Mention the protection Available Under the Negotiable Instruments Act for paying banker
Posted by Ripon Abu Hasnat on Sunday, June 8, 2014 | 0 comments
The
Negotiable Instruments Act has come to the rescue of the paying banker and
provided protection under certain circumstances. These circumstances are given
below:
1.
Protection in Case of Bearer Cheque.
2.
Protection in Case of Order Cheque.
3.
Protection in Case of Crossed Cheque.
4.
Protection in Case of Obliterated Cheque.
5.
Protection in Case of Drafts.
1.
Protection in Case of Bearer Cheque: Section
85 (2) of the Negotiable Instruments Act, 1881 states, “Whereas a cheque is
originally expressed to be payable to bearer, the
drawee
is discharged by payment in due course to the bearer thereof, notwithstanding any
endorsement whether in full or in blank appearing thereon, notwithstanding that
any such indorsement purports to restrict or exclude further negotiation.”
The
above protection is given in the Act on the basis that a bearer cheque always remains
a bearer cheque and it bears endorsement in blank or full whether any endorsement
restricts further negotiation or not. In case a bearer cheque is stolen or lost
and the banker honours the cheque without any knowledge, the banker will be
discharged from his duty under the protection given in Section 85 (2) of the
said
Act.
In such a case, the paying banker is not required to verify the endorsement on bearer
cheque.
In
case a bearer cheque is crossed, the paying banker has no right to pay in
across the counter in disregard of the crossing.
2.
Protection in Case of Order Cheque: In
case the payment is made to a person other than the payee, the paying banker
does not get any protection under the Negotiable
Instruments
Act. If the endorsement is regular and payment is made in due course, the paying
banker gets the protection under Section 85 (1) of the Negotiable Instruments Act,
1881 : “Whereas a cheque payable to order purports to be endorsed by or on
behalf
of
the payee, the drawee is discharged by payment in due course.” In case, payment
is made to a wrong person whose signature is not according to
specimen
signature, the protection is given to a banker under Section 16 (2) of the Negotiable
Instruments Act : “It is not possible for a banker to know each of the
endorsers and their signatures.” For getting the protection, the banker should
note the following:
(a)
Regular Endorsement: According
to Section 85 (1) of the Act the endorsement should be regular. For example, if
a cheque is payable to a right person and signature is bearing same name and
the same spellings this is known as regular endorsement, though this is not a
valid endorsement.
(b)
Payment in Due Course: According
to Section 10 of the Act the cheque should be paid in due course. In case the
payment is made on forged signature of the endorser and not that of the drawer,
the banker gets statutory protection under Section 10 of the Act.
3.
Protection in Case of Crossed Cheque: Regarding
payment of crossed cheque, the paying banker gets the protection under Section
128 of the Negotiable Instruments Act, 1881 : “Whereas the banker on whom a
crossed cheque is drawn has paid the same in due course, the banker paying the
cheque and the drawer thereof (in case such cheque has come to the hands of the
payee) shall be entitled respectively to the same rights and placed in the same
position if the amount of the cheque had been paid to and received by the true
owner thereof.”
In
case the payment is made on the instructions of the drawer in good faith
without any negligence, the paying banker gets the statutory protection under
the Negotiable Instruments Act, 1881: “The payment of crossed cheque in due
course makes the drawee banker liable to the true owner of the cheque besides
disentitling himself to debit the customer’s account.”
4.
Protection in Case of Obliterated Cheques: According
to Section 89 of the
Negotiable
Instruments Act, 1881, “Whereas a cheque is presented for payment which does
not at the time of presentation appear to be crossed or to have had a crossing
which has been obliterated, payment thereof by a banker is liable to be paid and
paying the same according to the apparent tenor thereof at the time of payment and
otherwise in due course, shall discharge such banker from all liability thereon
and such payment shall not be questioned by reason of the cheque having been crossed.”
Thus
the above Section is very meaningful where crossing of a cheque is obliterated
by dishonest person. Under the above Section the banker gets the protection in
the way that the payment is made according to the apparent tenor of the cheque
and due course.
5.
Protection in Case of Drafts: In
case of demand drafts drawn by one branch of a bank upon another branch of the
same bank, the banker gets protection under Section 85 of the Negotiable
Instruments Act. The Section states: “Whereas any draft, that is, an order to
pay money drawn by one office of a bank upon another office of the same bank
for a sum of money payable to order on demand, purports to be endorsed by or on
behalf of the payee, the bank is discharged by payment in due course.”
In
short, a banker may get statutory protection under the various Sections of the Negotiable
Instruments Act, if he fulfils the terms and conditions of the said Section of
the said Act. No protection however is available, in case the drawer’s
signature is forged.
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