Banking Law 2024-25 PDF

E Mr A N S R M K SR TH EK N TH E E Mr N A N SR E...

E Mr A N S R M K SR TH EK N TH E E Mr N A N SR E Mr K A N N S R K H E EE Mr N N T R E Mr S R H E KA N S T H E EK N T E for promotion r N R Reference M r K study A N material S R H M E K exercise A N of S E r N N T E M r R E M CSAs A 2024-25 S R K S K N T H E E r N N TH R EE M r A N S R M KA S H E K N E r N N T E M r R E M A S R K S H E K N T H E E r N T E M r A N S R M K AN S R H E K r N E E r N N T R E M R M K A S H E K S TH N T E r N N R EE M r A N S R M KA S H E K N E r N N T E M r R E M A S R K S K N T H E E r N N TH R EE M r A N S R M KA S H E K N E N r Baroda Academy N T E M r E R S R H M E K A N S T H E EK r N N T R E of Baroda Mr Bank A N S R M K A S H E K N E N T rFor internal circulation N E M r R E M A only SR H E K S K N T E r N N TH R E E M r A N S R M Do Not KA Print unless extremely S required. Save H Paper, Save K Trees E and preserveN E r N N T E M r R E M Environment. A S R K S K N T H E E r N N TH E E M r R efforts of the promotion aspirants. A N S R This M E K A booklet is to supplement S the learning N T H E EK Topics incorporated rN are indicative inEnature and Apex M r A Academy advises N the readers S M toRrefer to Book of Instructions, K S R K N T H E E N SOPs, Circulars, Master T H Circulars, Policy E E guidelines, etc. for r updated N information. R r A N R M K A S This M E K mainly on the booklet is focusing N S promotion examT Hwithin the BankE(based E r on previousNtrends) R Ebe consideredMasr an instruction A Nmanual. Employees S R are supposedM to update K and should not Sby reading English, H Reasoning Bank’sE K N T H E E N T E r N R r M KA S themselves circulars, guidelines and latest banking industry/ M A N S R N K other general awareness E N related news. T H E E r E r N R M S R H M E KA N S T H N NT r N Mr A S RE M K A EK T H E E M rN A N S R E R N S T H E EK r N Mr AN S R M E K N T H E r N S R H M E KA rN NT RE  E Mr A N S R M K SR TH EK N TH E E Mr N A N SR E Mr K A N N S R K H E EE Mr N A N T S R E Mr K R H E N S TH EEK r N N T R E Mr BankingA Law S & M PracticesN K A R S H E N EK rN E NT RE M r K M A S R TH EK NS TH RE E r N N SR E Mr A N S M 1. Introduction: E KA Na comprehensive H EK Tframework thatRregulates E N r of banks Banking laws and practices E r in India form M India's banking N A sector is governed S M the functioning by a combination of statutes, K S R and financial institutions in the country. regulations, and guidelines thatHensure the stability, K N T H system. EE E r N R rN NT RE transparency, and efficiency of the financial M A S M K A S The Reserve Bank of K N T Ha central role inEshaping E andenforcing r Nbanking E India (RBI), established r in 1935, plays E central bank,Mthe RBI is responsible Nfor issuing licenses M R to banks, formulating monetary K R laws. As the country's S K A S RegulationT H of 1949 is a keyEE policy, and supervising T H the overall Ncornerstone thatNempowers E health of the banking N r banks in India.AN sector. The Banking Eregulate and control Act R r the RBIRto M K S KA legislative M N S T H E r N E r Econtribute to theMregulatory Naddressing various E R aspects ofbankingMand financial K Several other laws S R landscape, K A S H of bankingEE services. The Companies Act,H2013, governs the T N The NegotiableN Instruments Act,R1881, E r N incorporation, management, T and operation E is vital for theMregulation of negotiable N R companies.r K A instrumentsSsuch M as Cheques, KANotes, and Bills Promissory E N SExchange, which of T Hare fundamentalEE r N to banking transactions. M E Indian governmentM r A N S R K S R K N T H international E E In recent years, the N and promote H has T financial inclusion. E introduced reforms E The Insolvency to align the banking sector with r and BankruptcyANCode, 2016, aims Rto r best practices M A N S R M K S N for streamline the K resolution process for insolvent N financial H entities, T ensuring a E E more efficient r mechanism EE creditors and stakeholders. R M r A N S R H M E K S K N T E Practices N r TH in Indian banking encompass N a wide E R E of services, including array M r A N corporate banking, retail banking, S R M and investment K banking.A The implementation S of technology Hhas revolutionized E K banking operations,N with the N T r E framework isMcontinuously R EEemerging adoption of online banking, M r such mobile banking, A N and digital payments. The regulatory asKcybersecurity, S Rfraud, H impact of global EK economicN S evolving to address TH challenges, E financial r N and the N T R E r trends. N R E M A S M E K A laws and practices N S T H a robust foundation E EK for the functioning r N of a In summary, the banking E evolving banking M r N in India provide A S M Rframework is designed to foster K dynamic and rapidly S R K sector. The regulatory & statutory N T H in the country. E E N financial stability, T H protect the interests E of depositors,E r andpromote sustainable economicNgrowth R M r A N R S of important “Laws M K A S Against this backdrop,K N T H & Acts” whichEembodyE rights, powers, r N duties, E E certain key provisions r are briefly dealt N R M K R liabilities and responsibilities S M of a Bank, K A S with, in this chapter. H E N TH EE r N N T R E r N R M K A S M E KA N S T H E E M r N E M r A N S R R H N S T H E EK r N N T M r AN S R M K A K N T H E E R EE M r A N S R S H E K N N T E M r Mr K AN N S R T H E E r N S R H M E KA rN NT RE  E Mr A N S R M K SR TH EK N TH E E Mr N A N SR E Mr K A N N S R K H E EE Mr N A N T S R E Mr K R H E N S TH EEK r N N T R E Mr A N R M K A S EE K NS TH E E M r N SR Mr A N S R TH E K TH EK rN 1.1. Negotiable Instruments Act, 1881: Certain important Sections are given below. N E N RE ❖ r N SR M A A Negotiable Instrument means Promissory Note, Bill of Exchange or Cheque payable either to order or to S M the bearer. E A K N T H EK E r N E M r A N S R M K ❖ S R K N T H As per practice and usage and as per court decisions, certain instruments such asTreasury Bills, Certificate E E N TH E E r N of Deposit, Commercial Paper, Gov. Promissory Note, Demand Draft, Bankers Cheque are also Negotiable R M r AN S R M K A S instruments. K N T H E E r N ❖ E r N R M Some Instrument like Railway Receipt, Bills of Lading, Warehouse Receipt etc. arealso treated as Negotiable E K S R M K A S H E instruments as per Section 137 of Transfer of PropertyAct. N TH EE r N N T R E ❖ r N R M A Transferable: The main feature of a negotiable instrument that it is freelytransferable and the title of K S M KA S the transferee will be better than transferor. E N T H E E M r N ❖ E M r A N S R Promissory note: As per Sec 4, PN is in writing, containing unconditional undertaking or promise, signed by K S R K N T H E E TH EE r the maker, to pay a certain amount of money toor to the order of a certain person or to the bearer thereof. It r N N R M A N S R KA S H E K requires payment of stamp duty and can be demand PN or usance PN. There are 2 parties (maker andpayee). M N E N T E r The maker of the promissory note or the drawer of the bill of exchange is primarily liable to pay the amount r N M E R R M K A mentioned in the instrument, while the endorseris secondarily liable. S H E N S T H E EK ❖ N T E r Currency / Bank notes are excluded from the definition of promissory note. r N M A N S R ❖ M A S R K N E N T H E E Bill of Exchange: As per Sec 5. BOE is an instrument in writing containing an unconditional order, signed K r E r N R M by maker, directing a certain person to pay a certain sum of money only or to the order of a certain person or M A S K S R K N T H E E TH to the bearer of the instrument. In a Bill of Exchange, the person ordering for payment is called Maker /Drawer r N N R EE M r and the person directed to pay is called drawee. The beneficiary is called payee. A N S R M KA S H E K N ❖ N T E Cheque is defined in Sec 6 of NI Act. Cheque is a bill of exchange but always payable on demand and E r N M r R E M A S R drawee is always a banker. It also included truncated cheque and electronic cheque. A cheque is similar to a K S K N T H E E Bill of Exchange. r N N TH E E M r A N R or order. If neither bearer nor Korder is written it N S R ❖ M instrumentA can be payable toSbearer A negotiable K as payable to order.EIf both bearer and H N are written,Nit isTtreated as payable E Eto bearer. r is treated E r order R M ❖ S R Inchoate Instruments: H M As per section 20 of the NI K E A S T Act, an instrumentNon which date, payee H E or amount is not EK r N T or incompleteRinstrument. Nis called as Inchoate E M r cheque can beAcompleted N S R mentioned A M completion willKnot be treated as S Incomplete K HAn instrument without by the Holder E signatures isrnotN treated and the E r N material T alteration. N R E M as an instrument E M A S K S R at all. K N T H E E r N N TH R EE M r A N S R M KA S H E K N E r N N T E M r R E M A S R S H EK N T H r N T E M r A N M K AN S R H E K EE r N N T R E S R M K A S N T H E E r N Mr AN S R M E K N T H E r N S R H M E KA rN NT RE  E Mr A N S R M K SR TH EK N TH E E Mr N A N SR E Mr K A N N S R K H E EE Mr N N T R E Mr S R H E KA N S T H E EK N Tbill of exchangeRorEcheque meansM r A N R Holder rof a promissory A N K in his own name S ❖ M note, K - Legal Right N Sto possess is enough. T any person entitled H Actual PossessionE is not essential) r N and to to the possession thereof E (Lawfully E due thereon from rparties thereto. A N R E M R M K S compulsory for H E K S receive the amount TH N Consideration is not T holder. E r N N R EE M r A N S R ❖ HolderM in Due Course: K Adefined in SectionS9 of the NI Act. Holder H in due course K E isa person whormust N have E N the instruments inEhis possession for rvaluable consideration, T N in good faithSbeforeE R becoming due, Mand without K S R M A K the instrument H was not entitledTthereto. E having any reason H to believe that E the person transferring r N N E Rno ❖ r N of a Bearer Negotiation M A NTInstruments:SARbearer E instrumentMis negotiated byAmere delivery and K N S endorsement is required E K N T H E E r Negotiation ofRan E order instrument: M r A N can be negotiated S M R by endorsement followed by K ❖ K An order instrument S be noted thatTHlegal heirs cannotEcomplete the negotiation N T H instrument withEE delivery. ItNmay r N E M r of a N negotiable A S R R K M endorsement by the E KA deceased merely by N S delivery. T H or on a slipEE r N M for the K ❖ Endorsement: Signing E of an instrument M r on the back or A N face thereof S R of paper annexed there S R H K 15). The personNwho transfers theTinstrument is called E E purpose of negotiation N T H is called endorsement (Section E E r N R Mr N R M KA S endorser and the person to whom it is transferred is called endorsee. ❖ can be KaA S H E r N Endorsement signs and adds aE E to pay to orr N Blank Endorsement to the order ofA aN T (endorser just sign R E at the back), Endorsement in full M (endorser (impose K S R direction M K N S specified person), Conditional Endorsement T H E Nendorser liability). T a condition by endorser),RestrictiveH Endorsement E E r (restricts further negotiation), N Sans Recourse Endorsement R E M r A N R Sprotection under M K A S (excludes K N T HSection 85 of theENI E Act. r N ❖ Payment of cheques: E A paying banker gets ECourses: As perMSec r 10, a paymentAwould N be considered M Rin duecourse if. (a) Payment as K ❖ Payment in Due R Stenor of instrument; K S TH to person N negligence; (c)Npayment E N T H (b) Payment inEgood E faith and without r R E Mr of instrument per apparent ANd) payment under S Rcircumstances which M do not affordKaAreasonable ground N S for in possession K E entitled to receive Npayment of therein. T H E E r believing that he isE not r A N R M K Form of The S R has not been M given in the Act.K It is simply a per N S However,TRBI H E E TH CTS 2010 E all banks providing ❖ cheque practice. has prescribed formatsrperN new cheque standards N E M r cheque facilities A N S R Astandard chequesSR EK and to their customers, M only CTS-2010' K N T H rN will issue E r across the country. N R E M Different ink: R AE M A Thus, a cheque is EK handwritings ofSdifferent script. H ❖ S cheque can be drawn H E K in different inks, N T E presentedNwith different ink, T E M r A N S R Mr The cheque handwriting script can be paid. N be written inSHindi, Ashould R English or Regional languages.K N ❖ Language: E K N T H E E r E M r A N S R M K S R K N T H E E r N N TH R EE M r A N S R M KA S H E K N E r N N T E M r R E M A S R S H EK N T H r N T E M r A N M K AN S R H E K EE r N N T R E S R M K A S N T H E E r N Mr AN S R M E K N T H E r N S R H M E KA rN NT RE  E Mr A N S R M K SR TH EK N TH E E Mr N A N SR E Mr K A N N S R K H E EE Mr N N T R E Mr S R H E KA N S T H E EK N T E in a languageMother r A N of that region. S R Bank isrwithin its powersAto N R K M K When a cheque N S return a cheque written is presented forT H than the language Eof thepresenter are r Ntaken ❖ Signatures on Back: E E r If the presenter N refusesto sign,Sthe payment, signatures E R bank can take receipt M on a K on the backR S M K A H E N as a witness of payment. T H E r N N T R E Mr separate paper. A N S RE M KA N S E K N T H E E r E M r A N S R M K S R cheques can beH: K N T H E E ❖ Date of the N : Cheque dated T E E r N R a) Anter dated M dated- ChequeKA N prior to its date S R of presentation. ItMis a valid cheque K A and can be paid. S N T H E E r N b) Post E dated subsequently E- As per RBI guidelines r to the date of presentation. N stale afterS3R M K c) Stale Cheque S R M K , a cheque becomesA months of its issue. H E N date- Line 31.11.2019. d) Impossible TH It shouldRbeEE paid on the last day N r of the monthorAwithin T N 3 months ofSR E r Mlast day of the K A N S M K N the E month. N T H E E r E e) Cheque date is of M r holiday. Like 15.08.2019. It is valid A Ncheque and can S R be paid before it M becomes K S R K N T H E E TH is called legal E and amount stale. N written in N ❖ The ramount Eamount M r written in figures A Nis called courtesy S R words R K M amount. E KA N S T H E E r N M in words K ❖ As per Sec 18Eof NI Act, if the amount M r written in words A N and figures differ, S R the amount written R should beS paid. In practice, K N T H and figures EE N T H the cheque is E E returned r with reason” N Amount in words R r mismatch”. M A N R S should be made M K A S ❖ Banking Hours:EThe K payment of a cheque N T H only during bankingE E hours otherwise r Nit will E in due course.MHowever, r A N of areasonableSR M to drawer EK S R not be a payment K the payment N amount can be made T H E N T Hour bank itis Rs.5000/-E E as per booksr of instruction. N R even after Mr banking hours.In if there A is N S R M A or by collecting Kdrawer S ❖ Mutilation: K any mutilation of N cheque, it should T H be confirmed by E E r N banker. E E r N R M K ❖ Material S R Min date, amountKAor name of payee N Sis called material T Halteration. The EE TH or cancellation Eof crossing or converting alteration: Any change r Nfrom order to Nbearer, E M r N specialAcrossing S R R EanK incomplete cheque change to general M is also material crossing E KA alteration. N S bearer toTorder However, H of completing E M r N is E If there isM r A N S Rbe paid only after confirmation K S R not material alteration. any material alteration K on a choque can N T H E E N from drawer T H under his full signatures. E E r N R M r A N R M K A S ❖ General Crossing: E Kthe face of chequeNit S Crossing is of two types - General T H or special crossing. E E lines can be with If there are two r N transverse M words K lines anywhere E on M r is called N General A Crossing. The S R parallel R S or & co or not K 123). For General N T Hlines are must. EE and company N T Hcontainany word. (See Any rother thingis not soNmaterial. A cheque E r crossing parallel N Eon which name ofMsome station likeAIndore is written SR M A S R K N E K N T H E E r E M r A N S R M R H N S T H E EK r N N T M r AN S R M K A K N T H E E R EE M r A N S R S H E K N N T E M r Mr K AN N S R T H E E r N S R H M E KA rN NT RE  E Mr A N S R M K SR TH EK N TH E E Mr N A N SR E Mr K A N N S R K H E EE Mr N N T R E Mr S R H E KA N S T H E EK N Tbe called Generally E crossed cheque. M r A N of drawer to paying S R betweenr two parallel lines A N R K M will S of the Drawer K crossing is the direction N T Crossing is direction Hto the CollectingEE r Ncrossed banker / Account payee E E r Nor through clearing) R and not across the M counter, to K Banker. Accordingly, cheque can beR paid to or throughM S A cheque with K A S H E N T a bank only in cash HGeneral Crossing E r N N T R E Mr payee or holder. A N S RE should be M paid only to a bank. KA N S E K N T H E E r E r N R M R # name of a bank Mis written on theKfaceA of a cheque with S H transverse EK ❖ Special Crossing lines it is N S T H (Section 124).EParallel E lines are not r Nnecessary. TheNname T of bank canRbeE or without two parallel r N of a cheque.SSpecially called special crossing Manywhere on the A R M K A S written K face N T CrossedH cheque can be E Epaid only to the bankN r crossed whose E E on the cheque. A rcheque crossed to N R M M A S EK name is mentioned two banks has to be returned unpaid unless by one bank S R to another as his H agent for collection.EK N T H E r N N T E M r A N S R R K ❖ M RBI has directed banks E KAnot to collect “account N S payee” was T Hfor any personEother E than the payee. M r NRBI has Epractice of collecting M r third party account A N payee cheques S Ron behalf of co-operative credit EK clarified that the S R K N T H E N T H can be allowed E Eit the amount is up r to Rs 50,000. N R societies who Mr are their constituents A N S R M K A S K in case of N H T.insanity of customer E N E or insolvencyMofr partner or ❖ E Emade r N R Hdated cheque (e)EEK Payment cannot be (a) death, insolvency liquidation ofS R M (c) receipt KofAgarnishee attachment N S order (d) post T company N However, payment H (b) stop payment T can be made E Ein case of death M of ragent authorizedAsignatory N R r stale cheque. A N R K S of a company, agentM K S bearer of society H or club etc.) where Echeque is not datedr N prior to appointed by a customer, E r Ethe agent and subsequent N trustee, office N T R E M date of authority to R M A to date of K death. S H E K S TH N T E N As per rsection 138 dealsN EE M with the dishonorRof Cheque for insufficiency r A Nin the account. Where S R ❖ M KaAperson on account Smaintainedby Thim K etc. of funds H with a bankerEforE payment of anyr amount N of any cheque drawn by E Eperson fromoutM r N N R or in part, of anyMdebt or other K S R K A S H E money to another H of that account for E the discharge, in whole r N N T R E liability,is N Mris insufficient K returned by the bank toA NT unpaid, either S R E because of the M amount of money A standing K to the credit N S of that account honor the cheque or E with thatbank,rsuch that it exceeds theH amount arranged N person shallNbeTdeemed to haveRcommitted E E r and shall, to be paid from that account by an agreement E M M of this Act, beKA EK made an offence S R to any other provision N S T H without prejudice N T H E E punished with imprisonment r N R E M r A N S R M K A S K N T H E E r N E E r N R M K S R M K A S H E N TH EE r N N T R E r N R M K A S M E KA N S T H E E M r N E M r A N S R R H N S T H E EK r N N T M r AN S R M K A K N T H E E R EE M r A N S R S H E K N N T E M r Mr K AN N S R T H E E r N S R H M E KA rN NT RE  E Mr A N S R M K SR TH EK N TH E E Mr N A N SR E Mr K A N N S R K H E EE Mr N N T R E Mr S R H E KA N S T H E EK N T up to two years, E or with fine which r N R r which may beA N R M may extend K upA S M for a term K extended S H N of the ArticleNisTalso applicableRin E r N to twice the amount of the cheque, or with E E both. The Provisions r E bouncing of cheques M due R Instructions. M K A S H E K S to stop payment TH N T E r N N R EE M r A N S R M 131: Protection ❖ Section K A to Collecting S Banker : Statutory Hprotection against K N Econversion to a rcollecting E E as per Sec 131 N rfor cheque and ASec T N 131(A) for bank R E M banker is available R conditions.SThey are as follows M K S drafts, subject to fulfillment H of 3 E K N T H E E r N N T R E M r AN& without negligenceS R M K A S ✓ Collection K N T H E E r N E is in good faith E for a customer r N R M K R ✓ Payment is received M K A S H E ✓ Cheque isS N T E r N N TH generally / specially crossed R EE M r A N S R M KA S H E K N E r N N T E M r R E M A S R K 1.2. Indian Contract S Act, 1872: K N T H E E Banking involves r N or any other person N TH merely utilizing interaction between a banker R EE and customer. A M r services provided customer of a bank A Nby the banker. S may be a R depositor, M borrower KAwith its customer S one of the various H K Ecertain rights torboth N the The E N creates certain T E interaction of a bank E r N obligations and gives R M bank and theRcustomer. S H M E K A N S T H E EK r N are contracts, N T if they are made Eby parties competent M r to contract, forAaNlawful considerationS R “All Agreements Mwith a lawful object, A R S declaredTtoHbe void.” K N and E K and are not N expressly E E r E M r A N S R M K S R K N T HContract Act is EE TH EE All Banking transactions are therefore, separate contracts and the knowledge of Indian r N for each Banker. N M r A N S R essential M A S R K N E K N T H E E r E The “Right of Set-off” of a banker has M rbeen conferred on A Nthe banks through S R Indian Contract M Act K S R K N T H E E r Section124. TH N "Contract ofNindemnity" defined-EE M r R the other from loss caused to him A N S R M by which one “A contract K Aparty promises toSsave H E K by thecontractNof the promisor himself,E E or by the conductr of Nany other person, N Tis called a "contract R E of indemnity". Mr S R H M E KA N S T H E EK Sec. 126 N r T "Contract of guarantee", N E "surety", "principal M r "creditor" - AN debtor" and S R M A S R K N in A "contract of K guarantee" is a contract to N perform the E The person whor gives the guarantee promise, T H or discharge the E E liability, of a third person r E case of his default. R M A R the person inMrespect of K N is called theS"surety", S the guarantee whose default H is given is calledKthe "principal debtor", E N and the personT H to whom the EE r N N T E may beM r A N S R guarantee is given is called R the "creditor".A guarantee either oral or written. K M E KA ‘bailor’ and N S T H E E r N R Edelivery of goodsMbyr one person to Aanother Section 148. ‘Bailment’, ‘bailee’ defined. N for some purpose, - S R upon a M S A ‘bailment’ is the H E K N T H N NT r N Mr A S RE M K A EK T H E E M rN A N S R E R N S T H E EK r N Mr AN S R M E K N T H E r N S R H M E KA rN NT RE  E Mr A N S R M K SR TH EK N TH E E Mr N A N SR E Mr K A N N S R