RIGHTS AND DUTIES OF PAYING BANKER AND COLLECTING(9)

RIGHTS AND DUTIES OF PAYING
BANKER AND COLLECTING BANKER

BY
Y. PAPA RAO
COURSE TEACHER
INTRODUCTION
• As paying banker, a banker pays cheques that are drawn upon by
his customers or by arrangement upon another branch by
customers of that branch.
• As collecting banker, he collects the proceeds of cheques drawn
on other bankers and branches which have been paid in by
customers for the credit of their accounts.
• The banker who is liable to pay the value of a cheque of a
customer as per the contract, when the amount is due from him to
the customer is called “Paying Banker” or “Drawee Bank.”
• The payment to be made by him has arisen due to the contractual
obligation.
PAYING BANKER
• The paying banker is the bank whose name is printed on a given cheque.
This bank pays the specified amount by the cheque to the collecting
banker and withdraws that amount from the customer's account.
• This is only done if the customer has sufficient funds within their account
to enable the transaction.
• It is also the duty of the paying banker to examine the cheque and
ensure that it has been properly signed, the endorsements are correct,
and that the cheque is generally in order.
• In the case of bills, it is part of the paying banker's duty from instruction
by the customer to pay them.
• Otherwise, the banker is not legally required to do so. The paying banker
is considered a party to a given cheque as they are considered the
drawee.
FUNCTIONS OF PAYING BANKER
• A banker on whom the cheque is drawn should pay the cheque,
when it is presented for payment.
• A banker is bound to honour his customers cheque to the extent
of the fund available & the existence of no legal bar for payment.
• Liability of drawee of cheque- Sec-31 of NI Act. 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.
• In case of Trader and Non-Trader.
PROTECTION OF PAYING BANKER
• In case of an order cheque, Section -85(1) provides statutory
protection to the paying banker as follows :
• "Where 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".
• However, two conditions must be fulfilled to avail of such protection.
• Acted in good faith and
• without negligence.
• Section 10 deals with payment in due-course means payment in
accordance withs the apparent tenor of the instrument in good faith and
without negligence.
FUNCTIONS OF COLLECTING
BANKER
• The duties and responsibilities of a collecting banker are

discussed below:
• 1. Due care and diligence in the collection of cheque.
• 2. Serving notice of dishonor.
• 3. Agent for collection.
• 4. Remittance of proceeds to the customer.
• 5. Collection of bill of exchange.
CONTD….
• . Due Care and Diligence in the Collection of Cheques:
• The collecting banker is bound to show due care and diligence in the
collection of cheques presented to him. In case a cheque is entrusted with
the banker for collection, he is expected to show it to the drawee banker
within a reasonable time. According to Section 84 of the Negotiable
Instruments Act, 1881,
• “Whereas a cheque is not presented for payment within a reasonable time of
its issue, and the drawer or person in whose account it is drawn had the
right, at the time when presentment ought to have been made, as between
himself and the banker, to have the cheque paid and suffers actual damage,
through the delay, he is discharged to the extent of such damage, that is to
say, to the extent to which such drawer or person is a creditor of the banker
to a large amount than he would have been if such cheque had been paid.”
CONTD…
• 2. Serving Notice of Dishonour:
• When the cheque is dishonoured, the collecting banker is bound to
give notice of the same to his customer within a reasonable time.
• It may be noted here, when a cheque is returned for confirmation of
endorsement, notice must be sent to his customer. If he fails to give
such a notice, the collecting banker will be liable to the customer for
any loss that the customer may have suffered on account of such
failure.
• Whereas a cheque is returned by the drawee banker for confirmation
of endorsement, it is not called dishonour. But in such a case, notice
must be given to the customer. In the absence of such a notice, if the
cheque is returned for the second time and the customer suffers a
loss, the collecting banker will be liable for the loss.
COONTD….
•
Agent for Collection:
.
• In case a cheque is drawn on a place where the banker is not a member of the ‘clearing-
house’, he may employ another banker who is a member of the clearing-house for the
purpose of collecting the cheque. In such a case the banker becomes a substituted agent.
• Remittance of Proceeds to the Customer:
• In case a collecting banker has realised the cheque, he should pay the proceeds to the
customer as per his (customer’s) direction. Generally, the amount is credited to the
account of the customer on the customer’s request in writing, the proceeds may be
remitted to him by a demand draft.
• Collection of Bills of Exchange:
• There is no legal obligation for a banker to collect the bills of exchange for its customer.
But generally, bank gives such facility to its customers. In collection of bills, a banker
should examine the title of the depositor as the statutory protection under Section 131 of
the Negotiable Instruments Act, 1881.
• Thus, the collecting banker must examine very carefully the title of his customer towards
the bill. In case a new customer comes, the banker should extend this facility to him with
a trusted reference
DIFFERENCES
• The main difference between a paying banker and a collecting
banker is that a paying banker pays a customer's cheques, while a
collecting banker collects cheques and other items on behalf of the
customer.
• A paying banker is responsible for paying a customer's cheques
if the customer's account has enough funds. They must honour
cheques, take precautions, and refuse payment for certain reasons
• A collecting banker collects cheques, drafts, and other items on
behalf of a customer. They act as an agent or holder for value, and
their responsibilities include: Scrutinizing instruments, Checking
endorsements, Presenting instruments in a timely manner,
Collecting proceeds in the payee's account, Notifying customers of
dishonored cheques.

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RIGHTS AND DUTIES OF PAYING

BANKER AND COLLECTING BANKER

• The duties and responsibilities of a collecting banker are

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