COLLECTING BANKER-DUTIES OF A COLLECTING BANKER?
1. Meaning of Collecting Banker A Collecting banker is one who undertakes to collect cheques, drafts, bill, pay order, traveler cheque, letter of credit, documents such as lottery chits, dividend warrants, debenture interest, etc., on behalf of the customer. For undertaking this collection, the collecting banker will be charging commission.
2. Capacity of Collecting banker While collecting the instrument on behalf of the customer, the collecting banker acts
(a) as holder for value
(b) as agent for collection
(a) As holder for value : The collecting banker is said to be acting as holder for value.
(i) When the collecting banker advances money to the customer before the realization of the cheques given for collection.
(ii) When the collecting banker settles the loan amount due from the customer with the cheque amount given for collection, even before its realization.
(iii) Where a collecting banker reduces an overdraft with the amount for collection before its realization.
(iv) Where a part of the amount is given by the collecting banker to the customer even before the realization of the cheque.
(v) By allowing the customer to draw the full amount of the cheque before its realization
(b) As agent for collection: When the banker undertakes to collect the cheques and credits the account of the customer only on realization. Thus, in acting as agent for collection, there is no risk for the collection, there is no risk for the collecting banker whereas in the case of holder for value, the collecting banker has enormous risks, especially when the cheque is dishonored or payment has been made to the wrongful owner of the cheque. Statutory protection to collecting banker under Section 131 of the Negotiable Instrument Act According to this Section, ―A Banker who has in good faith 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 to the true owner of the cheque by reason only of having received such payment‖.
CONDITIONS UNDER SECTION 131:
(i) Collecting for a customer: A collecting banker must collect the cheque or draft or any other instrument only for a customer. A customer is one who has an account opened with the bank which may be a savings or a current account. A savings account can be opened by any person, only when that person is introduced by another savings account holder of the same branch of the bank.
(ii) The cheque presented to the bank for collection should be crossed generally or specially: That is, the banker is collecting the cheque only on behalf of a customer. If a customer gives an open cheque which is uncrossed, the banker will cross the cheque before it is sent for collection.
(iii) In good faith: A collecting banker should accept the cheque for collection from the customer on good faith. i.e., there should not be any ambiguity with regard to the ownership of the cheque. If any doubt arises, the banker should clarify the same before the collection of the cheque.
(iv)Without negligence: Negligence pertains not only with regard to the instrument but also the manner and the circumstance under which the cheque is given for collection. However, the fact of negligence will be seen under the duties of collecting banker. There are number of instances revealing the negligence of the collecting banker.
(v) Agent for collection: Section 131 gives statutory protection to the collecting banker acts agent for collection and not as holder for value.
DUTIES OF A COLLECTING BANKER:
A Collecting banker has three major duties to perform towards the customer:
1. Quick clearance of cheques or other instruments given for collection Whenever the customer gives ay instrument for collection, the collecting banker should immediately send the same for collection. Any delay on the part of the collecting banker may lead to either the drawer declaring insolvent or the winding up of the paying banker.
2. Acting as bailee When a cheque is given for collecting banker is bailee until the cheque is realized and the proceeds are credited to the account of the customer. Sometimes, the cheque given for collection may bounce and gets dishonored due to insufficient funds. In such a case, the collecting banker has a duty to return the cheque which has been dishonored to the customer and by doing so he discharges his duty as a bailee.
3. To Collect cheques without negligence Negligence of a collecting banker is of different nature. We can state the following negligence of collecting banker.
(i) Negligence while opening account for a customer where in the banker has failed to obtain letter of introduction and has opened the current account.
(ii) A cheque crossed but payment made across the counter by oversight.
(iii) A cheque crossed account payee and payment credited to the account of a person other than the payee. For example, a cheque is drawn in the name of pay to Mr. and crossed account payee. The bank should credit the account of only Mr. But if the bank credits the account of Mr. or Z, it is negligence.
(iv)A Cheque crossed not negotiable. Here, the collecting banker should take due precaution before making any payment. But if a collecting banker makes payment without any precaution, it amounts to negligence.
(v) Opening of accounts without proper enquiry. As stated already in the two case laws, where banker has not made proper enquiries with the employer of the intending customer.
(vi)A cheque belonging to a partnership firm endorsed to the personal account of the customer and if the banker, without proper enquiries, credited the personal account of the partner it is ground for negligence