unitwisepreviousyearquestionpaperoflucknowuniversity banking law f.pdf ·...

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LL.B.(Hons.)IVthSemesterBankingLaw

Unit–ISyllabus:-

Unit-I BankingLawinIndia (Lectures10)i. BankingRegulationAct,1949:ConceptofBankandBanker,Functionsof

Banks,ClassificationofBanks,RelationshipbetweenBankandCustomerii. Control by government and its agencies, Management of Banking

companies,On accountand audit,Reconstruction and reorganization ofbankingcompanies,socialcontroloverbanking

iii. Suspensionandwindingupofbusinessofbankingofbankingcompaniesiv. BankingOmbudsman,v. RecentTrendsinBanking:AutomaticTellerMachineandInternetBanking,

SmartCreditCards,BankingFrauds.

UnitWisePreviousYearQuestionPaperofLucknowUniversity2013

LongQuestionQ.1- GivelegaldefinitionofBank.DescribevariousfunctionsofmodernCommercialBanksinIndia.

cSaddhfof/kdifjHkk’kknhft,AHkkjro’kZesavk/kqfudokf.kfT;dcSadksadsfofHkUudk;ksZadko.kZudhft,AQ.2- DiscussthesuccessandfailuresoftheBankingOmbudsman.

cSafdaxvksEcM~leSu¼cSafdaxyksdiky½dhlQyrkvksa,oavlQyrkvksadhfoospukdhft,AShortQuestions.Q.1- Writeshortnotesonthefollowing:

fuEufyf[krijlaf{kIrfVIif.k;kafyf[k,%(i) Originoftheword‘Bank’cSad“kCndhmRifÙkA(ii) CustomeroftheBank.cSaddkxzkgdA(iii) SavingBankAccount.cprcSad[kkrkA(iv) FixedDeposit.Lkkof/ktekA(v) ScheduledCommercialBanksandNon-scheduledCommercialBanks.

vuqlwfprokf.kfT;dcSadrFkkxSj&vuqlwfprokf.kfT;dcSadA(vi) Licensedandnon-licensedCommercialBanks.

Ykkblasl/kkjhrFkkxSj&ykblsal/kkjhokf.kfT;dcSadA

2014LongQuestionQ.1- DiscusstherecentdevelopmentofBankingbusinessinIndia.

HkkjresarkRdkfydcSafdaxO;kikjesafodkldhO;k[;kdhft,AQ.2- Describedifferentmodesofwindingupofbankingcompanies.

cSafdaxdEifu;ksadsifjlekiudsfofHkUurjhdksadko.kZudhft,AShortQuestions.Q.1- Writeshortnotesonthefollowing:

fuEufyf[krijlaf{kIrfVIif.k;kafyf[k,%(i) CommercialBank. Okkf.kfT;dcSadA(ii) BankingOmbudsman. cSafdaxvksEcM~leSuA(iii) InstitutionalBank. laLFkkxrcSadA

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(iv) Account. ys[kkA(v) Courtliquidator. U;k;ky;hifjlekidA

LL.B.Hons.(SemesterVI)2015LongQuestionQ.1- Definereconstructionandamalgamation.Discusstheprocedureforamalgamationofbanking

companies.iqufuZekZ.k,oalekesyudksifjHkkf’krdhft,AcSfdaxdaiuhdslekesyudhizfØ;kdhO;k[;kdhft,A

Q.2- WhocanbeAuditorofbankingcompany?Whatisthepurposeofauditandaccountofbankingcompanies?WhataretheguidelinesfortheappointmentofstatutoryauditorsinPublicSectorbanks.cSafdaxdEiuhdkvkWfMVjdkSugksldrkgS\cSafdaxdsvkWfMVvkSjvdkmaVdkD;kmn~ns”;gS\ifCydlsDVjcSadesavkWfMVjdhfu;qfDrijfdufunsZ”kdkikyudjukgS\

ShortQuestions.Q.1- Writeshortnotesonthefollowing:

fuEufyf[krijlaf{kIrfVIif.k;kafyf[k,%(i) BankingCompany

cSafdaxdEiuh(ii) Socialcontroloverbankingcompany

cSadksaijlkekftdfu;a=.k(iii) BankingOmbudsman

cSafdaxvksEcM~leSu(iv) Recenttrendsinbanking

cSfdaxdsu,vk;ke(v) Customer

xzkgd

LL.B.Hons.(SemesterVI)2016LongQuestionQ.1- WriteindetailtheprovisionsoftheBankingRegulationActregardingreconstructionand

reorganizationofbankingcompanies.cSafdaxdEiuhdsiqufuekZ.k*,oaiquxZBu*lslEcfU/krcSafdaxfofue;uvf/kfu;e*dsizko/kkuksadksfy[ksaA

Q.2- Discusstheprovisonsrelatingtothewindingupabankingcompany.cSafdaxdEiuhdsifjlekiulslEcfU/krizko/kkuksadhfoospukdhft,A


fuEufyf[krijlaf{kIrfVIif.k;kafyf[k,%(i) NationalizedBank

jk’Vªh;drcSadLL.B.Hons.(SemesterVI)2017

LongQuestionQ.1- Describe the suspension and winding up ofBanking companies with the help oflegal

provisionsofBankingRegulationAct,1949.cSafdaxfofu;euvf/kfu;e]1949dsfof/kdizko/kkuksadhlgk;rklscSadksadsLFkxu,oaifjlekiudko.kZudhft,A

Q.2- Howgovernmentanditsagenciescontrolthemanagementofbankingcompanies?Discuss.Lkjdkj,oabldsvfHkdrkZcSadksadsizcU/kudksdSlsfu;af=rdjrsgSa\foospukdhft;sA


fuEufyf[krijlaf{kIrfVIif.k;kafyf[k,%(i) BankingFrauds

cSafdaxesadiV(ii) ATM

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,-Vh-,e-(iii) InstitutionalBanking

laLFkkxrcSafdax(iv) ScheduledBank

vuqlwfprcSadLL.B.Hons.(SemesterVI)2018

LongQuestionQ.1- GivelegaldefinitionofBank.DescribevariousfunctionsofmoderncommercialBanksinIndia.

cSaddhfof/kdifjHkk’kknhft,AHkkjro’kZesvk/kqfudokf.kfT;dcSadksadsfofHkédk;ksZadko.kZudhft,AQ.2- WhatdoyouknowabouttheBankingOmbudsman?Discussalsoitssuccessandfailures.

cSafdaxvksEcM~leSu¼cSafdaxyksdiky½dsckjsesavkiD;ktkursgSa\bldhlQyrkvksarFkkvlQyrkvksadhHkhppkZdhft,AShortQuestion

1.Originoftheword‘Bank’cSad“kCndkmn~xe

2.CustomeroftheBankcSaddkxzkgd

3.FixedDepositLkkof/ktek

4.OverdraftvksojMªk¶V

LL.B.Hons.(SemesterVI)2019LongQuestionQ.1- Describethesuspensionandwindingupofbankingcompanieswiththehelpoflegal

provisionsofBankingRegulationAct,1949.cSafdaxvf/kfu;e]1949dsfof/kdizko/kkuksadhlgk;rklsCkSadksadsLFkxu,oaifjlekiudko.kZudhft,A

Q.2- Whatarethegeneralprincipleswhichshouldguideabankerinmakingloanandadvancestoacustomer?fdlhxzkgddks_.krFkkvfxze/kuiznkudjrsle;cSadjdksekxZn'kZuiznkudjusokyslkekU;fl)kUrD;kgSa\

ShortQuestionQ.1- ATM

,Vh,eAssignment/ModelPaper

Unit-ILongQuestionQ.1- Whatdoyoumeanby“Bank”?DefineandExplainitsImportance.

cSadlsvkiD;kle>rsgSa\bldksifjHkkf’krdhft,rFkkbldsegRodkscrykb;sAQ.2- HowisBankingombudsmanappointed?Explainthepowersanddutiesofombudsman.

cSafdaxyksdikydhfu;qfDrdSlsgksrhgS\cSafdxyksdikydh“kfDr;ksavkSjdÙkZO;;ksadhfoospukdhft,AQ.3- Discusstherelationshipbetweenbankerandcustomer.

cSaddkjhvkSjxzkgddslEcU/kksadhfoospukdhft,A

AnswersQ.1- Whatdoyoumeanby“Bank”?Defineandexplainitsimportance.Ans.-

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Theterm "Bank"inthepresentcontextmeansaninstitutionwhichcarriesonthebusinessof"banking".ItisregisteredunderBankingRegulationAct,1949.AccordingtothisAct"A BankingCompanymeansanycompanywhichtransactsthebusinessofbankinginIndia.

AccordingtoSec.3ofNegotiableInstrumentAct,1881,theword"Banker"includesanypersonactingasabankeraswellasanypost-officesavingbank."

Originofword"Bank":Sofarasthepresentsystem isconcernedtheword"Bank"issaidtobeGermanicorigin

cognatewiththeFrenchword"Banque"andtheItalianWord"Benca"bothmeaningbench.InancientItalyandFrancewhenamoneylenderfailedhisbenchwasbrokenasaresultofhisfailures.ThewordBankasstatedbyauthoritiesisoriginallyderivedfrom "back"whichmeansa"joint-staff-fund".IntheItaly,bankerstransactedtheirbusinessonthebenchesinthemarketplace.Whenabankerfailed,his"bankco"i.e.,benchwasbrokendownbythepeople,anditwasindicativeoffactthathehasbecomebankrupt.Legaldefinitionofbank:

AccordingtoBankingRegulationAct,1949bankingcompanymeansanycompanywhichtransactsthebusinessofbankinginIndia.[Sec.5(c)].

AccordingtoSec.5(b)bankingmeans"theacceptingofdepositsofmoneyfrom thepublic,forthe purpose oflending orinvestment,which are repayable on demand orotherwise and arewithdrawalbycheque,draft,orderorotherwise"

AccordingtoSec.3oftheNegotiableInstrumentAct,1881,thewordBanking"includesanypersonactingasabankeraswellasanypostofficesavingbank.

AccordingtoProf.Hart"Abankerisapersonorcompanycarryingonbusiness,ofreceivingmoneysandcollectingdrafts,forcustomerssubjecttotheobligationofhonoringcheque,drawnuponthem from timetotimebythecustomerstotheextentoftheamountsavailableontheiraccounts."

ImportanceofBanksBanksare beneficialto everyone.Banking playsa veryimportantrole in the economic

developmentofallnationsoftheworld.Themainadvantagesofbanksareasfollows:1.ToProvideCreditInformationandLetterofCredit.–Wheneveranybodywantstoknowthe

financialpositionofabusiness,heisreferredtoitsbanker,whosupplieshim thedetailedinformation.BanksalsoissueLetterofCredittotheircustomerstohelpandenablethem togoabroad.

2.FacilityinMakingpayments-ThePaymentsaregreatlyfacilitatedthroughchequeswhichisalwaysconvenientandsafeandavoidsdispute.Thereisnoneedofcountingmoneywhenpaymentismadebymeansofcheques.

3.Safety–Thereisalwaysariskinkeepingcashwithone’sownself.Themoneywiththebanks

1.Bank:Definition(Sec.3ofNegotiableInstrumentAct,1881)2.Originofword“Bank”.3.LegalDefinitionofBank.

Prof.Hart4.ImportanceofBank

a.Toprovidecreditinformationandletterofcreditb.Facilityinmakingpaymentsc.Safetyd.Toencouragehabitofsavinge.Saleandpurchaseofsecuritiesf. Collectionofchequesetc.

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remainsinsafecustody.Everybodylikestokeepmoneywiththebankstoavoidtherisk.4.Toencouragehabitofsaving-Banksencouragethehabitofsavingsinthepublic.Savingsin

thebanksontheonehandaresafeandontheotherhandearninterestforitsdepositors.Thisisthemainadvantageofthebanks.

5.SaleandPurchaseofSecurities-Banksalsosellandpurchaseshares,stocks,debenturesandbondsetc.onbehalfoftheircustomers.

6.Collectionofchequesetc-Banksalsocollecttheamountofcheques,drafts,billsofexchange,etc.onbehalfoftheircustomers.

7.OtherServices-Inadditiontotheabovementionedservicesbanksalsoprovidevariousotherservicestotheircustomers,suchasremittanceoffunds,paymentofinsurancepremium,issuanceoftravelercheques,loanfacilityetc.

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&Q.2- Howisbankingombudsmanappointed?Explainthepowersanddutiesofombudsman.Ans.-

TheReserveBankofIndiahasappointedOmbudsmenundertheBankingOmbudsmanScheme,1995forredressalofgrievancesoftheMembersofthepublicagainstbanksrelatingtodeficiencyinbankingservices,loansandadvancesandotherrelatedmatters.Recently,theschemehasbeenamendedandnow,itisknownasBankingOmbudsmanScheme,2006whichcameintoforcefrom IstJanuary,2006.Thenew shcemeisapplicabletoallCommercialbanks,RegionalRuralBanksandScheduledPrimaryCo-operativeBanks.

AppointmentofOmbudsmanTheOmbudsmanisappointedbytheReserveBanksatsuchplacesasmaybespecifiedbyit.

TheReserveBankhasappointed Banking OmbudsmanatMumbai,New Delhi,Patna,Gauhati,Chandigarh,Jaipur,Ahmedabad,Bangalore,Bhopal,Bhubaneshwar,Chennai,Hyderabad,Kanpur,KolkataandTiruvananturam.TheOmbudsmenarelikelytobeappointedshortlyatalltheplaceswheretheofficesoftheReserveBankaresituated.TheremunerationandotherperquisitespayabletotheBankingOmbudsmanaredeterminedbytheReserveBankfrom timetotimeandisbornebythebanksinsuchproportionandinsuchmannerasmaybedeterminedbytheReserveBank.

Jurisdiction,PowerandDutiesofOmbudsmanTheOmbudsmanwillbeempoweredtoreceivecomplaintsagainsttheCommercialBanksand

ScheduledCo-operativeBanksrelatingtodeficiencyinbankingservicesandloansandadvances.TheschemehasspecifiedthenatureofcomplaintswhichcanbeentertainedbytheBankingOmbudsman.TheOmbudsmanwillentertainallcomplaintsconcerningdeficiencyinbankingservicessuchas:

(i) Non-payment/inordinatedelayinthepaymentorcollectionofcheques,drafts/billsetc.,(ii) Non-acceptance,withoutsufficientcause,orsmalldenominationnotestenderedforany

purpose,andforchargingofcommissioninrespectthereof;(iii) Non-issueofdraftstocustomersandothers;(iv) Non-adherenceofprescribedworkinghoursbybranches;(v) Failuretohonourguarantee/letterofcreditcommitmentsbybanks;(vi) Claimsinrespectofunauthorizedorfraudulentwithdrawalsfrom depositaccountsetc.;(vii) Complaintspertainingtotheoperationsinanyaccountsmaintainedwithabankssuchas

delays,non-creditofproceeds to party’s accounts,non-paymentofdepositornon-observanceoftheReserveBanksdirections,ifany,applicableto rateofintereston

Theanswershallconsistoffollowingimportantpoints:1.BankingOmbudsman

a.BankingOmbudsmanScheme,1995b.BankingOmbudsmanScheme,1996

2.AppointmentofOmbudsman3.Jurisdiction,poweranddutiesofOmbudsman

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deposits;(viii) Complaintsfrom exportersinIndiasuchasdelaysinreceiptofexportproceeds,handling

ofexportbills,collectionofbillsetc.providedthesaidcomplaintspertaintothebank’soperationsinIndia.

(ix) Complaints from non-residentIndians having accounts in India in relation to theirremittancesfroabroad,depositsandotherrelatedmatters;

(x) Complaintspertainingtorefusaltoopendepositaccountswithoutanyvalidreason;and(xi) AnyothermatterrelatingtoviolationofthedirectivesissuedbytheReserveBankofIndia

inrelationtobankingservices.Thecomplaintsrelatingtoloansandadvancesofthefollowingnaturewillbeentertained;

(i) Non-observanceofReserveBankdirectionsoninterest-rates;(ii) Delay in sanction/non-observance ofprescribed time schedule fordisposalofloan

application;(iii) Non-acceptanceofapplicationforloanswithoutfurnishingvalidreasonstotheapplicant;

and(iv) Non-observanceofanyotherdirectionorinstructionoftheReserveBankasmaybe

specifiedforthispurpose.TheOmbudsmanmayalsoentertainsuchothercomplaints,asmaybespecifiedbytheReserve

Bankfrom timetotimeinthisbehalf.

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&Q.3- DiscusstheRelationshipbetweenbankerandcustomer.Ans.-

Meaningofacustomer-Acustomerisonewhoisaccomplishedtofrequentacertainplaceofbusiness.

Acustomerisapersonwhoregularlyorrepeatedlymakespurchasesof,orhasbusinessdealingwith,atradesmanorbusiness.

AccordingtoDr.Hart,“Acustomerisonewhohasanaccountwithabankerorforwhom abankerhabituallyundertakestoactassuch.

Neitherthenumberoftransactionsnortheperiodduringwhichbusinesshasbeenconductedbetweenthepartiesismaterialindeterminingwhetherornotaper

GeneralRelationship between Bankerand Customer-The relationship between a bankerandcustomerisbasicallycontractual.Itisregulatedby(a)thegeneralprovisionsoflawofcontract(b)therulesofagency,whereapplicable,and(c0bankingpractice.Theremaybefollowingrelationshipsbetweenbankerandcustomer:

1.DebtorandCreditorRelationship

1.Meaningofacustomer2.Generalrelationshipbetweenbankerandcustomer

a.Debtorandcreditorrelationshipi.Demandforpayment

ii.Properplaceandtimeiii.Demandinpropermanneriv.Notimebar

b.Trusteeandbeneficiaryrelationshipc.Principal-agentrelationshipd.Baileeandbailerrelationship

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2.Bankerasatrustee

3.BankerasAgent

4.BaileeandBailor

1.DebtorandCreditorRelationship-Therelationofbankerandcustomerisprimarilythatofdebtorandcreditor.ButwhoiswhatataparticularmomentdependsontheStateofcustomer’saccount.Iftheaccountshowsacreditbalance,thebankerwillbeadebtorandthecustomeracreditor.Butinthecaseofdebitbalanceoroverdraft,thebankerwillbethecreditorandthecustomerthedebtor.

The debtor-creditorrelationship between a bankerand a customeris governed bythefollowingconditions:-

(a)Demandforpayment-A bankisnotanordinarydebtorinthesensethatitisundernoobligationtorefundthecustomer’sdepositsunlessdemandismade.Evenincaseoffixeddeposits,thebankisnotrequiredtoreturnthemoneyonitsownaccord.Thecustomersmustmakeademandforrepaymentoffundsdepositedexceptwhenthebankisbeingwoundup.

(b)Properplaceandtime-Theobligationtorepaytheamountdepositedislimitedtothebranchwheretheaccountiskept.Thecustomercanissuechequesonlyonthebranchonthebankswheretheaccountiskept.Thedemandforpaymentmustbemadeduringtheworkinghoursandonworkingdaysofthebranchconcerned.

(c)Demandinpropermanner-Thedemandforpaymentshouldbemadeinpropermannerinaccordancewithlaw orcustom.Thedemandshouldnotbemadeverballyorthroughatelephonicmessage.Thepropermannermaybeacheque,draftoranythingwhichmayprovethe genuineness ofdemand by the customerwhose identity mustbe disclosed andauthenticatedtothesatisfactionofthebank.

(d)Notimebar-Thedepositswithabankdonotbecometimebarredontheexpiryofaspecificperiodasnotbecomedueforpaymentunlessitisdemanded.

2.TrusteeandBeneficiaryrelationship-Thebankerassumesthepositionofatrusteewhenheacceptssecuritiesorvaluablesfrom thecustomerfavorsafecustody.Thearticlesdepositedwiththebankforsafecustodycontinuetobeownedbythecustomer.Thebankeristodealwiththearticlesaspertheinstructionsofthecustomer.Thebankerisatrusteeofthecustomerinrespectofchequesandbillsdepositedbythecustomerforcollection,tilltheyarecollected.Hebecomesthedebtoronceitiscollectedandcreditedtotheaccountofthecustomer.Thebankeractsalsoforthebenefitofthecustomer,andthus,thecustomerisabeneficiaryinthisway.

3.Principal-agentrelationship-Abankeractsasanagentofhiscustomerandperformsanumberofagencyfunctionse.g.,thebankercollectschequesonhisbehalfandmakespaymentofvariousduesofhiscustomerviz.,insurance,premium etc.

4.BaileleandBailorrelationship-Thebankfunctionsasabaileewhenitkeepsvaluablearticles,ornaments,titledeedsetc.ofitscustomer.Thebankworksasthecustodianofthesethings,anditisimpliedresponsibilityofthebanktoreturnthesethingssafely.Thus,thebankisabaileeandthecustomerisabailor.Whendemanded,thebankreturnsallthesethingstoitscustomers.Thebankkeepsonekeyofthecustomer’slockerwithitandanotherkeyiskeptbythecustomer.Thelockercannotbeopenedwithoutusingboththekeys.Thecustomerhastopaytherentofthelocker.

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

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Unit–IISyllabus:-

Unit-II RegulationofBanks (Lectures10)i. ReserveBankofIndiaAct,1934ii. Incorporation,Capital,ManagementandBusinessofBankingCompany,iii. CentralBankingfunctionofReserveBankofIndia,iv. CollectionandfurnishingofCreditInformation,ControlofReserveBankof

IndiaoverNon-bankingInstitutionsandFinancialInstitutions,v. CreditcontrolbyReserveBankofIndia,Generalprovisionsandpenalties.


LongQuestionQ.1- WhatdoyouknowaboutthemanagementboardoftheReserveBankofIndia?Discuss.

Hkkjrh;fjtoZcSaddsizcU/ke.MydslEcU/kesavkiD;ktkursgSa\foospukdhft,AQ.2- DiscussmainfunctionsoftheReserveBankofIndia.

Hkkjrh;fjtoZcSaddsizeq[kdk;ksZadhfoospukdhft,AShortQuestions.Q.1- GovernorandDeputyGovernoroftheReserve. Hkkjrh;fjtoZcSaddkxouZjrFkkfMIVhxouZjA

2014LongQuestionQ.1- DiscussthecharacteristicsandpowersoftheR.B.I.

Hkkjrh;fjtoZcSaddhfo”ks’krkvksa,oa“kfDr;ksadhO;k[;kdhft,AQ.2- CommentonSocialControlofR.B.I.

Hkkjrh;fjtoZcSaddslkekftdfu;a=.kijfVIi.khdhft,AShortQuestions.Q.1- CentralBank.dsUnzh;cSadA

LL.B.Hons.(SemesterIV)2015LongQuestionQ.1- Describegeneralprovisionsofpenaltiesandpunishmentforbankingcompanies,itsofficers

andauditorsfornon-complianceorcontraventionoflaws.cSfdaxdaiuh,oabldsvf/kdkfj;ksa]vkWfMVj}kjkfu;eksadsvuqikyuudjusdhn”kkesanaM,oaltklslacaf/krlkekU;izko/kkuksadho.kZudhft,A

Q.2- DescribeCentralBankingfunctionofReservebankofIndia,specialfocusoncreditcontrolmechanism,IsRBIarmedwithDraconianpowerdiscuss?

ShortQuestions.Q.1- INFINETbfUQusV

LL.B.Hons.(SemesterIV)2016LongQuestionQ.1- DescribethecentralbankingfunctionsofReserveBankofIndia.

Hkkjrh;fjtoZcSaddsdsUnzh;cSadlEcfU/krdk;ksZadko.kZudhft,AQ.2- DiscusstheconstitutionofCentralBoardofReserveBankofIndiaanditsorganizational

structure.Hkkjrh;fjtoZcSaddsdsfUnz;cksMZdsxBu,oabldsfoHkkxh;lajpukdhfoospukdhft,A


fuEufyf[krijlaf{kIrfVIif.k;kafyf[k,%(i) CashReserveRatio

udnlajf{krvuqikr(ii) PowersofAuditor

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vads{kddh“kfDr(iii) CreditControlbyRBI

Hkkjrh;fjtoZcSad}kjk_.kfu;a=.kLL.B.Hons.(SemesterIV)2017

LongQuestionQ.1- Discussthecreditcontrolmechanism ofRBI.

fjtoZcSadds_.kfu;a=.kiz.kkyhdhO;k[;kdhft,AQ.2- DescribethecentralbankingfunctionoftheRBI.

fjtoZcSadvkWQbf.M;kdsdsUnzh;dk;ksZadko.kZudhft,AShortQuestionsQ.1- Writeshortnotesonthefollowing:

fuEufyf[krijlaf{kIrfVIif.k;kafyf[k,%(i) Non-BankingFinancialInstitution

xSj&cSafdaxfoÙkh;laLFkku(ii) Reverse-Repo

fjolZ&jsiksLL.B.Hons.(SemesterIV)2018

LongQuestionQ.1- WhatdoyouknowaboutthemanagementboardoftheReserveBankofIndia?Discuss.

Hkkjrh;fjtoZcSaddsizca/keaMydslEcU/kesavkiD;ktkursgSa\ppkZdhft,AQ.2- DiscussbrieflymainfunctionsoftheReserveBankofIndia.

Hkkjrh;fjtoZCkSaddseq[;dk;ksZadhla{ksiesappkZdhft,AShortQuestionQ.1- GovernorandDeputyGovernoroftheReserveBankofIndia.

Hkkjrh;fjtoZcSaddkxouZjrFkkfMIVhxouZjLL.B.Hons.(SemesterIV)2019

LongQuestionQ.1- Discussthecontrolmechanism ofRBI.

fjtoZcSaddhfu;a=.kiz.kkyhdhO;k[;kdhft,AQ.2- Describecreditcontrolmechanism ofRBI.

fjtoZcSaddh_.kfu;U=.kiz.kkyhdko.kZudhft,AShortQuestionQ.1- BankingOmbudsman

cSafdaxvksEcM~eSuQ.2- GovernorandDeputyGovernorofRBI

fjtoZcSaddsxouZj,oafMIVhxouZjQ.3- Reverse-Repo

fjolZ&jsiksAssignment/ModelPaper

Unit-IILongQuestionQ.1- Discusstheobjectives,organizationalstructureandfunctionsoftheReserveBankofIndia.

fjtoZcSadvkWQbf.M;kdsmn~ns”;ksa]laxBukRed<kapsrFkkdk;ksZadhfoospukdhft,AQ.2- Explain thecontrolofReserveBankofIndiaovernon-banking institutionsand financial

institutions.xSj&cSafadaxlaLFkkvksa,oafoÙkh;laLFkkvksaijHkkjrh;fjtoZcSaddsfu;U=.kdko.kZudhft,A

Q.3- DiscussthecontrollingpowersofIndianReserveBankOver.Banks.Hkkjrh;fjtoZcSaddhcSdksadslEcU/kesafu;a=.k“kfDrdhO;k[;kdhft,A

Answers

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Q.1- Discusstheobjectives,organizationalstructureandfunctionsoftheReserveBankofIndia.

Ans.-

ReserveBankofIndia-ReservebankofIndiawasestablishedintheyear1935asacentralBankofthecountryundertheprovisionsofReserveBankofIndiaAct1934.Itwasnationalizedintheyear1949andthuscameunderabsolutecontrolofGovernment.Offices,BranchesandAgencies-ItsofficesareatBombay,Kolkata,Delhi,andMadras.ItsagenciesmaybeestablishedatotherplacesinthecountrywiththepermissionofthecentralGovernment.GovernororManagement-ACentralBoardofDirectorswouldlookafterthemanagementoftheR.B.I.suchBoardwillhave20members.TherewillbeaGovernorandmaximum offourDeputyGovernorappointedbytheCentralgovernment.Therewillbefourdirectorsonefrom eachcircle/Zone nominated bythe CentralGovernment.The centralGovernmentwillnominate ten moreDirectorsforaperiodofFouryears.CentralGovernmentwillnominateagovernmentservantmoreasaDirector.

GovernorandDeputyGovernorswillbefulltimerappointedforamaximum periodof5yearstheymaybereappointedaftertheexpiryof5years.TheywillbeentitledtosalaryandallowanceprescribedbycentralboardofDirectorsandapprovedbytheCentralGovernment.

GovernorwillpresideoverthemeetingsoftheBoardofDirectors.InhisabsencetheDeputyGovernornominatedbytheGovernorwillpresideoverthemeeting. TheGovernmentnominatedemployee (Director)and DeputyGovernors willhave the rightto participate and take partindeliberationsinthemeetingoftheCentralBoardofDirectorsbutwillhavenorighttovote/Franchise(Section8ofRBIAct.1934).

FunctionsofReserveBank-FunctionofReserveBank

TraditionalFunctions PromotedandDevelopmentalFunction

1.ReserveBankofIndia2.Offices,Branchesandagencies3.GovernororManagement4.FunctionsofReserveBank

a.TraditionalFunctionsb.PromotedFunctions

i.NoteIssue(Sec.22)ii.BankertotheGovernment(Sec.20)

iii.ControlofBanks1.BankingRegulationAct,1949(Sec.22,23,35,36,36AA,36AB)

iv.Banker’sDeath(Sec.17oftheReserveBankofIndiaAct,1934)v.ControlofCredit

vi.Custodianofexchangereservevii.CollectionofDatapublication

5.Promotionalanddevelopmentalfunctions

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Note CollectionofData Controlof Bankerto Custodianof Control BankersIssueandPublication Credit TheGovernmentExchangeReserve ofbank Bank

ItscapitalisRs.5Crore.ReserveBankofIndiahasrighttoissuethecurrency.ItactsasabankeroftheCentralGovernmentandStateGovernments.ITactsasabankeroftheGovernmentbycollectionsofthebillofexchangeofthegovernment,acceptthem andmakespayment.ItmanagesloanfortheGovernment.ItgivesadvicetothecentralgovernmentsstateGovernmentinvariousfinancialmatters.ItactsasabankeroftheBankalso.Itacceptsdepositsofthebanks,givethemload,andactsasacleaninghouseforthem.priorpermissionoftheReserveBankofIndiaisrequiredtoopennewbranchofabank.Ithasrighttomakeaninspectionofthebank.Itcontrolsthecreditinthecountry.

ThusfunctionsoftheReserveBankofIndiaareasfollowing-1- NoteIssue-Undersection22oftheReserveBankofIndiaAct1934,theReservebankshallhavethesolerighttoissuebanknotesinIndia.Accordingtosection38oftheReserveBankofIndiaAct,theCentralGovernmentshallputintocirculationrupee,coinsandonerupeecurrencynotesthroughReserveBankonly.ItistonotethatonerupeecurrencybearthesignatureoftheFinanceSecretary.Ministryoffinance,GovernmentofIndiawhiletheotherbanknotesareissuedunderthesignatureoftheGovernoroftheReserveBankofIndia.NotesissuedbytheReserveBankofIndiaareknownasBankNoteswhiletheonerupeesnotesofthecentralGovernmentareknownascurrencynotes.Accordingtosection27oftheRBIAct1934theReservebankshallnotreissuebanknoteswhichonetorn,defaced,orexcessivelysoiled.2- BankertotheGovernment-TheReserveBankistheBankertotheCentralGovernmentStatutorilyandtotheStategovernmentsbyvirtueofagreementsenteredintowiththem undersection20ofAct,theCentralGovernmentconductsallitstransactionthroughtheReservebanksection21oftheReserveBankofIndia1934requirestheGovernmentofIndiatoentrusttheReserveBankallitsmoney,remittances,exchangesandbankingtransactionsinIndiaandinparticulardepositfreeofinterestallincashbalancewiththeReserveBank.3- ControlofBanks-ThereserveBankActsassupervisorandcontrollerofbanks.UndertheprovisionsofthebankingRegulationAct1949.a. EachbankinIndiaisrequiredtoobtainLicensefrom theReserveBankbeforeconductingbanking business(Section22).b. Eachbankdesirousofopeningnewbranchorchangeinthelocationofanyexistingbranchisrequiredtoobtainpriorpermissionfrom theReserveBank(section23).c. RBIhaspowertoinspectbooksandaccountsofcommercialbank(Section35).d. ReserveBankofIndiamayissuedirectionstocommercialbankandmayprohibitbanktoenterinto particulartransactions(section36).e. ReserveBankmayremoveanytopexecutiveofabanksection(36AA)f. ReserveBankmayappointadditionaldirectorsofthebankingcompanysectionAB.4- Banker'sBank-TheReservebankofIndiaisabankertothescheduledcommercialBankinIndia. AlltheScheduledcommercialBankkeeptheiraccountswiththeReserveBankKeeptheiraccountwiththeReserveBank.

Undersection17oftheReserveBankofIndiaAct1934ScheduledbanksmayhaverecoursetoReserveBankforFinancialassistanceundertheprovisionsoftheAct,theReservebankisempoweredtomakeloanandadvancestoscheduledBanksagainstthesecurityofstocksandfundetc.refundableondemandorontheexpiryofafixedperiodsnotexceeding180daysincaseifacommercialbankisnotinapositiontoraiseFinancesfrom othersources,thenitmayapproachReserveBankfornecessaryFinancialaccommodation.TheReserveBank,inthecapacityofthelenderofthelastresort,assumes,theresponsibilityofmeetingdirectlyorindirectlyallreasonabledemandsforCo-operativesocietyregisteredwithintheareainwhichthestateco-operativeBankoperates.

Anyotherpersonsuchloansoradvancesshouldberefundableondemandorontheexpiryoffixedperiodsnotexceeding90days,onsuchtermsandconditionsastheReserveBankmayconsider

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tobesufficient.5- ControlofCredit-TheReserveBankexercisesitscontroloverthecreditcreatedbythecommercialbanks.6. CustodianofExchangeReserve-TheReserveBankistheCustodianofthecountryisforeignexchangerevenue.TheallIndiaremittancestoforeigncountriesandforeignremittancestoIndiaaremadethroughtheReserveBank.7. CollectionofDataPublication-TheReserveBankistheprincipalsourceofcertainFinancialStatisticsandbankingdata.TheReserveBankpublishesamonthlybulletin,withweeklystatisticalsupplementsandannualreportwhichpresentagooddealofperiodicalreviewsandcommentscreditfacilitiesfrom commercialbanksandothercreditinstitutionsonterm andconditionsasmaybespecifiedundersection42oftheReserveBankofIndiaAct.TheReservebankholdsthecashreservesofcommercialandotherbanksandthusactsascustodian.TheReserveBankAct.asaclearinghouseformemberbanksforsettlingtheirmutualtransactionsbybookentries.

Accordingtosection18oftheActwhenintheopinionoftheReserveBankaspecialoccasionhasarisenmakingitnecessaryorexpedientthatactionshouldbetakenforregulatingcreditintheinterestsofIndiatrade,industry,commerceandagriculture.TheBankmaynotwithstandinganylimitationcontainedinsection-17-1. Purchasesellordiscountanybillofexchangeorpromissorynote,thoughthesamemaynotbeeligibleforpurchaseordiscountundersection-17.2. Makeloansoradvancesto-

a. StateCo-operativebankb. Ontherecommendationofastateco-operativebank,topertainingtogeneraleconomic

Financialandbankingdevelopments,includingtheBank'smonitorypoliciesandmeasures,adoptedforthequalitativeandquantitativemonetarymanagement.8. PromotionalandDevelopmentalFunctions-Itperformsmanypromotionanddevelopmentfunction,viz.i. ThroughtheinstitutionslikeUnitTrustofIndia,whichhelpstomobilizesavinginthecountry.ii. BysettingupBanker'sTrainingCollegetoextendtrainingfacilitiestosupervisorystaffofcommercialbank.

____________________________________________________________________________Q.2- ExplainthecontrolofReserveBankofIndiaovernon-banking institutionand financial

institutions.Ans.-

TheReserveBankofIndiahastakeninitiativeinsettingupstatutorycorporationsattheall-Indiaandregionallevelstofunctionasspecializedinstitutionsforterm lending.ThefirstoftheseinstitutionswastheIndustrialFinanceCorporationofIndiasetupin1947.FollowedbytheStateFinancecorporationsineachofthestatefrom 1953onwards.TheRBIhasalsohelpedinthe

Theanswershallcontainfollowingimportantpoints:1.ControlofReserveBankofIndia–

a.IndustrialFinanceCorporationofIndia,1947b.IndustrialDevelopmentBankofIndiac.UnitTrustofIndiad.SmallIndustriesDevelopmentBankofIndiae.StateFinanceCorporationsf. NationalHousingBanksg.DepositInsuranceandCreditGuaranteeCorporation(DUCGC)

2.Non-BankingFinancialCompanies(NBFCs)3.GrowthofNBFCs4.RecentPolicyDevelopments

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establishmentofotherfinancialinstitutionssuchastheIndustrialDevelopmentBankofIndia,theIndustrialReconstructionBankofIndia,SmallIndustriesDevelopmentBankofIndia,UnitTrustofIndia,etc.ForthepromotionofforeigntradetheReserveBankhasestablishedtheexportandImportBankofIndia,Similarly,forthedevelopmentofthehousingindustrytheRBIhasestablishedtheNationalHousingBank.

Furthermore,theDepositInsuranceandCreditGuaranteeCorporation(DUCGC),awhollyownedsubsidiaryoftheReserveBank,operatescreditguaranteeschemeswithobjectiveofprovidingcoveragainstdefaults in repaymentofloans made to smallborrowers,including small-scaleindustrialborrowers,inorderthatcreditflowtothem isenlarged.Non-BankingFinancialCompanies(NBFCs)

Financialsystem impliesasetofcomplexandcloselyconnectedorinterconnectedinstitutions,agents,practices,markets,transactions,claimsandliabilitiesintheeconomy.Financialinstitutionscanbeclassifiedasbankingandnon-bankinginstitutionsorasintermediariesandnon-intermediaries.Non-BankingFinancialCompanies(NBFCs)constituteanintegralpartofIndianFinancialSystem andsupplementthebankingandindustrialsector.

Theterm NBFCcanbecoinedtoincludeallcompaniescarryingonthebankingfunctionsbutwhichcannotbeformallycalledasbanks.Itprovidesawidespectrum offinancialservices—bothfundbasedandnon-fundbasedorfeebasedactivitiesrangingfrom hirepurchaseandleasingtoloanandpureinvestmentandcounseling.Forthesepurposes,theNBFCsapartfrom theircapitalgetresourcesfrom thepublicthroughfixeddepositsandcreditfacilitiesfrom banks.GrowthofNBFCs

NBFCshaveinrecentyearsgrownsizeablebothintermsoftheirnumbersaswellasinvolumeofbusinesstransactions.Thenumberofsuchfinancialcompaniesgrew moreandmoremanifold.Thefactorstothisgrowthwerelowertransactionscostoftheiroperations,theirquickdecisionmakingability,customerorientationandpromptprovisionofservice.Thereareotherfactors,whichcontributedtothisenormousgrowth.NBFCswerehistoricallysubjectedtoarelativelylowerdegreeofregulationwhencomparedtobanks.HigherrateofreturnondepositsofferedbyNBFCshaveenabletoattractalargebaseofsmallsavers.Lastly,severaldistinctivefeaturesofNBFCslikenoentrybarrier,limitedfixedassetsandholingofinventoryallofwhichledtoaproliferationofNBFCs.NBFCs—Itscategories

NBFCsarenotahomogenousset;theyconsistof8categorieswithdifferingimplicationsforsupervisionandfinancialintermediation.Theprincipalbusinessofthesecategoriesisgivenbelow:

a Equipmentleasingcompanies

Equipmentleasingorthefinancingofsuchactivity.

b Hirepurchasecompanies Hirepurchasetransactionorthefinancingofsuchactivity.c Loancompanies Providingfinancebymakingloansoradvancesorotherwise

foranyactivityotherthanequipmentleasing,hirepurchaseandhousingfinancecompanies.

d Investmentcompanies Acquisitionofandtradinginsecuritiestoearnprofits.e Mutualbenefitcompanies NotifiedbytheCentralGovernmentunderSection620Aofthe

CompaniesAct,1956.f Miscellaneousnon-banking

companies,i.e.chitfundsAgreementwithaspecifiednumberofsubscribersthateveryoneofthem shallsubscribecertainsum oninstallmentsoveradefiniteperiodandeveryoneisentitledtothepriceamountasdetermined.

g Housing financecompanies

Thefinancingofacquisitionorconstructionsofhousesincludingtheacquisitionsordevelopmentofplotsofland.

h Residuary non-bankingcompanes

Companywhichreceivesdepositsunderanyschemeorarrangementinonelumpsum orininstallmentsorbysaleofunitsorcertificatesorotherinstrumentsorinanyother

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manner.Theaboveclassificationisforthepurposeofsupervisionandcontrol.RegistrationofNBFC’swiththeRBI

TheReserveBankofIndiaAct,provides forthecompulsoryregistrationofNBFCs.ItalsoprovidesthattheReserveBankofIndiahasgotpowertoincreasetheminimum NOFforentryintothebusinessfrom Rs.25lakhstoRs.2crores.Accordingly,inthemonetaryandcreditpolicystatementfortheyear1999-2000,itwasproposedthattheNBFCswhichareincorporatedonorafterApril20,1999,therequirementforminimum NOFwillbeRs.2crore.RecentPolicyDevelopments

In January,2000,the Reserve Bank ofIndia effected severalamendments to NBFCregulations.Theyare:

1.NBFCswhichare:(a)Engagnedinmicro-financingactivities;(b)LicensedunderSection25oftheCompaniesAct,1956;and(c)Notacceptingpublicdepositeswereexemptedfrom thepurview oftheregulationsof

registration,maintenanceofliquidassentsandtransferofprofitstoReserveFund.2.MutualbenefitcompaniesinexistenceonJanuary9,1997andhavingNOFofRs.10lakhs

exemptedfrom therequirementofregistration,maintenanceofliquidassets,creationofReserveFundandalsofrom otherprovisions.

3.Certainregulationsinrespectofopeningandclosingofbrancheswithanobligationofauditorstoreportonnon-complianceofthesedirections.NBFCshavetoconstituteauditcommitteeconsistingofnotlessthan3directorsiftheyhaveassetsofmorethan50croresasperthelastauditedbalancesheet.

TheregulationforNBFCsandResidenceyNBFCswerefurtherrationalizedinJune2000withthefollowingamendments:

(a)Rationalizationofprovisiongnormsinrespectofleaseandhirepurchaeassets.(b)Obtainingandkeepingontheirrecordacopyofpasspoart,rationcard,electionidentitycareof

thenewdepositholdersasanevidenceforidentification.(c)PermitsResiduarynon-bankingcompaniestomakeinvestmentintheschemeofmutualfunds

approvedbySEBIandloweringoftheceilingoninterestratespayablbythesecompaniesby2percent.

(d)Permissionto NBFCsto acceptdepositsfrom therelativesoftheirdirectorssubjecttoadequatedisclosure.

(e)RationalizationoftheformatsofallstatutoryreturnssubmittedbytheNBFCs,Nidhis,RBNCsandchitfundswithaviewtofacilitatingelectronicprocessingandtousethem toeffectiveoff-sitemonitoringtools.TheReserveBankofIndiahasalreadystartedprocessingtheinitiativestobetakenbyit,whilethegovernmentislookingatlegislativechanges.ItishopedthattheReserveBankofIndiawillimplementtherecommendationsoftheVasudevCommitteeoveraperiodoftimeinaphasedmannerforasoundandhealthygrowthanddevelopmentsoftheNBFCsector.

_________________________________________________________________________________________

Q.3- DiscussthecontrollingpowersofIndianReserveBankoverBanks.Ans.-

1.ControllingpowersofIndianReserveBankoverBanks–2.ControloverManagement(Sec.36AAand36AB)3.AccountsandAudit

a.Section–30ofBankingRegulationsAct,19494.Displayofauditedbalancesheet(sec.29)5.Inspection(sec.35)

a.Sec.45QofBankingRegulationsAct,1949b.Thebankinglaws(Amendment)Act,1983

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TheReserveBankofIndiaisreasonableforthedevelopmentofanadequateandsoundbankingstructureinthecountryforcateringtotheneedsofagriculture,industry,tradeandcommerce.TheReserveBankofIndiahasbeenvestedwithadequatepowersofsupervisionandcontrolovertheoperationsofcommercialbanks—publicsectorbanksincludingregionalruralbanksandprivatesectorbanksincludingforeignbanks—publicsectorbanksincludingregionalruralbanksandprivatesectorbanksincludingforeignbanks—andthecooperativebanksoperatinginthecountry.Someofthepowersandfunctions arederivedfrom theReserveBankofIndiaAct,1934,andsomeothersfrom theBankingRegulationsAct,1949.TheFormeraCtconstitutesthecentralbankinglegislationandthelatterActcontainslegislationforregulatingtheactivitiesofcommercialandcooperativebanks.Thecontroloverthebankingcompaniesindifferentfieldsarediscussedbelow.ControloverManagement(Section36AAand36AB)

UnderSection36AAofBankingRegulationAct,ReserveBankofIndiaalsoenjoysvastpowersofdaytodaysupervisionandcontrolofbankingcompanies.WhentheReserveBankissatisfiedthatinthepublicinterestorforpreventingtheaffairsofabankingcompanybeingconductedinamannerdetermenttotheinterestsofthedepositorsorforthepropermanagementofanybankingcompany,itisnecessarytoremoveanydirector,chiefexecutiveofficerorotherofficeroremployeeofthebankingcompany,itmaydosobyanorderinwriting.Theordershallcontainreasonsforhisremovalandthedatefrom whichitshallbeeffective.TheReserveBankshallalso giveareasonableopportunitytosuchapersonforexplaininghispositionbeforesuchorderisactuallypassedagainsthim.However,ifintheopinionoftheReserveBank,anydelaywouldbedetrimentaltotheinterestsofthebankingcompanyoritsdepositors,thepersonremovedmaybeorderedtoceaseactingwhetherdirectlyorindirectly,pendingconsiderationoftherepresentation.AccountsandAudit.

Attheexpirationofeachcalendaryearorattheexpirationofaperiodof12monthsendingwithsuchdateastheCentralGovernmentmay,bynotificationinofficialGazettespecifyinthisbehalf,everybankingcompanyincorporatedinIndia,inrespectofallbusinesstransactedbyitandeverybanking companyincorporated outsideIndia,in respectofallbusinesstransacted through itsbranchesinIndia,shallprepareswithreferencetothatyearortheperiod,asthecasemaybe,abalancesheetandaprofitandlossaccountasonthelastworkingdayoftheyearortheperiodintheformssetoutinthethirdscheduleorasneartheretoascircumstancesadmit.Thegovernmenthasnotifiedthattheaccountsofbankingcompaniesshallbeclosedason31stMarcheveryyearasagainst31stDecemberearlier.

Section30ofBankingRegulationAct,1949,laysdownthatthebalancesheetandprofitandlossaccountofbankingcompanywillbepreparedaspertheprovisionsofSection29ofBankingRegulationAct,andshallbeauditedbyapersondulyqualifiedunderanylaw.Theappointments/re-appointmentorremovalofanAuditorofabankingcompanyhastobemadewiththepreviousapprovalofReserveBankofIndia.DisplayofauditedBalanceSheet-

TheBankingRegulationsActmakesprovisionsrequiringabankingcompanyincorporatedoutsideIndia,todisplayatitsprincipalplaceofbusinessandbranchofficesinIndiaonorbeforethefirstMondayinAugusteveryyear,copiesofbalancesheetandprofitandlossaccountpreparedinaccordingwiththeprovisionsofSection29oftheAct,sofarasitsbusinesstransactedthroughitsbranchesinIndiaisconnected.Italsorequiressuchaforeignbankingcompanytodisplayitsconsolidatedbalancesheetandaccounts,relatingtoitsentirebankingbusiness,assoonastheyareavailable,andthesamearetokeptdisplayedtillreplacedbythoserelatingtothesucceedingperiod.Inspection

Section35oftheBankingRegulationsActwasincorporatedwithaviewtosafeguardtheinterestsofshareholdersanddepositorsofbankingcompanies,asaresultofwhichbankdirectorsandmanagersarelikelytobecautiousinemployingthefundsoftheirinstitutions.

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Section45QoftheBankingRegulationAct,1949andSection237oftheCompaniesAct,1956dealswithinspectionincertaincasesbytheReserveBankofIndiaandtheCentralGovernmentrespectively.TheseSectionshavebeenincorporatedintheirrespectiveActswithaview tocheckmalpracticesincompaniesgenerallyandparticularlyintheBankingCompanies.Privatesectorbanks(withdepositsinexcessofRs.50crores)includingforeignbanks,financialinspectioniscarriedoutonceinthreeyears,Forallotherbanks,includingRRBstheinspectionisundertakenonceintwoyears.IncaseofAnnualAppraisalSystem ofinspection,greaterstressislaidonanobjectiveassessmentofsystemsanddevelopmentalaspects,suchas,organizationalsetup,resourcesmobilization;creditappraisalanddevelopmentofcredit,profitability,internalcontrolsystem,etc.TheBankingLaws(Amendment)Act,1983hasempoweredReserveBanktoalsoconductedscrutinyoftheaffairsofthebankingcompaniesinadditiontoconductingregularinspectionasstatedabove.

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Unit–IIISyllabus:-

Unit-III NegotiableInstruments (Lectures10)i. NegotiableInstrumentsAct,1881ii. DefinitionandcharacteristicofNegotiableInstruments,TypesofNegotiable

Instruments,iii. DefinitionandEssentialsofPromissoryNote,BillofExchangeandCheque,

Liabilitiesandiv. CapacityofPartiesofNegotiableInstrument,Holderand Holderindue

course,Transferandv. NegotiationofNegotiableInstrument.


LongQuestionsQ.1- WhatdoyoumeanbyNegotiableInstrument?Discusstheircharacteristics.

ijØkE;fy[krlsvkiD;kle>rsgSa\budhfo”ks’krkvksdhfoospukdhft,AQ.2- whatdoyoumeanbypromissorynote?Discussitsessentialelementsanddifferentiate

betweenpromissorynoteandbillofexchange.opui=lsvkiD;kle>rsgSa\bldsvko”;drRoksadko.kZudhft,rFkkopui=,oafofue;i=esavUrjcrkb;sA

ShortQuestions.Q.1- Overdraft.vf/kfod’kZaAQ.2- Cheque.pSdA

2014LongQuestionsQ.1- whatisnegotiation?Whenadocumentisa‘promissorynote’?

ijØkE;D;kgS\dcdksbZnLrkostopui=gSAQ.2- ‘’Thegreatelementofnegotiabilityistheacquisitionofpropertybyyourownconductnotby

anothers.Discusswiththehelpofdecidedcase.ikjØE;.kh;rkdkegRoiw.kZrRogSfdlEifÙkdhizkfIrmldsviusvkpj.klsgksufdvU;fdlhdsAfu.khZrokndhlgk;rklsO;k[;kdhft,A

ShortQuestions.Q.1- NegotiableInstruments.ijØkE;fy[krAQ.2- BillofExchange. fofue;i=

LL.B.Hons.(SemesterIV)2015LongQuestionQ.1- Defineterm Negotiation.Discussdoctrineofnegotiabilitywiththehelpofrelevantcasesand

illustrations.ijkØE;dksifjHkkf’krdhft,AijØE;rkdsfl)kUrdhlqlaxroknksa,oan’VkUrksadhlgk;rklsO;k[;kdhft,A

Q.2- PrepareusualformatofBillofExchangeandPromissoryNote.WhatarethepresumptionsregardingNegotiableInstruments?lkekU;iz;ksxdhtkusokyhfcyvkWQ,Dlpast]opui=dkizk:Ikcuk;sAijkØE;fy[krlslacaf/krmi/kkj.kkD;kgSA

ShortQuestions.Q.1- StaleCheque LVsypsdQ.2- VSAT oh,lv,Vh

LL.B.Hons.(SemesterIV)2016LongQuestionQ.1- Define‘Holder’and‘Holderinduecourse’,itsrightsandliabilities.

/kkjd*,oalkekU;vuqØeds/kkjd*]budsdk;ksZa,oankf;RoksadksifjHkkf’krdhft,A

18

Q.2- Prepareususalformatof‘PromissoryNote’forloanoradvanceofRs.500/-#-500@&ds_.k;kvfxzedsfy,opui=dklkekU;izk:Ikcuk;saA


fuEufyf[krijlaf{kIrfVIif.k;kafyf[k,%(i) Instrumentnegotiablebycustom orusage.

:f<+,oaiz;ksx}kjkekU;ijkØE;fy[kr(ii) NoticeofProtest

fojks/kdhlwpuk(iii) Instrumentalobtainedbyunlawfulmeans

vfof/kdrjhdslsizkIrfy[krLL.B.Hons.(SemesterIV)2017

LongQuestionQ.1- PrepareusualformatofBillofExchange(B/E)alsodiscusstheprocessofdischargeofparties

withthehelpofillustration.fofue;i=dsvkSipkfjdizk#irS;kjdhft,rFkki{kdkjksadhmUeqfälsmUeqfälEcfU/krizfØ;kdkn’VkUrdhlgk;rklsfoospukdhft;sA

Q.2- WhatisNegotiation?Discussthedoctrineofnegotiability.ijØkE;D;kgS\ijØkE;rkdsfl)kUrdhppkZdhft;sA

ShortQuestionsQ.1- Writeshortnotesonthefollowing:

fuEufyf[krijlaf{kIrfVIif.k;kafyf[k,%(i) CapacityofpartiesofNegotiableinstrument

ijØkE;fy[krdsi{kdkjksadh{kerk(ii) NotingandProtest

fy[kr,oafojks/kLL.B.Hons.(SemesterIV)2018

LongQuestionQ.1- WhatdoyoumeanbyNegotiableInstruments?Discusstheircharacteristics.

ijØkE;fy[krlsvkiD;kle>rsgSa\mudsy{k.kksadhppkZdhft,AQ.2- DefinePromissoryNote.Discussitsessentialelementsanddifferentiatealsobetween

PromissoryNoteandBillofExchange.Okpui=dksifjHkkf’krdhft,Abldsvko”;drRoksadhppkZdhft,,oaopui=rFkkfofue;i=esavarjHkhcrkb;sA

ShortQuestionQ.1- PartiesofCheque

Pksddsi{kdkjQ.2- BankDraft

cSadMªk¶VQ.3- DaysofGrace

vuqxzgfnolQ.4- HolderandHolderinduecourse

/kkjdrFkklE;d~vuqØe&/kkjdLL.B.Hons.(SemesterIV)2019

LongQuestionQ.1- Whatisnegotiableinstrument?Explainitsessentialfeatures.

ijkØE;fy[krD;kgS\ijkØE;fy[krdsvko';drRoksadhO;k[;kdhft,AQ.2- PrepareusualformatofBillofExchange,Promissorynoteandcheque.

lkekU;fofue;foys[k]opui=vkSjpsddkizk#icukb;sAShortQuestionQ.1- Drawee,DrawerandPayee

vknsf'kr]ys[kdkj,oaikodQ.2- InstitutionalBank

19

laLFkkxrcSadQ.3- Dishonour

vuknj.kQ.4- Maturity

ifjiDorkQ.5- StaleCheque

LVsypsdAssignment/ModelPaper

Unit-IIILongQuestionQ.1- WhatdoyouunderstandbyNegotiableInstruments.Whataretheessentialelementsand

characteristicsofNegotiableInstruments.Explain.ijØkE;fy[krlsvkiD;klle>rsgSa\ijØkE;fy[krdsvko”;drRo,oafo”ks’krk,¡D;kgSa\Li’Vdhft,A

Q.2- DefinePromissoryNotes,Discussinbriefitsessentialelementsanddistinguishbetweenbillofexchangeandpromissorynotes.opui=dko.kZudjsa]la{ksiesaopui=dsvko”;drRoksadkscrkrsgq,fofue;lsvUrjcrkb,A

Q.3- WhatdoyoumeanbyHolderanddifferencebetweenHolderandHolderinduecourse/kkjddsvkiD;kle>rsgSrFkk/kkjdvkSjlE;d~vuqdze/kkjdesavUrjLi’Vdhft,A

AnswersQ.1- DefineNegotiableInstruments.Whatarethegeneralpresumptionsrelatingtonegotiable

instruments?

Ans.-

Negotiableinstrumentisa written and signed unconditionalpromiseororderto payaspecifiedsum ofmoneyonthedemandoratadefinitetimepayabletoorderorbearer.

TheNegotiableInstrumentAct1881doesnotdefineanegotiableInstrumentandmerelystatesthatanegotiableinstrumentmeansapromissorynote,billofexchangeorchequepayableeithertoorderorbearer.

1.NegotiableInstrument:Definitiona.NegotiableInstrumentAct,1881b.Sec.13oftheAct,1881

2.Presumptionsrelatedtonegotiableinstrumentsa.Considerationb.Datec.TimeofAcceptanced.Timeoftransfere.Orderofendorsementf.Stampg.Holderinduecourseh.Dishonour

3.Non-NegotiableInstruments–a.BilloflodingandRailwayReceiptb.L.I.C.Policyc.Sharecertificated.PostalOrdere.Debenturesf.AirwaysBill

20

Section13oftheNegotiableInstrumentsActdoesnotindicatethecharacteristicsofaNegotiableinstrumentbutonlystatesthatthreeinstrumentchequebillofexchangeandpromissorynotearenegotiableinstrument.Thusthesearenegotiableinstrumentbystatutesection13oftheActdoesnotprohibitanyotherinstrument,whichbearstheessentialfeaturesofnegotiabilitytobetreatedasnegotiableinstrument.AccordingtoEnglishLaw...withregardtothemostimportanttypesofnegotiableinstrumentstatutehasrecognizedthanassuchforexampleblanknotes,billofexchange,includingcheques,promissorynotes,bankersdraftsanddividendwarrants".

Presumptionsrelatedtonegotiableinstruments:-

UnderSection118oftheNegotiableInstrumentsact,1881anegotiableinstrumentissubjecttocertainpresumptionsasgivenbelow.

(a)Consideration-Everynegotiableinstrumentshallbepresumedtohavebeenmadeordrawnforconsideration.

InA.V.Murthyv.B.S.Nagabasavanna,itwasobservedthatanegotiableinstrumentispresumedtobedrawnforconsiderationanddismissalofcomplaintofdishonorofchequeatthresholdonthegroundthatanamountwasadvancedfouryearsback,andthusthedebtisnotenforceable,suchcourseisnotproper.

(b)Date-Everynegotiableinstrumentbearingadateispresumedtohavebeenmadeordrawnonsuchdate.

(c)TimeofAcceptance-Everyacceptedbillofexchangeispresumedtohavebeenacceptedwithinareasonabletimeafteritsdateandbeforeitsmaturity.

(d)TimeofTransfer–Thetransferofanegotiableinstrumentistakentohavebeenmadebeforeitsmaturity.

(e)OrderofEndorsement-The endorsements appearing upon a negotiable instrumentarepresumedtohavebeenmadeintheorderinwhichtheyappearthereon.

(f)Stamp-Itispresumedthatalostpromissorynote,billofexchangeorchequewasdulystamped.

(g)Holderinduecourse-Itispresumedthataholderofanegotiableinstrumentisaholderinduecourse.However,wheretheinstrumenthasbeenreceivedfrom itslawfulownerorfrom anypersoninlawfulcustodythereof,bymeansofanoffenceorfraud,orhasbeenreceivedfromthemakeroracceptorthereofbymeansofanoffenceorfraud,orforunlawfulconsideration,theburdenofprovingthattheholderisaholderinduecourseliesuponhim.

AccordingtoSection119oftheNegotiableInstrumentsAct,1881.

(h)Dishonour-Inasuituponaninstrumentwhichhasbeendishonoured,thecourtshall,onproofoftheprotest,presumethefactofdishonor,unlessanduntilsuchfactisdisproved.

Thus,itmaybeconcludedthatthefollowingarenotnegotiableinstruments:

1.BillofLadingandRailwayReceipt–Thesearetransferablebutdonotpassbettertitle.Theseareonlyquasi-negotiableinstruments.

2.L.I.C.Policy-Itisnotfreelytransferablebyendorsementanddelivery.Itcanonlybeassigned.Itisnotanegotiableinstrument.

3.ShareCertificate-Itcanbetransferredonlythroughseparatetransferdeedsandalsothedefectintitlegetsconveyedontransfer.Itisnotanegotiableinstrument.

4.PostalOrder–Itisnotanegotiableinstrumentasdefectintitlegetspassedonthetransfer.

5.Debentures-Thesearelongcertificatesandtransferablegenerallylikeshares.Therefore,

21

thesearenotnegotiableinstruments.

6.AirwaysBill–Itisareceiptanddoesnotfulfilthecharacteristicsofanegotiableinstrument.

---------------------------------------------------------------------------------------------------------------------------------------

Q.2- DefinePromissoryNotes,Discussinbriefitsessentialelementsanddistinguishbetweenbillofexchangeandpromissorynotes.

Ans.-

PromissoryNote(Section-4)-Promissorynoteisanunconditionalpromiseinwritingmadebyonepersontoanother,signedbythemakerengagingtopayondemandoratafixedordeterminablefuturetimeasum certaininmoneytoortotheorderofaspecifiedperson,orthebearer.SpecimensofPromissoryNote-

EssentialCharacteristics-i. WrittenStatement-Apromissorynotemustbeinwriting.Itmayeitherbeprintedortypedor

Rs.6000 Lucknow

19.03.2008OndemandIpromisetopayMr.Ram ororderaSum ofRs.SixThousandonly.

Sd-B.N.Mishra

Stamp

Theanswershallconsistoffollowingimportantpoints:1.PromissoryNote–Sectiony2.EssentialCharacteristics

a.Writtenstatementb.Notabanknoteorcurrencynotec.Promisetopayd.Unconditionalpromisee.Signaturef. Makeroftheinstrumentmustbecertaing.Promisetopaycertainamounth.Payeemustbecertain

3.Billofexchange–Section54.Essentialcharacteristics–

a.Writteninstrumenta.Unconditionalordertopayb.Signatureofdrawerc.Drawermustbecertaind.Thedraweemustbecertaine.Thepayeemustbecertainf. Certainamount

5.Distinctionbetweenpromissorynoteandbillofexchange6.Cheque–Sec.67.Essentialcharacteristics8.Distinctionbetweenchequeandbillofexchange9.Distinctionbetweenchequeandpromissorynote

22

writtenbyapenorpencil.Apromissorynotewrittenbyapencilisvalidintheeyesoflaw.Butmanipulationiseasilypossibleinapromissorynotewrittenbythepencil,andtherefore,itappearsnotpropertorecognizesuchpromissorynote.ii. NotaBankNoteorCurrencyNote-ThepromissorynotedoesnotincludeaBankNoteorcurrency note.iii. Promisetopay-Inthepromissorynotetheremustbepromisetopay.iv. Unconditionalpromise-Thepromisetopaythemoneymustbeeitherunconditionalorbasedonthe happeningofsuchacondition,happeningofwhichiscertain.v. Signature-Thepromissorynotemustbesignedbythemakeroftheinstrument,otherwise,itwillbe irregular.theterm signatureincludesalsoamarkorthumbimpressionmadebytheperson concerned.vi. MakeroftheInstrumentmustbecertain-Themakerofthepromissorynotemustbeacertainperson.vii Promisetopaycertainamount-Theamountpromisedtopaymustbecertain.viii Payeemustbecertain-Thepayeemustalsobeacertainperson.Apromissorynotemaybepayable tobearerororder.c. BillofExchange(Section-5)-AbillofExchangeisaninstrumentinwritingcontaininganunconditionalorder, signedbythemakerdirectingacertainpersontopayacertainsum ofmoneyonlyto,ortotheorder toacertainpersonortothebeareroftheinstrument.

Essential-1. WrittenInstrument-Thebillofexchangemustbeinwritinglikepromissorynoteitmayeitherbe printedortypedorwrittenbyapenorpencil.

2. UnConditionalordertopay-Theinstrumentmustcertainanordertopay.

3. SignatureoftheDrawer-Thebillofexchangemustbesignedbythedrawer,otherwiseitwouldbe irregular.

4. Drawermustbecertain-Thedrawerofthebillofexchangemustbeacertainperson.

5. Thedraweemustbecertain-Thedraweeofthebillofexchangemustbeacertainpersonbecause thedraweeistobetracedfortheacceptanceorpaymentoftheinstrument.

6. Thepayeemustbecertain-Thepayeeofthebillofexchangemustbecertain.

7. Certainamount-Thesum payablemustbecertain.

d. DistinctionbetweenpromissaryNoteandBillofExchange-

PromissoryNote BillofExchangeThereareonlytwoparties,namely,themaker(debtor)andthepayee(creditor)

There are three parties,namely thedrawerthedraweeandthepayee.

Drawerandpayeemaynotbesame DrawerpayeemaybesameItcontainsanunconditionalpromisebythe Itcontainsanunconditionalordertothe

Rs.10,000 Lucknow13/12/2008

StampsOndemandpaytoM/sX,ororderasum ofRupeesTenthousandonlyforvaluerecieved.To,

M/SZ Sd/-MryMum fordganj,NewDelhi

23

makertopaythepayee draweetopayaccordingtothedrawer'sdirection.

Noprioracceptanceisneeded. A bill payable after sight must beaccepted by the drawee orhis agentbeforeitispresentedforpayment.

e. Cheque(Section-6)-Chequeisabillofexchangedrawnonabankerpayableondemand.Achequeisabillofexchangedrawnonaspecifiedbankerandnotexpressedtobepayableotherwisethanondemand.

Essential-1. Achequemustbeinwriting.Itmaynotbeoral.2. theremustbeanordertopaytheamount3. Draweemustbeacertainbank.4. Payeemustbecertain.5. Achequeispayableondemandonlyf. DistinctionbetweenChequeandBillofExchange-

Cheque BillofExchangeItmaybedrawnonlyonabanker. Itcanbedrawnonanypersonincludinga

banker.Achequecanbecrossed. Crossingofthebillofexchangeisnot

possible.Theamountisalwayspayableondemand. Theamountmaybepayableondemand

orafteraspecifiedtime.Acceptanceisnotneeded. A bill payable after sight must be

accepted.

g. DistinctionbetweenChequeandPromissorynote-

Cheque PromissoryNoteA chequecanbedrawnonlybytheaccountholderofthebank.

Itcanbemadebyanyperson.

Itcanbecrossed. CrossingofthepromissoryNoteisnotrequired.

Chequeispayablealwaysondemand. Itmaybepayableondemandorafteraspecifiedtime.

CentralBankofIndiaCantonmentRoad,Lucknow.No.H/SB24016Date-23.03.2008

PaytoMr._____________X ________________orbearerRupeesFiveThousandonly.

LF Rs.5000/=Accounts20153 Sd/-B.KSingh

24

-------------------------------------------------------------------------------------------------------------------------------------Q.3- WhatdoyoumeanbyHolderandDifferencebetweenHolderandHolderinduecourse.

Ans.-

MeaningofHolder-Accordingtosection8oftheNegotiableInstrumentsAct,1881,Holderofapromissorynote,billofExchangeofchequemeansanypersonentitledinhisownnamestothepossessionthereofandtoreceiveorrecovertheamountduethereonfrom thepartiesthereto.

A personbecomestheholderofanegotiableinstrument,ifthefollowingconditionsaresatisfied.i. Theholdermustbeentitledtothepossessionoftheinstrumentinhisownnameandunderalegal title.ii. Theholdermustbeentitledtoreceiveorrecovertheamountfrom thepartiesconcernedinhisown name.b. HolderinDueCourse-Accordingtosection9oftheNegotiableInstrumentsAct,1881,Holderinduecoursemeansanypersonwhoforconsiderationbecomesthepossessorofapromissorynotebillofexchangeorcheque,ifpayabletobearer,orthepayeeorendorseethereofitpayabletoorder,beforetheamountmentionedinitbecamepayable,andwithouthavingsufficientcausestobelievethatdefectexistedinthetitleofthepersonfrom whom hederivedhistitle.apersonbecomestheholderinduecourseofanegotiableinstrumentifthefollowingconditionsaresatisfied.i. TheNegotiableInstrumentshouldbeinthepossessionoftheholderinduecourse.ii. ThenegotiableInstrumentshouldberegularandcompleteinallrespects.iii. TheNegotiableInstrumentshouldhavebeenobtainedforvaluableconsideration,i.e.bypayingits fullvalue.iv. TheNegotiableInstrumentshouldhavebeenobtainedbeforetheamountmentionedthereinbecomespayable.

Ifabillornoteorchequebetakenafteritisdue,thepersontakingittakesitathisperil.Hecanhave nobettertitletoitthanthepartyfrom whom hetakesitandtherefore,cannotrecoveruponit.Itit Turnsoutthatithasbeenpreviouslylostorstolen.v. TheholderinduecourseshouldobtaintheNegotiableInstrumentwithouthavingsufficientcauseto believethatanydefectexistedinthetitleoftransferor.c. RightsofaHolder-i. Heisentitledtoconvertanendorsementinblankintoanendorsementinfull.ii. HeisentitledtocrossaCheque.iii. Hecannegotiateachequetothethirdperson.itnotprohibitedbythedirectionprescribedinthe cheque.

Theanswershallconsistoffollowingimportantpoints:1.MeaningofHolder-2.Holderinduecourse–3.Rightsofaholder–4.Privilegesofaholderinduecourse–

i) Sec.53ofnegotiableinstrumentAct,1881ii) Sec.36 “iii) Sec.20 “iv) Sec.42 “5.Case–Englandv.VaglianoBros6.DifferencebetweenHolderandHolderinduecourse

25

iv. Hecanclaim thepaymentoftheinstrument

v. HecanobtainaduplicatecopyoflostCheque.

d. PrivilegesofaHolderinduecourse-Theholderinduecourseenjoysthefollowingprivileges:-

i. Holderinduecorusealwayspossessesbettertitlethanthatofhistransferororanyoftheprecious parties.

AccordingtoSection53ofthenegotiableInstrumentsAct"Aholderofanegotiableinstrumentwhoderivestitlefrom aholderinduecoursehastherightsthereonofthatholderinduecourse.

ii. AccordingtoSection36oftheAct,"EveryPriorpartytoanegotiableinstrument,i.e.itsmakeor drawer,acceptationorendorserisliablethereontoaholderinduecourseuntiltheinstrumentis dulysatisfied.

iii. AccordingtoSection20oftheAct,"Ifnegotiableinstrumentwasoriginallyaninchoate(incomplete)instrumentandasubsequenttransfercompletedtheinstrumentforasum greaterthanwhatwastheintentionofthemaker,therightoftheholderinduecoursetorecoverthemoneyoftheinstrumentisnotaffected.

iv. AccordingtoSection42,"Ifabillofexchangeisdrawnonbehalfofafictitiouspersonandispayabletohisorder,theacceptorisnotrelievedofhisliabilitytoholderinduecoursebecauseofsuchfictitiousname.Butitisessentialthattheholderinduecourseprovesthatthedocumentbearstheendorsementwithsignatureinthesamehandasthatofthedrawerandpurportingtobemadebythedrawer.

InBankofEnglandvs.VaglianoBros,itwasheldthattheacceptorofabillofexchangecannotagainsttheholderinduecourse,saythattheotherpartiestothebillwerefictitious.

Thewordsfictitiouspayeemeansapersonwhoisnotinexistenceorbeinginexistence,isneverintendedbythedrawertohavethepayment.

e. DifferencebetweenHolderandHolderinDueCourse-

Holder HolderinDueCourseHolderisnotrequired to be Holderin duecourse.

HolderinduecoursemustbeHolderorthenegotiableinstrument.

Holdermayobtainthenegotiableinstrumentwithout consideration also viz.instrumentreceivedforagift.

Holderinduecoursemustreceivetheinstrumentforconsideraction.

A person maybe holderofthe negotiableinstrumentevenafteritsdateofmaturity.

apersonmaybeholderinduecoursebefore the date of maturity of theinstrumentHolderin due course mustobtaintheinstrumentpriortothedateofmaturityoftheNegotiableinstrument.

26

Unit–IVSyllabus:-

Unit-IV Cheques (Lectures10)i. CrossingofChequesandpayment,DishonorofCheques,Presentmentand

Payment,ii. Dishonor,NotingandProtestofNegotiableInstrument,iii. Endorsement:Definition,Essentialofavalidendorsementanditskinds,iv. RulesofEvidenceandcompensation.


LongQuestionsQ.1- WhatdoyoumeanbyEndorsement?Discussitscharacteristics.

i’BkadulsvkiD;kle>rsgSa\bldhfo”ks’krkvksadko.kZudhft,AQ.2- Whatdoyoumeanbycrossingofcheque?Discussthecircumstancesunderwhichbankmay

refusethepaymentofcheque.pSddsjs[kkadulsvkile>rsgSa\muifjfLFkfr;ksadko.kZudhft,tccSadpSddkHkqxrkudjuslseukdjlrrkgSA

ShortQuestions.Q.1- NotingandProtest. fVIi.kh,oaizlk{;A

2014LongQuestionsQ.1- Definedishonorofchequesandwhatareitsconsequences.

pSddsvuknj.kdksifjHkkf’krdhft,rFkkbldsD;kifj.kkegksaxsAQ.2- Discussthe‘holder’and‘holder-in-duecourse’withthehelpofillustrations.

/kkjd*,oalEod~/kkjd*dhn’Vkardhlgk;rklsO;k[;kdhft,AShortQuestions.Q.1- Endorsement. i’BkaduAQ.2- Crossingofcheque pSddkjs[kkaduA

LL.B.Hons.(SemesterIV)2015LongQuestionQ.1- AandBenteredintoanagreementtocarryonabusinessofpharmaceuticalsandsigned

partnershipdeedfor60%40shareinthefirm.AfterfewyearsAleftbusinessandreceivedtwopostdatedchequesof60,000and1,20,000onthetermsoftransferofownershipofshoptoB,whichneverhappened.A presentedboththechequeswhichwasdishonoredduetostoppayment.Discusstheprocedureandremediesinthelightofabovefacts.d,oa[knokdsO;kikjgsrq60%40dsvuqikresaHkkxhnkjhfoys[kgLrk{kjdsHkkxhnkjhesaizos”kdjrsgSAdqNo’kksZackndviusfgLlsdksnks60]000,oa1]20]000dsckndhfrfFkesans;pdksadscnysnqdkudkLokfeRo[kdksnsusdkoknkdjrkgSijUrqmlsiwjkughadjrkgSAdizkIrpsdksadksHkqxrkugsrqcSadesaizLrqrdjrkgStks[kdsHkqxrkujksdusdsfunsZ”kdsdkj.ke;kZfnrughagksrkgSmijksDrrF;dsizdk”kesafof/kizfØ;k,oamipkjdhO;k[;kdhft,A

Q.2- OneA,bymeansofafraud,obtainedachequefrom B,ThechequewasmadepayabletoAororder.AgavethechequetoCinpaymentofhisowndebt,butforgettoendorseit.ChadnonoticeofthefraudthenbutbeforehecouldobtainA’sendorsement,hewasgivennoticeoffraud.Discuss the consequences in the lightofabove facts and procedure ofvalidendorsement.ddiVls[kdk,dpsdizkIrdjysrkgStksfdd;kmldsvkns”kijHkqxrkufd;ktkldsxkAdusmlpsddksxdksvius_.kksadsHkqxrkuds,otesansrkgSijUrqmldki’BkadudjukHkwytkrkgSxdksdiVdkKkuughagksrkgSijUrqtcrdogdlsi’BkadudjkrkgSmlsdiVdhlwpukizkIrgkstkrhgSAmijksDrrF;dsizdk”kesaifj.kkeksa,oamfpri’BkadudhizfØ;kdhO;k[;kdhft,A

ShortQuestions.Q.1- Essentialofvalidendorsement oS/ki’Bkadudsvko”;drRoQ.2- SPNS ,lih,u,l

27

LL.B.Hons.(SemesterIV)2016LongQuestionQ.1- Whatis‘endorsement’?Whataretheessentialofa‘validendorsement’anditskind?Explain.

i’BkaduD;kgS\oS/ki’Bkadu,oabldsizdkjD;kgSa\foospudhft,AQ.2- Writethelegalprovisionsofdishonorofchequesanditsconsequences.Whatistheprocedure

tofixtheliabilityfordishonorofcheques?psdksadsvuknjlslEcfU?krfof/kdizko/kkuksa,oabldsifj.kkeksadksfy[ksaApsdksadsvuknjesankf;Rolqfuf”prdjusdhD;kizfØ;kgS\


fuEufyf[krijlaf{kIrfVIif.k;kafyf[k,%(i) NotingfordishnourofNI

ijkØefy[krdsvUkknjdkfooj.k(ii) ‘SansRecourse’dendorsement

lSUljhdkslZ*i’BkaduLL.B.Hons.(SemesterIV)2017

LongQuestionQ.1- DiscusstheLawofpresumption/evidenceofNegotiableinstruments.

ijØkE;fy[krdsmi/kkj.kk@lk{;dsfu;eksadhO;k[;kdhft;sAQ.2- Describecrossingofchequesanditseffect.

Pksdksadsjs[kkadu,oamldsizHkkodko.kZudhft,AShortQuestions.Q.1- Writeshortnotesonthefollowing:

fuEufyf[krijlaf{kIrfVIif.k;kafyf[k,%(i)Partialendorsement

vkaf”kdi’Bkadu(ii) SpecialCrossing

fo”ks’kjs[kkaduLL.B.Hons.(SemesterIV)2018

LongQuestionQ.1- WhatdoyoumeanbydishonorofCheque?Discussthecircumstancesunderwhichbankmay

refusethepaymentofCheque.PksddsvuknjlsvkiD;kle>rsgSa\muifjfLFkfr;ksadhppkZdhft,tccSadpsddkHkqxrkudjuslseukdjldrkgSA

Q.2- WhatdoyoumeanbyEndorsement?DescribevarioustypesofEndorsements.Ik’BkadulsvkiD;kle>rsgSa\fofHkéizdkjdsi’Bkaduksadko.kZudhft,A

ShortQuestionQ.1- Post-datedCheque

mÙkj&rkjh[kpsdLL.B.Hons.(SemesterIV)2019

LongQuestionQ.1- Describecrossingofchequeanditseffect.

Pksddsjs[kkadu,oamldsizHkkodko.kZudhft,AQ.2- Whatdoyouunderstandbyendorsement?Discussvariouskindsofendorsement.

Ik"BkadulsvkiD;kle>rsgSa\fofHkéizdkjdsi"Bkadudko.kZudhft,AShortQuestionQ.1- SpecialCrossing

fo'ks"kjs[kkaduAssignment/ModelPaper

Unit-IVLongQuestionsQ.1- WhatdoyoumeanbyEndorsement?Discussthecharacteristicsofendorsement.

i’BkadulsvkiD;kle>rsgSa\i’Bkadudhfo”ks’krkvksadko.kZudhft,A

28

Q.2- whatisthemeaninganddefinitionofcrossingofcheque?Discussthecircumstancesunderwhichbankmayrefusetopayacheque.pSdjs[kkadudkvFkZ,oaifjHkk’kkD;kgS\cSad}kjkpSddkHkqxrkueukdjusdhijhfLFkfr;ksadhfoospukdhft,A

Q.3- Definedishonorofchequeandwhatareitsconsequences.psddsvuknjdksifjHkkf’krdhft,rFkkbldsD;kifj.kkegksxsaA

LongAnswersQ.1- WhatdoyoumeanbyEndorsement?Discussthecharacteristicsofendorsement.

Ans.-

Theterm ‘Endorsement’meanssigningatthebackofinstrumentforthepurposeofnegotiation.Theactofsigningacheque,forthepurposeoftransferringittosomeoneelse,iscalledtheendorsementofcheque.

UndertheNegotiableInstrumentsAct,1881theterm ‘endorsement’meanswritingthenameofapersononthebackoftheinstrumentwiththeintentionoftransferringtherightstherein.Thepersonwhoendorsesthechequeiscalledendorser.Thepersontowhom thechequeisendorsediscalledendorsee.

Theendorsementisusuallymadeonthebackofthecheque.Ifnospaceisleftonthecheque,theendorsementmaybemadeonaseparatesliptobeattachedwiththecheque.

DefinitionofEndorsement-AccordingtoSection15oftheNegotiableInstrumentsAct,1881“Whenthemakerorholderofanegotiableinstrumentsignsthesame,otherwisethanassuchmaker,forthepurposeofnegotiation,onthebackoffacethereoforonaslipofpaperannexedthereto,orsosingsforthesamepurposeastampedpaperintendedtobecompletedasanegotiableinstrument,heissaidtohaveendorsedthesameandiscalledendorser.”

KindsofEndorsement-Endorsementessentiallyisoftwokinds-endorsementinblank,andinfull.Therearesomeotherkindsaswellwhichareconstitutionalnodoubt,butnotverypopular.

1.EndorsementinBlankorGeneral–Anendorsementissaidtobeinblankor‘general’whentheendorserputshissignatureonlyontheinstrument,anddoesnotwritethenameofanyonetowhom ortowhoseorderthepaymentistobemade.

Meresignatureconvertsanorderinstrumentintobearerandsolongasitremainsso,itcanbetransferredbydeliveryalone.However,tomaketherecordclearandmakethepersonsassumetheendorser’sliabilityontheinstrument,itshallbedesirableforthebearerorholdertoplacehisendorsement,uponitatthetimeofmakingitfurthernegotiable.Hardlynecessarytomentionthatwhenactualpaymentisclaimedevenonanendorsementinblank,thetransfereehastosignovertheendorsement.Theholdercanconvertablankendorsementintoaspecialendorsementbywritingabovethesignatureadirectiontopayhimselforsomeotherperson.

Theanswershallconsistoffollowingimportantpoints:1.Endorsement:Meaning

a.NegotiableInstrumentAct,18812.Endorsement:Definition

a.Section–15ofthenegotiableinstrumentAct,18813.KindsofEndorsement

a.EndorsementinBlankorGeneralb.EndorsementinFullorspecialc.Conditionalendorsementd.Restrictiveendorsemente.Endorsementsansrecoursef. Facultativeendorsement

29

2.Endorsementinfullorspecial-Anendorsementis‘special’orin‘full’iftheendorser,inadditiontohissignature,alsomentionsthenameofthepersontowhom ortowhoseorderthepaymentistobemade.Thereisadirectionaddedbytheendorsertothepersonsospecified,calledthe‘endorsee’oftheinstrument,whonowbecomesitspayeeentitledtosueforthemoneydueontheinstrument.Theeffectobviouslyofthefullendorsementisthatfurtherendorsementcanbemadeonlybytheendorsee,anditisonlythespecialendorseeorhislegalrepresentativewhocansueonit.Itnotonlygivesthefullchainofpersonswhomayhavehadaninterestinthebill,butalsogivestheholderfullrecourseagainstallendorsersprecedinghim.Thusifachequepayableto‘X’ororderissignedby‘X’withthewords“Payto‘Y’ororder”,itisendorsementinfull.Itisonlynow‘Y’whocanclaim payment.Butif‘Y’transfersittosomeothercreditor,hewillhavetomakehisownendorsement.Mostendorsementsareofthistype,asthecasualfinderofalostbillcannotnegotiateitwithoutthemissingendorsementoftheholder.Examplesofspecialendorsementsetc:

1

2

3.ConditionalEndorsement-Conditionalendorsementisnegotiationwhichtakeseffectonthehappeningofastatedevent,nototherwise.Section52oftheActprovides,“Iftheendorserofanegotiableinstrument,byexpresswordsintheendorsement,makeshisliabilityortherightoftheendorseetoreceivetheamountduethereofdependinguponthehappeningofaspecifiedevent,althoughsucheventmayneverhappen,suchendorsementiscalledaconditionalendorsement.”Ifontheaforementionedcheque,Mr.Xwrites,“PaytoMr.YifhisfathervisitstheUnitedKingdomwithintwomonths.”HeretherighttoreceivepaymentinthechequearisesonlyonthefulfillmentoftheconditionthatMr.Y’sfathergoestotheUnitedKingdom.

4.Restrictive Endorsement-Restrictive endorsementseeks to putto an end the principalcharacteristicofanegotiableinstrument,andsealsitsfurthernegotiability.Thismaysoundalittleunusual,buttheendorseeisverymuchwithinhisrightsifhesosingnsthatitssubsequenttransferenceisrestricted.Thispreventstheriskofunauthorizedpersonsobtainingpaymentthroughfraudorforgeryandthedrawerlosinghismoney.IfXsignsinanyofthefollowingwaysonanegotiableinstrumentandmakesitpayabletoY,therightofYtofurthertransferitforvalueisimmediatelyterminated.

(a)PaytoYonly.

(b)PaythecontentstoYonly.

(c)PayYformyuse,oronmyaccount,orforcollection.

(d)PayYfortheaccountofZ.

Inthefirsttwocases,theendorsementpreventsfurthernegotiationandisvalidonlybetweentheparties,Inthethirdcase,theendorseecanneithertransfertoathirdpersonnorholdtheendorserliabletohim becauseitconstitutestheendorseeasanagentoftheendorserforaspecialpurpose.Inthefourthcase,thetitleisvestedintheendorseeintrustforsomeotherperson,henceitrestrictsnegotiation.Therestrictiveendorsementismainlyemployedwhereabankoranagenthastoendorseabillorchequecollection.Hecannotbesueduponit,asanyotherendorsercanbe,ifthebillisdishonoured.

“PayMr.Y(Sd.)X”

“PayMr.Yororder

30

5.EndorsementSansRecourse-Theterm ‘Sansrecourse’meanswithoutrecourseorreference.Assuchwhenthepropertyinanegotiableinstrumentistransferredsansrecourse,theendorsernegativeshisliabilityandexcludeshimselffrom responsibilitytoallsubsequentendorsees.Itisoneofthecommonestform ofqualifiedendorsementsandvirtuallyprohibitsnegotiationsincetheendorsersaysineffect.“Hereisaninstrument,Iwillgiveyoutitletoitbutdonotlooktomeintheeventitisdishonoured.”Thus,itisaspecieofqualifiedendorsementswhichreleasetheendorserfrom suchoftheliabilitiesasareimposeduponhim bylaw asapartof“endorser’scontract.”Butheisleftwithcertainotherliabilitiesasavendororselleroftheinstrument.Thisendorsementhasitselfnoeffectupontheliabilityofotherendorsers,andnoeffectuponthenegotiabilityoftheinstrument.

6.FacultativeEndorsement-Facultativeendorsementisanendorsementwheretheendorserwaivessomerighttowhichheisentitled.Forexample,theendorseeisliabletogivenoticeofdishonortotheendorserandnormallyfailuretogivethisnoticewillabsolvetheendorserfrom hisliability.Buttheendorsermayexpresslywrite,“PaytoY,ororder,Noticeofdishonorwaived.”Bysuchanendorsement,Xremainsliablefornon-payment,evenifnonoticeisservedbecauseofhisownexpresssurrenderingoftherighttoreceivenotice.

-------------------------------------------------------------------------------------------------------------------------------------

Q.2- Whatisthemeaninganddefinitionofcrossingofcheque?Discussthecircumstancesunderwhichbankmayrefusetopayacheque.

Ans.-

Acrossedchequeisoneonthefaceofwhichtwotransverseparallellineshavebeendrawnwithorwithoutcertainwordsinthem.Theeffectisthatthepaymentofsuchchequecanbemadebythedraweebankertosomeotherbankerasagentoftheholder,andthepayeeortheholderthereofcannotobtainpaymentfrom thepayingtellerofthedraweebank.Whenachequeiscrossed,noonecancashitatthecounterofthebank,anditmustbepaidtoabank.Theamountcanbeeitherdepositedwiththedraweebankerforthecreditofhisaccount,orhavethedraweebankerpayitsproceedstoanotherbankforthecreditoftheaccountwhichtheholderhaswithsuchotherbankthroughthelocalclearinghouse.Naturally,acrossedchequebecomesmuchsaferthananopenoruncrossedcheque.Itcaneasilybetracedintowhosehandsthemoneyhasbeenpaid.

Circumstancesinwhichbankmustdishonorcustomer’scheques

Abankmustrefusepaymentofthecustomer’schequesinthefollowingcircumstances:

1.WhentheDrawerCountermandsPayment-Whenthecustomerissuesstoppaymentordertothebanker,hemustrefusethepaymentofthecheque.Achequeisanunconditionedorderofthedrawertothebankerandtheformeriscompetenttocancelsuchorderatanytimebeforeitspaymentismade.Thefollowingrulesshouldbeobservedinrelationtocountermandingofpaymentbythedrawer.

Theanswershallconsistoffollowingimportantpoints:1.Meaninganddefinitionofcrossingofcheque–2.Circumstancesinwhichbankmustdishonorcustomer’scheques

a.Whenthedrawercountermandspaymentb.Deathofthecustomerc.Insanityofthecustomerd.Insolvencyofthecustomere.Receiptofgarnishaorderf. Defectivetitleoftheholderg.Receiptofnoticeofassignment–Sec.130ofT.P.A.,1882h.Breachoftrust

31

(j)Onlythedrawerofachequecanissuethestoppaymentorder.Thepayeeortheendorseehasnosuchright.Butifthepayeeortheholderofachequereportstothebankaboutthelossofcheqquethebankshouldholdanenquiryaboutthetitleofpersonpresentingthechequeafterthat.However,thepayeeortheholdermaygetthepaymentofthelostchequestoppedthroughthedrawer.

(ii)Thestoppaymentordermaybegivenbythedrawereitherorallyorinwriting.Thebankmustidentifythecustomerwhenhereceivessuchanorder.Stoppaymentorderontelephoneisvalidifthebankrecognizesthevoiceofthedrawer.Similarly,paymentmaybestoppedthroughatelegraphicorder.Thedrawermustlateronsubmitthefullparticularsofthechequewhosepaymentistobestopped.

(iii)Thecountermandordermustbedulyservedonthebankbeforethepaymentismade.Anysuchordergivenafterpaymentwillhavenoeffect.Ifduetooversightpaymentismadeafterthereceiptofthecountermandorder,thebankershallbeliabletothedrawerevenifsuchachequeisdishonoured,afterthereceiptofthestoppaymentorder,forwantofsufficientfunds,thebankwillbeheldliable.

(iv)Ifthepaymenthasbeenstoppedthebankshouldremaincautiousforsixmonthsfrom thedateofissueofcheque.Aftersixmonths,thechequewillbecomestateofwhichnopaymentwouldbepossible.

2.DeathoftheCustomer-Whenthedrawerdiesandthebankhasreceivedthenoticeofhisdeath,thebankermuststoppaymentofchequesignedbyhim becausetheorderofthedrawerbecomesinoperativeontheoccurrenceofhisdeath.Paymentsshouldbestoppedimmediatelyafterthereceiptofthenoticeofthedeathofthecustomer.Thebankshouldmakesurethatthenewsaboutcustomer’sdeathisreliable.

3.InsanityoftheCustomer-Whenacustomerbecomesinsaneandthebankhasgotthenoticeofhisinsanity,hemuststoppaymentofthechequesissuedbytheinsanecustomer.Thebankcaninsistonformalinformationandcertificationtotheeffectthathiscustomerhasgoneinsane.Butsolongasthecustomeractsrationallyandunderstandshisinterestproperly,hischequesshouldnotbedishonoured.

4.InsolvencyoftheCustomer-Whenthebankerreceivestheinformationthataninsolvencypetitionhasbeenfiledbyoragainstthecustomer,thebankmuststoppaymentfrom thecustomer’saccounttosafeguardhisinterest.Ifthebankmakespaymentevenafterthereceiptofsuchinformation,hewilldosoathisownrisk.Afteranorderofadjudicationhasbeenpassedbythecourt,thebankmustclosetheaccountoftheinsolventcustomerandcommunicatetohisofficialreceiverthebalancetothecreditofthecustomer.

5.ReceiptofGarnisheeOrder-WhenthebankhasreceivedaGarnisheeOrderfrom thecourtoflawattachingcustomer’sbalancewiththebank,itmuststoppaymentofthechequesissuedbythecustomer,However,ifthecourt’sorderattachesapartofthecreditbalanceofthecustomer,thebankcanutilizetheremainingbalancetohonourthechequesissuedbythecustomer.

6.DefectiveTitleoftheHolder-Whenthebankcomestoknow orevenhasadoubtaboutthedefectivetitleofthepartypresentingthecheque,thebankercanrefusepayment.

7.ReceiptofNoticeofAssignment-WhenthecustomerhasgivennoticeofassignmentofthecreditbalanceofhisaccountunderSection130oftheTransferofPropertyAct,1882,Thebankmustnotmakepaymentofanychequedrawnbytheassignorafterthereceiptofnoticeofassignme nt.

8.BreachofTrust-Ifthebankhasadoubtaboutthemisuseoftrustmoneybyapersonwhoisoperatingatrustaccount,thebankhasarighttorefusepaymentofthechequesdrawnonthe

32

trustaccount.

---------------------------------------------------------------------------------------------------------------------------------------Q.3- DefinedishonorofchequeandwhatareitsConsequences.

Ans.-

Whenanegotiableinstrumentisdishonoured,thenoticeofdishonorshouldbegivenbytheholderoftheinstrumentoranypersonliableforthepaymentviz.,endorseroftheinstrumentbutsuchnoticeisnotrequiredtobegiventodrawerofpromissorynoteoracceptorofthebillofe4xchangeordraweeofthedishonouredcheque.

NotingandProtesting-

Noting-Whenapromissorynoteorbillofexchangehasbeendishonoured,theholdermaycausesuchdishonortobenotedbyaNotaryPublicupontheinstrumentoruponapaperattachedtheretoorpartlyuponeach.Howeversuchnotemustbemadewithinareasonabletimeafterdishonorandmustspecifythedateofdishonor,thereason,ifany,assignedforsuchdishonor,or,iftheinstrumenthasnotbeenexpresslydishonouredendtheNotarycharges.

Protesting-Whenapromissorynoteorbillofexchangehasbeendishonouredbynon-acceptanceornon-payment,theholdermay,withinareasonabletime,causesuchdishonortobenotedandcertifiedbyanotarypublic.Suchcertificateiscalledaprotest.

PenaltiesinCaseofDishonourofchequesforinsufficiencyoffundsinaccount-Ifaperson,knowing thefactthatthechequewillbedishonoured,issuesacheque,thensuchoffenceispunishableunderSection420I.P.C.otherwiseonlyissuingachequedoesnotmeanthatthereissufficientfundintheaccount.

Now,relevantprovisionshavebeenmadeunderSection138oftheNegotiableInstrumentsAct,1881videBanking,PublicFinancialInstitutions&N.I.(Amendment)Act,1988(66of1988).Accordingtothissection,ifachequeisdishonouredbythedraweebankduetoinsufficiencyoffundsinaccount,thedrawershallbepunishedwithimprisonmentuptooneyearorfineuptodoubletheamountofthechequeorwithbothprovided.

(i)Thechequewasproducedbeforethedraweebankwithinsixmonthsfrom thedateofissueorwithintheperiodofitsvalidity,whicheverisearlier.

(ii)Noticeforpaymentwasgiventodrawerbythepayeeorholderinduecoursewithin15day

Theanswershallconsistoffollowingimportantpoints:1.Dishonorofcheque:-

a.Notingandprotestingb.Protestingc.Penaltiesincaseofdishonorofchequesforinsufficiencyoffundsinaccount

i.Sec.420ofI.P.C.ii.Sec.138ofNegotiableInstrumentAct,1881

iii.Bank,PublicFinancialInstitutions&N.I.(Amendment)Act,1988.iv.Proviso(b)ofSection-138oftheNegotiableInstrumentsAct,1881v.Sec.219ofCr.P.C.

d.Cases:i.Kusum IngotsandAlloysLtdv.PennarPetersonSecurities,

ii.SILimports,U.S.A.v.Exim AidsSilkExportsiii.K.R.Indirav.Dr.G.Adinarayanaiv.GoaplastPvt.Ltd.v.ShriChicoUrsuleD’Souzaandanotherv.AnilkumarHaritwalv.AlkaGupta

Sec.,147&148oftheAct,1881

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from thenoticeofdishonorgivenbythedraweebank.

(iii)Thedrawerfailedtopaytheamountwithin15daysfrom thedateofreceiptofsuchnotice.

InacaseRajendraB.Chaudhariv.StateofMaharashtra*anotherithasbeenobservedthatacauseofactionfortheprosecutioninrespectsofdishonorofachequearisesonlyifthedrawercommitsdefaultinmakingpaymentwithinstipulatedperiod,afterreceiptofthenoticerequiredtobegiveninconformitywithproviso(b)ofSection138oftheNegotiableInstrumentsAct,1881,inrespectofeachtenderandthenon-paymentbythedraweebankonthegroundthatthebalanceamountintheaccountofdrawerisinsufficienttohonourhiscommitmentoritexceedstheamountarrangedtobepaidfrom thataccountbyanagreementwiththedraweebank.Eachtenderofachequeanditsdishonorgivesrisetoseparatecauseofactionsubjecttoaconditionthatseparatenoticesareissuedinrespectofeachofthesecheques.Thepayeeisnotpreventedfrom combiningthecausesofactionbycoveringalltheinstancesinasinglenotice.Insuchacaseallthetransactionscoveredbythenoticewouldberegardedasasingletransaction,permittingasingletrial.However,inacasewherechequeswereissuedondifferentdates,presentedondifferentdatesandseparatenoticeareissuedinrespectofeachdefault,thetransactionscannotbeheldtobeasingletransactionattractingprovisionofSection219oftheCriminalProcedureCodeandthusseparatetrialsarepermissible.

InKusum IngotsandAlloysLtd.V.PennarPetersonSecurities,theHon’bleSupremeCourtobservedthattheobjectofbringingSection138oftheActonstatuteistoinculcatefaithintheefficiencyofbankingoperationsandcredibilityintransactingbusinessonnegotiableinstruments.

InSILImports,U.S.A.v.Exim AidesSilkExports,itwasheldthatinthecaseofdishonorofcheque,wherenoticeunderSection138oftheActhasbeenservedmorethanonce,theperiodoflimitationforfilingcomplaintunderSection142commencesfrom thedateofreceiptofthefirstnoticebythedrawerandnotfrom thedateofreceiptofthelaternotice.Itispermissibleforthedrawertosendnoticebyfax.

InK.R.Indirav.Dr.G.Adinarayana,itwasobservdthatincaseofdishonoroffourcheques,aconsolidateddemandnoticewouldnotinvalidateit.However,therewasnospecificdemandmadeforpaymentoftheamountcoveredbythecheque&thusnoticeisinvalid.Inthisway,acquittalofaccusedinproper.

InGoaplastPvt.Ltd.V.ShriChicoUrsuleD’Souzaandanother,itwasobservedthatincaseofstoppageofthepaymentofpostdatedchequebeforeduedateofpayment,thecomplaintunderSection138oftheNegotiableInstrumentsAct,1881allegingdishonorofchequeismaintainablebecauseonfaithofpaymentbywayofpostdatedchequethepayeealtershispositionbyacceptingthecheque.Thelegislativepurposeoftheprovisionistopermitefficacyofbankingandtoensurecredibilityinbusinesstransactionsthroughbank.

InAnilKumarHaritwalv.AlkaGupta,theHon’bleSupremeCourthasobservedthattheoffenceofdishonorofchequeiscompoundableinviewofSection147,and,convictionandsentenceforoffenceunderSection138oftheNegotiableInstrumentsAct,1881wassetasideinviewoffactthatdisputehasbeensettledandtheamountduetocomplainanthasbeenpaid.

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