Banking Regulations Act & Negotiable Instruments Act

1. Banking
Regulation Act
& Negotiable
Instruments
By Bhavya Bhatia &
Priyanshi Gupta

2. Agenda
❑ Banking Regulations Act, 1949
❑ RBI Act,1934
❑ Functions of RBI
❑ Negotiable Instruments Act,1881
❑ Types of Negotiable Instruments
❑ Crossing of Cheque
❑ Types of Crossing
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3. Banking Regulations Act
1949

4. Banking Regulation Act
The Banking Regulation Act, 1949 is a legislation
in India that regulates all banking firms in India. Passed as
the Banking Companies Act 1949, it came into force from
16 March 1949 and changed to Banking Regulation Act
1949 from 1 March 1966. It is applicable in Jammu and
Kashmir from 1956. Initially, the law was applicable only to
banking companies. But, 1965 it was amended to make it
applicable to cooperative banks and to introduce other
changes.
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5. Definitions
✓ Banking - Banking refers to accepting the
deposits of money from public. The deposits are
accepted for the purpose of investing, lending
and repayable on demand and such money can
be withdrawn by draft, cheque, etc.
✓ Banking Company - Banking Company is a
company which transacts the business of
banking in India. This company fulfils the state of
affairs of being a company as given in
companies’ act 1956.
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6. The banking and regulations act was enacted to safeguard the interest of
the depositors and to control the abuse of powers by controlling the
banks by any means necessary and to the interest of Indian economy in
general. There are many provisions of banking regulation act 1949 and we
are going to the topic about business of banking companies.
Objectives of Banking Regulation Act, 1949
✓ One of the key objectives of this act was to avoid cut throat
competition among banking companies.
✓ To prevent indiscriminate opening of new branches and ensure
balanced development of banking companies by system of licensing.
✓ Provide quick and easy liquidation of banks when they are unable to
continue further or amalgamate with other banks.
✓ To protect the interest of depositors and public at large by
incorporating certain provisions, viz. prescribing cash reserve and liquidity
reserve ratios.
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7. This act applies to the following categories of
banks :
a) Nationalized banks
b) Non-nationalized banks
c) Co-operative banks
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8. Agency Services
✓ Portfolio Management or Merchant Banking
✓ Money Exchange business as Authorized dealer
under foreign exchange business
✓ Collection of taxes on behalf of the people
✓ Collection of different dues of the people like
telephone, electricity, municipal taxes
Services provided under Banking
Regulations Act
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9. Consultancy Services
✓ ECS services for payment of different dues of the people
✓ Payment of pension
✓ Payment of salaries of the employees
General Utility Services
✓ Technology based utility services like Tele-banking, Mobile
banking, Online banking, DEMAT services for securities trading,
ATM services, etc
✓ Providing the facility of Safe deposit vault
✓ Providing Safe-custody
Services provided under Banking
Regulations Act
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10. RBI Act
1934

11. RBI Act, 1934
Reserve Bank of India Act, 1934 is the
legislative act under which the Reserve Bank of
India was formed. This act along with
the Companies Act, which was amended in 1936,
were meant to provide a framework for the
supervision of banking firms in India.

12. ● Established on April 1, 1935 with share
capital of Five crores on recommendation of
Hilton Young commission.
● RBI was Nationalized in Year 1949, Central
Office was initially established in Calcutta
and moved to Mumbai in 1937.
● 24 Regional offices, most of them in State
capital

13. Functions of RBI

14. Functions of RBI
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Functions of
Central Bank
Developmental
Functions
Traditional
Functions

15. “
Traditional Functions
✔Bank of issue
✔Government’s banker, agent, and advisor
✔Custodian of cash reserves of commercial
banks
✔Custodian of international currency:
✔Bank of rediscount
✔ Lender of last resort
✔Bank of central clearance, settlement, and
transfer
✔Controller of Credit 15

16. “Developmental Functions
✓ Developing specialized financial institutions
✓Influencing money market and capital market
✓Collecting statistical data
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17. Negotiable Instruments
Act
1881

18. A negotiable instrument is a piece of
paper which entitles a person to a sum
of money and which is transferable
from one person to another by mere
delivery or by endorsement and delivery.

20. Types of Negotiable
Instruments

21. Negotiable instruments recognized by
Negotiable Instruments Act 1881 are:
(i) Promissory notes
(ii) Bills of exchange
(iii) Cheques

22. PROMISSORY NOTE
According to Sec. 4 A "promissory note" is an
instrument in writing (not being a bank note or a
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 bank instrument.
The person making the promise to pay is known as
"maker". The person to whom the payment is lo be
made is known as payee.

23. Essential elements of Valid Promissory
Note
1. In writing- A promissory note must be in writing.
An oral promise cannot become a promissory note.
2. Promise to pay- There must be an express
promise to pay. It cannot be implied. A mere
acknowledgement of a debt is not sufficient.
3. Signed by the maker-The promissory note must
be signed by the makers. The signature may done at
any place, even at the top or at the back of the
instrument. In case maker in illiterate, his thumb
impression is sufficient.

24. 4. Promise to pay must be in legal tender
money-The promise to pay must be in legal tender
money.
Examples: A Promises to pay to Y 2000 at Agra. It
is not a valid promissory note.
5. Bank note or currency note is not a promissory
note-A bank note or currency note is money itself.

25. BILLS OF EXCHANGE
According to sections 5-A bill of exchange' is an
instrument in writing, containing an unconditional
order, signed by the maker, directing a 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.
There are three parties in it-The maker of the bill
is called the "drawer. The person directed to pay
is called the "drawee". The person to whom the
money is to be paid is called "payee". If the payee
holds the bill, he is called the holder.

26. Essential elements of a Bill of Exchange
❑ It must be in writing.
❑ It must contain an order to pay and not a
promise or request.
❑ The order must not be conditional.
❑ The drawer must sign the bill.
❑ There are three parties i.e., drawer, drawee
and payee.
❑ The sum payable must be in legal tender
money,
❑ It must be stamped.

27. CHEQUE
A cheque is a type of bill of exchange.
According to section 6 A 'cheque’ is a bill of
exchange drawn on a specified banker expressed to
be payable only on demand.
Although a cheque is a bill of exchange yet it has
following two additional characteristics
1. A cheque is always drawn on a specified banker
with whom the drawer has deposited the money;
2. It is always payable on demand and not otherwise.
Thus it can be said that all cheques are bills of
exchange but all bills of exchange are not cheques

28. Crossing of Cheque

29. Crossing of Cheque
A cheque is a negotiable instrument. It can either be open or crossed. An
open cheque is the bearer cheque. It is payable over the counter on
presentment by the payee to the paying banker. While a crossed cheque is
not payable over the counter but shall be collected only through a banker.
The amount payable for the crossed cheque is transferred to the bank
account of the payee.
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30. A crossing is an instruction to the paying banker to pay the
amount of cheque to a particular banker and not over the
counter. The crossing of the cheque secures the payment to a
banker.
It also traces the person so receiving the amount of cheque.
Addition of words ‘Not negotiable’ or ‘Account Payee only’ is
necessary to restrain the negotiability of the cheque.
The crossing of a cheque ensures security and protection to the
holder. However, we can negotiate a crossed bearer cheque by
delivery and a crossed order cheque by endorsement and
delivery.
Types of cheque crossing are General Crossing, Special
Crossing or Restrictive Crossing and Double Crossing. Let us
learn about cheque crossing in more detail.
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31. Types of Crossing

32. Types of Crossing
✓ General Crossing
✓ Special or Restrictive Crossing
✓ Double Crossing
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33. General Crossing
When across the face of a cheque two transverse
parallel lines are drawn at the top left corner, along
with the words & Co., between the two lines, with or
without using the words not negotiable. Thus, in this
case the holder of the cheque or the payee will
receive the payment only through a bank account
and not over the counter. When a cheque is crossed
in this way, it is called a general crossing.
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35. Special Crossing
A cheque in which the name of the banker is written,
across the face of the cheque in between the two
transverse parallel lines, with or without using the
word ‘not negotiable’. This type of crossing is called a
special crossing. In a special crossing, the paying
banker will pay the sum only to the banker whose
name is stated in the cheque or to his agent. Hence,
the cheque will be honoured only when the bank
mentioned in the crossing orders the same.
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37. Double Crossing
Double crossing is when a bank to whom the cheque
crossed specially, further submits the same to another
bank, for the purpose of collection as its agent, in this
situation the second crossing should indicate that it is
serving as an agent of the prior banker, to whom the
cheque was specially crossed.
The crossing of a cheque is done to ensure the safety
of payment. It is a well-known mechanism used to
protect the parties to the cheque, by making sure that
the payment is made to the right payee. Hence, it
reduces fraud and wrong payments, as well as it
protects the instrument from getting stolen or
encashed by any unscrupulous individual.
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39. Thank You!