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Report of Clinical paper 2011

Banking and Negotiable Instruments Act

GUJARAT NATIONAL LAW

UNIVERSITY

“Clinical Paper- Banking and Negotiable

Instruments Act”

“Research Project on Teaching Assignment and

Class Observation”

Submitted to-

Submitted by-

Dr. Dolly Jabbal Sanjeev Kr.Choudhary Associate Professor of Law LL.M, IInd Year, GNLU Gujarat National Law University Regd.No.10LM15





Acknowledgement The completion of this project of my clinical paper comprising of class-room teaching and

observation on Banking and Negotiable Instruments Act would never have been possible without

the unforgettable encouragement, guidance and support, inside and even outside the class of my

respected supervisor and authority of the subject in our college

Mrs Dolly Jabbal (Associate Professor of Law).

I am heartily thankful for your moral boost up and making me capable to deliver the lecture in

the class. It will not be wrong to accept, the sharing of your experience and wisdom of the

subject as a trainee will be a treasure for me.

I am also thankful to Miss. Jaya Hemnani (Teaching and Research Associate), who always

stands beside me, be it class or outside. The through discussion of my class notes with you and

your special remarks before lecture helped me a lot, thanks a lot for being so nice to me.

I am taking this opportunity to forward my respect and thanks to our Director, Mr. Bimal N Patel

for providing us a platform outside the college.

I am extending my thanks to our programme coordinator Miss Mamta Biswal and the project

coordinator Miss Silky Mukherjee for providing the guidance and support in completing the part

of teaching assignment outside the college.

Lastly, I offer my regards to the principal Dr. Jagruti K patel, VT Choksi Law College, Surat for

her support and guidance.

And at the end, my special thanks and blessing should reach to all students who added meaning

to this training-cum-teaching programme.

Thanks to all of you.





Contents

Topics Page No.

Aims and Objectives 04

Research Design and Limitations 05

Introduction 06

Lesson 1, 2, 3 & 4 08

Lesson 5, 6 & 7 18

Lesson 8, 9 & 10 25

Lesson 11, 12 & 13 28

Outdoor Assignment 33

Conclusion and Suggestion 37

Bibliography 39





Aims and Objectives

The aims and objective of this project is two fold. First, to make the students to face the class asa teacher, so as to inculcate the enthusiasm and interest in teaching and second, to provide a head

on experience and scope to understand the subject broadly and create a hold on the subject.

The confidence of handling the group of students in the class, proper monitoring them

throughout the period, delivering lecture with authority and opening oneself for the discussion on

the subject are few essential to be a successful teacher.

Providing a platform to create these qualities for being a prospective teacher and also to excel in

the other field was one of important objective of this training-cum-teaching assignment

programme.





Research Design and Limitations

The Banking and Negotiable Instruments Acts, which I chose as my clinical paper, the projectfor the same is doctrinal in nature. For the preparation of the class, I mostly relied on the text

books available in the library of Gujarat National Law University. However where I find further

studies essential, I surfed the internet to collect the up-to-date data.

Initially, I was offered 2nd year (IIIrd sem) of Gujarat National Law University for the teaching

assignment and later VT Choksi Sarvjanik Law College Surat for the same. So, As far as the

scope of the project is concerned, it was internally limited to Gujarat National Law University,

Gandhinagar, Gujarat and externally limited to VT Choksi Law College, Surat, Gujarat.





Introduction

As its name suggests ―clinical paper‖ it is designed to provide the exposure of class roomteaching to the post-graduate students. A post-graduate study is essential for appearing in NET,

an essential qualification to join the academics. Teaching has acquired as a popular goal for post-

graduate students. So to create a prospective teacher, this subject is introduced in the post-

graduate level.

My subjected for the clinical paper comprising of Class observation and class-room teaching was

―Banking and Negotiable Instruments Act‖, which are taught here at Gujarat National Law

University in 2nd

year of LL.B by respected and learned faculty Mrs. Dolly Jabbal, associate

professor of law.

I was assigned under her to complete my assignments of clinical paper. She has two lectures on

daily basis in the 2nd

year, one in Sec-A and another in Sec-B. So, I got two classes daily to

finish my assignment.

I joined the class on 21st

July 2011 and end up on 8th

September 2011 during which I attained

almost 13 days in both the sections, as a total more than 26 classes. Later, from 20th

September

2011 to 23rd

September 2011, I got the opportunity to take the class in VT Choski Sarvjanik

Law College, Surat. For the completion of this assignment, 30 classes were essential to attain.

Initially, for the period of 4 days I observed the respected faculties Mrs. Dolly Jabbal and Miss

Jaya Hemnani taking classes in both the sections. Being the patient listener and observer I learnt

the art of introducing the topics to the class and keeping the discussion revolving within the

periphery of the topics involved. It gives me the idea for planning my lesson for the upcoming

classes. During my initial observation period, the topics taught were different type of banks and

banking and customer relationship. The classes were taken by Both the Madams alternatively.

Later on I was offered to take the class under guidance of the respected madams. I Initiated the

Topic Negotiable Instruments Act wherein I got the opportunity to explain basics of the subject

i.e. negotiable instruments, its type, essentials for instruments to be valid in accordance with the





act. The basic type recognized under the Negotiable Instruments Act 1881 i.e. Promissory Notes,

bill of exchange and Cheques were taught in detail by me. It took 3 classes to finish the topic

assigned to me. The details of the lesson plan will be discussed later.

Again after completing the basic of the negotiable instruments, I went for the observation as the

topics related to cheque, its type, crossing and effect of crossing were taught by both the

madams.

Once again I faced the class for 4 consecutive days with charter IV of the Negotiable Instruments

Act 1881 from Sec-46 to Sec-60 and also other supporting sections.

During my class room teaching at Gujarat National Law University in IIIrd Semester, I discussed

sections 4,5,6, 13,14,15,16, 20, 46 to 60, 118 and 138 of the negotiable instruments Act along

with few important case that will be discussed in detail under chapter dealing with day-to-day

presentation.

At VT Choksi Law College Surat, I took 6 classes in LL.B wherein I deal again the same topics I

taught here. I also got an opportunity to have an interaction session with the LL.M students of above mentioned college. The topic for our interaction was ―corruption and Lokpal Bills‖. In

this session all the faculty members, respected Principal Madams and LL.M students were

present. It took almost 2 hours to wind up the discussion.

The details of observation and teaching are provided hereunder for the kind perusal and to have

the idea what I did in my assignment.





National Bank for Agriculture and Rural Development (NABARD)

This bank came into existence in 1982 by merging of the Agriculture Credit

Development and Rural Planning and Credit cell of the RBI and the total undertaking of

Agriculture Refinance and Development Corporation.

It is the most important development bank for agriculture and rural development.

The main functions performed by NABARD are credit, development and regulatory in

nature.

National Housing Bank (NHB)

This bank started its function in the year 1988. It is regulated by National Housing Bank

Act, 1987.

It promotes housing finance at local and regional levels, and provides financial and other

support to such institutions for mobilising resources and extending credit for housing.

It also extends refinance facilities and provides guarantee and underwriting facilities to

housing finance institutions and to scheduled banks.

It sometimes provides technical and administrative assistance and advisory services

related to housing.

Unit Trust of India (UTI)

It established under the Unit Trust of India Act, 1963 on 1st

February 1964.

Main function is to mobilise the saving of the community through sale of units under

various unit schemes. It invests these mobilised resources mainly in the shares and

debentures of the companies and distributes the income received from these investments

among the unit holders annually as dividends.

These dividends get exemption under Sec-80L 0f Income Tax Act with certain limits.





Relationship between Banker and Customers

The relationship between a banker and a customer depends on the activities; products or servicesprovided by bank to its customers or availed by the customer. Thus the relationship between a

banker and customer is the transactional relationship.

Definition of a „Banker‟

The Banking Regulations Act (B R Act) 1949 does not define the term ‗banker‘ but defines

but defines what banking is?

Sec.5 (b) of the B R Act ―Banking' means accepting, for the purpose of lending or investment,of deposits of money from the public repayable on demand or otherwise and withdrawals by

cheque, draft, order or otherwise."

As per Sec. 3 of the Indian Negotiable Instruments Act, 1881, the word ―banker includes any

person acting as banker and any post office savings bank‖.

According to Sec. 2 of the Bill of Exchange Act, 1882, ‗banker includes a body of persons,

whether incorporated or not who carry on the business of banking.‘

Sec.5(c) of BR Act defines "banking company" as a company that transacts the business of

banking in India. Since a banker or a banking company undertakes banking related activities we

can derive the meaning of banker or a banking company from Sec 5(b) as a body corporate that:

(a) Accepts deposits from public.

(b) Lends or

(c) Invests the money so collected by way of deposits.

(d) Allows withdrawals of deposits on demand or by any other means.

Accepting deposits from ‗public‘ means, a bank accepts deposits from anyone who offers money

for the purposes. Unless a person has an account with the bank, it does not accept deposit. For





depositing or borrowing money there has to be an account relationship with the bank. A bank can

refuse to open an account for undesirable persons. It is banks right to open an account.

In addition to the activities mentioned in Sec.5 (b) of B R Act, banks can also carry out activities

mentioned in Sec. 6 of the Act.

Who is customer?

The term Customer has not been defined by any act. The word ‗customer‘ has been derived from

the word ‗custom‘, which means a ‗habit or tendency‘ to -do certain things in a regular or a

particular manner.

In terms of Sec.131 of Negotiable Instrument Act, when a banker receives payment of a crossed

cheque in good faith and without negligence for a customer, the bank does not incur any liability

to the true owner of the cheque by reason only of having received such payment. It obviously

means that to become a customer account relationship is must.

It is generally believed that any individual or an organization, which conducts banking

transactions with a bank, is the customer of bank. However, there are many persons who do

utilize services of banks, but do not maintain any account with the bank.

Thus bank customers can be categorized in to four broad categories as under:

(a) Those who maintain account relationship with banks i.e. Existing customers

(b) Those who had account relationship with bank i.e. Former Customers

(c) Those who do not maintain any account relationship with the bank but frequently visit

branch of a bank for availing banking facilities such as for purchasing a draft, encashing a

cheque, etc.

(d) Prospective or Potential customers: Those who intend to have account relationship

with the bank.





A person will be deemed to be a 'customer' even if he had only handed over the account opening

form duly filled in and signed by him to the bank and the bank has accepted it for opening the

account, even though no account has actually been opened by the bank in its books or record.

The practice followed by banks in the past was that for opening account there has to be an initial

deposit in cash. However the condition of initial cash deposit for opening the account appears to

have been dispensed with the opening of „No Frill‟ account by banks as per directives of

Reserve Bank of India. „No Frill‟ accounts are opened with ‗Nil‘ or with meager balance.

The term 'customer' is used only with respect to the branch, where the account is maintained. He

cannot be treated as a ‗customer' for other branches of the same bank. However with the

implementation of‘ „Core Banking Solution‟ the customer is the customer of the bank and not

of a particular branch as he can operate his account from any branch of the bank and from

anywhere. In the event of arising any cause of action, the customer is required to approach the

branch with which it had opened account and not with any other branch.

Know Your Customer‟ Guidelines and Customer:

As per ‗Know Your Customer‘ guidelines issued by Reserve Bank of India, customer has been

defined as:

(i) A person or entity that maintains an account and/or has a business relationship

with the bank;

(ii) One on whose behalf the account is maintained (i.e. the beneficial owner);

(iii) Beneficiaries of transactions conducted by professional intermediaries, such as Stock

Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and

(iv) Any person or entity connected with a financial transaction, which can pose

significant reputational or other risks to the bank, say, a wire transfer or issue of a high

value demand draft as a single transaction.





Classification of Relationship:

The relationship between a bank and its customers can be broadly categorized in to General

Relationship and Special Relationship.

As per Sec 5(b) of Banking Regulation Act, bank‘s business revolves around accepting of

deposits for the purposes of lending. Thus the relationship arising out of these two main activities

is known as General Relationship.

In addition to these two activities banks also undertake other activities mentioned in Sec.6 of

Banking Regulation Act. Relationship arising out of the activities mentioned in Sec.6 of the act

is termed as special relationship.

General Relationship

Debtor-Creditor and Creditor-Debtor

When a 'customer' opens an account with a bank, he fills in and signs the account opening form.

By signing the form he enters into an agreement/contract with the bank. When customer deposits

money in his account the bank becomes a debtor of the customer and customer a creditor.

While issuing Demand Draft, Mail / Telegraphic Transfer, bank becomes a debtor as it owns

money to the payee/ beneficiary.

Lending money is the most important activities of a bank. The resources mobilized by banks are

utilized for lending operations.

Customer who borrows money from bank owns money to the bank. In the case of any

loan/advances account, the banker is the creditor and the customer is the debtor.





Special Relationship:

1. Bank as a Trustee:

As per Sec. 3 of Indian Trust Act, 1882 ‗ A "trust" is an obligation annexed to the ownership

of property, and arising out of a confidence reposed in and accepted by the owner, or

declared and accepted by him, for the benefit of another, or of another and the owner.‘ Thus

trustee is the holder of property on behalf of a beneficiary.

As per Sec. 15 of the ‗Indian Trust Act, 1882 ‗A trustee is bound to deal with the trust-

property as carefully as a man of ordinary prudence would deal with such property if it were

his own; and, in the absence of a contract to the contrary, a trustee so dealing is not

responsible for the loss, destruction or deterioration of the trust- property.‘ A trustee has the

right to reimbursement of expenses (Sec.32 of Indian Trust Act.).

In case of trust banker customer relationship is a special contract. When a person entrusts

valuable items with another person with an intention that such items would be returned on

demand to the keeper the relationship becomes of a trustee and trustier. Customers keep

certain valuables or securities with the bank for safekeeping or deposit certain money for a

specific purpose (Escrow accounts) the banker in such cases acts as a trustee. Banks charge

fee for safekeeping valuables

2. Bailee – Bailor:

Sec.148 of Indian Contract Act, 1872, defines "Bailment" "bailor" and "bailee".A "bailment"

is the delivery of goods by one person to another for some purpose,upon a contract that they

shall, when the purpose is accomplished, be returned or otherwise disposed of according to

the directions of the person delivering them. The person delivering the goods is called the"bailor". The person to whom they are delivered is called, the "bailee".

Banks secure their advances by obtaining tangible securities. In some cases physical

possession of securities goods (Pledge), valuables, bonds etc., are taken. While taking

physical possession of securities the bank becomes bailee and the customer bailor. Banks





also keeps articles, valuables, securities etc., of its customers in Safe Custody and acts as a

Bailee. As a bailee the bank is required to take care of the goods bailed.

3. Lessor and Lessee:

Sec.105 of ‗Transfer of property Act 1882‘ defines lease, Lessor, lessee, premium and rent.

As per the section ―A lease of immovable property is a transfer of a right to enjoy such

property, made for a certain time, express or implied, or in perpetuity, in consideration of a

price paid or promised, or of money, a share of crops, service or any other thing of value, to

be rendered periodically or on specified occasions to the transferor by the transferee, who

accepts the transfer on such terms.‖

Definition of Lessor, lessee, premium and rent:

(1)The transferor is called the lessor,

(2)The transferee is called the lessee,

(3)The price is called the premium, and

(4)The money, share, service or other thing to be so rendered is called the rent.

‖Providing safe deposit lockers is as an ancillary service provided by banks to customers.

While providing Safe Deposit Vault/locker facility to their customers‘ bank enters into an

agreement with the customer. The agreement is known as ―Memorandum of letting‖ and

attracts stamp duty.

The relationship between the bank and the customer is that of lessor and lessee. Banks lease

(hire lockers to their customers) their immovable property to the customer and give them the

right to enjoy such property during the specified period i.e. during the office or banking

hours and charge rentals. Bank has the right to break-open the locker in case the locker

holder defaults in payment of rent. Banks do not assume any liability or responsibility in case

of any damage to the contents kept in the locker. Banks do not insure the contents kept in the

lockers by customers.





4. Agent and Principal:

Sec.182 of ‗The Indian Contract Act, 1872‘ defines ―an agent‖ as a person employed to do

any act for another or to represent another in dealings with third persons. The person for

whom such act is one or who is so represented is called ―the Principal‖.

Thus an agent is a person, who acts for and on behalf of the principal and under the latter‘s

express or implied authority and the acts done within such authority are binding on his

principal and, the principal is liable to the party for the acts of the agent. Banks collect

cheques, bills, and makes payment to various authorities‘ viz., rent, telephone bills, insurance

premium etc., on behalf of customers. . Banks also abides by the standing instructions given

by its customers. In all such cases bank acts as an agent of its customer, and charges for

theses services. As per Indian contract Act agent is entitled to charges. No charges are levied

in collection of local cheques through clearing house. Charges are levied in only when the

cheque is returned in the clearinghouse.

Termination of relationship between a banker and a customer:

The relationship between a bank and a customer ceases on:

(a) The death, insolvency, lunacy of the customer.

(b) The customer closing the account i.e. Voluntary termination

(c) Liquidation of the company

(d) The closing of the account by the bank after giving due notice.

(e) The completion of the contract or the specific transaction.

Duties of a banker:

A 'Banker' has certain duties vis-à-vis his customer. These are:

(a) Duty to maintain secrecy/confidentiality of customers' accounts.

(b) Duty to honour cheques drawn by customers on their accounts and collect cheque,

bills on his behalf.





(c) Duty to pay bills etc., as per standing instructions of the customer.

(d) Duty to provide proper services.

(e) Duty to act as per the directions given by the customer. If directions are not given the

banker has to act according to how he is expected to act.

(f) Duty to submit periodical statements i.e. informing customers of the state of the

account

(g)Articles/items kept should not be released to a third party without due authorization by

the customer.

Disclosure under compulsion of law:

Banks disclose information to various authorities who by virtue of powers vested in them under

provisions of various acts require banks to furnish information about customer‘s account. The

information is called under:

(i) Section 4 of Banker's Book Evidence Act, 1891

(ii) Section 94 (3) of Code of Civil Procedure Act, 1908

(iii) Section 45 (B) of Reserve Bank of India Act, 1934

(iv) Section 26 of Banking Regulation Act, 1949

(v) Section 36 of Gift Tax Act, 1958

(vi) Sections 131, 133 of Income Tax Act, 1961

(vii) Section 29 of Industrial Development Bank of India Act, 1964

(viii) Section 12of Foreign Exchange Management Act, (FEMA) 1999

(ix) Section 12 of the Prevention of Money Laundering Act, 2002.





Lesson 5, 6 & 7

Nature of class – Class-Room Teaching

Topics Discussed – Negotiable Instruments

Discussed by – Sanjeev Kumar Choudhary

Brief Discussion of My Teaching

Objectives of discussion

• Explain the meaning of Negotiable Instruments;

• Identify the various features of Negotiable Instruments;

• Describe the various types of Negotiable Instruments; and

• Differentiate between Bills of Exchange, Promissory Notes, and Cheques

Definition

• Every document which entitles a person to a sum of money and which is transferable

(like cash) by delivery, is entitled to be called a negotiable instrument.• Negotiable Instrument in practice means a piece of paper containing in writing a right

entitling the holder to claim money.

• As per sec-13(1) of the N. I. Act, 1881 ― A negotiable Instruments means a promissory

note, bill of exchange or cheque payable to order or to bearer.

Promissory Note

• As per Sec-4 of the N. I. Act , it is an instruments (not being a bank note or currency

note ) containing an unconditional undertaking signed by the maker, to pay a certain sum

of money only to, or to the order of, a certain person, or to the bearer of the instruments.





Essentials of a Valid promissory Note

1. In writing and signed

2. Promise to pay – express undertaking not mere an implied undertaking.

For example, a documents written in this words ―this receipt is here by executed by B…..for

Rs.43,000…. Received from A. The amount is to be paid after 2 years. Interest at a rate of

12.25% to be charged.

Privy Council held – the instrument is not a promissory note under sec 4. So, to make a

promissory note ―there must be an express undertaking to pay the amount mentioned ……A

mere implied undertaking is not sufficient.

This instrument is simply a receipt.

3. Promise to pay must be unconditional – Certainty is the great object in negotiable

Instruments and unless they carry their own validity on the face of them they are not

negotiable.

The notes which are payable only on a contingency are not negotiable, because it does not appear

on the face of them whether or not they will ever be paid.

Thus, the promise to pay money should be unconditional or subject only to a condition which

according to the ordinary experience of the mankind is bound or certain to happen. (sec.5 para

2)

So, if the maker promises to pay on fulfillment of some contingency or event which may or may

not happen, it would be conditional promise and it will not be a valid promissory note.

Illustration (f) of sec.4 {seven day after marriage}

Illustration (g) of sec.4 {ten day after death}

4. Money and certain sum of money- There must be the promise to pay money only.





An instruments signed by ‗A‘

―I promise to pay B Rs.500 and to deliver him my black horse on 1st jan next.‖ {Illustration (h)

sec.4},

is not a valid note.

In spite of the fact that the amount payable includes some future interest or is payable at the

certain rates of exchange or on default of the payment of interest, the whole of the balance

become due, the amount paid shall be deemed valid. {sec.5 para 3}

Therefore, a promise to pay Rs.10,000 plus an interest of 4% per annum thereon constitute a

valid promissory note. However, where the rate of interest is not specified, then it is not a valid

note.

Sec 80 of the Negotiable Instruments Act 1881, however says that when there is provision of

interest and the rate of same is not determined then a uniform statuary rate of 18% per annum

will be applied. So in the light of this section the promissory note with no clear rate of interest

will also be valid.

5. Certainty of parties (payee and maker) – the parties to the instrument must be

designated with certainty.

The payee may be mentioned by name or by designation.

The payee will be regarded as a certain person though he is mis-named or designated by the

description only {sec.5 para 4}

e.g. if the amount of the instrument is payable to the registrar of the university, a valid note.

6. Not a bank note or a Currency note.

7. Payable to bearer or order- Although negotiable instruments act permits the issue of a

promissory note payable to the RBI Act 1934 prohibits the issue of such a promissory

note.





The reason for the restriction is that in case of currency note above the denomination of Rs.1,

there is a promise by Governor, RBI to pay a certain sum of money to the bearer on demand, and

if other person were allowed to make similar promise, the monopoly of RBI for the purpose can

not be maintained.

Thus, a promissory note payable to bearer will invalid. So, only an order promissory note can be

issued.

Specimen of Promissory note

Bill of Exchange

• Sec.5 – A bill of exchange is an instrument in writing containing an unconditional order

signed by the maker, directing 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.

• Thus, in a bill of exchange, one person makes an order to another person to pay a certain

sum of money to someone.

Rs.5000 Gandhinagar, 23rd

Aug, 2011

Three months after date, I promise to pay X or order the sum of rupees five

thousands for value received .

sd/

Y stamp





• Parties to the bill of exchange

Drawer - person who makes the order for making payment.

Drawee- person to whom the order to pay is made.

Payee- person to whom the payment is to be made.

Essentials of valid bill of exchange

1. Written & signed

2. Must contain an order to pay-

It is the essence of a bill of exchange that the drawer orders the drawee to pay money to the

payee.

As the bill of exchange is an order, it must be reflected from the wordings, mere request would

cause inconvenience and uncertainty.

But the insertion of a term of politeness or courteous expression like please pay, affixed to the

order will not invalidate the instruments.

Examples

Mr. AB will much oblige Mr. CD by paying to the order of Mr. P, was held good bill of

exchange.

But excessive terms of politeness may lead to the construction that the communication contained

in the bill was not an order.

So, a document drawn in this form,

―Mr. Nitin, please to let the bearer have seven pounds and place into my account, and you

will oblige‖ held not to be a valid bill.





3. Unconditional order – As it is the essence of a bill that it should be payable at all events,

this requisite must appear on its face with reasonable certainty.

A bill of exchange can‘t be drawn so as to be payable conditionally.

4. The drawee & payee must be certain - the drawee must be named or otherwise

indicated in the bill with reasonable certainty.

5. Order to pay money and money only.

Specimen of bill of exchange

Rs. 500 Delhi, 20 August 2011

Three months after date pay to Ramesh or to the order of, a sum of rupees five

thousands only (Rs. 5000), for value received.

To,

Nitin

Bombay

Signature Stamp

Sanjeev

Cheques

• Sec 6 - the negotiable instruments act 1881 defines a cheque as a bill of exchange drawnon a specified banker and not expressed to be payable otherwise than on demand.

• Actually, a cheque is an order by the account holder of the bank directing his banker to

pay on demand, the specified amount, to or to the order of the person named there in or to

the bearer.





Essentials of a Cheque

1. In writing & dully signed,

2. Unconditional order,

3. Issued on specified bank,

4. Amount specified is always certain and must be clearly mentioned both in figure and

words,

5. Payee is always certain, and

6. Payable on demand.





Lesson 8, 9 & 10

Nature of class - Observation Class

Topics Discussed – General and Specific Crossing of a Cheque, Its effect on

Negotiability.

Discussed by – Mrs. Dolly Jabbal and Miss Jaya Hemnani.

Brief Discussion of My Understanding

When a cheque bears across its face two transverse lines, the cheque is said to be crossed.

Crossing affects the mode of payment of the cheque. The cheque is no more payable at the

counter of the bank. The payment of the crossed cheque can be obtained only through a banker.

Thus, crossing is a mode of assuring that only the rightful holder gets the payments.

Kinds of Crossing

Crossing is basically are of two types:

1. Generl crossing, and

2. Special crossing

General crossing (Sec-123)

A cheque is said to be crossed generally when there are no words between the lines of crossing

or when there are some words but not the name of a bank. The lines may be blanks or contain the

words ―and company‖ or any abbreviation thereof. That makes no difference.

Special crossing (Sec-124)

Where the lines of the crossing bear the name of a banker either with or without any additional

words, the cheque is said to be crossed specially and to be crossed to that banker. The effect is





that its payments can be obtained through particular banker whose names appear through the

lines.

Account Payee Only

Sometimes the lines of the crossing contain the words ‗account payee only‖. This version of

general crossing affects the negotiability of the cheque and the duty of the collecting banker, but

the cheque will remain transferable.

The words A/C payee only is a direction to the collecting bankers that the contents of the cheque

shall be received only for the payee and credited to his account.

If the banker receives payment of such a cheque on behalf of any person other than payee, the

banker will be guilty of negligence and will not be entitled to the protection of section 131 of the

Negotiable Instruments Act 1881.

Hence, ―account payee only‖ crossing does in practice hinder the negotiability of the cheque

because no bank would like to collect it on behalf of any other person. But the transferee can

collect the amount from the transferor and if there is nothing wrong in the title of the previous

parties, from them also as an assignee of an actionable claim.

“Not negotiable” crossing (sec-123 & 130)

When the lines of the crossing carry the words ―not negotiable‖, the crossing is said to be ―not

negotiable‖ crossing.

Section 123 permits the use of such words and section 130 states their effect upon the negotiable

character of the cheque.

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.





In Great Western Rly Co v London County Banking Co, 1901 AC 414 (HL),

A person obtained a cheque by false pretences. The cheque was marked ―& Co‖ and ―not

negotiable‖. He obtained payment from the banker.

It was held that the banker‘s title was affected by fraud and the bank was accountable to the true

owner for the amount of the cheque.

Who may cross ( sec-125)

A cheque may be crossed by the following parties

1. By drawer – he may cross it generally or specially

2. The Holder – where the cheque is uncrossed the holder may cross generally or specially.

If the cheque is crossed generally or specially the holder may add the words ―not

negotiable‘.

3. The banker – when the cheque is crossed specially, the banker to whom it is crossed may

again cross it specially to another banker, or his agent for collection.





Lesson 11, 12, & 13

Nature of class – Class-Room Teaching

Topics Discussed – Negotiation (Sec-46 to Sec-60)

Discussed by – Sanjeev Kumar Choudhary

Brief Discussion of My Teaching

Transfer of negotiable instruments

A negotiable instrument can be transferred in two ways.

1. By negotiation under the negotiable instrument act

2. By assignment under the transfer of property act

Negotiation (Sec-14)

Where a negotiable instrument is transferred to any person so as to constitute that person the

holder thereof, the instrument is said to be negotiated.

Thus, there are two essentials of negotiations

1. The instruments should be transferred from one person to another, and

2. The transfer should be in such a manner so as to constitute the transferee of its holder.

Difference between Negotiation and Assignment

• Title- assignee gets similar title of the assignor, whereas holder in due course will get the

better title.

• Notice- to bind the debtor notice of assignment is required but no such requirement in

negotiation.





• Presumption- there are no. of presumption in favor of holder in due course such as

consideration but no such presumption in favour of assignee.

Modes of negotiation (Sec-46,47 & 48)

• Negotiation by delivery- A negotiable instrument payable to bearer can be transferred by

mere delivery either actual or constructive. E.g. A, a holder of the negotiable instruments

payable to the bearer, delivers it to B‘s agent to keep it for B. the instruments has been

negotiated.

• Negotiation by endorsement and delivery- An instruments payable to order is negotiable

by holder by endorsement and delivery thereof.

Importance of delivery

• All contracts on negotiable instruments are completed by the delivery and not merely by

the signature on the instruments.

• Damji Hirji v Mohd. Ali, (1939) 41 Bom LR 959

……the signature on the promissory note was made at Dharangaon but the same were

sent to the defendant’s clerk in Bombay. Till then there exist no contract between the

defendant and payees. The defendant’s clerk went to the payee shop and handed over the

note to the payee. When the payee received and accepted the contract

arose……………….

• English Case SICHEL v/s BORCH

• Indian case WINTER v/s ROUND

Delivery by post

• There can be two situations. First, an express or implied authority to send the instrument

by post. Second, no such authority exists.





• In the first case, the contract on the instrument can be said to be formed at the place of

posting.

• Where as in the second, the contract can only be complete after receiving the instrument

at the place where it has been sent to.

• Thorappa v/s Umedmalji 1923 Bom LR 604

• CIT v Patney and Co. AIR 1959 SC 1070

………..in case of payment by cheque sent by post the determination of the place of payment will

depend upon the agreement between the parties or the course of conduct of the parties. If it is

shown that the creditor authorised the debtor either expressly or impliedly to send a cheque by

the post the property in the cheque passes to the creditor as soon as it is posted. Therefore the

post office is the agent of the person to whom it is posted………………………………………….

Delivery of Drafts

• As long as the purchaser of the draft is able to reproduce it to the issuing branch, he has a

right to ask for its cancellation and refund of the proceed to him.

• Tukaram Bapuji Nilam v Belgaum Bank Ltd, AIR 1976 Bom 185

………after sending the bank draft by post to the payee, sender issued instruction to the bank

not to pay the draft. The court held that a draft can not be cancelled by the sender after it has

been delivered to the payee and here delivery is complete after posting the same….

Endorsement (sec 15, 16, 54, 49 & 55)

• Where the endorser signs only his name on the back of the instrument for the purpose of negotiating it that is an endorsement in blank.

• Where the endorser adds to his signature along with the name of the person whom or to

whose order he wants the instrument to be paid, that is an endorsement in full.





Restrictive, San Recourse, Conditional & Partial Endorsement Sec 50, 52 & 56 Restrictive, San Recourse, Conditional & Partial Endorsement (Sec 50, 52 & 56)

• Through endorsement property in the instrument passes to the endorsee and he gets the

right to further negotiates. If this right of further negotiation is taken away by the express

words in the endorsement, such an endorsement is termed as restrictive endorsements.

• If the endorser wants to incur any liability as the endorser, he can insert an stipulation in

the endorsement negativing or limiting his liability such as ―san recourse‖ i.e. without

recourse.

• When the endorser inserts a condition in his endorsement, such as – ―pay on marriage of

endorsee‖ such an endorsement is known as conditional endorsement.

• When endorsement is done for the part of the amount mentioned on the instrument such

an endorsement is partial endorsement.

• Conditional delivery

• Effect on the validity and negotiability of the instruments under different endorsement.

Instruments obtained by unlawful means or for unlawful consideration (sec 58)

• Effect of knowledge of illegality

LADUP V/S SHAIKH

….S visited the casino owned by D2 and was given chips in exchange for bank draft. S lost some

money in the game. He had some more chips left. He exchanged them for the cheque drawn by

D2 in his favour for some money. That cheque was marked “a/c payee-not negotiable” . S handed over the cheque to another casino. The cheque was dishonored…..

Gambling tokens an illegal consideration …….so dishonored .





• Position of holder in due course

HOUSE OF LORDS IN RAPHEL V BANK OF ENGLAND

A money-changer at Paris, 12 months after he had received notice of the robbery of banknotes at

Liverpool, took one of the stolen notes at Paris, giving cash for it, less than the current rate of

exchange, from a stranger, whom he merely required to produce his passport and write his name

on the back of the note. The court found as a fact that the circumstance of his forgetting or

omitting to look for the notice was no evidence of mala fides.

Accordingly he was allowed to recover the payment of the note from the Bank of England.

• When an instrument is obtained for unlawful consideration as defined u/s 23 of the

Contract Act or which makes it void u/s 25 to 30 of the Contract act, the instruments is

not valid between the immediate parties.

• Thus an instrument given for illicit cohabitation, for stifling prostitution, for payment of

money lost in a wagering transaction, for inducing a person to give evidence, is not

enforceable for illegality of consideration.

Instrument acquired after dishonour or overdue – sec 59

Accommodation note or bill

Instruments payable till payment or satisfaction-sec 60





Outdoor Assignments

Classes Taken at VT Choksi Law College, Surat

From 20th

September to 23rd

September

No of classes taken in LL.B – six

Interaction session with LL.M- 2 hours

A Brief Summary of the Classes Held

As far as classes of LL.B at the above mentioned college are concerned, I took almost the same

topics what I taught here at Gujarat National Law University during completion of my Clinical

Paper of Negotiable Instruments Act. However, in the course of teaching, I had to discuss the

few relevant provisions of the Indian Contract Act to make them understood the topics properly.

Apart from the above mentioned topics from negotiable instruments act (in lesson), and the

relevant provision of contract act, I was asked to take class specially on Sec-138 (dishonour of

cheque)

On the last day of our teaching assignment, I was offered an opportunity to have interaction with

the LL.M batch of the above mentioned college on the topic ―Corruption and Lokpal Bills‖. I

initiated the introduction of the topic and then presented the brief summary of Government

version of Lokpal Bill.

The brief summary of Jan Lokpal Bill was presented by my friend. And later I call for the view

of the students and a good and healthy discussion took place, which lasted for almost two hours.

So, here I am presenting the lesson plan of Dishnour of Cheque, which I didn‘t take here and

few important points of Lokpal Bill from my presentation for your kind perusal.





Dishnour of Cheque ( Sec-138)

Section 138 of the negotiable instruments Act provides that where any cheque drawn by any

person on an account maintained by him with a banker for payment of any amount of money to

another person from out of that account for discharge, in whole or in part, for any debt or other

liability, is returned by the bank unpaid, either because of the amount of the money standing in

the credit of that account is insufficient to honour the cheque or that it exceed the amount

agreed to be paid from the account by an agreement made trough the bank, such person shall be

deemed to have committed an offence and shall without prejudice to any other provision of this

act, be punished with imprisonment for a term which may extend to 2 years, or with fine

which may extend to twice the amount of cheque or both.

The provision appended to section 138 lays down that nothing contained in this section shall

apply unless-

(a) The cheque has been presented to the bank within a period of six months from the date on

which it is drawn or within the period of its validity, whichever is earlier;

(b) The payee and the holder in due course of the cheque, as the case may be, make a

demand for the payment of the said amount of money by giving a notice, in writing, tothe drawer of the cheque, within 30 days of the receipt of the information by him from

the bank regarding the return of the cheque; and

(c) The drawer of such cheque fails to make the payment of the said amount of the money to

the payee or, as the case may be to the holder in due course of the cheque, within 15 days

of the receipt of the said notice.

After Supreme Court Decision, return of a cheque with the endorsement account closed will

attract section 138. For the purpose of imposing 138 the word account closed will beinterpreted as an account having zero credit balance, son as to construe insufficient funds.





Lokpal Bill 2011

The Lokpal bill has been tabled several times in the parliament, but it could not get the assent as

per the mandate required by the constitution of India.

After signing the United Nation Convention Against Corruption (UNCAC) in 2003, it becomes

obligatory for the Government to bring the act in confirmation of the same. The recent bill is the

result of the same.

Objective – to provide for the establishment of the institution of Lokpal to inquire into

allegations of corruption against certain public functionaries and for matters connected

therewith.

Who are public functionaries

Public functionaries in the light of section 17 of the proposed bill includes

Subject to the other provisions of this Act, the Lokpal shall inquire into any matter involved in,

or arising from, or connected with, any allegation of corruption by a public servant made in a

complaint in respect of the following, namely: —

(a) Any person who is or has been a Minister of the Union other than the Prime Minister;

(b) Any person who is or has been a Member of either House of Parliament;

(c) Any Group ‗A‘ officer or equivalent or above, when serving or who has served, in connection

with the affairs of the Union;

(d) Any chairperson or member or officer equivalent to Group ‗A‘ officer referred to in clause

(c) or equivalent or above in any body or Board or corporation or authority or company or

society or autonomous body (by whatever name called) established or constituted under an Act

of parliament or wholly or partly financed by the Central Government or controlled by it;

(e) Any director, manager, secretary or other officer of every society or association of persons or trust (whether registered under any law for the time being in force or not) wholly or

partly financed by the Government or in receipt of any sums under the Foreign Contribution

(Regulation) Act, 1976 or any donation from the public:





Provided that the Lokpal shall not inquire into any matter involved in, or arising from, or

connected with, any such allegation of corruption against any Member of either House of

Parliament in respect of anything said or a vote given by him in Parliament or any committee

thereof covered under the provisions contained in clause (2) of article 105 of the Constitution.

Which offence can be taken by Lokpal

Lokpal will take the cognizance of all the offence that are defined under chapter III of the

Prevention of corruption Act 1988 from section 7 to section 14.

Establishment of Lokpal

The Lokpal shall Consist of

1. A Chairperson; and2. Ten members, out of whom at least four shall be of judicial backgrounds (either acting or

retired judge of Supreme Court or High Court)

The chairperson or the members shall not be the member of any political party, or holding any

post of profit under central or state or under any board.

The appointment of the chairperson and the members will be done by president on

recommendation of the selection committee.

Structure of selection committee

Selection committee will consists of

(a) Chairperson- Prime Minister

(b) Members – Speaker, Leader of the House other than in which PM is the member, Home

Minister, Leader of Opposition of both house, one sitting judge of Supreme Court and

one sitting chief justice of High Court nominated by Chief Justice of India, President of

National Academy of Science, one senior most national professor.

(c) Secretary- Cabinet secretary

The investigation wing of the Lokpal will investigate into the allegation made. After

investigation it will go to the prosecution wing file a complaint in the Special court formed under

the act to prosecute the public servant for the allegation made against them and punish

accordingly.

The person making the frivolous allegation will be punished by the special court so formed with

an imprisonment of 2 to 5years and a fine from 25000 to 200000.





Conclusion and suggestion

Initially, I really thought the observation classes that were required to take before teaching the

students were mere waste of time. But just after attending the first class as the patient and careful

observer I find the necessity of the same. It was really a difficult job to deal with the groups of

students, but the observation helped me a lot to learn the art of handling the groups and keeping

them bind throughout the lecture.

The first day, when I entered the class with my supervisors, I saw the students talking and

playing with their mobile but the moment respected madams took the charge of teaching, the

whole noise and the uncalled activities vanished as if they were never ever indulged in those

activities.

After observing two to three days, I come to know what attracted them to listen and pay theirattention to the lecture. It was nothing other than the effect of a systematic lesson plan.

So the most important gain I had as an observer during my assignment period a broad

understanding of a lesson plan.

The method of teaching here at Gujarat National Law University as adopted by my instructor

was PPT presentation and a through discussion of the points mentioned in the PPT. To keep the

class alive my supervisors used to take examples from the class only. This really brings the light

moments and helped in refreshing the mind.

One important aspect that I learnt, to keep the class live, encouraging and participating, one hasto take care of each and every students simultaneously and this can never be achieved standing at

the podium and delivering the lecture. That is why my supervisor keeps on moving without

loosing the grip of the subject throughout the class.

The day when I stated to take the class, I was really nervous not because of knowledge of subject

but because of the large number of students, there I used the experience I had out of the

observation classes. I concentrated on the structure I prepared before the lecture and started to

deliver in the sequence.

The experience that I got with completion of this assignment is tremendous and difficult toconclude in words. However, for being a good teacher as I observed in my instructor following

qualifications are essential,

1. A well formed lesson plan

2. Clear understanding of the subjects

3. Full of examples supporting the theory

4. Ability to correlate the topics with day to day activities; and





5. Most importantly to take even the smallest possible doubt within the lecture itself.

Again one of the very important aspects of teaching that I observed during my assignment period

is to be a teacher one must have to be up-to-date with the changes that took place in therespective area of teaching.

Because of advancement of technology and increase in virtual source of knowledge assessable

with just a click of mouse, the responsibility further increases on the teacher to present to topic in

something different, interesting and in innovative way.

With lot of gains I find some point where a change is required, such as the attendance of the

students to be taken at the end of the lecture. It will increase the strength of the students in the

class and also helps the students to collect the topics read and if any doubt still remains the last

minute will always be available to short it out.

The second point which I would like to raise, although relates to the infrastructural aspects but

yes it affects the teaching, is the structure of the class-room. A class room must be designed with

separate entry and exit gate. A class room with single gate distracts the mind of the teacher as

well as students when fellow students enter the class late.





Bibliography

sanjeev assign

Documents