The Protection of Paying Banker

A customer is a person who buys services or goods from manufacturers or service providers with due consideration of money. Thus, as a customer opens an account, he becomes the client of the banker. The banker provides different services to the customer by following the specific duties and obligations he has. This develops a relationship between the customer and the banker as payment and processing of cheques is the fundamental feature of the modern banking system.

Protection of Paying Banker

• Section 10

The paying banker can claim protection under the Negotiable Instruments Act; the condition the banker has got to satisfy is that the payment is in due course. 

‘Payment in due course’ means payment following the apparent tenor of the instrument in straightness and without negligence to someone in possession thereof under circumstances which doesn’t afford an inexpensive ground for believing that he is not entitled to receive payment of the quantity therein mentioned.

• Section 85

This acts as the statutory protection of the paying banker.

• Section 85(1)

In the case of an order cheque, this section implies that the payment must be in due course; otherwise, the banker will be deprived of statutory protection, and the banker must confirm the endorsements are regular.

• Section 85(2)

This is the protection in the case of bearer cheque; this section implies that even if any endorsements restrict further negotiation, the cheque will retain the bearer character if it is originally issued as a bearer cheque.

• Section 128

This is the protection in case of a crossed cheque. This section implies that the banker has made the payment in due course with good faith and without negligence, as per section 10. The banker can cross the payment following the requirement (section 126), that is, any banker through the general crossing and specified banker in case of special crossing.

Paying and Collecting Banker: Difference 

1. The main difference between the collecting and paying banker is a person who holds the cheque and is obliged to make the payment on behalf of the customer. The collecting banker is the one who undertakes the collection of the drafts, bills, pay orders, transfer cheques, etc., on behalf of the customer. 
2. The paying banker gets protection under the Negotiable Instrument Act section 85, and the collecting banker gets protection under section 131.
3. If a banker plays both roles at the same time, then the banker can be called a collecting banker but not liable as a paying banker.

The Legal Obligations of Paying Banker

The obligatory role of the paying banker while honouring cheques is-

• Crossed cheque and open cheque- If a cheque is crossed, the banker must check whether it is generally crossed or special crossed. In general crossing, the owner needs to bring the cheque to the banker, and during the special crossing, the banker will pay for the bank.

In an open cheque, the cash will be paid by the banker across the counter. 

1. Proper form- A banker should check whether the cheque is in the proper form. 
2. Cheque presentation and date of cheque- The cheque should consist of the correct format and location. The banker must also check for the correct cheque date; it should not be a post-dated or stale-dated cheque.
3. Words and figures- The sum of the amount needed must be written correctly, and if it varies, the banker needs to deny the cheque.
4. Alterations and overwriting- The banker should take care of extra modifications or changes made on the cheque.
5. Endorsements- The bearer cheque is not legally endorsed; thus, while making payment, the banker should check all endorsements on the cheque.

Conclusion

In modern banking, the aspects of the payment and processing of cheques are still the central and fundamental features. A paying banker has a responsibility for the customer’s cheque if it is valid and issued by the holder in a given period. The sufficient fund is available to the customer’s account, and when that balance is available to the paying banker. 

The banking system is designed in such a way that it generates money through different business transactions and domestic and foreign trade. This type of banking system develops a special relationship between the banker and the customers. This relation can be formed with specific duties and obligations that a banker has.