NEGOTIABLE INSTRUMENTS AND ITS TYPES, PAYING BANKER

1. NEGOTIABLE INSTRUMENTS & PAYING BANKER Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science

2. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science MEANING A negotiable instrument is a signed document that promises a payment to a specified person or assignee. In other words, it is a formalized type of IOU: A transferable, signed document that promises to pay the bearer a sum of money at a future date or on-demand.

3. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Rights of a Holder The holder has certain rights under the law, such as the right to receive payment of the instrument, to transfer the instrument to another party, and to enforce payment against parties liable on the instrument.

4. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Holder of Instrument Refers to a person who is in possession of a negotiable instrument (like a check or promissory note) that is payable either to bearer or to the order of a specific person. This term focuses on the physical possession of the instrument.

5. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Holder in Due Course A holder in due course is a legal term that describes someone who acquires a negotiable instrument in good faith, for value, without notice that it is overdue or has any defects. To qualify as a holder in due course, the person must have acquired the instrument before it was overdue, and they must not have any reason to suspect any problems with the instrument.

6. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Payment in Due Course Refers to the proper and timely payment of a negotiable instrument in accordance with its terms. For example, a check that is paid on or after the date specified on the check is considered to have been paid in due course.

7. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Holder for Value This refers to a person who has given consideration (usually money or something of value) in exchange for acquiring a negotiable instrument. Being a holder for value is important because it establishes the rights of the holder against the parties who issued the instrument.

8. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science CHEQUE A cheque can be defined as a document that instructs the bank to pay a specific amount to the person whose name is written on the cheque . A cheque is a negotiable instrument governed by the Negotiable Instrument Act, of 1881 i.e. it promises its bearer a payment of the specified amount on furnishing the document to the banker.

9. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science DEFINITION As Per Section 6 of the Negotiable Instruments Act, of 1881, “A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form”.

10. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science FEATURES 1. Date: The date on which the cheque is issued. It’s usually written in the top right corner. 2. Payee: The name of the person or entity to whom the cheque is payable. This is written on the line that typically begins with "Pay to the order of." 3. Amount in Words: The amount to be paid, written out in words on the line below the payee's name. This helps prevent alterations and mistakes. 4. Amount in Figures: The numerical representation of the amount to be paid, written in a box on the right side of the cheque .

11. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science FEATURES 5. Drawer’s Signature: The signature of the person issuing the cheque . This signature authorizes the bank to process the payment. 6. Drawer’s Details: Information about the person or entity issuing the cheque , including name and address. This is usually printed on the top left of the cheque . 7. Bank Details: Information about the bank where the cheque is drawn, including the bank’s name and branch address. This is often printed on the top of the cheque . 8. Account Number: The account number from which the funds will be drawn. This is usually printed on the bottom of the cheque .

12. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science FEATURES 9. Cheque Number: A unique number assigned to the cheque for identification and tracking purposes. It’s typically found in the top right corner and also printed in the magnetic ink character recognition (MICR) line. 10. MICR Line: A series of numbers printed in magnetic ink at the bottom of the cheque . It includes the bank’s routing number, the account number, and the cheque number, which are used for electronic processing. 11. Signature Line: A designated line for the drawer’s signature. This line is usually located at the bottom right of the cheque . 12. Memo Line: An optional line where the drawer can write a note or reference for the cheque , such as an invoice number or purpose of payment.

13. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Why Cross a Cheque ? Crossing a cheque gives financial institution-specific instructions on how to handle cash. Crossed cheques are typically identifiable by drawing two parallel transverse lines vertically across the cheque or at the top left-hand corner. Between the lines, two or more words such as 'and company' or 'not negotiable' may be used. Simply drawing the lines without writing anything on them would not change the meaning of the crossed check.

14. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Why Cross a Cheque ? Cheque writers can use crossed cheques to protect the amount transmitted from being cashed by an unauthorized person or stolen. The nature of this format for crossed cheques may vary between countries in terms of its format or assertions. Since Crossed Cheques can only be paid through a bank account, the transaction record of the beneficiary can be tracked down afterwards for additional questions and clarifications.

15. TYPES OF CROSSING Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science

16. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science General Crossing Description: This involves drawing two parallel lines across the cheque , either horizontally or diagonally, with or without the words "& Co." or "Not Negotiable" written between them. Purpose: It indicates that the cheque can only be deposited into a bank account and cannot be cashed directly over the counter. It restricts the payment to the bank account of the payee.

17. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Special Crossing Description: This involves drawing two parallel lines and writing the name of a specific bank between them, such as "Pay to the Bank of ABC Ltd." Purpose: It specifies the bank through which the cheque must be collected. Only the bank mentioned can process the cheque , which adds a layer of security and control over the payment.

18. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Not Negotiable Crossing Description: This involves adding the words "Not Negotiable" between the two parallel lines or on the cheque . Purpose: It prevents the cheque from being transferred to another party. Even if the cheque is endorsed over to someone else, the new holder cannot claim ownership of the funds or further transfer it.

19. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Account Payee Only (A/C Payee) Crossing Description: This involves adding the words "Account Payee" or "A/C Payee" between the two parallel lines. Purpose: It ensures that the cheque can only be deposited into the account of the person or entity named on the cheque . This provides additional security by restricting its transferability.

20. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Crossing with Additional Instructions Description: Sometimes, additional instructions or terms may be written between the parallel lines, such as “for deposit only.” Purpose: These instructions further define how the cheque should be processed or used, adding more specific conditions to its handling.

21. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science TYPES OF CROSSING

22. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science MATERIAL ALTERATION The term ‘material alteration’ indicates alteration or change in the material parts of the instrument. It may be defined as any change, which alters the very nature of the instrument. Thus, it is the alteration , which changes and destroys the legal identity of the original instrument and causes it to speak a different language in legal effect from that which it originally spoke. A material alteration makes the instrument void, i.e., inoperative and affects the rights and obligations of the parties to the instrument. It, however, does not affect one who becomes a party to an instrument subsequent to its material alteration, if any.

23. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Instances of Material Alteration Alteration of the date of the instrument Alteration of the amount payable Alteration in time of payment Alteration of the place of payment Alteration of rate of interest or any change of party thereto, if any Tearing of the material part of the instrument Where a bill is accepted generally, the insertion of a place of payment Addition of a new party to the instrument Addition of words to a bill of exchange endorsed in blank so as to convert the same into special endorsement.

24. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science STATUTORY PROTECTION TO THE PAYING BANKER Sec. 85 When ? - Protection is needed when the paying banker dishonours cheque of his customer, on genuine grounds. Why? - It is the bounden duty of the banker to honour the cheques , drawn on him and duly presented for payment. So, if he dishonours the cheque or make any wrong payments, the paying banker is liable to be sued for damages.

25. Ms Ann Mercy J, Assistant Professor, Sri Ramakrishna College of Arts & Science Thank You