Drawer

Drawee
: the person (or bank) who is expected to pay a check or draft when
it is presented for payment,

Payee

Bill of Exchange: a document ordering the payment of money; drawn by one

person or bank on another,
Endorsement
: Writing of a persons name on the back of a negotiable with a view to
negotiating the same.
Eg. If A signs cheque in the name of B without crossing the cheque then B can give same
cheque to C by writing name and signing back of the cheque.
Endorsee
: A person to whom a check or bill of exchange is made payable instead of the
stated payee.

1. Definition of Banker?
A. One which in the ordinary course of his business, honors cheque drawn
upon him by persons, from and for whom he receives money on current
account.
Modern definition of Banker

2.

3.

4.

5.

1. Agency services
a. Payment of subscriptions, premia, rent etc & collection of dividends
salaries pensions etc
b. Acting as trustee and executor and
2. Utility services such as
a. Receiving of deeds valuables etc, for safe custody
b. Dealing I foreign exchange
c. Issuing letter of credit
d. Serving as reference etc
Definition of banking
A. The term banking has been defined as accepting for the purpose of
lending or investment of deposit of money from the public repayable on
demand and withdrawal by cheque draft , order or otherwise section 5 (b
& C)
Definition of Customer
A. Customer signifies the relationship in which duration is not of essence. A
person whose money has been accepted by a bank on the footing that
they undertake to honor cheques up to the amount standing to his credit
is, in the view of their lordship a customer of the bank in the sense of the
statue irrespective of whether his connection is of short or longstanding.
Define general relationship between bankers and customer
A. The opening account is contractual relationship by implication.
Relationship between the bankers and the customer is primarily that of
debtor and creditor. Bank can also act as an agent or a trustee in relation
to specified business transaction.
Banker and Customer as Debtor and Creditor
When a person deposits money and opens an account with a banker the
banker assumes the position of debtor. When the customer overdraws from his
account the banker becomes the creditor and customer becomes the debtor.

6. Banker as a privileged debtor

a. Demand by the creditor (customer) is essential for the repayment of
the deposited money. In ordinary commercial debt a request by the
creditor for repayment may be unnecessary.

7. Special Relationship between Banker and customer

a. There must be sufficient funds of the drawer (customer)in the hands of
the bank
b. If the banker honors cheques on some occasions when there is no
sufficient fund to the credit of his customers account it becomes an
implied arrangement to overdraw the account the banker should not
discontinue such practice without giving prior notice to the customer.
c. Ordinarily cheques sent for collections are not treated as cash in the
hands of the drawer. The banker should given enough time to realize
the amount of the cheques sent for collection.
d. When there is no sufficient amount of fund in the account at the time
of presentation of the cheque by the customer the banker is under no
obligation to make part payment of the cheque.
e. The banker is bound to honor the cheques of his customer only when
the cheques are:
1. Complete and in order
2. Presented at the branch where the account is maintained
3. Presented during the banking hours of the branch office
and
4. Presented within a reasonable time after the ostensible
date of their issue
5. The banker should honor the cheques of his customer if
there is no prohibitory order of the Court standing against
the account of such customer.
8. Banker Lien and exemption to the right of Lien
a. General Lien
b. Particular Lien
i. General Lien is applicable in respect of all amounts due from the
debtor to the creditor.
ii. Particular Lien can be exercised by a person who has spent his
time labor or money on the good retained. Moreover such goods
retained on a particular debt only.
9. Exceptions to the right of Lien:
a. Safe custody of articles: the banker receives valuable such as jewellery
securities, documents etc, from their customer for safe custody.
b. Banker cannot exercise his right of lien on a cheque or a bill of
exchange entrusted with him for special purpose.
c. A general lien cannot arise in respect of property of a customer
pledged as security for particular debt
d. No lien can arise in respect of documents or valuables left
inadvertently or which are placed in bankers hand to cover an advance
that is not granted.
e. No lien arises in case the credit and liability are not in the same
capacity or right. E.g. the banker cannot exercise the right of lien over
securities or funds of a partner for debts due from the firm.
f. No lien arises on securities over which the customer has no title.

g. The banker cannot exercise his right of lien in respect of a separate

amount maintained by the customer which is known to the banker.

10.Exception and duty of secrecy

a. The banker will justified in disclosing any information relating to his
customers account with the consent of the customer. But in certain
circumstances, by implication the bankers may disclose necessary
information
b. In case where the customer has mentioned the banker as a referee for
trade reference the latter (banker) is justified in disclosing the relevant
information.
c. When the banker is compelled by the court of law to disclose the state
of his customer account he is justified in doing so. Here his duty to
obey the court order overrides his duty to his customer.
d. When the banker is under a public duty to disclose the secrecy of the
accounts he will be just field in doing so
e. The banker may disclose the state of the customers account in order
to protect his own interests legally
f. There is also well recognized practice among the bankers which is
commonly described as common courtesy.

Deposit
The power of bank to help business community depends upon the amount
receives by way of deposits. By taking money on deposit, a bank provides
safe keeping for peoples money. But the not set apart rooms. Principal
together with interest is returned on its being claimed in accordance with
the terms of the contract. Deposits are classified into two categories
1. Time liabilities: - includes all those deposits which are deposited with the
bank for a fixed period.
2. Demand liabilites

Types of Deposit and Passbook

1.
2.
3.
4.

Saving deposit
Recurring deposit
Current deposit &
Fixed deposit or time deposit

The common reasons which is necessitate the banker to close his customer account
are as follows
1. When the customer repeatedly issues cheques without having adequate
funds in the account

2. When the customer frequently countermands payment of cheques.

3. When the cheques sent for collection by the customer to the bank are often
dishonored.
4. When customer fails to cover bills domiciled at bank for payment.
Bank will stop the operation of the account of a customer in the event of.
1.
2.
3.
4.
5.
6.
7.

The customer issuing notice to close the account

Insolvency of the customer
A garnishee order served by court of law
Death of customer
The customer assigning the credit balance in his accounts in favor of anybody
Notice In case of company customer of the commencement of winding up
Knowledge that the customer contemplates a breach of trust in case where it
is known that the funds credited to the account are trust fund.

Negotiable Instrument
Cheque:-

on opening of account in the name of person, the banker supplies

him, among other things a cheque. The customer can make use of these cheques
leaves either to withdraw the money from bank or to make payments to others.
These cheques drawn by customer on their banks are recognized by law as
negotiable instruments.
The person who draws a cheque is the drawer
The banker on whom the cheque is drawn is called drawee

Advantages of cheques:It is very convenient to make and receive payments by means of cheques.
Specially crossed cheques almost completely eliminate the risks which are
attendant upon money payments.
2. Persons making payments need not take the trouble of maintaining and
preserve record of payments. If necessary the payment can be proved
through the record kept in the bank.
3. Payment through cheque system is not only easy but also cost less
4. When a cheque is lost or stolen, it is not possible for holder to stop payment
1.

of the cheque by informing the drawer about the same .

Requisites of a cheque
1. Instrument in writing:- A cheque should be an instrument in writing
a. Typing
b. Printed character

2.
3.

4.

5.

6.

c. Pencil or pen. Customer always encouraged to draw their

cheques in ink.
Unconditional order: - The act that a bill of exchange is
unconditional order.
Signed by person issuing it: - A cheque should be signed by the
person issuing it. After giving an indemnity their bankers, large
companies and corporations sometimes issue cheque with a printed
facsimile reproduction of the signature of some busy officials. The
question may arise whether such instruments are valid cheques and
whether the so called drawers could held liable person.
By one person to another: - It should be made payable to or to the
order of a certain person or bearer. It should be noted that person in
law are not necessarily human beings, Joint stock companies, local
authorities, colleges etc. payable to principle of college are to be
regarded as payable to a certain person who remains in that
capacity.
On a particular branch of a bank only:- the instrument must be
drawn on a specified banker and not on any other person. Moreover,
the name and address of the banker should be specified so as avoid
any mistake regarding the bank which the payment of the cheque is
to be demanded.
Pay able on demand: - payable on demand provided certain
conditions are satisfied.
Dating of cheque:

The drawer of a cheque is expected to date it before it leaves his hands.

Otherwise will be difficult to determine whether or not the cheque has
been in circulation for a reasonable length of time. But the cheque does
not become merely because the date is submitted. If the drawer has not
dated cheque the holder of the cheque has authority to fill the date.
Undated cheques may be returned unpaid by most of the banks with
remark date required
Anti dating and Post Dating:If it is dated earlier it is known as ante-dating and if it dated later it is
known as post dating.
Characteristics of negotiable instrument
Negotiable instrument means promissory note, bill of exchange or cheque
either to order or bearer
1. It is a contract for the payment of money
2. The rights which is embodies are capable of being transferred by
mere delivery or endorsement delivery.

3. A holder in due course is not affected by defects in the title of the

immediate transferor
4. I can be transferred any number of times within period of limitation.
5. Consideration is presumed to have passed between the parties.
6. The holder in due course can sue in his own name and without any
notice to the transferor of his having become such a holder.
Issuing of cheque
Cheque possesses its legal characteristics only when it is issued. Issue
means the first delivery of a cheque complete in form to a person who
takes it as a holder
1. Delivery refers to the transfer of possession from one person to
another delivery may be either actual or constructive
2. Holder refers to the bearer or the payee or the endorse of a cheque
who is in possession of it.

Modes of instrument
1. Bearer instrument: - A bearer instrument is said to be negotiated when it is
transferred from one person to another by mere delivery.
2. Order instrument: - An instrument payable to the order of a certain person is
said to be negotiated when it is endorsed by the payee and delivered to the
party.

Transfer of negotiable instrument

Negotiable instruments can be transferred in two ways they are:
1. By negotiation under negotiable instrument act
2. By an assignment under the transfer of property act

Holder
The holder of a promissory notes and cheque means any person entitles in his own
name to the possession thereof and to receive or recover the amount due thereon
from the parties thereto;
Where the note bill or cheque is lost or destroyed, its holder is the person so
entitled at times of such loss or destruction.

Position of holder:

1. The holder may be the payee or endorsee or bearer of a cheque. While

occupying any of these three positions one may sue on a negotiable
instrument in case of any dispute.
2. A finder of a lost instrument may be in possession of it. It doesnt mean that
he is the holder of it
3. The title of the person who is claiming to be holder must be acquired
lawfully.

Holder in due course:

Legal term for an original or any subsequent holder of a negotiable instrument
(check, draft, note, etc.) who has accepted it in good-faith and has exchanged
something valuable for it. For example, anyone who accepts a third-party check is a
holder in due course. He or she has certain legal rights, and is presumed to be
unaware that (if such were the case) the instrument was at any time overdue,
dishonored when presented for payment, had any claims against it, or the party
required to pay it has valid reason for not doing so.

To be a holder in due course one should have taken an instrument

which fulfils the following conditions:
a. Holder: the first requirement to be satisfied before a person can be holder in
due course of a cheque is that he must be a holder.
b. Complete and regular: all the requisites of a cheque should be present in it in
order to make it a complete instrument.
c. Before coming to overdue: a cheque is ordinarily payable on demand it will be
deemed to be overdue when it appears on the face of it t have been in
circulation for an unreasonable length of time
d. No notice of dishonor: A cheque might have been previously presented to the
banker who might have dishonored it for the reason written upon the same. If
such cheque with bankers note of dishonor is further negotiated the
transferee cannot become holder of due course.
e. For value: transfer of negotiable instrument must be for valuable
consideration. It may relate to any antecedent debt or liability.
f. Deliverable: A bearer instrument is always in delivery state. But an order
instrument is put in deliverable state when it is endorsed by the payee.
There cannot be holder in due course under the following circumstances:
1. When an instrument is marked NOT TRANSFERABLE FOR

2. Payable to specified person only

3. When it bears the forgery of essential signature.

BILL OF EXCHANGE
A bill of exchange is an instrument in writing containing an unconditional order
signed by maker directing a certain person to pay a certain amount of money only
to, there are three parties to bill of exchange
1. Drawer: person who gives the order to pay or makes the bill is called drawer.
2. Drawee: the person who is directed to pay is called drawee
3. Payee: the person whom the payment is to be made is payee.
Essential elements are as follows:
1.
2.
3.
4.
5.
6.
7.
8.

One must be in writing

It must contain order to pay
The order must be unconditional
It requires three parties i.e. drawer, drawee, and payee
It must be signed by drawer
The sum payable must be certain
It must contain an order to pay money
The formalities relating to number, date, place and consideration through
usually found in bills are not essential in law.

DIFFERRENCE BETWEEN BILL OF EXCHANGE AND

PROMISSORY NOTE
Promissory Note

Bill of Exchange

1. It is promise to pay
2. There are only two parties the
drawer, and the payee

1. It is an order to pay
2. There are three parties, the drawer,
the drawee, and the payee.

3. There is no necessity of acceptance

3. It must be accepted

4. The maker is primarily liable

5. It is never drawn in sets
6. Protesting is not necessary after
dishonor

4. The drawer is not primarily liable.

5. Foreign bills are specially drawn in
sets

6. A foreign bill must be protested upon

dishonor.

DIFFERENCE BETWEEN BILL OF EXCHANGE AND CHEQUE

BILL OF EXCHANGE

CHEQUE

It may be drawn on any party or

individual
There are three parties - the
drawer, the drawee, and the
payee

It is drawn on a banker
It has three parties - the drawer,
the drawee, and payee

Foreign bills are drawn in sets

It must be accepted by the
drawee before he can be made
liable to pay the bill.
Three days of grace are always
allowed to the drawee
Stamp duty has to be paid on bill
of exchange.

It is seldom drawn in sets

It does not require acceptance by
the drawee

Days of grace are not allowed to a

banker
No stamp duty is payable on
checks

It may be drawn in any paper and

need not necessarily be printed.

It is usually drawn on the printed

format

ENDORSEMENTS AND MARKING CHEQUES

When the maker or holder of a negotiable instrument signs the same
otherwise than as such maker or holder of a negotiation on the back or face
thereof or on a slip of paper annexed thereto he is said to endorse the same
and called endorser.
(E.g. If A signs cheque in the name of B without crossing the cheque then B can give same
cheque to C by writing name and signing back of the cheque.) is called Endorsement
The person who makes the endorsement is called endorser. And the person in whose favour it
is made is called endorsee
If there is no sufficient space for making endorsement on the cheque the subsequent
endorsement are made on a piece of paper attached thereto. That piece of paper is known as

Allonge.

KIND OF ENDORSEMENT
1. Blank endorsement
2. Full endorsement
3. Conditional endorsement

4. Restrictive endorsement
5. Endorsement Sans recourse
6. Partial endorsement.

Blank Endorsement: if the endorser simply sign on the back of an

instrument without mentioning the name of any specified person as the
endorsement in the blank.
E.g. when a cheque drawn in Mr. X name is signed on its back by Mr. X
himself, it gets blank endorsement.

Full endorsement: in addition to his signature if the endorser adds a

direction to pay the amount mentioned in the instrument.
E.g. if Mr. x (Endorser) add the words to pay Y or Pay Y to order then it
becomes full endorser.

Conditional Endorsement: if the endorser of an negotiable

instrument likes he may make the instrument subject to a condition. If he
does so the endorsement is termed as a conditional endorsement.
E.g. Pay to Mrs. Uma if she returns from Canada within three month if she
doesnt arrive from Canada within the stipulated period the instrument will
not be honoured.
Restrictive Endorsement: An endorsee of a negotiable instrument is
fully component to negotiate it further. But the endorsees right of
negotiating the instrument may be restricted.
E.g. Pay the contents to Surya only or the amount must be credited to Surya.

Endorsement Sans recourse: An endorser of negotiable instrument

may be express words in the instrument exclude his own liability thereon this
is known as endorsement sans recourse.
E.g. Pay to Sundari or order at her own risk. or pay Sundari without recourse
to me.

Partial Endorsement: An instrument cannot be endorsed for a part of

its amount.
E.g. A cheque value Rs. 100 only. But if the amount due has already been
partly paid a note to that effect may be endorsed on the instrument and it
may be negotiated for the balance.

Marking of Cheques:- A person may not like to part with goods in

return for a cheque from party not well known to him. In such context the

banker on whom the cheque is drawn may be asked by the customer to mark
the cheque as good for payment.

Crossing cheques and Material Alteration.

Crossing of cheque is a method developed over these years to ensure safety
in cheque payments by making it more difficult to misappropriate the
amount of cheque than it would be otherwise.
When cheque is crossed the payee is not allowed to get the amount across
the counter of the bank. It implies that a crossed cheque can be collected
only through bank account.
General Crossing: is a direction to the paying banker to make payment
through a banker i.e through the bank account. Here the person is prevented
from receiving the payment directly across the counter.
Special Crossing: where the cheque bears across its face an addition of the
name of a banker with or without the word negotiable