CHAPTER - 14

NEGOTIABLE INSTRUMENTS ACT 1881

 Came into force w.e.f. March 01, 1882.

 It has 147 sections and 17 chapters
 Section 138 to 142 were added in 1988 (came into effect from 1.4.1989). Section 143 to 147
were added in Dec. 2002
 This Act is applicable to entire India.

1. MEANING OF NEGOTIABLE INSTRUMENT

 As per Sec. 13 of the Act, Negotiable Instruments (NI) means and includes promissory note,
bill of exchange and cheque payable to order or bearer. Bank Draft finds mention in Sec-85(a)
of NI Act.
 Apart from the aforesaid instruments defined in the NI Act, following instruments satisfy the
features of Negotiable Instruments.

 Sr.  Instrument  Possessing feature of

No.
 i  Certificate of A promissory note
Deposit
 ii  Commercial  A promissory note
Paper
 iii  Treasury Bill  a promissory note
 iv  Share warrant  a cheque
 v  Dividend  a cheque
warrant

 Also u/s 137 of Transfer of Property Act, documents of title to goods are also negotiable, which
include:
 Bill of lading Railway Receipts
 Dock warrant Warehouse receipt
 GRs approved by IBA Wharfinger Certificate

2. CHARACTERISTIC FEATURES OF NEGOTIABLE INSTRUMENT

Negotiability

 A negotiable instrument possesses a unique characteristic called “Negotiability”.

Negotiability refer to following two features in an instrument:

(i) The instrument is freely transferable by delivery (if it is payable to bearer) and by
endorsement and delivery if it is payable to order; and

(ii) A person (i.e., transferee) taking the instrument bonafide for value (known as a holder
in due course) gets an absolute title to the instrument notwithstanding any defect in the title of
the transferor or any other prior party.

 Railway Receipt, Bill of Lading, Ware House Receipts, cannot be called negotiable instruments
because they satisfy the first feature of negotiability but not the second. Such instruments are
called Quasi Negotiable Instruments.

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  Withdrawal slips used for drawing money from S.F. account are not negotiable instruments
(Reason: There is a condition that it must accompany the pass book). FD Receipt is also non-
transferable and as such cannot be called Negotiable Instruments.

RESERVE BANK OF INDIA ACT & NEGOTIABLE INSTRUMENT PAYABLE TO BEARER

As per section 31 of Reserve Bank of India Act 1934, no person other than Reserve Bank or
Central Government, can draw, accept, make or issue any bill of exchange or promissory note
payable; to bearer on demand.

PROMISSORY NOTE (SEC 4 OF NI ACT)

 It is a written unconditional undertaking by the maker (drawer & drawee), to pay a certain sum
of money to or to the order of a certain person) (payee) or to the Bearer of instrument. (not
being a bank note / currency note)
 Promissory Note payable on demand (immediately) is called Demand Promissory Notes
(DPN) and those payable after a definite period of time are called Usance Promissory Notes
(UPN).
 Both demand and usance promissory notes need be stamped as per Indian Stamp Act and
Stamp duty on promissory note is same throughout India.
 Promissory Note in installments
 Promissory Notes containing an undertaking to pay the amount in installments are valid and a
provision can be made that on default in payment of one installment, the entire amount will
become due.
 General Public is prohibited from issuing demand or usance promissory notes payable to
bearer.
 As per Indian Currency Act (Sec. 21), Currency note is not a Negotiable instrument (though it
fulfills a number of conditions of Promissory Note).

BILL OF EXCHANGE (SECTION 5)

 Bill of Exchange is a written unconditional order by the maker (drawer), directing a certain
person (drawee) to pay a certain sum of money or to the order of certain person (payee) or to
the bearer of the instrument.
 As per Sec 31(1) of RBI Act, Bill of Exchange / Hundi cannot be made payable to bearer on
demand.
 A bill of exchange is an order to pay money while a promissory note is a promise/undertaking
to pay money.
 It must be accepted within 48 hours after presentment.
 Demand Draft issued by banks fall in the category of bill of exchange. A cheque is also a bill
of exchange.
 Bill of exchange drawn in vernacular language as per local use is locally called “Hundis”.
 Interest for delay in payment of Due Bill is calculated @18% if otherwise not mentioned.
 Drawee in case of Need is a person name in the bill who will honor the bill in case the Drawee
makes default.

CHEQUE (SECTION 6)
 A cheque is a bill of exchange, drawn on a specified banker and payable on demand.
 A cheque is a bill of exchange and satisfies all the requirements of a bill of exchange except
that:
- It cannot be drawn on any person other than a bank;

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 It cannot be drawn payable so many days after date or after sight as is the case with a bill of
exchange. It is always payable on demand.
 Stop Payment instructions can be given by drawer verbally or in writing. A telephonic message
is valid if the banker is able to recognize voice of the drawer. Payment can be postponed till
confirmation is received in writing.
 N.I. Act does not provide any standard format for a cheque. A cheque drawn on a simple piece
of paper should be honored. Amount can be mentioned in foreign currency as well, provided
the rate of conversion is stated or it is left to be decided as per market conditions. A cheque
written in two different handwritings or two different inks should be honored by the bank.
 Cheque can be written in Hindi and date can be written in Saka Calendar.
 Minimum balance required in the account can be applied towards payment of cheque.
 A cheque dt. 31st April is payable on 30th April.
 A cheque payable to Lord Krishna or bearer can be paid. However such type of order cheque
cannot be paid.
 Since a cheque is not a legal tender nobody can be compelled to accept cheque towards
settlement of his debt.
 In case of Mutilated cheques, Drawer’s confirmation is required to pay the cheque. If torn at
the corner and no material fact is erased, can be paid.
 Payment of cheque should not be made if bank comes to know about Death of the customer
or filing of Insolvency Petition of the customer. Death or Insolvency of Director of a Company
has no effect and cheque signed by them can be paid.

DIFFERENCE BETWEEN BILL OF EXCHANGE AND CHEQUE

Sr. Bill of Exchange Cheque

No.
1. Cannot be drawn payable to bearer on demand Can be done
2. Drawee of a bill can be any one Only a banker
3. Can be made payable on demand or after Only on demand
sometime
4. Provisions of crossing not applicable Cheques can be crossed
5. Usance bills need be accepted Cheques require no
acceptance
6. Usance bills qualify for 3 days’ grace Not applicable to cheques

HOLDER (Section 8)
The “holder” of a promissory note, bill of exchange or cheque means any person entitled in his own
name to the possession thereof and to receive or recover the amount due thereon from the parties
thereto.

In order to become a holder:

1. He should have acquired title to the instrument lawfully and in a proper manner i.e. not through
fraud, coercion, undue influence or by any such illegal method.

2. He should not have stolen or found the instrument, which is lost.

3. He should be the payee or endorsee (if it is an order instrument) and bearer (if it is a bearer
instrument).

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Actual possession is not essential legal right to possess is enough

HOLDER IN DUE COURSE (Section 9 of N.I. Act)

Holder in due course is a person (payee or endorsee or bearer) who must have the instrument in his
possession after satisfying the following three conditions:

 Consideration: He should have got the instrument for adequate and lawful consideration.
(Not by way of gift or no consideration.) A cheque issued in favour of charitable institution has
no consideration.
 Before maturity: He should have become holder of the instrument before its maturity. This
condition is applicable to usance bills and promissory notes and not a cheque which is always
payable on demand. (A person taking an instrument after it is due has right only against his
immediate transferor (Sec.59).
 Good faith: He should have become holder of the instrument without having sufficient cause
to believe that any defect existed in the title of the person from whom he derived his title.

A Holder-in-due course gets a good title over the instrument notwithstanding any defective title of the
transferor.

Where a cheque is marked ”not negotiable” nobody can get a better title than that of the transferor as
these words expressly take away the feature of negotiability that transferee gets a better title than the
transferor:

 Forged Endorsement: Any person deriving his title through a forged endorsement
cannot claim himself as a holder in due course.

 Passes better title: Any person who derives his title through a holder in due course
also gets title free of defects (Sec 53).

There cannot be a holder in due course of:

 An inchoate instrument
 An overdue instrument
 A non-negotiable instrument

 A person taking inchoate (incomplete) instrument cannot claim to be a holder in due

course even if he completes it in terms of authority of Section 20. However, if the
instrument is endorsed, the endorsee becomes holder in due course.
 A person receiving cheque from some Charitable institution as a scholarship money
cannot be called Holder in Due Course.

MICR INSRTUMENTS
The code line contains the following information:
i) First 6 digits indicate cheque number
ii) Next 3 digits indicate city code
iii) Next 3 digits indicate bank code
iv) Next 3 digits indicate branch code
v) Last 2 digits indicate transaction code (Saving or Current)

HOLDER & HOLDER IN DUE COURSE

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 Aspect Holder Holder in due course
Consideration Not essential Essential
Good Faith Not essential NI Should have been obtained in
good faith
Title Same as that of transferor Transferee’s get better title
notwithstanding any defect in
transferor’s title
Time Before or after maturity Before maturity only
Inchoate Instrument Can complete Can complete
Possession of NI May / may not be Possession essential
Authority Can sue in his own name Can sue in his own name

NEGOTIATION: (Sec. 14) is the transfer of any instrument from one person to another to convey title
and to constitute the transferee the holder thereof.

Negotiation of order instrument completes by endorsement & delivery (Sec. 48) whereas negotiation
of bearer instruments completes by mere delivery (Sec. 47)

ENDORSEMENTS
 Endorsement is defined in Sec. 15 of NI Act as “Where the maker or holder of a
negotiable instrument signs the same, otherwise than as such maker, for the purpose
of negotiation, on the back or face thereof, or on a slip of paper annexed thereto. He
is said to endorse the same, and is called the endorser”.

 According to (Sec.6 of the Indian Securities Act, 1886) an endorsement made on a

document, elsewhere than the back itself is not valid.

 Endorsement of part amount is NOT valid.

The endorser of a negotiable instrument, by act of endorsing, signifies the following to his endorsee
and any subsequent holder, that, when the instrument left his hand -

1) He had a good title to it.

2) It was genuine in all its particulars at the time of his endorsement.
3) All the previous endorsements were genuine. Thus Sec 122 of the NI Act provides that “no
endorser of a negotiable instrument shall, in a suit thereon by a subsequent holder, be
permitted to deny signature or capacity to contract of any prior party to instrument”.
4) Further the endorser, by his act of endorsing, promises to indemnify the endorsee or any
subsequent holder for any loss suffered by them on the dishonour of the instrument, provided,
the procedure necessary on dishonour has been duly followed.
5) An endorsement carries with it a right of further negotiation to the endorsee, along with the
right of ownership.
 Sec 85 (2) of NI Act states “ Where a cheque is originally expressed to be payable to bearer, the
drawee is discharged by payment in due course to the bearer thereof, notwithstanding any
endorsement, whether in full or in blank appearing thereon, and not withstanding that any such
endorsement purports to restrict or exclude further negotiation”. This section implies “once a
bearer always a bearer”.

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 Cheques payable to an illiterate person should be endorsed with his left hand thumb
impression, which should be witnessed by an individual well known to both the parties.

 A cheque in the name of the deceased person must be endorsed by his legal representative.

 Endorsement in the case of firms can be either in the name of the firm itself, or, it may be by an
authorized agent or by a legally authorized person on behalf of the firm. But the name of the firm
must be mentioned in full. The omission of the word “company” in the endorsement amounts to an
irregular endorsement.

 A cheque payable to impersonal payees, e.g. income tax, must be endorsed by the authority in
relation to the impersonal payee.

 All endorsement must be done in ink only. Even though, endorsement in pencil is not prohibited
by law, the possibility of alteration/obliteration cannot be avoided in case of endorsement in pencil.

Who can endorse?

A Holder of an instrument, payee of a cheque or Promissory Note & drawer of an accepted bill.

Types of endorsement:

 Blank endorsement (16-1): endorser signs his name without adding any words or
direction. An order cheque or bill becomes payable to bearer, with the blank
endorsement (Sec. 54)
 Endorsement in full: Endorsement adds a direction to pay the amount to the order
of specified persons & signs the Negotiable Instrument.
 Restrictive Endorsement: (Sec. 50): Further negotiability is restricted – e.g. Pay
Ram Kumar only.
 Partial endorsement – (Sec. 56) Only a part time of Negotiable Instrument is
transferred (not valid for the negotiations)
 Sans recourse (Sec. 52) – endorser does not incur any liability i.e. Endorser says
that cheque is being transferred to Endorsee without recourse to him in case of
dishonor.
 Conditional Endorsement – conditions are stipulated. Paying bank is not bound to
verify fulfillment of such conditions. Conditions are binding between endorser &
endorsee only.
 Facultative Endorsement - Endorser reduces rights of receiving any Notice of
Dishonour i.e. Right Notice of Dishonour waived.
 Forged Endorsement –
o By a person other than the holder by signing the name of holder.
o Endorsee (including a holder in due course) or holder for value, subsequent to
forged instrument – do not derive any title.
o Paying bank gets protection (Sec. 85(1), if endorsement is regular
 Endorsement by minor - Minors can endorse, but not liable.

Regular Endorsement
 Spellings : Rajeev Kumar with correct spellings as Rajiv Kumar will endorse as under
Signatures as Rajiv Kumar
(Rajeev Kumar)

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  Prefixes and Suffixes are to excluded
Mr. Dr. Er, Ar need not to be included in the endorsement. However, Major Raja Ram
may endorse as Raja Ram, Major and Dr. Luxmi Kanta Chwla may be endorsed as
Luxmi Kanta Chawla, (Doctor)
 Married Woman (Mrs RK Gupta) can endorse Prabha Gupta (wife of RK Gupta).
 Asha Rastogi can endorse as Asha Gupta (nee or formerly Asha Rastogi).

CROSSING (SECTION 123 TO 131 OF NI ACT)

1. Crossing is a direction by the drawer to his banker to make payment of a cheque drawn by him. In
general crossing, payment can be made through any bank, while in special crossing; it can be
made only through a specified banker. However in any case, payment can be made through a
bank account only.

 General Crossing: (Sec 123): Important aspect in a crossing is two parallel lines,
with or without the words “& CO., Not negotiable” etc

 Special crossing: (Sec 124): Where a cheque bears across its face, an additional
name of banker with or without transverse lines, cheque is deemed to be
crossed specially to that bank. Such cheques should be paid to that banker or to
his agent for collection (sec.126).

As per section 127, if cheque is crossed specially to more than one bank,(unless one bank is acting
as collecting agent to another)the payment shall be refused.

Not-Negotiable crossing (U/s 130):- This crossing does not restrict transferability; however, the
endorsees do not get a better title than the endorsers.

It is a direction to collecting banker that when the collection is for account of an endorsee instead of a
payee. Failure to ensure genuineness of the endorsement may amount to conversion. The cheque
bearing the “not-negotiable” crossing do not confer the special Privilege of the holder in due course

A/C payee crossing: It is not defined by NI Act. It is a direction to collecting banker, that such
cheques should be collected only for the named payee. This cheque cannot be endorsed further. RBI
has directed the banks (u/s 35-A of BR Act) to credit the proceeds of account payee cheques to the
account of named payee only else the payment will be treated as unauthorized.

A Crossing can be cancelled / special crossing can be converted to a general crossing only under the
signature of the drawer.

PAYMENT OF CHEQUES:
1) Duty of Banker: To honor customer’s cheque up to balance held in his accounts as per the
mandate of the customer (Apparent Tenor). Bank has to compensate the drawer for any
loss or damage, caused by non-payment. The cheques should, however, be paid as per
mandate of the customer. (Sec 31)

2) Payment in due course (Sec-10):- A payment is considered in due course if it

satisfies the following conditions:

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  Payment in accordance with apparent tenor of the instrument, in good faith and
without negligence, to the person who possesses the instrument, and is able to
give valid discharge.
 Payment must be made under circumstances which do not afford a reasonable
ground for believing that the person is not entitled to receive payment of the
amount.
 Payment must be made in money only.

3) STATUTORY PROTECTION TO PAYING BANKER (SEC-85)

Sec. of NI Act Conditions to be fulfilled for availing protection.

85(1) Regularity of endorsement i.e. no break in chain of endorsement. Paying bank not
concerned with genuineness.
No protection is available, if drawer’s signatures are forged. If an order cheque,
without having any endorsement, is paid to someone else, banker would not get
protection.
85(2) Endorsement on bearer cheques A paying banker is not required to verify
endorsement on bearer cheques, even if, such endorsement restricts further
transferability of the instrument.
85(A) Protection available u/s 85(1), is also available to Crossed Bank drafts.

89 Cheques on which alteration is not apparent: - Where a cheque, promissory

note, or bill of exchange, has been materially altered, but does not appear to have
been so altered, payment thereof, shall discharge a banker from all liabilities
thereon.
128 Paying bank gets protection if the Payment of a crossed cheque is made in due
course.

COLLECTION OF CHEQUES & DUTIES OF COLLECTING BANKER:

Statutory protection against conversion( illegal interference in the property of another person
/collecting a cheque in customer’s account on which customer has no title.) is available to the
collecting banker as per the section 131( for cheque) and section 131 (A) for the bank draft,
subject to fulfillment of three conditions:
 Collection is in good faith & without negligence. (The account should be properly
introduced. Collection of large amount cheques in new accounts without proper
scrutiny implies negligence.
 Payment is received for a customer.( protection will not be available if collection is
for a non-customer/not maintaining an account with the bank.)
 Cheque is generally or specially crossed before it is presented to the bank.

DUTIES OF COLLECTING BANKER:

 To present cheque within a reasonable time (else liable for damages under section 72
and 84 of NI Act., if customer is put to loss for the delayed presentation.
 To serve notice of dishonor on the customer.
 To handover the proceeds after realization without delay.

BANK DRAFT (SEC 85(A) OF NI ACT.)

 It is a bill of exchange, drawn by a bank on another bank or on it’s another branch.
 As per sec 31 of RBI act, demand draft payable to bearer can be issued only by RBI.

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 Bank’s relationship with the purchaser of a demand draft is that of a debtor and creditor and when
the draft reaches the payee, its relationship with the payee is that of a trustee and beneficiary.

IMPORTANT GUIDELINES (Bank Draft):

 DD’s/MTs/TTs Rs. 50000 & above should not be issued/paid against cash.
 Cancellation:- May be got cancelled by the purchaser before its delivery to the payee (draft
should not have any sign of negotiation.
 Stop payment:-Payment cannot be countermanded by the purchaser.
 Validity:
o All Drafts are valid uniformly for a period of 3 months.
o Validity can be extended further by the issuing branch on the request of the purchaser
or the payee.
 Duplicate Draft : -
 Issued after getting indemnity from purchaser and consent from payee (if
stands delivered to payee)
 Drafts up to Rs.5000/-, may be issued without waiting for non- payment
advice from drawee branch.
 To be issued to a customer within a maximum period of 15 days; else the
banks should pay interest as applicable to FDR of corresponding maturity for
the period of delay beyond this stipulated period. (This period of fortnight is
applicable only if the request comes from either purchaser or beneficiary and
not the 3rd party endorsee)
 In case original and duplicate drafts are presented for payment, duplicate be paid
and original be returned with remarks about loss of draft /payment on collecting
bank’s Guarantee.
 If draft was handed over to payee and lost thereafter, before making payment to
purchaser by issuing duplicate draft, consent of payee is required, as payee gets legal
right of payment once the draft has been handed over to him (including his agent i.e.
post office etc). The payee also can ask for duplicate draft in terms of section 45 of NI
Act.

Days of Grace: (Section 22): Every promissory note or bill of exchange which is not expressed to be
payable on demand, at sight or on presentment is at maturity on the 3rd day after the day on which it
is expressed to be payable. Grace days are not allowed if Due Date is already mentioned like in
CP/CD. If grace days are stated to be more than 3, it will be restricted to 3 days.

When day of maturity is a public holiday, the instruments shall be payable on the next preceding
business day (i.e. the previous business day.) Public holidays include Sunday and any other day
declared as Holiday U/s 25 of NI Act.

Interest rate: when interest rate is specified in the Bill of Exchange (BOE)/or Promissory Note (PN), it
will be charged accordingly.

If no interest is mentioned, Interest will be calculated @ 18% p.a. , as per section 80.

Due date calculation:-

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a) If a bill is payable ‘certain number of days’ after date, usance will commence from the date
following the date of bill, for example a bill dated 2 Feb 1988, payable 30 days after date, it will
be due for payment on 6 March 1988.( 27 Feb (leap year) + 3 March + 3 days of grace.) – Sec 24
b) If a bill is payable ‘certain number of months’ after date, maturity will be the on the day of the
month which corresponds with the date of bill. For example due date of bill 2 Feb 1988, after
‘two month sight’ will be 5th April 1988. In cases where no corresponding date exists in that month,
bill shall fall due on last day of month. For example, if bill is dated 31 Jan, it will fall due on 3
March if it is one month after date.
c) When day of maturity is public holiday, the instrument shall be due on the next preceding business
day. Sec-25
d) Utmost care should be taken while calculating date of maturity when different dates i.e. date of bill,
date of sight/presentment, date of acceptance are given. Terms of payment should be taken care
of, whether these are ‘after date’ or ‘after sight’, and due date be calculated accordingly. If terms of
payment are ‘after date’ due date be calculated from the date of bill and if terms of payment
are ‘after sight’, due date be calculated from the date of ‘sight’ i.e. the date of acceptance of the
bill.

Dishonor of Bill:-
A bill may be dishonored either by way of non acceptance (Sec 91) or by nonpayment (Sec 92). In
case of dishonor, holder has to give notice of dishonor to all previous parties, to whom he wants to
make jointly liable (Sec 93). Notice is not required to drawee/ acceptor of a bill or maker of promissory
note. Notice must be given within a reasonable time,

Noting and Protesting:-

Noting and protesting is optional in case of inland bills but is compulsory in case of foreign bills.
Noting (Sec 99):- Noting is a process of collection of evidence of dishonor , under which the Notary
presents the bill again to the drawee and on dishonor, gives a noting on the bill, mentioning the date
and reasons of dishonor..

Protest (Sec-100)- is a certificate from a Notary Public containing facts of dishonour. Protest is
considered an authentic and satisfactory evidence of dishonor.

CRIMINAL LIABILITY FOR DISHONOR OF CHEQUES (NI ACT SEC 138 TO 142): Section 138 of
NI act (Amend-1988) provides for criminal liability on the drawer of dishonored cheque.
Relevant provisions are as under:

i) Consideration: Cheque should have been issued for discharge of any debt, either partly or
fully. (not as a gift). As per sec 139 until contrary is proved, it will be presumed that cheque
in question was issued for discharge of a debt.
ii) Validity: Cheque should have been presented with in its validity period or 3 months,
whichever is earlier - U/s 138(a).
iii) Dishonour:
a) Cheques should have been dishonored for insufficiency of funds.
b) As per sec 140, drawer himself is responsible to keep balance in account to take care
of all issued cheques.
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 c) The paying bank should return dishonored cheques presented through clearing houses
strictly as per the return discipline prescribed for respective clearing house in the
Uniform Regulations and Rules for Banker clearing Houses. The collecting bank on
receipt of a dishonored cheque should return it immediately to the payee/holder
iv) Notice: Payee or holder should give notice, demanding payment within 30 days of receiving
information for dishonor of cheque. Drawer can make payment within 15 days of receipt of
such notice.
v) Complaint: On a written complaint, either from payee or holder in due course, court of the
metropolitan or judicial magistrate shall try an offence. (Sec-142). The summons can be
served by speed post or by authorized courier services and if not accepted, will be treated as
duly served.
vi) Sentence:
a) The drawer may be punished up to two year imprisonment, and/or fine up to twice
the amount of cheque, or both.
b) As per Sec 141, if a company sends a cheque that is dishonored, every person who at
the time of the offence was in charge of and was responsible to the company as well as
the company shall be deemed to be guilty. As per a recent Supreme Court judgment,
only those partner or director who were directly in control of the business would be held
responsible
c) Directors of the companies who are nominated directors in employment of
Central/State Govt or FIs owned or controlled by Center/State Govt are exempted from
prosecution.
d) Stopping of payment of a post dated cheque issued shall also attract penalty under this
section.
vi) Summary Trial: Provision of summary trial has been made applicable and efforts be made to
conclude the trial within 6 months. In case of conviction in a summary trial, the Magistrate has
been empowered to pass a sentence not exceeding one year imprisonment and fine not
exceeding Rs 5000. Further offence under the act has been made compoundable.
vii) Limitation: Complaint should be made within one month, of the date on which, cause of action
arise (U/s 142) i.e. after expiry of 15 days time given to make payment.
viii) Financial Discipline: To bring financial discipline among customers banks to introduce a
condition at the time of opening of account (in AOF itself) that in case cheque valuing Rs 100
lacs (25 lacs in PNB) and above (irrespective of any amount if issued in favor of Stock
Exchanges by the Stock Brokers) are dishonored for want of sufficient balance at 4 occasions
during a financial year, cheque book facility would be stopped. Banks, at their discretion may
even consider closure of the accounts. In case of advance accounts such as CC or OD,
decision for continuation or otherwise of such cases be taken one step higher than the
sanctioning authority. Branches should report such data to their controlling office and Banks
should place before their boards/MC the data regarding dishonor of cheque involving amount
of Rs 100 lacs ( 25 lacs in PNB) and above including transactions of stock exchange brokers.

CTS -2010 – Important guidelines

 Likely to replace the existing form of cheque in the entire country by 1.8.2013.
Mandatory Features were made applicable w.e.f 1.12.2010. Which are as under?

 Paper will have protection against alteration by having chemical sensitivity to acids,

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 alkalis, bleaches and solvents. It will not glow under UV light rather it will be UV dull.
 There will be Water mark “CTS-INDIA” in oval shape with dia 2.6 to 3.00 cm.
 VOID pantograph with hidden embedded “COPY” or “VOID” feature. This feature would
be clearly visible in photocopy of the cheque.
 Bank’s logo will be printed in UV ink.
 Color of the cheque will be Light Pastel.
 No alteration or correction is to be carried out in the cheque.
 Cheques issued in current account and corporate customers should be issued with
account number field pre-printed.
 Courtesy Amount means amount in figures whereas Legal amount means amount in
Words.

Practical examples:

1. Cheque dt. 20.2.12 presented on 20.5.12 is stale.

2. A cheque favoring Lord Krishna or order can be credited to the Trust in the name of Lord
Krishna or payment can be made to Drawer only.
3. A Bearer cheque having name of payee as Balbir Singh endorsed as Balveer Singh can be
paid because a cheque once a bearer is always a bearer.
4. A payee having lost the cheque requests to stop payment, caution can be marked in the
account and Drawer’s formal instructions will be sought.
5. A customer signs the cheque differently from the record in different language can be paid
because it carries mandate of the customer.
6. A cheque DT. 5th Jan is presented for payment on 5th April owing to the fact that 4th Jan was
holiday; the cheque cannot be paid being stale cheque.
7. Where, there is difference in Words and Figures in amount of the cheque, amount in words
being legal amount can be paid U/S 18 of NI Act.

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