Collecting Banker: Duties, Statutory Protection and Concept of Negligence, Position of a Collecting Banker, Duties and Responsibilities of Collecting Banker,Statutory Protection to Collecting Banker, Holder and Holder in Due Course

1. Collecting Banker: Duties, Statutory
Protection and Concept of
Negligence
Prepared by-
Dr Ramandeep
Assistant Professor
Deptt. of Commerce
GCW, Sirsa (Haryana)

2. Collecting Banker: Meaning
Collecting Banker is the one who accumulates
the proceeds of a cheque for the customer. A
banker receives payment of a crossed cheque
for a customer.

3. Position of a Collecting Banker
I. Holder for value-
On many occasions, the banker may credit the
amount of the cheque and allow the customer
to draw the amount before the amount is
actually realised from the paying bank. In such
case, the bank becomes “Holder for Value and
Holder in Due Course”.

4. Position of a Collecting Banker
II. Agent of the Customer-
The collecting banker act as an agent of the
customer and does not possess a better title
to the cheque then that of its customer.

5. Duties and Responsibilities of Collecting Banker
1. Exercise due care and diligence
2. Present cheque for collection in time
3. Notice to customer in case of dishonor of cheque
4. Placing the proceeds to the account of customer

6. Precaution to taken by Collecting Banker
1. Collection for a customer only
2. Agent of a customer
3. Checking of regularity of endorsement
4. Must act in Good faith
5. Must be Crossed

7. Statutory Protection to Collecting Banker
The Collecting bank must satisfy the following conditions
to get the statutory protection under Negotiable
Instrument Act-
1. Cheque must be crossed
2. Payment must be received on behalf of customer only
3. Payment received in good faith and withou negligence

8. Holder
and
Holder in Due Course

9. Holder: Meaning
Whose name is mentioned in the instrument as
the payee or an endorsee or the bearer of an
instrument.
Thus, any person who is legally entitled to the
possession of a negotiable instrument is known
as Holder.

10. Conditions to become a Holder
1. Possession of Instrument –
He must be entitled to the possession in his own name and under a
legal title. He acquired it lawfully and in a proper manner.
2. Receiving of amount-
He must be entitled to receive the amount from the parties concerned
in his own name.
What about in the case of lost instrument?

11. Rights of Holder
• Blank endorsement may be converted into full
endorsement.
• Can cross a cheque in general or special crossing
• Can negotiate a cheque to third person
• Can claim the payment of the instrument in his name
• Can take a duplicate copy of a lost cheque

12. Holder in Due Course: Meaning
Means any person who, for consideration, become
the possessor of a instrument, if payable to
bearer, or the payee or endorsee thereof payable
to order, and without having sufficient cause to
believe that defect existed in the title of the
person from whom he has derived his title.

13. Conditions to become Holder in Due Course
1. In possession of Holder in due course
2. Regular and complete
3. Valuable consideration
4. Obtained before payable
5. Good title

14. Rights or Privileges of Holder in Due Course
• Better title to instrument
• Right to enforce payment against prior party
• Privilege against incomplete instrument
• Bill drawn in fictitious name
• Instrument obtained for unlawful consideration

15. Payment in Due Course

16. Payment in Due Course: Meaning
Payment in Due
Course
Apparent Tenor In Good Faith
Without
Negligence

17. Payment in Due Course: Meaning
“Payment in due course means payment in accordance
with the apparent tenor of instrument, in good faith
and without negligence, to any person in possession
thereof under circumstances which do not afford a
reasonable ground for believing that he is not entitled
to receive payment of the amount therein mentioned.”
-Section 10 of Negotiable Instrument Act, 1881

18. Essential Features of Payment in Due Course
• True intentions
• On behalf of drawer
• Payment in money
• Payment to actual possessor
• Payment in good faith
• Payment not to made under some circumstances

19. Certain Payments not Deemed Payment in due Course
• Payment to wrong person
• Payment after due date
• Forged signatures
• Forged endorsement
• Payment after receiving order to stop payment
• Payment in the another bank
• Payment having alterations not confirmed

20. Concept
of
Negligence

21. Negligence: Meaning
The collecting banker has to prove that the act
was made without any negligence to avail the
protection under section 131 of the Negotiable
Instrument Act, 1881.
The banker sometimes be careless in his duties
which constitutes an act of negligence.

22. Grounds of Negligence
• Opening of Account without proper introduction
• Irregular endorsement
• Failure to take note of ‘Not Negotiable’ crossing
• Collection of non customer
• Payment of crossed cheque over the counter

23. Types of Negligence
1. Gross Negligence- completely careless
It includes-
i. Collecting a cheque crossed A/c payee for other than
payee’s account
ii. Failure to verify the correction of
endorsement
iii. Failure to verify the authority in case of Per Pro
Signature

24. Types of Negligence
2. Negligence connected with immediate collection
It includes-
i. Collecting a cheque against the principal’s account to the private
account of the agent.
ii. Collecting a cheque payable to firm to the private account of the
partner.
i. Collecting a cheque payable to company to the private account of
the authorised officer.
i. Collecting a cheque payable to trust to the private account of the
trustee.

25. Duties of Collecting Banker to Avoid Negligence
• Exercise reasonable care and diligence
• Presentation of cheque for collection
• Notice to customer
• Present the bill for payment

26. Thank You