Module-4: Paying Banker

The banker who pays the value of the

instrument is called the paying banker or drawee bank. The payment to be made by him has risen due to the contractual obligation . He is also called drawee bank as the cheque is drawn on him.

Precautions by Paying banker: the paying banker should bear in mind the following duties before passing or dishonouring a cheque.

1. Proper form2. Physical condition3. Crossing4. Office of drawing5. Date of the cheque6. Time of prsenataion

7. Amount8. Material alteration9. Signature of the drawer10.Endorsement11.Legal restrictions.

Section 10 of I.N.I Act defines payment in due

course as follows:“payment in due course means payment in accordance with the apparent tenor of the instrument, in good faith and without negligence, to any person in possession thereof, under any circumstances which do not afford a reasonable ground for believing, that he is not entitled to receive payment of the amount therein mentioned.”

Payment in Due Course

Features : Apparent tenor of the instrument Payment in good faith without negligence Payment to a person who is entitled to receive

payment.

It is the duty of the paying banker to pay the

amount of the cheque to the right person according to the instructions . Banker is liable to bear the loss caused by payment to a wrong person .

Negotiable Instrument Act provides the following protection to the paying banker:

1. Protection in case of order cheques: section 85(1) of INI Act a cheque is payable to the order , which is endorsed by the payee, the drawee is discharged by payment in due course.

Statutory Protection to the paying banker

to avail such a protection following conditions should be fulfilled a.he should have paid an order cheque b. endorsement must be regular c. payment must be in due course2. Payment in case of bearer cheque: section

85(2) of INI Act. where a cheque is expressed to be payable to bearer. The drawer is discharged by payment in due course to the bearer. If a bearer cheque is paid in due course the banker is entitled to get protection.

3. Protection to a crossed cheque: section 128 of INI Act.

the paying banker is under the obligation to pay a crossed cheque according to the instructions of the drawer. The banker has to fulfill two conditions

a. Banker makes the payment in due courseb. According to the requirements of crossing

Liability of the paying banker on crossed cheque1. Liability to the true owner of the cheque2. Liability to the drawer.

1. Countermanding 2.Upon the receipt of notice of death of a

customer 3.Upon the receipt of notice of insolvency 4.Upon the receipt of notice of insanity 5.Upon the receipt of notice of garnishee order 6.Upon the receipt of notice of assignment. 7.When a breach of trust is intended 8.Defective title

Circumstances under which a cheque can be dishonored

Not obligatory on the part of the paying banker to

give reasons while dishonouring the cheque. Satisfy the rules of the clearing house The answer should not damage the customer’s

credit. Banks have a slip containing the reasons printed

on it and they put a tick mark against the appropriate reason.

Answers for a dishonoured cheque

Cheque No. ………. Is returned for.The Reasons Marked X below

Specimen of cheque returned slipTamil Nadu Bank Ltd.Regd. Office : Madurai Date:…………

Payee’s endorsement requiredPayee’s endorsement irregularPayee’s endorsement requires Bank’s Confirmation

Cheque is Post datedCheque is Out of DateRefer to drawerPayment stopped by drawer

Amount in words and figures differsEffect not cleared please present againCrossed cheque should be presented through a bankNo adviseAlteration requires drawer’s full signatureNo Sufficient funds

N.S= Not sufficient N.F=no funds N.S.F= Not sufficient funds E.I = endorsement irregular E.N.C= effects not cleared D.D= drawer deceased W.F.D= words and figures differ Exceeds arrangement= used when cash credit

or OD is completely exhausted.

Usual answers

D.R= discharge required, when the instrument is not discharged with proper endorsement.

R.D= refer to drawer N.P.F= not provided for, when no arrangements

are made to meet a cheque in the absence of any balance.