Types of Endorsements

 

Types of Endorsements:-

1)     Blank Endorsements: section 16(1) it means endorser only signs his name with adding any words or directions this endorsement makes the instrument payable to bearer.

2)     Endorsement in Full: - The endorser added the name of endorsee specifically.

3)     Conditional Endorsement: Here the endorser puts some conditions for endorsee Here the binding of conditions is between endorsee and endorser only. 

4)     San recourse Endorsement: - Endorser added the words without recourse to me.

5)     Facultative Endorsement: - Where an endorser waives the condition of notice of dishonour.

6)     Endorsement on Bearer Cheque: - The endorsement on bearer cheque is meaning less as the cheque once bearer is always bear.

Crossing:-

General Crossing (Sec.123): Two parallel transverse lines on the face of instruments with or without word ‘Not negotiable’. It is direction to the paying bank that do not pay the cheque across the counter.

Special Crossing (Sec.124): In addition of general crossing the cheque bears the name of collecting bank either with or without the words ‘Not negotiable’.

Collection of cheques:-

Section 131: a banker who has in good faith and without negligence received payment for a customer of a cheque (not available for B/E and P/N) crossed generally or specially.  The present section gives protection provided following conditions are fulfilled…

a)    The bank must have acted in good faith and without negligence.

b)    Bank has received the payment as an agent for collection.

c)    Bank has collected the cheque in the duly introduced account of customer only.

d)    The cheque collected must be crossed.

Payment of cheques:-

Liability of drawee (paying banker): It is obligation of the banker to honour the cheques of a customer provided there is sufficient balance and the cheque is otherwise in order.  Section 31 of NI act provides that “The Drawee of a cheque:

a)    Must have sufficient funds in the account.

b)    Properly applicable to the payment of such cheque.

c)    Must pay the cheque when duly required to do so.

d)    In default of such payment, must compensate the drawer for any loss or damage.

Protection for paying banker in case of cheque:-

Regularity of endorsement Section 85(1): Paying banker’s liability is to ensure the regularity of the endorsement and is not concerned with genuineness of endorsement.  The genuineness of endorsement is the liability of collecting banker.  Therefore, protection is available to the paying banker in case of forged endorsements.

Payment in due course (Section-10):-

a)    In accordance with the apparent tenor of the instrument.

b)    In good faith and without negligence.

c)    To the person in possession of the instrument.

d)    Under the circumstances which do not afford a reasonable ground for believing that he is not entitled to receive the payment of the amount mentioned therein.

When bank should not pay:-

a)    The death of the drawer in case of individual’s account terminates the contractual relationship.

b)    Insane customers: in case of insanity.

c)    Insolvent drawers: The bank should stop the operation of such account as if drawer adjudged insolvent and balance in the account vested with official receiver/assignee.

d)    Countermanded by drawer: on receipt of valid stop payment instruction by the drawer.

e)    Others: when a cheque is post dated, with insufficient balance in the account, cheque is of doubtful legality, or cheque is irregular, ambiguous, materially altered or stale etc.

Dishonour of cheques (Sec. 138-147):-

The payee or holder in due course should give notice to drawer within 30 days of return of cheque with the reason “Insufficient balance” and demanding payment within 15 days of his receiving information of dishonour. Drawee can make payment within 15 days of the receipt of notice and only if he fails to do so prosecution could take place.  The complaint is to be made with in one month of the cause of action arising that is expiry of the notice period.

Punishments:

a)    Summary proceedings: fine up to Rs. 5000/- and imprisonment up to one year or both.

b)    Regular proceedings: fine up to the double the amount of cheque or imprisonment up to 2 years or both.