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.