Module4 Paying Banker The banker who pays the

Module-4: Paying Banker

The banker who pays the value of the instrument is called the paying banker or drawee bank. The payment to be made by him has risen due to the contractual obligation. He is also called drawee bank as the cheque is drawn on him. Precautions by Paying banker: the paying banker should bear in mind the following duties before passing or dishonouring a cheque. 1. Proper form 2. Physical condition 3. Crossing 4. Office of drawing 5. Date of the cheque 6. Time of prsenataion

7. Amount 8. Material alteration 9. Signature of the drawer 10. Endorsement 11. Legal restrictions.

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

Features : Apparent tenor of the instrument Payment in good faith without negligence Payment to a person who is entitled to receive payment.

Statutory Protection to the paying banker It is the duty of the paying banker to pay the amount of the cheque to the right person according to the instructions. Banker is liable to bear the loss caused by payment to a wrong person. Negotiable Instrument Act provides the following protection to the paying banker: 1. Protection in case of order cheques: section 85(1) of INI Act a cheque is payable to the order , which is endorsed by the payee, the drawee is discharged by payment in due course.

to avail such a protection following conditions should be fulfilled a. he should have paid an order cheque b. endorsement must be regular c. payment must be in due course 2. Payment in case of bearer cheque: section 85(2) of INI Act. where a cheque is expressed to be payable to bearer. The drawer is discharged by payment in due course to the bearer. If a bearer cheque is paid in due course the banker is entitled to get protection. 3. Protection to a crossed cheque: section 128 of INI Act. the paying banker is under the obligation to pay a crossed cheque according to the instructions of the drawer. The banker has to fulfill two conditions

a. Banker makes the payment in due course b. According to the requirements of crossing Liability of the paying banker on crossed cheque 1. Liability to the true owner of the cheque 2. Liability to the drawer.

Circumstances under which a cheque can be dishonored 1. Countermanding 2. Upon the receipt of notice of death of a customer 3. Upon the receipt of notice of insolvency 4. Upon the receipt of notice of insanity 5. Upon the receipt of notice of garnishee order 6. Upon the receipt of notice of assignment. 7. When a breach of trust is intended 8. Defective title

Answers for a dishonoured cheque Not obligatory on the part of the paying banker to give reasons while dishonouring the cheque. Satisfy the rules of the clearing house The answer should not damage the customer’s credit. Banks have a slip containing the reasons printed on it and they put a tick mark against the appropriate reason.

Specimen of cheque returned slip Tamil Nadu Bank Ltd. Regd. Office : Madurai Date: ………… Cheque No. ………. Is returned for. The Reasons Marked X below Payee’s endorsement required Payee’s endorsement irregular Payee’s endorsement requires Bank’s Confirmation Cheque is Post dated Cheque is Out of Date Refer to drawer Payment stopped by drawer

Amount in words and figures differs Effect not cleared please present again Crossed cheque should be presented through a bank No advise Alteration requires drawer’s full signature No Sufficient funds

Usual answers N. S= Not sufficient N. F=no funds N. S. F= Not sufficient funds E. I = endorsement irregular E. N. C= effects not cleared D. D= drawer deceased W. F. D= words and figures differ Exceeds arrangement= used when cash credit or OD is completely exhausted.

D. R= discharge required, when the instrument is not discharged with proper endorsement. R. D= refer to drawer N. P. F= not provided for, when no arrangements are made to meet a cheque in the absence of any balance.