Case Laws on Responsibility of Paying Bank: Jaiib/DBF Paper 3 (Module B) Unit-1

Case Laws on Responsibility of Paying Bank: Jaiib/DBF Paper 3 (Module B) Unit-1

Dear bankers,

As we all know that  is Case Laws on Responsibility of Paying Bank for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Case Laws on Responsibility of Paying Bank (Unit-1), Legal Aspects of Banking Operations (Module B), Legal & Regulatory Aspects of Banking -Paper 3.

♦Negotiable Instruments Act and Paying Banks

  • Section 31 Negotiable Instruments Act, 1881: Liability of drawee of cheque. —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.

Note: Section 10, 85, 85A, 89 and 128 of the Negotiable Instrument Act, 1881, grant protection to a paying banker.

  • Section 31 Applies Only a Bankers: This is because as per Section 6 of the Negotiable Instruments Act, 1881 “Cheque” has been defined as a “Bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”.
  • Section 10 Negotiable Instruments Act, 1881: ”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 circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.
  • Section 85 Negotiable Instruments Act, 1881: “Cheque payable to order”
  1. Where a cheque payable to order purports to be indorsed by or on behalf of the payee, the drawee is discharged by payment in due course.
  2. Where 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 indorsement whether in full or in blank appearing thereon, and notwithstanding that any such indorsement purports to restrict or exclude further negotiation.
  • Section 85A Negotiable Instruments Act, 1881: “Drafts drawn by one branch of a bank on another payable to order”
  1. Where 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 indorsed by or on behalf of the payee, the bank is discharged by payment in due course.
  • Section 89 Negotiable Instruments Act, 1881: a promissory note
  1. Where a promissory note, bill of exchange or cheque has been materially altered but does not appear to have been so altered, or where 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 person or banker liable to pay, and paying the same according to the apparent tenor thereof at the time of payment and otherwise in due course, shall discharge such person or banker from all liability thereon; and such payment shall not be questioned by reason of the instrument having been altered or the cheque crossed.
  2. Where the cheque is an electronic image of a truncated cheque, any difference in apparent tenor of such electronic image and the truncated cheque shall be a material alteration and it shall be the duty of the bank or the clearing house, as the case may be, to ensure the exactness of the apparent tenor of electronic image of the truncated cheque while truncating and transmitting the image.
  3. Any bank or a clearing house which receives a transmitted electronic image of a truncated cheque, shall verify from the party who transmitted the image to it, that the image so transmitted to it and received by it, is exactly the same.
  • Section 128 Negotiable Instruments Act, 1881: Payment in due course of crossed cheque.—Where the banker on whom a crossed cheque is drawn has paid the same in due course, the banker paying the cheque, and (in case such cheque has come to the hands of the payee) the drawer thereof, shall respectively be entitled to the same rights, and be placed in the same position in all respects, as they would respectively be entitled to and placed in if the amount of the cheque had been paid to and received by the true owner thereof.

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