An easy way to develop self confidence
Dress Sharp Dress Sharp Dress Sharp
A dress affects the way a person feels about himself. For example the morning you know you don’t look good the feeling reflects in the way you carry yourself around all day. This also affects your interaction with other people. So be conscious about yourself and take care of your personal appearance to build up a good confidence level. Significant improvements can be made by following some simple routine:
• Bath and shave frequently
• Wear clean clothes
• Be cognizant of latest styles
• A great rule to follow in buying clothes is “spend twice as much, buy half as much“. Rather than buying a bunch of cheap clothes buy half as many. Select high quality items. This will decrease your spending because expensive clothes have good quality so they take time to wear out and stay in style longer.
Payment Methods
Payment methods are the instruments which are used by the account holders, whether an individual, a partnership firm or joint stock company, to operate upon the account to meet their payment obligations. These may include paper based or electronic based or a combination of both.

8.1. CHEQUE:
The most popular payment instrument used the world over is ‘cheque’. The facility to draw cheques by a customer to operate upon his account maintained with a financial institution is one of the prerequisites to qualify it as a bank. In fact a cheque is an order given by a customer to his banker to pay a sum of money either to himself or the named payee or to his order. In legal terms, the definition derived from the Negotiable Instruments Act 1881 is given below:

“Section 6 — a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”

Thus a cheque is a species of a bill of exchange; its distinguishing characteristics being that:
i. it must be drawn on a banker and
ii. it must be payable on demand.

Let us see, what is Bill of Exchange.
A bill of exchange is defined as:
1. Unconditional order
2. Which is in writing
3. Addressed from one person to another
4. Signed by the person giving it
5. Requiring the person to whom it is addressed to pay
6. Either on demand or at a fixed or determinable future time
7. A sum certain in money
8. to a specified person
or to the order of a specified person or
to the bearer.

Thus wherever the term ‘bill’ is used in the Negotiable Instrument Act, prima facie it covers both bill of exchange and cheques.

8.2. Types of Cheques:

8.2.1. Open cheque — It is payable in cash at the counters of a banker in accordance with the practice of the banks.

8.2.2. Crossed cheques — It is not payable in cash at the counters of a banker but can be collected by a banker who would credit the proceeds to his customer’s account after realization.

8.2.3. Dating a cheque — there is no legal requirement that a cheque should be dated. The Negotiable Instrument Act Section 20 allows an inchoate {meanings: just beginning to form and therefore not clear or developed } instrument to be completed. However, in practice banks do not pay undated cheques.
Ante Dated Cheque. Ante dated cheque is one that bears a date before the date on which it is presented for payment. Such cheque is paid if the period of ante date is less than six months.
Stale Cheque. If however the period of ante- date is six months or more than six months, such cheque will be called a Stale Cheque and will be dishonoured.
Post Dated Cheque. A post dated cheque is one that is presented for payment on a date before the date of issue appearing on the cheque. In other words a cheque is presented for payment but the date written on the cheque has not yet arrived. Such cheque will be dishonoured.
Cheque bearing a Date occurring on a Sunday. This reason does not make a cheque invalid. It is a valid cheque.

8.3. Parties to a cheque — Section 7 of the Negotiable Instruments Act mentions parties as Drawer, Drawee, Drawee-in- case of need, Acceptor, Acceptor for Honour and Payee. However we will only discuss the parties relevant to a cheque i.e. Drawer, Drawee & Payee. (We shall study Negotiable Instruments in detail in a subsequent hand out.)

8.3.1. The Drawer: The maker of the cheque, or to be more exact the account holder, is technically called the drawer (Sec.7). In order to constitute a valid authority, the drawer must sign the instrument, according to the recorded signature with his banker. The word ‘drawer’ is used for bills of exchange including cheques while for Promissory Notes the word ‘maker’ is used. A drawer may be the accountholder himself or a person authorized by him i.e. an agent may be drawer for the principal.

8.3.2. The Drawee: The drawee is the person on whom the instrument is drawn. A cheque is always drawn on a bank where the customer maintains his account. Unlike the drawer, a drawee cannot be a substitute i.e. it must be the named bank.

8.3.3. The Payee: According to Sec.7 of the Act, a payee is the person named in the cheque to whom or to whose order the payment is to be made. If more than one person are named as payee, then the cheque will be payable jointly or alternately.

8.4. Components of a Bill of Exchange (includes a cheque):

8.4.1. Unconditional order — it must be an order and that too unconditional. The words ‘please pay’ or simply ‘pay’ are sufficient to constitute an order. Payment from a particular account or a statement of the transaction e.g. ‘college fee’ does not make it ‘conditional’; In Palmer vs. Pratt (1824) it was held that a bill of exchange payable 30 days after the arrival of the ship Paragon at Calcutta was conditional for the said ship may never have arrived at Calcutta. The printed format of cheque books provided by Banks to their customers to draw cheques do not carry any provision to add any condition to its payment. If a banker is ordered to pay conditionally on the payee’s signing a receipt, the instrument will acquire the status of an order & not a cheque.
8.4.2. It must be in writing. The Bills of Exchange Act, 1882 provides that writing includes printing as well. Accordingly, a cheque prepared on a typewriter would be treated as a valid instrument.

8.4.3. Addressed by one person to another person — a person may be ‘natural person’ or a ‘legal person’ and the latter includes a company; ‘addressed’ requires that the name of the addressee person must appear on the instrument itself. It is not important whether it appears in the top (as on cheques) or at the lower part (as on bills of exchange). The instrument drawn by a Banker upon itself, like banker’s draft is not a bill of exchange as it is not addressed by one person to another.
8.4.4. It must be signed by the person giving it. An unsigned cheque is an incomplete instrument and will be refused by the drawee’s bank for payment.

8.4.5. Pay on demand or at a fixed or determinable future time; on demand refers to ‘demand’ or at sight’ or’ on presentation’ or in which ‘no time is expressed’. A cheque is always payable on demand. The responsibility of the drawee bank originates the moment a cheque is presented for payment. Note: An instrument payable at a fixed or determinable future time is a bill of exchange but it is not a cheque.

8.4.6. Amount certain in money; an amount indicating (a) with interest (b) by stated instalments (c) by stated instalments with a provision that the default in payment of any instalments the whole amount shall become due; is deemed to be certain in money. Where the amount stated in the cheque differs in words and figure, it appears as the instrument would not be an order for payment of a sum certain in money. However, the bill of exchange contemplates the possibility of discrepancy in words and figures and it specifically provides that in such cases, the sum denoted by words is the amount payable. In practice, the bankers usually return such cheques with remarks “words and figures differ”.

8.4.7. Payable to specified person or bearer. Sometimes a customer fills in the cheque stating ‘pay cash’ or ‘order’. Such instruments are not cheques, because ‘cash’ is not a specified person. These are, however, valid orders for payment of money and accordingly paid on presentation. However if the word ‘bearer’ remains on the instrument, it will fall within the definition. In most cases there will be a named payee and it will be payable to his order or bearer.

8.4. Payment in due course - The honouring of customer’s cheque is a contractual obligation of a banker. A valid payment, however, is one which fulfils the requirements laid down under the “Payment in due course”. Section 10 of the Negotiable Instrument Act, 1881 defines as under:

“Payment in due course means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground of believing that he is not entitled to receive payment of the amount therein mentioned”.

A payment made by a banker will constitute as payment in due course if it fulfils the following:

1. Proper form - The cheque must be drawn by the drawer in accordance with the provisions mentioned in Sec. 6 of the Negotiable Instruments Act, 1881. The Banker must ensure before payment that the cheque has been properly filled and no changes have been made to its format like the name of drawee Branch, account number etc.

2. Not crossed - A cheque can be either open or crossed. A crossed cheque is one which is not payable to any person but a collecting banker. A payment of a crossed cheque over the counter would not constitute payment in due course.

3. Drawn on the particular branch - The payment of cheque is contingent on its presentation at the branch where the customer is maintaining his account. However, with the introduction of on-line banking facility the cheques are also encashed on any other branch of the same bank. The customer’s account is ultimately debited at the same Branch where the account is maintained.

4. Payable to bearer or order - When a bearer cheque is presented for payment, the drawee bank is discharged by paying to the bearer who is presenting the instrument by obtaining an acknowledgement of receipt of money on the back of the cheque. However, in case of order cheque, it is the banker’s responsibility to confirm the identity of the payee before making any payment.

5. Not be mutilated - When the appearance of the cheque reveals that it has been torn or worn out and gives sufficient reason to believe the customer’s intention is to withdraw his authority, it is called mutilation. The banker should ensure that the cheque presented for payment has no sign of mutilation.

6. No unauthorized material alterations — Material alterations include the date, the sum payable, the name of payee and alteration of the ‘order’ to bearer but not vice versa. These alterations form part of Section 3 (f). Section 87 says “Any material alteration of a negotiable instrument renders the same void against anyone who is a party thereto at the time of making such alteration and does not consent thereto unless it was made in order to carry out the common intention of the original parties and any such alteration, if made by an endorsee, discharges his endorser from all liability to him in respect of the consideration thereof’.

7. Sufficient funds available - The account on which a cheque is drawn must be in funds to enable the bank to make payment. Section 31 of the Act states “The drawee of a cheque having sufficient funds of the drawer in his hands, properly applicable to the payment of such 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”.

8. Not be post dated or stale — The responsibility of the paying banker as regards payment or non-payment of cheques drawn on him is quite heavy. If the paying banker honours a cheque which should have been dishonoured, the paying banker may loose the money and if he dishonours it when it should have been paid, he is liable to pay damages for wrongful dishonour. The banker has only two options; (i) honour or (ii) dishonour.

The customer expects that the maker of the cheque may have arranged funds for payment on the date mentioned and if the cheque is presented before mentioned date of payment, it may be returned being post-dated. The other risks include:

a. The customer may countermand the payment before the due date of the cheque by informing the bank in writing. A payment before the due date will not be in accordance with the mandate of the customer and hence cannot be debited to the account.

b. Before the due date the customer may die and the death cancels the mandate given to the bank. If the bank has paid the cheque and the customer dies before that date, the banker will have no mandate to debit the account.

c. Payment of a ‘post-dated’ cheque will not be deemed to be payment in due course and hence the paying banker will not be entitled to statutory protection.

d. The customer may become insolvent or insane before the due date and here again the banker will loose the customer’s mandate

e. If a ‘post-dated’ cheque is paid, it may consume balance which the customer actually had in mind for payment of another cheque and which may have to be dishonoured for lack of funds thus making the banker liable to damages for wrongful dishonour of the cheque.
Dr. Rajanyaam in his article ‘the post-dated cheque and Holder in due course’ writes, “An instrument in the form of a cheque which is ‘post-dated’ is not a cheque in law”. Therefore a banker who pays such an instrument before the due date is unable to debit the customers account with the amount. A post-dated cheque is technically not a cheque until the ostensible date. A cheque by definition is payable on demand and hence a cheque with a date in future is not payable on demand. An Indian writer Parthasarethy in his book “Cheques in Law and Practice, 2 ed. 1972 p. 32 writes “A post-dated cheque till the date thereon arrives, could be treated as a bill payable at a future date”

A cheque is termed ‘out-of-date’ when it is either post dated or stale. If a banker pays a ‘post-dated’ cheque before its due date, he loses the protection eligible under the law. It is also customary amongst bankers in Pakistan that they do not pay cheques which are presented after a period of six months from the date of issue. Such cheques are termed as ‘stale’ as described under Sec. 21 of the Negotiable Instrument Act, 1881 and would be returned by the bank. A bill is not invalid by reason of that it is ‘ante-dated’ or ‘post dated’ or that it bears a date when it was a Sunday. An antedated cheque is one which bears an earlier date than the actual date of drawing. Therefore if on 25th January 2006 a cheque may be written with a date as 25th Dec 2005 it will be an ante-dated cheque.

9. Presented during banking hours - A banker is liable to honour cheques drawn on him, if it is presented for payment during working hours and on banking days only. The banking hours are fixed by banks and non-working days are announced by State Bank of Pakistan in compliance with the Negotiable Instruments Act.

10. No legal bar on payment - A banker would not make payment if the payment has been stopped by the drawer through written notice received by the banker, or the banker has knowledge of any defective title of the person presenting the instrument for payment; or has received a notice of insolvency, insanity or death of the customer, or in case of a company, notice of winding up or a notice of ‘assignment’ of the available credit balance in the account by the customer etc.

Protection to the Paying Banker
Section 89 : Payment of instrument on which alteration is not apparent.

Where a promissory note, bill of exchange or cheque has been materially altered but does not appear to have been so altered, or where 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 person or banker liable to pay and paying the same according to the apparent tenor thereof at the time of payment and otherwise in due course, in good faith and without negligence, shall discharge such person or banker liable to pay and paying the same according to the apparent tenor thereof at the time of payment and otherwise in due course, shall discharge such a person or banker from all liability thereon, and such payment shall not be questioned by reasons of the instrument having been altered, or the cheque crossed. The protection will be available only if payment is in due course, in good faith and without negligence.


8.8. Protection to the Collecting Banker — Sec. 131 of the Negotiable Instrument Act provides that where a banker in good faith and without negligence receives payment for a customer of a cheque crossed generally or specially to himself, and the customer has no title or defective title thereto, the bankers shall not incur any liability to the true owner of the cheque by reason only of having received such payment provided the payment has been collected in good faith and without negligence.
Please note that this protection is available only if the collection is in good faith and without negligence. The word negligence here extends to the process of opening of the account in which the amount is credited. The bank must have fulfilled all the required due diligence at the time of opening the account which process should have been executed without negligence.

8.9. Negotiation of Cheques - A cheque is negotiated when the ownership in it is transferred from one person to another in such a manner as to constitute the transferee the holder of the cheque. A cheque payable to bearer is negotiated by simple delivery, whereas a cheque payable to order is negotiated by endorsement and delivery. An endorsement can be made on the back by the holder of the instrument, to another person who takes it as a new holder.

Contributory Negligence by a Drawer
. A customer drawing a cheque in a careless manner which facilitates the material alteration has to suffer the loss. The House of Lords in London Joint Stock Bank vs. Macmillan & Arthur (1918) held that the drawer of the cheque (not the bank) must suffer the loss caused by an alteration in cheque if such an alteration has been facilitated by the customer. (E.g. if the customer leaves spaces in between the digits of the amount and spaces between the words when writing the amount in words. If he does so the amounts on the cheque can be altered without being detected by the bank officer’s examination.

Payment of a Cheque under Forged Signatures:
The most important part of a cheque is the signature of the customer, the authority to execute his instructions and the rest of the cheque is very often permitted to be filled by the subordinates. A cheque by nature is an instruction from the customer to the bank directing it to pay out the money from his account. If therefore the signature of the customer on a cheque is forged then it is not his mandate or order to pay. Therefore, any payment by the bank upon the basis of such a cheque is a payment without authority and would not bind the customer (PLD 1961 Kar. 185)

2. If signatures on cheque or one of the joint signatures to cheque, are not or is not genuine, there is no mandate on bank to pay. Also the question of any negligence on the part of customer, such as leaving cheque book carelessly so that a third party could easily get hold of it, would afford no defence to bank. It was held that the banker was negligent and dishonesty of employee of customer was not proximate cause of loss to bank. (A. I. R 1967 Supreme Court 389)

3. Money paid by bank’s servant under forged cheque cannot be debited to customer, merely because of customer’s negligence in allowing his cheque book to remain unlocked. It is the duty of the employees of the bank to be able to identify the signatures of their customers and if they fail to discharge their duty and thereby suffer loss, there is no reason why the customer should make good that loss. Hence the money paid by the servant of bank under a forged cheque cannot be debited to the customer merely on the ground that the customer was negligent to this extent that he allowed his cheque book to remain unlocked. (A.I. R. 1938 Allahabad 374)

4. As per section 10 of the Negotiable Instrument Act “a payment made in due course i.e. payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned”, gives protection to the paying banker. However, where a payment is made on a forged cheque, it cannot be regarded as payment in due course. It may be that the bank is an innocent victim of the fraud but so is the customer. If there are two innocent parties, the one whose negligence led to the ultimate loss is primarily responsible. (1990 CLC 686).

5. In London Joint Stock Bank Ltd. vs. Macmillan and Arthur (1918) the House of Lords held that the customer is under duty to his banker to exercise reasonable care in drawing cheques so as not to mislead his bank or facilitate forgery. This principle was adopted by the Supreme Court of Ceylon in Kulatilleke vs. Mercantile Bank of India (1958).

6. In Greenwood vs. Martins Bank Ltd. (1932) it was held that if the customer discovers that cheques purporting to have been signed by him have been forged, he must inform his bank immediately.

7. Money paid on a forged cheque is not money paid to the customer and money cannot be debited to customer’s account merely because of his negligence in allowing his cheque book to remain unlocked (PLD 1975 Kar 252).

8. As per Section 29 of the Negotiable Instrument Act a forged cheque is a nullity and confers no title and as per Case Law (PLD 1987 Kar. 599) a cheque on which a customer’s signature as drawer is forged, is not a cheque at all and a banker who pays money on it cannot debit the customer’s account with any payment made thereon.

Considering the above judgments a payment under a forged signature is not payment without negligence and therefore cannot be debited to the account of the customer. However what is a forgery is a matter of fact depending on documentary evidence, views of handwriting experts, etc.


Issuing cheques without arranging funds made a Criminal offence in 2001.
8.12. Dishonour of a cheque — some customers are in the habit of issuing cheques without any regard to the balance in the account or any alternate arrangements therefore. Section 20 of the Financial Institutions (Recovery of Finances) Ordinance 2001 lays down:

“Whoever dishonestly issues a cheque towards repayment of a finance or fulfilment of an obligation which is dishonoured on presentation, shall be punishable with imprisonment which may extend to one year or with fine or with both unless he can establish, for which the burden of proof shall rest on him, that he made arrangements with his bank to ensure that the cheque would be honoured and that the bank was at fault in not honouring the cheque “.

Practical & Accounting Steps in Payment of a Cheque

Cash Payment.
Procedure for payment of cheques in cash

 The customer / bearer presents the cheque to the Teller for payment.
 The cheque should not be crossed. If a cheque bears any type of crossing, it can only be credited to an account in a bank, cash cannot be paid.
 The Teller receives the signed cheque from the customer / bearer and asks for one signature on the reverse of the cheque.
 A bearer cheque can be presented by any person. If the cheque is payable to a named person and the word bearer is crossed out, it is treated as an order cheque and the presenter will have to show his CNIC to prove his identity. The officer satisfies himself to ensure that the correct payee has presented the cheque. A copy of the CNIC is retained with the cheque.
 The Teller scrutinizes the instrument for:
- Validity, i.e. stale / post dated
- Amount in words and figures match
- Cheque is not mutilated
- Cheque is bearer
- Alteration / addition / cutting, if any, are authenticated.
 The Teller verifies drawer’s signature from the system and “posts” the cheque. What is the meaning of posting the cheque? Signature verification is of prime importance, because this is the authority by which the customer’s account is debited. Other factors discussed in this hand out are also checked.
 By posting we mean that the details of the cheque are noted on the ledger or computer accounting system of the bank and the balance of the customer is reduced by the amount of the cheque in the banks record. Suppose the previous balance was Rs 100,000/- and the cheque was for Rs 50,000/- this sum will be deducted from the previous balance Rs one Lac and a new balance Rs 50,000/- will be shown on the account.
 By the posting of the cheque the following entries will be passed on the accounting ledger of the bank either manually or through the computer system:-
 Debit: ‘Customer’ account Rs 50,000/- narration ‘cheque no XYZ paid’, and
 Credit: ‘Cash in Hand’ account Rs 50,000/-
 according to the double entry book keeping system.
 In case the cheque amount is in excess of the Teller’s limit, real time (before payment) supervision is required when means a more senior officers scrutinizes the cheque and authorizes payment.
 The cheque is defaced by cancellation either by Teller or by Teller and Supervisor / Operations Manager, if amount exceeds the Teller limit.
 The Teller asks for the signature of the customer / bearer again on the reverse of the cheque to:
 Confirm the identity of the presenter and in acknowledgement for having received the payment.
 The Teller records the denomination on the back of the cheque and cash is delivered to the customer / bearer.
The Teller affixes branch “Cash Paid” stamp with branch name, code and date on the face of the cheque and writes amount paid and signs.

Procedure for payment of cheque in “transfer”
Transfer involves the transaction to be settled between the customers of the same branch or customer(s) of remote branch in the case of authorized system user (Online) branch.
Procedure:
 The Teller receives cheque from depositor along with the deposit slip. The Teller scrutinizes cheque and deposit slip for any discrepancy and confirms that:
 Cheque is signed and drawn in favor of account holder. Alternatively the cheque is payable to bearer or if payable to a third person it is endorsed by the first payee in favour of the account holder.
 If crossed, it is not crossed in favour of some other bank.
 Cheque and deposit slip amount agrees.
 Details and amount on both parts of deposit slip tally.
 Cheque is not stale / post dated or mutilated.
 Alteration / cutting / additions on cheque, if any, are authenticated by the drawer and on deposit slip by depositor. All other factors are also checked.
 Cheque is drawn on the same branch or remote branch. In the case of cheque being drawn on a remote branch, confirms that drawee branch is Online.
 Deposit slip is signed by the depositor.
 The Teller verifies signature, title of account (if mentioned on cheque) and number and posts the cheque against balance available. Signature verification is of prime importance, because this is the authority by which the customer’s account is debited.
 Teller confirms beneficiary account name and number and posts credit in the customer’s account.
 The entries in excess of Teller’s limit will require supervision.
 The Teller affixes Transfer and branch stamp, signs and delivers receipt to the depositor.
 The Teller affixes bank crossing stamp on the face of the cheque and endorsement stamp “Payee’s account credited” on the reverse. The endorsement is signed by the Supervisor. If the cheque is endorsed by the first payee to a second payee the endorsement of first payee should be confirmed by the second payee and the discharge given by the bank will be ‘’first payees endorsement confirmed, amount credited to the account of second payee. (First payees endorsement is confirmed in writing by the second payee and the second payee is the customer of the bank whose account is being credited. The bank therefore confirms the endorsement on the basis of confirmation by the customer whose signatures are available on record.)
For debit/credit to customer account with remote Online branch, system controls / conditions will apply and system will be used for confirming title of account, account number, signature verification and balance confirmation.
When the posting is confirmed the system will pass the following entries on the banks ledger
Debit :Customer account of the drawer of cheque
Credit : Customer account of the ultimate payee of cheque/account on the account credit slip.

Procedure for payment of cheque in inward clearing
Procedure:
When a cheque is used to move funds from Bank ABC to Bank XYZ, branches of both banks located in the same city the process is called ‘local clearing’.
Suppose you work in Faysal Bank Lahore. Your customer gives a cheque to a shop. The shop keeper has his account at Stanchart Lahore. The shop keeper will deposit the cheque ‘drawn on Faysal Bank’ with Stanchart for collection through Clearing and credit to his account.
Stanchart will present the cheque to Faysal Bank for clearing through NIFT.
NIFT will collect/pick up the cheque from Stanchart, make clearing lists and present the cheque to Faysal Bank.
Faysal Bank will debit the account of the drawer of the cheque and make payment to State Bank of Pakistan.
State bank will make payment to Stanchart. Stanchart will credit the shop keeper’s account with the amount. Based on lists from NIFT the State Bank will debit Faysal Bank account and credit Stanchart account in their books.Through this process money has moved from your customers account in FBL to the shop keeper’s account at Stanchart. Here the cheque is a clearing item. For stanchart this transaction is “outward clearing” and for Faysal Bank this is “inward clearing”.
Now we study the practical steps in the drawee bank that is Faysal Bank.
The cheques and other instruments drawn on the same branch of FBL are received from ‘NIFT’ along with forwarding schedule showing number and amount of instruments enclosed.
 Cheques and other instruments are handed over to the respective departments to scrutinize cheques for any discrepancy such as:
- Validity (stale / post dated).
- Amount in words and figures agree.
- Cheque is properly endorsed by beneficiary and the collecting bank Stanchart..
- Cheque bears presenting bank’s clearing and crossing stamps.
- Addition / alteration / cutting, if any, on cheque(s) and other instrument(s), is authenticated.
 If cheques are found to be in order, signature(s) are verified against the bank computer system or manual record. Signature verification is of prime importance, because this is the authority by which the customer’s account is debited. All other factors are also checked.
 The cheques are posted in the respective accounts in the system against available balance through the financial transaction option of the Clearing.
 The branch will ensure that total number and amount of cheques / instruments received through NIFT / Clearing Cell agrees with the amount shown on NIFT / Clearing Cell forwarding schedule.
 Dishonoured cheques / instruments are returned along with the cheque returning memo (showing specific reason for return) duly signed and after entry in the Cheque Returned Register.
 The cheque returning charges are recovered from the bank customers as per schedule of charges.
 Scrutiny of “discharge” by the bank branch which has presented the cheque is important.
 By discharge we mean a statement made by the cheque collecting bank on the back of the cheque over its stamp and signature in which it states as to how the money received by the bank has been or will be utilized/disbursed. Various options are:
 Payees Account Credited
 Payees account will be credited on Realization.
 Received payment
 First payees endorsement confirmed, placed to the account of second payee.
 Collecting banks discharge confirmed.

 The returned cheques are returned to the cheque presenting banks / branches along with the cheque returning memo through NIFT representative.
 NIFT assists in the clearing logistics and paperwork. However the following entries are passed on the banks accounting ledger in respect of inward clearing.
 (What is the meaning of logistics?
 Inward Clearing
 Debit : Customers accounts on whom the inward clearing cheques were drawn.
 Credit : State Bank of Pakistan or National Bank of Pakistan

 Return Clearing
 Debit : State Bank of Pakistan or National Bank of Pakistan
 Credit : Customers accounts whose cheques are returned.

In the next weeks we shall study in detail how the local ‘clearing’ system works.

8.13. Standing Instructions.- Banker extends this service to his customer on a nominal commission fee and posting charges. Payments of periodical nature like monthly subscriptions to clubs, payment of regular fees, remittances to dependents on regular basis, payment of regular insurance premium are made according to the standing instructions of the customer. Customer must keep his account in sufficient funds to enable the banker to execute his standing instructions.
For the above purpose clients give ‘standing instructions’ to the branch maintaining their account to make the periodical payments or remittances by debit to their account. To this end, the following procedure is to be followed by the branch concerned in dealing with such requests when received.

a) The first step would be to verify the signature of the account holder as appearing on the letter received from him containing his standing instructions for effecting certain periodical payments or remittances. The verification of the signature shall be done by the Manager himself or the Officer In-charge of Deposits Department in case of bigger branches.

b) After the account holder’s signature has been verified, his standing instructions would be properly recorded in the Standing Instructions Register maintained at the branch and also on the top of the relative ledger folio of the account under proper authentication of the Branch Manager or the officer-in-charge of Deposit Department as the case may be.

c) On completion of the above action, the said letter shall be filed in the Standing Instructions File maintained at the branch duly ‘page-numbered’ and indexed under proper authentication.

d) A proper date, month, year diary shall be used for ensuring timely execution of client’s standing instructions on due dates and the relative compliance shall be properly monitored by the Branch Manager.

e) Where, however, an account has been classified as ‘Non-Resident Account’ or ‘Blocked Account’, relative instructions of the Exchange Control Manual shall be kept in view, while complying with the standing instructions of the account holder. If the instruction violates the Exchange Control Regulations, the account holder shall be suitably advised about the relative exchange control rules and the bank’s inability to comply with his standing instructions.

8.15. Credit Card (Here the customer basically gets a loan to pay for the purchases) — Credit Cards are both a credit service and a transaction device. The customer at his discretion can use the account and the related credit line to finance purchases or may use the account as an alternative to cash. The credit card market has been segmented by introduction of Silver Card, Gold Card, Platinum Card, etc which offer different features and different payment terms. Some banks have introduced variable pricing arrangements.

A credit card transaction involves three distinct financial contracts among three parties i.e. 1) the ‘card-holder’, 2) the ‘card issuer’ and 3) the ‘dealer’ or ‘merchant’.

First is the contract between the card issuer and the card holder whereby the issuer undertakes to pay for the purchases made by the cardholder within a specified credit limit. The cardholder agrees to reimburse the issuer in the prescribed manner (in other words repay the loan as agreed) and undertakes to pay the applicable credit (interest) charge and annual fee.
The second contract is between the issuer and the dealer/merchant whereby the issuer agrees to pay to the dealer amounts due from cardholder provided the goods or services are supplied on the agreed terms, which means the dealer cannot supply goods or services without making a credit enquiry and approval from the card issuer.
The third agreement is between the dealer/merchant and the cardholder. This agreement remains a contract of sale or a contract for the provision of a service, although payment is expected from the issuer.

8.16. Charge Card- It is a variant of the credit card. However the holder is required to settle the bill promptly and in full when he receives it from the issuer.

8.17. Cheque Card or the cheque guarantee card — In such a case the issuer guarantees payment of cheques drawn by the customer up to an amount specified in the card. Here the issuer agrees to honour a negotiable instrument drawn by the customer whatever the state of his account may be. Such a cheque cannot be countermanded i.e., its payment cannot be stopped by the drawer.

8.18. Debit Card — The holder uses his debit card in specified shops to purchase goods or obtain services. Such a card differs from the other cards in that when the card holder uses his debit card, the price of the goods or the amount to be paid for services is remitted to the retailer by an electronic money transfer through a debit of the sum concerned to the card holder’s bank account.

8.19. Cash card or ATM card - It is used by the customer to obtain cash from an automatic teller machine (ATM) by using the card and personal identification number (PIN) from the keyboard of the ATM terminal. The amount so withdrawn is debited to the account of the customer. Some banks provide other facilities such as ‘balance enquiry’. Cash card differs from all the aforesaid four cards in that in the credit card, charge card and cheque card a transaction between the card holder and the third party is evidenced by a receipt or a voucher and authenticated by comparison of holder’s signatures on the card with signatures given at the time of transaction whereas in case of cash or ATM cards the customer PIN (secret code) is the authority for the transaction.
Nowadays Cards are being issued which function as both ATM Card and Debit Card and these cards are very popular.

_8.7. Banker’s Objections on unpaid cheques
Sometimes cheques have to be returned unpaid for various reasons. Returning of a cheque unpaid for insufficient funds is a very serious matter. May be that it is through oversight that cheque is issued by the drawer in excess of the balance available. Whatever may be the reason, it does create a very bad impression in the market about the prestige and reputation of the drawer. Banks also take great care in ascertaining the funds of the customer that may be under clearance or expected from some sources, before a customer’s cheque is returned unpaid for want of funds. In the past the Banks usually have been giving indirect/vague remarks while returning a cheque such as “Refer to Drawer”.

The State Bank of Pakistan vide its circular 22 of 2005 has directed the banks/ DFIs to give specific and clear reason for dishonouring a cheque. The reason ‘refer to drawer’ is vague and does not indicate a clear reason and it is not used now.

From the year 2001 issuing cheques without making arrangements of appropriate overdraft limit or sufficient balance in the account to meet the cheque has been made a criminal offence which carries a punishment of one year imprisonment. This is all the more reason that bank should not use any vague reason for returning a cheque unpaid.

Other reasons for which cheques are returned unpaid:

i. Cheque is post-dated or ‘out of date’
When a cheque is drawn in a date in advance, i.e. the date which is yet to arrive, it is called ‘post-dated cheque’.
When a cheque, at the time of its presentation, has been in circulation for more than six months from the date it was drawn it is called, ‘out of date, or ‘stale cheque.’

ii. Cheque is mutilated
If, at the time of presentation, a cheque appears torn or mutilated, it will be returned with the reason ‘cheque mutilated, requires drawer’s confirmation’. The rationale for returning such cheque is that the drawer may have intended to cancel the cheque.
If the mutilation occurs at the collecting banker’s end, it must be confirmed by the concerned bank.

iii. Crossed cheque
“Crossed cheque it must be presented through a bank”. When a crossed cheque is presented for cash payment over the counter, it is returned with this objection.
The payment of a crossed cheque can only be made to a banker of the beneficiary.

iv. “Effects not cleared, present again”
There may be some instruments which the customer has deposited for collection and which are still in the course of clearance. In such cases the objection of ‘effects not cleared’ is used.

v. Exceeds arrangements
“Exceeds arrangements.” Cheques that are issued by the customer within the amount of the accommodation (overdraft limit) agreed with the bank are paid. However cheques which exceed the limit agreed with the bank are returned with this reason.

vi. Drawer’s signature differs with the specimen filed with the bank.
This reason is obvious from its wording.

vii. Alteration in date/figures/words/name of payee etc.
“Alteration requires authentication by drawer’s full signatures”.
This too needs no explanation.

viii. Payee’s endorsement required/irregular/illegible.
This is also self-explanatory.

ix. Amount in words and figures differs.
This reason is used when the amount given in figures does not tally with the amount given in words.

x. “Clearing stamp required”.
Sometimes, clearing stamp is not affixed by the collecting bank when sending cheques through clearing. This objection is used in such cases.

XI) “Clearing bank’s discharge required/ irregular/ illegible”.
The paying banker is making the payment of a cheque to the clearing bank which has placed a ’clearing’ stamp on the face of the cheque.
The clearing banker should give a discharge on the back of the cheque and confirm how the amount received by the clearing bank is utilized.
If the cheque is marked account payee the discharge will be ‘Payees account credited’.
If the amount has been credited to a second payee on endorsement by the first payee, the discharge will be ‘first payees endorsement confirmed, placed to the account of second payee’.


The objections on unpaid cheques are numerous. Each objection should fit with respect to specific situations. The objections here-above are commonly used in the day-to-day practical banking operations.

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“Whenever you find yourself on the side of the majority, it is time to pause and reflect.” -Mark Twain