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The negotiable-instruments-act-1881 (2)


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The negotiable-instruments-act-1881 (2)

  1. 1. The Negotiable Instruments Act, 1881. 1 Presented To Prof. Y.A. LAD Department Of Human Resource Management Presented By Mr. Piyush Patel Mr. Tarang Patel Mr. Mihir Riswadkar
  2. 2. Introduction • The law relating to negotiable instruments is contained in the Negotiable Instruments Act. 1881 which applies and extends to the whole of India. • The word negotiable‟ means “transferable by delivery” and instrument means “a written document by which a right is created in favor of some person or persons. • Thus, the term negotiable instrument literally means a written document which creates a right in favor of somebody and is freely transferable. • A negotiable instrument is a piece of paper which entitles a person to a certain sum of money and which is transferable from one to another person by a delivery or by endorsement and delivery. • Eg: - Promissory note, Cheque and a Bill of exchange, documents such as Railway or ST Receipts; Dividend, warrants; etc. 2
  3. 3. Characteristics of Negotiable Instruments • Free transferability or easy negotiability Negotiable instrument is freely transferable. • .Title of holder is free from all defects : A person who takes negotiable instrument bona-fide and for value gets the instrument free from all defects in the title. The holder in due course is not affected by defective title of the transferor or of any other party. • Recovery: The holder in due course can sue upon a negotiation instrument in his own name for the recovery of the amount. • Presumptions: Dealt in Secs 118 and 119 3
  4. 4. • Consideration : That every negotiable instrument, was made or drawn for consideration. • Date : That every negotiable instrument bearing a date was made or drawn on such date. • Time of acceptance : That every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity. • Time of Endorsements : That the endorsements appearing up to negotiable instrument were made in the order in which they appear there upon. Stamps : that a last promissory-note, bill of exchange or cheque was duly stamped. • Holder presumed to be a holder in due course : that every holder of a negotiable instrument is holder in due course. • Time of transfer : that every transfer of a negotiable instrument was made before its maturity. • Proof of protest: If anyone challenges any of these presumption , or dishonored, the court, on proof of protest Presumes the fact of dishonor, until such fact is disproved. 4
  5. 5. Types of Negotiable Instruments Negotiable instruments are of two types which areas follows: • Negotiable Instruments recognized by status: e.g. Bills of exchange, cheque and promissory notes. • Negotiable instruments recognized by usage or customs of trade: e.g. Bank notes, exchequer bills, share warrants, bearer debentures, dividend warrants, share certificate.
  6. 6. Promissory Note : 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 the bearer of the instrument.  Essential elements  Writing  Promise to pay  Definite and unconditional  Signed by the maker  Certain parties  Certain the sum of money  Promise to pay money only  Bank note or currency note is not a promissory note  Formalities like number, date, place ,etc.  It may be payable on demand or after a definite period of time.  It cannot be made payable to bearer on demand. 6
  7. 7. Specimen of a promissory note: Rs. 1000/- Pune November 13, 2013 Three moths after the date, I promise to pay Mr. XY of Vadodara or order a sum of Rupees One Thousand for value received. To Mr. XY Address……….. …………… Stamp Vadodara Signature of Mr. Z 7
  8. 8. Essential characteristics of a Promissory Note • Promissory note is a negotiable instrument • It must be in writing • It is a promise to pay money only. • It must be definite. The promise to pay must be definite. • It must be unconditional. Undertaking to pay must be unconditional. • It must be signed by the maker. • Maker of the promissory note must be a certain person and the payee must also be certain. • Amount of the promissory note must be certain. • Other formalities like number, date, consideration, place etc. are generally found in the promissory notes but they are not essential in law. • Promissory note must be properly stamped according to the provisions of the Indian Stamp Act, 1899. 8
  9. 9. Bill of Exchange • 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.(Sec 5) . • A person Directed to pay is drawee • When a drawee accepts the bill he is called acceptor • The person to whom the payment is to be made is called the payee. • The drawer or payee who is in posssession of bill is called holder • The holder indorses the bill, not or cheque he is called indorser. 9
  10. 10. 10 Specimen of a Bill Of exchange: Rs. 1000/- Pune November 13, 2013 Three moths after date pay to Mr. XY or the sum of Rupees One Thousand ,for value received. To Mr. XY Address……….. …………… Accepted Stamp Vadodara XY Signature of Mr. Z In case of need with SBI, Vadodara 10
  11. 11. Essential Elements:Bill of Exchange • It must be in writing • It must contain an order to pay • The order must be unconditional • It requires 3 parties : Drawer, Drawee & Payee • The parties must be certain • It must be signed by the drawer • The sum must be certain • It must contain an order to pay money • A bill as originally drawn cannot be made payable to bearer on demand 11
  12. 12. Distinction Between a Bill Of exchange and a promissory note • In a note there are 2 parties- the maker and the payee & in bill 3 parties –the drawer, the drawee and the payee • A note contains an unconditional promise to pay. A bill contains an unconditional to pay. • The maker of a note is the debtor and he himself undertakes to pay. The drawer of a b ill is the creditor who directs the drawee(his debtor) to pay. • The liability of the maker of a note is primary and absolute, whereas the liabilty of the drawer of a bill is secondary. • A note cannot be made payable to maker himself, whereas in a bill the drawer and the payee may be one and the same person. • A note cannot be drawn payable to bearer. A bill can be so drawn. But in no case can a note or bill be drawn payable to bearer on demand. 12
  13. 13. Cheques 13 • A cheque is a bill of exchange drawn on a specified banker, and payable on demand and it includes the electronic image of a truncated cheque and the cheque in the electronic form. • A cheque in the electronic form contains the exact mirror image of a proper cheque, written and signed in a secured system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system. • A truncated cheque is truncated during clearing by clearing house or bank • Clearing house is managed or recognized by Reserve bank of India. • A cheque is bill of exchange with two more qualifications, • It is always drawn on a specified banker • It is always payable on demand. • Consequently, all cheque are bill of exchange, but all bills are not cheque.
  14. 14. Distinction between a bill of exchange and a cheque 14 • A bill of exchange is usually drawn on some person or firm, while a cheque is always drawn on a bank. • It is essential that a bill of exchange must be accepted before its payment can be claimed A cheque does not require any such acceptance. • A cheque can only be drawn payable on demand, a bill may be also drawn payable on demand, or on the expiry of a certain period after date or sight. • A grace of three days is allowed in the case of time bills while no grace is given in the case of a cheque. • The drawer of the bill is discharged from his liability, if it is not presented for payment, but the drawer of a cheque is discharged only if he suffers any damage by delay in presenting the cheque for payment.
  15. 15. Distinction between a bill of exchange and a cheque 15 • Notice of dishonor of a bill is necessary, but no such notice is necessary in the case of cheque • A cheque may be crossed, but not needed in the case of bill. • A bill of exchange must be properly stamped, while a cheque does not require any stamp. • A cheque drawn to bearer payable on demand shall be valid but a bill payable on demand can never be drawn to bearer. • Unlike cheques, the payment of a bill cannot be countermanded by the drawer.
  16. 16. Crossing Of Cheques 16 2 types of cheques: 1. Open cheques 2. Crossed Cheques Types of crossed cheques: 1. General Crossing( Name of the person/ Co and words non Negotiable) 2. Special Crossing( Name of banker w/o not negotiable) 3. Restrictive Crossing(A/c payee in addition to the above crossings) 4. Non Negotiable Crossing Who can cross the cheque?? 1. The Drawer 2. The Holder 3. The banker
  17. 17. Classification Of Negotiable Instruments 17 The Negotiable Instruments can be classified as: Bearer & Order Instruments Inland & Foreign Instruments Instruments payable on demand Time Instruments • Accomodation Bill • Ficitious Bill • Documentary Bill • Clean Bill • Undated bills • Inchoate Instruments
  18. 18. Classification Of Negotiable Instruments 18 Bills In Sets: A bill of exchange is soemtimes drawn in parts especially when it has to be sent from one country to another.This is known as bill in set. Each part is known as VIA Rules Regarding the Bills In Sets: A bill of exchange may be drawn in parts Each part of bill in a set must be numbered and contain provision that it shall remain to be payable until other parts remain un paid. The entire bill is extinguished when payment is made on one of the parts The drawer must sign each part and also deliver all the parts.
  19. 19. Payment in Due Course 19  The following condition must be satisfied before a payment of a negotiable instrument can be called as a payment in due course: Payment must be in accordance with the apparent tenor of the instrument. Payment must be made in good faith & without negligence. Payment must be made to the person in possession of the instrument. Payment must be made in money only. Payment must be made under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount mentioned therein.
  20. 20. 20 Capacities of parties • Minor • Persons of unsound mind • Corporation • Agent • Partners • Hindu joint family • Legal representative Parties to a Negotiable Instrument
  21. 21. Capacities of parties Minor: As a minors agreement is void , he cannot bind himself by becoming a party to a negotiable instrument. But he may draw, indorse, deliver, and negotiable a negotiable instrument so as to bind all parties except himself that is, he may operate as a channel to convey title and liability but not to originate it. EXAMPLE: A, B, and M a minor executed a promissory note in favour of P, held, M, is immunity from liability did not absolve A and B, other joint promisors, from liability. 21
  22. 22. Capacities of parties • Persons of unsound mind: Agreement of lunatics, idiots and drunken persons like those of minors are void bills and notes drown or made by such persons are void as against them (through the other parties remains liable). • Corporation: A corporation or a joint stock company forms an exception to general rule that the capacities to in incur liability on a negotiable instrument is coexentensively with capacity to contract. • Agent: a person capable of contracting may make , draw, accepts, indorse, deliver and negotiate bill, no or check. either himself or through a newly authorized agent acting in his name. 22
  23. 23. Capacities of parties • Partners: In a trading firm each partner has prima facie authority to bind his co- partner by drawing, signing, making, endorsing, accepting, transferring negotiating bills, notes and cheques in the name and on account of partnership. • Hindu Joint family: It represent the family in or dealings with the outside the world. He has an implied authority on be half of the family to contract debts and pledge the credit of the family and borrow money on a note or bill where he carries on family business. • Legal representatives: A legal representative is entitled to all the instrument of the holder after the death of the latter. He can sue on them for the recovery of the amount. 23
  24. 24. Parties to negotiable instrument: Parties to a bill of exchange:  Drawer  Drawee  Acceptor  Payee  Holder  Indorser  Indorsee 24
  25. 25.  Parties to a promissory note:  Maker  Payee  Holder  Indorser  Indorsee  Parties to a cheque:  Maker  Drawee  Payee  Holder  Indorser  Indorsee 25
  26. 26. HOLDER AND HOLDER IN DUE COURSE Holder :- According to section 8 of the Act holder of a negotiable instrument means any person (a) who is entitled in his own name to the possession of the negotiable instrument and (b) who has also the right to receive or recover the amount due there on from the parties there to. 26
  27. 27. The holders of the negotiable instruments: Eligibility a. A principal whose name appears on an instrument as the holder though it executed in the name of his agent for him b. Where a negotiable instrument is a bearer one, any person who is in the possession of such instrument is the holder. c. Where a negotiable instrument is in the name of a partner of a firm, it naturally becomes a holder as it is not a separate entity from the partner. d. The endorsee of a cheque is called a holder. e. If a holder of a negotiable instrument is dead, the heirs of the deceased holder between the holders. 27
  28. 28. Holder in due Course Holder in due course‟ means any person who for the consideration becomes the possessor of a promissory note, a bill of exchange or a cheque if payable to bearer, or the payee or endorsee thereof, if payable to order, before the amount mentioned in it becomes payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title (section 9) . 28
  29. 29. a. He must be a holder: A holder to be a holder in due course must be entitled to the possession of the instrument in his name under a legal title and he must also be entitled to recover the amount of the instrument from the parties liable there to. b. He must be a holder for valuable consideration To be a holder in due course, a person must be a holder for valuable consideration and the consideration must not be illegal or void. However, consideration may be past, present adequate or inadequate. A done acquiring title to the instrument by way of a gift is not a holder in due course because there is no consideration to the contract and therefore he cannot maintain any suit against the donor in the court of law. The house hired for illegal purposes and money due on a promissory note, deposited for the security cannot be recovered by a suit. 29
  30. 30. c.He must become a holder of the negotiable instrument before the date of maturity. If the negotiable instrument is taken after it becomes due, the person taking it gets the rights of his immediate transferor against the other parties and therefore, a person who takes a negotiable instrument on the day on which it becomes payable cannot claim rights of a holder in due course. 30
  31. 31. d. He must become a holder of the negotiable instrument in good faith: Here the term „good faith‟ implies that he should not accept the instrument after knowing about the defect or defects in the title to the instrument. A thing is done in good faith when it is done honestly. It is the duty of a person [who takes a negotiable instrument] to examine its contents thoroughly. If the negotiable instrument contains any material alteration or if it is incomplete, he will not become a holder in due course. Thus, he must become a holder and must take the negotiable instrument complete and regular on its face. 31
  32. 32. Distinction between holder and holder in due course Holder is different from a holder in due course. A holder in due course enjoys certain rights and privileges. 1. A holder can obtain an instrument without consideration while a person cannot be a holder in due course unless he obtains an instrument with consideration and for value. 2. If an instrument is inchoate, a holder of such instrument cannot get good title in the instrument. While holder in due course acquires a good title even if the instrument is inchoate. 32
  33. 33. 3. A holder of an instrument may acquire the instrument if it becomes payable. But the person is not treated as a holder in due course if he acquires an instrument when it becomes payable. 4. A holder need not bother about the defect, if any, in the title. But no holder is considered a holder in due course who acquires an instrument knowingly the defect of the title. 33
  34. 34. Negotiation  It is a process of transferring the ownership, right, title, interest of a person in a negotiable instrument to another person so as to give a good title to the transferee and make a transferee a holder of such instrument.  Negotiation does not mean a simple transfer. Simple transfer may not necessarily involve the transfer of property in the negotiable instrument but negotiation implies the transfer of property or ownership.  Eg -X hands over a cheque to Mr. Y here Mr. X has negotiates the instrument. But if he hands over a cheque to Mr. Y asking him to keep the same in his safe, the cheque is not negotiated to Mr. Y, Mr. Y does not become its holder but only a bailee. 34
  35. 35. Essentials of negotiation  There must be transfer of a negotiable instrument to another person.  As a result of such transfer, the transferee must become the holder of the instrument. Procedure of transfer or modes of negotiation: A negotiable instrument can be transferred to another person in the following two ways: a.Negotiation by delivery; and b.Negotiation by endorsement and delivery  Instruments payable to bearer can be transferred by mere delivery, while instruments payable to the order are transferred by endorsement and delivery: 35
  36. 36. • Thus delivery of a negotiable instrument is a voluntary transfer of possession of the negotiable instrument. When an instrument is negotiated by delivery it is not necessary for a transferor to put his or her signature on the instrument and therefore, there is no privacy of any contract between the transferor and any subsequent transferee. • Negotiation by endorsement and delivery: • Subject to the provision of section 48 [which is stated earlier] a promissory note, cheque or a bill of exchange payable to order is negotiable by the holder by endorsement and delivery thereof [section 48] • Thus the delivery is the common element between the two modes of negotiation i.e. negotiation by mere delivery and negotiation by endorsement and delivery. 36
  37. 37. Indorsement “Literal meaning of the term indorsement is writing on an instrument.” Indorser - The person who signs on the back or on the face of t instrument or on the slip is an indorser. Indorsee - The person to whom the instrument is indorsed is called t indorsee. 37
  38. 38. Kinds of Indorsement • General or blank indorsement - Indorser signs his name either on the back or face of the instrument. • Full or special indorsement - It specifies the name of the person to whom or to whose order the payment must be made. • Partial indorsement – Indorsement is made for remaining balance of payment. • Conditional indorsement – The liability of the indorser is limited or negative. • Restrictive indorsement- Restrictive indorsement restricts the further negotiability of the negotiable instrument. Such indorsement entitles the holder of the instrument to receive the amount on the instrument for a specific purpose. The indorsement is restrictive when it contains express words to that effect. 38
  39. 39. 39 Types Of conditional Indoresement:  Sans Recours  Facultative Indorsment  Liability dependent on contingency  Sans faris Indorsement
  40. 40. Instruments obtained by Unlawful Means 40  Stolen Instruments  Instruments Obtains by Coercion or fraud  Instruments obtained for an Unlawful Consideration  Forged Instruments  Forged Indorsement  Instruments without Consideration
  41. 41. PRESENTMENT OF ACCEPTANCE It is only bill of certain type that require acceptance Ti is acceptance when the drawee put his signature on it signifying his assent to order of drawer that he will pay the bill at the time when it is due. Essential of valid acceptance are as fallow  It must be written on the bill: the usual form in which the drawee accept a bill is by writing the word accepted across of the face of the bill & signing his name underneath 41
  42. 42.  It must be signed by drawee personally: untill the acceptance the drawee is not part to the bill & is not liable because person is not liable on a contract unless he is party thereto  The accepted bill must be delivered to the holder: the acceptance has no effect until the accepted bill is delivered to the holder 1. A bill payable some period after sight or after presentment: in order to fix its date of maturity 2. A bill in which there is an express stipulation: that it shall be presented for acceptance before it is presented for payment. 42
  43. 43. Mode of acceptance : 1) General acceptance : an acceptance is general when the draws while accepting the bill does not attach any condition or any condition or any qualification to it. 2) Qualified acceptance: an acceptance is qualified where it is given subject to some condition or qualification 1) Conditional : eg: – accepted payable when in fund„s payable when a cargo consigned to me is solled 2) Partial : i.e. for a party only of a amount of a bill as for eg: when a bill is drawn for Rs. 1000 & is accepted for Rs: 200 only. 3) Qualified as to place: to pay only at a specified place and not to pay at place different from the place mentioned in the bill. 4) Qualified as a time: to pay as a time other then that give in the bill eg: bill drawn payable three month after date but‟ accepted payable six months after date. 5)Acceptance by some of the drawees , but not all: eg: a bill drawn on A B & C but accepted by A only.
  44. 44. Dishonour of negotiable instrument •Negotiable instruments, Promissory notes and Cheques may be dishonored by non payment •Bills of exchange may be dishonored by non payment or by non- acceptance as they require acceptance from drawees.
  45. 45. Dishonour of negotiable instrument Dishonour by non-acceptace:  If the drawee doesnot accept the bill within the 48 hrs from the time of presentment though it is duly presneted  If there are several drawees and all of them do not accept  When presentment for acceptance is excused and the bill is not accepted  When the drawee is imcompetent to contracr  When the drawee gives a qualified acceptance  When the drawee is a fictitious person or after reasonable search cannt be found. Dishonour by Non Payment:  A promisory note, bill of exchange or cheque is said to be dishonoured by non- payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon duly required to pay the same.
  46. 46. NOTICE OF DISHONOUR When a negotiable instrument is dishonoured either by nonacceptance or by non payment the holder of the instrument or some party to it who is liable thereon must give a notice of dishonour to all the prior parties whom he wants to make liable on the instrument. NOTICE BY WHOM:  Notice by holder or any prior party  Chain method of giving notice of dishonour  Notice by principal or agent NOTICE TO WHOM:  Notice to all parties whom the holder seks to make liable  Notice to party or his agent, or to legal representative or assignee FORM OF NOTICE
  47. 47. Discharge of a party or parties 47  By payment  By cancellation  By release  By allowing drawee more then 48hours  By non-presentment of cheque  Cheque payable to order  Draft Drawn by one branch on another  Parties not consenting discharged by qualified acceptance  By operation of law  By material alteration  Discharge by payment of altered instrument
  48. 48. Rules of evidence estoppel and international law: • When a person by his conducts or words spoken or written leads another person to believe that a certain state of affairs exists he is estopped from denying the fact of that statement later. The Negotiable Instrument Act lays down the following rules of estopped • Estoppels against denying original validity of Instrument (sec 120)  The maker of a promissory note, the drawer of a bill of exchange or cheque and the acceptor of a bill for the honors of the drawer are not permitted, as against a holder in due course, to deny the validity of the instrument as originally made or drawn. 48
  49. 49. • Estoppels against denying capacity of payee to indorse(sec 121) The maker of a promissory note and the acceptor of a bills of exchange payable to order are not permitted, as against a holder in due course, to say that the payee is incapable of indorsing the instrument. • Indorse not permitted to deny the capacity of prior parties (sec 122) The indorse of a negotiable instrument is not permitted, as against a subsequent holder, to deny the signature or capacity to contract of any prior party to the instrument
  50. 50. INTERNATIONAL LAW The rules of international law relating to foreign negotiable instrument are as follows: • Liability: The liability of the maker or drawer of a foreign promissory note, bills of exchange or cheque is regulated in all essential matters by the law of place where the instrument has been made. The liability of the acceptor and indorse is determined by the law of the place where the instrument is payable. This rule is however subject to contract between the parties (sec 134) 50
  51. 51. • Dishonour: Where a promissory note, bills of exchange or cheque is made payable in a different place from that is which it is made or indorsed, the law of the place where it is made payable determines what constitute dishonor and what notice of dishonor is sufficient (sec 135) • Instrument made out of India according to the provision of Indian Law: If an instrument is made, drawn, accepted, or indorsed out of India according to the Indian Law, It‟s subsequent acceptance or endorsement in India will not invalidate it even through the agreement evidenced by such an instrument is invalid according to the law of foreign country (sec136) 51
  52. 52. Presumption as to foreign law: The law of a foreign country regarding promissory notes, bills of exchange and cheques is presumed to be the same as that of India unless and until the contrary is proved (sec 137) 52
  53. 53. HUNDIS:  Hundis are indigenous negotiable instrument written in a vernacular language .  Sometimes these are like promissory notes. KINDS OF HUNDIS • Darshni hundi (a hundi payable at sight) • Muddati or Miadi hundi (hundi payable after a specific period)  Shah jog hundi  Nam jog hundi  Dhani jog hundi or dekhandar hundi  Firman jog hundi 53
  54. 54. • Shah jog hundi: Means a hundi which is payable only to a shah. The drawer (the person on whom the hundi is drawn) must, however, make sure that he make payment on a shah jog hundi only to a shah if he makes payment on such a hundi to a person other than shah he will not be entitled to recover from the drawer the money he pays to the holder. • Nam jog hundi: It is a hundi which is payable to or to the order of a specified person named in the hundi . It is similar to a shah jog hundi except that in place of the world. Shah the name of the payee is given in the hundi It can be negotiable like a bill of exchange. 54
  55. 55. • Dhani jog hundi or dekhandar hundi: A dhani jog hundi is a hundi which payable to the holder or bearer and can be negotiated by mere delivery. • Firman jog hundi: Means is one which is payable to order. It can be negotiated, like other instrument payable to order by endorsement delivery. 55
  56. 56. • Jawabee hundi: It is hundi which is use for remitting money from one place to another. When the payee that is a person who is the receive money, gets the money he has to send an answer, that is, jawab to the remitter. • Jokhami hundi: It is one which implies the condition that the money shall be payable by the drawee who is the buyer a goods only in the, event of the safe arrival of the goods against which the hundi is drawn . It is in effect the combination of the bill of exchange and insurance policy 56
  57. 57. Legal Relationship between Banker and Customer 57 Special features Obligation to honor cheques Obligation to keep a proper record of transactions Obligation to abide by the instructions given by the customer General lien of bankers Obligation not to disclose the state of his customer’s account or affair Incidental charges and interest Right to set off Right of appropriation
  58. 58. When may a banker dishonor a customer’s cheque? • When the cheque is post-dated. • When the banker has not sufficient funds of the drawer with him and there is no communication between the bank and the customer to honor the cheque. • When the cheque is of doubtful legality. • When the cheque is not duly presented. • When the cheque on the face of it is irregular, ambiguous or otherwise materially altered. • When some persons have joint account and the cheque is not signed jointly by all or by the survivors of them. • When the cheque has been allowed to become stale, Le., it has not been presented within six months of the date mentioned on it.
  59. 59. When must a banker dishonor a customer‟s cheque? • When a customer after issuing a cheque issues instructions not to honor it, the banker must not pay it. • When the banker receives notice of customer's death. • When customer has been adjudged an insolvent. • When the banker receives notice of customer's insanity. • When an order of the Court, prohibits payment. • When the customer has given notice of assignment of the credit balance of his account. • When the holder's title is defective and the banker comes to know of it. • When the customer has given notice for closing his account.
  60. 60. Protection of a paying banker • He can debit the account of the customer with the amount even though the endorsement turns out subsequently to have been forged. • It would be seen that the payee includes endorsee. • This protection is granted because a banker cannot be expected to know the signatures of all the persons in the world. He is only bound to know the signatures of his own customers.
  61. 61. Protection of a collecting banker • The collecting banker should have acted in good faith and without negligence. • The banker should have collected a crossed cheque, i.e., the cheque should have been crossed before it came to him for collection. • The proceeds should have been collected for a customer, i.e., a person who has an account with him. • That the collecting banker has only acted as an agent of the customer. If he had become the holder for value, the protection available under Section 131 is forfeited -
  62. 62. THANK YOU !!! 62