Multiple choice

A saving bank customer of Modern Bank issues a cheque of Rs. 1500 in favour of M/s Swastic Enterprises on order. The cheque is paid by the bank on presentation through clearing with endorsement from the payee as ‘Svastika Enterprises’. The endorsement is also confirmed by the collecting bank. The drawer claims that the payment has not been made in due course and claims refund of the amount.

  1. This is a payment on the guarantee by the collecting bank due to which paying bank’s position is safe.

  2. The cheque is of a small amount, so the bank should refund the money.

  3. If the customer is valuable, the customer’s request should be accepted.

  4. Endorsement is irregular due to which the paying bank is not protected under the provisions of Section 85 of NI Act.

  5. All of the above
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D Correct answer
Explanation

Section 85 in The Negotiable Instruments Act, 1881: 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. 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 endorsement whether in full or in blank appearing thereon, and notwithstanding that any such endorsement purports to restrict or exclude further negotiation.

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