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DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH

Name : G.Rajeswari.
Designation : Senior Lecturer.
Branch : Commercial and Computer Practice
Institute : Government Polytechnic, Srikakulam.
Year/Semester : V semester.
Subject : Banking.
Subject code : CCP 504(B).
Topic : Customer service in Banks
Duration : 50mts.
Sub topic : Legal aspects of entries in the Pass Book
Teaching Aids : PPT, Animation
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Objectives:

On completion of this period, you would be able to:


 Understand the legal aspects with regard to
mistakes in favour of Banker,
 Understand the effect of customer signing the
confirmation slips.

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Recap

 In the previous class, you have learnt the effect of


entries in favour of customer or entries
advantageous to the customer.
 The account of a customer may sometimes wrongly
show a credit balance, which is larger than the
correct balance.

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Recap

 This is because of the following reasons:


 duplication of credit entries or incorrectly
entering higher amounts for such entries.
 due to omission of any debit entry.
 The legal position of the banker and his customer
shall be as follows:
 The pass book is written by the banker and hence
the entries therein may form an evidence against
the banker.
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Recap

 The customer is rightly entitled to believe them as


correct and to act on the basis of such entries.
 If the customer believes that the balance is correct
and spends that amount, the banker cannot
recover that amount from the customer.
 But if the customer has knowledge of the entries
and if he uses it, he is liable to refund the amount
to banker.

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Known to unknown

 In the pass book, the banker records the


transactions. But while recording the
transactions, the banker may commit mistakes.
 Can you say the type of mistakes committed by
banker while recording the entries?
 Are they favorable to any party?

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Known to unknown

 What a customer has to do when he identify a


mistake?
 Can a banker identify a mistake in the pass book
entries?
 On identifying a mistake, what a customer can
do?

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Effect of wrong Entries in favour of
the Banker

 The following are the entries in favour of the


Banker:
 When a credit entry has been totally omitted or its
figure has been wrongly stated.
 Any debit entry has been erroneously made in the
account of the customer.
 The customer is entitled to get the mistake rectified
as soon as he happens to detect it.

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Effect of wrong entries

 This right of the customer does not lapse even if


the returns the pass book without raising objection
regarding any entry.
or
 He remains silent after the receipt of the pass
book because as already noted, the customer is
not bound to examine the pass book periodically
and regularly.

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Effect of wrong entries

 He is entitled to recover the amount wrongly


debited to, or omitted to be credited to his
account.
 The right of the customer to get the mistake
rectified is, however subject to one limitation.
 If the customer comes to know about the forgery
in the cheque and he does not inform the bank, it
will constitute a negligence on his part.

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Effect of wrong entries

 The customer will, therefore, not be entitled to


recover the amount paid by the banker on the
forged cheque.
 The most important point to note is that the
negligence on the part of the customer should have
been actually proved.

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Effect of wrong entries

 If the banker gives a wrong debit or fails to give


a due credit to the customer in the pass book,
the legal consequences are as follows:
 The customer on detecting the instance may
inform the banker and get the mistake rectified.

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Effect of wrong entries

 However, the customer is not entitled to get the


mistake rectified if it is proved that
i. The customer is negligent.
ii. The entries in the pass book constitute a
settled account.
iii. The position of the banker has been
subsequently altered to his prejudice.

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Effect of wrong entries

 Mere negligence on the part of the customer to


examine the pass book does not deprive him of the
right to stop the banker from wrongly debiting his
account.
 In order to protect themselves from such situations,
the current account opening rules require the
customer to examine the entries in the pass book
after they receive it from the banker.

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Effect of wrong entries
 He has to inform the bank if there are any
discrepancies.
 In case the customer does not raise any objections
in a reasonable period of time since the return of the
pass book, the entries in the pass book will be
treated as settlement of account.
 Similarly, where there is a practice of getting
confirmation slip regarding the balance, signed by the
customer, the customer cannot challenge the
correctness of the account later.
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Effect of the Customer Signing
Confirmation Slips

 The pass book itself is not a conclusive proof of a


settled account.
 Banks now-a-days periodically issue to the
customers confirmation slips, which give the
balance in the account as on a given date.
 By putting his signature on the confirmation slip,
the customer accepts and confirms such balance.

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Effect of the Customer Signing
Confirmation Slips

 Hence the same was binding on him and his heirs


and could not be challenged by them.
 The banker is entitled to point out to the customer
any mistake or omission and to rectify it as soon
as he knows about it.
 On receipt of such information by the banker,
customer is not entitled to withdraw the excess
amount wrongly credited to his account.

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Effect of the Customer Signing
Confirmation Slips

 But the banker should not dishonor the cheques


drawn and issued by the customer before the notice
of such wrong entry is served on him.
 If he does so, he will be liable for the consequences
of their wrongful dishonor.

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Precautions to be taken by the
Banker and the Customer

 The pass book must be sent by the customer to


the bank periodically and regularly for recording
the necessary entries.
 So that mistakes, if any, may be detected by the
customer soon thereafter.
 Reserve Bank has advised the banks to issue a
simple receipt to the tenderer of savings bank
pass book if it is retained by the bank for updating.

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Precautions to be taken by the Banker
and the Customer
 The pass book must be signed by the accountant
or other responsible officer of the bank.
 The Accountant or Officer must ascertain the
accuracy of the balance on the date of recording
the entries.
 Otherwise the customer will be entitled to act
upon the same, if it is wrongly stated.

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Precautions to be taken by the Banker
and the Customer
 The customer must tally the entries with his own
record-----either the account books or the
counterfoils of pay-in-slips and cheques, etc.
 If any inaccuracy is found the customer must
inform the bank immediately to get the mistake
rectified.
 While sending the pass book to the customer, the
banker should take steps to ensure the secrecy of
its contents.
 The pass book must be sent in a closed cover.
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Quiz

1.In case of forgery of cheques, the customer


a) cannot recover the amount from bank
b) can recover the amount from bank
c) Both A and B
d) None

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Quiz

2. When a customer signs the confirmation slip, the


entries in the pass book are treated as
a) Settled account
b) Suspense account
c) Doubtful account
d) Bad account

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Quiz

3.The accountant or the responsible officer must ascertain


the following on the date of issuing pass book for
verification.
a) Hand writing
b) Correctness of the Balance
c) Dates of the entries
d) Quality of the pages

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Frequently asked questions

1. Explain the effect of entries in favour of Banker?


2. What is the effect of signing the confirmation
slips?
3. What precautions are to be taken by the banker
and the customer in handling the pass book?

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