What's the Bank’s Remarks on Dishonoured Cheques

When a cheque is returned unpaid, the banker should attach a slip containing brief remarks, to convey the reason for dishonouring the cheque. The following remarks are generally made:

(a) R.D. (Refer to Drawer): This remark is used only when there is reasonable ground to suspect the veracity of the cheque.

(b) N.S. (Not sufficient), N.E. (No. Effects): These are used where the drawer’s balance is inadequate to meet the cheque.

(c) E.I. (Endorsement Irregular)

(d) E.N.C. (Effect is not cleared): This is used when cheques deposited are not yet collected and not available for withdrawal.

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Define paying banker

The banker who is liable to pay the value of a cheque of a customer as per the contract, when the amount is due from him to the customer is called “Paying Banker” or “Drawee Bank.”

The payment to be made by him has arisen due to the contractual obligation. He is also called drawee bank as the cheque is drawn on him.

The payment has to be made by the banker as per the legal obligation also. Section 31 of Negotiable Instrument Act 1881, says that “the drawee of a cheque, having sufficient funds of the drawer in his hands properly applicable to the payment of such a cheque, must pay the cheque, when duly required to do so, and in default of such payment, must compensate the drawer for any loss or damage caused by such default.” According to this provision, the drawee of a cheque, i.e., paying banker has a legal obligations to honour the demand of the drawer or customer. If he fails to pay the money held, he is liable for damages. Thus paying banker has certain obligations to discharge.

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Mention the protection Available Under the Negotiable Instruments Act for paying banker

The Negotiable Instruments Act has come to the rescue of the paying banker and provided protection under certain circumstances. These circumstances are given below:

1. Protection in Case of Bearer Cheque.

2. Protection in Case of Order Cheque.

3. Protection in Case of Crossed Cheque.

4. Protection in Case of Obliterated Cheque.

5. Protection in Case of Drafts.

1. Protection in Case of Bearer Cheque: Section 85 (2) of the Negotiable Instruments Act, 1881 states, “Whereas 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, notwithstanding that any such indorsement purports to restrict or exclude further negotiation.”

The above protection is given in the Act on the basis that a bearer cheque always remains a bearer cheque and it bears endorsement in blank or full whether any endorsement restricts further negotiation or not. In case a bearer cheque is stolen or lost and the banker honours the cheque without any knowledge, the banker will be discharged from his duty under the protection given in Section 85 (2) of the said

Act. In such a case, the paying banker is not required to verify the endorsement on bearer cheque.

In case a bearer cheque is crossed, the paying banker has no right to pay in across the counter in disregard of the crossing.

2. Protection in Case of Order Cheque: In case the payment is made to a person other than the payee, the paying banker does not get any protection under the Negotiable

Instruments Act. If the endorsement is regular and payment is made in due course, the paying banker gets the protection under Section 85 (1) of the Negotiable Instruments Act, 1881 : “Whereas a cheque payable to order purports to be endorsed by or on behalf

of the payee, the drawee is discharged by payment in due course.” In case, payment is made to a wrong person whose signature is not according to

specimen signature, the protection is given to a banker under Section 16 (2) of the Negotiable Instruments Act : “It is not possible for a banker to know each of the endorsers and their signatures.” For getting the protection, the banker should note the following:

(a) Regular Endorsement: According to Section 85 (1) of the Act the endorsement should be regular. For example, if a cheque is payable to a right person and signature is bearing same name and the same spellings this is known as regular endorsement, though this is not a valid endorsement.

(b) Payment in Due Course: According to Section 10 of the Act the cheque should be paid in due course. In case the payment is made on forged signature of the endorser and not that of the drawer, the banker gets statutory protection under Section 10 of the Act.

3. Protection in Case of Crossed Cheque: Regarding payment of crossed cheque, the paying banker gets the protection under Section 128 of the Negotiable Instruments Act, 1881 : “Whereas the banker on whom a crossed cheque is drawn has paid the same in due course, the banker paying the cheque and the drawer thereof (in case such cheque has come to the hands of the payee) shall be entitled respectively to the same rights and placed in the same position if the amount of the cheque had been paid to and received by the true owner thereof.”

In case the payment is made on the instructions of the drawer in good faith without any negligence, the paying banker gets the statutory protection under the Negotiable Instruments Act, 1881: “The payment of crossed cheque in due course makes the drawee banker liable to the true owner of the cheque besides disentitling himself to debit the customer’s account.”

4. Protection in Case of Obliterated Cheques: According to Section 89 of the

Negotiable Instruments Act, 1881, “Whereas a cheque is presented for payment which does not at the time of presentation appear to be crossed or to have had a crossing which has been obliterated, payment thereof by a banker is liable to be paid and paying the same according to the apparent tenor thereof at the time of payment and otherwise in due course, shall discharge such banker from all liability thereon and such payment shall not be questioned by reason of the cheque having been crossed.”

Thus the above Section is very meaningful where crossing of a cheque is obliterated by dishonest person. Under the above Section the banker gets the protection in the way that the payment is made according to the apparent tenor of the cheque and due course.

5. Protection in Case of Drafts: In case of demand drafts drawn by one branch of a bank upon another branch of the same bank, the banker gets protection under Section 85 of the Negotiable Instruments Act. The Section states: “Whereas any draft, that is, 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, purports to be endorsed by or on behalf of the payee, the bank is discharged by payment in due course.”

In short, a banker may get statutory protection under the various Sections of the Negotiable Instruments Act, if he fulfils the terms and conditions of the said Section of the said Act. No protection however is available, in case the drawer’s signature is forged.

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Discuss the stages of Money Laundering

Despite the variety of methods employed, the laundering is not a single act but a process accomplished in 3 basic stages which may comprise numerous transactions by the launderers that could alert a financial institution to criminal activity -

Placement - the physical disposal of the initial proceeds derived from illegal activity. It is occurred by:

Cash paid into bank (sometimes with staff complicity or mixed with proceeds of legitimate business).

Cash exported.

Cash used to buy high value goods, property or business assets.

Cash purchase of single premium life insurance or other investment.

Layering - separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity. It is occurred by:

Sale or switch to other forms of investment.

Money transferred to assets of legitimate financial institutions.

Telegraphic transfers (often using fictitious names or funds disguised as proceeds of legitimate business).

Cash deposit in outstation branches and even overseas banking system.

Integration - the provision of apparent legitimacy to wealth derived criminally. If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system appearing as normal business funds. It is occurred by:

Redemption of contract or switched to other forms of investment.

False loan repayments or forged invoices used as cover for laundered money.

Complex web of transfers (both domestic and international) makes tracing original source of funds virtually impossible.

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Why Money Laundering is done?

Criminals engage in money laundering for three main reasons:

First, money represents the lifeblood of the organization that engages in criminal conduct for financial gain because it covers operating expenses, replenishes inventories, purchases the services of corrupt officials to escape detection and further the interests of the illegal enterprise, and pays for an extravagant lifestyle. To spend money in these ways, criminals must make the money they derived illegally appear legitimate.

Second, a trail of money from an offense to criminals can become incriminating evidence.

Criminals must obscure or hide the source of their wealth or alternatively disguise ownership or control to ensure that illicit proceeds are not used to prosecute them.

Third, the proceeds from crime often become the target of investigation and seizure. To shield ill- gotten gains from suspicion and protect them from seizure, criminals must conceal their existence or, alternatively, make them look legitimate.

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