A collecting banker is one who receives the negotiable instruments from its customers and to collect them on their

behalf from the paying banker, and to credit the proceeds of the instrument so collected, to the account of its respective customer. He is also a link between his customer and the paying banker.

Such instruments (cheques) may be drawn(a)On the branch of the collecting banker itself, in which case the proceeds of the instrument are credited to the customers account the same day, as its amount is debited to the account of its drawer, which is also maintained at the same branch. (b)On a local branch of the same bank, or of another bank, in which case it is sent to the drawee bank through the local clearing, and the proceeds of the cheque are usually credited to the customers account on the third day. (c)On an outstation branch of the same bank, or of another bank, in which case it is sent for collection to that outstation branch, and when the advice or amount of such payment is received from the drawee outstation branch, in about a fortnight or even in a month or so, the proceeds thereof is credited to the account of the respective customer of the collecting banker.

But, with the introduction of internet banking, the proceeds of the cheques, both local and outstation, if drawn on some specified branches of the same bank, are credited to the customers accounts the same day instantaneously, as is the case with the cheques drawn on the branch of the collecting bank itself.

The collecting Banker is considered as a Holder for Value, i.e. as a Holder in Due Course (i) Where the banker pays the full amount of a cheque drawn on one of its own local or outstation braches, or some local or outstation branch of another bank, before actually receiving the advice about its payment. (ii) Where the customer deposits such a cheque with his banker, and the banker, expressly or impliedly, allows him to draw money against such cheque, even before its proceeds have actually been received by his banker and credited to his account.

(iii) Where the banker sanctions a specific Demand Drafts Purchased (DDP) limit, against execution of the required agreement documents, to his customer for a certain amount, the proceeds of the cheques deposited by the customer concerned for credit of his account is immediately credited to his account to the extent of the DDP limit only. (iv) In some genuine cases, the banker may agree to credit the proceeds of the cheques the same day in the accounts of its known and valued customers. (v) Where the banker has noted a lien in the customers account for the amount of the cheque.

The collecting banker, as a holder for value, enjoys a privileges position in the cases where the endorsements (and not the signatures of its drawers) on the cheques are forged. But in such cases, the collecting banker will also be held liable to the true owner the cheque, as is usually the case. But then, as holder for value, he will have the legal right to recover the amount from the endorsers subsequent to the forged endorsement. When the banker credits the proceeds of the cheques, deposited with him by the customer, in the account of the customer, not before but only after the actual realisation of the proceeds of the cheques from the paying banker, such banker is referred to as a collecting agent and just a holder of the cheque.

Here, he does not enjoy a better title to the cheque than the title of his customer. Thus, he may be held liable for conversion of the amount received by him, unless he can prove to the following effects: (a) That he had acted in good faith and without negligence; That the cheque was already crossed before he had received it from his customer, and That he was working as a collecting agent.

(b)

(c)

The Collecting Banker may be deemed to be negligent

(a) Where the payee or the holder of the cheque is operating in some fiduciary capacity - like the director of a company, or a partner of a partnership firm, or as the holder of a power of attorney for discharging some particular responsibilities on behalf of the principal and he draws a cheque in his own favour and/or deposits such cheque for credit to his own personal account, it must give rise to some genuine doubts in the mind of the collecting banker, and despite this, the banker fails to make due enquiry in this regard

The Collecting Banker may be deemed to be negligent

(b) Where the bank opens an account without obtaining proper introduction. An introduction given by an authorised signatory of an account holder, and not by the account holder himself, cannot be considered as a proper introduction. However, these days the banks insist on obtaining the following documents for opening any new account:
A reference from a person already maintaining an account with the same branch of the bank, or at its another branch, for the last six months or more (ii) Two copies of his recent passport size photographs, or of all the joint account holders (iii) Proof of his identity: viz. copy of one of the documents like (students/employees) identity card (ID card), or passport, voter identity card, or Permanent Account Number (PAN card) (iv) Proof of his address: viz. copy of one of the documents like the latest paid electricity bill, water tax bill, telephone bill. LIC premium deposit receipt, or particulars of any credit card (i)

The Collecting Banker may be deemed to be negligent

(c) Where there is some discrepancy in the endorsement, like where the mode of endorsement by the payee does not match, word for word, with the name of the payee written on the cheque (d) Where the banker overlooks an apparent (prima facie) warning, like the possibility that the servant, agent or a solicitor might have misappropriated the cheque of his master or principal; or where a cheque is drawn in favour of a partnership firm and is endorsed by one of the partners of the firm on behalf of the firm, and it is deposited with the bank for collection and crediting the proceeds into the personal account of the partner

The Collecting Banker may be deemed to be negligent

(e) If a person, like a branch manager, who is authorised to draw per-pro cheques on behalf of a company, draws cheques payable to ourselves (i.e. to the company) or in his own favour, and deposits these cheques with the bank for credit to his personal account (instead of to the account of his company) (f) If a banker confirms the endorsement on a cheque, given in a language not known to him and such endorsement later transpires to be improper (e.g., not being in an strict conformity with the endorsement, as written on the cheque) (g) Where he credits cheques crossed A/C Payee into a third parts account: But a not negotiable crossing has nothing to do with the collecting banker, because it would be an impossible burden him to investigate titles prior to that of his customer.

The collecting banker, being a collecting agent of his customer, must exercise due care and diligence, while collecting the cheques on behalf of his customers. If he fails to do so, and his customer incurs some loss on this account, he (collection banker) will be held liable to compensate such loss sustained by his customer. The collecting banker is required to present the local cheques received for collection the same day or latest by the next working day, after the date of its receipt. In the cases of outstation cheque, he is required to send it to his own outstation branch on which the cheque is drawn, or else to his agent located in that city, either on the same day, or latest on the very next working day.

The collecting banker must exercise due care and diligence in promptly (i.e. the same day or latest by the next working day) intimating his customer about the dishonour of the cheque, deposited by him for collection, such that the customer may promptly proceed to recover the amount of such dishonoured cheque from its drawer or the other parties liable thereon. Further, when the banker is acting both as a Collecting Banker as also as a Paying Banker at the same time, the protection will be available to the banker only when he acts without negligence, failing which the protection under the Act will not be available to the banker, in both cases, when he acts with negligence.

The payment will not be considered to have been made according to the established and prevalent practice or custom of the banks in the following cases: (i)When a crossed cheques, required to be credited to the account of its payee or its holder, is paid in cash over the counter; (ii)When the payment is made after the usual banking hours of the bank concerned; and (iii)Where a large sum of money has been paid to a person who looked suspicious.

We must note here that the protection under Section 131 is available to the collecting banker only and exclusively in the cases of collection of cheques. That is, such protection is not available to him in the cases of collection of bills of exchange. But then, as the business pertaining to the collection of bills comprises a large percentage of the banking transactions, no bank can afford to lose such business. But, in view of the extent of risks inherent in the business of collection of bills, the collecting banker will be well advised to exercise more than ordinary care while collecting bills of exchange. For example, he must examine the title of the depositor of the bill with more than ordinary care, because, in the absence of the protection available under Section 131, in regard to collection of bills, the true owner of such bill can claim the amount of the bill from the collecting banker, if and when the title of the banks customer to the bill in question is found to be defective.

However, the collecting banker, in turn, can recover the amount of the bill from his customer who had deposited the bill and obtained its payment, though his title to the bill was not in order. But again, the bank will do well if it will prefer to accept bills for collection only on behalf of well-known and trusted parties, having satisfactory dealings with the bank for quite some time. Further, in regard to new accounts, such business should normally be avoided, so as to avert avoidable risks; unless the new account has been opened with the reference given thereto by some well-known and trusted parties.