DISHONOUR OF A CHEQUE
The relation between a banker and his customer is that of a debtor and a creditor. Money deposited will always belong to the customer and the bank will be bound to return its equivalent to the customer or to any person to his order. But in certain cases a banker refuses to honour his customers cheque. When the payment of the cheque is refused by the bank, it is said to be dishonoured.
REASONS FOR DISHONOUR
A cheque may be dishonoured under the following circumstances.
i. When balance to the credit of the customer is insufficient to meet the cheque.
ii. When money deposited cannot be withdrawn on demand in the case of fixed deposit.
iii. When the customer closes the account before the cheque is presented for encashment.
iv. When the cheque is not properly drawn.
v. If the cheque is crossed but presented on counter for the payment.
vi. When the cheque is post dated.
vii. If death information of the A/C holder is received.
viii. If the A/C holder is declared insolvent by the law.
ix. If the A/C holder has stopped the payment.
x. If the signature on the cheque is different with the specimen signature.
xi. If the amount written in figures is different from the amount written in words.
xii. If the cheque is presented for payment at a branch other than the one where the customer has the account.
ENDORSEMENT
The word Endorsement has been derive from the latin word ‘’Indorsum’’ which means ‘’On the back’’. Anything written or printed on the back of a deed or instruments is called endorsement. When the member or holder signs his name on the negotiable instrument for the purpose of negotiation i.e. direction to pay the amount to another person is called Endorsement. Section 15 of the Negotiable Instrument Act 1881 defines Endorsement as
When the maker or holder of a negotiable instrument sign the same, otherwise than as such maker for the purpose of negotiation on the back or face therefore on a slip of paper or so signs for the same purpose a stamp paper intended to be completed as a negotiable instrument he is said to endorse the same and he is called the endorse.
KINDS OF ENDORSEMENT
Different kinds of Endorsement are as follows.
i. Blank or General Endorsement
When the endorser simply put his signature on the back of the instrument without specifying the name of the endorsee, it is said to be general endorsement. The holder can convert it in full endorsement by writing the name of the payee above the signature of the endorsee.
ii. Special or Full Endorsement
It specifies in addition to the signature of the endorser the person to whom or to whose order the instrument is payable.
iii. Restrictive Endorsement
An endorsement which prohibited further negotiation of the instrument is called restrictive endorsement. For instance if a cheque is endorsed saying "Pay A only" or "Pay A for A/C of B" the endorsed has no power to transfer his right further.
iv. Partial Endorsement
An endorsement which makes the transfer of the instrument from the endorser to the endorsee after the fulfillment of stated conditions is called Partial Endorsement.
Sans Recourse
When a person wants to exclude his liability to the endorse or any subsequent holder in case of dishonour of the instrument. The Endorser fees himself from his liability on a negotiable instrument by writing the words SANS RECOURSE after the name of the endorsee. He should make it clean that he endorsee or the holder should not look to him for payment in case of the dishonour of the instrument. The endorsee may refuse to take an instrument with such an endorsement
CROSSING OF A CHEQUE
A Crossing is a direction to the paying banker that the cheque should be paid only is a specified banker named in crossing. A cheque is said to be crossed when it bears across it is face the transfers lines without any words on them.
Crossing prevents the cheque from being cashed by anyone except the payee. This ensures safety of payment by means of cheques. It affords security and protection to the true corner. Cheques are crossed in order to avoid losses arising from open cheques. However it does not affect the negotiability of a cheque.
Wednesday, September 30, 2009
CHEQUE
CHEQUE
Section B of the Act defines a cheque as, ‘’A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.’’ A cheque is a bill of exchange but a bill of exchange often is not a cheque. A cheque is always payable on demand. The person drawing or making the cheque must be a customer of the bank and must be having the required find as deposit with the bank.
PARTIES TO A CHEQUE
The parties to a cheque are
Drawer He is the maker of the cheque. He must be the holder of the account at the bank and must sign the cheque as per specimen signature.
Drawee He is the banker with whom the A/C is maintained by the drawer of the cheque.
Payee He is a person named in the cheque to whom or to whose order the payment is to be made.
ESSENTIALS OF A CHEQUE
A cheque must have the following features / essentials.
i. It must be in writing but should not be written by a pencil.
ii. It must be an unconditional order to pay. The drawer must not pay any condition for the payment of cheque.
iii. It must be signed by the person giving it.
iv. Cheque must be drawn upon a banker not else.
v. It must be for the payment of a certain sum of money only.
vi. Amount of money must be written in figures and words.
vii. The cheque must be payable on demand
TYPES / KINDS OF A CHEQUE
Cheque may be of different types. Some of them are
Order Cheque
Order Cheque is a which is expressed to be so payable or which is expressed to be payable to a particular person without containing words prohibiting transfer or indicating that it will not be transferable.
Open Cheque
They are payable in cash at the counter of the banks to the bearer of the cheque.
Crossed Cheque
These type of cheques are not encashed at the counter but which can be collected only by a bank from the drawer bank. But these days an individual can also draw a crossed cheque for the purpose of safety and security in certain cases.
Bearer Cheque
A bearer cheque is that which can be cashed for the bank by the bearer of the cheque. Any person who is in possession of a bearer cheque can cash it without any difficulty
Section B of the Act defines a cheque as, ‘’A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.’’ A cheque is a bill of exchange but a bill of exchange often is not a cheque. A cheque is always payable on demand. The person drawing or making the cheque must be a customer of the bank and must be having the required find as deposit with the bank.
PARTIES TO A CHEQUE
The parties to a cheque are
Drawer He is the maker of the cheque. He must be the holder of the account at the bank and must sign the cheque as per specimen signature.
Drawee He is the banker with whom the A/C is maintained by the drawer of the cheque.
Payee He is a person named in the cheque to whom or to whose order the payment is to be made.
ESSENTIALS OF A CHEQUE
A cheque must have the following features / essentials.
i. It must be in writing but should not be written by a pencil.
ii. It must be an unconditional order to pay. The drawer must not pay any condition for the payment of cheque.
iii. It must be signed by the person giving it.
iv. Cheque must be drawn upon a banker not else.
v. It must be for the payment of a certain sum of money only.
vi. Amount of money must be written in figures and words.
vii. The cheque must be payable on demand
TYPES / KINDS OF A CHEQUE
Cheque may be of different types. Some of them are
Order Cheque
Order Cheque is a which is expressed to be so payable or which is expressed to be payable to a particular person without containing words prohibiting transfer or indicating that it will not be transferable.
Open Cheque
They are payable in cash at the counter of the banks to the bearer of the cheque.
Crossed Cheque
These type of cheques are not encashed at the counter but which can be collected only by a bank from the drawer bank. But these days an individual can also draw a crossed cheque for the purpose of safety and security in certain cases.
Bearer Cheque
A bearer cheque is that which can be cashed for the bank by the bearer of the cheque. Any person who is in possession of a bearer cheque can cash it without any difficulty
Central Bank - Credit
The modern economy is a credit economy. Credit is the life-blood of modern business. Accordingly control of credit is essential for stability and orderly growth of an economy. There are two types of controls used by the central banks in modern time for regulating bank advances.
i.Quantitive or General Control
ii.Quantitive or Selective Credit Controls
These are discussed below
i. Quantitive or General Control.
The aim of Quantitive Controls is to regulate the amount of bank advances i.e. to make the banks lend more or lend less. Some of the controls are
a. Manipulation of Bank Rate
The bank rate is the rate at which the central bank of a country is willing discount the first class bills. It is thus the rate of discount of the central bank. If the central bank wants to control credit, it will raise the bank rate. As a result the market rate will go up. Borrowing will consequently be discouraged. Those who hold stocks of commodities with borrowed money will unload their stocks, since as a result of the rise in the interest. They will repay their loans thus the raising of bank rate will lead to a contraction of credit.
b. Open Market Operations
The term open market operations in the wider sense means purchase or sale of any kind of papers in which it deals like government securities or any other trade securities etc. In practice this term is used to identify the purchase and sale of government securities by the central bank. When the central bank sells securities in the open market it receives payments in the form of a cheque on one of the commercial banks. If the purchaser is a bank the cheque is drawn against the purchasing bank. In both cases the result is the same. The cash balance of the bank in question which it keeps with the central bank is to that extent reduced with the reduction of its cash the commercial bank has to reduce its louding. Thus credit contracts.
Credit Instruments
i.Quantitive or General Control
ii.Quantitive or Selective Credit Controls
These are discussed below
i. Quantitive or General Control.
The aim of Quantitive Controls is to regulate the amount of bank advances i.e. to make the banks lend more or lend less. Some of the controls are
a. Manipulation of Bank Rate
The bank rate is the rate at which the central bank of a country is willing discount the first class bills. It is thus the rate of discount of the central bank. If the central bank wants to control credit, it will raise the bank rate. As a result the market rate will go up. Borrowing will consequently be discouraged. Those who hold stocks of commodities with borrowed money will unload their stocks, since as a result of the rise in the interest. They will repay their loans thus the raising of bank rate will lead to a contraction of credit.
b. Open Market Operations
The term open market operations in the wider sense means purchase or sale of any kind of papers in which it deals like government securities or any other trade securities etc. In practice this term is used to identify the purchase and sale of government securities by the central bank. When the central bank sells securities in the open market it receives payments in the form of a cheque on one of the commercial banks. If the purchaser is a bank the cheque is drawn against the purchasing bank. In both cases the result is the same. The cash balance of the bank in question which it keeps with the central bank is to that extent reduced with the reduction of its cash the commercial bank has to reduce its louding. Thus credit contracts.
Credit Instruments
CREDIT INSTRUMENTS
Credit Instruments are the documents describing details of credit and debit. Credit Instruments provide a written means fro future reference describing terms and conditions of any debt and loan. Credit Instruments may be an order for payment of money to a specified person or it may be a promise to pay the loan. Credit Instruments generally in use are cheques, bills of exchanges, bank overdraft etc.
KINDS OF CREDIT INSTRUMENTS
There are two broad kinds of Credit Instruments.
1. Negotiable Instruments
According to the negotiable instruments Act under Section 13-A, A negotiable instrument means a cheque promissory note and a bill of exchange which are payable to the bearer of the instrument or the person to be ordered.
Features of Negotiable Instruments
i. It must be unconditional
ii. It must be in writing
iii. It is payable on demand or the period for the payment which is determined.
2. Non-Negotiable Instruments
Non-Negotiable Instruments can not be transferred or the documents which are restricted to transfer by the issuer e.g. Money Order, Postal Order, Shares Certificate etc. Such documents appears at the name of the beneficiary and the payments are made only to those persons to whom the instruments are made payable
CENTRAL BANK
A banking system of a country without a central bank at the top in like a human body without a head. In the words of R.P. Kene ‘’’central bank is an institution charged with the responsibility of managing the entire monetory and banking affairs of the country in the nation’s interest.
The Central bank is generally recognized as a bank which constitutes the apex of its monetory structure, controls, directs and equalates the activities of other banks operating in the economy. A central bank has direct dealings with the governments and other banks. It is a separate branch of banking having distinct functions quite different from other banks. It operates not for profit sake. But with an objective of bring in economic prosperity to the people and ensuring economic stability in the country
Functions of a Central Bank
A Central bank performs many important and essential functions which are described as follows:
MONOPOLY OF NOTE ISSUE
Formerly in certain countries, many banks issued their own notes. This resulted in uncontrolled confusion. Hence, gradually the right of note issue was withdrawn from ordinary banks. Note issue became the sole privilege of the central bank. Today the central bank in every country enjoys the exclusive privilege of bank note issue.
BANK TO THE GOVERNMENT
This functions of a central bank may be studied under the following two heads.
As Banker To The Government
As governments banker, the central bank keep the deposits or banking accounts of government departments boards and enterprises. It advances short term loans to the government in anticipation of collection of taxes or the raising of loans from the public. It also makes extra-ordinary advances during depression, war or other national emergencies.
As An Agent Of The Government
As an agent of the government the central bank is often entrusted with the management of the public debt and issue of new loans and treasury bills on behalf of the government. Moreover the central bank is the fiscal agent to the government and receives taxes and other payments into its account.
The Central bank is generally recognized as a bank which constitutes the apex of its monetory structure, controls, directs and equalates the activities of other banks operating in the economy. A central bank has direct dealings with the governments and other banks. It is a separate branch of banking having distinct functions quite different from other banks. It operates not for profit sake. But with an objective of bring in economic prosperity to the people and ensuring economic stability in the country
Functions of a Central Bank
A Central bank performs many important and essential functions which are described as follows:
MONOPOLY OF NOTE ISSUE
Formerly in certain countries, many banks issued their own notes. This resulted in uncontrolled confusion. Hence, gradually the right of note issue was withdrawn from ordinary banks. Note issue became the sole privilege of the central bank. Today the central bank in every country enjoys the exclusive privilege of bank note issue.
BANK TO THE GOVERNMENT
This functions of a central bank may be studied under the following two heads.
As Banker To The Government
As governments banker, the central bank keep the deposits or banking accounts of government departments boards and enterprises. It advances short term loans to the government in anticipation of collection of taxes or the raising of loans from the public. It also makes extra-ordinary advances during depression, war or other national emergencies.
As An Agent Of The Government
As an agent of the government the central bank is often entrusted with the management of the public debt and issue of new loans and treasury bills on behalf of the government. Moreover the central bank is the fiscal agent to the government and receives taxes and other payments into its account.
Importance of a Bank
IMPORTANCE OF A BANK
The importance of the banking system to an economy no emphasis. A well organized banking system provide liquidity and mobility to the financial resources available in the economy. It helps the economy in the following regards.
1. BRING ECONOMIC STABILITY IN THE COUNTRY
The banks play a prominent role in providing stability to a country economically. It helps in getting out of depression or inflation. During depression the banks follow a cheap money policy and generate money income which pushes up the consumption level and the economy gets price support to reactivate production units and the produced level is enhanced which raises the employment level. The investment rises to stimulate saving and to expand which further increases employment opportunities. Similarly the banks specially the central banks take certain measures to control inflation in the economy. The central bank through it is well adjusted monetory policy stablises the internal price level and thus facilitates economic & development in the country.
2. CO-ORDINATION AMONG ALL THE UNITS
The banking system maintains a coordination among all the units which are engaged in banking functions. It consists of collecting of surplus money from the people and lending them to the entrepreneurs who utilize it for productive purposes.
Creating a country wide circulation of money through remittance facilities.
Activating idle money to make them productive
Provide finance by credit accommodation to different sectors of the economy.
3. ENCOURAGE SAVING
The banks encourage saving by providing safe custody and making it a source of income to the persons who save. The people having surplus money arising out of saving, deposit it with the banks. The banks pay them interest and get them relief from burden of safety and other risks
The importance of the banking system to an economy no emphasis. A well organized banking system provide liquidity and mobility to the financial resources available in the economy. It helps the economy in the following regards.
1. BRING ECONOMIC STABILITY IN THE COUNTRY
The banks play a prominent role in providing stability to a country economically. It helps in getting out of depression or inflation. During depression the banks follow a cheap money policy and generate money income which pushes up the consumption level and the economy gets price support to reactivate production units and the produced level is enhanced which raises the employment level. The investment rises to stimulate saving and to expand which further increases employment opportunities. Similarly the banks specially the central banks take certain measures to control inflation in the economy. The central bank through it is well adjusted monetory policy stablises the internal price level and thus facilitates economic & development in the country.
2. CO-ORDINATION AMONG ALL THE UNITS
The banking system maintains a coordination among all the units which are engaged in banking functions. It consists of collecting of surplus money from the people and lending them to the entrepreneurs who utilize it for productive purposes.
Creating a country wide circulation of money through remittance facilities.
Activating idle money to make them productive
Provide finance by credit accommodation to different sectors of the economy.
3. ENCOURAGE SAVING
The banks encourage saving by providing safe custody and making it a source of income to the persons who save. The people having surplus money arising out of saving, deposit it with the banks. The banks pay them interest and get them relief from burden of safety and other risks
KINDS OF BANKS
Some important types of banks are as follows
i. Central Banks.
This bank is of great significance in the banking system of a country. Central Bank is considered as the Bank of government and directly or indirectly control the activities of all the banks operating in the country. State Bank of Pakistan is the central bank of Pakistan.
ii. Commercial Bank
This is another most important type of the banking system. It is main function is to receive deposits, advance loans and discounting of bills.
iii. Industrial Bank
These type of banks provide loans to industries. Generally these banks advance loans for long periods.
iv. Agricultural Bank
The main functions of these banks is to provide loans for long and short periods to the agriculturists. Long period loans are used for acquisition of and improvement of land while short period loans is used for purchasing seeds manures and for current expenditure.
v. Exchange Bank
These banks deal in foreign currencies in the form of bill of exchange, drafts, telegraphic transfers etc. They buy and sell foreign currencies.
vi. Saving Bank
Saving Banks provide incentives to people of small means to save money. These banks provide monetary facilities to the people.
vii. Land Mortgage Banks
These banks are meant to provide loans to agricultural by mortgaging their lands. An agricultural has to mortgage his his land if he wants to take loan from this particular type of a bank.
viii. Co-Operative Bank
Such type of banks are usually run by co-operative societies through its members. These are non-scheduled banks. They are meant for the benefits of the society and its members
i. Central Banks.
This bank is of great significance in the banking system of a country. Central Bank is considered as the Bank of government and directly or indirectly control the activities of all the banks operating in the country. State Bank of Pakistan is the central bank of Pakistan.
ii. Commercial Bank
This is another most important type of the banking system. It is main function is to receive deposits, advance loans and discounting of bills.
iii. Industrial Bank
These type of banks provide loans to industries. Generally these banks advance loans for long periods.
iv. Agricultural Bank
The main functions of these banks is to provide loans for long and short periods to the agriculturists. Long period loans are used for acquisition of and improvement of land while short period loans is used for purchasing seeds manures and for current expenditure.
v. Exchange Bank
These banks deal in foreign currencies in the form of bill of exchange, drafts, telegraphic transfers etc. They buy and sell foreign currencies.
vi. Saving Bank
Saving Banks provide incentives to people of small means to save money. These banks provide monetary facilities to the people.
vii. Land Mortgage Banks
These banks are meant to provide loans to agricultural by mortgaging their lands. An agricultural has to mortgage his his land if he wants to take loan from this particular type of a bank.
viii. Co-Operative Bank
Such type of banks are usually run by co-operative societies through its members. These are non-scheduled banks. They are meant for the benefits of the society and its members
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