Collecting Banker is the one who accumulates the proceeds of a cheque for the customer. Even though a banker gathers the proceeds of a cheque for the customer solely as a matter of service, hitherto the Negotiable Instruments Act, 1881 ultimately inflicts obligation, statutory in nature. This is evident from Section 126 of Negotiable Instruments Act which presents that a cheque having a “general crossing” shall not be paid to anyone other than banker & a cheque which is “specially crossed” shall not be paid to a person other than the banker to whom it is crossed. Therefore, a paying banker must pay a crossed cheque only to a banker thus signifying that it should be collected by another banker.
As per Section 131 of Negotiable Instruments Act 1881, “A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specifically to himself -shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason of only having received such payment.
Explanation: A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that he credits his customer’s account with the amount of-the cheque before receiving payment thereof.”
The fundamentals of claiming protection under Section 131 of Negotiable Instruments Act 1881 are as follows:
(i) The collecting banker should have acted in good faith & without negligence. Acted in good faith refers that the act that is done honestly. The plea of good faith can be refuted on the ground of unruliness indicative of want of proper care & attention.
(ii) The banker should have accumulated a crossed cheque
(iii) The proceeds should have been gathered for a customer, i.e., a person who has an account with him.
(iv) That the collecting banker has acted as an agent of the customer. If he had developed into the holder for value, the protection available in Section 131 of Negotiable Instruments Act 1881 is forfeited.
