Unit - 7: Case Laws on Responsibility of Collecting Bank
Legal & Regulatory Aspects of Banking - Case laws on Responsibility of Collecting Bank. Unit - 7 : Case Laws on Responsibility of Collecting Bank The Negotiable Instruments Act, 1881 lays down the law relating to payment of a customer's cheque by a banker and a protection available to a banker.The relationship between a banker and customer being debtor -creditor relationship , the banker is bound to pay the cheques drawn by his customer. This duty on the part of the banker, to honour his customer's mandate , is laid down in Section 31 of the Act
STATUTORY PROTECTION TO COLLECTING BANK : Section 131 of Negotiable Instruments Act grants protection to a collecting banker : 1. Non- Liability of a Banker Receiving Payment of cheque : A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that he credits his customer's account with the amount of cheque before receiving payment thereof. The povisions of above section 131 have been applied to draft as per Sec 131A: a) Act in Good Faith b) should have acted without negligence c) receive payment for a customer d) Cheque should be crossed generally or specially to himself.
Duties of a collecting Bank : 1. Open an A/c with References and sufficient Documentary Proof 2. Confirm the reference 3. Ensure Crossing and Special crossing 4. Verify the instruments or any apparent defect in the instruments. 5. to take into A/c the state of Customer's A/c 6. Negligence in Collecting Cheques Payable to Third Parties.
Statutory Protection to Collecting Bank Section 131 of the NI Act grants protection to a collecting banker 1. Non-liability of a banker receiving payment of cheque 2. Conditions for protection Duties of Collecting Bank 1. Duty to open account with references 2. Duty to follow up the reference where the referee is not known 3. Duty to Ensure Crossing : It is duty of the banker to ensure that the cheque is crossed specifically to himself and if the cheque is crossed to some other banker they should refuse to collect it. Similarly where the cheque is crossed to a specific account then crediting the same to another account without necessary enquiry’s would make him liable on the grounds of negligence. 4. Duty to verify the instruments / any apparent defect in the Instruments 5. Duty to take into account the state of customers account 6. Negligence of Collecting Bank in Collecting Cheques Payable to Third parties.