Collecting Banker
Collecting Banker
Collecting Banker
One of the most important functions of a banker is to pay and collect his
customers cheques. Thus a banker plays a dual role as a paying banker and
a collecting banker. Over the years the cheque has become an important
medium of settlement of payments. Thus a customer of a bank either pays
by cheque or receives payment by cheque. The payments received by
cheque are either collected in cash collected in cash or deposited in the
customers account, in a bank, who in turn collects the payment from the
other banker and credit customers account. The cheques may be drawn on
another branch of it may even be drawn on a bank abroad. We have already
seen that a cheque crossed generally or specially can be paid through a
banker only.
Section 131 of the Negotiable Instruments Act provides for the non liability of
the banker receiving payment of a cheque under certain conditions. Those
conditions are:
a)
The collecting banking should receive payment for a customer. While
discussing the definition of customer we have seen that the customer is a
person who has an account with the bank. The account should be properly
introduced. If the proceeds of a cheque is intended to go to the account of
A, but the same is collected by the banker in the account of a wrong person
who represented himself to be A, the collecting banker would be liable for
conversion of the ownership of funds unless he can prove that he collected
the payment in good faith and without negligence.
b) Negligence arises when there is a duty to take care and the collecting
banker has a duty to take care of the interests of the true owner of the
cheque. The test applied is what a prudent man would have done in similar
circumstances to guard his own property. It is presumed that the banker
would have provided reasonable and competent staff to carry out his duty to
take care. The burden to prove the fact that the banker acted in good faith
and without negligence lies on the banker himself. The instances where the
collecting banker may be held responsible are:
Collecting
endorsements.
Collecting
the payee.
Collecting
Collecting
c)
The protection under Section131 is available only to crossed cheques,
and such crossing should be done before the banker accepts the cheque for
collection.
d) The protection under Section 131 is available only when the collecting
banker receives payment for his customer and not otherwise. When the
banker collects payment for himself or for non-customer this provision will
not apply. The bankers position here should be that of an agent for collection
and not in the capacity of a holder for value.
Basis
Negotiation
If a negotiable instrument is
transfer by way of negotiation,
Applicable Negotiable Instrument Act,
Act
1881 applies.
Assignment
Where any right is
transfereed by way of
assignment, the Transfer of
Property Act applies.
Transfer of a right to receive
Negotiation means transfer of the payment of a debt by one
a negotiable instrument to any person (viz., assignee) to
other person so as to
another person (viz.,
constitute that person the
assignee) by way of a written
Meaning holder of such negotiable
document is called as
instrument.
assignment.
Negotiation can be made for
transferring negotiable
Assignment can be made of
Scope
instrument only.
any right.
A bearer instrument can be
negotiated merely by deliver,
and an order instrument can
Assignment is valid only if it
Method or be negotiated by endorsement is made in writing and is
manner
and delivery.
signed by the assignor.
Notice of negotiation is not
Notice of assignment must be
required to be given to any
given by the assignee to the
Notice
party.
debtor.
It is presumed that every
Considera negotiable instrument was
There is no such presumption
tion
negotiated for consideration. in case of assignment.
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WHAT IS A CHEQUE?
Section 6 of Negotiable Instruments Act defines cheque as :
6. Cheque.-A cheque is a bill of exchange drawn on a specified
banker and not expressed to be payable otherwise than on demand and it
includes the electronic image of a truncated cheque and a cheque in the
electronic form. Explanation I.-For the purposes of this section, the
expressions(a) a cheque in the electronic form means a cheque which contains
the exact mirror image of a paper cheque, and is generated, written and
signed in a secure system ensuring the minimum safety standards with
the use of digital signature (with or without biometrics signature) and
asymmetric crypto system;
(b) a truncated cheque means a cheque which is truncated during the
course of a clearing cycle, either by the clearing house or by the bank
whether paying or receiving payment, immediately on generation of an
electronic image for transmission, substitu ing the further
physical movement of the cheque in writing.
Explanation II.-For the purposes of this section, the expression clearing
house means the clearing house managed by the Reserve Bank of India or
a clearing house recognised as such by the Reserve Bank of India..
E-CHEQUE
Electronic cheque (e-cheque) is the image of a normal paper cheque
generated, written and signed in a secure system using digital signature and
asymmetric crypto system. Simply said an electronic cheque is nothing more
than an ordinary cheque produced on a computer system and instead of
signing it in ink, it is signed using the digital equivalent of ink. After the
coming into force of The Negotiable Instruments (Amendment And
Miscellaneous Provisions) Act, 2002, legal recognition has been accorded to
e-cheques and they have been brought at par with the normal cheques. Now,
a cheque includes an e-cheque.
SECTION 138 NEGOTIABLE INSTRUMENTS ACT 1881
Section 138 describes the above ground of insufficient funds in the account
of the drawer of the cheque in the following words:
The amount of money standing to the credit of the account of the drawer on
which the cheque is drawn is insufficient to honour the cheque, or
1.
The cheque amount exceeds the amount that can be paid by the bank
under an arrangement entered into between the bank and the drawer of
the cheque.
However, besides the above, the Courts have also accepted some other
heads which though expressly do not say insufficient funds but are implied
to mean the same and a cheque dishonoured on any of these grounds can be
used for the purpose of prosecution under section 138 Negotiable
Instruments Act.
bank on which it I drawn- If the cheque is not presented to the bank on which
it is drawn, then provisions of sec 138 would not be attracted. If bank on
which the cheque is drawn is not a clearing member of the Reserve Bank of
India unpaid return of the cheque would not attract section 138.
CHAIRMAN, JAWAHAR COOPERATIVE URBAN BANK LTD. AND OTHERS VS.
RAMANJANEYA ENTERPRISES, HYD. AND ANOTHER
2005 (5) CRIMINAL REPORTED JUDGEMENTS (CRJ) 0591;
2005 (2) DISHONOUR OF CHEQUE REPORTER (DCR) 0169
5.
Effect of other endorsements:
It has been repeatedly held by courts that manifest dishonest intention of the
drawer resulting in dishonour of the cheque would lead to prosecution under
section 138 Negotiable Instruments Act regardless of the actual ground of
dishonour.
BANKER CUSTOMER RELATIONSHIP
receive money and collect bills for credit to its customers account;
honour customers checks - which must be drawn in the proper
manner, with the account sufficiently funded, presented during banking
hours at a branch of the bank,etc;
ensure secrecy and not disclose information regarding the account to a
third party;
honour the duty of care owed (protection from fraud in making
payment orders, etc);
record transactions on the account and provide the customer with any
such information;
give reasonable notice before closing a customers account in credit;
and
abide by the instructions of the customer and terms of agreement
within the scope of the relationship.
Some of the rights of the bank include to:
refuse to honour an improperly drawn cheque or instruction on an
insufficiently funded or legally frozen account;
charge reasonable interest on credit facilities granted to customers and
reasonable commission for services rendered;
obtain a re-imbursement for expenses incurred on a customers behalf
and debit the customers account in the sum of such expenses;
use moneys deposited by a customer at will, bearing in mind however
the owed duty of care;
combine accounts owned by a customer to pay a balance owed due to
another overdrawn account or account in credit belonging to the same
customer (right of set off);
sell a property over which the customer has created a legal mortgage
in favour of the Bank without recourse to court (in line with the provisions
of the law in this regard);
retain goods and securities owned by the customer (as a debtor) until
the debt due is paid (right of general lien); and
retain money or property belonging to a customer and apply the same
to the repayment of an outstanding debt; provided that, to the banks
knowledge, such property is not part of a trust fund or is not already
burdened with other debts (bankers lien).
pay the reasonably levied interests and charges on overdraft and credit
facilities;
In this section we will discuss the relationships between the banker and the
customer. It has already been stated that the relationship between the
banker and the customer depends on the nature of services provided by the
banker. For example, when an account is opened in a bank, the relationship
created is that of debtor (banker) and creditor (customer). When some
valuables are deposited in the safe custody of the banker, the relationship
created is that of trustee (banker) and beneficiary (customer). Let us discuss
the different relationships between the banker and the customer in detail.
Debtor creditor
You are aware that as a primary function, banks accept deposits from the
public. The deposits may be fixed, current or savings deposits. Bank accepts
the deposits for lending money to others or to invest in some profitable
avenues. Whenever customer deposits money in a bank, the banker takes a
responsibility to return the money as and when demanded by the customer
along with interest. Of course, the customer must fulfill the necessary
conditions in demanding the money.
When a customer deposit money, in a way he lends it to the banker and the
banker can use it according to his discretion to earn profit as much as he
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can. Moreover, at the time of returning the money, the banker can return the
money in any denominations, not the same coins and notes as deposited by
the customer. In this case, the relationship that is created between the
banker and the customer is that of debtor and creditor. The banker is the
debtor and the customer is the creditor.
Features of debtor- creditor relationship
Though the relationship between the banker and the customer is that of
debtor and creditor, it is not the general debtor and creditor relationship.
This relationship has certain special features, which we are going to discuss
nowThe demand for repayment of money must be made by the customer
(creditor). The customer must make the demand in proper form i.e. the
customer must make the demand for repayment through withdrawable
forms, cheques, drafts, order or otherwise and not verbally or through
telephone.
The customer must make the demand for repayment at a particular
branch i.e. the branch where the customer has the account. However, in
case of bank drafts, travellers cheques, ATM Cards etc., the bank can pay
the money to the customer at some other branch.
The customer must make the demand for repayment only during the
working days and working hours of the bank. However, with the advent of
technology, this feature is not applicable in all the time.
The relationship between the banker and the customer as debtor and
creditor reverses whenthe customer overdrawn the account; and
the banker lends money to the customer.
Overdrawing the account: In Unit 9, you have come across that that the
current accountholders get overdraft facility from the bank. Under this facility
the accountholder can overdraw his account i.e. withdraw more money than
the balance available in the account. In case the accountholder overdraws
the account, the relationship between the banker and the customer gets the
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shape of creditor and debtor relationship- the banker is the creditor and the
accountholder (customer) is the debtor. Till the overdrawn amount is
returned by the customer, the relationship between the two continues to be
of creditor and debtor. As soon as the overdrawn amount is returned by the
customer, the relationship gets its original shape i.e. banker becomes the
debtor and the accountholder becomes the creditor.
Lending money to the customer: When a bank sanctions a loan to a
customer, the relationship between the two is that of the creditor and the
debtor. The creditor (banker) charges interest on the loan till it is paid back
by the customer. When the loan is paid back fully, the relationship reverses
and gets the original shape of debtor (banker) and creditor (customer).
While discussing the agency functions of banks in unit 9, you have come to
know that banks as agents collect cheques, bills, drafts etc. on behalf of the
customer. The bank also makes payments of regular nature like, insurance
premium, rent etc. on behalf of the customer. While performing theses
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functions the bank acts as the agent of the customer and the customer is the
principal. The banker (agent) performs the functions according to the
instructions of the customer (principal) and for this the banker is entitled to
get commission from his principal
FUNCTIONS OF BANK
In the modern world, banks perform such a variety of functions that it is not
possible to make an all-inclusive list of their functions and services. However,
some basic functions performed by the banks are discussed below.
1. Accepting Deposits
The first important function of a bank is to accept deposits from those who
can save but cannot profitably utilize this saving themselves. People consider
it more rational to deposit their savings in a bank because by doing so they,
on the one hand, earn interest, and on the other, avoid the danger of theft.
To attract savings from all sorts of individuals, the banks maintain different
types of accounts:
(i) Fixed Deposit Account:
Money in these accounts is deposited for fixed period of time (say one, two,
or five years) and cannot be withdrawn before the expiry of that period. The
rate of interest on this account is higher than that on other types of deposits.
The longer the period, the higher will be the rate of interest. Fixed deposits
arc also called time deposits or time liabilities.
(ii) Current Deposit Account:
These accounts are generally maintained by the traders and businessmen
who have to make a number of payments every day. Money from these
accounts can be withdrawn in as many times and in as much amount as
desired by the depositors. Normally, no interest is paid on these accounts;
rather, the depositors have to pay certain incidental charges to the bank for
the services rendered by it. Current deposits are also called demand deposits
or demand liabilities.
(iii) Saving Deposit Account:
The aim of these accounts is to encourage and mobilise small savings of the
public. Certain restrictions are imposed on the depositors regarding the
number of withdrawals and the amount to be withdrawn in a given period.
Cheque facility is provided to the depositors. Rate of interest paid on these
deposits is low as compared to that on fixed deposits.
(iv) Recurring Deposit Account:
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commission), the bank pays the value of the bill to the holder. When the bill
of exchange matures, the bank gets its payment from the party, which had
accepted the bill. Thus, such a loan is self-liquidating.
(v) Term Loans:
The banks have also started advancing medium-term and long-term loans.
The maturity period for such loans is more than one year. The amount
sanctioned is either paid or credited to the account of the borrower. The
interest is charged on the entire amount of the loan and the loan is repaid
either on maturity or in installments.
3. Credit Creation
A unique function of the bank is to create credit. In fact, credit creation is the
natural outcome of the process of advancing loan as adopted by the banks.
When a bank advances a loan to its customer, it does not lend cash but
opens an account in the borrower's name and credits the amount of loan to
this account. Thus, whenever a bank grants a loan, it creates an equal
amount of bank deposit. Creation of such deposits is called credit creation
which results in a net increase in the money stock of the economy. Banks
have the ability to create credit many times more than their deposits and
this ability of multiple credit creation depends upon the cash-reserve ratio of
the banks.
4. Promoting Cheque System:
Banks also render a very useful medium of exchange in the form of cheques.
Through a cheque, the depositor directs the bankers to make payment to the
payee. Cheque is the most developed credit instrument in the money
market. In the modern business transactions, cheques have become much
more convenient method of settling debts than the use of cash.
5. Agency Functions:
Banks also perform certain agency functions for and on behalf of their
customers:
(i) Remittance of Funds:
Banks help their customers in transferring funds from one place to another
through cheques, drafts, etc.
(ii) Collection and Payment of Credit Instruments:
Banks collect and pay various credit instruments like cheques, bills of
exchange, promissory notes, etc.
(iii) Execution of Standing Orders:
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