COLLECTION OF CROSSED CHEQUES

• COLLECTING BANKER
• A collecting banker is one who has assumed duty of
collecting the proceeds of a cheque for the customer
or for himself.
• When he collects the proceeds for the customer he
acts as his agent.
• Whereas in case of collecting for himself he is holder
for value because.
• He makes the payment before collection.
• He credits the customer’s account with the value of
the cheque before it is realized.
• The cheque is received in adjustment of an overdraft.
 COLLECTION OF CROSSED CHEQUES

• DUTIES OF A COLLECTING BANKER.

• Collection of drafts.
• It is the duty of the collecting banker to collect and place the
proceeds of both cheques and drafts for his customer’s account as
section 85-A of the negotiable instrument Act. 1881, has defined
drafts as “an order cheque drawn by one branch of a bank upon
another branch of the same bank”
• Establish the bonafides of the account holders
• The banker must make inquiry to ascertain the bonafides of the
person who desires to become his customer. If the banker omits to
do so or does not take proper introduction or reliable reference from
the proposed customer he will be committing a breach of duty under
section 131 of the negotiable instrument Act 1881.
 COLLECTION OF CROSSED CHEQUES

• Examination of Crossings:-
• The collecting banker must examine minutely all the
crossings and cheques handed over to him for
collection.
• if the cheque is already crossed specially to any other
bank the collecting banker will not accept it for
collection.
• a cheque bearing account payee only crossing
should be collected only for the payee named in the
cheque and for no one else.
•
 COLLECTION OF CROSSED CHEQUES

• Examination of endorsements.
• While making payments the paying banker normally
relies on the collecting banker’s discharge. Therefore,
it is very important duty of the collecting bankers to
examine all the endorsements and other material parts
of all cheques and drafts before presenting them for
collection.
• Notice of dishonour.
• If a cheque is dishonoured on presentation, it is the
duty of the collecting banker to inform his customer
accordingly. Moreover, the banker is entitled to debit a
dishonored cheque to his customer’s account in case
he has already credited it.
 COLLECTION OF CROSSED CHEQUES

• PROTECTION TO COLLECTING BANKER.

• Section 131 of the negotiable instruments Act 1881 reads as
under:
• “Subject to the provisions of this Act relating to cheques crossed
‘Account Payee’ where a banker in good faith and without
negligence receives payment for a customer of a cheque crossed
generally or specially to himself and the customer has no title or
defective tittle there to the banker shall not incur any liability to
the true owner of the cheque by reason only of having received
such payment”.
• The above definition lays down the following duties for the
collecting banker:
• The cheque should be crossed when the collecting banker
receives it for collection. If a cheque received by a banker is not
crossed generally he must ask the customer to cross it. Special
crossing is also necessary and the banker does himself it.
 COLLECTION OF CROSSED CHEQUES

• ii Cheque or drafts must be collected for the customer only because

banker collects them as an agent and not as holder for value. There are two
reasons for it firstly because the customer is entitled customarily to give
negotiable instruments for collection while a non customer has no such
privilege secondly, because customer is the person about whose integrity
the banker has already inquired into before accepting him as such.
• iii. The collection must be done in good faith and without negligence.
‘Good faith’ for banker means acting honestly as a collecting banker; and it
is assumed to be operative unless proved otherwise.
• In order to having collected without negligence a banker should take all
such steps which a prudent business man would take to guard himself
against adverse effects. If a banker accepts irregular endorsements on the
instruments, opens a current or savings account without an introduction or
ignores the account payee crossings to collect proceed for a person
otherwise then a payee he will be acting with negligence.