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Class 12 AHSEC 2022 Banking Question Paper Solved English Medium
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BANKING
2022
BANKING OLD QUESTION PAPER SOLVED
1. (a) In which year ‘Lead Bank Scheme’ was introduced?
Ans: The Lead Bank Scheme was introduced in December, 1969.
(b) Who issues one-rupee note?
Ans: Minister of Finance, Government of India.
(c) Write the full form of OTCEI?
Ans: Over the counter exchange of India.
(d) IFCI was established in ______.
Ans: 1948
(e) State the meaning of Hundi.
Ans: The word, “Hundi” has been derived from the Sanskrit word “hund” or “huna” (2017) which means to “collect”.
(f) Define General Crossing of a cheque.
Ans: A general crossing is a crossing where a cheque simply bears two parallel lines with or without any words and without any specification.
(g) What is meant by Bank Overdraft?
Ans: Bank overdraft is an arrangement by which the customer is allowed to overdraw from his account. It is granted against some collateral securities.
(h) Name two subsidiaries of SBI.
Ans: State Bank of Bikaner and Jaipur. State Bank of Hyderabad.
2. Write a note on Presidency Banks.
Ans: Presidency Banks: The banking business of Agency House which survived and continued to carry on trade and banking together was progressively taken over by the Presidency Banks. The three Presidency Banks viz.:
(a) The Bank of Bengal (1809).
(b) The Bank of Mumbai (1840). And
(c) The Bank of Chennai (1843).
were established under the Charter of the East India Company. These Banks acted as banker to the East India Company at Kolkata, Mumbai and Chennai and performed Central Banking functions for their respective areas.
3. What is the meaning of underwriting?
Ans: The term underwriting is used for the process through which an institution or an individual takes on a financial risk for a fee or at a predetermined cost. This risk is generally taken in the case of loans, insurance or investments. In accordance with the term underwriting, the term underwriter is used which stands for the person or institution who writes their name under the total amount of risk that they are willing to take for the specified amount of money or premium.
4. Write two objectives of IBRD.
Ans: The objectives of World Bank are:
(a) To provide long-run capital to the member countries for reconstruction and development.
(b) To promote private capital investment by providing guarantee on private loans and capital investment.
5. What is a Post-dated Cheque?
Ans: If a cheque bears a date later than the date of issue it is termed as post-dated cheque. Post-dated cheque cannot be realised before the date mentioned in the cheque.
6. Who is a Paying Banker?
Ans: The term paying banker refers to the drawee banker who pays the amount of cheques to his customer. The paying banker is defined as the “banker to whom the order is made to pay, where the order is issued as the form of a cheque”.
7. Write three differences between current account and saving deposit account.
Ans: Current Deposit Account is one which the customer is allowed to deposit or withdraw money at number of times as and when he likes.
Savings Deposit Account is a type of deposit account which is opened by the customer for depositing their small savings for their future benefits.
Difference between current deposit account and saving deposit account:
| Current deposit account | Saving deposit account |
| (a) There are no restrictions on withdrawal of money. | (a) There is restriction on withdrawal. |
| (b) No interest is given on this type of account | (b) Small amount of interest is given. |
| (c) Overdraft facility is given to current account holders | (c) No overdraft facility is given in this type of account. |
8. Write three objectives of Money Market.
Ans: Objectives, Significance/Functions of Money Market.
The major functions of money market are given below:
(a) Economic Development: The money market helps in economic development of a country by providing short term funds to both public and private institutions without any discrimination.
(b) Funds for government: Money market helps the government in borrowing short term funds at very low interest rate. This can be done by issuing treasury bills.
(c) Return on idle funds: Money market helps the lenders to earn return on their idle or surplus funds for short period.
9. Write three functions of NABARD.
Ans: Objectives/Functions of NABARD
(a) To provide training and Research facilities for rural Development.
(b) To keep a check on all the projects which are refinanced by NABARD; through timely inspection, monitoring and evaluation.
(c) To Act as a coordinator and regulator for rural credit institutions.
10. Write a note on Endorsement in blank.
Ans: Blank or General Endorsement: An endorsement is said to be blank or general, if the endorser sings on the back or on the face of the instrument without specifying the name of any endorsee. The effect of his endorsement makes the instrument payment to bearer even though originally it was payable to order. For example, a cheque payable to Mr. X or order and Mr. X endorse the cheque to Mr. Y by simply affixing his signature. The effect of this endorsement makes the instrument payable to bearer even though originally it was payable to order.
11. Under what circumstances banker must pay a cheque?
Ans: The Paying banker is bound to pay the cheque if the following conditions are satisfied.
(a) When the cheque has been drawn on the proper form i.e. on the forms supplied by the banker.
(b) When the cheque bears a date and which is due.
(c) When there is sufficient fund in the account of the customer to pay the cheque in full.
(d) When the fund is properly applicable for the payment of the cheque.
(e) When the amount of the cheque is mentioned in both words and figures and they are same.
Or
State the minimum reserve system of note issue.
Ans: The minimum reserve system is followed in India since 1956. This is a system in which the Central Bank is authorized to issue notes up to any limit by keeping a certain minimum reserve of gold and foreign securities. In India, the RBI is required to keep the minimum reserve of Rs. 200/- crore out of which Rs. 115/- crore should be kept in gold. The system is very elastic and economical for developing countries as it requires only a small and fixed amount of gold reserve. However, it lacks in public confidence due to non-convertibility of notes.
12. Write a note on social control of Commercial Bank.
Ans: Social Control over banks: Primary functions of banks are to accept deposit from public and lend it business for its productive use. The banks are the custodian of savings of the public. They mobilises the savings from all sections of the society and channelise them to industries and other by way of granting loans and advances. Previously it was observed that banks are directing their advances to medium and large scale industries and small scale industries and other priority sectors such as agricultural sector is neglected. The main reason behind this problem is that the directors of the banks were mostly industrialists and interested in sanctioning loans to those industries in which they are connected. To overcome these deficiencies found in the working of the banks, the Banking Laws (Amendment) Act was passed in December 1968 and came into force on 1-2-1969. It is known as the scheme of ‘social control’ over the banks.
The main purpose of social control was to make the commercial banks active participation in the social welfare of the masses. The major steps in social control legislation.
1. The establishment of the national credit council to formulate new credit policy.
2. Appointment of non – industrialist bankers having special knowledge of the working of banking company as chairman of all banks as whole time employee for a term not exceeding five years.
3. Appointment of not less than 51% of professional directors.
4. Prohibition to grant loans or advances or guarantees to directors or a firm in which he is interested. and
5. Establishment of a training institute at highest level to improve the technical expertise of bank executives.
The purpose of social control was to achieve the social welfare objective of the government.
Or
Discuss the organisational set-up of the RBI.
Ans: The Reserve Bank was set up as corporate body. The organizational structure of the Reserve Bank is provided by the Reserve Bank of India Act, 1934.
It comprises of the:
(a) Central Board. and
(b) Local Boards.
Central Board: The Central Board of Directors is the supreme governing body of the Bank. It consists of 20 members. The members include the following:
(1) A Governor and not more than four Deputy Governors to be appointed by the Central Government.
(2) Four Directors to be nominated by the Central Government, one each from the four local boards.
(3) Ten Directors to be nominated by the Central Government. They are experts from the fields of business, industry, finance and co-operation.
(4) One Government Official (Secretary, Ministry of Finance) to be nominated by the Central Government.
The power of the Board vests with the Governor who is the Chief Executive Officer of the Bank. The Governor has the responsibility of directing the affairs and business of the Bank. The Governor and Deputy Governors hold office for a period of 5years and are eligible for the reappointment. The Governor in his work is assisted by four Deputy Governors and four Executive Directors. The executive directors are not the members of the Central Board but attend Board meetings by invitation. They are subordinate to Deputy Governors.
Local Boards: Apart from Central Board of Directors, four Local Boards are constituted representing each area specified in the first schedule to the Act. There is a Local Board in Eastern, Western, Northern and Southern regions of the country with headquarters at Kolkata, Mumbai, New-Delhi and Chennai.
Local Board consists of five members, each appointed by the Central Government. In each Local Board, a Chairman is elected from amongst the members. The members of the Local Board hold office for a period of four years and are eligible for reappointment.
13. Discuss the features of Indian Capital Market.
Ans: Features of Indian Capital Market
(a) Dealing in Securities: It deals in long-term marketable securities and non-marketable securities.
(b) Segments: It included both primary and secondary market. Primary market is meant for issue of fresh shares and secondary market facilitates buying and selling of second hand securities.
(c) Investors: It includes both individual investors and institutional investors such as Mutual funds, banks, Insurance companies etc. It also includes foreign institutional investors.
(d) Link between savers and investment opportunities: Capital market is a crucial link between saving and investment process. It facilitates flow of long term capital from those who have surplus capital to those who need capital.
(e) Intermediaries: It acts through intermediaries which includes bankers, brokers, underwriters etc.
(f) Government rules and regulations: The capital market operates freely but under the guidance of government policies. These market functions within the framework of government rules and regulations.
Or
Write the functions of IMF.
Ans: The IMF is an international monetary institution established by 44 nations under the Bretton woods agreement of July 1944. It came into existence in December 1945 and started functioning in March, 1947. It is an autonomous organization and is affiliated to the U.N.O. It has its main office in Washington. Initially, the IMF had 30 countries as its members. At the end of 2000, the membership of the IMF was 183. It was established to promote economic and financial co-operation amongst member countries.
The functions of IMF are:
(a) It functions as a short credit institution.
(b) It provides machinery for the orderly adjustments of exchange rates.
(c) It keeps reserves of the currencies of all member countries.
(d) It lends to the borrowing countries in the currencies which they require.
(e) It promotes the expansion of International Trade for the mutual benefits of member countries.
14. Write the features of Negotiable Instruments.
Ans: The characteristics of a Negotiable Instrument are:
(a) Witting and Signature according to the rules: A Negotiable Instrument must be in writing and signed by the parties according to the rules relating to (a) promissory notes, (b) Bills of Exchange and (c) Cheques.
(b) Payable by Money: Negotiable Instruments are payable by the legal tender money of India.
(c) Unconditional Promise and order: If the instrument is a promissory note, it must contain an unconditional promise to pay. If the instrument is a bill or cheque, it must be an unconditional order to pay money.
(d) Freely transferable: A negotiable instrument is transferable from one person to another by delivery or by endorsement and delivery.
(e) Acquisition of Property: Any person, who possesses a negotiable instrument, becomes its owner and entitled to the sum of money, mentioned on the face of the instrument.
(f) No Need of Giving Notice: There is no need of giving a notice of transfer of a negotiable instrument to the party liable to pay the money.
Or
Explain the duties of a Collecting Banker.
Ans: The duties of a collecting banker towards his customers are as follows:
(a) Due care and Diligence in the collection of cheques: The collecting banker is bound to show due care and diligence in the collection of cheques presented to him. In case a cheque is entrusted with the banker for collection, he is expected to show it to the drawee banker within a reasonable time.
(b) Presentation of cheque for payment within reasonable time: The collecting banker should present the cheque of his customer to the drawee banker within a reasonable time. If the banker makes undue delay in presentation of cheque and the customer suffers a loss, then the banker will be held responsible for the loss and shall be required to reimburse the loss.
(c) Remittance of proceeds to the customer: It is the duty of the collecting banker to inform his customer immediately about the collection of the cheques. When the proceeds are collected, the banker may debit his customer’s account in respect of his commission and credit the gross proceeds to the customer’s account.
(d) Serving Notice of Dishonour: When the cheque is dishonoured, the collecting banker is bound to give notice of the same to his customer within a reasonable time. If he fails to give such a notice, the collecting banker will be liable to the customer for any loss that the customer may have suffered on account of such failure.
15. Write the functions of Stock Exchange.
Ans: Functions of stock exchange.
As the barometer measures the atmospheric pressure, the stock exchange measures the growth of the economy.
It performs the following vital functions:
1. Ready market and liquidity: Stock exchange provides a ready and continuous market where investors can convert their money into securities and securities into money easily and quickly. It provides a convenient meeting place for buyers and sellers of securities.
2. Evaluation of securities: Stock exchange helps in determining the prices of various securities that reflect their real worth. The forces of demand and supply act freely in the stock exchange and help in the valuation of securities.
3. Mobilisation of savings: Stock exchange helps in mobilising surplus funds of individuals and institutions for investment in securities. In the absence of facilities for quick and profitable disposal of securities, such funds may remain idle.
4. Capital formation: Stock exchange not only mobilises the existing savings but also induces the public to save money. It provides avenue for investment in various securities which yield higher returns. It helps in allocation of available funds into the most productive channels.
5. Regulation of corporate sector: Stock exchanges frame their rules and regulations. Every company which wants its securities to be dealt in at the stock exchange has to follow the rules framed by the stock exchange in this regard.
Or
What are the objectives of LIC?
Ans: Objectives of LICI:
(a) Spread Life Insurance much more widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at reasonable cost.
(b) Maximize mobilization of people’s savings by making insurance linked saving adequately attractive.
(c) Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest on the community as a whole, the funds to be deployed to the best advantage of the investors as well as the community as a whole; keeping in views national priorities and obligations of attractive return.
(d) Conduct business with utmost economy and with the full realisation that the money belongs to the policyholders.
(e) Act as trustees of the insured public in their individual and collective capacities.
(f) Meet the various life insurance needs of the community that would arise in the changing social and economic environment.
16. State the five differences between Bill of Exchange and Promissory Note.
Ans: Difference between bill of exchange and Promissory Note:
| Basis | Bill of Exchange | Promissory Note |
| Drawer | It is drawn by the creditor | It is drawn by the debtor. |
| Parties | There can be three parties to it, viz. the drawer, the Drawee and the payee. | There are only two parties to it, viz. the drawer and the payee. |
| Order or Promise | It contains an unconditional order to pay. | It contains an unconditional promise to pay. |
| Acceptance | It requires acceptance by the Drawee or someone else on his behalf. | It does not require any acceptance. |
| Payee | Drawer and payee can be the same party | Maker cannot be the payee of it. |
| Set | A bill of exchange can be drawn in sets. | Promissory note cannot be drawn in sets. |
17. Write the circumstances under which a banker can dishonour a cheque.
Ans: The bank may dishonour a cheque for the following cases.
(a) When the cheque is post dated and it is presented for payment before the date it bears.
(b) When there are insufficient funds to the credit of the drawer.
(c) When the cheque is presented for payment at branch where the drawer of the cheque has no account.
(d) When a cheque is not duly, presented, as for example a cheque presented outside banking hours.
(e) When the cheque is ambiguous, mutilated, materially altered or irregular.
(f) When the cheque has become stale, that is it is not presented within six months of the issue of the cheque.
(g) When the signatures of the drawer of a cheque do not tally with the specimen signatures in the records of the bank.
(h) When the amount in figures and in words is not the same in a cheque.
(i) When the cheque is crossed and it is not presented through a bank.
(j) Where the bank receives a notice of the insolvency or insanity of the customer.
18. State the factors that affect cash reserve of a commercial bank.
Ans: Factors determining the cash balances: The following factors help the banks to decide the quantum of cash balances to be maintained:
(1) Banking habit: Banking habits play a significant role in determining the cash balances of a bank. Banking habits refers to the utilisation of banking services by the public. If the people have e-banking habits, then the use of cash in transaction is reduced and the banks need to keep lesser amount of liquid cash.
(2) Structure of banking: The banking structure of the country also influence the liquidity requirements of the bank. In a branch banking system, the banks can function with less cash reserves because in case of emergency cash can be transferred from one branch to another. Whereas in unit banking system higher cash reserve is required.
(3) Nature of bank accounts: The nature of deposit accounts viz. savings, current or fixed accounts affect the amount of cash balance to be kept by the banks. In case of fixed deposit account holders, the bank can manage with less cash balance as against current account where it must keep larger cash balance.
(4) Type of depositors: The type of depositors is another determinant of cash balance of the banks. If the majority of the depositors of the bank are business firms, corporations, schools, college etc. the bank will have to maintain high liquidity because of unpredictable. On the other hand, if the deposits are mostly by individual customers and are of personal nature, the bank can operate with less liquid cash.
(5) Nature of advances: The nature of advances of bank i.e. loans, cash credit, overdraft and purchasing and discounting of bills also affect the size of the cash balances of the bank.
19. Discuss the principles followed by a commercial bank in investing its funds in securities.
Ans: Principles of Sound Investment.
Banks should follow some basic principles at the time of investing funds. This ensures efficient and long term working of the banks.
Some of the basic principles of sound investments are as follows:
(1) Safety of principal: The most important rule for investment of funds is the safety of funds. A banker deals in borrowed funds and therefore his main consideration is safety of principal invested in securities. Banks must ensure the solvency and sound financial position of the companies in which investments is made. The government and semi-government securities are the safest securities because they are guaranteed by the government.
(2) Marketability or liquidity: The second important principle of sound investments is liquidity. Liquidity means possibility of converting investments into cash without loss of time and money. Thus, the banker should see that the security in which he invests his funds possesses a ready market i.e. they can be sold in the market without loss of time and money.
(3) Return or Profitability: Return or profitability is another important principle. The funds of the bank should be invested in securities to earn highest return, so that it may pay a reasonable rate of interest to its customers on their deposits, reasonably good salaries to its employees and a good return to its shareholders. However, a bank should not sacrifice either safety or liquidity to earn a high rate of interest.
(4) Price stability: The price of security selected by the banker should remain stable. The safety of investments depends on the stability in the prices of securities. Banker is not a speculator and hence his object of buying security should not be to gain on wide fluctuations in prices of the securities and should prefer those securities whose prices remain fairly stable over a period of time. The Prices of government securities remain stable and do not fluctuate.
(5) Diversification of Investment: One should not put all his eggs in one basket’ is an old proverb which very clearly explains this principle. A bank should not invest all its funds in one particular industry or security or company. In case that industry or company fails, the banker will not be able to recover his funds. Hence, the bank may also fail. So, the bank should diversify its investments in different industries and should invest in variety of companies with sound financial record.
(6) Refinance: To ensure the liquidity of his investments the banker has to see that the security is eligible to obtain refinance from the Central Bank and other refinancing institutions.
(7) Duration: In addition to the above factor, a banker also considers the duration and denomination of security and its future earnings prospects. In conclusion, it may be said that for a banker the government and semi-government securities are most ideal for investment of funds. Government securities with virtually no risks, have a ready market, are eligible for refinance and bring reasonably good return.
20. Discuss the various agency services rendered by commercial bank.
Ans: Agency functions (2013, 2015, and 2017): These functions are performed by the banker for its own customer. For these bank changes certain commission from its customers.
These functions are:
(a) Remittance of Funds: Banks help their customers in transferring funds from one place to another through cheques, drafts etc.
(b) Collection and payment of Credit Instruments: Banks collects and pays various credit instruments like cheques, bill of exchange, promissory notes etc.
(c) Purchasing and Sale of securities: Banks undertake purchase and sale of various securities like shares, stocks, bonds, debentures etc. on behalf of their customers.
(d) Income Tax Consultancy: Sometimes bankers also employ income tax experts not only to prepare income tax returns for their customer but to help them to get refund of income tax in appropriate cases.
(e) Acting as Trustee and Executor: Banks preserve the wills of their customers and execute them after their death.
(f) Acting as Representatives and Correspondent: Sometimes the banks act as representatives and correspondents of their customers. They get passports, travelers tickets secure passages for their customers and receive letters on their behalf.
21. Explain the characteristics of Non-Banking financial institutions.
Ans: Non-Banking Financial Institutions (NBFI’s): NBFI’s include such institution such as life-insurance companies, mutual savings bank, pension funds, building societies etc. which are doing diverse business. These financial institutions are thus a heterogeneous group of financial institutions other than commercial banks and co-operative societies. They include a wide variety of financial institutions, which raise funds from the public, directly or indirectly, to lend them to ultimate spenders. The growth of NBFI’s has been much faster than that of commercial banks. The main reason for this is that, in comparison to commercial banks, NBFI’s pay higher interest ratio to the depositors and change lower interest rate from the borrowers. Thus, they are competing with the commercial bank for public savings and as sources of Loanable funds.
Characteristics of Non-Banking financial institutions:
1. Non-Banking Financial institution is a specialised financial institution which provides medium and long term finance to business units.
2. It is a multi-purpose financial institution and not just a term-lending institution.
3. NBFI accept deposits repayable on the expiry of specified time and certain NBFI receive funds from government.
4. The liabilities of NBFI are not accepted as money as a means of payment of debt.
5. NBFIs deal with medium and long-term funds in the capital market.
6. NBFIs are heterogeneous group doing diverse business in the financial system of the economy.
7. People invest their surplus fund with NBFI for earning income rather than safety and liquidity.
8. NBFIs supply term finance for acquiring fixed assets.
9. Mobilisation of savings by the NBFIs is highly affected by the interest rate. NBFI are regulated by their special statutes.
10. Financial assistance is provided by a NBFI not only to the private sector but also to the public sector undertakings.
11. One of its major aims is to promote the saving and investment habit in the community.
12. Its major role is the gap-filler, i.e. to fill up the deficiencies of the existing financial facilities.
13. Its motive is to serve the public interest. It works in the general interest of the nation rather than to make profits. A development bank is motivated by social profits.
Or
Discuss the objectives and functions of Industrial Development Bank of India.
Ans: The full form of IDBI is Industrial Development Bank of India. It was established in July, 1964. However, in February 1976, the IDBI was taken over by the government and was made an autonomous institution. It was established with the object of recognizing and integrating the structure of the existing financial institution in the country for gearing up the needs of rapid industrialization.
The objectives of IDBI are:
(a) Planning, promoting and developing industries to fill the gaps in the industrial structure in India.
(b) Providing technical and administrative assistance for promotion etc.
(c) Co-coordinating the working of institutions engaged in financing.
(d) Undertaking market and investment research and surveys for techno-economic studies in connection with development of industry.
The functions of IDBI are:
(a) It renders technical, managerial and administrative assistance for promotion, management and expansion of industry.
(b) It provides financing facilities to IFCI, SFC and other financial institutions approved by the Government.
(c) It co-ordinates the activities of other financial institutions for the promotion and development of industries.
(d) By purchasing and / or underwriting shares and debentures of industrial concerns it provides capital.
(e) It also provides guarantee for deferred payments due from industrial concerns and for loans raised by them.
22. Explain the significance of different kinds of endorsement.
Ans: Different kinds of endorsement with their respective significance are explained below:
(a) Blank or General Endorsement: An endorsement is said to be blank or general, if the endorser sings on the back or on the face of the instrument without specifying the name of any endorsee. The effect of his endorsement makes the instrument payment to bearer even though originally it was payable to order. For example, a cheque payable to Mr. X or order and Mr. X endorse the cheque to Mr. Y by simply affixing his signature. The effect of this endorsement makes the instrument payable to bearer even though originally it was payable to order.
(b) Full or Special Endorsement: If an endorser signs his name and adds a direction to pay the amount mentioned in the instrument to or to the order of a specified persons, such an endorsement is said to be a full or special endorsement. For example, “Pay to Mr. X or order” S/d Mr. Y is an example of full endorsement. Here Mr. Y is the endorser and he has mentioned the name of the endorsee – Mr. X.
(c) Conditional Endorsement: An endorsement is conditional or qualified if it limits or neglects the liability of the endorser. For example, “Pay to Mr. X on his marriage” s/d Mr. Y is a conditional endorsement. In case of conditional endorsement, the liability of the endorser and the rights of the endorsee becomes conditional on the happening of a particular event.
(d) Restrictive Endorsement: An endorsement is said to be Restrictive, when it prohibits or restrictive the future negotiability of the instrument, it merely entitles the holder of the instrument to receive the amount on the instrument for a specified purpose. For example, “Pay to Mr. X only” s/d Mr. Y. This endorsement confers all the rights of an endorser to the endorsee except the right of negotiation.
(e) San Recourse endorsement and San frais endorsement: In San recourse endorsement, the endorser by his expressed words excludes his own liability and in San frais endorsement, the holders have no right against the endorser if the instrument is dishonoured. For example, “Pay to Mr. X or order – Notice of dishonour waived.” These types of endorsement are generally used to avoid personal liability.
(f) Facultative endorsement: In such type of endorsement, the endorser by his express words increases his liability or give up some of his rights under the negotiable instruments Act.
(g) Partial Endorsement: When the endorser intends to transfer to the endorsee only a part of the amount of instrument by endorsement, the endorsement is said to be partial. Such type of endorsement is legally invalid. For example, when a cheque of Rs. 10,000 is endorsed for Rs. 5000 is an example of partial endorsement.
(h) Forged endorsement: When a negotiable instrument is endorsed with the forged signature of the endorser, the endorsement is called forged endorsement.
Or
Explain briefly about the different types of crossing of cheques with suitable examples.
Ans: Crossing of a cheque: A cheque is said to be crossed when two parallel transverse line with or without any words are drawn on the left hand corner of the cheque. It is simply a direction to the paying banker that the cheque should be paid only to a banker. Crossing of cheque is very safe because the holder of the cheque is not allowed to encashed it across the counter of the bank. A crossed cheque provides protection not only to the holder of the cheque but also to the receiving and collecting bankers.
Types of crossing:
1. General crossing: A general crossing is a crossing where a cheque simply bears two parallel lines with or without any words and without any specification. According to Sec. 123 of the Negotiable Instrument Act, 1881, “When a cheque bears across its face an addition of the words. “and company” or any abbreviations thereof between two parallel transverse line or of two parallel transverse lines simply either or without the words, “Not Negotiable” that addition shall be deemed a general crossing. Simplify, in case of General crossing words such as “and company”, “not Negotiable”, “Account payee” etc. may be inserted between the lines.
A general crossing cheque protects the drawer and also the payee or the holder thereof. Whenever a drawer desires to make payment to an outstation party, he can cross the cheque so that even if the cheque is lost, it means only a piece of paper is lost and nothing beyond that. If by any chance, it is encashed by a third and unauthorized person, it is possible to find out to whose account the amount is credited and the unauthorized person can be identified and suitable action taken against him.
2. Special crossing: Section 124 of the Negotiable Instruments Act, 1881 defines special crossing as “where a cheque bears across its face, an addition of the name of a banker 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.”
Thus, in case of special crossing, the name of a particular bank is written in between the parallel lines. The main implication of this type of crossing is that the amount of the cheque will be paid to the specified banker whose name is written in between the lines. Special crossing is in a particular bank and by special crossing, he is assured of double safety, safety to the drawer and safety to the payee.
3. Account payee crossing: This type of crossing is done by adding the words ‘Account Payee’. This can be made both in general crossing and special crossing. The implication of this type of crossing is that the collecting banker has to collect the amount of the cheque only for the payee. If he wrongly credits the amount of the cheque to another account, he will be held responsible for the same.
4. Not negotiable crossing: When the words ‘not negotiable’ is added in generally or specially crossed cheques, it is called not negotiable crossing. A cheque bearing not negotiable crossing cannot be transferred. If a cheque bearing ‘Not negotiable crossing’ is transferred, care must be taken regarding the ownership of title of both the transferor and transferee.
