Open Access Research Article
PROTECTION OF BANKERS BY: NARAYAN DNYANOBA SASTE
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Article Details
PROTECTION OF BANKERS
AUTHORED BY:
NARAYAN DNYANOBA SASTE
ROLL No.:01
CLASS:
LLM-II
ACADEMIC
YEAR: 2023-24
1.1 Introduction
:
Consumers are those who
with due consideration of money use a service of any goods and services
provided by the manufacturer or service provider. Similarly, the moment a
person opens an account with the banker, he becomes the bank’s client or a
Customer.
There are different
types of relationship bank is having with his customer like bailor and bailee,
debtor-creditor and for these relationship, They are thus bound by certain
duties and obligations towards each other. Banker-customer relationships are
contractual, based on an express or implied arrangement between the two. Bankers
has given the protection under Banking Law.
1.2
Definition of Banking :
The Indian Banking
Regulation Act defines the business of banking by stating the essential
functions of a banker. It also states the various other businesses a banking
company may be engaged in and prohibits certain business to be performed by it.
As per
section 5(b) of Banking Regulation Act, 1949, the term banking is characterized
as the acceptance of deposits of money from the public, repayable on demand or
otherwise, for the purpose of lending or investment, and withdrawals by cheque,
draft, order or otherwise.
Section
5(c) of the Banking Regulation Act, 1949 defines “Banking Company” as any
company that carries out the banking business in India.
As per
Section 5(d) of the Banking Regulation Act, 1949 Company means any company as
defined in Section 3 of the Companies Act, 1956 and includes a foreign company
within the meaning of Section 591 of that Act.
The RBI defines a modern
bank as “An establishment for the custody of money received from, or on behalf
of, its customer. It is essential duty is to pay their drafts on it, its profit
arise from the use of the money left unemployment by them. Banks organize the
borrowing and lending work (credit) of the community, they lend their funds
(capital) and borrowed funds and their own credit to person engaged in trade,
agriculture, manufacturing and other industries. They supply a part of the
medium of exchange in the form of bank notes, cheques.”
1.3 Who is a customer?
“A
customer is someone who has an account with a banker or who is regularly
committed to behaving as such with the banker.
One may conclude that a
“Customer” is one who has either a current or a saving account or, in the
absence of it, some relation with the bank in the ordinary course of business,
that can be seen as banking business.
2.1 Paying
Banker:
While
modern banking has many aspects and the range of activities of clearing banks
today is very broad, the payment and processing of cheques are still a central
and fundamental feature.
Paying
banker refers to the banker who holds the cheques of the drawer and is obliged
to make payment if the funds of the customer are sufficient to cover the amount
of his cheque drawn.
The
paying banker is the banker who cancels the signature of the drawer on payment
of the cheque either by the usual means of authorizing a drawer’s signature or
by any method that the bank takes, which also reflects the point of payment. In
some cases, cheques are paid by stamping the cheques “Paid”, usually with the
date being included in the stamped crossing, or by perforating the payment date
onto the cheque.
As paying banker, the
banker is obligated to accept the customer’s cheque, if it is valid and if it
is issued by the holder in its original form within a reasonable period of time
and before the banker has provided orders to stop paying or receiving notice of
the death of the customer, etc., and if sufficient funds are available to the
customer’s account and that balance is available to the banker.
2.2
Collecting banker:
One who undertakes to
collect cheques, drafts, bill, pay order, traveller cheque, letter of credit,
dividend, debenture interest, etc., on behalf of the customer is known as a
Collecting banker.
A banker
is not legally obligated to receive cheques from the client, but now the
collection of checks has become a main feature of a banker with a widening
banking procedure and a broader use of crossed checks, which are invariably
only obtained by a banker.
A banker receives cheques from his
client and behaves
1.
as
a holder for value, or
2.
as
his agent,
2.3
Paying and Collecting Banker: Difference
1.
The
main difference between the collecting and paying banker is a person who holds
the cheque and is obliged to make the payment on behalf of the customer. The
collecting banker is the one who undertakes the collection of the drafts,
bills, pay orders, transfer cheques, etc., on behalf of the customer.
2.
The
paying banker gets protection under the Negotiable Instrument Act section 85,
and the collecting banker gets protection under section 131.
If a banker plays both roles at the
same time, then the banker can be called a collecting banker but not liable as
a paying banker.
3.0 The Protection of Paying Banker:
The
payment process and conditions and the protection and responsibilities of the
paying banker.
A customer is a person who buys services or goods from manufacturers
or service providers with due consideration of money. Thus, as a customer opens
an account, he becomes the client of the banker. The banker provides different
services to the customer by following the specific duties and obligations he
has. This develops a relationship between the customer and the banker as
payment and processing of cheques is the fundamental feature of the modern
banking system.
3.1
Protection of Paying Banker:
·
Section
10
The paying banker can claim protection under the Negotiable
Instruments Act; the condition the banker has got to satisfy is that the
payment is in due course.
‘Payment in due course’ means payment following the apparent tenor
of the instrument in straightness and without negligence to someone in
possession thereof under circumstances which doesn’t afford an inexpensive
ground for believing that he is not entitled to receive payment of the quantity
therein mentioned.
·
Section
85
This acts as the statutory protection of the paying banker.
·
Section
85(1)
In the case of an order cheque, this section implies that the
payment must be in due course; otherwise, the banker will be deprived of
statutory protection, and the banker must confirm the endorsements are regular.
·
Section
85(2)
This is the protection in the case of bearer cheque; this section
implies that even if any endorsements restrict further negotiation, the cheque
will retain the bearer character if it is originally issued as a bearer cheque.
Section 128
This is the protection in case of a
crossed cheque. This section implies that the banker has made the payment in
due course with good faith and without negligence, as per section 10. The
banker can cross the payment following the requirement (section 126), that is,
any banker through the general crossing and specified banker in case of special
crossing.
3.2
The Legal Obligations of Paying Banker
The obligatory role of the paying banker while honouring cheques is-
·
Crossed cheque and open cheque- If a cheque is crossed, the
banker must check whether it is generally crossed or special crossed. In
general crossing, the owner needs to bring the cheque to the banker, and during
the special crossing, the banker will pay for the bank.
In an open cheque, the cash will be paid by the banker across the
counter.
1.
Proper form- A banker should check whether the cheque is in the proper
form.
2.
Cheque presentation and date of cheque- The cheque should consist of
the correct format and location. The banker must also check for the correct
cheque date; it should not be a post-dated or stale-dated cheque.
3.
Words and figures- The sum of the amount needed must be written
correctly, and if it varies, the banker needs to deny the cheque.
4.
Alterations and overwriting- The banker should take care of
extra modifications or changes made on the cheque.
5.
Endorsements- The bearer cheque is not legally endorsed; thus, while
making payment, the banker should check all endorsements on the cheque.
4
Leading case
laws on payment of cheques by a bank :
4.1 Canara Bank vs Canara Sales Corporation and Others [(1987) 2 Supreme
Court Cases 666]
In this
case, the Supreme Court ruled that the bank is not allowed to pay when the
customer signs the check. Since such a banker has no right to debit the account
of the customer on such falsified cheque. Since the customer-bank link is
between the borrower and the debtor, a cheque that has a forged signature has
no authority on the bank to pay.
4.2
Bank of Bihar vs Mahabir Lal (AIR
1964 Supreme Court 397)
In this
case, the Supreme Court held that only where payment was made to the holder or
to his agent, i.e. in due course, a banker would claim cover under Section 85.
Payment to an individual without a business or to a bank’s agent is not a
payment to a corporation
5
Leading case
laws on duties of collecting banks :
5.1
Ladbroke vs Todd (1914)
In this
scenario, a thief stole a transit cheque and obtained it from a banker where,
without reference, he opened an account and presented himself as the payee
whose signature the thief forged. The thief withdrew the sum after the cheque
was obtained. The bank was kept responsible for making the sum good because it
behaved negligently when opening the account to the degree that it did not
receive any reference.
5.2
Harding vs London Joint Stock Bank
[1914]
In this
particular case, after having complied with the requisite formalities, an account
was opened for a new client. As is common practice, the account was not opened
by depositing cash, but by paying a third-party cheque. In the situation, the
bankers made inquiries with the client, who subsequently produced a forged
letter provided by his employer granting him authority to deal with the cheque.
The cheque was eventually found to have been stolen by the customer and
transferred to his account. The bank was deemed incompetent for failing to make
the employer’s necessary inquiries as to whether the client who was an
individual really had the requisite authority to deal with the cheque.
6.0
Conclusion:
In modern banking, the aspects of the payment and processing of
cheques are still the central and fundamental features. A paying banker has a
responsibility for the customer’s cheque if it is valid and issued by the
holder in a given period. The sufficient fund is available to the customer’s
account, and when that balance is available to the paying banker.
The banking system is designed in such a way that it generates money
through different business transactions and domestic and foreign trade. This
type of banking system develops a special relationship between the banker and
the customers. This relation can be formed with specific duties and obligations
that a banker has.
References :
2.
http://lawbaba.in/rights-obligation-banker/http://www.dispute-resolution-hamburg.com/conciliation/what-is-conciliation/.
4.
http://newhorizonindia.edu/nhc_kasturinagar/wp-content/uploads/2018/05/Unit-3-Banking.pdf
5.
Canara
Bank vs Canara Sales Corporation and Others [(1987) 2 Supreme Court Cases 666]
6.
Bank
of Bihar vs Mahabir Lal (AIR 1964 Supreme Court 397)
7.
Ladbroke
vs Todd (1914) 30 TLR 433
8.
Harding vs London Joint Stock Bank [1914]
2.1 Paying Banker:
Paying banker refers to
the banker who holds the cheques of the drawer and is obliged to make payment,
if the funds of the customer are sufficient to cover the amount of his cheque
drawn.
The paying banker is the
banker who cancels the signature of the drawer on payment of the cheque either
by the usual means of authorizing a drawer’s signature or by any method that
the bank takes, which also reflects the point of payment. In some cases,
cheques are paid by stamping the cheques “Paid”, usually with the date being
included in the stamped crossing, or by perforating the payment date onto the cheque.
As paying banker, the
banker is obligated to accept the customer’s cheque, if it is valid and if it
is issued by the holder in its original form within a reasonable period of time
and before the banker has provided orders to stop paying or receiving notice of
the death of the customer, etc., and if sufficient funds are available to the
customer’s account and that balance is available to the banker.
2.2 Collecting banker:
One who undertakes to
collect cheques, drafts, bill, pay order, traveller cheque, letter of credit,
dividend, debenture interest, etc., on behalf of the customer is known as a
Collecting banker.
A banker is not legally
obligated to receive cheques from the client, but now the collection of checks
has become a main feature of a banker with a widening banking procedure and a
broader use of crossed checks, which are invariably only obtained by a banker.
A banker receives cheques from his
client and behaves
as a holder for value, or
as his agent,
2.3 Paying and Collecting Banker: Difference
The main difference between the
collecting and paying banker is a person who holds the cheque and is obliged to
make the payment on behalf of the customer. The collecting banker is the one
who undertakes the collection of the drafts, bills, pay orders, transfer
cheques, etc., on behalf of the customer.
The paying banker gets protection
under the Negotiable Instrument Act section 85, and the collecting banker gets
protection under section 131.
If a banker plays both roles at the
same time, then the banker can be called a collecting banker but not liable as
a paying banker.
3.0
The Protection of Paying Banker:
The payment process and conditions
and the protection and responsibilities of the paying banker.
A customer is a person who buys
services or goods from manufacturers or service providers with due
consideration of money. Thus, as a customer opens an account, he becomes the
client of the banker. The banker provides different services to the customer by
following the specific duties and obligations he has. This develops a
relationship between the customer and the banker as payment and processing of
cheques is the fundamental feature of the modern banking system.
3.1 Protection of Paying Banker:
Section 10
The paying banker can claim
protection under the Negotiable Instruments Act; the condition the banker has
got to satisfy is that the payment is in due course.
‘Payment in due course’ means
payment following the apparent tenor of the instrument in straightness and
without negligence to someone in possession thereof under circumstances which
doesn’t afford an inexpensive ground for believing that he is not entitled to
receive payment of the quantity therein mentioned.
Section 85
This acts as the statutory
protection of the paying banker.
Section 85(1)
In the case of an order cheque, this
section implies that the payment must be in due course; otherwise, the banker
will be deprived of statutory protection, and the banker must confirm the
endorsements are regular.
Section 85(2)
This is the protection in the case
of bearer cheque; this section implies that even if any endorsements restrict
further negotiation, the cheque will retain the bearer character if it is
originally issued as a bearer cheque.
Section 128
This is the protection in case of a
crossed cheque. This section implies that the banker has made the payment in
due course with good faith and without negligence, as per section 10. The
banker can cross the payment following the requirement (section 126), that is,
any banker through the general crossing and specified banker in case of special
crossing.
Leading case laws on payment of
cheques by a bank :
4.1
Canara Bank vs Canara Sales Corporation and Others [(1987) 2 Supreme Court
Cases 666]
In this case, the
Supreme Court ruled that the bank is not allowed to pay when the customer signs
the check. Since such a banker has no right to debit the account of the
customer on such falsified cheque. Since the customer-bank link is between the
borrower and the debtor, a cheque that has a forged signature has no authority
on the bank to pay.
Bank of
Bihar vs Mahabir Lal (AIR 1964 Supreme Court 397)
In this case, the
Supreme Court held that only where payment was made to the holder or to his
agent, i.e. in due course, a banker would claim cover under Section 85. Payment
to an individual without a business or to a bank’s agent is not a payment to a
corporation
Leading case laws on duties of
collecting banks :
5.1 Ladbroke vs Todd (1914)
In this scenario, a
thief stole a transit cheque and obtained it from a banker where, without
reference, he opened an account and presented himself as the payee whose
signature the thief forged. The thief withdrew the sum after the cheque was
obtained. The bank was kept responsible for making the sum good because it behaved
negligently when opening the account to the degree that it did not receive any
reference.
Harding vs London Joint
Stock Bank [1914]
In this particular case,
after having complied with the requisite formalities, an account was opened for
a new client. As is common practice, the account was not opened by depositing
cash, but by paying a third-party cheque. In the situation, the bankers made
inquiries with the client, who subsequently produced a forged letter provided
by his employer granting him authority to deal with the cheque. The cheque was
eventually found to have been stolen by the customer and transferred to his
account. The bank was deemed incompetent for failing to make the employer’s
necessary inquiries as to whether the client who was an individual really had
the requisite authority to deal with the cheque.
6.0 Conclusion:
In modern banking, the
aspects of the payment and processing of cheques are still the central and
fundamental features. A paying banker has a responsibility for the customer’s
cheque if it is valid and issued by the holder in a given period. The
sufficient fund is available to the customer’s account, and when that balance
is available to the paying banker.
The banking system is
designed in such a way that it generates money through different business
transactions and domestic and foreign trade. This type of banking system
develops a special relationship between the banker and the customers. This
relation can be formed with specific duties and obligations that a banker has.
Article Information
PROTECTION OF BANKERS BY: NARAYAN DNYANOBA SASTE
Authors: NARAYAN DNYANOBA SASTE
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/04/20
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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