LAW5802 Banking and Negotiable Instruments — Unit 5: Payment and Payment System

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Unit 5: Payment and Payment System

5.1 Basic Element and Mechanism of Bank Payment

5.1.1 Basic Element

A bank payment has four elements: the payer’s order (cheque, instruction, card authorization), the paying bank, the payee or collecting bank, and the account from which value leaves. Payment is complete when the payee finally receives the money in the agreed sense — a distinction that matters when an intermediary fails.

5.1.2 Payment Method: Credit/Debit Transfer

Credit transfer (push): the payer instructs its bank to send money to the payee (e.g., a remittance). The instruction travels bank-to-bank; the payee’s account is credited.
Debit transfer (pull): the payee (through its bank) draws on the payer — the cheque’s model, and direct-debit instruments.
The Payment and Settlement Act, 2075 (2019) and NRB directives govern modern payment systems, including electronic means, with settlement finality rules for designated systems.

5.2 Payment of Cheques

5.2.1 Nature of Cheques

A cheque is a bill of exchange drawn on a banker and payable on demand (Negotiable Instruments Act, 2034). Essentials: an unconditional order, to a specified banker, signed by the drawer, for a certain sum, payable on demand to order or bearer. A post-dated cheque operates from its date; a stale cheque (beyond the validity period NRB fixes, currently a matter of directive) need not be paid.

5.2.2 Collection of Cheques

The collecting bank takes the cheque for the customer, obtains payment through clearing, and credits the account. The collecting banker must act in good faith and without negligence in verifying regularity — the classic liability zone: conversion of a cheque stolen or taken under a forged endorsement.

5.2.3 Payment by Credit Cards

Card payment is a three-party arrangement: cardholder, merchant, and issuer bank through the card network. The issuer pays the merchant (less discount), and the cardholder repays the issuer per the card agreement’s terms. Unauthorized transactions fall in the regulatory dispute-resolution frame of NRB directives and the consumer framework.

5.3 Settlement and Clearing of Cheque Payments

Clearing

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