Have you ever wondered what happens when a cheque is lost, altered, or fraudulently endorsed? What if your cheque is dishonored even when you have sufficient funds? These are real banking issues that impact businesses and individuals alike.
📚 JAIIB Study Resources 📚
👉 Check Here
👉 Check Here
👉 Check Here
👉 Get Tests Here
👉 Check Here
- The core differences between order and bearer cheques
- How endorsement and alterations affect payments
- What happens if a cheque is lost, damaged, or altered
- The importance of stop payment orders and legal attachments
- Legal liabilities of banks and customers regarding cheque transactions
- Case studies on cheque-related disputes and their legal outcomes
If you’re preparing for JAIIB, CAIIB, or bank promotions, or you simply want to enhance your banking knowledge, this post (and the video) is for you!
👉 Before we dive in, watch this video for a complete breakdown:
Key Topics Covered in the Video
1. Order Cheques vs. Bearer Cheques
Bearer Cheques: Payable to anyone holding the cheque; does not require endorsement.
Order Cheques: Can only be encashed by the specified payee or endorsed to another party.
Key Difference: Bearer cheques can be transferred easily, while order cheques need an endorsement.
Real-World Scenario: Imagine you drop a bearer cheque on the street. Anyone who finds it can legally encash it. On the other hand, if it’s an order cheque, only the named payee or someone they endorse it to can cash it.
2. Importance of Endorsement & Alterations
Endorsement: Signing on the back of a cheque to transfer it.
- Restrictive Endorsement: Limits further transfer
- Facultative Endorsement: Allows waiving of rights
- Sans Recourse Endorsement: Without liability
Alterations: Unauthorized changes to amount, payee name, or date make a cheque invalid.
Example: If someone tries to change the payee name without authorization, the cheque will be dishonored.
3. Words vs. Figures – Which Amount Prevails?
If there is a discrepancy between the amount in words and figures, the amount in words prevails.
Legal Justification: As per banking rules, words are given priority because they are less prone to manipulation than figures.
4. Crossed Cheques & Their Purpose
Crossed Cheques: Cannot be encashed at the counter; must be deposited in a bank account.
- General Crossing: Two parallel lines indicate account deposit only.
- Special Crossing: Specifies a particular bank for collection.
Example: Many companies issue salary cheques with crossing to ensure direct deposit into employee accounts.
5. Stop Payment Instructions & Legal Attachments
Stop Payment: If the drawer instructs the bank not to pay a cheque, the bank must comply.
Legal Attachments:
- Garnishee Order: Court order to freeze funds for debt recovery.
- Attachment Order: Issued for government dues like tax recovery.
Case Study: A businessman had his account frozen due to a tax dispute, leading to bounced cheques and legal consequences.
6. Bank’s Liability for Forged Signatures & Fraud
If a signature is forged, the bank is liable and must compensate the account holder.
Case Law: In the Canara Bank vs. Canara Sales Corporation case, the Supreme Court ruled that banks must verify signatures thoroughly.
7. Payment in Due Course (Section 10, NI Act 1881)
What is Payment in Due Course?
- The bank must ensure the cheque is genuine and presented in good faith.
- The bank should not have any reason to suspect fraud.
- Payment must be made without negligence.
[FREE EPDF] JAIIB PPB Negotiable instruments Part 1 | Chapter 12 Part 1 Module A
8. Protection for Paying Bank (Sections 85 & 89, NI Act)
Protection Against Forged Endorsements: If a bank verifies the regularity (not authenticity) of endorsements, they are protected.
Crossed Cheques: If mistakenly cashed over the counter, the bank loses protection.
📥 Download PDF Notes
Click the link below to download a PDF summary of this session.
