BANKING AND INSURANCE LAW PROJECT

B.B.A LL.B (Hons.)

TOPIC:

“RESPONSIBILITIES OF PAYING BANKER

AND COLLECTING BANKER “
IN COMPLIANCE TO THE PARTIAL FULFILMENT OF THE MARKING
SCHEME, FOR SEMESTER VI OF 2019-20, IN THE SUBJECT OF
BANKING AND INSURANCE LAW.

SUBMITTED BY: SUBMITTED TO:

RAJEEV TEKWANI(A059) Prof. RICHA KASHYAP

81002170072

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 CONTENTS
Sr.No NAME OF THE CHAPTER Page
no.

1 INTRODUCTION 2

2 RESEARCH OBJECTIVE 2

3 RESEARCH METHODOLOGY 3

4 ANALYSIS 5

6 CONCLUSION 9

7 BIBLIOGRAPHY 10

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 INTRODUCTION
The banker on whom a cheque is drawn or the banker who is required to pay the
cheque drawn on him by a customer is called the paying banker.

Collecting Banker: A Collecting Banker is one who undertakes to collect various

types of instruments representing money in favour of his customer or his own
behalf from the drawers of these instruments; some are negotiable instruments as
provided for in the negotiable instruments Act. 1881 and some are quasi
negotiable instruments.

Negotiable Instruments: As per section number 13 of the negotiable instrument

Act. 1881, “A negotiable instrument means a promissory note, bill of exchange
or cheque payable either to order or to bearer”. A Banker’s draft is also
negotiable instrument.

Promissory Note: A promissory note is an instrument in writing containing an

unconditional under taking signed by the maker to pay on demand or at a fixed
or determinable future time a certain sum of money only to, or to the order of a
certain person, or to the bearer of the instrument.

Bill of Exchange: A bill of exchange is an instrument in writing containing an

unconditional order signed by the maker directing a certain person to pay on
demand or at a fixed or determinable future time a certain sum of money only to
or the order of a certain person or to the bearer of the instrument.

Cheque: A cheque is a unconditional order of the drawer in writing bearing a

date, to the Banker maintaining his account to pay on demand, to a named
person, his order or bearer, a certain specified sum of money, expressed in both
figures and words.

Quasi Negotiable instruments: The negotiable instruments Act. 1881 does not
talk of any other negotiable instruments except bills, promissory notes, cheques
and bank drafts. But there are some instruments which are in practice, treated
negotiable for certain events only and are so regarded by usage and custom.
Some of these are documents of tittle of goods and property while others are
documents of value. Such as, Bill of lading, railway receipts, stock and share
certificates, debentures, dividend warrants, interest coupons & treasury bills.

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Research Objectives :
1. To analyse the duties and responsibilities of paying and collecting banker

2. To study relevant case laws

Research Methodology :
The researcher has used secondary methods of research which includes a
comprehensive study of books, Journals, research articles ,newspapers and
online blogs.

Analysis:
Responsibilities of a Paying banker :

Cheque should be in proper form: The cheque presented for payment should be i
n proper form.
The banker should see that the cheque satisfies all the requirements of a valid ch
eque. The cheque must be in printed form supplied by the banker.

Physical conditions of the cheque: The cheque should be in good physical condit
ion. The instrument should not be torn, cancelled.Crossing of cheque: if the cheq
ue is a crossed one, ′
the payment cannot be made across the counter. It as to pass through the account
holder.
Office of drawing: the cheque should be presented for payment same bank wher
e he as account. If the customer presents a cheque in a bank where he an accoun
t, the manager cannot make payment.

Date of the cheque : the cheque should possess a date for payment and only on t
hat date or within three months from that date, the payment should be made.

Time of presentation: the cheque should be ′presented for payment during the ba
nking hours.
Amount: the amount of the cheque presented for ′payment has to be recorded in
both words and figures and they should tally with each other.

Material alteration: if material alteration is apparent the banker should get confir
mation
from the drawer by obtaining full signature at the place of material alteration.

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Signature of the drawer: the banker has to ′examine the signature of the drawer o
n the cheque before he makes payment with the specimen he has.

Endorsement ′: Legal Restrictions: in case of death, ′ insolvency lunacy

Protection of the Banker : Protection to a paying bank is mention in sec 10, 85,
89 and 128 of the Negotiable Act 1881.For paying banker to claim protection, he
has to satisfy, is provided in sec 10 of the act.

1 - sec 85- The banker seeks the protection where payment has been made to
holder. I.e. payment must be made in course.

2 -sec 89- The payment made by bank was not acc. To apparent tenor of instruct.
When the customer signature on the cheque is forged there is no mandate to the
bank to pay.

3- sec 128 – there is liability of a paying banker when customer’s signature on

the cheque is forged. In joint account, if one of signature is forged then banker
cannot make payment.

U/sec 60 –
There are two conditions for the protection of banker.

1 – The banker must have acted in good faith in paying the cheque.
Raphael v/s Bank of England –
The Plaintiff was money changer in Paris. He received a circular from the
defendants containing a list of stolen bank. Bank of England notes with their
serial number. Afterwards he changed a stolen note, which appeared upon his
circular but he negligently failed to refer to circular before doing so. The Jury
found that there had been no dishonestly on his part. It was held that he was
entitled to recover as a bonafied holder of the note in question.

2 – The payment made must be in ordinary course of business.

Ladipo v/s Standard bank of Nigeria Ltd :-Where defendants paid in cash a
crossed cheque drawn on them by the Plaintiff. It was held that this amounted to
negligence on their part and that they are not entitled to debit the Plaintiff’s
account with amount paid out.

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Cases of Non endorsement and irregular endorsement :
U/sec 76, there is protection to banker in cases of Non Endorsement and
irregular endorsement in cheque. A banker who pays a cheque drawn on him in
good faith and in ordinary course of business does not incur liability by reason
only the absence of irregularity endorsement and he is deemed to have paid in
due course.

Agbafe v/s Viewpoint Nigeria Ltd

In this case, The Defendant alleged that he paid the sum to Plaintiff by a cheque
and need for proper endorsement. There was no signature and cheque was
stamped paid. The cashier who purportedly paid it was not called to give
evidence and at back of cheque read ‘Mrs. Theresa Agbafe S.A 18 Akpata Street,
New Layout. The court held that the name and the address at back of cheque
were not signature and it could not be protected under the Bills of Exchange Act.

Cases of Fraudulent, Alteration of amount on a cheque:

A material alteration of the amount on a cheque without the consent of the
drawer would render the cheque void. If a cheque presented to a banker for
payment had been fraudulently altered and the alteration is apparent the banker
will be at fault if the cheque is paid by him. The usual practice is for the drawer
to sign any alteration on the cheque before it may be lawfully paid. Where
alteration are apparent and not signed by the drawer, they render the cheque void
as against him a banker paying such a cheque will not be able to debit the
drawer's account with the amount. Section 64(1) provides: "Where a bill
(cheque) or acceptance is materially altered without the assent of all parties
liable on the bill (cheque), the bill (cheque) is avoided except as against a party
who has himself made, authorised, or assented to the alteration, and subsequent
endorses." But if the alteration is not apparent the banker may pay in the course
of his duty. A holder in due course presenting such a cheque is entitled to
payment according to its original tenor. The proviso to the subsection reads:
"provided that, where a bill has been materially altered, but the alteration is not
apparent, and the bill is in the hands of a holder in due course, such holder may
avail himself of the bill as if it has not been altered, and may enforce payment of
it according to its original tenor." However, difficult questions may arise and
different legal consequences may flow from the following two situations, where

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a holder fraudulently alters the amount on the cheque and collects payments
from the banker. 1. Where the drawer or customer draws his cheque with care
giving no palpable opportunity to alter the amount thereon, and the amount
nevertheless is fraudulently altered or increased and the cheque is paid. It seems
in this situation
.Nigerian Advertising Service Ltd v/s united bank of Africa Ltd:

In this case, the court clearly states the legal position that where there were
forgeries which were not due to a customer’s negligence. It is the duty of the
banker to credit the amount of such a customer whose cheque has been forged.
But the banker may be able to recover from the forger the amount paid to him in
an action for money had received. Later on it may be liable for criminal
prosecution by the state.

Duties & Responsibilities of Collecting Bankers:

Acting as agent: While collecting an instrument, whether for credit to customer’s

account or for himself, the Bankers works as agent of his customer. As an agent
he has generally to take such steps & precautions to protect the interest or his
customer as a man of ordinary prudence would take to safe-guard his own
interest.

Scrutinizing the instruments: Name of the holder, Branch name, date, amount in
world and figure, any cutting without signature, material alteration of any to be
checked carefully.

Checking the endorsement: Bankers has to check the instrument whether it has
been endorsed properly.

Presenting the instrument in due time: It is the responsibility of the collecting

bank to present the instrument in due time to the paying bank.

Collecting the proceeds in the payee’s account: It is the duty of collecting banks
to collect and credit the proceed of the instruments to the proper/correct account.

Notice of dishonor and returning the instruments: If any instrument is

dishonored by the paying bank it should be informed to the customer on the
business day following the receipt of the unpaid instruments.

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Present the cheque for collection without any delay: The banker must present the
cheque for payment without any delay. If there is delay in presentment the
customer may suffer losses due to the insolvency of the drawer or insufficiency
of funds in the account of the drawer or insolvency of the banker himself. In all
such cases, the banker should bear the loss.

Notice to customer in the case of dishonor of a cheque: The N.l. Act has
prescribed a reasonable time for giving the notice of dishonor. If he fails to do
so, and consequently, any loss arises to the customer, the banker has to bear the
loss.

Present the bill for acceptance at an early date: As per sec.61of the Nl. Act, a
bill of exchange must be accepted, If a banker undertakes to collect bills, it is his
duty to present them for acceptance at an early date.

Present the bill for payment: The banker should present Exercise reasonable
care and diligence in his collection work: When a banker collects a cheque the
bills for payment ¡n proper time and at proper place. If he fails to do so and if
any loss occurs to the customer, then, the banker will be liable. According to
Sec.66 of N,I Act a bill must be presented for payment on maturity. .

Collecting Banker’s Protection:

Under section 131 of negotiable instrument Act the collecting banker is not
liable to the true owner of a cheque or a banker’s draft if his title to the
instrument proves defective provided the cheque or draft was one crossed
generally or specially to himself and collected for a customer is good faith and
without negligence.

The above statutory protection is available to the collecting banker only if he

fulfills the following conditions:

i. The cheque he collected is a crossed cheque.

Ii He collected such crossed cheque only for his customer as an agent & not as a
holder for value.

iii. He collected such crossed cheque in good faith and without negligence.

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No Protection:

Opening of A/c without satisfactory references/ introduction.

Crediting the proceeds of cheque to an endorsee with irregular endorsement.

Crediting the proceed of a cheque to the personal A/c of director, partners or any
employee when it is payable to the company.

Crediting the proceeds of charge to personal name of the official when it is

payable to a govt. agency, autonomous body, or corporation.

Crediting the amount of a cheque in the personal A/c which is drawn by an agent
on behalf of its principal.

When the customer depositing the cheque is of little means and the cheque
deposited suddenly is of sizable amount and the banker credited the proceeds
there to without making proper enquiry.Cheque drawn by customer is
dishonored very often and crediting such account with the proceeds of collecting
cheque without making proper enquiry.If the crossed cheque is collected and
credited the proceed to the other account.

Conclusion :
The four situations of potential problems identified and examined in this
contribution clearly exemplify the need for and, indeed, the provision of some
statutory. protection for the paying banker under the Bills of Exchange Act 1990.
Although these provisions are copious, they cannot reasonably be regarded as
over-protective of the paying banker. This is because, the conditions for the
enjoyment of the protection afforded by these provisions are not too easily
attainable by the paying banker. Such conditions to be fulfilled by the paying
banker include those requiring the banker to act “in good faith”, “in the ordinary
course of business” paying “in due course” and in some cases, “without
negligence”.

References:
1.Indian banks: performance benchmarking report FY12 results
2. Obtaining New Banking Licenses in India: Challenges and Opportunities,
cognizant 20-20 insights,

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November 2013
3.Milind Sathye, Privatization, Performance, and Efficiency: A Study of Indian
Banks, Vikalpa, Volume
30, No 1, January - March 2005.
4. Dr. Partap Singh, An Evaluation Of Performance Of Indian Banking Sector
(With Special Reference To
Npas Of Some Indian Public Sector Banks), APJRBM, Volume 3, Issue 12,
December, 2012
5. A. Shrivastava and P. Purang, Employee perceptions of performance
appraisals: a comparative study on
Indian banks, The International Journal of Human Resource Management, Vol.
22, No. 3, January 2011.
6. Hemal Pandya, Corporate Governance Structures and Financial Performance
of Selected Indian Banks,
Journal of Management & Public Policy, Vol. 2, No. 2 June 2011.
7. Limbore N. V, & Nalkol A. P, A study of effectiveness and prospects of E-
tailing with special reference to
Baramati Region, AJMS, Vol. I, Issue 5, Dec-2013, p (72-80).

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