————————————————- Duties and obligations of paying banker and collecting banker ————————————————- Under N. I act, 1881. PAYING BANKER * A Banker on whom a cheque is drawn should pay the cheque when it is presented for payment. * This cheque paying function is a distinguished one of a banker. * This obligation has been imposed on him by sec. 31 of the N. I Act, 1881. * A banker is bound to honour his customer’s cheque, to the extent of the funds available and the existence of no legal bar to payment. Again, for making payment the cheque must be in order and it must be duly presented for payment at the branch where the account is kept. * The paying banker should use reasonable care and diligence in paying a cheque, so as to abstain from any action likely to damage his customer’s credit. * If the paying banker wrongfully dishonours a cheque, he will be asked to pay heavy damages. * At the same time, if he makes payment in a hurry, even when there is sufficient balance, the banker will not be allowed to debit the customer’s account.
If he does so, it will amount to sanctioning of overdraft without prior arrangement, and later on, the customer can claim it as precedent and compel the banker to pay cheque in the absence of sufficient balance. His position is very precarious and is in between the devil and the deep sea. PRECAUTIONS...
BEFORE HONORING A CHEQUE In order to safeguard his position, the paying banker has to observe the following precautions before honouring a cheque. Presentation of The Cheque (a) Type of the cheque: Before honouring a cheque, he must find out the type to which it belongs.
Cheques may generally be of two types- open or crossed. If it is an open one, the payment may be made at the counter. If it is crossed, the payment must be made only to fellow banker. If it is specially crossed, the payment must be specifically made to that banker in whose favour it has been crossed. If there are ‘A/C Payee’ and ‘Not Negotiable’ crossings the paying banker need not worry, as they are the directions only to the collecting banker. If the paying banker pays a cheque contrary to the crossing, he is liable to the drawer. Therefore, he must pay special attention to the type of a cheque. b) Branch: The Paying banker should see whether the cheque is drawn on the branch where the account is kept. If it is drawn on another branch, without any prior arrangement, the banker can safely return the cheque. (c) Account: Even in the same branch, a customer might have opened two or more accounts. Hence, the paying banker should see that the cheque of one account is not used for withdrawing money from another account. (d) Banking hours: The paying banker should also note whether the cheque is presented during the banking hours on a business day. Payment outside the banking hours does not amount to payment in due course. e) Mutilation: If a cheque i
torn into pieces or cancelled or mutilated, then, the paying banker should not honour it. He should return the cheque for the drawer’s confirmation. In a case cheque is torn accidentally, the drawer must confirm it by writing such words as ‘Accidentally torn by me’ and affixing his full signature. A cheque torn into two or more pieces is generally returned with a remark ‘Mutilated’. Form of cheque: Printed form: The cheque must be in proper form. It must satisfy all the requirements of law. The customers should draw cheques only on the printed leaves supplied by the bankers.
Unconditional order: The cheque should not contain any condition. If it is a conditional one, the paying banker’s position will become critical and he may not honour it. Date: Before honouring a cheque, the bank must see whether there is a date on the instrument. If it is undated, it cannot be regarded as a valid instrument. If a cheque is ante- dated, it may be paid if it has not become stale by that time. A cheque, which is presented after six months, from the date of its issue, is a stale one. If a cheque is post- dated, he should honour it only on its due date.
Amount: The next important precaution is that the banker should see whether the amount stated in the cheque, both in words and figures, agree with each other. If the amount is stated only in figures, the banker should return it with a remark ’Amount required to be stated in words’. However if the amount stated only in words, the banker may honour it. Supposing , there is a difference in the amount stated in words and figures, then the banker can take any one of the following courses available to him: i) He can dishonour the cheque with a memorandum ‘words and figures differ’ or i)He can honour the amount stated in words According to Sec. 18 of the N. I. Act, if the amount undertaken or ordered to be paid is stated differently in figures and words, the amount stated in words shall be the amount undertaken or ordered to be paid. ’ However in practice, if the difference is insignificant, payment is sometimes made. But usually the paying banker returns the cheque under such circumstances, since there is an audit objection to the practice of honouring such cheques. III. Sufficient balance: There must be sufficient balance to meet the cheque.
If the funds available are not sufficient to honour a cheque, the paying banker is justified in returning it. So, before honouring a cheque, he must check up the present state of his customers account. IV. Signature of the drawer: The next important duty of a paying banker is to compare the signature of his customer found on the cheque with that of his specimen signature. If he fails to do so and if he pays a cheque , which contains a forged signature of the drawer, then, the payment will not amount to payment in due course. Hence, he can not claim protection under Sec. 85
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