Multiple choice

Bank can be held liable for conversion in which of the following circumstances?

  1. Payment of a bearer cheque to a person other than payee without endorsement by the payee

  2. Collection of a cheque belonging to one X for another X, who opened the account with proper introduction.

  3. Collection of a cheque of large amount for a customer having poor financial background, without enquiring the source of the cheque.

  4. All of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Banks were advised to follow certain customer identification procedure for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting it to appropriate authority. Thus, while collecting cheques of large amount, it is mandatory for the banks to keep a check on the transactions (including history of the transactions).

Keep practicing — related questions