What are the Duties of a collecting banker?

Answer 1

One of the important functions of a modern banker is to collect cheques and bills on behalf of his customers. While doing so the collecting banker has to act with responsibility towards his customers. For example, a banker should give adequate care and act quickly to protect the interests of his customer. A banker will get protection only when he acts in good faith and without negligence.

While undertaking the function of collection of cheques, a banker may act either as (1) a holder for value or (2) an agent for collection. His rights will depend on position he takes.

COLLECTION OF CHEQUES AND BILLS

1. HOLDER FOR VALUE 2. AGENT FOR COLLECTION

COLLECTING BANKER AS HOLDER FOR VALUE

When a banker parts with money or agrees to part with money to the customer before the cheque is collected, he becomes holder for value. A banker becomes a holder for value if he:

1. Allows the customer to draw against the cheque for collection before it is collected or

2. Pays to the customer the amount of cheque deposited for collection before it is collected or

3. Agrees to honour cheques of customer against such cheques in the process of collection before they are actually collected or

4. Receive the cheque in meant for collection in settlement of an existing debt or advance or

5. He lends to the customer against a cheque deposited for collection or

6. When he exercises his lien on the cheque deposited for collection for any amount due from the customer.

When a banker assumes the position of a holder for value, he enjoys the following rights:

1. Since the banker has parted his money or committed to part with money against the cheque deposited for collection, he can receive the amount of the cheque in his own name and retain the amount for himself.

2. In case if the cheque accepted for collection is dishonoured, the banker can recover the amount from all or any of the endorsers of the cheque.

3. In case the drawer's signature or any endorsement turns out to be a forgery, he can recover the amount from all or any of the endorsers of the cheque. For example, suppose a cheque is drawn by A, favouring B. C forges the endorsement of B in favour of himself (C), and then further endorses the cheque to D. The bank pays cash against the cheque to D. The bank can recover the money from D or C, but he is liable to the true owner, B. The banker's right is only against those who have endorsed the cheque subsequent to forgery. If the only endorser after forgery is the customer, the banker should bear the loss if the customer is not able to meet his liability.

4. If the customer has no title or has defective title to the cheque, he can recover the amount from all the previous endorsers of the cheque as holder in due course.

PRECAUTIONS TO BE TAKEN BY THE COLLECTING BANKER WHILE ACTING AS A HOLDER FOR VALUE

COLLECTING BANKER AS AGENT

When a banker credits the account of the customer only after the cheque is sent for collection and is realised, he acts as an agent of the customer. The relationship of principal and agent between the customer and the banker comes to an end the moment the amount is realised and placed to the account of the customer. Then the general relation of debtor-creditor relationship emerges. Even if the banker credits the account of the customer with the amount of the cheque before it is collected, he would be deemed to be an agent for the customer, if crediting of the account was for convenience only and does not allow withdrawing the amount till the cheque is realised.

When a banker acts as an agent of a customer, he has no right of his own. His rights or title to the cheque will be the same as that of the customer. If the customer has a good title to the cheque, he too will have a good title to the cheque. On the other hand, if the customer has not title or has a defective title to the cheque, he too will have no title or defective title to the cheque. If the customer has no title over the cheque collected, the banker may be held for conversion unless he could claim protection under Section 131 of the Negotiable Instrument Act. Protection under this section is available to the collecting banker only when he acts an agent for his customer; it is not available when he acts a holder for value. Further, the banker should have acted in good faith and without negligence and the cheque should have been crossed before it was received for collection by him.

RESPONSIBILTIES OF COLLECTING BANKER

The following are the responsibilities of a collecting banker.

1. The banker should present the cheque to the paying banker for encashment within a reasonable time. What is reasonable time depends upon the facts of each case. As per the prevailing practice, the collecting banker should present the cheques received for collection from customers at least by the following or next day after he receives it. Any undue delay in collection would render the banker liable to the customer for any loss the latter may suffer on account of the delay.

2. If the cheque presented in clearing is realized, then the proceeds of the realized cheque should be credited to the account of the customer without any delay.

3. In case the cheque sent for collection is dishonoured by the drawee bank, the collecting bank should return the cheque to the customer within a reasonable time so as to enable the customer to recover the amount of the cheque from parties liable thereto. If he fails to send the notice of dishonour of the cheque to the customer within a reasonable time and the customer suffers a loss as a consequence of the omission to send the notice, the collecting banker becomes liable to compensate the customer.

Conversion by Collecting Banker

There is no contractual relationship between the collecting banker and a third party, i.e., the true owner of the cheque. As such no contractual liability is imposed on the collecting banker. But, still, the collecting banker may become liable to the true owner of the cheque under a doctrine called the doctrine of conversion.

Conversion is unlawful taking, using, disposing or destroying of goods or property which is inconsistent with the owner's right of possession. This means depriving the true owner of the possession and ownership of the goods or property to which he is entitled. The negotiable instruments are also included in the term "goods" for the purpose of conversion. Therefore, a banker will be liable to the true owner of the cheque for conversion, even if acts innocently, if the negotiable instrument bearing a forged endorsement or to which his customer has no title or has defective title has been collected by him.

However, NI Act provides protection under Section 131 to the collecting banker in this respect provided the following conditions are satisfied:

1. The protection under the law is available only if he collects a crossed cheque for collection. No protection is available for uncrossed or open cheques.

2. The protection can be claimed only when the collecting banker has collected the cheque as an agent for his customer. If he collects the cheque for non-customers this protection is not available.

The banker should collect the cheque in good faith and without negligence. M.J. SUBRAMANYAM, FACULTY, BANKERS' QUOTIENT ACADEMY, COIMBATORE 641 402 (TAMILNADU).