E-currency exchanger listing

Tuesday, September 14, 2010

When may a banker refuse to honour a customer cheque

01. When the balance to the credit of the customer is insufficient to meet the cheque.
02. When the funds are not properly applicable to the payment of a cheque.
03. After receiving the notice or information or death, the baker should stop payment of all cheques drawn against his account.

Statutory Protection to Paying Banker

01. Protection in case of order cheque :
In case of an order cheque, Section -85(1) provides statutory protection to the paying banker as follows : "Where a cheque payable to order purports to be endorsed by or on behalf of the payee, the drawee is discharged by payment in due course". However, two conditions must be fulfilled to avail of such protection.
(a) Endorsement must be regular : To avail of the statutory protection, the banker must confirm that the endorsement is regular.
(b) Payment must be made in Due Course : The paying banker must make payment in due course. If not, the paying banker will be deprived of statutory protection.

02. Protection in case of Bearer Cheque :
Section -85(2) provides protection to the paying banker in respect of bearer cheques as follows : "Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof, notwithstanding any endorsement whether in full or blank appearing thereon and notwithstanding that any such endorsement purports to restrict or exclude further negotiation". This section implies that a cheque originally issued as a bearer cheque remains always bearer. In other words it retains its bearer character irrespective of whether it bears endorsement in full or in blank or whether any endorsement restricts further negotiation or not. So the banks are not required to verify the regularity of the endorsement on bearer cheque, even if the instruments bears endorsement in full. The banker shall free from any liability (discharged) if he makes payment of an uncrossed bearer cheque to the bearer in due course. If such cheque is a stolen one and the banker makes its payment without the knowledge of such theft, he will be discharged of his obligation and will be protected under Section -85(2).

03. Protection in case of Crossed cheque :
The paying banker has to make payment of the crossed cheques as per the instruction of the drawer reflected through the crossing. If it is done, he is protected by Section -128. This section states "Where the banker on whom a crossed cheque is drawn has paid the same in due course, the banker paying the cheque and (in case such cheque has come to the hands of the payee) the drawer thereof shall respectively be entitled to the same rights, and be placed in if the amount of the cheque had been paid to and received by the true owner thereof".
It is clear that the banker who makes payment of a crossed cheque is by the Section -128 given protection if he fulfils two requirements (a) That he has made payment in deuce course under Section -10 i.e. in good faith and without negligence and according to the apparent tenor of the cheque, and (b)That the payment has been made in accordance with the requirement of crossing (Section -126), i.e. through any banker in case of general crossing and through the specified banker in case of special crossing.
Thus, the paying banker is free from any liability on a crossed cheque even if the payment was received by the collecting banker on behalf of a person who was not a true owner. For example, a cheque in favour of X is stolen by Y. He endorses it in his own favour by forging the signature of X  and deposits it in his bank for collection . In this case, the paying banker shall be discharged if he makes payment as mentioned above and shall not be liable to pay the same to X, the true owner of the cheque.
The drawer of the cheque is also discharged since protection is also granted to him under this Section. There is, however, one limitation to the protection granted under this Section. If the banker cannot avail of the protection granted by other Section of the Act, the protection under Section -128 shall not be available to him.
For example, if the paying bankers makes payment of a cheque crossed with (a) Irregular endorsement or (b) A material alteration or (c) Forged signature of the drawer, he loses statutory protection granted to him under the Act for these lapses on his part. Hence he cannot avail of the statutory protection under Section -1289, even if he pays the cheque in accordance with the crossing.


Monday, September 13, 2010

Responsibility of Paying Banker

01. Cheques drawn on Branch :
The paying banker shall honour only those cheques which are drawn against the account maintained at a branch of the bank where the cheques are presented.

02.Presentation within validity needed :
The paying banker is legally bound to pay only such cheques which are presented to him for  payment within a reasonable time. Reasonable time is 6 months from the date of issue of the cheque.

03. Presentation within banking hours :
Cheque must be presented within the banking hours. Any cheque presented after the banking hours has no legal effect and therefore banker cannot  be held liable for refusing payment on such cheques.

04. Sufficient balance :
Funds in tha a/c must be sufficient and available to honour the cheques. For dishonour of cheque due to shortage of funds banks are not held responsible. Rather, if cheques are drawn without funds, drawers by punishable under Section -138.

05. Must be valid instrument :
Cheques not drawn in the proper form are refused by the paying banker. Section -5 & 6 of the N.I. Act provide that the bank should examine the contents of the cheque to ensure taht it is perfectly a valid instrument containing an unconditional order to pay a certain sum of money.

Duties of Collecting Banker

01. Presentation of cheques for payment within reasonable time :
The banker should collect the cheques, sent by the customers, with due care. As per Section-74, they must present the cheque to the drawee bank within a reasonable time. According to the practice followed by the bankers, if the collecting and paying bankers are in the same place, the collecting banker should present the cheque before the next clearing immediately after he received it. In case of outstation cheques, he should despatch the same to the drawee banker on the same day after it is received by him. The cheque may also be presented through a clearing house or through the post. If a cheque presented with undue delay and in the meanwhile the drawer of the cheque suffers damage, the drawee is discharged to the extent of damage. 

02. Notice of dishonour : In case a cheque is dishonoured and returned back by the paying banker to the collecting banker without payment for one reason or the other, the banker must serve a notice of dishonour on his customer to enable the latter to claim the amount from the previous parties including the drawer.

Statutory protection to Collecting Banker

01. Crossed cheque only :
The statutory protection is available to the banker only in case of cheque crossed generally or specially to himself. He can not avail this protection in case of uncrossed cheque.

02. Collection as an Agent : The statutory protection is available to the banker if he collects the cheque as an agent of the customer and not as its holder for value.

03. Good faith and without negligence : 
The most essential prerequisite for availing of the statutory protection is that the banker must receive payment in good faith and without negligence. A thing is deemed to be done in good faith when it is in fact done honestly irrespective of whether negligently or not . He should not be negligent in receiving the payment. The onus of proving that he was not negligent in collecting the cheque lies, however, on the banker himself.


Capacity of Collecting Banker

As an Agent: A collecting banker acts as an agent of the customer if he credits the latter's account with the amount of the cheque after the amount is actually realised from the drawee bank. Thereafter, the customer is entitled to draw the amount of the cheque. The banker thus acts as an agent of the customer and may charge from him a commission for collecting the amount from other banks. As an agent of his customer, the collecting banker does not possess title to the cheque better than that of the customer. If the customer has no title thereto, or his title is defective, the collecting banker can not have god title to the cheque. He will be held liable for conversion of money, i.e. illegally interfering with the rights of the true owner of the cheque.

As Holder for Value : Collection of cheques takes some time, specially in case of outstation cheques. If the collecting banker pays to the customer the amount of the cheque or credits such amount to his account and allows him to draw it before the amount of the cheque is actually realised from the drawee bank, the collecting banker is deemed to be its 'holder for value'. The bankers takes an undertaking from the customer to the effect that the latter will reimburse the former in case of dishonour of the cheque.

Collecting and Paying Bankers

Who is collecting Banker :
The bank which collects the proceeds of cheques, drafts, pay orders and bills etc. from other banks for deposit into the accounts of its customers is called a collecting banker.


Who is Paying Banker :
'Paying Banker' is the 'drawee' bank or in other words the banker upon whom a cheque is drawn. It pays the cheque to the collecting banker who presents those before him on behalf of their customers. He is responsible to the customers and duty bound to make payments to the right persons in accordance with the instructions of the drawer.



Endorsement

The signature of the payee or holder on the back of a cheque/draft is called an endorsement.

Kinds of Endorsement:

01. Blank endorsement
02. Full endorsement
03. Partial endorsement
04. Restrictive endorsement
05. Conditional endorsement
06. Endorsement Sans Recourse
07. Facultative endorsement

01. Blank Endorsement:
When the endorser signs his namely only (Mashud)

02. Full Endorsement:
When the endorsement adds the name of the endorsee above his signature, with a direction to pay him or to his order. A blank endorsement may be converted into full endorsement by writing the name of the endorsee over the signature of endorser. It is also called special endorsement : Pay to M/S. Liberty Impex.


03. Partial Endorsement:
Where only a part of the amount of the bill is transferred to a particular endorsee.

04. Restrictive Endorsement:
Where the endorser prohibits further negotiation.

Other Reason for Dishonour of cheques

01. Post-dated
02. Short of fund in the account
03. Cheque presented after business hours
04. Joint account but cheque are not signed by joint account holders
05. The cheque is irregular and ambiguous
06. The cheque presented after 6 months from the date it bears.