Professional Documents
Culture Documents
Collection and Payment of Cheques and Bills
Collection and Payment of Cheques and Bills
Liability
In case the banker dishonours such cheques in spite of
sufficient funds of the customer, he is liable to pay damages
for breach of the banker’s implied contract to honour such
cheques.The banker is also liable if he dishonours a cheque
after misleading the customer into believing that there were
sufficient funds to meet the cheque.
Statutory Protection
Section 85 of the Negotiable Instruments Act, 1881, as
amended by the Amendment Act of 1934, lays down that
“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”.
Crossed Cheques
“Where the banker on whom a crossed cheque is drawn has
paid the same in due course, the banker paying the cheque,
and the drawer thereof, shall respectively be entitled to the
same rights, and be placed in the same position in all respects
as they would respectively be entitled to and placed in if the
amount of the cheque had been paid to, and received by, the
true owner thereof.”
Payment in Due Course
The following elements are essential for payment in due course:
i. payment in accordance with the apparent tenor of the instrument
ii. Payment in good faith
iii. Payment without negligence
iv. Payment to a person in possession of the instrument entitled to
receive payment
PRECAUTIONS TO BE TAKEN WHILE MAKING PAYMENTS
Crossed Cheques
Section 126:
When a cheque is crossed generally, the banker on whom it is
drawn shall not pay it otherwise than to a banker. Where the
cheque is crossed specially, the banker on whom it is drawn shall
not pay it otherwise than to the banker to whom it is crossed, or his
agent for collection.
Section 127:
Section 129:
Not to Pay
a) When cheque is undated
b) When it is stale (more than 6 months old)
c) When the instrument (cheque) is inchoate or not free
from reasonable doubt
d) When cheque is post dated, and presented before
ostensible date
e) Bank receives notice of customer’s insolvency or
lunacy
f) When not presented within banking hours
g) When number of cheques are presented at one time
aggregating in gross amount beyond the funds of the
drawer
h) Cheque drawn is a breach of trust
i) When there is agreement in payment of cheques