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What is banking 


is an organisation which accepts deposits from public repayable on demand or otherwise for the purpose of lending and investment.

What is a Banking Company ?
Any company, which transacts the business of banking defined above is termed as Banking company and in INDIA these are regulated by BANKING REGULATION ACT AND RBI ACT.


A customer is a person who maintains a regular account with the bank

without taking into consideration the duration and frequency of operation

of his account. 

To be a customer for any bank the individual should have an account with

the bank. The relationship between banker and customer is of utmost





The relationship between a banker and a customer arises from a contract.

Fundamentally speaking, it is the relationship of debtor and creditor, the

respective positions being determined by the state of the account.

However, in relation to other services rendered by banker, he is

sometimes an agent of the customer, for example, collection of cheques,

sale of securities, etc., bailee in relation to the safe custody of valuables;

and trustee when he is entrusted with property to be administered for the

benefit of a named beneficiary.


Relationship of Debtor and Creditor


When a customer opens a deposit account and deposits money in it, by

this way he lends it to the banker and the banker can use it according to

his discretion .

In this case, the relationship that is created between the banker and the

customer is that of debtor and creditor. The banker is the debtor and the

customer is the creditor.

Lending money to the customer: When a bank sanctions a loan to a

customer, the relationship between the two is that of the creditor

(bank)and the debtor(customer).



Relationship of Trustee and Beneficiary


another type of relationships is that of trustee and beneficiary.


Banks provide services under which the customers can keep their

valuables like jewellery, share certificate etc. in safe custody of the bank.

The customer remains the owner of such valuables though they are in the

custody of the banker. In this case the banker acts as trustee and the

customer is the beneficiary.



Relationship of Bailee and Bailor


When the customer keeps his valuable in the safe custody of the banker,

the banker besides acting as trustee also acts as bailee. In that case the

customer becomes the bailor. If the customer (bailor) suffers any loss due

to the negligence of duty on the part of the banker (bailee), the customer

can file a case in the court of law for the recovery of such loss.


Relationship of Agent and Principal


IN the agency functions of banks , banks acts as agents. They collect

cheques, bills, drafts etc. on behalf of the customer.


While performing theses functions the bank acts as the agent of the

customer and the customer is the principal. 

The banker (agent) performs the functions according to the instructions of

the customer (principal) and for this the banker is entitled to get

commission from his principal.



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  1. What type of questions can be raised from you on the basis of your profile?
  2. How to attempt your answers during interview?
  3. What are the expectations of selection board?
  4. How you can present your skills in live interview situation?
  5. What to read, what not to read?
  6. How to prepare for interview?
  7. How to cover one's weaknesses?
  8. How to improve confidence level?

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  • You may call at 09811340788 or 011-22242640  between 3 P.M. to 8 P.M..
  • Candidates can avail facility of telephonic sessions.



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I.P Extension , PATPARGANJ, DELHI,  110092



 Types of deposit accounts are:

 Current Accounts,

Saving Banking Accounts,

Recurring Deposits

and, Fixed Deposits.

 Current Account : 
Current Accounts are used by business concerns to route their sales. 

There is no limits for number of transactions or the amount of transactions in a day.

No interest is paid by banks on these accounts.

 Banks levies certain service charges, on such accounts.

 Savings Bank Account :
These deposits accounts are opened by individuals.

These accounts carry specific interest that is payable by banks. this varies from bank to bank.

Number of transactions are also limited.

Nominal interest is paid on the balance in the account.

The depositor has the freedom to withdraw the amount deposited as and when he/she desires, however there are restrictions on the number of withdrawals over a period of time.
The interest on such deposits is calculated on daily product basis. 

 Recurring Deposit Accounts :

These accounts are opened for a fixed period.

customers has to deposit a fixed amount every month.

rate of interest is same as applicable on fixed deposits.

normally opened from 6 months to 120 months period.


The customer deposits a lump sum amount at one go for a fixed period.

it can be for 7 days to 10 years.

pre mature payments allowed.

these accounts carry fixed rate of interest.

rate of interest varies from bank to bank.


Deposit Accounts
As per Banking Regulations Act, Banking is accepting of money for the purposes of lending , investment and the money so accepted is payable on demand or otherwise.Thus Bank deposits can be broadly classified in to:

(1) Demand deposits
(2) Time /Term deposits

Demand deposits: -

Demand deposits are those deposits, which can be withdrawn on demand. Saving bank, current account and overdue deposits fall under this category. Customers having these accounts can withdraw their deposit s from the account at any time they desire.

Time/Term Deposits: - 

Deposits, which are not payable on demand, are known as term or time deposits. "Term Deposits" or “Fixed Deposits” are deposits, where the depositor makes a lump sum deposit at one time for a fixed term and receives payment in future after the period for which the deposits have been kept. Rate of interest is contracted at the time of opening the account. Such deposits generally carry comparatively higher rate of interest depending on the time span In case a depositor wants prepayment i.e. payment before the due date, the amount is paid after leaving penalty.


Difference Between Saving and Current Account
The difference between saving and current account is discussed as follows:
1. Meaning
Saving account is opened by
Resident Individuals (either singly or jointly), Associations, Trusts, Hindu Undivided Families (HUFs), Clubs, Societies etc. Institutions specially permitted by RBI. for the purpose of saving a part of their income.
Current account is opened by
Individuals,joint account, sole proprietary concerns,partnership concerns,HUFs, COMPANIES,Association of persons,society,trusts,body co-operatives,charitable and other institutions. for business transactions.
2. Purpose
The main purpose of opening a saving account is to save an amount.
The main purpose of opening a current account is to facilitate regular business transactions.
3. Operated by
Saving account is operated by
Resident Individuals (either singly or jointly), Associations, Trusts, Hindu Undivided Families (HUFs), Clubs, Societies etc. Institutions specially permitted by RBI.
Current account is operated by
Individuals,joint account, sole proprietary concerns,partnership concerns,HUFs, COMPANIES,Association of persons,society,trusts,body co-operatives,charitable and other institutions. 
4. Interest Rate
The saving account earns a nominal rate of interest. At present, it is about 4% p.a. (in India).(VARIES FROM BANK TO BANK)
Normally, banks do not pay interest on current account.
5. Minimum Amount
The saving account can be operated with lesser amount.(may be Rs 500/= or even Zero )
To open current account more amount is required.(may be Rs 1000/=)





Brief features of the product:

  • Individual (singly or jointly) with others.
  • Minor who have attained the age of 10 years and above in his/her own name on giving proof of age.
  • Minors below the age of 10 years under guardianship of Natural/legal guardian.
  • Proprietorship/Partnership Firm, Commercial Organization, Company / Corporate Body
  • Hindu Undivided Family
  • Association, Club, Society, Trust or Religious/Charitable Educational Institutions,
  • Municipality or Panchayat, Government or Quasi-Government body.
  • Illiterate and blind persons can also open accounts. 
  • 100/- and in multiples thereof

Terms & Conditions:

  • Period of RD - 6 months to 120 months in multiple of 3 months
  • Premature withdrawal is allowed. 
  •  TDS is applicable.
  • Withdrawals on maturity or one month after deposit of last installment, whichever is later.
  •   Generally loans/overdrafts against deposits are allowed.
  •   Interest on overdue deposit is paid as per prevalent policy of the bank from time     to time.
  •   Interest on bank deposits is exempt from income tax up to a limit specified by 
      Income Tax authorities from time to time.




1. Order Cheque : A cheque which is payable to a particular person or his order is called an order cheque.


2. Bearer Cheque : A cheque which is payable to a person whosoever bears, is called bearer cheque.


3. Blank Cheque : A cheque on which the drawer puts his signature and leaves all other columns blank is called a blank cheque.


4. Stale Cheque : The cheque which is more than three months old is a stale cheque.


5. Mutilated Cheque : If a cheque is torn or broken , it is termed as mutilated cheque.


6. Post Dated Cheque : If a cheque bears a date later than the present date, it is termed as post dated cheque.


7. Open Cheque : A cheque which has not been crossed is called an open cheque.


8. Crossed Cheque : A cheque which carries two parallel lines across the face of the cheque , is called crossed cheque.


What are Brown Label ATMs
Description and Meaning of Brown Label ATMs :
'Brown label' ATM are those Automated Teller Machines where hardware and the lease of the ATM machine is owned by a service provider, but cash management and connectivity to banking networks is provided by a sponsor bank whose brand is used on the ATM.
The `brown label' has come up as an alternative between bank-owned ATMs 

Electronic Clearing Service (ECS)

ECS is an electronic retail payment system for making bulk and repetitive payments such as payment of dividend, interest, salary, pension, etc., or for collection of amounts pertaining to payments to utility bills like telephone, electricity, house tax, water tax, etc or for loan installments of banks / financial institutions or regular investments of persons from one account to many accounts or vice versa. BANKNET and INFINET facilitate payment from a single account maintained in a bank branch to any number of accounts maintained with the branches of the same or other banks.


There are two types of ECS- ECS (Debit) and ECS (Credit). ECS (Credit) is used for affording credit to large number of beneficiaries by raising a single debit to an account. Institutions which have to make payment to large number of beneficiaries prepare payment data on a magnetic media (CD/Floppy) and submit the same to their banker along with an authority to the clearing house to debit their account with the bank and credit accounts of beneficiaries at the destination with their banks.

ECS (Dr/CR) has helped in eliminating unavoidable paper instruments in respect of large volume, but relatively small value payments of repetitive nature.

The clearing house advices the details of beneficiary to the service branch of the respective banks at the destination. The bank in turn credits the accounts of the beneficiaries. Un-credited items are reported back to the clearing house of the destination bank, which passes the information to the remitting bank.

Destination bank branches have been directed to afford ECS Credit free of charge to the beneficiary account holders. Banks charge a fee from their customers for using this facility.

ECS Debit Clearing: 

A customer can make payment of the bill of the utility services either through cash or by means of cheque or by directly crediting the bank account of the service provider by getting his account debited with his bank.
Those business organisations which periodically raise bills in respect of the utility services provided by them such as telephone bills, electricity bills, water bills, repayment of loan instalments etc., use the mode of ECS (Debit). The organization desirous of participating in ECS has to get himself registered with the clearing house. 
Accounts of customers of the utility company in different banks are debited and amounts are transferred to the account of the utility concern. 
For availing this facility, the consumer has to give an application (mandate) to the service provider to debit his bank account with the amount of the bills at regular intervals. The mandate is submitted along with photocopy of a blank cheque (duly marked as cancelled) to the service provider who submits the same to his bank. The blank cancelled cheque facilitates the banker to know the city code, bank code, branch code and transaction code of the mandatee from which the bill amount is to be deducted. 
Once the mandate of the customer is registered by the bank (consumer’s bank), the service provider’s bank (utility company/firm) advises its counterpart to debit the account of the utility bill. The service provider also sends a copy of the bill to the customer for information. Accounts of customers availing utility services (maintained in different banks) are debited and account of service providers credited. ECS (Debit) works as a standing instruction. 


ECS (Debit) is advantageous to the service providers, customers and to the bank.

To the service provider (Institution): Funds are credited in the account in one go. It saves the botheration of depositing cheques. Time involved in getting the cheques cleared and account getting credited is saved. It helps in proper management of funds.
To Customers: Customer is relieved of the botheration of keeping a track of the bills as ECS ensures timely payment of utility bills.
To Banks: Banks save expenses on printing of cheques on security paper and from the botheration of handling large volume of cheques in clearing.

ECS Credit Clearing:

ECS Credit is used for making bulk payments from a bank account to a large number of beneficiaries by directly crediting their bank accounts. The facility is used for making payment of dividend to investors, interest on deposits, payment of salaries of employees etc. The account of the institution remitting the payment is debited and accounts of beneficiaries’ with banks are credited through the clearing system.
The company or entity making payment has to have the details of bank accounts of individual beneficiaries. The company or entity obtains a mandate or letter of authority from the beneficiary containing all relevant details e.g., bank, branch, account number, MICR code of the destination bank branch etc.
The institution making payment has to get it registered with the ECS centre and has to give a mandate to debit its account maintained with his bank i.e. the sponsor bank. In case of any change in the bank or account number etc., the beneficiary has to inform the institution and submit another mandate.
The duly encrypted input data received from the sponsor bank on behalf of the user (client) is supplied to the National clearing cell / clearing house for processing. It is also provided to the banks at the destination and to the deposit account department of RBI/clearing agency for settlement. 
The clearing house debits the account of the organisation maintained with the sponsor bank on the appointed day and credits the accounts of the recipient banks, for affording credit to the accounts of the ultimate beneficiaries. The accounts of beneficiaries are thus directly credited through the clearing system. In case credit could not be afforded to the account of beneficiaries the reverse process starts on the second day. 
The securities market regulator (SEBI) has also issued guidelines to investors to furnish details of bank account in the share applications for printing the same on the physical interest / dividend warrants.

Advantages: ECS (Credit) is advantageous to the service providers, customers and to the bank.

(i) To the paying institution: Availing ECS credit facility is advantageous to the institution.The organisation making payment saves the cost of printing payment warrants for each beneficiary. The cost on mailing payment warrants is saved. Even the chances of loosing payment warrant in transit are eliminated. The chances of frauds due to loss/pilferages of instruments in transit are also eliminated. The organization is able to mange funds properly.
(ii) To Customers: Availing ECS credit facility is advantageous to customers, as account is directly credited. Time involved in clearance of instrument is eliminated. Necessity of visiting branch exclusively for depositing cheque is obviated. Chances of theft of physical instrument in transit are eliminated. 
(iii) To Bank: Availing ECS credit facility is also beneficial to the bank. Banks burden in processing of large number of cheques/warrants is reduced. Bank can make use its staff for other productive purposes. Payment processing by destination banks becomes smooth and easy once a database is prepared, maintained and updated by the user institutions.

‘National Electronic Clearing Service (NECS)’ 

NECS is the nation wide centralised version of ECS system.The Reserve Bank of India launched ‘National Electronic Clearing Service (NECS)’ with effect from 29.09.2008. The system facilitates centralised processing for repetitive and bulk payment instructions.
Institutions desirous of availing NECS facility have to get themselves registered with the clearing house. NECS has no restriction of centres in the country. As per the guidelines, branches participating in NECS have to be core-banking-enabled. The system takes advantages of centralised accounting system in banks. All CBS bank branches irrespective of their location participate in the system. 
The Sponsor bank submits NECS data at Mumbai (single centre) where transactions are processed for the whole of India. This facilitates sponsor banks (the bank who acts as the agent of the user i.e. companies/corporations/Government Departments or any other entity using NECS services) in submitting ECS files centrally at Mumbai.

Types of NECS:

NECS have two variants NECS (Credit) and NECS (Debit). The NECS (Credit) facilitates multiple credits to beneficiaries’ account at bank branches spread across the country against a single debit of the account of a user with the sponsor bank. The NECS (Debit) facilitates multiple debits to destination account holders against single credit to user account.
The account holder has to give a mandate in triplicate (Original for the bank, one copy for the user company and one for the customer) to the user institution for debiting and effecting payment from the account. The mandate contains:

o 9 Digit Code numbers of Bank and Branch.
o Type of account number with code. (SB/Current/ Cash Credit) -10/11/13 Account Number
is an essential field in the data record.
o Ledger No. / Ledger Folio No.

The Scheme:

The scheme covers bulk payment transactions like payments of interest/ salary/ pension/ commission/ dividend/ refund or bulk collection of utility bills/insurance premium/school fee/ loan installments, etc., by companies /corporations /government departments and such other entities.
NCCS / Clearing Houses, have the discretion to accept the lower volume of transactions. The Sponsor bank acts as the agent of the user, and uploads the NECS data on to the web-server of the designated agency/Clearing House (CH) at Mumbai. All files uploaded on the web server are subjected to final validation for determining whether the file can be accepted or not. The validation is done with reference to the User name, User number, Sponsor Bank Branch sort code and other parameters. 
When an input file passes through the test validation in the web server, an output report in the form of Data Validation Report (DVR) is printed by the sponsor bank. Once the test DVR is confirmed, the settlement process begins at Clearing House. The Sponsor Bank and the users have to preserve the output data/file for a minimum period of 3 years. Settlement under NECS is final and irrevocable as defined in Sec.23 of the ‘Payment and Settlement Act 2007’. Therefore, withdrawal /modification of file/record are not permitted.

 A Hindu Joint Family or Joint Family or Hindu Undivided Family


The meaning of Hindu Undivided family is defined under the Hindu law. According to this law it is a family that consists of persons lineally descended from a common ancestor.HUF consists of father, sons and daughters and wives.



’Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually “partners” and collectively a “firm”, and the name under which their business is carried on is called the “firm name”.


Limited Liability Partnership (LLP) :

limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence.

  1. Different Types of Bank Customers
  2. Accounts of Minors:

Who is a Minor?

As per Sec3 of “Indian Majority Act, 1875,” every other person domiciled in India shall be deemed to have attained his majority when he shall have completed his age of eighteen years and not before”. Thus a ‘Minor’ is a person who has not completed the age of eighteen years.

Where a legal guardian is appointed by a court of law the person attains majority on completion twenty-one years of age and not before (Sec3 of Indian Majority Act, 1875).

According to the Indian Contract Act, 1872, a minor is not capable of entering into a valid contract and a contract entered into by a minor is void.

A minor after attaining majority cannot ratify the contract made by him during his minority since agreement made by him as a minor is void.

Who is a Guardian? 
As per Sec.4 of “ The Guardians And Wards Act, 1890” "guardian" means a person having the care of the person of a minor or of his property or of both his person and property.
Guardians may be categorized into following three types:
(i) Natural guardian,
(ii) Testamentary Guardian: -Guardian appointed by the will of the minor's father or 
(iii) Guardian appointed by a court under the Guardians and Wards Act, 1890. 

Natural Guardians in Different Religions: 
a) Hindu 
According to Sec.6 of Guardians and Wards Act, 1890,the natural guardian of a Hindu minor, in respect of the minor’s person as well as in respect of the minor’s property (excluding his or her undivided interest in joint family property), are-
(a) In the case of a boy or unmarried girl- the father, and after him, the mother, 
provided that the custody of a minor who has not completed the age of five 
years shall ordinarily be with the mother;

(b) In the case of illegitimate boy or an illegitimate unmarried girl- the mother, 
and after her, the father;

(c) In the case of married girl -the husband: 

(Note: The expression “father” and “mother” do not include a step- father and a 

b) Muslim: Under the Mohammedan Law, father is the natural 
guardian of the property of a minor. A mother of a Muslim minor is not a natural 
guardian of her child. 
A Muslim minors natural guardian in the order of preference is as under:
oExecutor appointed by father’s will 
oExecutor appointed by grandfather’s will 
oIf there is no guardian from any of the four categories mentioned above, 
then guardian will have to be appointed by the court.

c)Christians & Parsis:
The natural guardian of a minor child is father during his lifetime and after him, the mother. In respect of child born out of wedlock registered under “The Special Marriage Act, 1954” the Guardian and Wards Act, 1890, govern guardianship.

2. Accounts opened by Illiterates:
Those who are unable to sign but use thumb impression are illiterates for banks.

Illiteracy does not make a person incompetent to contract.

Therefore an illiterate person can open and operate a bank account.

However, banks do not open current account of illiterate person.

For opening an account the person has to come to bank personally along with a witness who is known both to the depositor and to the bank. While opening an account banks obtain left hand thumb impression of illiterate men and right hand thumb impression of illiterate female.

The thumb impression is obtained in the presence of a person known to the bank and the depositor. 

The thumb impression is to be witnessed by a customer of the bank and noting to this effect is done (left/right thumb impression of Mr./Ms. affixed in my presence).

Photograph of the account holder is obtained which is affixed on the ledger folio, account opening form and pass book. 

Normally, no chequebook is issued to the account holder. The account holder has to come to the bank for operating the account. After proper identification banks pay the amount to the account holder. All other terms and conditions applicable for opening an account also apply in this case. Banks are required to explain the terms and conditions governing the account to the illiterate. 

3. Opening of Accounts by visually impaired (blind) person:
A blind person is legally competent to enter into a contract or to open and operate an account. The risks in case of such an account arises due to the physical inability of the person to see. For opening an account, the person has to personally come to the bank along with a witness known to both the depositor and the bank. 

While there is no legal provision for the appointment of a guardian of a blind person, banks prefer a properly constituted attorney to operate the account on behalf of the accountholder. Attested copies of the photograph of the blind person are obtained (attested by someone well known to the branch) and a copy of each is affixed on the account opening form/specimen signature card, ledger folio and pass book. Both the signature and thumb impression of the blind person are obtained on the specimen signature card along with the signatures of witnesses known to the bank. A rubber stamp indicating that the accountholder is a blind customer, is affixed on the account opening form, specimen signature card, ledger folio, pass book, paying- in-slip, withdrawal form, chequebook etc. This enables bank officials in exercising caution in the transactions with the blind customers. Bank is required to explain the terms and conditions governing the account to the blind person. In general the blind customers are given special attention whenever they come to the bank. 
o While opening an account the blind person has personally to come to bank. 
o He can open all types of accounts either singly or jointly with any other 
person, which he considers to be reliable. 
o While opening the account, rules, regulations, terms and conditions are read 
out and explained to him in the presence of a witness and the signature of 
the witness of having done this is obtained on the account opening form. 

4. Accounts of Hindu Undivided Families (HUF):
The Hindu Succession Act 1956 governs HUF. The HUF carries out ancestral business and possesses ancestral properties. 

As per Hindu Law two schools of thought, Dayabhaga and Mitakshara govern Hindu undivided family.

In west Bengal Dayabhaga is followed and in the rest of the country Mitakshara is followed.

In Dayabhaga the father acquires absolute right and sons do not acquire any right by birth in Mitakshara a male member acquires the right by birth.

Female members are not co-parceners except in Tamil Nadu and Andhra Pradesh.

The eldest male member is called as a Karta and all other male members are called as co-parceners.

The right to manage HUF property vests in the 'Karta' of the family.

Karta is either the father or the senior most male member of the family. All other male members are called coparceners.

In the interest of the family and family business, only the Karta can create a charge over the ancestral property. However, he cannot make a contract, which binds the other member personally. Other members are responsible to the extent of their share in the ancestral property. 

HUF is not dissolved In the event of death of one of the members of the joint Hindu family. It differs from the partnership firm as on the death of one of the partners, the firm is dissolved. On the death of karta the senior most co-parcener becomes karta.
A coparcener continues to be a member of HUF, even after his migration outside India and acquiring status of NRI or taking citizenship of another country. 

If the Karta himself migrates, an alternative Karta of the HUF is appointed by the HUF with consent from all coparceners.
Opening of Account of HUF:
The account is opened in the name of the Karta and family business. The Karta and all the adult members of the HUF are required to sign the account opening form. Banks do not open Savings Bank account of HUF engaged in trading and business activities
Operations in account:
The operations in the account are normally restricted to Karta of the family. The Karta can appoint any of the adult coparceners to operate the bank account as 'Manager' if HUF carries out business at various places through its branches. 

HUF accounts can also be operated by coparcener and /or other adult members of HUF also, against a letter of authority and against a stamped letter of indemnity cum undertaking give by the Karta. Since female members in an HUF are not coparceners, they cannot be authorised to operate bank account. If there is no adult coparcener, a mother is allowed to manage the property of HUF and operate the account. 

5. Account of Sole Proprietary Concerns:
Banks do not open savings bank account in the name of a proprietorship firm but open current account in the name of the sole proprietary concerns.

Accounts in the name of a sole proprietary concern are treated like individual accounts.

The account can be operated either by the proprietor himself or by a person duly authorised to operate the account on his behalf. Banks exercise caution while accepting cheques drawn in favour of the sole proprietary concern and deposited in personal account of the proprietor. 

When the sole proprietor of the firm deposits cheque payable to the firm for credit of his personal account bank obtains a declaration from him to the effect that he is the sole proprietor of the firm. 

6.Accounts of registered societies, clubs and Associations:
A club or a society gets legal entity only when it is incorporation under Company’s Act, 1956 or under Cooperative Societies Act, 1860. Bye laws of the society, clubs, and association contain rules, regulations or conduct and activities of the association. While opening account banks obtain:
o Copy of the bye laws; 
o Copy of resolution passed by the managing committee regarding opening and 
conduct of account, 
o Certificate of registration in original, 
o A list of the Managing Committee members 
o Copies of resolutions electing them as Committee members duly certified by 
the Chairman 
Bank keeps a copy of the above-mentioned document for its record. 

7.Account of Partnership Firms:
According to Section 4 of the Indian Partnership Act, a partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. 

The Supreme Court has held that the word "persons" in Section-4 contemplates only natural or artificial persons i.e., legal persons. Since a firm is not a person, is not entitled to enter into partnership with another firm or Hindu undivided family or individual.

Therefore, banks do not open account where a firm is a partner in another firm. As Joint stock companies and statutory bodies constitute "artificial or legal persons" therefore, they can be partners in a partnership firm.

As per the Indian Partnership Act, minimum number of partners can be two and maximum twenty. The number of partners is restricted to 10, if the partnership firm carries out business of banking. Minors can be admitted as partner only to the benefits of the partnership.

Registration of partnership firm:
A partnership firm can be registered with Registrar of Firms. However, as per law, it is not compulsory to register a partnership firm. Non-registered partnership firm have certain disabilities. Such firms cannot sue others to enforce a right arising out of a contract. A suit filed by an unregistered partnership firm is not maintainable, even after its subsequent registration. Even partners of an unregistered firm cannot sue other partners or his firm, for their rights.

Opening of Account:
A partnership firm can open all types of accounts except savings bank account. Bank opens account of a partnership firm in the name of the firm and not in the names of partners individually or jointly. The account opening form is signed by all the partners in their individual capacity as well as in the capacity of a partner to ensure joint and several liabilities. While opening the account banks verify the partnership deed to examine whether any clause of the deed is detrimental to the interest of bank. Since bank would not like to be bound by the terms of the partnership deed, banks do not accept the partnership deed even if offered. 
In case of registered firm, banks obtain registration certificate. The account is opened in the name of the firm and all the partners are required to sign account opening form. 
Operations in account:
Bank obtains operational instructions i.e. who will operate the account and how it is to be operated. In case a minor is also a partner in the firm his birth certificate is obtained to ascertain the date of birth, which is recorded in the account opening form.
Who can operate?
o All partners jointly 
o One of the named partners 
o Two / three of the named partners 
o A third party under a mandate letter or a power of attorney signed by all 
the partners. 
A partner authorised to operate the firm's account cannot delegate his authority to another person unless all other partners agree. The authority given to operate the account can be withdrawn by any of the other partners including dormant or sleeping partner by giving notice to the bank. Each partner, whether he/she is operating the account or not, has powers to countermand payment of the cheques drawn by another partner or by an attorney on behalf of the firm.

Partnership firms with illiterate partners:
Current accounts of partnership firms, where a partner is illiterate and affixes thumb impression, can be opened provided a Magistrate attests the thumb impression affixed on the account opening form.

Implied authority:
A partner acts as an agent of the firm for the purpose of the business of the firm. He binds the firm and also other partners by his acts. An authority to bind the firm by his acts is called the implied authority of a partner.

Operations in the accounts:
Without proper inquiry with the other partners, bank does not accept cheque drawn in favour of the firm for credit to the personal account of a partner. Failure to make proper inquiries would deprive the bank of the protection afforded under Section-131 of the Negotiable Instruments Act on grounds of negligence. Cheques payable to a partner are not be credited to the firm’s account without proper inquiry being made with the other partners. 

Retirement of a partner:
On notice of retirement of a partner, the bank closes the existing account and opens a new account of the firm with the remaining partners or along with the new partner if admitted to the new firm. 

Death of a partner:
o Death of a partner dissolves the partnership. However, for the purpose of 
winding up of the firm, the bank may allow the surviving partner(s) to 
operate the firm's account, if the account is in credit. 
o Cheques drawn by a partner before his death and presented for payment are 
honoured after obtaining confirmation of the surviving partners.

Dissolution of a partnership firm:
Dissolution of a firm amounts to the breaking up of relation of partnership between all the partners. In the event of dissolution banks do not permit operations in the account. A partnership firm may be dissolved by any of the following modes
(a) By mutual agreement between all the partners.
(b) By notice of dissolution in case of partnership at will.
(c) By operation of law or compulsory dissolution of the firm.
(d) By happening of certain contingencies such as death or insolvency of a partner.
(e) Dissolution by Court of Law in cases like insanity, permanent incapacity, 
misconduct of a partner affecting business etc.

8.Accounts of Co-Operative Societies & Co-Operative Banks:
Co-operative institutions are authorised to open accounts under the Cooperative
Societies Act only with banks, which are recognised for the purpose.

 While opening the account, the bank should call for the following documents:
(i) Certificate of registration of the society or the Bank;
(ii) Certified copy of the bye laws of the society or the Bank;
(iii) Resolution of the managing committee appointing the Bank as its banker and 
stipulating the conditions for the conduct of the account.
(iv)List of members of the managing committee with the copy of the resolution 
electing them to the committee.
In case of accounts of co-operative banks, bank obtains a copy of the licence issued by RBI.
9.Accounts of Joint Stock Companies:
A joint stock company is constituted under company Act 1956.

Company is an Artificial person’ with perpetual succession. It is a voluntary association of persons formed for some common purpose with capital divisible into parts known as share. It has separate legal entity and corporate personality. It is separate from the shareholders constituting it.

The company can own assets; contract debts and can sue and be sued in its own name. The property of the company is not the personal property of its shareholders nor the company's liability is the liability of its shareholders/directors, unless they consent to be personally liable for the company's debts.

Company can be classified into three categories: 
1.Public Ltd. Co.: 
It can issue shares to public. 
Minimum number of shareholders required is 7. 
There is no restriction in the maximum number of shareholders. 
Shares can be freely transferred. 
Minimum number of directors required is 3 
Requires certificate of commencement of business.

2.Private Ltd.Co.:
It can not issues shares to public.
Shares are not freely transferable. 
Minimum number of shareholder required 2 and maximum number of share holders can 
be 50.
Minimum number of directors required 2.
It does not require certificate of commencement of business.

3.Government Co.:
A company where not less 51% of the share capital is held by the government.

Depending upon the liability of shareholders the Company it may be limited or 

Documents required for opening an account:
1. Account opening form
2. Certified copies of memo of association and articles of association
3. Copy of certificate of incorporation
4. Certificate of commencement of Business 
5. Up-to-date list of directors with name and address
6. Certificated copy of a resolution of the Board of directors for opening and 
conducting the account.

Documents obtained by bank:
For opening an account of a joint stock company bank obtains following documents:
(i) Certificate of incorporation:
The Registrar of Joint Stock Companies issue this certificate. It is a 
conclusive proof that all the requirements under the Companies Act have been 
complied with.
(ii) Certificate of commencement of business:
This certificate is essential in the case of public limited companies. A 
public limited company cannot borrow until this certificate is obtained. 
(iii) Memorandum and Articles of Association:
The bank obtains a certified copy of the Memorandum and Articles of Association 
of the company to satisfy that the conduct of the account is in conformity with 
the provisions. Certificates signed by the Chairman or one of the authorised 
directors of the company stating that the Memorandum and Articles of Association 
are true and up-to date.
(iv) Board Resolution:
A copy of the resolution of the Board of Directors of the company, certified as 
true by the Chairman of the meeting, requesting the Bank to open an account in 
its name and specifying the instructions regarding the conduct thereof, is 
obtained. Instructions in the resolution regarding conduct of the account have to 
be in strict conformity with the provisions of company’s Articles of Association. 
The resolution is to be countersigned either by the company's secretary or any of 
the other directors.
(v) List of the present directors:
A list of the present directors of the company is obtained under the signature of 
the Chairman, accompanied by a certified copy of the resolution of the general 
body of the shareholders appointing them as directors. 
(vi) Reference to the company's previous bankers:
Banks also ascertain the names and addresses of the company’s previous bankers, 
if any, and get a report on the company and its directors and keep it along with 
the account opening form.

Memorandum of Association:
The memorandum of association contains name and address of the registered office of the company, name and addresses of the directors, objectives and powers of the company. Any act done or contract entered into by the company, which is outside the scope of these objectives becomes ultra vires (i.e. beyond the powers of the company) and, therefore, is not binding on it. 
The Memorandum and Articles of Association of the company is studied to find out the extent of the powers of its directors, its powers to borrow and mortgage property or to give guarantees and the provisions relating to the conduct of its bank accounts.

Articles of Association:
The Articles of Association contain the rules regulations regarding company's internal affairs. 

Conversion of cheques payable to companies:
Cheques payable to or endorsed by limited companies should not be collected for the personal accounts of their directors, managers and other employees. Ordinarily, cheques payable to limited companies are to be credited to company’s account.

Insolvency of a director:
In case one of the directors becomes insolvent or an un-discharged bankrupt, he cannot act as a director of a limited company. The bank does not permit operations in the account by the insolvent director. 

Winding up of a company:
Winding up of a joint stock company is deemed to have commenced from the date on which petition for such winding up is presented, or in the case of voluntary winding up from the date on which an extra ordinary resolution to this effect is passed. With commencement of winding up of a joint stock company, the Directors cease to have powers to operate on the account and the authority stands vested with the liquidator appointed for the purpose. Therefore banks do not pay cheques signed by the directors after the commencement of the winding up proceedings. Liquidator should furnish evidence of his appointment by sending a certified copy of the Court Order, or a certified copy of the resolution of the general body in case of a voluntary winding up. If required, he may be furnished with details of the company's accounts, securities etc., and should be allowed to operate upon the accounts of the company only for the purpose of winding up of its affairs. 

10.Accounts of Private Companies:
A private limited company is a company, which have a minimum 2 and maximum 50 shareholders. Shares of these companies are not sold in the public and cannot be transferred. Banks are cautious while opening accounts of Pvt. Ltd.Co. Bank obtains all documents as required while opening accounts of a joint stock company.

11. Accounts of Trusts:
As per Sec.3 of Indian Contract Act, 1882 “A trust is an obligation annexed to the ownership of property, and arising out of a confidence in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.”
Bank opens trust accounts for good parties. A trust can be public or private. All public trusts are required to be registered with the Charity Commissioner under Public Trust Act of the respective state.

Before registering a public trust, the office of the Charity Commissioner makes necessary enquiries regarding the trust, its trustees, the mode of succession of trusteeship etc., and after proper enquiries makes entries in the register, which are final, conclusive and are binding on all concerned. Banks open trust accounts after taking all precautions.

While opening account of a trust bank obtains 
o Copy of constitution of the trust
o Trust deed if available,
o Certificate of registration and/or a certified copy of the entry of the 
public trusts register 
o Public Trust Register No
o A list of the current trustees and the authority appointing them as trustees.
o The necessary resolution passed by the trustees for opening the account 
with the bank.
o Certified copy of the resolution signed by all the trustees in regard to 
the conduct of the account.

Trusts which have no constitution, instruments of trust or scheme:
While opening accounts of such trusts bank obtains following documents:
• A certificate of registration issued by the office of the Deputy/Assistant 
Charity Commissioner (Where it is so possible, under the relative law).
• A certified copy of the latest entry in the public trusts register (Public 
Trust Registration), which shows the name of the trust, the Public Trust 
register No of the Trust, at which it is registered and name/s of the 
• A declaration and an indemnity from are obtained all the trustees. 
• A resolution passed by the trustees relating to the opening of the account

Trust accounts must be opened and conducted strictly in accordance with the terms of the trust deed. All the trustees are required to act jointly by the persons so authorised by the registered trust deed. Trustees have no powers to delegate their authority to one or more unless the power of delegation is authorised by the trust deed or is in accordance with the directions of the court on an application made by the trustees. 
Trustees have no implied authority to borrow or pledge trust property, unless so provided for in the trust deed.

Death of a trustee:
On the death of one of the trustees, the trust property passes to the other trustees as per the provisions of the trust deed. If the deceased is the sole trustee, his executor has no right to recover the trust money. The executor, however, has the right to appoint a new trustee, provided the deceased trustee has in his will specifically authorised such an appointment.

12. Accounts of Religious and Charitable Trusts: 
To regulate public religious and charitable trusts some States have passed Acts. These charitable trusts are registered with the Charity Commissioner or the Assistant Charity Commissioner of the region concerned. A Certificate of registration is issued to these trust by the authorities. Mostly these trusts do not have a properly written trust deed. Bank opens account of religious and charitable trusts on merits and on being satisfied as to the integrity of the trustees and their status. 

Opening and operations of account:
While opening account bank obtains following documents in addition to account opening form duly signed by the trustees.
• A resolution specifying the name of the bank passed in a proper meeting held 
by all the trustees.
• Indemnity signed by all the trustees, indemnifying the bank for having 
allowed operations on the trust account.
• Banks do not permit operations in the account by one person. 
• Reasonable number of members is required for opening and operating the 
• If the number of trustees is larger, then the number of person operating the 
account has to be large.
• Bank periodically obtains confirmation of balance in the account, signed by 
all the trustees.
• Wherever possible, order or direction from the Charity Commissioner is 
obtained, permitting the bank to allow operations on the trust account in the 
manner approved by the trustees.

13.Provident fund Accounts:
Provident fund accounts are treated as trust accounts. In case a provident fund is recognised by the income tax authorities, a certificate to that effect issued by the concerned Commissioner of Income Tax, should be obtained for registration with the Bank. It should be recorded in the Power of Attorney Register. This certificate is to be obtained in addition to all other credentials mentioned earlier.

14.Accounts of Executors and Administrators:
Executors and administrators are persons appointed by a person through a will to mange the affairs of his estate after his death. The person appointing an executor in his will is known as testator. There can be more than one executors or administrators. Sec.311 of Indian Succession Act, 1925 deals with the powers of several executors or administrators exercisable by one.

If the person has not appointed any one to manage the affairs of his estate after his death court appoints administrator for the purpose. 

An administrator drives power to deal with the estate of the deceased from the letters of administration issued by the Court. The estate of the deceased vests in the executor from that date of letters of administration. Banks generally do not permit an executor to deal with the moneys or securities of the deceased until he produces the probate as the evidence for his title. In law, executors and administrators constitute a single person. In the absence of any mandate to the contrary, either or any one of the two or more executors or administrators can open and operate the account and deal with the estate of the deceased without a written authority from the others.

Opening of Account of Executors and Administrators:• Bank obtains account opening form duly signed by all the executors or administrators and obtains clear instructions as to the manner in which the account will be operated.
• Bank also obtains copy of probate or letters of administration in original 
for scrutiny and registration in their books.
• Bank ascertains identity of executors or administrators for their 
satisfaction. (KYC norms) 
An executor or administrator has no right to delegate his authority to an outside party, not being co-executor or administrator. Any one of the executors or administrators can countermand the actions of the others. Cheques drawn or payable to the executor or administrator's account are not collected for credit of their personal accounts without inquiry.

15.Accounts of Liquidators:
A company can go into liquidation either voluntary or by the orders of court. Incase a company goes in to liquidation by the orders of court, it appoints a liquidator Under Section 552 of the Companies Act, 1956. The liquidator so appointed by courts is known as official liquidator. When a company goes into voluntary liquidation, it appoints liquidators at its extraordinary general meeting convened for the purpose. Official liquidators have to deposit the moneys only into the public account of the Government of India with the Reserve Bank of India. Official liquidator cannot open accounts with scheduled banks. In case of voluntary winding up, authority to operate account by the liquidator is passed in the general meeting.
Opening of account:
While opening account of liquidators bank requires:
o True copy of the resolution passed in the extraordinary general meeting.
o The resolution has to be certified by the Chairman of the extraordinary 
general meeting
o Signature of the liquidator is required to be verified by one of the 
authorised officials of the company concerned.
o Liquidators cannot delegate their powers to third parties
o The account is styled as "The Liquidation Account of ........"(name of the 

16. Accounts of local bodies:
Banks open accounts of local bodies include Municipal Corporation, Panchayat, Board etc., created by special act of the parliament or legislative Assembly.
a) Accounts of Village Panchayats:
Banks open accounts of village panchayats/district/taluka after getting a copy of the resolution passed by the Panchayat of the Village or Taluka of the District concerned. 
In various states the village panchayat are governed by the Panchayat Raj Acts passed by the respective state governments.
While opening such accounts banks refer to the Act for ascertaining the nature of transactions permitted by the Act. The accounts of village panchayats are operated only bythe President or Sarpanch. The Vice-President (Vice Sarpanch) of thePanchayat can operate the account only in the absence of the President (Sarpanch) only after the written authority of the sarpanch.
Accounts of village panchayats/district/taluka are opened and styled as 
"President (or Sarpanch).........Gram/Panchayat".
b) Accounts of Local Authorities/bodies:
Banks open accounts of local authorities like municipalities, district boards, port trust, state financial corporations and such bodies created by statute. These are considered as local bodies or quasi- government institutions. While opening accounts of such authorities banks go through the municipal enactments and regulations. Transactions in account are permitted strictly in accordance with the statutory provision.
Accounts with Similar Names:
Where there are two accounts either in the same name/s or with great similarity in their titles, caution should be noted on both the ledger headings with the word "CARE" : Similar account in the name ........ Page... " Giving cross-references. If it comes to the notice of the branch that the client is maintaining an account with another branch of the Bank, the fact should be noted in the ledger heading with a view to enable the branch or branches to exchange any useful information, which may come to its notice about the client.


What is Commercial Paper ? Define Commercial Paper ? or What is the meaning of Commercial Paper in India ?
Commercial Paper (CP) is an "unsecured money market instrument issued in the form of a promissory note". These are not usually backed by any form of collaterals and is allowed to be issued only by corporate with high quality debt ratings. Commercial Paper were introduced in India in 1990 with a view to enable high rated corporate borrowers to raise short term borrowers by this additional type of instrument which was till that at time was not available in India.
Who are Eligible to Issue Commercial Paper (CP) in India ? :
Companies, PDs and FIs are permitted to raise short term resources through CP.
A company would be eligible to issue CP provided:
(i) the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs.4 crore;
(ii) the company has been sanctioned working capital limit by bank/s or FIs; and
(iii) the borrowal account of the company is classified as a Standard Asset by the financing bank/institution.
Who Are Eligible To Invest in CP ? :
Individuals, banks, other corporate bodies (registered or incorporated in India) and unincorporated bodies, Non-Resident Indians and Foreign Institutional Investors (FIIs) shall be eligible to invest in CP.
FIIs shall be eligible to invest in CPs subject to
(i) such conditions as may be set for them by Securities Exchange Board of India (SEBI) and
(ii) compliance with the provisions of the Foreign Exchange Management Act, 1999, the Foreign Exchange (Deposit) Regulations, 2000 and the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended from time to time
What are the rating requirement for issuance of Commercial Paper?
Eligible participants/issuers shall obtain credit rating for issuance of CP from any one of the SEBI registered CRAs. The minimum credit rating shall be ‘A3’ as per rating symbol and definition prescribed by SEBI. The issuers shall ensure at the time of issuance of the CP that the rating so obtained is current and has not fallen due for review.




CRM: Customer Relationship Management. Data base is created by bank of existing customers and based on data mining it is used for marketing of products

Direct Marketing: Banks have a large customer base. most banks offers their products directly to their existing customers. this can also be used on prospective customers.

Types of Direct marketing:
1) face to face talk with customer and telling him about the features of product.
2)Direct Mail Marketing: details of product sent to customers on the basis of email address available with bank. 
3)Telemarketing: bank approaches customers through its call centre and tell the customer about the product.

Unique Selling Points: Telling unique feature of a product to its user.




Banking Instruments

What is Negotiable Instrument ?

According to Sec. 13 of Negotiable Instruments Act, 1881, A Negotiable Instrument means a promisory note, bill of exchange, payable either to order or bearer.


It is easily transferable from one person to another ownership / right passes merely by delivery.It passes good title to the transferee even if the transferor had bad title ,provided the person receiving the instrument has accepted the instrument in good faith,and had no reason to believe that the title had any defect.( In case of goods, a person can not get better title than the transferor .However, this is not the case with Negotiable instrument. )

Types of Negotiable Instrument:

By Statute: ie what has been mentioned in Sec. 4,5,6 of Negotiable Instruments Act.
By practice/Custom: Viz., Government Promissory Note, Railway Receipt, Bill of Lading, Air Way Bill etc.
Who is a Holder ? 

According to Sec.8 of N I Act ., a holder is a person who in his own name is entitled to the possession of the instrument, and to receive or recover the amount due from the parties to the instrument.

Promissory Note: -

As per Sec.4 of N.I.Act, 1881” Promissory Note is an instrument in writing (not being a bank note or currency note) containing an unconditional undertaking signed by the maker to pay a certain sum of money only or the order of a certain person, or to the bearer of the instrument.”
The promise can be singly or jointly by more than one person.

There are two parties in a Promissory Note

Maker- Is the person who promises to pay
Payee – Is the person to whom promise is made



Three months after date I promise to pay to --------------------the sum of Rupees---------------------------value received.


On demand I promise to pay to------------------------------ the sum of Rupees---------------------------------Value received.



Essential requirements of a Promissory Note:

It must be in writing .It must contain an unconditional undertaking to pay
The maker should sign it
The promise to pay should be unconditional
The promise to pay money and money only
Maker should be certain
It must contain the name of the Payee – it can not be bearer i.e. the person to whom the amount is to be paid has to be mentioned { a bearer promissory note gets the status of a currency note.-prohibited by Sec.31 of Reserve Bank of India Act,1934}
It should bear the date and place of issue
It can be payable on demand i.e. sight or after a certain period
It is not necessary to mention the consideration i.e. “Value Received”
It cannot be tied up with any future event
It attracts stamp duty under Stamp Act.1899.

According to Sec.1 Article 49 Stamping can be done prior to execution or after execution

Note:- The question is why a person undertakes to pay?.He promises to pay because he owes money.The relationship is of Debtor and Creditor.
Banks take Demand Promissory Note ( DP Note) from borrower. In addition to principal amount ,It also contains interest clause ie interest @ ----% per annum with monthly/ quarterly/half yearly rest.

Bill of Exchange: -

As per Sec.5 of N.I.Act, 1881 “ 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 certain person or bearer of the instrument.”


At sight pay to the order of … …………… the sum of Rs.------------- for value received.

Signedbythe Maker

Mr./ M/S…………………….



-------------Months after date pay to the order of……………………..

the sum of Rs……………….value received.

Mr./M/s. Signed by the maker


The Drawer /maker gives direction to the drawee because he owes money to the drawer or there is some consideration.

Essential Requirements of bill of exchange:

It must be in writing
There are three parties to the Bill of Exchange
– Drawer or Maker
– Drawee – The person on whom the bill is drawn
– Payee – To whom the payment is to be made. Payee is the person whose name is mentioned in the instrument, to whom or to whose order the money is directed to be paid by the instrument.
It should be an unconditional order to pay
It should be signed by the maker/drawer
It must contain direction to a certain person (i.e. drawee) to pay
The sum payable must be certain
Drawee must be certain
It is direction by the drawer / maker to a person (i.e. drawee) to make payment to a definite person or as per his order or to the bearer of the instrument.
Payee must be certain

Bill of Exchange can either be Sight or Usance. Usance bills contain a specified period on which the payment is to be made. Usance bills need acceptance of the payee. Three days of grace is given for payment of usance bills.

Dishonour of Bill of Exchange :

A negotiable instrument can be dishonoured in two ways
· By non payment
· By non acceptance ( Does not allpy to Cheque)

Options available to holder:

With a view to safe guarding his interest, the holder has two options

· To give notice of dishonour to all parties
1- ie maker of promissory note.
2- The acceptor or drawer of bill of exchange
· To get the dishonoured bills noted and protested

Noting :

Notary public makes a demand for payment to the drawee or acceptor for acceptance of the bill. In case the drawee refuses to pay or the acceptor refuses to accept ,he makes noting on the bill and specifies the reasons for dishonour, and the date of dishonour. Once the recording of dishonour has been on the instrument the Notary Public issues a certificate which is called as protest.

A cheque is not noted and protested.


As per Sec. 6 of NI Act, 1881 “ a cheque is a Bill of Exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.”

It is an instrument in writing containing an unconditional order signed by the maker, directing a certain banker to pay a certain sum of money, on demand to, or to the order of, a certain person or to the bearer of the instrument. All cheques are bill of exchange, but all bill of exchange are not cheques.

Difference between a cheque and a bill of exchange: -

A cheque does not require acceptance
It can be crossed
Does not attract stamp duty.
It gets statutory protection under Sec. 85 and Sec. 131 of NIAct.
It is not entitled to days of grace
A cheque is presented for payment, whereas a bill in the first instance is presented for acceptance unless it is a bill on demand.
No notice of dishonour is required
A cheque is not noted or protested



Pay-------------------------------------------------------------------------------- or Bearer


Union Bank of India
A/C No
LF Intl

229859 22 6 026 010 10 Transaction Code
ChequeNo. Citycode Bank code Branch Code


MICR Cheques:

Due to introduction of electronic clearing system in all major cities banks are issuing MICR cheques {Magnetic Ink Character Recognition}. This helps in speedy clearing of cheques in the clearinghouses and without much human intervention. A t the bottom of the cheque there is a code line known as “Band”. It contains information in magnetic ink, which is required for mechanical processing of cheque. Cheques are not to be signed and nothing is to be written on the band. It contains

First six digits indicate cheque number.
Next three digits indicate city code number
Next three digits indicate bank code number
Next three digits indicate branch code number
Next digits indicate transaction code i.e. SB/Current/Cash Credit etc.

There are 59 MICR processing centres .These centres account for 83-85% of total cheque volume and amount. Switching over from paper based clearing to truncated cheque clearing system is presently at Delhi.

Essential requirements of a Cheque:

A cheque is always payable on demand.
It is drawn on some specified bank.
It is the only negotiable instrument on which the rules of crossing are applicable.
No acceptance is required on cheque.
A cheque has to be written on the prescribed format of the bank and to be drawn on the chequebook provided by the bank.
It should be dated.
There are three parties to the cheque
1-Drawer or Maker
2-The bank - on whom the cheque is drawn (i.e. the bank with whom the account is maintained by the drawer)
3- Payee – Payee is the person whose name is mentioned on the cheque

to whom or to whose order the money is directed to be paid.

It should be an unconditional order to pay
It should be signed by the maker/drawer
The sum payable must be certain
Payee must be certain
Payment of cheque is subject to drawer having sufficient balance in his account or can be overdrawn under arrangemen.


Digital Cheque:


Vide, the Negotiable Instrument (Amendment & Miscellaneous Provisions) Act 2002 important amendments have been made to certain provisions of the Negotiable Instrument Act.

The amendment has brought in two concepts of digital cheques.

1.One is a "mirror image" of a cheque digitally signed.
2.Second is the concept of "truncated cheque" where the physical cheque carrying a physical signature of the drawer is replaced with an image of the signed cheque. Power to create a truncated cheque lies with the clearinghouse or by the paying or collecting banks.

Amendment in the act replaces the original section 6 of the parent Act (NIA) to read as follows.

A "Cheque" is a ‘Bill of Exchange’ drawn on a specified banker and not expressed otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

Electronic form of Cheque:

"a cheque in the electronic form" means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric cryptosystem.

Truncated Cheque:

"a truncated cheque" means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.

Clearing House:

The expression-clearing clearing house" means the clearinghouse managed by the Reserve Bank of India or a clearinghouse recognized as such by the Reserve Bank of India.
When a cheque is truncated, the paying banker is entitled to demand further information in case of a reasonable suspicion (section 64 of NIA), the Collecting Banker can retain the truncated cheque even after receiving the payment (Section 81 of NIA), the difference if any between the image and the truncated cheque will be considered a "Material Alteration" (Section 89 of NIA), and the Collecting Banker is responsible to verify that the truncated cheque is prima-facie genuine (Sec 131 of NIA).

A cheque can be

1. Ante- dated: Issued on some previous date.

Antedate is a business term to date a document before the date on which it is drawn up. This is not necessarily illegal or improper. A bill is not invalid by reason only that it is ante-dated or post-dated, or that it bears date on a Sunday. A cheque which bears a date before the date of issue is an ante dated cheque. As per Sec. 74 (4) (ii) of NI Act, a cheque presented for payment within a reasonable period of time after its issue ie within six months of its issue will be honoured by bank. A banker is not concerned whether the cheque was ante dated or not.he is only concerned that it is not stale.

2. Post dated: Issued for some future date
3. Stale: Which is out of date more than Three months old

Why post dated cheques are issued?

In those cases where the drawer has not enough funds in his account for meeting his obligations ,he issues post date cheques after taking into account the availablity of funds on some future date in his account.
When under arrangement with the payee ,payment is deferred for some specific future period ie in the event of payment of Loan instalment,under hire purchase arrangements.


Avoids embarrassment arising from dishonour and payee taking action under Sec. 138 of NIAct.
Maintaining proper fund flow / management
Saving interest on borrowings or earnings on funds held in account
Meeting immediate fund requirement for other important purposes.

Liability of a paying banker- Payment of Cheque :

· A banker honours the cheques of customers up to the credit balance held in the account or as per arrangements with the bank. The duty of banker is to see that
· The cheque is in the proper form
· Signatures of the person authorised to issue cheque tallies with the specimen signature recorded with the bank
· The cheque is neither stale nor post dated
· Amount mentioned in words and figures are same
· The drawer authenticates material alterations if any.
· Endorsement is proper.
· Cheque is not mutilated
· Crossed cheques are not paid at counter
· Cheques are paid only in banking hours.

Circumstances under which a bank can refuse payment of a cheque:

· If the customer has stopped payment of the cheque
· If bank has notice about the death of customer
· If he has information /notice about the insanity of the customer
· If he has notice of customer’s bankruptcy
· If bank has knowledge of any defect in the title of the person presenting the cheque.
· Notice of garnishee order
· In case of trust account, if the customer contemplates breach of trust.

Dishonour of Cheque.

. A bank can refuse payment of a cheque
1. If it is stale,post dated, mutilated
2. amount in words and figure differ.
3. If there is insufficient balance in the account
4. if the arrangements made with the bank (Over Draft, Cash Credit limit)exceeds
5. If instead of payee’s name word “ Cash “ is mentioned
6. If a crossed cheque is presened at the counter.
7. If signatures are forged.
8. If there is material alteration

Material Alteration:

· Alterations which changes the fundamental character and spirit of the instrument
· Changes the rights and liabilities of the parties to the instrument
· Changes legal character of the document
· Changes made after the cheque has been issued

According to Sec. 87 of NIAct. ,if a cheque is materially altered it can not be regarded as cheque .It includes

· Change in date
· Change in amount
· Alteration in crossing –or cancellation
· Alteration of word order to bearer
· Alteration of place of payment.
· Alteration in the names of the parties or relationship between them.

Unless alterations are authenticated by the drawer, banks do not pay /honour materially altered cheques .However, in following cases alterations do not require authentication by the drawer

· Conversion of blank endorsement to full
· Conversion of general crossing to special crossing
· Filling of blanks in the cheque
· Crossing of uncrossed cheque

Dishonour of cheque issued for settlement of debt:

As per sec.138 of N.I.Act dishonour of cheque issued by the drawer towards discharge of his debt or other liability is an offence, and he can be punished with imprisonment for a term, which may extend to two years or with fine, which may be up to twice the amount of cheque or both. Provisions of sec.138 would also be applicable in case a cheque is dishonored because ‘Stop payment’ instructions have been given to bank.
Once the cheque has been issued by the drawer to the bank/ payee, merely because the drawer issues a notice to the drawee or to the bank for ‘stop payment’, it will not preclude an action under section 138 of N.I.Act,{ Modi Cement Ltd’ Vs.KuchiKumarNandi(1998) ,28 CLA. 491(SC)/JT1988(2)SC198}


1. Cheque to be presented within the validity of the period i.e. within 3 months. It should not be stale.
2. In case of post dated cheques, the period starts from the date of the cheque
3. In case of dishonour, the payee has to give notice to the drawer.
4. The payee or the holder in due course on receipt of intimation from bank about dishonour has to give notice to the drawer within 30 days of the information from bank.
5. if payment is not received within 15 days of the notice, provisions of sec.138 would be applicable.
6. The complaint is to be lodged in writing before a Metropolitan Magistrate or a Judicial Magistrate of the First Class within one month of the expiry of 15 days of receipt of notice to the drawer. (Magistrate is empowered to condone delay in filing complaint)
7. There is no minimum time limit for filing the complaint.
8. if the dishonour is due to the reason “ Account Closed” it would amount that there was no sufficient balance in the account.

As per Section 146, inserted in N.I.Act, by the Amendment Act 2002, banker’s slip or memo having bank’s official mark denoting that the cheque has been dishonored shall be presumed to be the fact of dishonour,and will be treated as prima-facie evidence. The court, on production of bank’s slip or memo having therein the official mark denoting that the cheque has been dishonoured, shall presume the fact of dishonour of such cheque, unless and until such fact is disproved.
The usual practice followed by the court of calling the drawee bank’s person as a witness to prove the fact of dishonour has been dispensed with. Now it is for the accused /drawer to prove that there were sufficient funds in the account or that the cheque was not returned for reason” insufficient funds” or any other reason.

As a consequence of banker- customer relationship, the banker enjoys some rights, which we have discussed in the above section. Now, we will discuss the obligations of the banker which arises because of the banker- customer relationship. They are-

Obligations to honour the cheques: You know that the banker is required to make payment to the customer when the customer makes a demand. The banker is under legal obligations to honour the cheques of the customer as and when they are presented for payment. If the banker fails to meet his obligation, he will be responsible for any loss suffered by the customer due to non- payment of cheque. However, this obligation of the banker arises on the fulfillment of certain conditions like,
the customer must have sufficient funds in the account;
the funds should be free from any lien;
the cheque should fulfill all the legal requirements, etc.
Obligation to maintain secrecy of account: Another obligation of the banker is that he should maintain the secrecy of his customer’s account. If the information of customer’s account is disclosed, he may suffer loss. But the banker can disclose the state of affairs of customer’s account under certain circumstances like, when
the law demands the disclosure of the account information;
the customer gives consent for such disclosure;
disclosure of account information is necessary in the public interest, etc.


Crossing of Cheques:

There are two types of crossing
· General
· Special

General crossing:

As per Sec123 of N.I.Act, where a cheque bears across its face an addition of the words "and company " or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words " not negotiable," that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally.

Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker (Sec.126).

Special crossing:

As per Section 124 of N.I.Act, where a cheque bears across its face an addition of the name of a banker, either with or without the words " not negotiable," that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker
Where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed, or his agent for collection (Sec.126).

A person taking a cheque crossed generally or specially, bearing in either case the words " not negotiable," shall not have, and shall not be capable of giving, a better title to the cheque than that which the person from whom he took it had (Sec.130).


According to Sec.15 of N.I.Act, when the maker or holder of a negotiable instrument signs the same,( not in the capacity of maker or drawer) on the back of the instrument it is known as indorsement .The purpose is to transfer /give instrument to another person. In case the space on the back of the instrument is insufficient, it can be signed on a paper attaches/pasted on the back of the instrument. The attachment is known as along.
As per Sec 16.1 (1) of NIAct, endorsement can be

· Blank
· Full

Blank: If the endorser signs his name only, the endorsement is said to be " in blank,"
Full: If the endorse adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specified person, the indorsement is said to be " in full “.



ab initio

prep. lawyer Latin for "from the start," as "it was legal ab initio."



v. to do away with a problem, such as a public or private nuisance or some structure built contrary to public policy. This can include dikes which illegally direct water onto a neighbor's property, high volume noise from a rock band or a factory, an improvement constructed in violation of building and safety codes, or seepage from a faulty septic tank.



n. 1) the removal of a problem which is against public or private policy, or endangers others, including nuisances such as weeds that might catch fire on an otherwise empty lot; 2) an equal reduction of recovery of debts by all creditors when there are not enough funds or assets to pay the full amount; 3) an equal reduction of benefits to beneficiaries (heirs) when an estate is not large enough to pay each beneficiary in full.


adj. complete, and without condition.




n. 1) receiving something from another with the intent to keep it, and showing that this was based on a previous agreement. 2) agreeing verbally or in writing to the terms of a contract, which is one of the requirements to show there was a contract (an offer and an acceptance of that offer). A written offer can be accepted only in writing. 3) receiving goods with the intention of paying for them if a sale has been agreed to. 4) agreement to pay a bill of exchange, which can be an "absolute acceptance" (to pay as the bill is written) or "conditional acceptance" (to pay only when some condition actually occurs such as the shipment or delivery of certain goods). "Acceptance" is most often used in the factual determination of whether a contract was entered into.



SEC 58. "Mortgage", "mortgagor", "mortgagee", "mortgage-money" and "mortgaged" defined.
(a) A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.
The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed.
(b) Simple mortgage-Where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly or impliedly, that, in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee.
(c) Mortgage by conditional sale-Where, the mortgagor ostensibly sells the mortgaged property-
on condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or
on condition that on such payment being made the sale shall become void, or
on condition that on such payment being made the buyer shall transfer the property to the seller,
the transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale:
PROVIDED that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale.
(d) Usufructuary mortgage-Where the mortgagor delivers possession or expressly or by implication binds himself to deliver possession of the mortgaged property to the mortgagee, and authorises him to retain such possession until payment of the mortgage-money, and to receive the rents and profits accruing from the property or any part of such rents and profits and to appropriate the same in lieu of interest or in payment of the mortgage-money, or partly in lieu of interest or partly in payment of the mortgage-money, the transaction is called a usufructuary mortgage and the mortgagee a usufructuary mortgagee.
(e) English mortgage-Where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage.
(f) Mortgage by deposit of title-deeds-Where a person in any of the following towns, namely, the towns of Calcutta, Madras, and Bombay, and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.
(g) Anomalous mortgage-A mortgage which is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage by deposit of title-deeds within the meaning of this section is called an anomalous mortgage.
59. Mortgage when to be by assurance
Where the principal money secured is one hundred rupees or upwards, a mortgage other than a mortgage by deposit of title deeds can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses.
Where the principal money secured is less than one hundred rupees, a mortgage may be effected either by a registered instrument signed and attested as aforesaid or (except in the case of a simple mortgage) by delivery of the property.
59A. References to mortgagors and mortgagees to include persons deriving title from them
Unless otherwise expressly provided, references in this Chapter to mortgagors and mortgagees shall be deemed to include references to persons deriving title from them respectively.
60. Right of mortgagor to redeem
At any time after the principal money has become due, the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgage-money, to require the mortgagee (a) to deliver to the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgement in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished:
PROVIDED that the right conferred by this section has not been extinguished by the act of the parties or by decree of a court.
The right conferred by this section is called a right to redeem and a suit to enforce it is called a suit for redemption.
Nothing in this section shall be deemed to render invalid any provision to the effect that, if the time fixed for payment of the principal money has been allowed to pass or no such time has been fixed, the mortgagee shall be entitled to reasonable notice before payment or tender of such money.
Redemption of portion of mortgaged property-Nothing in this section shall entitle a person interested in a share only of the mortgaged property to redeem his own share only, on payment of a proportionate part of the amount remaining due on the mortgage, except only where a mortgagee, or, if there are more mortgagees than one, all such mortgagees, has or have acquired, in whole or in part, the share of a mortgagor.
60A. Obligation to transfer to third party instead of re-transference to mortgagor
(1) Where a mortgagor is entitled to redemption, then, on the fulfilment of any conditions of the fulfilment of which he would be entitled to require a retransfer, he may require the mortgagee, instead of re-transferring the property, to assign the mortgage debt and transfer the mortgaged property to such third person as the mortgagor may direct; and the mortgagee shall be bound to assign and transfer accordingly.
(2) The rights conferred by this section belong to and may be enforced by the mortgagor or by any encumbrancer notwithstanding an intermediate encumbrance; but the requisition of any encumbrance shall prevail over a requisition of the mortgagor and, as between encumbrancers, the requisition of a prior encumbrancer shall prevail over that of a subsequent encumbrancer.
(3) The provisions of this section do not apply in the case of a mortgagee who is or has been in possession.
60B. Right to inspection and production of documents
A mortgagor, as long as his right of redemption subsists, shall be entitled at all reasonable times, at his request and at his own cost, and on payment of the mortgagee's cost and expenses in this behalf, to inspect and make copies or abstracts of, or extracts from, documents of title relating to the mortgaged property which are in the custody or power of the mortgagee.
61. Right to redeem separately or simultaneously
A mortgagor who has executed two or more mortgages in favour of the same mortgagee shall, in the absence of a contract to the contrary, when the principal money of any two or more of the mortgages has become due, be entitled to redeem any one such mortgage separately, or any two or more of such mortgages together.
62. Right of usufructuary mortgagor to recover possession
In the case of a usufructuary mortgage, the mortgagor has a right to recover possession of the property together with the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee,-
(a) where the mortgagee is authorised to pay himself the mortgage-money from the rents and profits of the property,-when such money is paid;
(b) where the mortgagee is authorised to pay himself from such rents and profits or any part thereof a part only of the mortgage-money,-when the term (if any) prescribed for the payment of the mortgage-money has expired and the mortgagor pays or tenders to the mortgagee the mortgage-money or the balance thereof or deposits it in court hereinafter provided.