common Seal of the Company is to be affixed on documents as per Articles of Association
or Board Resolution.
Borrowing powers of Directors: The borrowing powers of company arise from Memorandum
of Association. The Borrowing powers of directors are given in the Articles of Association. If
it is not mentioned in Articles of Association, it is equal to paid up capital and reserves of
the company. The Board of Directors of a public limited company or a private limited
company which is a subsidiary of public limited company can't borrow in excess of its paidup
capital and free reserves. If the directors want to borrow more than the paid up capital
and reserves of the company, consent of the shareholders is required in the General Body
meeting.
Winding up of company: Winding up can be (a) voluntary (b) Compulsory by court (c)
through court supervision.
Registration of Charge
When to be registered: Under section 77 of the Companies Act, 1956, a charge other than
created by way of pledge or lien, by a company is required to be registered with Registrar of
Companies (ROC).
Modification: Whenever, there is a change in terms and conditions of the loan, then the
particulars of Modification of charge should be filed with the ROC.
Satisfaction: When loan is repaid, particulars of satisfaction of charge should be filed with
ROC , within 30 days of the satisfaction of charge.
ROC with whom particulars to be filed: The particulars of the charge should be filed with
the Registrar of companies in whose jurisdiction the Registered Office of the Company is
located.
Forms: For filing particulars of fresh charge, Form No. CHG 1 is required. Form used for
modification of the charge is same as that for fresh registration. For satisfaction of charge,
Form No. CHG 4 is to be submitted.
Period for filing particulars: Particulars of charge are required to be filed within 30 days of
creation of charge.
Extension of Period of Registration: ROC can grant extension of 270 days in filing
particulars of charge. The company will be required to pay additional fees not exceeding 10
times the specified fees. Beyond this period permission is required from Company Law
Board.
Duty to file particulars of charge: It is the primary duty of the company to get the charge /
modification of charge / satisfaction of the charge registered with ROC. However, if the
company does not get the charge registered, bank in its own interest can file particulars of
charge.
Consequence of non filing the particulars: In case the particulars of charge are not filed, the
bank becomes the unsecured creditor against the official liquidator.
Priority of charge: The priority of the charge is reckoned from the date of creation of charge
(i.e. date of documents) and not from the date of registration if the charge is registered
within the stipulated period.
Accounts of Hindu Undivided Family (HUF)
HUF is neither a legal person nor a natural person, It is not created by agreement. 1t is not
incorporated under any Act. It is from—a-eornmon ancestor and membership is by birth or
adoption. The eldest coparcener including daughter is the Karta and continues to be Karta
even when he/she lives outside India.
Operational authority to operate the account is with Karta. Karta can appoint any other
coparcener or third party to conduct business of HUF and/or operate the account. Co
parcener cannot stop payment of the cheque unless he is authorized to operate the account.
In case of death, insanity or insolvency of Karta, next senior most member of family
becomes Karta. The liability of Karta is unlimited while that of co-parceners is limited up to
their share in the firm.
Account of Trusts
Types of Trusts: Trusts can be of two types - private trusts where beneficiaries are certain
specified individuals or groups and public trusts where beneficiary is public at large. The
document creating a trust is called 'trust deed'. Public Trusts are registered with the Charity
Commissioner.
Operational Authority: The operation and other aspects of the bank account are to be
conducted as per the Trust Deed. Unless otherwise provided for in the trust deed, all
trustees have to operate the account jointly. Trustees can't delegate their powers to an
outsider even by mutual consent.
Loan to a trust: Unless specifically provided for in the trust deed, no trustee can raise loan
against the security of the assets of the trust. Loan should be for the objects as mentioned
in the Trust Deed.
On the death of a trustee, the trust property is passed on to the next trustee while in the
event of death of sole trustee or last surviving trustee, the court can appoint a trustee.
Death or insolvency of a trustee does not affect the trust property-and the bank can pay
cheques issued by the deceased trustee prior to his death.
Stop payment of a cheque and revocation of stop payment as per operational authority.
Account of Executors and Administrators
An executor is a person named by the deceased in his will to mange his estate whereas an
administrator is appointed by the court of law for the same purpose where the deceased
dies without leaving behind a will.
Executors and administrators are treated as one person. On opening a bank account,
therefore, executors/administrators can authorize any one or more of them to operate the
account. On the death of an executor or administrator, the surviving executor(s) or
administrator(s) can continue to operate the account unless otherwise provided for in the
will or letter of administration.
While opening the account of an executor, bank should obtain letter of probate, which is an
official confirmation of the will of the deceased by a court of law. For opening account in
the name of administrator(s), letter of administration is required which is issued by the
court of law.
Societies and Clubs
Societies and Clubs are non-profit making organizations.
These can be registered under Societies Registration Act 1860 with Registrar of Societies.
Societies can also be registered with Registrar of Companies under section 25 of Companies
Act which pertains to nonprofit making companies.
Documents to be obtained while opening the account: (i) Copy of Registration Certificate (ii)
Copy of Bye laws which contain rules and regulations (iii) Copy of resolution passed by the
Managing Committee which should include authority to open the account and operational
authority.
Cheques presented after death of Secretary or Office Bearer: Any cheque signed by the
Secretary of Club or Society or any other office bearer who is authorized to operate the
account and presented after his death can be paid provided if is otherwise in order and
dated prior to his death.
Mandate and Power of Attorney
When an account holder authorizes another person through a simple letter of authority, it is
called mandate. On the other hand, power of attorney is executed on stamped paper and
may cover any other transactions besides opening/operation of an account. Bank generally
accepts mandates. However, Power of Attorney is also acceptable. A mandate does not
require witnessing or stamping. On the other hand, power of attorney is stamped as per the
State Stamp Rules of the state where it is executed. It must either be registered with a
Registrar of Documents or attested by Notary Public.
The account holder can revoke mandate or power of attorney any time even if it is stated to
be irrevocable.
Any cheque signed by the agent and presented after cancellation of authority shall not be
paid irrespective of date on the cheque.
Any cheque signed by agent and dated prior to delegation of authority will not be paid.
Power of attorney or mandate is revoked by death, insanity, insolvency of the Principal. Any
cheque signed by the principal or agent presented after the death, insanity or insolvency of
the principal will not be paid.
In case Cheque issued by the agent is presented for payment after his death, insanity or
insolvency, the same can be paid provided the same is dated prior to the date of death or
insanity of the agent.
Death of a Customer and Settlement of Claims
In the case of death of individual customer, operation in the account should be stopped.
The person named in the will or probate is called Executor. When a person dies without
writing will, he is said as having dies intestate.
For making payment of balance in the account of deceased customer to legal heirs of the
deceased, Succession certificate is not mandatory for any amount.
While delivering contents of locker or safe custody, inventory should be prepared. If some
sealed packet is found in the locker of safe custody, it should be delivered as it is without
opening the same.
The claim should be settled and payment should be made within 15 days from the date of
receipt of completed papers.
If any credit is received in the account after death of customer, it should be credited to a
separate account in the name of customer with the permission of legal heir or nominee.
Otherwise it should be returned to remitter under intimation to the legal heir or-nominee.
Pre-mature payment of term deposit can be allowed but no loan can be allowed.
Interest in case of current account should be paid at Saving rate from date of death till date
of payment.
In case of term deposits, up to due date interest should be paid at contracted rate. For
overdue period. Interest should be paid at applicable rate on date of maturity if the death
was before maturity and at saving rate if the depositor died after maturity.
Nomination Facilities in Customers' Accounts
Nomination facility was introduced on the recommendation of Talwar Committee.
Nomination facilities are available in deposit accounts (Sec 45 ZA & 45ZB of Banking
Regulations Act), articles deposited for safe custody with the bank (Sec 45ZC & 45ZD) and in
locker accounts (45ZE & 45ZF).
Sections 45ZA, 45 ZC, 45ZE relate to nomination change in nomination and cancellation of
nomination. Sections 45ZB, 45 ZD, 45ZF state that bank will be discharged of liability by
making payment/delivery to nominee.
Where facility is available: All types of deposit accounts like SB, CA, FD, RD, NRE, FCNR(B)
and NRO.
Who can nominate: Individual, joint account of individuals or a sole proprietorship firm.
Who cannot nominate: Partnership firm, HUF, clubs/societies/limited companies/trusts. A
minor cannot appoint a nominee. On his behalf, nomination facility can be exercised by the
person legally competent to act on behalf of the minor.
Who can be nominee: Only an individual including minor. If nominee is a minor, the
depositor has to appoint a major person to receive deposit amount / articles in the safe
custody / locker etc. on behalf of the minor nominee.
Number of nominees: Deposit accounts — only one; Safe Custody — only one but if articles
are deposited by more than one person, nomination facility is not available; Safe Deposit
Locker – single names or in joint names with either or survivor instruction only one; Locker
in joint names with joint operation - more than one nominee (max 2).
When does the right of nominee start?: In case of joint accounts, right of a nominee starts
only after death of all depositors. The only exception is the nominee(s) in case of jointly
operated lockers.
Status of nominee: The status of nominee is just like trustee of legal heirs.
Legal Heir versus nominee: bank will make payment to the nominee unless there is a court
order to make payment to legal heirs. Bank gets a valid discharge by payment to nominee.
In case of term deposits, there is no need of fresh nomination in the case of renewal of FDR.
While making nomination, the thumb impression of the accountholder should be attested
by two witnesses. However, signatures of the accountholders in forms DA1, DA2 and DA3
need not be attested by witnesses.
In the case of accounts in the name of single persons, nomination must be obtained. If the
depositor does not want to nominate anybody, he should give in writing.
Banks should incorporate the legend "Nomination Registered' on every pass book or deposit
receipt. In addition to the legend "Nomination Registered", banks should also indicate the
name of the Nominee in the Pass Books / Statement of Accounts / FDRs, in case the
customer is agreeable to the same.
Nomination can be made any time. It can be cancelled and changed any time.
SETTLEMENT OF CLAIMS IN RESPECT OF MISSING PERSONS
As per the provisions of Section 108 of the Indian Evidence Act, presumption of death can
be raised only after a lapse of seven years from the date of his/her being reported missing,
As such, the nominee / legal heirs have to raise an express presumption of death of the
subscriber under Section 107/108 of the Indian Evidence Act before a competent court. If
the court presumes that he/she is dead, then the claim in respect of a missing person can
be settled on the basis of the same.
Banking Ombudsman Scheme 2006.
The Scheme was introduced in 1995 under Section 35A of Banking Regulation Act.
Scheme is applicable to all Scheduled Commercial Banks including private sector, public
sector, foreign banks, RRBs, Scheduled Co operative Banks throughout India including J&K.
Ombudsman is appointed by RBI. The appointment will be for 3 years at a time.
The Chief General Manager / General Manager of RBI can be Banking Ombudsman.
The expenses of the Ombudsman will be borne by RBI.
Scope: Complaints relating to deficiency in service in deposit, ancillary services, non
adherence of RBI guidelines on advances, credit card, internet banking, non-adherence to
the provisions of the fair practices code for lenders or the Code of Bank's Commitment to
Customers issued by the Banking Codes and Standards Board of India (BCSBI).
Period for filing complaint: if no reply is received from the bank within one month of
lodging the complaint with bank or reply received is not satisfactory. Maximum period is 1
year from the date of receiving the reply from the bank and 13 months from the date of
making the complaint to the bank if reply not received.
Ombudsman will not entertain a complaint where (a) case is pending in the court (ii) case
has already been decided by the court (iii) similar case has already been decided
Ombudsman.
The role of the Ombudsman is that of Arbitrator with mutual consent.
Amount of Award: actual loss suffered by the complainant subject to a maximum of Rs 10
lakh; In case of credit cards, up to Rs 1 lakh.
Period for acceptance: 30 days of receipt of the copy of the award.
Period for implementation by bank: 1 month of receipt of acceptance from the complainant.
Appeal: Complainant can file an appeal to the Appellate authority (Deputy Governor, RBI)
within 30 days of the of the date of receipt of communication regarding award or rejection
of the complaint. Bank may also file appeal with Deputy Governor, RBI within thirty days
from the date of receiving acceptance from complainant. Appeal may be filed by a bank
only with the previous sanction of the CMD or ED or CEO of the bank.
If the bank does not implement the award it should inform Customer Service Committee of
the Board and also give a note to this effect in the Annual Report of the Bank.
The Scheme does not include certain banking transactions, such as, failure to honour bank
guarantee or letter of credit and misbehavior of staff.
Other issues relating to Customer service
Banks should submit a statement of all the complaints received at the Head Office /
Controlling Office level/branch level. However, where the complaints are redressed within
the next working day, banks need not include the same in the statement of complaints.
Delays in Cheque Clearing: For local cheques credit and debit shall be given on the same
day or at the most the next day of their presentation in clearing. Timeframe for collection of
cheques drawn on state capitals / major cities / other locations to be 7/10/14 days
respectively. If there is any delay in collection beyond this period, interest at the rate
specified in the Cheque Collection Policy of the bank, shall be paid.
Customer Committees: Branch level committees include their customers including senior
citizen. The Branch Level Customer Service Committee may meet at least once a month.
Cheque Drop Box: Both the drop box facility and the facility for acknowledgement of the
cheques at the regular collection counters should be available to customers and no branch
should refuse to give an acknowledgement if the customer tenders the cheque at the
counters. Banks should invariably display on the cheque drop-box itself that "Customers
can also tender the cheques at the counter and obtain acknowledgment on the pay-in-slips".
The above message should he displayed in English, Hindi and the concerned regional
language of the State.
Code for Banking Service: Salient features
Changes in Fees & Charges: If bank increases any of charges or introduce a new charge, it
will be notified one month prior to the revised charges being levied / becoming effective.
Changes to Terms and Conditions: (i) normally, changes will be made with prospective
effect giving notice of one month. (ii) If any change is made without notice, bank will notify
the change within 30 days. If such change is to customer's disadvantage, customer may
within 60 days and without notice, dose account or switch it without having to pay any
extra charges or interest. Bank will immediately update on its website, any changes in the
terms and conditions.
Chapping customer's account: (a) If customer is not happy about choice of current / savings
account, within 14 days of making first payment into the account, he can switch to another
account or Bank will give customer's money back with any interest it may have earned. If
customer decides to close his current/savings account, Bank will close account within three
working days of receiving customer's instructions.
Savings/Current Accounts: Bank will inform of any change in minimum balance to be
maintained 30 days in advance.
Consumer Protection Act
Consumer Protection Act was implemented with effect from April 15, 1987. The Act is not
applicable in J&.K.
A complaint can be filed by the consumer, voluntary consumer association, Central or State
Government.
Objective: to address consumer's grievances against deficiency in the quality of goods or
services for consideration.
Limitation period for lodging the complaint is 2 years from the date of cause of action.
The Forum operates at three levels i.e. District, State or National. For claims up to Rs 20 lac,
complaint will be lodged with Distt. Forum, for claims over Rs 20 lac up to Rs 100 lac with
State Commission and for claims more than Rs 100 lac with the National Commission.
Admissibility of complaint to be decided within 21 days of the receipt of complaint;
decision within 3 months without analysis and within 5 months with analysis.
Appeal from one forum to another can be made within 30 days of the order. For making
appeal against decision of District Forum to State Forum, amount to be deposited is 50% or
Rs 25,000 whichever is less, to National Forum it is 50% or Rs 35,000 whichever is less and
for making appeal against decision of National Commission to Supreme Court the amount
to be deposited is 50%or Rs 50,000 whichever is less.
Punishment for Frivolous complaint: Imprisonment 1 month to 3 years and fine Rs.2000 to
Rs.10000
General banking bits
1. A customer Mr Sharma had credit balance 40,000 in his saving ac and also had an OD ac with
overdue Debit balance of 20,000.Bank debits his saving account and adjusts OD ac. The bank is
said to have exercised Right of: Set-off
2. A Minor has extended Guarantee to a loan. It can be ratified by whom? It cannot be ratified by
any one.
3. A savings account becomes inoperative when it not operated for: 2 years
4. A term deposit of a HUF has become due. At the time of renewal, the Karta of HUF informs that
he has become Senior Citizen. What rate of interest will be given on term deposit? : Normal
interest rate. No benefit of senior citizen to be given
5. Additional interest is paid to senior citizens on which time FD: All fixed deposits (may vary from
bank to bank)
6. After Nomination in an account, what is the status of the nominee?: Trustee of legal heirs
7. An account of a customer can be closed in normal course on the request of the customer.
What are the other methods for closing account of a customer – (a) By negotiation; (b) As per
provisions of law; (c) After notice to customer in respect of undesirable accounts: Ans is C
8. An Illiterate person is generally not allowed to open which account – saving, term deposit,
recurring deposit, small account, Current Account: Current account.
9. As per RBI guidelines, Demand draft of Rs 50,000 and above should be issued against : by debit
to account but not against cash
10. As per RBI guidelines, minimum amount of deposit to open BSBDA account is: NIL
11. As per Sukanya Samridhi Account (SSA) the tenure of deposit is for years from the date of
opening of the account: 21 years
12. Bank is not required to produce original book of records but true copy can be submitted when
court has demanded as per which act? a) Civil procedure code b) Registration act c) B.R. Act d)
RBI act e) Banker Books Evidence Act.
13. Banker Customer relationship for deposits is ____: Debtor – Creditor.
14. Banker customer relationship in Safe Custody: Bailee Bailor.
15. Banker customer relationship in standing instruction: Agent – Principal
16. Bankers prefer Saving Deposits than Term deposits. Why?: Because cost of deposits for SB is
less.
17. Banks can decide interest rates of NRI, NRO or Term Deposits: Yes
18. Banks can raise what type of deposits?: Term and Demand Deposits
19. Banks should have the responsibility of currency management entrusted to a nodal official of the
rank not less than that of a General Manager and will be accountable for the obligations cast
upon currency chests by the Reserve Bank.
20. BC work as : Bank’s Agent
21. Business Correspondent can be identified by whom?: BDO,Post Master, Head of Village
Panchayat, other BC.
22. Business correspondents for banking for : serving weaker sections of society
23. Call money deposit is part of the sector : Organised sector
24. Complaints under Consumer forum should be dealt with within (Where no testing of commodities
is required) : 90 days.
25. Customer OD A/c has overdrawn Rs 2000/-. Saving A/c has balance Rs 3000. The bank adjusts
the OD A/c by which right: Set off.
26. DD of Rs.50000/- in cash : not allowed
27. Death claim settlement in how many days?: 15 days
28. Deposits held in Joint accounts; b) Corporate Deposits; c)
Inter-Bank deposit; d) Deposits of HUFs: Ans is Inter-Bank deposits.
29. Deposits which are not claimed for__years are required to be transferred by banks to
RBI: 10 years
30. DICGC cover is available in which of the following cases a) Credit balance in Cash Credit Account
b) Overdue Deposit c) Deposit of Government Department?: A & B
31. Differential rate of interest can be paid on fixed deposit if single deposit is for: Rs.1.00 crore
and above
32. Direct Tax Code will replace which of the following – Income Tax Act, Corporate Tax Act: Income
Tax Act.
33. Encashment of FOR with interest - payment can be made in cash if it is less than Rs 20000
34. Financial Inclusion means: providing banking services at affordable cost to the poor/distressed.
35. FULL FORM OF CASA? : CURRENT ACCOUNT & SAVING ACCOUNT
36. Garnishee order is not applicable to: a) Savings b) Current c) FD d) CC/OD with debit
balance: CC/OD with debit balance.
37. Govt. has decided to demonetize all the coins of paise 25 and below w.e.f. 30-6-2011.
38. How much amount can be deposited in a small account in a financial year?: Rs one lac
39. How much amount can be withdrawn from a small account in a month?: Rs 10,000
40. If in Garnishee Order no amount is mentioned, what should the bank do? Full amount to be
attached.
41. If payment of Rs 20000/- is made in cash in case of FDR what is the penalty: equal to the
amount paid
42. Illiterate account holder, how many witness for nomination: two
43. In Basic Savings Bank Deposit Account in all their accounts taken together and the total credit in
all the accounts taken together is not expected to exceed _____ in a year has been simplified to
enable those belonging to low income groups without documents of identity and proof of
residence to open banks accounts: 1,00,000/-.
44. In case Fixed Deposits account the rate of interest fixed by whom: Board of Directors of
respective bank.
45. In case of a/c transfer, with in how many days the address proof has to be submitted in the
transferee branch? Six Months
46. In case of an illiterate customer, process of nomination requires witnesses by how many
persons?: Thumb impression requires 2 witnesses.
47. In case of Deposit Insurance whether it mandatory or not: It is Mandatory for all banks.
48. In case of Deposit Insurance, Insurance premium is paid to DICGC by bank and depositor in
which ratio?: Entirely by bank.
49. In case of insurance of deposits by DICGC, premium is paid by: Bank. 100% of the premium
is paid by the bank and not by depositor.
50. In case of insurance of deposits by DICGC, what is the premium sharing ratio between bank and
depositor?: 100% of insurance premium is paid by the bank.
51. In case of Minor what is wrong? Minor can make himself liable for his actions.
52. IN CASE OF TRANSFER OF ACCOUNT, WITHIN HOW MANY DAYS, THE ACCOUNT HOLDER
SHOULD ADVISE NEW ADDRESS?: TWO WEEKS
53. In how many years of no transaction does a saving and current account become inoperative? :
two years
54. In Limited liability Partnership what is the liability of partner?: Amount agreed to be
contributed by partner at the time of joining partnership.
55. In saving accounts, interest is calculated on the basis of: daily product basis.
56. In Senior Citizen Saving Scheme account, who can be joint account holder?:Spouse
57. In small accounts as per RBI- No min. balance, nil/minimal charges etc
58. In small accounts monthly withdrawals to be upto- Rs.10000/-
59. Insurance of deposit is done by DICGC up to: Rs 1 lac per depositor per bank.
60. Interest rate on Saving Deposit is decided by : Banks individually
61. Interest rate on Savings accounts: Not regulated by RBI
62. Max amt for tax saver FD: Rs 150000
63. Maximum amount of deposit in Tax Saving Scheme of the bank can be: Rs 1,50,000
64. Maximum deposit for allocating a locker: 3 year advance rent plus locker breaking charges
65. Maximum period of NRE deposit: Bank Discretion.
66. Minimum and Maximum amount that can be deposited in PPF account is _____: Minimum Rs.
500/- & Maximum Rs. 1.50 lacs.
67. Minimum Lock in period for Tax saver FDR: 5 Years
68. Minimum Maturity Period for Certificate of Deposit is : 7 days
69. Missing person treated as having expired if missing for: 7 years
70. No Frills Accounts are opened for: Financial Inclusion
71. No of digits in Aadhar : 12
72. Non Resident (External) fixed deposit is normally accepted for a period of (a) 1 year to 3 year
(b) 1year to 5 year (c) 1 year to 4 year (d) 1 year to 7 year (e) 6 months to 3 year: 1 year to 3
year (As per RBI it is minimum 1 year and maximum bank discretion)
73. OD in PMJDY account upto: Rs. 5,000/-.
74. On a cheque presented for payment, amount is written in words but all other items are written in
Regional Language. What should the bank do?: Pay the cheque
75. Pensioner account can be opened jointly with? Spouse as Either of Survivor or Former or
Survivor.
76. Rate of Interest in Sukanya Samridhi Account for 2015-16: 9.20% & 8.6% FOR 2016-17
77. Relation between bank and judgment debtor: debtor & creditor.
78. Safe custody of Articles comes under which Act: Indian Contract Act.
79. Star series note can be issued in denomination of Rs 100 also. (earlier only Rs 10, 20 & 50)
80. Super senior citizen after: 80 years of age
81. The balance in the account is Rs 15000. A cheque of Rs 30000 was sent for collection. Before it
is realized a cheque for Rs 20000 has been presented for payment. What should the bank do –
(a) Return with reason effects not yet cleared. Present again; (b) Pay the cheque; (c) Return
with reason exceeds arrangement; (d) Return with reason Refer to Drawer; (e) Return with
reason Insufficient Funds: Insufficient Funds
82. The minimum & maximum period of certificate of deposit is : 7 days, 12 months
83. There is a credit balance in the saving account and there is a overdraft in the current account
amounting to Rs 555. Both accounts are in the same name. Bank wants to adjust credit balance
of saving bank account towards payment of overdraft. As per which right, bank can do this?:
Right of Set Off.
84. Under Sukanya Samridhi Account (SSA) the maximum period upto which the deposits can be
made is for ___ years from the date of opening of the account: 14 years
85. Under Sukanya Samridhi Account (SSA) the minimum amount of deposit is Rs 1,000 and Under
Sukanya Samridhi Account (SSA), the bank account will be opened for a girl child upto the age
of: 10 years
86. Under Sukanya Samridhi Account (SSA), the current rate of interest on deposits is which is the
highest amongst all other Govt. Saving Schemes: 9.20% & 8.6% FOR 2016-17
87. What are the Service charges for using ATMs of other banks for balance enquiries: Rs.20 for
Financial & Rs. 10 for Non- Financial upto 5 transactions ( 3 at Metros)
88. What documents are required for opening a small account?: Self attested photo and address
89. What is the bankers-customer relationship in case of deposits? Debtor – Creditor
90. What is the distance criteria for office of Business Correspondent?: The distance between the
place of business of a retail outlet/sub-agent of BC and the base branch should ordinarily not
exceed 30 kms in rural, semi-urban and urban areas and 5 kms in metropolitan centers.
91. What is the maximum amount of loan that can be granted against FCNR deposit? No limit.
92. What is the periodicity of review of risk classification of customers?: Every six months
93. What is the rate of interest payable on an overdue FD for overdue period if customer demands
payment and does not renew the same?: Saving Bank Rate
94. What is the special feature of Basic banking Account? Account can be opened with nil or very
small amount and there are no requirement of minimum balance.
95. What type of account can be opened in the name of NRI jointly with residents? NRO /NRE/FCNR
(earlier only NRO)
96. What type of activity can be performed by Business Correspondent - (a) processing and
submission of applications to banks; (b) disbursal of small value credit, (c) recovery of principal /
collection of interest (iv) collection of small value deposits: All of these
97. When a person wants to open an account with a bank but does not have proof of identification
and address, what type of account can be opened?: Small account
98. When Letter of Administration issued: When the person dies without leaving the Will- Intestate.
99. Whether “WILL” has to be registered? Not required.
100. Which form is used for cancellation of nomination in deposit accounts?: DA -2
101. Which is not a proof of Identity?: Ration card.
102. Which is the most important document for opening a Trust Account?: Trust Deed
103. Which of the following forms will be used for allowing exemption to a depositor aged 61 years
: Form 15 H
104. Which of these rates are periodically reviewed by RBI?: Repo rate, Bank rate, but not Savings
Bank Rate.
105. While opening account, a bank, in addition to observing various provisions of Indian Contract
Act should also – exercise utmost care and attention; look at profitability from account; exercise
due diligence: Due diligence
106. While opening the account with a bank, prospective customer is required to submit – PAN No
or Form 60 or 61
107. Who are eligible for preferential rate of interest under NRE deposits: a) Staff b) Senior citizen
c) Staff cum Senior Citizen d) none of these?: None of these
108. Who can do nomination in the account of a Minor?: Can be done by guardian not by
minor
109. Who of the following can exercise nomination – HUF, limited company, trust, Partnership firm,
sole proprietorship firm?: Sole Proprietorship firm.
BANKING LAWS - NI,BR & RBI ACT
1. As per section 26 of the Negotiable Instruments Act, a Minor can draw, endorse, accept anegotiable instrument but he can not : bind himself
2. A has granted Irrevocable Power of Attorney in favour of B for one year. After 3 months, A
revokes the Power of Attorney. A cheque signed by B is presented for payment_ What will you do?
The cheque will not be paid because POA can be withdrawn before maturity and once it is
revoked, no cheque signed by agent can be debited to account of Principal
3. What is the Doctrine of Ultra Vires in the context of a limited company?: Any act by the directors
beyond the object of the company is considered ultra vires the company and company is not bound by
such act.
4. A minor who was admitted to the benefits of partnership has become major. Within how much
period, he has to decide to remain partner in the firm or not?: within 6 months of attaining majority or 6
months of knowing that he is the partner in the firm whichever is later.
5. If on a cheque words "Account Payee" is written between two parallel lines or with the name of a
bank, then: the cheque can not be endorsed.
6. Which type of crossing is required to be done if the drawer wants that in case of endorsement, the
title of transferee of the cheque should not be better than the title of the transferor: Not Negotiable Crossing
7. In the case of dishonour of a cheque due to insufficient funds, for enforcing rights under section 138
of the Negotiable Instruments Act 1881, the holder should send a notice to the drawer within: 30 days from
the date of receipt of notice regarding dishonour of the instrument.
8. The Limitation period for filing case in case of dishonour of cheque due to insufficient funds is: 1
month from the date of cause of action.
9. Objectives forwhich a company has been formed are given in:Memorandumof Association
10. Full formof BCBS is Basel Committee on Banking Supervision.
11. Direct Impact of increase in CRR is : Controlling Liquidity
12. Banks can not issue Demand Draft payable to Bearer as per provisions of : Section 31 of the RBI Act
13. Grace Period is allowed in the case of : Usance Bills and Usance Promissory Notes
14. Indian Banks are required tomaintainminimumCapital AdequacyRatio of : 9%
15. In the case of individuals and HUF, tax will be deducted at source if the interest on term deposit in
a financial year is : more than Rs 10,000
16. If Power of Attorney is executed outside India it should be stamped within:90 days of its first arrival in
India
17. For its implementation, the complainant should accept the award given by Ombudsman within: 30
days of the receipt of the copy of the award.
18. When proceeds of cheque are given before clearance of the cheque the banker will be called:
Holder for Value
19. In the case ofWrongful dishonour of cheque, towhomthe bank is liable?:Drawer
20. If date on a cheque is prior to the date of its presentation, it is called: Ante Dated cheque
21. What isminor's liability in HUF Account:Minor is not liable
22. When does the right of nominee starts in respect of a deposit account?: After death of all depositors
23. For injectingmoney in themarket which type of transaction is undertaken?: (a) Repo (b) ReverseRepo
24. RBI controlsmoney supply through: change in CRR
25. Loan given to a director can be waived: after permission of RBI.
26. Under theOmbudsmen scheme, theBank has to reply to the objection of the complainantwithin: onemonth
27. A post dated cheque is passed in the account of a customer. But another cheque whichwas in orderwas
dishonoured due to insufficient funds.What is the liability of the Banker?: Bank is liable to the drawer for paying
post dated cheque as bank is not justified in paying post dated cheque. The bank will be liable to drawer for
damages on account ofwrongful dishonour of cheque.
28. Which type of preferential shares are treated as part of Tier I capital of the Bank?: Perpetual Non
Cumulative Preference Shares.
29. As per RBI guidelines, all banks are required classify business in various business segments with effect from
31-03-2008. The segments are: (a) Treasury (b)Corporate /WholesaleBanking, (c)Retail Banking, (d)Other
Banking Business. The geographical segments are 'domestic' and 'international'.
30. Customer of your bank asks for cash payment of crossedDD.What would you do? Generally payment only
through bank account.However, bank can pay after duly satisfying the genuineness of the draft and payee but bankwill
continue to be liable to true owner if recipient is not true owner.
31. A cheque is presented for payment in which the amount in words and figures is different. Bank
should pay which amount?: amount written in words will be paid.
32. Whether aPrivateLimited companycan be a partnerwith PublicLimited companyto formaPartnership?Yes
33. In the context of Nomination, which is correct statement?:Signatures of nominee not required
on nomination form. Nominee's name should be mentioned on FDR if agreed by the customer.
34. A bearer cheque of Rs.7,000/- was presented. The cashier informed that the cheque can not be passed as
the balance is less byRs.700/-. The tenderer credited the amount of shortfall and the chequewas paid. Customer
disputed the transaction.Whether bank is liable?: Yes. For disclosing balance to third party, bank is liable to
account holder.
35. When an order passed by Banking Ombudsman is accepted by the complainant, the same
should be complied within: 1 month from the date of receipt of acceptance from the complainant.
36. Penalty for delay is per day if information is not furnishedwithin prescribed time under Right to
Information Act: Rs. 250 per daywithmaximumbeing Rs. 25,000/
37. A crossed DD was paid by cash. What risk is there for the Bank: Bank will be liable to true
owner of the DD if payment made to a person other than true owner (Section 129 of N I Act).
38. A cheque is written in English and Regional Language. Whether it can be paid?: Yes. A cheque
written in different language can be paid if otherwise in order.
39. Who cannot become a partner in a firm as per supreme court judgmentHUF
40. Introducers liability / responsibility in case of an account holder defrauding Bank is : To assist
the Bank in locating the a/c holder - does not have legal liability
41. Nomination -Minor can be a nominee.
42. Inoperative accounts: 2 Years&above not operated.
43. RTI Act - party seeking information need not disclose the reasons for which the information
sought for.
44. Counterfeit notes returned after police verification, the same has to be preserved for 3 years
subject to half yearly verification.
45. Validity period of cheque reduced to 3months from1.4.12 as per : RBI Guidelines under sec 35A of B R
Act
46. Crossed cheque payment across the counter to the authorized Officer of collecting Bank - can be
made and there are no violation as per NI Act. 255.
47. The consequence of non registration of Partnership - firm cannot sue others for its dues.
48. Banks are required to implement the award of Ombudsman unless a decision is taken to appeal
against the same within one month from the date of receipt of acceptance of the award by the
complainant.
49. Account holder A & B want to substitute their name with the name of their sons C & D in the
account. What should the bank do?: Substitution of all names is not allowed. At least one of the
original account holder should be retained in the account.
50. When only image of cheque is sent to the paying bank while sending cheque for collection
instead of sending the physical cheque, the process is called: Cheque Truncation
51. A Cheque partlywritten in English &partly in regional language is presented for-paymentWhat
should the bank do?:May be paid, if otherwise in order and the language other
than.English is the regional language of the area where the cheque is presented.
52. An authority has been granted in an account You have received information about the death of the
Principal. Today, you receive a cheque signed by the agent which is dated prior to the death of the Principal.What
should the bank do? : Cheque can not be paid as authority of agent comes to end with the death of the
Principal.
53. You aremaintaining current account in the name of the Trust.You receive notice of death of one of the
trustees. After this notice, a cheque signed by the deceased trustee is presented for payment.What should the bank
do?: Chequemay be paid, if otherwise in order.
54. As per Consumer Protection Act, the period for filing appeal to State Commission against
decision of the District Forum is: maximum 30 days
55. Who can not be full fledged partner:Minor
56. Can Karta of HUF appoint Agent or delegate the powers to other co-parcener: Yes, he can do so.
57. Money deposited after receiving order may be attached in the case of: attachment order
58. Original & duplicate draft presented simultaneously for payment: Duplicate should be paid &
original should be returned.
59. Company has registered office at Delhi, factory at Kolkata & loan taken at Mumbai. For creating
equitable mortgage title deeds can be deposited at: any notified city.
60. Reasons for avoiding advance to Un-Registered Partnership Firm: Firm can not sue against
anyone for recovery of its debts but anyone can sue against the firm.
61. What is the effect of 'Not Negotiable Crossing'?: Transferee does not get better title than the transferor.
62. Payment of cheque can be stopped by: only Drawer of the cheque
63. Account payee crossing defined in:-Not defined anywhere
64. What is the current rate of interest paid on CRR?:NIL
65. How can be the transferability of Bill of exchange can be restricted? Bymaking restrictive endorsement
66. If on a Bill-of Exchange, two parallel lines are drawn and not negotiable is written between the lines,
what kind of the crossing will be there: Provisions relating to crossing are not applicable to Bill of Exchange.
67. Within priority sector,what is the allocation toweaker section?: 25%
68. Maximumtimewithinwhich replymust be given under Right to information act? 30 days
69. What is the status of Nominee? Trustee of Legal heirs
70. Safe deposit vault is governed by provisions of: Transfer of Property act
71. A cheque signed by agent has been presented after his death for payment.What should the bank do?: The
chequewill be paid if otherwise in order.
72. Purpose of star series notes: To replace defectively printed notes
73. Customer-bank relationship in locker account: Lessee-Lessor
74. Uptowhat amount District forumcan be approached under Consumer ProtectionAct?: Rs.20 Lacs
75. Appeal against the award of Ombudsman can be made by the bank within: 30 days of receiving
the acceptance from the complainant.
76. Cheque issued by director of a company and presented after his death will be: Passed if in order
77. What would be the action of central bank in recession?: create liquidity by decreasing CRR and
lower the repo rate.
78. Ante dated cheque like cheque dated 15.12.07 is presented for payment on 1.1.08whereas_ the account was
opened on 20.12.07 : Cheque should be passed
79. If amount in words and figures differ on a cheque and amount written in words is higher than the
amount written in figures, then as per sec.18 of NI Act, which amount should be paid?: amount written in
words
80. Nomination facility is not available in the case of : Trust A/c.
81. customer service Committee meeting held on :Monthly basis
82. A person wants to open a joint account with his wife in such a way that the account can be operated
by him only during his lifetime and she should be able to operate the account only after his death. The
account has to be opened with the instructions: 'Former or survivor'.
83. For wrongful dishonour of the cheque the bank is liable to: the drawer of the cheque
84. Banks print cheque books having similar particulars. The format of cheque is prescribed by which
Act : Not defined in any Act. It is as per practice. CTS 2010 advised by RBI
85. Which crossing takes away the feature of assumption of defective free title available to the
transferee : Not negotiable crossing
86. Who is appointed to tackle public complaints against the public authorities : Ombudsman
87. The facility of nomination is not available to Trust account because it is account : Non-individual
(facility of nomination is available only in the case of individual(s).
88. The true owner of a cheque has been deprived of his right by collection of the cheque for a
different person. This is called Conversion
89. As per recent RBI/Govt. guidelines, pensioners can open account jointly with: spouse, to be
operated as either or survivor or former or survivor.
90. While paying a bearer cheque, signatures are obtained on the back side of the cheque. Why ? : As
evidence of payment
91. Whether Minor can nominate ? no. On his behalf nomination will be done by a person legally
competent to act on his behalf.
92. Cheque is dated before date of its presentation is called: Antedated cheque
93. An endorsement inwhich endorser excludes his liability is called : sans recourse
94. When a company is financed against the security of hypothecation ormortgage of itsmovable property, the
company is required to file particulars of chargewith: Registrar ofCompanies
95. Who is called as Holder as per N I Act?: Who is entitled to possession of the instrument in his
own name (actual possession is not necessary).
96. If a cheque is dishonoured due to insufficient funds, then as per section 138 of N I Act, court may
award imprisonment up to: 2years
97. On the face of a cheque, the name of a bank is writtenwithout two parallel lines. Thiswill amount to : special
crossing
98. A/c payee crossing is defined in : it is not defined in any Act. It is as per practice
99. Nomination facility for deposit accounts is available under: 45ZA&45 ZB of the BR act
100. Maximum amount of deposit which a bank may ask while allowing locker facility to a customer:
Advance rent for 3 years and locker breaking charges
101. Asolicitor has account in his name and in the name of his client.Garnishee order is received in the name of
the solicitor.Whether the samewill be applicable in the name of client also: No because two accounts are not in the
same right and same capacity.
102. Which of the following is not amaterial alteration? Changing bearer to order
103. A bill issued without consideration is called: Accomodation Bill
104. There is a joint account in the name ofA&B.Acheque is drawn byAbut the alteration in the amount is
authenticated byB.Whether bank can pay the cheque: Yes provided the operation is either or survivor.
105. The term used for conversion or transfer of property derived from a criminal offense for the
purpose of concealing, or disguising, the illicit origin of the property is called: Money laundering
106. In which of the following situations bank will not be a holder in due course?: When bank credits
the account of the customer after receipt of funds on account of cheque sent for collection
107. The rate at which RBI rediscounts the usance bills of banks is called: Bank Rate
108. In the case of IPO, the company is required to allot shares ormake refundwithin: 30 days of the closure of
the issue in case of fixed price public issues; 15 days in case of book built issues and 15 days in case of right issues
112. Bankcanchargecollectionchargesofnotmorethanfor_outstationchequesofRs10000toRs1lacinsavingbank:Rs.100
113. Which of the following cheques can not be paid by the bank? : Acheque onwhich signatures of drawer
have been forged irrespective of the cleverness in forgery and though these appear to be same as that of the drawer.
114. FIU stands for : Financial Intelligence Unit (India)
115. Two cheques have been presented to you as paying banker.One is dated prior to opening the account and
other is dated prior to issue of cheque book.What will you do as paying banker?: Both chequeswill be paid.
116. KYC and FIU in India are associated with: preventing money laundering
117. Articles of Association mentions: directors' powers
118. Garnishee order is not applicable on: (a)cash received after two hours of receipt of Garnishee order
(b) amount received for safe custody (c) undrawn balances in cash credit accounts
119. A person having locker has expired. The nominee comes. A sealed cover is found. What will you
do ? : It will be delivered to him as part of locker contents without opening the packet.
120. A bill was presented on 10.5.2005 and accepted on 12.5.2005. The bill was due for payment on
29.07.2005 and was returned. The last date for filing suit in this case is : 29.07.2008
121. A listed bank has to prepare and publish balance sheet on quarterly basis as per: SEBI guidelines
122. There are certain instruments defined as negotiable instruments under lawand certain instruments used as
negotiable instruments as per practice.Which of the following is not a negotiable instrument as perNIAct: Dividend
warrant
123. On repayment of_debt of a company, satisfaction of charge shbuld be filedwith ROCwithin: 30 days
124. A Trust Deed is silent about loans by the trust. The trustee approaches for a loan. Under these
circumstances what should the bank do?: No loan can be raised
125. Which of the following un/under-stamped document can not be revalidated by paying penalty: None of
these as all documents can be revalidated. (However, as per question Demand Promisory note cannot be
revalidated).
126. A person of 65 years of age can not nominate which of the following persons: Trust
127. The aggregate limit for capital market exposure of a Bank is: 40 0/0 of net worth at the end of previous
year
128. A minor approaches for a loan. Which type of loan can be given to him: loan can not be sanctioned
other than for necessities.
129. Which of the following does not match in banker/customer relation : Locker facility - Bailee/Bailor
130. Committee on Procedures and Performance Audit of Public Services (CPPAPS) was headed by:
S.S. Tarapore
131. Customer service code has been mentioned in : Banking Codes and Standards Board of India.
132. Cheque received in clearing signed by whom will not be passed out of the following: signed by a
person who has ' been declared insolvent.
133. Whether a customer can approach Ombudsman without first approaching the Bank : Approaching
the bank first is a pre-condition.
134. In case a forged note is detected in the cash tendered at bank counter, what should the bank do?:
The Note should be impounded and not returned to the tenderer.
135. If a guardian is appointed by court, minor will become major at the age of: 18years
136. A Cheque with forged signatures is presented for payment and is paid. Bank will be liable to:
Customer (Drawer of the cheque)
137. Protection is available to the collecting banker in case of : Crossed cheques
138. Which is not a General Crossing: Name of a bank written between two parallel lines
139. If time is not mentioned on a Bill of Exchange, it will be payable: on demand
140. In an account of Club with you, cheque has been been presented for payment signed by the
secretary who has died. What should the bank do?: It will be paid if it not dated subsequent to date of death.
141. Garnishee order is applicable for: credit balance in OD and not for cheque sent for collection.
142. Bank Guarantees are issued as per provisions of : Indian Contract Act
143. cheque truncation means: converting physical cheque to electronic image and stopping physical
flow of a paper cheque. 660_ Foreign currency paid to taxi driver, shop keeper, can be accepted by:
Authorised persons.
144. A bank cannot acquire either as owner or as pledgee shares in a company more than:. 10 % of paid
capital of the company or 10% of the•paid up capital and reserves of the bank, whichever is lower.
145. For formation of a company, Registrar of Companies will issue : certificate of incorporation
146. Co is in liquidation, funds are at the disposal of : Liquidator
147. Guardian appointed by will of the father is called: testamentary guardian
148. Which of the following documents does not constitute document of title to goods:Airway bill
149. DD can be revalidated within: any time (practice may differ In different banks)
150. Which crossing is a Special Crossing : Name of Bank is written in the cheque with or without parallel
lines
151. Supervision of banks is done by RBI under which act: RBI Act / BR Act / Jilani Committee Report
/ NI Act: Banking RegulationAct
152. A minor is aged 15 years, who is illiterate. Which type of self operated a/c can be opened -SB/ RD /
FD none
153. Which of the following can open SB a/c? State Electricity Board/ Indian Bank Association/
Municipal corporation: Indian Bank Association.
154. In a Flying club, the Secretary&Treasurer are authorized to sign.ACheque is presented for payment across
the counter. In between it has been informed that Secretary has died,what youwill do? :Will be paid, if otherwise in
order
155. Revival of limitation for recovery of a time barred loan is possible by: obtaining fresh promise to
pay under provisions of Indian Contract Act.
As per Supreme court decision,HUF cannot be a partner because:HUF is not a natural or legal person
156. As per Prevention of Money laundering Act, preservation of records relating to closed accounts
upto: 5 yr from date of closure of account.
157. Banks can provide information about the customer to another Bank: General in nature, without any
responsibility
158. Board of Directors want to borrow money in excess of paid up capital and reserves of the company:
can be done through a resolution passed by shareholders in the general meeting
159. Other than aBill of exchange or promissory note, the documentwhichwas executed abroad is required to bestamped
on its arrival in India within: 3 months of its arrival
160. Administrator is appointed in case of: to realize assets and pay off liabilities of a person who has
died without writing a will.
161. Under Ombudsman scheme, which type of case not entertained?: advocate representing the customer
162. Which of the following is not a valid cheque for payment by the bank-l)different ink & handwriting
2) cheque with prior date 3) cheque with impossible date 4) Mutilated cheque: Mutilated cheque
163. The liability of the drawer of bills of exchange is prime till it is not accepted by the drawee after
that prime liability becomes of Drawee.
164. Whether Pvt Ltd. Co. can be partnerwith Partnership Firm: Yes
165. Counterfeit note received at the counterwhat to be done?: Impound the currency note.
166. No noting on currency note, directions issued byRBI under section 35Aof BR Act.
167. Cross cheque can be paid at counter if presented by other bank.
168. Payments of a forged draft.Who will lodge FIR paying or collecting bank: Paying Bank.
169. Borrowing powers of board of directors are contained in: Articles of Association
170. Locker can be broken open after notice to the hirer if the same is not operated for:more than three years for
mediur-n risk category or one year for a higher risk category, and the locker-hirer does not respond nor operates the
locker.
171. If a complainant is not satisfied with the award or his complaint is rejected by the Banking ombudsmen, he
can prefer an appeal to DeputyGovernor, RBIwithin: 30 days of the of the date of receipt of communication
regarding award or rejection of the complaint.
172. In case ofwrongful dishonour of cheque, bank is liable to: account holder only
173. Who can seek information under.Right to InformationAct:Any citizen of India can ask for information
174. The Garnishee Order is applicable on the account of a customer when the relationship between
banker customer is: Debtor & Creditor.
175. Aprivate limited companywith Registered office at Bangalore has raised loan froma branch located at
Mumbai. For creating equitablemortgage, title deeds can be deposited at:Mumbai,Kolkatta, Chennal or any other
notified place.
176. Acheque is presented for payment inwhich amount in figures ismentioned asRs 10,000whereas the amount
inwords ismentioned as Rs Ten lakh only. In terms of section 18 of theNIAct,what should the bank do?: The amount
written inwords should be paid.
177. When a letter is signed by the borrower and based on that letter bank delivers the document of title
to goods to the borrower, such letter is called as: Trust Receipt
178. How much charges are charged in addition to normal collection charges and out of pocket expenses
for providing instant credit facility for outstation cheques:Nil
179. A limited company has registered office at Chennai whereas loan has been raised from bank branch
at Mumbai. The charge will be registered with the ROC at: Chennai
180. A partnership firm conducting business other than the banking business has more than 20 members
as partners. Whether this is allowed?: Such association is called illegal association as per Companies Act
181. Under Prevention of Money Laundering Act, banks are required to send cash transaction report in
respect of cash deposit or withdrawal of more than Rs 10 lakh in a month from one account within: 15 days
from the close of the month.
182. Who is primarily liable on Bill of exchange which has been accepted?: Acceptor (Drawee) of the
Bill.
183. A cheque crossed specially to a bank is presented by the same bank to paying bank for cash
payment. What should the paying bank do? Bank can make cash payment.
184. Who can make nomination in the deposit account of a minor?: Guardian on behalf of the
minor.
185. Who can be a nominee?: Only an individual
186. If a depositor dies, payment to nominee or legal heirs should be made within: 15 days of
completion of formalities.
187. What is the relationship between bank and customer if he has left certain goods with the bank by
mistake: Bank is trustee and Customer is beneficiary
188. Appeal against the award of the Banking Ombudsman can be made to Deputy Governor, RBI
within days of the receipt of copy of award from the Ombudsman: 30 days
189. A cheque was dishonoured despite sufficient balance in the account. The bank will be liable to:
Drawer of the cheque and not to the payee.
190. Maximum amount of fine under section 138 of N I Act for dishonour of cheque due to insufficient
funds is: twice the amount of cheque.
191. Bearer uncrossed cheque can be paid towhom: To the bearer
192. On, other than a negotiable instrument, what is the time period for payment of stamp duty, if the
document is executed outside India : 3 months
193. May I help you counter is to be provided by bank branches other than : Small branches
194. In case of a jointly operated joint account, the nominee can obtain payment,when : none of the account holder
is alive
195. A bank branch receives a counterfeit note of Rs.1000, which customer wants back. What the bank
should do : Impound the currency note but credit full amount to customer. Receipt not to be issued to
depositor.
196. When rate of interest is expressed by adjusting the impact of inflation, this is called : Real rate of
Interest
197. Banks can ask for deposit of advance rent on hiring a locker for a period up to : 3 years
198. The crossing on a cheque is required to be cancelled.Who can do so:Drawer
