rd ‘endorsement’ is derived trom he cording to the Negotiable instr, wh Miner on the back or the face of “ose of negotiation is called en ale ee eroly by delve . mel er endoree y by endorsement and pa fn feust be written and signed by the tran (te must be a person to whom endorse of endorsement. delivery. In fact It. Wie 4. ENDORSEMENT the Latin word ‘Indorsum’ which means the ‘uments Act, instrument dorsem: 'd to the instruction ty. A negotiable instr 1881, the writing of a followed by one’s signature for nt. There may be endorsement on @ Called allonge. A bearer cheque can ‘ument payable to order can be two things are necessary for 'sferor called as ‘endorser’ ment is to be made called endorsee. oe main types.of endorsements are as under... nk or general endorsement, if the ) folder of the instrument signs his name y and delivers it to the endorsee. it is Caled general or blank endorsement full endorsement. It contains not only the 4 ignature of the endorser but specifies the endorsee oF to his order also, restrictive endorsement. Here the 6) gndorser uses such words in endorsement “nich restricts further negotiation and transfer of bills. sans Recourse endorsement. in this of endorsement, the endorser refuses to accept any liability on the instrument to ‘any subsequent party in case of dishonour of the instrument. : #) conditional endorsement. It contains an oder to pay only when a condition expressly laid down by the endorser is met with, ) Partial endorsement. If contains an order to pay only a part of the amount mentioned in the instrument. This type of endorsement is not valid in law. 6 ‘| Facultative endorsement. If refers to waiver of some right at the time of endorsing by adding appropriate words by the endorser. Significance of ove gets a valid ‘Sd. Abdul Rashid Pay to Hamid Ahmad or order ‘Sd. Abdul Rashid Pay to Hamid Ahmad only Sd. Abdul Rashid Pay to Hamid Ahmad without recourse to me. ‘Sd. Abdul Rashid Pay to Hamid: Ahmad on getting of railway receipt. ‘Sd. Abdul Rashid Pay to Hamid Ahmad. Notice of dishonour not required. ‘Sd. Abdul Rashid Endorsement. When a cheque is endorsed and delivered, the little to it. He, in turn, can negotiate the cheque to any person he “ttovided his endorser does not restrict further endorsements,Ce ee ean, oS F EXCHANGE AND A ¢ i HeQy 5, DIFFERENCE BETWEEN A BIL! Although a cheque is defined a5 bil ‘exchange in the following respects Cheque 1 of exchange, yet i difers tr, t a ty Bill of Exchange A bill of exchange is usuay (on some person OF firm ing ta, course bank. Luding (1) A cheque is always drawn on a| (1) bank. 2) Abill of exchange maj (2) A cheque is always payable 2” @) on demand or on the ony demand fixed period, "y oy (@ Acceptance is necessay, payment can be asked Y bet, not require (3) A__cheque does -| acceptance (4) (5) (6) Notice of dishonor is not necessary Nate rds abe ey nd to| (7) Abill of exchange cannot (7) A cheque payable on dema @ Be taaret be tray, (4) for is demand No days of grace_are_al a immediately payable on {A cheque can be crossed. © 6 bearer is valid. Three days of grace are 4, for payment On a time . exchange but not on demang" 2 Crossing of bill is not alloweg Notice of dishonor is neces, (@) _Payment_cannot be stoppeg counter minded bythe drawer” (@) A bill is noted and prose establish dishonor. eet (8) Payment ‘on cheque can be stopped y the drawer. (8) A cheque is not to be noted or protested in case of dishonor. (10) Acheque does not require stamp. (10) A bill of exchange must be proper stamped " 6. MAIN MODES OF INLAND REMITTANCES BY COMMERCIAL BANks: The main modes of inland remittances by commercial banks are as under: (1) Bank draft (2) Pay order (3) Telegraphic transfer (4) Mail transfer (5) in travelers cheques (6) Credit Cards. These inland modes of remittances are discussed in brief : (6.a) Bank Draft A bank draft is an order by one branch of a bank to another bi ranch to pay a certain sum of money on demand to the person named therein. ee Features of bank draft (1) Itis drawn by one branch-of a bank to an another branch of the same bank (2) Drawer and drawee bank is the same but branches are different. (3) The amount payable is specified in the draft.“Bi id ieee wings Le, ‘The pers unt is payable is also spec ‘is payable on demand Pecified therein «) tis an unconditional order for payment fl itbears no stamp. ig oratt can be negotiated by endorsement ang delivery é 9) Tggurchaser of the draft may or may not be a custowier ofthe bei pdvantages itis @ very useful instrument for (1) fom a bank and Sending it to the settlement of det bts. A debt ing a draft rea on debtor by purchasing a dra ar the debt owned by him n be made by Air Mail Transfer (A.M.T.) or a 0 hic Transfer (T.T.). Th jelegraphe © payment through fected within a few hours of despatch” COUGH T-T., though expensive, can be (4) Adraft is a very reliable and authenticated instrument of eradit for remitting money ne settlement of payment by draft has greatly hel Eee eer eee Greatly helped in the financing of domestic as (6) Pay Order A pay order is an instrument which is drawn by the bank and is payable on the issuing branch only, We can say that one and the same branch is both the issuing and te paying branch. A pay order is paid only to the pei son named their-in. It is thus non- transferable. A pay order is useful and safest method of makin: rreventing the risk involved in cash transactions. It is issuing it (6¢) Inland Traveller Cheque 19 payments to a.party: It helps in also not dishonoured by the bank Inland traveler cheque is also named Rupee Traveller Cheque. The cheque is drawn gy he bank for round amount and is payable at all the branches of the issuing bank in tie country. It can be paid by other branches if such arrangements are made with them ty the issuing bank. The purchaser signs on the face of cheque at the time of purchase. He is also ‘eqired to sign once again on the face of cheque when he presents it for encashment. The bank releases the payment if the two signatures tally. In case the two signatures are ‘identical, the paying branch will insist on identification of the payee through some ‘dependent source. (64) Telegraphic Transfer (T.T) Telegraphic transfer is an instrument that is cabled or telexed for the transfer of f2tey to a third party by one branch of a ban to its another branch located in some other in. The remitter branch then instructs the paying branch in coded language to pay ‘h or credit the ‘specified sum money into the account of the named Payee. All local ought comittances through T.T are payable in local currency. Bank remittances ‘rug -T are cheap and convenient to use.(6.e) Mail Transfer (MT) Mail vanes Sn methéd of remitting money my one brane Of coming bank to another branch of the same bank function! ne bey ash te town, = remitting branch instructs the paying branch by itll Cris pean Credit ints a0count of the named payee the speciied sum of money. [Ne ested of trans money is outdated and is replaced by Electronic Fun (6.f) Electronic Funds Credit System (EFTS) ancing, the payments both inland a As the telecommunication system is advancing, PETES ie are: not ie, are increasingly being made by electronic moving towards @ payment system in which the use of Papal © diminishin introduction of Tele-banking services, the AT! chequeless society is emerging Difference Between a Cheque al ‘A bank draft is different from @ cheque in several res difference between the two are as under. (1) Adan cinnet an ade payebla ts beara; wileseapems can be drawn oe beer of the draft. In case of 2) A banker is under legal obligation to pay the money ea oot ane a casily get payment of a cheque stopped if he so likes, lity to pay. In case of a che 3) In case of a draft, the banker has a direct liabil ae 2 banker has indirect liability. The banker will make payment of the cheque only wine, hag sufficient funds of the drawer with it for payment. The cheque is also in order be 3 ‘M and Credit Card facilities, a cashless he ay nd a Bank Draft pects. The main pon, 7. DIFFERENCE BETWEEN THREE NEGOTIABLE INSTRUMENTS Basis Promissory note Bill of exchange Cheque 1. Parties Two (1) maker and | Three (1) maker Three (1) Drawer (2) payee (2) Drawee (3) Payee. | (Depositor) (Can be two also) (2) Drawee (bank (3) Payee. (Can te two only) 2. Acceptance | Not required A legal necessity Not required 3. Period Payable on demand | Payable on demand Only payable on also only demand. 4. Promise Promise Order Order order 5. Stamp A legal necessity Alegal necessity. Not required 6. Crossing | Cannotbe crossed -_ | Cannot be crossed Can be crossed 7. Grace days. | Allowed Allowed No grace days. 8. Liability The maker isnot ree | The maker and others | The makers ie rom lablty become free from free from liabilt ne liability. i Ww Ves RN —Chapter-14 ACCOUNTS 9 . = F CUSTOMERS 5) (3) Fixed Term Deposit Accou re ints are Now discussed under separate heads 1. CURRENT ACCOUNT what is a current accounts? in short, in current account, the banker incu \ by the customer so long as there is enough money to the credit of the customer “the obligation may be extended by an agreement to the amount of overdraft agreed gon between the banker and the customer. The banks do not usually pay any interest on these deposits as they can be vwihdrawn without notice. The bank here acts only as the custodian of money. It cannot these funds due to fear of withdrawal. It has to keep a higher reserve ratio to ‘neetthe demand liabilities. pare interested in opening current account? FS an obligation to honour all cheques The current accounts are becoming very popular with the commercial banks in recent | The current account is opened and operated by traders, business companies, public service bodies, industrialists etc. etc., who (a) wish to have working ir custody, (b) are interested in keeping their money liquid and safe, (c) like id make payment usually through cheques, (d) utilize the agency services of quently, (e) take full advantage of other ancillary (helping) services provided ided to the current account holder. ing facilitates are generally provided to the current account holders by the collects properly endorsed cheques, bills etc. on behalf of the current iders. i May allow the facility of overdraft on prior arrangements to the trustworthywe yy be sanctioned t0 the Le credit worthy current ag Our hy, iii) Loans and advances ma\ With eae int by means of chi iv) A depositor can withdraw sums from the account by cheques any i cards supplied by the Bank ¥ ¥) Current account is opened with a minimum initial deposit a8 prescribed by »,, % from time to time. Summing up, current account doe: trade and commerce. 7. PROFIT AND LOSS SHARING SAVING ACCOUNT Rules for Profit & Loss Sharing Saving Account 4 sags ELS Seung account was intoduced im PaKSlon Ort warn inet” 201 : account is to mobilize savings of he Dae Spvest these savings in Non-interest act sy to be sharer in profit and loss, Tne Pare. Si h as Musharika, Modat business such as Mus! ‘an application made on the Bank's presen, ef is opened on ie : peteerrie duly ‘introduced in the manner provided and on supp such other documents, as may be required. . 2. PLS saving account is opened on proper introduction with initial minimum, eps a prescribed by the Bank from time to iste nis neigefofan ide a it unt may be opened in jointy in % 8 oe is or ere persons, These accounts may also be opened by chart names of vor for provident funds and other funds of benevolent nature by ine bodies, autonomous corporations, companies, associations, societies, educatong petitution, firme ete., and in all other cases where such accounts are required to opened under the orders of competent court of aw en i feposited to the credit of an account should be accompanied Sa alee mag the name ‘and number of the account to be credited. The ca ibe authenticated by putting Bank’s stamp under the joint signature foil of the pay-in-slip. The depositor should sa Fimself thatthe transaction has been so verified on the counter-foll, 5. Withdrawal from the acoount can be made only by means of cheques supplied by the Cheques should be signed as per specimen signature supplied to the Bank and any ate i, the instrument must be authenticated by the drawer under his ful signature. 6. Applications for cheque books should be made on the printed requisition s inserted near the end of each cheque book. In all cases where a person is sert behalf of the account holder to take delivery of a cheque book, he must be possession of a written authority from the customer to do so as well as a chew book requisition slip. The Bank would have the right to make investment of the credit balances/deposits in PLS Savings Accounts at its sole discretion in the Banking Business under PLS System 8. Profit payable or Loss recoverable on PLS Savings Accounts to be credited debited will be determined by the Bank at its sole discretion on the basis of ils working results at the end of each half year within the time prescribed by SBP I" the date ff tie close of the half yearly books of accounts of the Bank The rates profits may vary from period viz January to June/July to December each ¥ Calculation of Profit on PLS Savings Account will be made for each calendar mo ¢ not earn but serves the cause of j,, hy ory 1ne 'cate or any other Court Order relevant for unt holder wishing to close the accou nd Mged cheques to the Bank and withdraw th int must present the Pass Book ai " le Outstanding balance, if any. In case urspgure of an account within a period of § months from the date of its opening, @ af ie of Rs. 50/- On account of cost of stationery, will be made. on 3. FIXED OR TERM DEPOSIT ACCOUNT mercial bank te! is the bank for a xed od specified in advance. The rate of interest on term deposit is higher than that ed Pel" deposits: The longer the duration for which the amount is kept with the bank, 10g the rate of interest and vice versa: "i el deposits are kept in the bank by the customers to earn interest. At the me Ore loan, the bank pays the principal amount along with interest of the it] period to the depositors. The money kept in term deposit is thus a safe «for the customers, 7! men ing and operation of Term Deposit Account tomer has to fill in an application form supplied by the bank wherein (1) the The crdeposit is 10 be provided (i) the period for which deposit is made (li) the out “mes in which the term deposit receipt (FDR) is to be issued. 7 ment of interest: The interest is paid to the depositor at the expiry of period for ane deposit has been made. ent before the date of maturity: The bank can grant advances uplo 75% of it against fixed deposit receipt. If the customers wishes and insists on iaering of deposit receipt before the maturity date, the banker will then accept his ss, make payment of the principal amount along with lesser interest as agreed at ite of deposit FDR (Fixed Deposit Receipt). The FDR issued by the bank to the ner snot a negotiable instrument; The words “Not Transferable” is clearly written at cheques against fixed deposits: The bank does not issue cheque book against sei deposit fis only the FDR which is issued to the customer. 4, FOREIGN CURRENCY ACCOUNT The State Bank of Pakistan has introduced a number of reforms in the foreign ‘change control in the country. The main purpose of introducing the various reform is to Saghen the foreign exchange reserves which hover around 13 billion dollars and are | ]?/sffcient to cover the import bills of the country for a few weeks only. The salient "aus of the opening of foreign currency accounts for boosting remittances and “ling foreign exchange resources, under the new rules are as unde.(1) Salient Features: (1) The designated branches of com are only authorized to deal in foreii mercial banks by the State Ba ign currency deposits Ink of foreign currencies. H (2) The deposits can be accepted in all en operation Srsooth, it is desired thet the deposits should be acceptey ®t, Deutsche Mark, and Pound Sterling only. : mut h from residents and non-re (3) The deposits can be accepted boll ident Pakistan and foreign nationals, 4 firm, company. whe (4) Foreign currency deposits under the new rules of 1998 can be accepteg S cere fs cere only. a (6) In Foreign Currency Saving ‘Account, minimul minimum 000 US Dollar are required deposits and term depo: 6) Interest rates on foreign currency saving POSITS are (9) BP and they are to be pald ney thly on saving deposits and on mata R ine term deposit. (7) Foreign currency deposits under the New Rules 2! State Bank of Pakistan ned under the Foreign Currenc (8) The accounts ope! Economic Reform Act, 1992 (9) The new foreign currency deposits can grin Pakistan Rupees at the discretion of (10) The balances held in the foreign currenc! wealth Tax for 6 years and Income Tax and source. (11) The State Bank o ‘sources of fund of Foreign profitable Employment of Funds: 7! banks under the guidance and instructions © deposits. by ()) advancing short term Jat purchasing and discounting of bills of exchange al The President of Pakistan on Sept. 28, 2001 has promulgated an Ordina protect foreign currency accounts, ‘According to this Ordinance “No person hok foreign account shall be deprived of his right to hold and operate the foreign currency a 5, JOINT ACCOUNT A joint account unt which is opened in the name off or more persons. For drawing of the amount, all the persons in whose name Secount stands, should sign the cheque. However, if the parties like, by agreement ae reallow any one of them to draw on the joint account without the consent or sig death of the either party, the bank allows the survivor to dra of the other. On the balance standing to the credit of the joint account. F i following precautions should be taken by the bank ceciaaioe oot ora Paki, m 1000 US Dollar, and in 7, etm Oy re not required to be Surtende " xy Account will enjoy the pro tect be encashed withdrawn in fore the depositor 9M Cu y account are exempt from th fompulsory deductions of 2 f Pakistan or Govt., of Pakistan will not make enquires aboy, ‘Currency Accounts ‘ rhe authorized branches of the comm f SBP can make use of the foreign exch (i) investment in govt., secures nd (iv) making term loans. is a special bank acco!eo vc cusTomers cautions 71 pr the parties who wish 4 1 aening of a joint account © Open a joint Account must sign th n the | tae shouldbe clear nstctong application for the ‘ecount. The name or name, ‘n Writing to th a ierdoned S Of the persons who fe banker for the operation of the irany party to the joint account revoke: s 3 Hop all operations of the account the agreement, the bank has No option but to 6. OPENING OF cy RRENT ACC SAVING ACCOUNT WITH A BANK see followi 0 in ore 8 current or Profit and Loss Sharing ne nt is opened in dived to be completed mas an tory Reference: The prospectiv 1 nroduc! /@ customer is to provide his introdi the nce piel ee of the bank or rom! the person cen’ tome nk. e Ice verifies the integrity ssodwl of the intending customer on the application ee nee ignatures: When the banker i it iy) Specimen SI 's satisfied about the integrity of thi (1 Seamer, he then agrees to open his account. The bank obtains more. than one specimen signatures on Specimen Signature Card. These cards are indexed and fied in an alphabetical order. opening the Account: When the prospective customer fulfils the required famalties of opening an account, the banker then opens an account in the name of agplcant. The applicant is required to deposit minimum amount as prescribed by the tank, from time to time. The bank then provides the customer with a (i) pay in slip took (i) a cheque book and a Pass Book on demand. The commercial banks are rou-2-days mostly providing statements of accounts to the customers in place of the ass books. The customers can check the entries made in the statement of account wth the cheques issued by him from time to time §) Closing of the Account: A customer can close the account with a banker in the folowing circumstances. (i) The customer shall have to inform the banker in writing ofhis intention to close the account. The customer will return the unused cheques, nis account will be closed. (ii) If the account is not operated for a long time, the banker himself may give notice to the customer for closing of the account (iii) If the ‘enter finds that the customer is not desirable, he can send him notice for closing of te account (iv) The account of the customer is also closed on receiving information ‘out the death or insanity of the customer etc.7. VARI ous BANK ACCOUNTS--A COMPARISON Fixed or Time Savings Bank Deposit Basis of Difference Deposit Account ‘Account = e 5 1. st To cultivate habit of Object To earn intere: ee ns 2. Period of Deposits are made for | No fixed period for Deposit a fixed period. deposits. 3. Frequency of Deposits. The deposit in this account is made only at one time. Deposits can be made any number of times in this account. on Withdrawals The amount deposited can generally be withdrawn at maturity. When withdrawal is .ade before maturity, interest is not all or minimum amount of interest is paid There are restrictions on withdrawals. on withdraws account, fon 5. Interest. As the costs of operations of this account are low, the higher rate of interest is alowed on this account. Interest is allowed at a rate lower than in fixed deposit account but higher than in current accounts. No interest entre allowed on this ay as the costs of operations are high 6. Cheque facility. Not permitted Cheques are used for withdrawals. Cheques are u: withdrawals nn account.aren. s OF BANK CUSTOMER, increase its customers. Howeye, an those persons rt ai Competent ty or customers. The bank is and shi). is itis to have @ continued Felationshi, it wi be divided into two categories (1) “ine! re Ordinary Customers are those ("thy Taws of land. An individual, a bogy .¥o ,! The bank before accepting one aga or ‘aracter, honesty, Social standing © DIFFERENT TYPE Every commercial bank is anxiou cannot be accepted as its customer enter into a contract can be considere cautious in the selection of customers 25 The customers of a bank can mainly Customers and (2) Special Custome! competent to enter into contract under the a firm can open an account with the bank. Ng ang weighs the customers financial position, nis CRATE EN A are dealt with as oc.™ ane will in the society. The special customers are Pec 4 | types of individual customers" tr, legally. We first of all discuss in brief the specia 1, SPECIAL TYPES OF INDIVIDUAL CUSTOMERS é ers of the commercial banks are (i) 4, The special types of individual custom: s ordan Observing Women and (t®, Lunatic (iii) Drunkard (iv) Married Wome? (Yo ‘and the special type a aoa persons. The relationships between Ine ba country ha customers are governed by the legal (1) Minor A person who has not attained t into a contract. Therefore, any contra . ' t if it is direct However, a bank can accept and open a minor's accoun 04 by Guardian Court. The Court appoints a guardian of a minor who obtains and signg the prescribed opening form of the account himself. He gives his own specimen signatnt for the operation of the account. Each withdrawal from the minor's account by yy. guardian is subject to the approval and sanction of the Guardian Court. On attaining pe age of 21 years, the minor is allowed to open and operate the account himsely The authority of legal guardian ceases to exist It may here be noted that when a bank accepts a minor as its customer, he/she is na allowed the overdraft facility. In addition to this, no term loan can be advanced to hin Here minor is treated not as an ordinary customer. The relationship between the miny and the bank is of special nature and is governed from relevant section of the ia, enforced in the country. (2) Lunatic: A person who is incapable of understanding, is of unsound mind. contract with the banker as customer. Ale oble he age of 18 years is a minor. A minor can 0 ct with minor Is void. hey If an account is already in existence of a sane person but his er ieee ut his mental status isy ard: es oe is in state of intoxication and is not in se 0) (8 Pe The main condition of vai contract with a ban ind. However, if a person ig drunk, is of noun account with a'bank. al te arried Woman: ne We Woman are equal in the e ) yan 2 an has every right to ent ied partnership, be declared as insolvent ay her 0 Fmarvied woman is as good as a maic mei vase She can open any type of ace med: ses, he cannot open an account bank is between persons who are sound mind, he may open and the Court just like other ordinary mber of the society so far as law is Sunt including Foreign Currency Account in her band, or for meeting the expenses of life ed (0 oor for domestic needs such as boarding, lodging and clothing, then the incurred by his wife by law. h Observing Woman: The a. to be very cautions in oj Ihe Oalpe treated at par as with other women Before ace: ‘ate person: The eee. from the banker's point of view, is the An be He uses his thumb impression: Person who can not put his S in place of signatures for identification banker has, therefore, to be-very cautions in honouring the cheques of illiterate The banker usually takes the following precay A ceded Photograph of an iliterate person is pasted on the signature card for identification. lutions in this regard.