MODULE 2: NEGOTIABLE INSTRUMENTS

Negotiable Instruments Act, 1881

 It extends to the whole of India except the state of Jammu and Kashmir.
 The act came into force on 1st March 1880.
 It is recently amended by “The Banking, Public Financial Institutions and
Negotiable Instruments Laws (Amendment) Act, 1988”.
Meaning
A negotiable instrument is a written document commonly used in commercial
transactions that guarantees the payment of a specific amount of money, either on
demand or at a predetermined time. It creates a right in favor of a person and is freely
transferable through delivery or endorsement, making it an essential tool for facilitating
trade and payments. These instruments are considered money or cash equivalents, as
they can be converted into liquid cash under certain conditions. Examples of negotiable
instruments include promissory notes, bills of exchange, and cheques.
Definition
According to Justice Willis: “A negotiable instrument is one, the property in which is
acquired by anyone who takes it bona fide and for value, notwithstanding any defect in
the title of the person from whom he took it.”
According to Section 13 of the Negotiable Instruments Act, 1881, a negotiable
instrument means a promissory note, bill of exchange, or cheque payable either to order
or to bearer.
A negotiable instrument may be made payable to two or more payees jointly or may be
made payable in the alternative to one of two, or one or some of several payees.
The act recognizes three instruments as negotiable instruments: promissory note,
cheque, and bill of exchange. However, it does not exclude those instruments that
satisfy the conditions of negotiability:
1. The instrument should be freely transferable by the custom of trade.
2. The person who obtains it in good faith and for value gets it free from all
defects, and thus, is entitled to recover the money of the instrument in his
own name.
Special Features/Characteristics of Negotiable Instruments
 Freely transferable
 Negotiability
 In writing
 Unconditional order or promise
 Payment of a certain sum of money
 Time of payment
 The payee must be a certain person
 A negotiable instrument must bear the signature of its maker
 Delivery of the instrument is essential
 Stamping of bills of exchange and promissory notes is mandatory
 The negotiable instrument was duly stamped

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TypesofNegotiableInstruments
a. Instruments negotiable by law
1. Promissory notes
2. Bills of exchange
3. Cheques
b. Instruments negotiable by custom or usage of trade
1. Hundies
2. Bank draft
3. Dividend warrant
4. Share warrant
5. Postal order
6. Railway receipt
Promissory Note
A promissory note is a written promise to pay a debt. It is a financial instrument in
which one party (maker or issuer) promises in writing to pay a determinate sum of
money to the other (the payee), either at a fixed, determinable future time or on demand
of the payee, subject to specific terms.
 A promissory note is an instrument of credit which possesses the characteristics
of negotiability.
 It is a signed document containing a written promise to pay a stated sum to a
specified person or the bearer at a specified date or on demand.
 This can be either payable on demand or at a specified time.
 If the promissory note is unconditional and readily salable, it is called a
negotiable instrument.
 As per Section 4 of the Negotiable Instruments Act, a promissory note is “an
instrument in writing (not being a bank note or a currency note) containing an
unconditional undertaking, signed by the maker, to pay a certain sum of money
only to or to the order of a certain person or to the bearer of the instrument.”
Bill of Exchange
A Bill of Exchange is a negotiable instrument that is an unconditional written order
from one party (the drawer) to another party (the drawee) to pay a specific amount of
money to a third party (the payee) at a predetermined date.
Features of a Bill of Exchange:
1. Written Instrument – It must be in writing.
2. Unconditional Order – The payment must be made without any conditions.
3. Parties Involved – It involves three parties:
Drawer – The person who makes the bill and orders payment.
Drawee – The person who is directed to pay.
Payee – The person who receives the payment.
4. Specified Amount – The amount payable must be certain.
5. Specified Date -The payment must be made either on demand or at a fixed
future date.

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 6. Negotiable Instrument – It can be transferred to another party by endorsement.
7. Acceptance The drawee must accept the bill to confirm payment responsibility.
Example :Suppose A sells goods worth ₹10,000 to B on credit. A (drawer) can draw a
bill on B (drawee), directing him to pay ₹10,000 to C (payee) after 60 days.

Types of Bills of Exchange

A Bill of Exchange can be classified based on different factors such as time of
payment, documentary requirements, acceptance, place of origin, and payment
guarantee. Below is a detailed explanation of each type:
1. Based on Time of Payment
(a) Demand Bill
A bill payable on demand or when presented to the drawee for payment. It does not
have a fixed maturity [Link] used in short-term transactions and by banks
for quick [Link]: A cheque is a form of a demand bill.
(b) Usance (Time) Bill
A bill payable after a fixed period mentioned in the bill. The drawee gets a certain
period to arrange funds before making the payment. Common in international trade
where payments are scheduled after the delivery of goods. Example: A bill that states
"Payable 90 days after sight."
2. Based on Documentary Requirements
(a) Clean Bill
A bill of exchange that is not accompanied by any documents like invoices, shipping
receipts, or transport documents. The drawee must trust the drawer since no proof of
goods or services is attached. Common in transactions between well-known parties.
(b) Documentary Bill
A bill accompanied by documents of title such as invoices, bills of lading (shipping
documents), railway receipts, etc. The drawee is expected to make payment only after
verifying the attached documents. Common in international trade to ensure the
shipment of goods before payment.
3. Based on Acceptance
(a) Trade Bill
A bill drawn and accepted for a genuine trade transaction (sale of goods/services). It
serves as a legally binding document for future payments. Example: A manufacturer
sells machinery on credit and draws a bill on the buyer.
(b) Accommodation Bill
A bill drawn without a trade transaction to help another party obtain credit. Often
used among business associates for financial [Link] does not involve actual
goods/services but is used to raise funds.
Cheque
A cheque is a negotiable instrument that directs a bank to pay a specific sum of money
to a person or entity. It is a widely used method for cashless transactions.
Definition (Section 6 of the Negotiable Instruments Act, 1881):

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"A cheque is a bill of exchange drawn on a specified banker and not expressed to be
payable otherwise than on demand."

Parties to a Cheque
[Link]:
The person who writes and signs the cheque, instructing the bank (drawee) to
pay a specified amount to the payee.
Example: The account holder issuing the cheque.
[Link]:
The specific bank on which the cheque is drawn. The drawee is responsible for
honoring the payment as per the drawer's instructions.
Example: The bank mentioned on the cheque.
[Link]:
The person or entity to whom the payment is to be made. The payee is the
recipient of the amount written on the cheque.
Example: The name mentioned in the “Pay to” section of the cheque.
Note: In some cases, the drawer and the payee can be the same person (e.g.,
when the cheque is self-drawn).
Essential Features of a Cheque (Requisites of a Valid Cheque)
1. Instrument in writing: A cheque must be a written document.
2. An unconditional order: The instructions to the bank must not be
subject to any conditions.
3. It is always drawn on a specified banker: The bank must be clearly
mentioned in the cheque.
4. It is drawn only by the customer of a bank: Only account holders can
issue cheques.
5. It must be signed by the drawer: The signature of the drawer is
mandatory for validity.
6. The order must be for the payment of money: Cheques cannot be used
for payment in goods or services.
7. A certain sum of money only: The amount to be paid must be definite
and specified.
8. Payable on demand: A cheque is always payable on demand.
9. Payee should be a certain person: The person receiving the payment
must be clearly identified.
Cheque Bill of Exchange
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 Always drawn on a printed
Need not be drawn on a printed form.
form.

Doesn’t require acceptance. Acceptance by the drawee is essential.

Can be drawn only on a Can be drawn on any person, including a
banker. banker.
Payable on demand or after a specified
Always payable on demand.
date.
Can be crossed. Cannot be crossed.

Days of grace are not allowed. Days of grace are allowed.

Can be countermanded
Cannot be countermanded.
(stopped).
Can be made payable to the
Can be made payable only to order.
bearer.

Used as a means of payment. Used for financing trade.

Cannot be protested or noted

Usually protested and noted on dishonour.
on dishonour.
Types of Cheques
1. BearerCheques:
These cheques are payable to the person who presents them at the bank for
payment, without the need for identification.
Example: A cheque with "or bearer" after the payee's name.
2. OrderCheques:
These cheques are payable only to the specific person or entity whose name is
mentioned on the cheque, or to anyone else upon proper endorsement and
delivery.
Example: A cheque with "or order" after the payee's name.
3. MICRCheques:
MICR (Magnetic Ink Character Recognition) cheques have a special code
printed in magnetic ink at the bottom, which allows for quick and secure
processing.
Example: Cheques used in banks for electronic clearance.
4. Truncated Cheque:
A truncated cheque is a physical cheque that is converted into a digital image for
electronic processing, eliminating the need to handle the physical document.
Example: Digital clearing of cheques under the Cheque Truncation System
(CTS).
5. Electronic Cheque:
An electronic cheque (e-cheque) is a digital version of a paper cheque, created,
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 signed, and processed electronically.
Example: Online transactions using e-cheque systems in banking apps.
These types of cheques cater to different needs, offering flexibility and convenience in
financial transactions.
Cheque Truncation – Cheque Truncation System (CTS)
 Cheque Truncation refers to the process where the physical cheque is scanned at
the bank of first deposit (also called the presenting bank). The electronic image
of the cheque is then sent to the clearing house for sorting and routing to the
drawee (paying) bank.
 The Cheque Truncation System (CTS) is a system introduced by the Reserve
Bank of India (RBI) for quicker and more efficient cheque clearing. It allows for
faster clearing and settlement of cheques by using electronic images instead of
the physical cheque.
Dating of a Cheque
 Dating of Cheques refers to writing the date on the face of the cheque.
 Generally, the drawer writes the date before issuing the cheque. If the drawer
forgets to write the date, the cheque does not become invalid, but it may lead to
confusion or delays.
 The payee or any subsequent holder can fill in the date. The date should be
complete and accurate in all aspects.
Types of Cheques Based on Date
 Ante-dated Cheque:
A cheque that bears a date earlier than the actual date of issue.
Example: A cheque dated 15th January, but issued on 20th January.
 Post-dated Cheque:
A cheque that bears a date in the future, i.e., a date that is yet to come.
Example: A cheque dated 25th February, but issued on 15th January.
 Stale Cheque:
A cheque that is not presented for payment within a reasonable period of time
(typically 3 to 6 months from the date of issue), and hence is considered invalid.
 Mutilated Cheque:
A cheque that is torn into two or more pieces is called a mutilated cheque. Such
cheques can often be reissued by the bank, provided they are verified and
validated.
Holder of a Cheque
The holder of a cheque is the person who holds the cheque and is entitled to receive
payment. This can be the payee (the person to whom the cheque is initially issued) or
any subsequent party to whom the cheque has been transferred.
 Section 8 of the Negotiable Instruments Act, 1881 defines a holder as "any
person who is entitled, in his own name, to the possession of the instrument and
to receive or recover the amount due thereon from the parties thereto."
To be considered a holder of a cheque, the person must meet the following conditions:
1. The person need not necessarily possess the cheque physically, but must be
entitled to possess it in their own name.

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 2. The person must be named in the instrument as the payee or endorsee, or must
be the bearer of the instrument.
3. The person should have actual or constructive possession of the instrument
lawfully.
4. Mere possession is not enough; the person must be entitled to receive or recover
the money from the parties involved.
Holder in Due Course
A holder in due course is defined under Section 9 of the Negotiable Instruments Act,
1881 as "any person who, for consideration, becomes the possessor of the instrument
before the amount mentioned in it becomes payable, and without having sufficient cause
to believe that any defect existed in the title of the person from whom he derives his
title."
To be a holder in due course, the person must meet the following conditions:
1. The person must have obtained possession of the instrument as a payee or
endorsee (in the case of an order instrument), or as a bearer (in the case of a
bearer instrument).
2. The instrument must have been obtained for valuable consideration, meaning the
person must have paid the full value for it.
3. The person must have obtained the instrument before its maturity date.
4. The person must have obtained the instrument in good faith, without any reason
to believe that there was any defect in the title of the person transferring the
instrument.
A holder in due course is protected under the law and has the right to claim the amount
on the instrument, even if there are defects in the title of the transferor, as long as the
conditions are met.
Differences between holder and holder in the due course

Holder Holderinduecourse
Aholderofanegotiableinstrumentneednot Aholderinduecoursemustbeaholder
Necessarily be a holder

A holder might have acquired the A holder in due course must acquire the
instrument before or after its maturity. instrument before its due date.

A holder may take an instrument with or A holder in due course must take the
without notice of any defect in the title of instrument without any notice of defect in
the transferor. the title of the transferor.
A holder may take an instrument with or A holder in due course must have taken
Without the notice of any defect in the the Instrumentwithout any notice of
title of the transferor defectin the title of the transferor

A holder does not get a better title than A holder in due course gets a better title
that of the transferor. than that of the transferor.

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 A negotiable instrument passing through A negotiable instrument passing through
the hands of a holder does not take its all the hands of a holder in due course takes
bad aspects. its all bad aspects.

Crossing of Cheque
Cheques can be classified into two types: open cheques and crossed cheques.
 Open cheque: A cheque without crossing, which is payable at the counter of the
bank to any person who presents it.
 Crossed cheque: A cheque that includes a crossing, which is a direction to the
paying banker to pay the amount only to another banker and not directly to the
person who presents it at the counter.
The crossing of a cheque involves drawing two parallel transverse lines across the face
of the cheque, either with or without the words "any company." This crossing can be
handwritten or stamped.
Types of Crossing
[Link] Crossing:
Involves two parallel transverse lines drawn across the face of the cheque. These lines
are typically drawn in the left-hand top corner of the [Link] words “and company”
or its abbreviation may be written between the lines. Words like “not negotiable” or
“account payee” can also be added alongside a general crossing. The paying banker is
required to pay the amount of a generally crossed cheque to another bank and not
directly to the holder.

Examplesofgeneralcrossing

[Link] Crossing:

According to Section 124 of the Negotiable Instruments Act, 1881, a special crossing
occurs when the name of a banker is added across the face of the cheque, with or
without the words "not negotiable." Unlike general crossing, two parallel lines are not
essential for special crossing. The name of the collecting bank should be specified in the
crossing. Words like "not negotiable" or "account payee" can also be added alongside a
special crossing. The paying banker is required to pay the amount of a specially crossed
cheque only to the specified bank.
Difference Between General Crossing and Special Crossing
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 Generalcrossing Specialcrossing
Two parallel transverse lines are essential in These are not essential in special crossing.
general crossing.

The words "and company" may or may not be These words are not written in special
written in general crossing. crossing.

In general crossing, the name of the collecting In special crossing, the name of the collecting
banker is not written on the face of the banker is written on the face of the cheque.
cheque.
The amount of a generally crossed cheque can The amount of a specially crossed cheque can
be paid to any banker. be paid only to the banker named in the
crossing.

Thegenerallycrossed chequebecomessafe Specialcrossingmakesthechequemore Safer

than generally crossing

1. Not Negotiable Crossing:

The word "not negotiable" may be included in both general and special crossings. "Not
negotiable" means that while the cheque can still be transferred, it cannot be transferred
with a better title than that of the transferor. Negotiability refers to the ability to transfer
the cheque by mere delivery or endorsement, and transfer it free from defects. A cheque
crossed "not negotiable" can still be transferred, but the transferee will not have a better
title than the transferor. If the transferor's title is defective, the transferee's title will also
be defective.
2. Account Payee Crossing:
This type of crossing provides additional protection to the cheque. It directs the
collecting banker to collect the cheque only for the benefit of the payee and no one else.
This adds a layer of security, ensuring that only the intended payee can receive the
proceeds of the cheque.
3. Double Crossing:
Double crossing refers to a cheque being crossed to more than one banker. It is not
allowed because the purpose of the first crossing would be defeated by the second
crossing. A cheque can either be crossed generally or specially, but not both.
4. Obliterating a Crossing:
Obliterating a crossing means erasing or removing the crossing from the cheque.
Dishonest individuals sometimes erase the crossing, making it difficult for the paying
banker to detect. This could potentially lead to the cheque being paid at the counter
despite the erasure. Such activity is considered fraud, and the bank is expected to be
cautious in identifying such irregularities.
5. Opening of Crossing:
When the crossing on a cheque is cancelled, it is called the opening of crossing, which
converts the crossed cheque into an open [Link] the drawer has the right to cancel
the crossing on the cheque. Once the crossing is opened, the cheque is no longer

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restricted to being paid through a bank and can be encashed directly at the counter by
anyone.
These various types of crossings serve to enhance the security and control over the
payment process, preventing unauthorized encashment and ensuring that the cheque
reaches the intended recipient.
Demand Draft
A Demand Draft (DD) is a negotiable instrument used for transferring money from one
bank account to another, typically between two branches of the same bank.
According to Section 85 of the Negotiable Instruments Act, a demand draft is defined as
"an order to pay money drawn by one office of a bank upon another office of the same

bank for a sum of money payable to order on demand."

The validity period of a demand draft is generally 3 months, but it can be revalidated
upon application if needed. A demand draft can never be dishonoured because the
payment is made in advance by the purchaser before the draft is issued. For demand
drafts of Rs. 20,000 or more, they must be issued with an A/C Payee crossing to ensure
security and prevent unauthorized encashment.
A demand draft is often considered a safer and more reliable method of transferring
money compared to a regular cheque because the funds are pre-paid, and it cannot be
dishonored due to insufficient funds.
Difference between cheque and demand draft
Cheque Draft
Itis issued byan individual Itis issuedbyabanker
It isdrawnbyanaccountholderofa bank Itisdrawnbyonebranchofbankonanother
Branch of the same bank

Both the drawer and drawee are the same

The drawer and drawee are different persons.
bank.

Defined under the Negotiable Instruments Not precisely defined under the Negotiable
Act. Instruments Act.

Payment can be stopped by the drawer. Payment cannot be stopped.

Payment is made after presenting the cheque

Issued only after payment is made to the bank.
to the bank.

Backed by a bank guarantee, making it more

Not backed by a bank guarantee.
secure.

Can be made payable either to bearer or to Always payable to the order of a certain
the order of a person. person.

Can be dishonored for insufficient funds in the

Cannot be dishonored.
drawer's account.

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Endorsement
Definition: Endorsement refers to the act of signing a negotiable instrument, such as a
cheque, for the purpose of transferring or negotiating it to another person.
Section 15 of the Negotiable Instruments Act, 1881 defines endorsement 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 or signs for the same purpose a stamp paper intended to be
completed as a negotiable instrument, he is said to endorse the same, and is called the
endorser."
 The person who endorses the instrument is called the endorser, and the person to
whom the instrument is endorsed is called the endorsee.
 The endorsement can be made on the back or front of the negotiable instrument
but is generally made on the back.
Allonge
 Allonge is a piece of paper attached to a negotiable instrument when the back of
the instrument is filled with endorsements. It provides additional space for
further endorsements.
 Effect of Allonge:
o The endorsee gains the right, title, or property in the instrument.
o The endorsee also gains the right to further negotiation of the instrument.
o The endorser certifies the genuineness of the instrument.
o The endorser guarantees the title of the instrument and promises to
indemnify the endorsee or any subsequent holder in case of dishonor.
General Rules Regarding Endorsement
1) Signature of the Endorser: The endorser must sign the instrument or any authorized
person must sign it to make the endorsement valid.
2) Spelling: The name of the endorser should be spelled exactly as it appears on the
instrument (e.g., if the name is incorrectly spelled, the endorsement should reflect
the correct name).
a) Example: If the name is "Sithara" but written as "Sitara", the endorsement
should be corrected to "Sithara Sithara".
3) No Addition or Omission of Initials: The initials of the endorser or payee cannot be
added or omitted.
 Example: A cheque payable to K. P. Sahadevan cannot be endorsed
as K. Sahadevan.
4) Exclusion of Prefixes and Suffixes: Prefixes (Dr., Mr.) and suffixes (M.D., Ph.D.)
should be omitted from the endorsement.
a) Example: A cheque payable to Dr. P.T. Sebastian should be endorsed as P.T.
Sebastian.
5) Endorsement by Women:
a) Spinster: The endorsement should include her maiden name followed by her
father's name.

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 b) Married Woman: The endorsement should include her name and husband's
name.
6) Endorsement by Illiterate Persons: If the payee is illiterate, they can endorse the
instrument by affixing their thumb impression and it must be witnessed by someone
who provides their full address.
a) Example: "Thumb impression Muneer, Attested by: Sd/ Abdul Salam, Advocate,
Court Road, Kozhikode."
7) Endorsement by Firms:
a) For a partnership firm, the name of the firm must be signed by a person (partner,
manager, etc.) authorized to sign on behalf of the firm.
b) Example: "Pay to Bright Company" or "For Sai Trading Company, Saikumar
(Partner)".
8) Endorsement by Companies and Other Institutions:
a) The endorsement should be made by a person authorized to sign on behalf of the
company or institution.
b) Example: "For Global Trading Limited, Rajeev (Director)" or "For Jawahar
College, Principal".
9) Endorsement by Agents: An agent may endorse on behalf of their principal.
a) Example: "For M. Sreenivasan, K. S. Ranjith (Agent)".
10) Endorsement by Liquidators: If a company is liquidated, an official receiver may
endorse a cheque.
a) Example: "For Ajith Minerals Ltd. in Liquidation, P. Mohandas (Liquidator)".
11) Endorsement by Trustees and Executors: If a cheque is payable to trustees or
executors, the endorsement must be made by all of them.
a) Example: "P. Kuruvila, R. Laxmanan (Trustees of Late Joseph Mathew)".
These rules ensure that endorsements are done in accordance with the legal
requirements and help in the smooth transfer of negotiable instruments

Kinds of Endorsements
1. Blank Endorsement:
In a blank endorsement, the endorser simply signs the negotiable instrument without
specifying the endorsee. This creates an instrument payable to bearer.
 Example: "Pay to the bearer" followed by the endorser's signature.
2. Special Endorsement:
A special endorsement specifies the endorsee. It indicates that the instrument is payable
to a specific person or entity.
Example: "Pay to John Doe" followed by the endorser's signature.
3. Restrictive Endorsement:
This limits the further transfer of the instrument. It imposes restrictions on how the
instrument can be transferred or used.
Example: "Pay to A only" or "For deposit only".
4. Conditional or Qualified Endorsement:

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A conditional endorsement is made subject to a condition. The instrument can only be
used if the condition is fulfilled.
Example: "Pay to X upon completion of the project".
5. Sans Recourse Endorsement:
This type of endorsement is made with the phrase "sans recourse", meaning the endorser
is not liable if the instrument is dishonored. It releases the endorser from liability.
Example: "Pay to Y sans recourse".
6. Sans Frais Endorsement:
This endorsement excludes any liability for costs (fractions or fees) associated with the
instrument.
Example: "Pay to Z sans frais".
7. Facultative Endorsement:
This type of endorsement allows the endorsee to either accept or reject the instrument
and is not binding.
Example: "Pay to X facultatively".
Liability of Endorser
 When an endorser signs a negotiable instrument, they imply a promise that the
instrument will be accepted and paid on due presentation.
 Dishonor of Bill: If the instrument is dishonored, the endorser is liable to
compensate the holder, provided proper notice of dishonor is given.
 The endorser cannot deny the genuineness or regularity of the drawer’s signature
or their own endorsement to a holder in due course.
 The endorser cannot dispute the validity of the endorsement or title to the
instrument with any subsequent endorsee.
 If there are multiple endorsements, the endorser’s liability is determined by the
order in which their signatures appear.
 The liability of the endorser continues even after their death until the instrument
is paid.
 The endorser’s liability can be excluded by a separate contract stipulating
otherwise.
 Once the instrument is paid in due course, the endorser is relieved from their
liability.
 The endorser can avoid liability by endorsing the instrument with the phrase
"sans recourse".
Regularity of Endorsement
1. Signature Requirement: The payee or endorsee (or their authorized agent) must
sign the endorsement.
2. For Cheques Payable to Two Persons: Both individuals must endorse the cheque
in their own handwriting.
3. Capital Letters: The endorser should not sign in capital letters; doing so may
make the endorsement irregular.
4. Spelling Consistency: The spelling of the endorsee's name must match the one
on the instrument.

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 5. No Changes in Initials: The initials of the payee or holder must not be changed
in the endorsement, and prefixes and suffixes should be dropped.
6. Pencil or Rubber Stamp Endorsements: Pencil or rubber stamp endorsements are
usually not accepted.
7. Endorsement by Married Women: A married woman should endorse using her
name followed by her husband's name.
8. Endorsement by Spinsters: A spinster should endorse using her first name and
surname.
9. Illiterate Persons: An illiterate person can endorse the instrument by affixing a
thumb impression.
10. Endorsement by Legal Representatives: A cheque in the name of a deceased
person must be endorsed by their legal representative.
11. Endorsement by Firms: A cheque payable to a firm may be endorsed either in
the firm's name or by an authorized agent or person acting on behalf of the firm.
12. Endorsement by Executors/Administrators: A cheque payable to executors or
administrators can be endorsed by any one or all of them.
Marking of Cheques
Marking a cheque is a process where the paying banker certifies the cheque, providing
an assurance that the funds are available in the drawer's account for payment. This
process adds additional security to the cheque.

Definition: Marking a cheque refers to the certification given by the drawee bank (the
bank of the drawer) that it undertakes the responsibility to pay the cheque, provided
there are sufficient funds in the drawer's account.
The marking provides an additional guarantee to the payee or holder of the cheque that
the cheque will be honored when presented.
Conditions for Marking: The drawee bank will mark the cheque when there is sufficient
balance in the drawer's account to cover the amount mentioned on the cheque.
Instances of Marking a Cheque
1. At the Request of the Drawer:
The drawer can request the drawee bank to mark the cheque as good for payment. This
ensures that the bank will honor the cheque when presented.
2. At the Request of the Payee or Holder:
The payee (or any holder) of the cheque can request the drawee bank to mark the
cheque to confirm that the payment will be made.
3. At the Request of Another Banker:
Another bank (usually the collecting bank) can request the drawee bank to mark the
cheque when it is being presented for collection.
Cancellation of Marking
The certifying bank (the drawee bank) has the option to cancel the marking of the
cheque at any time before the cheque is delivered by the drawer to the payee. This
means the bank can reverse the certification if the cheque has not yet been handed over
for payment.

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Marking of cheques provides an added layer of security to the transaction by ensuring
that the bank will honor the cheque if the conditions are met. It also prevents the cheque
from being dishonored due to insufficient funds in the drawer's account at the time of
presentation.
Electronic Payments
Electronic payments (e-payments) are a subset of e-commerce transactions involving
the exchange of money between buyers and sellers over the internet. These payments
are processed directly from bank accounts using secure technology, enabling
transactions to be completed online.
Electronic payments are financial exchanges conducted online, typically involving
digital financial instruments that are backed by a bank, intermediary, or legal tender.
Parties Involved in E-Payments
1. Payer (Buyer or Customer): The entity that makes the payment to the payee.
2. Payee (Seller or Merchant): The entity that receives the payment from the payer.
3. Financial Institution (Bank or Mint): The institution that facilitates the
transaction.
4. Issuer: The financial institution that interacts with the payer, validates their
account, and holds the payer's assets.
5. Acquirer: The financial institution that holds the payee's accounts and assets,
processes the payments, and facilitates the clearance of funds through inter-bank
transactions.
6. Trustee (Arbiter): An independent entity that may be involved to resolve
disputes between the payer and payee.

Characteristics of E-Payments
• No Paper Involved: E-payments are fully electronic and do not require paper
documentation.
• Fast, Safe, and Secure: These payments are generally quicker, safer, and more
secure than paper-based alternatives.
• Fully Traceable: All transactions are traceable, providing transparency and
accountability.
• Same-Day Value: Many banks offer same-day value for payments within the
same bank, and some provide inter-bank transfers for large payments on the same day.
• Convenience: E-payments are convenient, allowing transactions to occur
anywhere and anytime.
• Helps Improve Customer Retention: Businesses can use e-payments to enhance
customer service and retention.
• No Bouncing: Unlike cheques, e-payments won’t "bounce" as long as funds are
available in the payer's account.
Phases in E-Payments
1. Registration: The payer registers with the payment system, providing necessary
account information.
2. Invoicing: The payee issues an invoice for the goods or services provided.

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3. Payment Selection and Processing: The payer selects their preferred method of
payment, and the payment is processed by the financial institution.
4. Payment Authorization and Confirmation: The payment is authorized by the
payer and confirmed by the financial institution before the transaction is completed.
Types of E-Payment
• Cards: Debit, credit, or prepaid cards used for online payments.
• Internet Payments: Payments made directly through websites or apps.
• Mobile Payments: Payments made using mobile phones or apps.
• Financial Service Kiosks: Physical machines that allow users to make electronic
payments.
• Television Set-Top Boxes and Satellite Receivers: Platforms that allow
payments for services through TV devices.
• Biometric Payments: Payments authenticated by biometric data, such as
fingerprints or facial recognition.
• Electronic Payment Networks: Systems that facilitate and process electronic
payments between parties.
• Person-to-Person (P2P) Payments: Direct payments between individuals, often
facilitated through apps or digital wallets.
E-payments have revolutionized the way financial transactions are conducted, offering
convenience, efficiency, and security for both businesses and consumers.

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