Bank draft or Demand Draft

DD is drawn by one branch of bank on another branch of the same bank instructing the latter to pay a specified sum of money to a named payee or to his order.

Features of DD
It is drawn by a banks branch on another

branch. It cannot be made payable to bearer. Its payment cannot be stopped or countermanded. It is always payable on demand.

Magnetic ink character recognition

MICR technology has been introduced by the RBI for speeding up the cheque clearing process. The scheme has been initially introduced in four metropolitan citiesBombay, Calcutta, Madras and New Delhi.

STEPS IN MICR PROCESS

Standardization of quality/size, printing of cheques or

drafts with suitable space for encoding information at the bottom. Encoding in magnetic ink specific details on the cheque itself, to facilitate mechanical sorting. The code line contains the following information: First 6 nos indicate cheque number Next 3 nos indicate city code Next 3 nos indicate bank code Next 3 nos indicate branch code.

 After some space there is number for transaction

code i.e. whether the transaction relates to a savings or a current account. MICR cheques should not be folded, pins etc. should be put at the top left corner of the cheque. The signature of the drawer, rubber stamp etc should should be affixed above the code line.

AMBIGUOUS INSTRUMENT
An instrument which in form or terms is such that it may either be treated as a bill of exchange or as a promissory note, is an ambiguous instrument.

Following are the cases the instrument is taken as ambiguous

Where drawer and drawee are the same

person. Where drawee is a fictitious persons Where drawee is a person incapable of entering into a contract. the holder will have to decide, once for all whether to take the ambiguous instrument as a promissory note or a BOE.

INSTRUMENT PAYABLE ON DEMAND

A Pronote or a BOE in which no time for

payment is specified (sec 19). A cheque (6). A note or BOE expressed payable on demand or at sight or on presentment (Sec 31).

INCHOATE INSTRUMENT
The term inchoate instrument means and incomplete instrument.

at sight on presentment after sight (sec21)

in a promissory note or bill of exchange the

expression at sight and on presentment means on demand. after sight means in a PN after presentment for sight and in a BOE, after acceptance, or noting for non-acceptance or protest for nonacceptance.

ESCROW
A bill, endorsed or delivered to a person subject to the understanding that it will be paid only if certain conditions are fulfilled, is called an escrow.

PAYMENT IN DUE COURSE

Acc to sec.10 payment in due course means payment in accordance with the apparent tenor of the instrument, in good faith and without negligence, to any person in possession thereof, under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount mentioned therein.

Analysis of the definition:

Payment must be in accordance with the

apparent tenor of the instrument. In good faith without negligence. Person in possession thereof. Payment should not be made under circumstances which afford reasonable ground for believing that the person was not entitled to receive the amount mentioned in the instrument. Payment of money only.

Maturity of the negotiable instrument

NI except cheque may be made payable either on demand or on a specified date or after a specified period of time. Cheques, however are always payable on demand. The date on which a NI fall due for payment is called the date of maturity of the instrument. Demand Instrument fall due for payment the moment they are presented to the acceptor or drawee payment. Time instrument are given 3 days of grace period.

Rules for determination of maturity

If a NI has been made payable after a stated

number of months after date or after sight or after a certain event the period stated shall be held to terminate on the day of the month which corresponds with the day on which the instrument is dated. IF the maturity day of NI come out to be a public holiday, the instrument shall be deemed to be due on the next preceding business day (sec.25)

STATUTORY PROTECTION TO A PAYING BANKER UNDER NI ACT 1881

Order cheque having forged endorsement of payee and endorsee. U/S 85(1): According to this sec the PB is protected in case of payment of an order cheque with forged banker endorsement. This protection is given on the grounds that, PB will not be knowing exactly who the endorsee is. payment has to satisfy certain condition: There should be regular endorsement. The payment must be payment in due course.

 U/S 16(2): it extends protection to the PB even

when the signature of endorsee are forged, as a PB cannot verify the signature. The conditions are: Endorsement is regular. Payment must be payment in due course.

Bearer cheques
U/S 85(2) it indicates that the PB is

discharged from the liability by honouring a bearer cheque according to the principle once a bearer cheque is always a bearer cheque. The conditions are: there was no suspicion about the bearer. the payment made as per payment in due course.

Order draft with forged endorsement

U/S 85A: this provision gives protection to the

paying banker regarding the draft having a forged endorsement. The conditions are: the endorsement should be regular the payment should be made in due course.

Crossed cheque
U/S 128: the protection given to PB regarding

the payment crossed cheque to a person other than the true owner is given under this section. This provision states when the PB makes payment in due course regarding a crossed cheque, he is discharged of the liabilities as he is deemed to have paid the value to the true owner

Materially altered cheque

U/S 89: the PB also gets protection regarding

the payment made to a materially altered cheques provided The material alteration is not noticeable even by careful examination Payment made in due course.

DISHONOUR OF CHEQUES
it means non payment of a cheque across the counter or through the account ( in case of crossed cheque) circumstances may be classified under which the PB must dishonour cheque. Under which the PB may dishonour cheque.

Circumstance in which PB must

When the cheque is countermanded by the customer. When the banker receives the notice of death of

customer When the banker receives the order adjudication confirming the insolvency of the customer. When the banker receives garnishee order absolute against the A/c of a customer. Holding of a defective title Misuse of trust funds. Forged cheque Cheque without the signature of the drawer. In case of cheque drawn by a foreigner, if there is a war in drawers country. Closure of account.

Circumstances in which cheque may be dishonoured

The funds at the credit of the customer is insufficient. The signature on the cheque does not tally with the

specimen signature of the drawer. A cheque is not dated, post dated. Or bears an incomplete date, or an impossible date. A cheque is presented for payment after the banking hours. The words and figures stated in the cheque differ. A mutilated cheque not confirmend by the drawer. Cheque not drawn in proper form. Cheque not written in clear terms. A customers a/c subjected to banker; lien or set off.