Case Laws on Responsibility of Collecting Bank: Jaiib/DBF Paper 3 (Module B) Unit-2

Case Laws on Responsibility of Collecting Bank: Jaiib/DBF Paper 3 (Module B) Unit-2

Dear bankers,

As we all know that  is Case Laws on Responsibility of Collecting Bank for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Case Laws on Responsibility of Collecting Bank (Unit-2), Legal Aspects of Banking Operations (Module B), Legal & Regulatory Aspects of Banking -Paper 3.

♦Statutory Protection to Collecting Bank

Section 131 of the Negotiable Instruments Act grants protection to a collecting banker

  • Non-liability of a Banker Receiving Payment of Cheque: A Banker, who has , in good faith and without negligence, received payment for a customer of cheque crossed generally or specially 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 only of having received such payment.
  • Conditions for Protection: Though Section 131 grants protection to a collecting banker, the protection is conditional. For the collecting banker to claim the protection under section 131, he has to comply with certain conditions and they are:
  1. The collecting banker should have acted in good faith
  2. He should have acted without negligence
  3. He should receive payment for a customer
  4. The cheque should be crossed generally or specially to himself.

♦Duties of Collecting Bank

  • Duty to open account with references
  • Duty to follow up the reference where the referee is not known
  • Duty to Ensure Crossing: It is duty of the banker to ensure that the cheque is crossed specifically to himself and if the cheque is crossed to some other banker they should refuse to collect it. Similarly where the cheque is crossed to a specific account then crediting the same to another account without necessary enquiry’s would make him liable on the grounds of negligence.
  • Duty to verify the instruments / any apparent defect in the Instruments
  • Duty to take into account the state of customers account
  • Negligence of Collecting Bank in Collecting Cheques Payable to Third parties.

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