CASE STUDIES ON BANKING LAW & PRACTICE-1

1) X branch decides to close the account of a customer whose transactions are unsatisfactory.
He is advised that no further credits will be accepted into his account and is asked to return
the unused cheque forms in his possession. The customer states that he has already issued
number of cheques for which he wants to deposit cash into his account before they are
presented. He insists that for his business needs he needs a bank account. He refuses to
hand over the unused cheque forms.

How would do you deal with the situation?

2) A crossed cheque, marked "A/c Payee" drawn in favour of X or bearer, and endorsed by him
to Y with the collecting banker's confirmation : First payee's endorsement confirmed; second
payee's account will be credited on realisation, is presented in clearing for payment.

What will be your course of action? Will the position be different if the cheque is payable to
order?

3) At Y Branch an account of a firm which was operating for about 4 months runs into
problems. The partners in the firm abscond. While scrutinising the account you find that the
branch had collected the following item

A fixed deposit receipt of Rs.50000 of another bank standing in the names of A & B.

If A& B dispute the title of the account holders will the branch get protection under NIA for
having collected the said item. If yes, why ? If no, why ?

4) A cheque for Rs.1 lakh drawn on an up-country centre was discounted by B branch and
presented for payment on behalf of its customer. The drawee bank returned the same for
irregularity of endorsement. B branch then confirms the endorsement and represents the
cheque without informing the customer. The cheque is returned for the second time for want of
funds. The customer refuses to reimburse the branch inspite of notice of dishonour.

What will be the position of the branch ?

5) What do you understand by the term " document of title to goods "? What precautions should
a banker take while granting advances against the security represented by the documents of
title to goods.

6) What are the formalities that are to be completed before granting Loan against a
Deposit(LD) ?

7) A valued customer wants Over Draft(OD) facility upto Rs.25000/-. He offers the following
securities :

100 Shares of a blue chip company standing in the name of his wife
A FD receipt for Rs.50000 in the names of his wife and son jointly issued by another
branch of the bank.
His own Life Insurance policy for Rs.60000/- maturing within 2 years.
Which of the above would you prefer/accept and why ?

8) What would you do if one of the joint account holders having a current account payable to "
either or survivor " dies and his legal representative asks you not to pay the balance to the
survivor?
9) A partnership firm having X, Y and Z as partners were enjoying OD limit in a branch. A
communication is received by the branch that X had died on 20/5/2002. On 21/5/2002, two
cheques signed by X on 16/5/2002 are presented for payment ?

What will you do ?

10) A cheque for Rs.10000/- made payable to " Lord Krishna or order " is presented for payment
by a person of the Ashram who has an account with one of our branches. The said person is
the one who regularly comes for carrying out transactions in the account of the Ashram. The
cheque is not crossed.

Will you pay in such a case ?

11) What is the significance of a " Not Negotiable " crossing on a cheque?

12) When is the paying banker protected in law ?

13) You are in charge of the current account department. You receive a telephone from another
branch stating : " Advise through internal mail, whether we may pay here a cheque for
Rs.25000 drawn on your branch by one of your current account holders A/c No.123". At the
time of receipt of the telegram, the balance in the current account of the customer was
Rs.30000/-.

What reply Mail will you send ?

14) A cheque for Rs.5000 paid into the credit of K.L. Khanna is, by oversight, credited to
another customer, J.C.Khanna, whose credit balance is thereby raised from Rs.8000 to
Rs.13000. JC Khanna's pass book is also updated accordingly. The error is discovered later
on. Entries for rectifying the error are passed . The next day a cheque for Rs.12000 drawn
by JC Khanna is presented for payment.

What would you do and why ?

15) An uncrossed order cheque for Rs.1 lakh is presented to you for cash payment across the
counter. The drawer's signature tallies, and there is sufficient balance in the account.

Is there need for any further precautions before paying the same ?

16) A cheque for Rs.51000 drawn by your customer in favour of Income Tax Dept is presented
for payment when the balance in the account was Rs.31000 and cheques worth Rs.1 lakh
were under clearing. You, therefore, return the cheque with remarks : " Effects not cleared,
please present again." On the next day when the clear balance is Rs.131000/- the customer
himself presents a cheque for Rs.120000/- on the account. You believe that the customer
cannot be allowed to withdraw Rs 120000/- because you will have to reserve an amount of
Rs.51000 to the IT Department's cheque.

Are you correct in doing so ? What is the correct position ?

17) A company executive issues a cheque on his current account in payment of instalment of
loan for flat taken from the government housing board. The cheque is returned by the bank
with the remarks " Funds Insufficient " as the salary cheque of the executive coming directly
from the employer on 1st of each month is not received. The account holder who has been
maintaining his account satisfactorily for the last 10 years files a suit against the bank for
substantial damages. Discuss.
18) Your branch has issued a guarantee on behalf of a customer and has noted a lien on his
account to the extent of 25% of the amount. A garnishee order is served on the customer's
account.

How will you proceed ?

19) Mumbai Main Branch has sent an instruction to Jalandhar Branch for payment of Rs 2 Lacs
to one M/s Julka Sports. Jalandhar Branch has issued a pay order to this effect. The very
next day Mumbai Main Branch informs that the beneficiary has been wrongly mentioned as
Julka Sports instead of Julka Sports Equipment Co. and requests Jalandhar Branch to
incorporate the change.

What will be Jalandhar Branch's action if the pay order has been delivered to the beneficiary
already?

20) A customer of your branch had a 3 year FD in her name solely. At her request the branch
had allowed the name of her eldest son to be added to the deposit with operative clause "
Either or survivor". She now wants the name of her eldest son to be removed and instead
the name of another son added.

How will you proceed?

21) A partner of a firm approaches your branch to allow the operation of the firm's account by his
constituted attorney.

How will you act?

22) A firm having 3 partners maintains a current account with your branch, to be operated by any
one of them. Due to a dispute among the partners, one of them advises the branch in writing
not to allow further operations in the account.

After a few days, the same partner writes to the branch withdrawing his previous instructions
and allowing operations in the account as before.

What would you do ?

23) Who is a drawee in case of need ?

24) Comment on Conditional Order.

25) Your branch has received a bill of exchange drawn on one of your customers who is a
defaulter at your end. When the intimation regarding the bill was sent to him he deposits the
required amount to his current account. You appropriate this amount to his dues to the
branch.

Can you do so ? Explain.

26) What clauses in a trust deed are important to a banker ?

27) Mr X one of your customers has been arrested on a charge of forgery. Your branch has
received a notice from a lawyers' firm to stop further operations in the account. Meanwhile,
a cheque drawn by Mr. X is presented which is otherwise in order and there is sufficient
balance in the account to honour it. How will you proceed ?
28) Mr. X maintains a savings bank account at your branch with a substantial balance. Mrs. X
calls on you to inform that Mr. X has become insane and may be issuing cheques for large
amounts. She wants you to stop further operations in the account.

How would you act ?

29) Mr. A, who maintains a savings bank account with your branch office with a substantial
balance, has met with an accident and has lost both his hands. He now needs money to pay
his hospital bill and other expenses.

How can withdrawals be made from his account?

30) What type of crossing on a cheque would lead to a situation where there cannot be a holder
in due course ?
a) A/c Payee b) & Co c) Special crossing d) Not Negotiable crossing

31) What does the term Escrow refer to ?

32) A cheque is payable to A or order. A endorses it in favour of B. B loses the cheque. C finds it
and after forging the endorsement of B delivers it to D. D for valuable consideration further
endorses it to E. The cheque is dishonoured. What are the rights of E on the cheque?

33) What is a negative lien?

34) What is an assignment ?

35) A locker is hired by X and Y jointly with instructions " Either of us can operate the locker
singly". X reports that he has lost the key of the locker. After a few days Y approaches you
with the key to operate the locker. How will you deal with this situation ?

36) A customer of your branch demands that the branch return to him some of the original
cheques paid by the branch to the debit of his account.

What will your line of action be ?

37) A demand draft was reported lost and a duplicate was issued in lieu thereof by obtaining the
usual indemnity bond. Later on both the original as well as the duplicate drafts are
presented through clearing on the same day by different banks each bearing the stamp "
Payee's account credited ".

What will you do ?

38) What are the conditions to be fulfilled by a customer before he can enforce payment of the
amount deposited by him in the bank ?

39) A garnishee order is served on the Head office against an account maintained by one of our
branches.

Can the order be operative ?

40) Your branch has received an attachment order under Income Tax Act in the name of one of
your customers who has a fixed deposit account. The fixed deposit has already matured.
Will you insist for production of the fixed deposit receipt before making payment to the
Income Tax Department?

41) What are the quantitative methods employed by RBI as measures of credit control?
42) A cheque is expressed to be payable to " Mr. ABC or order or bearer". The words "or order"
have been inserted by the drawer himself while " or bearer" are printed on the cheque. The
cheque is presented for payment by one Mr. D. There is no endorsement on the cheque.

How will you handle the situation ?

43) A draws a cheque favouring B or order. B transfers the cheque to C with an endorsement
"pay to C or order without recourse". C endorses it to D, who endorses it to B. On
presentation the cheque is dishonoured. What will be the position of B?

44) Can demand drafts payable to bearer be issued ? Explain.

45) You are in charge of the Inward Bills for Collection department. You have received a Bill from
Bangalore Branch drawn on a customer of your branch. The intimation slip was sent to the
drawee who later presents the intimation advice and deposits the requisite cash. While
delivering the documents, you observe that the LR number mentioned on the invoice and
that on the LR is different. Description of the goods also vary.

How will you proceed in this regard?

46) A person calls at your branch and informs that he is the payee of a draft which has been
lost from his possession. He request for stopping payment of the said draft. The same has
not been paid so for.

Will you accede to his request? What action will you take ?

47) What is a floating charge?

48) Under what situation can joint nominees be allowed ?

49) A customer of your branch asks you to transfer a sum of Rs.10000/- from his account to a
FD to be opened in his son's name for a period of 2 years. He has assured that the account
opening form completed by his son would be submitted within 2 days. Your branch opens
the FD and issues the receipt to the customer. The customer later on turns up stating that
he has changed his mind and asks you to cancel the FD and recredit the proceeds to his
account.

How will you go about in the present case?