Statutory Protection to the collecting Banker
According to sec. 131 of the N. I. Act, statutory protection is available to the collecting Banker in the following cases:
(I) Crossed cheques only: Statutory protection can be claimed by a collecting banker only for crossed cheques It is so because in the case of an open cheque it is not absolutely necessary for a person to seek the service of a bank.
(ii) Collections on behalf of customers as an agent: The above protection can be claimed by a banker only for those cheques collected by him as agent of his customers.
(iii) In good faith and without negligence: In order to get the protection under this section, a collecting banker must act in good faith and without negligence.
Basis of negligence: When a collecting banker wants to claim protection under Sec. 131 he has the burden of proving that he has acted without negligence.
(I) Gross negligence: If a banker is completely careless in collecting a cheque, then, h will be held liable under the ground of ‘gross negligence.’ Examples:
(a) Collecting a cheque crossed A/C payee’ for other than the payee’s account:
Account payee crossing ¡s a direction to the collecting banker. If he collects a cheque crossed ‘A/C payee’ for any person other than the payee, then, this fact will be proved as an evidence of gross negligence.
(b) Failure to verify the correctness of endorsement: If a banker omits to verify the correctness of endorsements on cheques payable to order, he will be deprived of the statutory protection.
(c) Failure to verify the existence of authority in the case bf per pro signatures: If a collecting banker fails to verify the existence of authority in the case of per pro signatures, ¡f any, will be prayed as an evidence of gross negligence.
(ii) Negligence connected with the immediate collection: If, on the face of a cheque there is a warning that there is misappropriation of money, the collecting banker should make some reasonable enquiry and only after getting some satisfactory explanations, he can proceed to collect cheques. Examples:
(a) collecting a cheque drawn against the principal’s A/c, to the private A/c of the agent without enquiry.
(b) Collecting a cheque payable to the firm to the private Nc of a partner without enquiry.
(c) Collecting a cheque payable to the company to the private account of a direction or any other officer without enquiry.
(d) Collecting a cheque payable to the employer to the private account of the employee would constitute negligence under sec.131 of the Nl. Act.
(e) Collecting a cheque payable to the trustee, to the private account of the person operating the trust account is another instance of negligence of a banker.
(iii) Negligence under Remote Grounds: Normally we can not expect a banker to be liable under certain circumstances. But, the bankers have been held negligent under those situations which are branded as remote grounds.’ Examples: .
(a) Omission to obtain a letter of introduction from a new customer causes negligence. .
(b) Failure to enquire into the source of supply of large funds into an account which has been kept in a poor condition for a long time constitutes negligence.
Duties of a collecting banker
(I) Exercise reasonable care and diligence in his collection work: When a banker collects a cheque for his customer, he acts only as an agent of the customer. He should exercise reasonable care, diligence and skill in collection work.
(ii) Present the choque 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.
(iii) 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.
(iv) 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.
(v) Present the bill for payment: The banker should present 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. .
(vi) protest and note a foreign bill for non-acceptance: In case of dishonor of a bill by non-acceptance or non-payment, it is the duty of the collecting banker to inform the customer immediately. Generally he returns the bill to the customer. In the absence of specific instructions, collecting bankers do not get the inland bills noted and protested for dishonor. If the bill in question happens to be a foreign bill, the banker should have it protested and noted by a notary public and then forwarded it to the customer.
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