In the case of collection of cheques, a banker is:
In the case of collection of cheques, a banker is:
i.
i. A HA Holdolder fer for Vor Valalue: ue: In tIn the he case case of uof uncrncrosseossed or d or opeopenn cheques, he occupies exactly the same position as any cheques, he occupies exactly the same position as any other person who so acquires them.
other person who so acquires them. ii.
ii. An aAn agent: gent: A baA banker, nker, whilwhile cole collectilecting a ng a cheqcheque foue for ar a customer, cannot assert any right of a
customer, cannot assert any right of a holder for value, for holder for value, for he is acting only as an agent. In
he is acting only as an agent. In doing so, he gets the samedoing so, he gets the same title on the cheques as that of his c
title on the cheques as that of his customer.ustomer.
Collection and Payment of Cheques and Bills
Statutory Protection
Statutory Protection
According to Section 131 of the Negotiable Instruments Act, 1881, “a
According to Section 131 of the Negotiable Instruments Act, 1881, “a
banker, who has in good faith and without negligence received
banker, who has in good faith and without negligence received
payment for a customer on a cheque crossed generally or specially to
payment for a customer on a cheque crossed generally or specially to
himself, shall not, in case the title t
himself, shall not, in case the title to the cheque proves defective,o the cheque proves defective,
incur any liability to the true owner of
incur any liability to the true owner of the cheque by reasons only of the cheque by reasons only of
having received such payment.”
having received such payment.”
The onus of proving good faith and absence of negligence is on the
The onus of proving good faith and absence of negligence is on the
banker claiming protection under Section 131.
banker claiming protection under Section 131.
Conversion
Conversion
Conversion may be defined as the lawful talking, using, depositing or
Conversion may be defined as the lawful talking, using, depositing or
destroying of goods, which is inconsistent with the
destroying of goods, which is inconsistent with the owner’s right of owner’s right of
possession. It may be noted that if
possession. It may be noted that if there were no statutory protection,there were no statutory protection,
a banker would be liable for conversion if he paid a
a banker would be liable for conversion if he paid a cheque on acheque on a
forged endorsement.
Collecting Banker’s Duties and Responsibilities
Collecting Banker’s Duties and Responsibilities
1.
1. It is the dutIt is the duty of the coly of the collectlecting baing banker to exenker to exercise thrcise the samee same care and precaution in the interests of the true owner of care and precaution in the interests of the true owner of aa cheque as a
cheque as a reasonable businessmareasonable businessman would exercise in hisn would exercise in his own interests.
own interests. 2.
2. SolSolicitoicitor Terringr Terrington drew cheqton drew cheques on Reckiues on Reckitt’s accott’s accountunt pursuant to the power of attorney and paid them into his pursuant to the power of attorney and paid them into his private account with the Midland Bank who collected them private account with the Midland Bank who collected them for him.
for him. 3.
3. The ChiThe Chief Accouef Accountanntant of Lloyds bant of Lloyds bank in Bombak in Bombay wasy was authorized to draw cheques on the account kept by the authorized to draw cheques on the account kept by the Lloyds Bank with the then
Collecting Banker’s Duties and Responsibilities
Collecting Banker’s Duties and Responsibilities
4.
4. The solThe sole direce director of onetor of one-man c-man co compo company endany endorsedorsed, in the nam, in the namee
of the company, cheques drawn by third parties in favour
of the company, cheques drawn by third parties in favour of theof the
company which collected them on his behalf and credited his
company which collected them on his behalf and credited his
account with their proceeds
account with their proceeds
5.
5. A chequA cheque, whice, which was mah was made payabde payable to a parle to a partnershtnership firmip firm, was, was
endorsed by one partner on behalf of the firm and was
endorsed by one partner on behalf of the firm and was paid intopaid into
his
his private account private account for collection for collection with the with the defendant badefendant bank.nk.
In collecting third party cheques, a banker should take extra In collecting third party cheques, a banker should take extra precautions to safeguard the interests of the true owner.
Collection of Bills Collection of Bills
In the case of c
In the case of collection of bills, a banker does not get theollection of bills, a banker does not get the statutory protection afforded to collection bankers by
statutory protection afforded to collection bankers by SectionSection 131 of the
131 of the NegotiablNegotiable Instruments Act, e Instruments Act, 1881.1881. Presentment for Acceptance
Presentment for Acceptance
Presentment for acceptance is not necessary in the case of Presentment for acceptance is not necessary in the case of a bill payable on demand or on a fixed date. However, it is a bill payable on demand or on a fixed date. However, it is always desirable to get a bill accepted as early as possible always desirable to get a bill accepted as early as possible even when it is not necessary because of:
even when it is not necessary because of: i.
i. AsAssusurarancnce e of of papaymymenent ot on dn due ue dadatete ii
ii.. EvEvididencence ie in cn case ase of of disdispuputete iii.
iii. FaciFacility lity in nin negotiegotiationation iv.
iv. DrawDrawee knowiee knowing his liabng his liabiliilityty v.
The banker should present a bill for acceptance to the following
The banker should present a bill for acceptance to the following::
i
i.. DDrraawweeee
ii
ii.. AuAuththororizeized agd agenent of tt of the dhe draraweweee
iii.
iii. Legal Legal reprerepresentatsentative, iive, if the df the drawee rawee is deais deadd
iv.
iv. OfficiOfficial Receial Receiver, when the draver, when the drawee has been dewee has been declared an insclared an insolvenolventt
v.
v. All thAll the drae drawees, wees, if theif there arre are sevee several drral draweesawees, unle, unless any ss any one oone of f
them has the proper authority to accept it
them has the proper authority to accept it on behalf of allon behalf of all
RESERVE BANK’S INSTRUCTION TO BANKS
RESERVE BANK’S INSTRUCTION TO BANKS
1.
1. ImmImmediediate ate CrCrediedit ot of Cf Cheqhequesues
Banks are required to give in the
Banks are required to give in the normal course immnormal course immediate credit upediate credit up
to Rs.5,000 to a customer for local a
to Rs.5,000 to a customer for local as well as outstation cheques,s well as outstation cheques,
subject to the satisfactory
2.
2. In case of State capitals and other centres with moreIn case of State capitals and other centres with more than
than 100 100 bank bank offices, offices, credit credit to to the the customer’s customer’s A/cA/c should be given within 10 days and
should be given within 10 days and customer allowed tocustomer allowed to withdraw
withdraw the the amount. amount. These These facilities facilities are are to to be be provided provided toto the
the customer customer even even if if the the collection collection advices advices are are not not receivedreceived by the banks concerned.
by the banks concerned.
Reserve Bank has advised the banks to extend the Reserve Bank has advised the banks to extend the facility
facility of of giving giving credit credit to to the the accounts accounts for for outstation outstation chequescheques only
only to to (i) (i) satisfactory satisfactory operated operated accounts accounts and and (ii) (ii) up up to to aa maximum amount of Rs.10,000.
maximum amount of Rs.10,000.
Reserve Bank has further authorized the banks to ensure Reserve Bank has further authorized the banks to ensure that
that where where delay delay occurs, occurs, the the account account holders holders should should bebe paid penal interest without their requesting for it.
PAYMENT OF CHEQUES
PAYMENT OF CHEQUES
Duty
Duty
One important aspect of the
One important aspect of the banker customer relationship isbanker customer relationship is the banker’s obligation to honour his customer’s cheques. the banker’s obligation to honour his customer’s cheques. Liability
Liability
In case the banker dishonours such cheques in spite of In case the banker dishonours such cheques in spite of
sufficient funds of the customer, he is liable to pay damages sufficient funds of the customer, he is liable to pay damages for breach of the banker’s implied contract to honour such for breach of the banker’s implied contract to honour such cheques.The banker is also liable if he
cheques.The banker is also liable if he dishonours a chequedishonours a cheque after misleading the customer into believing that there were after misleading the customer into believing that there were sufficient funds to meet the
Statutory Protection Statutory Protection Section 85 of the
Section 85 of the Negotiable Instruments Act, 1881, asNegotiable Instruments Act, 1881, as amended by the Amendment Act of 1934, lays down that amended by the Amendment Act of 1934, lays down that
“where a cheque payable to order purports to be endorsed by “where a cheque payable to order purports to be endorsed by or or on behalf of the payee, the drawee is discharged by payment in on behalf of the payee, the drawee is discharged by payment in due course”.
due course”.
Crossed Cheques Crossed Cheques
“Where the banker on whom a crossed cheque is dr
“Where the banker on whom a crossed cheque is drawn hasawn has paid the same in due course, the banker paying the cheque, paid the same in due course, the banker paying the cheque, and the drawer thereof,
and the drawer thereof, shall respectively be entitled to theshall respectively be entitled to the
same rights, and be placed in the same position in all respects same rights, and be placed in the same position in all respects as they would respectively be entitled to and placed in if the as they would respectively be entitled to and placed in if the amount of the cheque had been paid to, and received by, the amount of the cheque had been paid to, and received by, the true owner thereof.”
Payment in Due Course
Payment in Due Course
The following elements are essential for payment in due course:
The following elements are essential for payment in due course:
i.
i. paypaymement in nt in accaccordordancance wie with thth the ape apparparent tent tenoenor of thr of the inse instrutrumementnt
ii
ii.. PaPaymymenent it in gn gooood fd faiaithth
iii
iii.. PaymPayment wient withothout negut negligligencencee
iv.
iv. PaymPayment to a person in pent to a person in possessiossession of the instron of the instrumenument entitlet entitled tod to
receive payment
receive payment
PRECAUTIONS TO BE TAKEN WHILE MAKING PAYMENTS
PRECAUTIONS TO BE TAKEN WHILE MAKING PAYMENTS
Crossed Cheques
Crossed Cheques
Section 126:
Section 126:
When a cheque is crossed generally, the banker on whom it is
When a cheque is crossed generally, the banker on whom it is
drawn shall not pay it otherwise than to
drawn shall not pay it otherwise than to a banker. Where thea banker. Where the
cheque is crossed specially, the banker on
cheque is crossed specially, the banker on whom it is drawn shallwhom it is drawn shall
not pay it otherwise than to
not pay it otherwise than to the banker to whom it is crossed, or histhe banker to whom it is crossed, or his
agent for collection.
Section 127: Section 127:
Where a cheque is crossed specially to more than one banker, Where a cheque is crossed specially to more than one banker, except when crossed to an agent for
except when crossed to an agent for the purpose of collection,the purpose of collection, the banker on whom it is drawn shall refuse payment thereof. the banker on whom it is drawn shall refuse payment thereof.
Section 129: Section 129:
Any banker paying a c
Any banker paying a cheque crossed generally otherwise thanheque crossed generally otherwise than to a banker, or a
to a banker, or a cheque crossed specially otherwise than to thecheque crossed specially otherwise than to the banker to whom the same is crossed,
banker to whom the same is crossed, or his agent for collection,or his agent for collection, being a banker, shall be liable to the true owner of the cheque being a banker, shall be liable to the true owner of the cheque for any loss he may
for any loss he may sustain owing to the cheque having been sosustain owing to the cheque having been so paid.
Signature of the Drawer: Signature of the Drawer: It is one of the
It is one of the foremost duties of a banker to verify theforemost duties of a banker to verify the
signature of the customer before making any payment. In signature of the customer before making any payment. In case of payment of a cheque on
case of payment of a cheque on which signature of thewhich signature of the customer is forged.
customer is forged. i.
i. It iIt is for ts for the che custustomeomer to er to estastabliblish ash affiffirmarmativtivelely thay that thet the
signature on the disputed cheque is not that of the customer signature on the disputed cheque is not that of the customer but a forgery
but a forgery ii.
ii. If the If the drawedrawer’s chr’s cheque eque is foris forged oged or unaur unauthorithorized, hzed, howevowever er clever the forgery it, the banker cannot debit his customer’s clever the forgery it, the banker cannot debit his customer’s account in case he pays the same, unless he
account in case he pays the same, unless he establishedestablished adoption or estoppel.
adoption or estoppel. iii.
iii. What amoWhat amount to aunt to adoption doption or estoppel or estoppel is depenis dependent upon dent upon thethe circumstances of each case.
iv.
iv. In order to mIn order to make the customeake the customer liable r liable for the loss, thfor the loss, thee neglect on his part must be, or
neglect on his part must be, or intimatelintimately, connected withy, connected with the transaction itself and must
the transaction itself and must have been the proximatehave been the proximate cause of the loss
cause of the loss v.
v. The bThe banker anker cannocannot set ut set up eitp either esher estopptoppel or ael or adoptidoption if on if his own conduct or negligence has occasioned or
his own conduct or negligence has occasioned or contributed to the loss, the
contributed to the loss, the well-settled principlwell-settled principle beinge being that where one of two innocent parties must suffer for
that where one of two innocent parties must suffer for thethe fraud of a third, that party
fraud of a third, that party should suffer whoseshould suffer whose negligen
“
“Once a bearer, Always a bearer Once a bearer, Always a bearer ”: Where a cheque is”: Where a cheque is originall
originally expressed to y expressed to be payable to bearer, the be payable to bearer, the drawee isdrawee is discharged by payment in due course to the bearer thereof, discharged by payment in due course to the bearer thereof, notwithstandi
notwithstanding any endorsement whether in full or ng any endorsement whether in full or in blankin blank appearing thereon and notwithstanding that any
appearing thereon and notwithstanding that any suchsuch endorsement purports to restrict
endorsement purports to restrict or exclude further negotiation.or exclude further negotiation. Material Alterations:
Material Alterations:
A cheque with material alterations make the instrument null and A cheque with material alterations make the instrument null and void.
void. If a cheqIf a cheque withoue without any aut any apparent bupparent but with mt with materialaterial alteration is paid by a banker, he will not get the protection alteration is paid by a banker, he will not get the protection provided by Sections 80 and 82 of the Bills of Exchange Act, provided by Sections 80 and 82 of the Bills of Exchange Act, 1882.
Materials alterations may be in the following forms:
Materials alterations may be in the following forms:
Alteration of date
Alteration of date
Alteration of place of payment
Alteration of place of payment
Alteration of amount
Alteration of amount
Alteration of the word “bearer” in place of “
Alteration of the word “bearer” in place of “
order”
order”
Forgery of Drawer’s Signature Forgery of Drawer’s Signature
A cheque with the forged signature of a drawer must not be A cheque with the forged signature of a drawer must not be paid by the banker. The payment of such a
paid by the banker. The payment of such a cheque ischeque is
deemed as payment without the authority of the customer. deemed as payment without the authority of the customer. It is the duty of
It is the duty of the employees of the bank to be able tothe employees of the bank to be able to identify the signature of the customers and if they fail to identify the signature of the customers and if they fail to discharge their duty and thereby suffer loss, there is discharge their duty and thereby suffer loss, there is nono reason why the customer should make good that loss. reason why the customer should make good that loss.
Stopping of Cheques Stopping of Cheques
If another cheque of the drawer is
If another cheque of the drawer is dishonoured due to thedishonoured due to the payment of the countermanded cheque, the drawer
payment of the countermanded cheque, the drawer would bewould be entitled to claim damages for the
entitled to claim damages for the wrongful dishonour of thewrongful dishonour of the second cheque.
second cheque.
The banker must also stop payment when he has a
The banker must also stop payment when he has a notice of annotice of an available act of the bankruptcy of his customer or that
available act of the bankruptcy of his customer or that of hisof his death or insanity
Payment by Mistake Payment by Mistake
When a banker makes payment of a cheque through a mistake When a banker makes payment of a cheque through a mistake of fact, he would naturally like to recover the amount so paid: and of fact, he would naturally like to recover the amount so paid: and he can do so when the person to
he can do so when the person to whom the amount was paidwhom the amount was paid knew of the mistake.
knew of the mistake.
According to Section 72 of the Indian Contract Act, a person to According to Section 72 of the Indian Contract Act, a person to whom money has been paid or anything delivered by mistake or whom money has been paid or anything delivered by mistake or under coercio
under coercion must repn must repay it. Bay it. But ut this rule this rule is qualifiis qualified by ed by thethe doctrine of equity.
doctrine of equity. Estoppel
Estoppel
Estoppel is a rule of law by which a party
Estoppel is a rule of law by which a party is stopped fromis stopped from denying that which he previously asserted to
denying that which he previously asserted to be true either orallybe true either orally or in writing or by a
Dishonour of Cheques Dishonour of Cheques (i)
(i) Compulsory Compulsory Dishonour: Dishonour: in in the cathe case of se of compulsorycompulsory dishonour
dishonour a a banker banker has has no no choice choice but but to to dishonour dishonour thethe cheque.
cheque.
The countermanding of payment by the The countermanding of payment by the customer customer
On receipt of a Garnishee Order On receipt of a Garnishee Order
In case of death of cIn case of death of customer ustomer
In case of insanity of customer In case of insanity of customer
In case of insolvency of customer In case of insolvency of customer (ii)
(ii) Dishonour at the Willingness of the Banker: Dishonour at the Willingness of the Banker: A banker A banker may
may also dishonoalso dishonour a cheque wheur a cheque when:n:
It is not properly writtenIt is not properly written
Endorsement or crossing is not proper Endorsement or crossing is not proper
Usual Answer on
Usual Answer on Non-PaymentNon-Payment
The usual answers given by a banker in
The usual answers given by a banker in case of non-payment of cheques are:case of non-payment of cheques are:
( (ii)) EE..II ((EEnnddoorrsseemmeennt t IIrrrreegguullaarr)) ( (iiii) ) WW. . & & FF..DD ((WWrriittiinng g aannd d FFiigguurrees s DDiiffffeerr)) ( (iiiiii)) RR..DD ((RReeffeer r tto o DDrraawweerr)) ( (iivv) ) NN..SS ((NNoot t ssuuffffiicciieennt t ffuunnddss)) ( (vv)) NN..AA ((NNo o aaccccoouunntt)) ( (vvii) R) Reeqquuiirreed d CCoonnffiirrmmaattiioonn ((VVeerrnnaaccuullaar r ssiiggnnaattuurree)) ( (vviiii)) EE..NN..CC ((EEffffeecct t nnoot t cclleeaarreedd. . PPlleeaasse e pprreesseennt t aaggaaiinn tomorrow) tomorrow) ( (vviiiiii)) NNoot at arrrraangngeed fd for or ( (iixx) D) Drraawweerr’’s s ssiiggnnaattuurree IInnccoommpplleette e ddiiffffeerrs s rreeqquuiirreedd ( (xx)) CChheeqquue e iiss mmuuttiillaatteedd post-dated post-dated out of date out of date ( (xxii) ) DD..DD DDrraawweer r ddeecceeaasseedd (xii)Payment stopped (xii)Payment stopped by drawer by drawer (x (xiiiiii)) IIrrrregegululararly ly drdrawawnn
Liability of the Paying Bank (Sec.31) and Collecting Bank Liability of the Paying Bank (Sec.31) and Collecting Bank
(Sec.131) (Sec.131)
Not to Pay Not to Pay
a)
a) When When chequcheque e is is undaundatedted b)
b) When When it it is is stale stale (more (more than than 6 6 montmonths hs old)old) c)
c) When When the the instinstrumenrument t (cheq(cheque) ue) is is inchinchoate oate or or not not freefree from reasonable doubt
from reasonable doubt d)
d) When When chequcheque e is is post post dateddated, , and and presepresented nted beforbeforee ostensible date
ostensible date e)
e) Bank Bank receives receives notice notice of of customer’s customer’s insolvency insolvency or or lunacy
f
f)) WWhheen nn noot pt prreesseenntteed wd wiitthhiin bn baannkkiinng hg hoouurrss g)
g) WWhehen nn numumbbeer or of cf chheqequues es arare pe preresesennteted ad at ot one ne titimeme aggregating in gross amount beyond the funds of the aggregating in gross amount beyond the funds of the drawer drawer h h)) CChheeqquue e ddrraawwn n is a is a bbrreeaacch h oof tf trruusstt i i)) WWhheen n tthheerre e iis as aggrreeeemmeennt t iin n ppaayymmeennt ot of f cchheeqquueess
The principle is, the lesser the value of the cheque The principle is, the lesser the value of the cheque
dishonoured the greater the damage to the credit of the dishonoured the greater the damage to the credit of the drawer.
Dishonour of Cheuqe for Insufficiency etc. of Funds Dishonour of Cheuqe for Insufficiency etc. of Funds inin the Bank Account – Sec. 138
the Bank Account – Sec. 138
Where any cheque, drawn by a person on an account Where any cheque, drawn by a person on an account maintained by him with a banker for payment of any amount maintained by him with a banker for payment of any amount of money to another person from out of that account for the of money to another person from out of that account for the discharge, in whole or any part, of any debt or other liability, discharge, in whole or any part, of any debt or other liability, is returned by the bank unpaid either because of that is returned by the bank unpaid either because of that amount of money is insufficient to honour the cheque or that amount of money is insufficient to honour the cheque or that it exceeds the amount by an agreement made with that it exceeds the amount by an agreement made with that bank;
bank;
There are various legal decisions by High
There are various legal decisions by High Court’s andCourt’s and Supreme Court on this subject
i.
i. CriCrimiminal nal lialiabibilility caty can not bn not be fase fastentened on ed on the hthe heireirs or les or legalgal representatives Smt. Bhupinde
representatives Smt. Bhupinder Lima Vs. r Lima Vs. State of State of Andhra Pradesh (2000)
Andhra Pradesh (2000) ii.
ii. An ofAn offence fence is comis committemitted eved even if chn if cheque eque is retis returned urned onon the ground of closure
the ground of closure of account (G. of account (G. VenkataramaniVenkataramaniahah Vs. Sillakullu Venkatatewarlu (1999)
Vs. Sillakullu Venkatatewarlu (1999) iii.
iii. A cheque A cheque can be can be presented anpresented any number y number of times of times duringduring the period of its
the period of its validity (S. Bhadran Vs. M. Sunil Kumar validity (S. Bhadran Vs. M. Sunil Kumar Air 1998 S.C)
Air 1998 S.C) iv.
iv. A post dateA post dated cheque id cheque is deemed to s deemed to have beehave been drawn onn drawn on the date it bears and the 6
the date it bears and the 6 months periods for purposemonths periods for purpose are to be reckoned from that
are to be reckoned from that date (N. Sivalingam Vs.date (N. Sivalingam Vs. A.V. Chandraiyer ( 1996)
Offences commission by Companies – (Sec.141) Offences commission by Companies – (Sec.141)
If the person committing an offence, is a company then If the person committing an offence, is a company then every person responsible for such offence, as well as the every person responsible for such offence, as well as the company, shall be deemed to be guilty of the offence, company, shall be deemed to be guilty of the offence, provided where a person is nominated as a director by provided where a person is nominated as a director by virtue of his holding any office, or employment in the virtue of his holding any office, or employment in the Central or State Government or Financial Corporation, he Central or State Government or Financial Corporation, he shall not be liable for prosecution. Company includes a shall not be liable for prosecution. Company includes a firm or association of individuals, while director in relation firm or association of individuals, while director in relation to a firm means a partner.
New Sections added in Nov. 2002 in N.I. ACT New Sections added in Nov. 2002 in N.I. ACT Summary Trial by Court
Summary Trial by Court – Sec.143: All offences under – Sec.143: All offences under
Sections 138 to 141 are tried by a judicial Magistrate of the first Sections 138 to 141 are tried by a judicial Magistrate of the first class claims or by
class claims or by metropolitan Magimetropolitan Magistrate. Hence summarystrate. Hence summary trial is allowed and Magistrate under Sec. 143
trial is allowed and Magistrate under Sec. 143 and canand can sentence imprisonme
sentence imprisonment for term extended upto 2 nt for term extended upto 2 years or withyears or with fine extending up to twice the amount or cheque or with both. fine extending up to twice the amount or cheque or with both. Mode of Services of Summons
Mode of Services of Summons – Sec. 144: The magistrate– Sec. 144: The magistrate issuing a summon to an accused or a witness may
issuing a summon to an accused or a witness may direct adirect a copy of summons to be served by
copy of summons to be served by speedpost or by suchspeedpost or by such courier services as are approved by a court of
courier services as are approved by a court of Session.Session. Evidence on Affidavit
Evidence on Affidavit – Sec. 145: Evidence of the complainant– Sec. 145: Evidence of the complainant may be gi
may be given by hiven by him on affidam on affidavit vit and may, suband may, subject to all ject to all justjust exceptions, be read in evidence in any
