Banking and Cash Transactions

Section 131 - deals with the non-liability of banker receiving payment of cheque

Correct Answer: a, b and d are correct ‘Cheque’ is an instrument which contains an unconditional order, drawn on a banker, directing to pay a certain sum of money to the person whose name is specified in the instrument. ‘Bill of Exchange’ is a document containing an unconditional order, directing a person to pay a certain amount to a specified person. These two terms sound the same, which becomes the cause of confusion for many people. A cheque can be endorsed or crossed. 

"Not-negotiable" means that you cannot endorse a cheque in favour of someone else. This is not correct, however, as the cheque can be endorsed to someone else but all subsequent parties accepting the cheque cannot get better rights than the person that they received it from.

If the bank deposits the amount which is prohibited, there is fine to extent of 200% of the amount of deposit so accepted.

Conversion is when for example, someone sells property that does not belong to them without the owner's consent. In this context, the cheque is treated as property, and its value is the amount of the cheque. Since most misappropriated cheques will have been handled by a collecting bank and a paying bank, both become possible defendants in an action for conversion.

The significance of crossing is that the payment of the instrument can only be made through a Banker (Account Holder). When it is a crossed instrument, it gives direction to the paying Banker (Bank) to pay the money to a Banker. Thus, the holder of such an instrument must deposit the same into his or the other person’s Bank Account for collection. An instrument is crossed in order to provide a safeguard against theft of fraud. Thus, all the given options are not true in case of ‘account payee crossing’. 

If a bank pays out on the basis of a forged signature on a cheque, it does so without its customer’s mandate and is generally required to make good any loss that the payment causes the customer. It does not matter how good the forgery is; a skilful forgery is no more valid than a crude one. That may seem unfair to a banking firm that acts in good faith on the basis of a skilful forgery – but if it were otherwise, a person could be bound by anyone who was able to make a good copy of their signature. Thus, the bank is liable for the forged cheques and it has to reverse the entry. 

“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. Thus, payment of a bearer cheque to Mr. X through it is drawn in favour of Mr. Y and the endorsement by Y in favour of Mr. Z comes under “Payment in due course”. 

The notice should mention that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer. Thus, option 2 is the correct answer. 

Correct Answer: All of the above Under section 131 of Negotiable Instrument Act, the collecting bank will get protection under all the given conditions.

The payment CANNOT be stopped unless there is an order by a competent court. So, when a draft reaches a payee, the relationship between the purchaser and bank comes to an end. Therefore, the request of P will not be entertained.

Types of Cheque: i. Ante-dated cheque: A cheque bearing a date prior to actual date of signing the cheque or opening of an account is called an ante-dated cheque which is valid and can be paid till it becomes stale. For example, a heque dated January 9, 2013 for an account opened on January 25, 2013 can be paid. ii. Stale cheque: If the validity of the cheque has already expired, it is called stale cheque and cannot be paid. The normal maximum validity of a cheque is 3 months. Earlier, it was 6 months. If a cheque is presented after 3 months, it will be returned. iii. Post-dated cheque: The cheque which bears a date subsequent to the date on which it is drawn is called post-dated cheque. For example, a cheque drawn on January 10, 2013 bears the date of January 12, 2013. If a bank notices a post-dated cheque presented for payment before the date appearing thereon, the cheque will be returned marked post-dated or the bank will hold onto the cheque until it is able to be cashed in.

Imprisonment and fine to drawer: The penalty to a drawer can include imprisonment for a period that may extend up to two years and also a fine up to double the amount of the cheque.

Cheques above Rs. 5 lac will have to undergo checks at multiple points before clearance.

According to RBI, "Banks should not take undue advantage of customer difficulty or inattention. Instead of levying penal charges for non-maintenance of minimum balance in ordinary savings bank accounts, banks should limit services available on such accounts to those available to basic savings bank deposit accounts and restore the services when the balances improve to the minimum required level". Thus, (b) is not true and won't result in closing of the account. Other than (b), all the parts are true.