Banking Contracts Quiz

Reference study material for promotion exercise of CSAS 2024-25

• This booklet supplements the learning efforts of promotion aspirants.
• It is indicative in nature and refers to Books of SOPs, Circulars, Master Circulars, and Policy guidelines for updated information.
• This should not be considered an instruction manual, and employees should update themselves with the latest banking industry trends by reading English, Reasoning Bank's circulars, guidelines, and awareness-related news.

Banking Law & Practices

• Banking laws and practices in India form a comprehensive framework governing banks and financial institutions.
• The Reserve Bank of India (RBI) is responsible for issuing licenses, formulating monetary policy, and supervising the banking sector.
• The Banking Regulation Act of 1949 is the key regulatory framework.
• Other relevant laws include the Companies Act, 2013, and the Negotiable Instruments Act, 1881.
• Recent reforms aim to align the banking sector with international best practices and promote financial inclusion (e.g., the Insolvency and Bankruptcy Code, 2016).
• Technology has revolutionized operations (online banking, mobile banking, digital payments).
• Regulations aim for financial stability, protecting depositors' interests, and promoting sustainable economic growth.

Negotiable Instruments Act, 1881

• Negotiable instruments include promissory notes, bills of exchange, and cheques.
• Instruments like railway receipts, bills of lading, warehouse receipts are also treated as negotiable instruments.
• The main feature of a negotiable instrument is its free transferability.
• Promissory Note (PN): An unconditional promise to pay a specific amount to a certain person or bearer.
• Bill of Exchange (BOE): An unconditional order to pay a certain amount to a specific person or bearer.
• Cheque: A bill of exchange payable on demand, with a bank as the drawee.
• Inchoate instruments are incomplete instruments. Completion is not considered material alteration if done by the holder.

Holder of a Promissory Note, Bill of Exchange, or Cheque

• A holder is any person entitled to the document in their name.
• Possession is enough to be a lawful holder, actual physical possession isn't essential.
• Consideration is not compulsory for a holder.
• The holder in due course has the right to enforce the instrument.
• Requirements for a holder in due course are possession in good faith without any reason to believe the transferor wasn't entitled.

Negotiation of Order Instruments

• Order instruments are negotiable by endorsement and delivery.
• Endorsement involves signing the back of the instrument for transfer.
• Blank endorsement is a simple signature.

Payment of Cheques

• A paying banker is protected by Section 85 of the NI Act regarding payment.
• Payment in due course: Payment to a person who believes they are entitled to receive the payment.

Different Cheques

• Cheques are written in different inks and scripts.
• Cheques can be drawn in different languages (e.g., Hindi, English).
• Cheque formats are prescribed by RBI (CTS or cheque standards) and all banks must comply with these standards across the country.

Important Notes on Cheques and Banking Hours

• Cheques can be ante-dated, post-dated, or have an impossible date (holiday).
• Stale checks are those issued three months ago.
• Payments are usually done within banking hours, but reasonable amounts can be accepted outside banking hours.
• Alterations to a cheque, such as changes to the date, amount, or payee, are considered material alterations unless there's specific authorisation from the drawer.
• Cheques are not allowed to be crossed for specific use and crossings must meet the required standards.
• Crossing can be general or special crossing and the requirements for both the type of crossing should be followed.

Bank's Power to Return a Cheque

• Banks can return cheques written in languages other than the region's language.

Indian Partnership Act, 1932

• A partnership is a relationship that exists between people who have agreed to share the profits.
• The minimum number of partners is two.
• A person who is a minor, is insolvent, or insane cannot be a partner.

Indian Contract Act, 1872

• A contract is defined as a promise, or a set of promises, that are legally enforceable.
• A contract of guarantee is a contract to perform a promise for a third party in a case of noncompliance.
• Bailment is defined as the delivery of goods by one person to the other for a certain purpose.

Reserve Bank of India Act, 1934

• The Reserve Bank of India (RBI) acts as the central bank of India.
• The RBI regulates the Indian banking system.
• The RBI formulates monetary policy and plays a vital role in maintaining the stability of the Indian banking system.
• The RBI regulates the supply of money in India.
• The RBI issues licenses to scheduled banks.

Banking Regulation Act, 1949

• The Banking Regulation Act is an important piece of legislation regarding the regulation of banking practices in India.
• The act helps to prevent fraudulent activities
• The act helps to maintain the integrity of the Indian financial system.

Negotiable Instruments Act

• The Negotiable Instruments Act of 1881 is an important piece of legislation that governs negotiable instruments in India.
• The act defines the rules for negotiable instruments.
• The act covers several aspects of negotiable instruments including cheques.

Company Act. 2013

• The Company Act, 2013, governs the incorporation, management, and regulation of companies in India.
• It describes the legal frameworks in which companies operate in India.
• The act defines what constitutes a company, and the requirements for setting up companies.

Goods and Services Tax Act. 2016

• The Goods and Services Tax (GST) Act, 2016, is a comprehensive indirect tax that has significantly changed the Indian tax landscape.
• GST aims to create a unified market from the manufacturer to the consumer.
• GST is levied on the supply of goods and services at specified stages and will, in effect, take on tax collection responsibilities from many state and local governments.

Siebel CRM (SPGRS)

• The Ministry of Finance has suggested implementation of the Public Grievance Redress System (PGRS), a uniform complaint redress mechanism.
• The complaints will be directed to the complaint module through various entry points.
• The complaint can be resolved through a uniform framework.

Prevention of Money Laundering Act (PMLA)

• The act helps to control and prevent the occurrence of money laundering.
• Several compliance procedures are prescribed to avoid money laundering.

KYC

• Know Your Customer (KYC) procedures are essential for compliance with the Prevention of Money Laundering Act (PMLA) guidelines and international norms.

Foreign Exchange Management Act (FEMA)

• FEMA helps to streamline the foreign exchange market
• FEMA enables efficient handling of exchange transactions

Capital Account Transactions

• Capital account transactions involve cross-border assets, liabilities, and other important aspects.
• These transactions are governed by various rules and regulations from the Reserve Bank of India (RBI)
• Restrictions exist on capital account transactions.

Non-Performing Assets

• Non-performing assets (NPAs) of a bank are loans with non-compliance of scheduled payments (after a set period.)
• Bank classifications are used for categorizing and prioritising bad assets.
• Several steps are taken to classify and manage NPAs.

Other Important Acts and Legislations

• Various acts and laws from the Indian legal system are crucial for the smooth and legal operation of banking systems in India.

MCA (Ministry of Corporate Affairs):

• The MCA is a government body in India that involves companies and regulations related to companies.
• The department deals with procedures related to company formation and regulations

Test your knowledge on banking contracts, agents' roles, and cheque dishonor. This quiz explores essential concepts from the Indian Contract Act, including the Right of Set-off and agreement validity. Understand the regulatory framework and its significance in the banking sector.