Banker’s Duty and Rights for Cheque Returns, The Negotiable Instruments Act provides the various cases in which the the cheque should be returned. In this article you can find complete details for Banker’s Duty and Rights for Cheque Returns like – When Banker must refuse Payment, When Banker may Refuse Payment, Protection of Paying Banker etc.
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Banker’s Duty and Rights for Cheque Returns
There are various cases in which we know it will be the liability of the banker to stop the transaction or to carry it out. Here, we will see
- the cases in which the Banker must Refuse Payment,
- the cases in which the banker may refuse Payment
- Protection of the Paying Banker
When Banker must refuse Payment:
In the following cases, it is the authority of the banker to dishonor customer’s cheque :
- (a) When a customer countermands payment Le., when a customer, after issuing a cheque issues instructions not to honor it, the banker must immediately stop payment.
- (b) When the banker receives notice a of customer’s death.
- (c) When customer has been adjudged as an insolvent.
- (d) When the banker receives notice of customer’s insanity.
- (e) When an order of the Court prohibits payment of the same.
- (f) When the customer has given a notice of assignment of the credit balance of his account.
- (g) When the holder’s title is defective and the banker comes to know about it.
- (h) When the customer has given a notice for closing his account.
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When Banker may Refuse Payment:
In the following cases the banker may refuse to pay a customer’s cheque:
- (a) When the cheque is post-dated.
- (b) When the banker has not sufficient funds of the drawer with him and there is no communication between the bank and the customer to honor the cheque.
- (c) When the cheque is of doubtful legality.
- (d) When the cheque is not duly presented, e.g., it is presented after banking hours.
- (e) When the cheque on the face of it is irregular, ambiguous or otherwise materially altered.
- (f) When the cheque is presented at a branch where the customer has no account.
- (g) When some persons have joint account and the cheque is not signed jointly by any or by all the survivors of them.
- (h) When the cheque has been allowed to become stale, i.e., it has not been presented within six months of the date mentioned on it.
Protection of Paying Banker:
The Act states that where a cheque payable to order looks to be endorsed by or on behalf of the payee, the banker is discharged by payment in due course. He can debit the account of the customer with the amount even though the endorsement turns out subsequently to have been forged, or the agent of the payee without authority endorsed it on behalf of the payee. It would be seen that the payee includes endorsee. This protection is granted because a banker cannot be expected to know the signatures of all the persons in the world. He is only bound to know the signatures of his own customers
In the case of bearer cheques, the rule is that once a bearer cheque, always a bearer cheque. Thus a cheque originally expressed by the drawer himself to be payable to the bearer, the banker may ignore any endorsements on the cheque. He will be discharged by the payment in due course.
This was the summary about Banker’s rights & duties as regards to clearing of cheques.
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