DEFINITION of
'Instrument'
1) A
tradeable asset or negotiable item such as a security, commodity, derivative or
index, or any item that underlies a derivative. An instrument is a means by
which something of value is transferred, held or accomplished.
2) An economic variable that can be controlled or altered by government policymakers in to cause a desired effect in other economic indicators.
3) A legal document such as a contract, will or deed
A negotiable instrument is a document guaranteeing the payment
of a specific amount of money, either on demand, or at a set time, with the
payer named on the document. More specifically, it is a document contemplated
by or consisting of a contract, which promises the payment of
money without condition, which may be paid either on demand or at a future
date. The term can have different meanings, depending on what law is being
applied and what country it is used in and what context it is used in.
Examples of
negotiable instruments include promissory notes, bills of exchange, banknotes, and cheques.
Because
money is promised to be paid, the instrument itself can be used by the holder in due
course as a store of
value. The instrument may be transferred to a third party; it is the holder of
the instrument who will ultimately get paid by the payer on the instrument.
Transfers can happen at less than the face value of the instrument and this is known as discounting; this may happen
for example if there is doubt about the payer's ability to pay.
Definition (by Wikipedia)
In
the Commonwealth of
Nations almost all jurisdictions have codified the law relating
to negotiable instruments in a Bills
of Exchange Act, e.g. Bills of
Exchange Act 1882 in the UK, Bills of
Exchange Act 1908 in New Zealand, Bills of Exchange Act 1909 in
Australia,[1] the Negotiable
Instruments Act, 1881 in India and the Bills of Exchange Act
1914 in Mauritius. The Bills of Exchange Act:
1. defines a bill of exchange as:
'an unconditional order in writing, addressed by one person to another, signed
by the person giving it, requiring the person to whom it is addressed to pay on
demand, or at a fixed or determinable future time, a sum certain in money to or
to the order of a specified person, or to bearer.
2. defines a cheque as: 'a bill of
exchange drawn on a banker payable on demand'
3. defines a promissory note as:
'an unconditional promise in writing made by one person to another, signed by
the maker, engaging to pay on demand, or at a fixed or determinable future
time, a sum certain in money to or to the order of a specified person or to
bearer.'
Additionally
most Commonwealth jurisdictions have separate Cheques Acts providing for
additional protections for bankers collecting unendorsed or irregularly
endorsed cheques, providing that cheques that are crossed and marked 'not
negotiable' or similar are not transferable, and providing for electronic presentation
of cheques in inter-bank cheque clearing systems.
KINDS OF BANKING INSTRUMENTS
· Deposits or pay-in-slip
· Cheques
· Demand drafts
· Debit and credit note
· Vouchers
DEPOSITS AND WITHDRAWALS SLIP:
· The deposits are made by
filling up a pay-in-slip. The form of the pay-in-slip is:
· It is used to deposit
money in the bank and returned to the depositor.
· It has the signature of
the cashier, as receipt.
· It gives the details regarding the date, the
amount deposited.
CHEQUES
A cheque is an unconditional
order on the bank made by the client instructing the bank to pay a certain sum
of money to the person named in the cheque or his order or the
bearer. This instrument is very safe and convenient method of making payments
or withdrawing money from a bank.
TYPES OF CHEQUES
1. OPEN CHEQUE
2. CROSSED CHEQUE
OPEN CHEQUE:
An open cheque is one which is
payable across the counter of the bank. It need not be paid through a bank. It
can be encashed at the counter of the bank. An open cheque can further be of
two types:
a. BEARER CHEQUE:
When a cheque is payable to a
person named in the cheque or to the bearer thereof, it is called a bearer
cheque.
For e.g. “pay to Rakesh Kumar
Garg or bearer.” Such a cheque may be paid to Rakesh Kumar Garg at
the counter of the bank when he presents it for payment. Mr. Rakesh Kumar Garg
can either himself go to bank for getting payment or simply he may or may
not sign at the back side of the cheque and hand it over to any person. Any
person can go to the bank and collect its payment. The drawee bank need not
take any pains to get the identification of the person to whom the payment
to whom the payment is being made. A bearer cheque is transferable merely by
delivery.
b. ORDER CHEQUE:
An order cheque is payable to
the person named in the cheque or his order. For e.g.“ pay to Rakesh Kumar Garg
or order.” Such a cheque is payable to either Rakesh Kumar Garg or to any
person whom he orders the payment of the cheque. Order cheque is paid by the
bank only when the bank is satisfied about the identity of the payee. An
order cheque is not transferable merely by delivery. It cannot be transferred
without the signatures of the transferor
CROSSED CHEQUE:
A crossed cheque is one on
which two parallel transverse lines with or without the word ‘& co.’‘not
negotiable’…etc. are drawn. A crossed cheque is not payable across the counter
of the bank. It must be collected through a bank. Itis paid into the bank
account of a person and cannot be encashed at the counter of the bank. By
crossing cheques safety is ensured and the person to whom payment is eventually
made can be traced because such a
cheque is always paid into a bank account. A
crossed cheque provides protection not only to the holder of the cheque but
also to the receiving and collecting bankers
Types of Crossing
a) General Crossing
b) Special Crossing
Other Types of Crossing
1. Restrictive Crossing
2. Not Negotiable Crossing
3. Double Crossing
BANK DRAFT:
Bank draft is a bill drawn
either on demand or otherwise by one banker on another in favour of a third
party or by one branch of a bank on another branch of the same bank or by
the head office of a branch or vice versa for a sum of money payable on demand or
order. It is also known as demand drafts as they are always payable on demand
without any days of grace and there cannot be any bearer drafts. They are
always used as a mode of remittance by parties for sending money from one place
to another. For the preparation of this draft bank
DIFFERENCE BETWEEN CHEQUE AND DEMANDDRAFT
DEMAND DRAFT
•It cannot be made payable to
bearer.
•Its payment cannot be stopped.
•It is drawn by a bank upon
itself.
CHEQUE
•It may be drawn payable to
bearer.
•It is counter mandedas in case
of a cheque.
•A cheque is drawn by one
person upon another
DEBIT NOTE
It is a document evidencing
that a debit to be raised against a party for other reasons, for e.g., when
goods are returned to a supplier or when an additional amount is recoverable
from a customer.
CREDIT NOTE
It is made out when a party is
to be given a credit except against the bill already received from it. When
goods are received back from a customer, a proper credit note should be given
to him.
VOUCHER
It is a document providing
evidence of some business transaction. It is clear from the above
definition that whenever a transaction takes place, an evidence to that effect
is also established
Types of vouchers :
a. Source vouchers
b. Accounting vouchers
Crossed
cheques:
MEANING
The act of drawing
two parallel transverse lines on the face of a cheque is called crossing
of a cheque. It is a direction to the banker not to pay the cheque across the
counter of the bank but to pay to a bank only or to particular bank in account
with the bank. The amount in this cheque is paid into the bank account of
the respective person whose name is being mentioned on the cheque.
Types of crossing
a) General crossing
b)
Specific crossing
GENERAL CROSSING
General crossing implies simply
putting two parallel transverse lines on the face of cheque. According to
section 123 of the negotiable instruments act, 1881 says, “where a cheque bears
across its face an addition of the words‘and company’, or any abbreviation
thereof; between two
parallel lines or just two lines without any negotiation will be
considered a generally crossed cheque. The effect of general crossing is
that payment of such a cheque cannot be obtained at the counter of the
bank, it can only be obtained through a banker
SPECIAL
CROSSINGSPECIAL CROSSING
A special
crossing implies a direction written on the face of a cheque to pay the cheque
only if it is presented through a particular bank mentioned therein. The cheque
is deemed to be crossed specially. In this the amount is transferred to the
mentioned name a/c.
RESTRICTIVE
CROSSING:
It constitute
a direction to the collecting banker to collect the cheque and credit the
proceeds to the account of the payee only. Such a crossing is known as
RESTRICTIVE CROSSING. The collecting bank has to credit the account of the
payee in whose favor the cheque is drawn.
NOT
NEGOTIABLE CROSSING:
It makes the
cheque non-transferable but the effect of such a crossing is that when the
holder to a cheque transfers it to any other person the transferee does not get
a better title than the transferor had even though the transferee is a right
person who takes the instrument for a valid consideration and before the
maturity of the instrument.
DOUBLE
CROSSING:
PERSONS WHO
MAY CROSS A ERSONS WHO MAY CROSS A CHEQUE:
A cheque may
be crossed by any of the following:
1. The drawee
of the cheque
2. The holder
of the cheque
3. The
collecting banker
References:
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