PROTECTION TO COLLECTING BANKER | NI ACT | LEGAL AND REGULATORY ASPECTS OF BANKING | JAIIB
This article discusses one of the most important topics of the JAIIB exam2024, which is the protection of collecting bankers under the NI act.
JAIIB EXAM 2024 is one of the most premium flagship courses offered by IIBF. JAIIB exam 2024 consists of three papers which include- Principles & Practices of Banking (PPB), Accounting & Finance for Bankers (AFB), and Legal & Regulatory Aspects of Banking (LRAB) as per the old syllabus of Junior Associate of the Indian Institute of Bankers exams. The JAIIB exam is one of the hardest exams to crack, so all those who want to appear in the JAIIB exam 2024 should gear up and start preparing. To help you out with your preparation for the JAIIB exam 2024 our experts at Learning sessions have compiled JAIIB study material for Nov 2024 especially customised according to your needs.
PROTECTION TO COLLECTING BANKER
The collecting banker is in charge of collecting the client’s check proceeds. Even when a banker just collects a customer’s check proceeds out of a sense of duty, the Negotiable Instruments Act of 1881 ultimately imposes a legislative requirement. It is clear from Section 126 of the Negotiable Instruments Act that neither a cheque with a “general crossing” nor a cheque that has been “specially crossed” may be paid to anybody other than the banker to whom it is crossed. Therefore, in order to indicate that a crossed cheque should be collected by another banker, a paying banker must only pay crossed cheques to other bankers.
Duties of the collecting banker Or Protection to the collecting bankers under section 131 is given only when bank complies with certain situations. Failing which bank is not provided protection under negotiable instrument act 1881.
Protection to paying banker:
The Negotiable Instruments Act of 1881 states in Section 131 that “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.”
Even when he credits his customer’s account with the amount of the cheque before receiving payment of it, a banker receives payment of a crossed check for a customer within the meaning of this section.
The protection offered by Section 131 is not unqualified; rather, it is circumscribed. The following requirements must be met before a collecting banker can request protection against conversion.
Sincere and without negligence
When a collecting banker receives money in good faith and without negligence, statutory protection is provided to him.
“Good faith” refers to acting honestly, without knowledge of or desire for dishonesty or fraud, and does not necessitate caution. Negligence is the inability to take reasonable precautions. It is not the customer’s or the actual owner’s responsibility to demonstrate the banker’s negligence. It is the banker’s responsibility to demonstrate that the money was obtained honestly and without error. The banker was expected to take appropriate precautions. The particulars of each case determine what constitutes carelessness.
The following are a few instances of negligence:
- Not obtaining a reference for a new client when the account is opened.
- Gathering checks made payable to “trust accounts” for crediting to a trustee’s individual accounts.
- Gathering checks made payable to partnership firms for the private accounts of partners.
- Failing to check the accuracy of check endorsements made payable to the order.
- Ignoring the crossing, in particular the “not negotiable crossing.”
For a Customer, Collection
If a banker receives money purely on behalf of his customer, he is entitled to legal protection. He is not given this protection if he collects for an unknown person or non-customer. Duly crossed checks are only protected in their collecting. When a bank accepts a check as a holder for value, there is no protection available.
Serving as an Agent
To obtain protection, a collecting banker must act as the client’s agent. He must accept the money in the capacity of the client’s agent rather than as a holder of an independent title. The banker is ineligible to make a claim for protection from conversion obligation as a holder of value. The genuine owner of the check is held accountable in cases of forgery by the holder for value.
Crossed Out Cheques
Only in cases of crossed cheques is statutory protection available. Since a banker is not required to collect uncrossed or open cheques, it is not available in those situations. In order to clear, cheques must be presented to the collecting banker before being crossed. In other words, the crossing had to occur before it was placed in the banker’s hands for collection. Protection is not offered if the cheque is crossed after the banker receives it. This safeguard extends to draughts as well.
To get a better understanding of protection to collecting bankers, you need to know about the protection to paying bankers.
PROTECTION TO PAYING BANKER
The procedures governing the payment of customer cheques are outlined in the Negotiable Instruments Act of 1881, and several subsections cover the security afforded to the paying banker. When a customer deposits money with a bank, the bank becomes a debtor, and the customer becomes a creditor. As a result, whenever a customer requests their money back, the bank has a legal obligation to comply. If they don’t, they must reimburse the drawer for any losses or damages. If a cheque is correctly drafted, formally signed by the maker, and there are “properly available funds” in his account, the bank is required to honor it. The money might not be available to cash the cheque if:
- The banker has used his right to set aside money owed by the client;
- The bank is prohibited from disbursing the funds by an attachment order issued by a court, an income tax official, or another legitimate authority.
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JAIIB STUDY MATERIAL 2024
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