DUTIES AND RESPONSIBILITES OF A PAYING & COLLECTING BANKER

BABUL KUMER SAHA ROY

Deputy General Manager
Agrani Bank Limited

The primary relationship between banker and his customer is that of a debtor and a creditor.
This relationship imposes the following special obligations on the banker:

A) OBLIGATION TO HONOR CHEQUE:

The deposits accepted by a banker are his liabilities repayable on demand or otherwise.
The banker is, therefore, under a statutory obligation to honor his customer’s cheque in the
ordinary course of business. Section 31 of the Negotiable Instrument Act, 1881, lays down
that:

“ The drawee of a cheque having sufficient funds of the drawer in his hands, properly
applicable to the payment of such cheque, must pay the cheque, when duly required so to
do and in default of such payment must compensate the drawer for any loss or damage
caused by such default.”

Thus, a banker is bound to honor his customer’s cheques provided that following conditions
are fulfilled:

1) There must be sufficient funds of the drawer in the hands of the drawee. By sufficient
funds is meant that funds at least equal to the amount of the cheque presented for
payment. Any over draft arrangement or facility granted in favor of the customer
needs to be taken into consideration and payment to be made within the limit.
2) The funds must properly be applicable to the payment of the cheque. A customer
might have several bank accounts in his various capacities. If some funds are
earmarked by the customer for some specific purposes, the said funds are not
available for honoring his cheque. In addition, it is to be noted here that in case of a
few special types of accounts can not be drawn upon in the personal capacity of a
trustee, executor etc., funds are not available for honoring the customer’s cheque in
such case..
3) The banker must duly be required to pay the cheque. It means that the cheque,
complete and in order, must be presented before the banker for payment.

LIABILITY OF THE BANKER IN CASE OF WRONGFUL DISHONOR OF CHEQUE:

A banker has the statutory obligation to honor his customer’s cheques unless there are valid
reasons for refusing payment of the same. In case he dishonors a cheque, intentionally or
by mistake, he is liable to compensate the customer for the loss suffered by him.

BANKER’S LIABILITY:
As already noted above, the words “loss or damage” in section-31 mean and include:

I) The monetary loss suffered by the customer; and

II) The loss of credit or reputation in the marker.

It is, therefore, to be noted that the banker is liable to compensate the drawer not only for
the actual monetary loss suffered by him; but also for the injury to or loss of his reputation,
as a result of dishonor of a cheque

B) OBLIGATION TO MAINTAIN SECRECY OF ACCOUNTS:

Keeping secrecy means that the state of affairs of a customer’s account is not made known
to others by any means. The banker is, thus, under an obligation not to disclose ,
deliberately or intentionally, any information regarding his customers’ accounts to a third
party and also to take all necessary precautions and care to ensure that no such information
leaks out of the account books.

However, the general rule about the secrecy of customers’ accounts may be dispensed with
in the followings circumstances:

I) When the law requires such disclosure to be made; and

II) When the practices and usages amongst the bankers permit such disclosure.

In addition, the banker has obligations to do the following:

I) To credit the deposited money to the customer’s account;

II) To provide customer with the statement of account in an agreed manner or any
certificate regarding his account if requested;
III) To abide the stop payment instruction;
IV) To abide by the standing instruction; and
V) To credit interest or pay interest as per rule etc. and
VI) To give or provide customer with financial advisory services.

BANKER’S RIGHT:

a) The banker has the right to return deposit if not in proper manner and time.
b) The banker has the right to return the cheque if not drawn properly or in time or for
some other reasons.
c) The banker has the right to debit the customer’s account for any charges, interest
and commission if recoverable.
d) The banker has the right to exercise lien, right of set-off etc.

RIGHTS OF CUSTOMER:

The customer has the following rights based on his relationship with the banker:

a) To deposit money in his account on time;

 b) To demand repayment by issuing cheque or written order properly in proper time and
place;
c) To get statement of account in agreed manner;
d) To stop payment of his cheque;
e) To give standing instruction;
f) To claim interest on his deposit balance in the interest bearing account;
g) To claim damages for any loss or damage caused due to wrongful dishonor of his
cheque by bank;
h) To claim money when the payment is not made in due course;
i) To have secrecy of his account etc.

CUSTOMER’S OBLIGATION:

A customer has the following duties and obligations to perform:

I) He must deposit amount properly and in time;

II) He must demand payment issuing cheque or written order properly and he must
present the cheque for payment within banking hour;
III) He must pay the bank charges, interest and commission payable;
IV) He must abide by the laws;
V) He must keep his cheque book in his safe custody;
VI) He must inform the bank on time for any loss of cheque leaf or cheque book;

RESPONSIBILITIES AND PROTECTION OF A COLLECTING BABNKER:

A customer may deposit a cheque or draft in his bank for collection. When a bank acts as
the agent for collection, it has certain duties or responsibilities to perform or discharge. The
bank must exercise due diligent, that is, present the instrument for payment within
reasonable time.

What is the reasonable time depends upon the circumstances of the case. In some cases, it
has been held that for bankers in the same town, one day is the reasonable time, for places
outside the town; the instrument must be forwarded for collection within one day.

Failure to present the cheque within reasonable time, the customer suffers damages, the
bank is liable.

If the instrument deposited for collection is dishonored, the bank must inform the customer.

PROTECTION GIVEN TO COLLECTING BANKER:

According to the section 131 of the Negotiable Instrument Act, 1881, " A banker who has, in
good faith and without negligence received payment for a customer of a cheque crossed
generally or specially to himself shall not, in case the title to the cheque proves defective,
incur any liability tot the true owner of the cheque by reason only of having received such
payment.

NOTES:

This section provides that where a banker receives a crossed cheque from a customer for
collection, and obtains payment of it on this customer's behalf, the fact that the customer's
title to the cheque was defective would not render the banker liable in conversion to the true
owner. The protection is very valuable, but the conditions essential for protection are:

1) That the collecting banker acts in good faith and without negligence.

An act is done in good faith when it is done honestly. The plea of good faith may be negative
on the ground of recklessness indicative of want of proper care and attention. Negligence,
on the other hand, arises when there is a duty to take care. Under this section, the banker
has a duty to take care of the interests of the true owner of the cheque that is being
collected.

Whether a banker was negligent in collecting a particular cheque or not, depends upon the
facts of the case. Collecting a cheque payable to a public official for the private account of
an individual is the typical example of negligence on the part of the collecting banker.

2) That the collecting banker receives payment of the crossed cheque for a customer.

A banker cannot obtain the protection afforded by this section if the person for whom he
obtains payment is not a customer'

3) That the collecting banker acts only to receive such payment, that is, he acts an agent or
on behalf of the customer, not as holder value.

If the bank advances money against the cheque or allows the customer to draw against the
cheque even before it is realized, the banker will be a holder for value. He could also be a
holder in due course if he satisfies the requirement of section 9.

When a banker credits a customer's account with the amount of a cheque before clearance,
it is a question of fact whether the banker holds the cheque as holder for value or merely as
an agent for collection. Mere crediting a customer's account with amount of a cheque does
not constitute the collecting banker a holder for value.

4) That the protection applies only to crossed cheque, and that the crossing must have been
made before the cheque gets into the hands of the collecting banker.

A banker to whom an uncrossed cheque is sent for collection, cannot, by crossing it himself,
claim protection afforded by this section.

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