Payment and Collection of Cheques and Other Negotiable Instruments JAIIB E-book

The Negotiable Instruments Act, 1881 regulates three types of instruments commonly used in financial transactions. Promissory notes, bills of exchange, and cheques are the three types. A cheque is the most often used tool in everyday financial transactions. There are various provisions in the Act regarding cheques. A Promissory Note, Bill of Exchange, or Cheque payable to order or to the bearer is a Negotiable Instrument. One of the most crucial things that aspirants of the JAIIB exam should know is the payment and collection of cheques and other negotiable instruments. The JAIIB exam is held twice a year. In this blog, we will be discussing the Payment and Collection of Cheques and other negotiable instruments 

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Introduction

The Negotiable Instruments Act, 1881 regulates three types of instruments commonly used in financial transactions. Promissory notes, bills of exchange, and cheques are the three types. A cheque is the most often used tool in everyday financial transactions. There are various provisions in the Act regarding cheques. A Promissory Note, Bill of Exchange, or Cheque payable to order or to the bearer is a Negotiable Instrument.

Definition of Cheque

A cheque is defined in Section 6 as follows:

A cheque is a bill of exchange drawn on a specific banker and not expressly stated to be payable on demand; it also includes the electronic image of a truncated cheque and a cheque in electronic form. A banker is required by law to pay a cheque if the following conditions are met:

  • The cheque has been correctly drawn.
  • There is enough money in the account.
  • The bank’s obligation to pay is unrestricted by law.

Cheque Considerations

When a cheque is given for payment, the following considerations should be made:

  • Promissory Note: A promissory note is a financial instrument containing a written commitment by one party (the note’s issuer or maker) to pay another party (the note’s payee) a certain amount of money on demand or at a future date.
  • Bill of Exchange: A bill of exchange is a legally enforceable agreement between two parties to pay a specific sum of cash to the other party on demand or at a pre-determined date.
  • Drawee: The drawer is the person who creates a Bill of Exchange or a check, and the Drawee is the one who is directed to pay.
  • Holder: A holder is a person who secures a negotiable instrument with his name on it to receive payment from the responsible parties.
  • Holder in Due Course: A holder in due course (HDC) is an individual who legitimately acquires a negotiable instrument for a consideration that is still owed.
  • Payment in Due Course: Payment in conformity with the apparent tenor of the document to any person in possession thereof in good faith and without carelessness under circumstances that do not provide a reasonable justification for assuming that he is not supposed to receive payment of money therein indicated.
  • Negotiation: It depends on the type of negotiation in question. When you negotiate a cheque, you are discussing a negotiable instrument.
  • Endorsement: An endorsement is the act of a holder of a negotiable document signing his or her name on the back of that instrument, therefore transferring title or ownership. An endorsement can be given to another person or legal body. An endorsement transfers property to the other individual or legal body. The individual who receives the endorsement is known as the endorsee. The endorser is the individual who makes the endorsement.

Crossing of Cheques

The act of crossing a cheque entails ordering the banker to pay the stated money solely through the banker, i.e. the amount on the cheque must be placed directly into the payee’s bank account.

Types of Crossing a cheque:

General Crossing:

When two transverse parallel lines are drawn across the face of a cheque, the words & Co. are written between the two lines, with or without the words not negotiable. A general crossing occurs when a check is crossed in this manner.

Special Crossing:

A cheque with the banker’s name printed across the face between the two transverse parallel lines, with or without the statement ‘not negotiable’. Special crossings are the name for this sort of crossing. In a particular crossing, the paying banker will only pay the cash to the banker whose name appears on the check or his agent. As a result, the check will only be honored if the bank has indicated the same in the crossing orders.

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Conclusion

In this blog, we discussed Paying and Collecting Cheques for the JAIIB Exam. We hope that the information provided will help candidates prepare for the exam. Keep following Oliveboard for more updates. To stay updated, follow Oliveboard on Facebook and Telegram.

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