Negotiable Instruments Act 1881 Significance of negotiable instruments Features of negotiable instruments Cheque Meaning Types of Cheque MICR – Meaning Crossing Crossing of Cheque Holder in due course Payment in due course Endorsement Paying Banker Dishonour of Cheque Statutory protection to a paying Banker Material Alteration Statutory protection in case of a Materially altered Cheque Collecting Banker Duties and Liabilities of Collecting Banker Protection of Collection Banker

1. SRM INSTITUTE OF SCIENCE AND
TECHNOLOGY
DEPARTMENT OF COMMERCE
CLASS : I BCOM G & H
COURSE CODE : UCM20201J
COURSE NAME : BANKING LAW & PRACTICES
UNIT III
DR.S.MANI

2. NEGOTIABLE INSTRUMENTS
Instruments of credit that are transferable from one person to another are called
‘Negotiable Instruments’. The words negotiable and instruments denote transferability by delivery
and written documents by which a right is created in favour of some person. The term negotiable
instrument is therefore literally a document transferable by delivery.
PARTIES INVOLVED IN NEGOTIABLE INSTRUMENTS
The most common parties to negotiable instruments are the drawer, the drawee and the payee.
Apart from them, the following special parties draw our attention.
1.Drawee in Case of Need:
He is person, who is willing to take up the liability on a bill, in case the bill is likely to be
dishonored, either due to non-acceptance or non-payment. In India, the bill must be presented to
the drawee in case of need, before treating it as dishonored. In other words, the drawee in case
of need will see that the bill is not dishonored at any cost.
2.Acceptor for Honour Supra Protest:
There is provision in the Act for a stranger, to take the liabilities by accepting a bill, which has
been noted or protested for non-acceptance or for better security. This stranger can
accept the bill with the consent of the holder. Generally, he should state as to whose honour
he gives the acceptance. If nothing is stated, is deemed to be made for the drawer,s honour.

3. FEATURES
The important features of negotiable instruments are as follows
Transferability
An essential feature of negotiable instruments is that they are easily and freely transferable they
can be transferred either by endorsement or delivery. The transfer happens merely by
delivery in the case of a bearer instruments
Good Title
Negotiable instruments generally carry a good title. Accordingly the title of the holder due course
is not affected any way by the negotiable instruments for value in goal faith and before maturity.
Right to Sue
The holder in due course always has a right to use the person who is liable for making payment
without guiding any notice of transfer. He has the right to sue in his own name.
Free Transfer
There is no formality to comply with transfer of a negotiable instrument it can be very easily
transferred from one person to another either by mere delivery or by endorsement and delivery.
No notice of Transfer
The transfer of a negotiable instrument can simply transfer the document without serving any
notice of transfer to the part who is liable on the instrument to pay.
Presumptions as to Negotiable Instrument
Section 118 and 119 of the N.1 act deal with certain presumption which are applicable
only to all negotiable instruments.

4. TYPES OF NEGOTIABLE INSTRUMENT
Negotiable instrument are of two types
1.Negotiable Instrument by Statue
As per negotiable instrument act three instruments
1.Cheque
2.Bills of exchange
3.Promissory note.
2.Negotiable Instrument by Custom or Usage
The instrument which has acquired the character of negotiability by custom or usage of
trade section 137 of the transfer of property act 1882 also recognized that an instrument
may be negotiable by law or custom. Thus in India.
1.Government promissory note
2.Government securities
3.Semi-government securities
4.Delivery order
5.Railway receipts
6.Dividend warrants
7.Bonds
8.Bearer debentures
9.Documents issued under Indian securities act 1886 Indian companies act 1956
10.Any other document satisfying the essential features of a negotiable instrument.

5. 5
PROMISSORY NOTE
The promissory note contains a promise to pay a certain sum of money either to him or any other
legal holder of the instrument. The person who agrees to pay the money on a promissory
note is called the promissory and in whose favour the promise is made is known as the promise. It
is otherwise called as ‘pro- note’ in the business circle.
DEFINE PROMISSORY NOTES.
According to section 4 of the negotiable instruments act defines a promissory note as an instruments
on writing containing an unconditional promise or undertaking signed by the maker to pay a certain
sum of money only to or to be the order of a certain person or to the bearer of the instrument”.
ELEMENTS OF PROMISSORY NOTE
It is an instrument in writing drawn by the debtor
It must contain a promise or an undertaking to pay
The promise should be an unconditional one
It must be to pay a certain sum of money
It may be payable on demand
It cannot be made payable on demand to bearer
It cannot be crossed
The amount on it may be made payable by instalment
It must be stamped
It does not require acceptance as it is made by the debtor himself.

6. 6
BILL OF EXCHANGE
A bill of exchange therefore is a written acknowledgement of the debt, written by the
creditor and accepted by the debtor. There are usually three parties to a bill of exchange
drawer, acceptor / drawer and payee. Drawer himself may be the payee.
DEFINE BILL OF EXCHANGE
According to section 5 of the negotiable instrument act a bill of exchange is “An instrument in
writing containing unconditional order signed by the maker, directing a certain person to pay a
certain sum of money only to or to the order of, a certain person or to the bearer of the instruments.
ELEMENTS OF BILL OF EXCHANGE
Instrument must be in writing
It must contain an order to pay a certain sum of money
The order must be conditional
Amount payable must be certain
No bill of exchange can be made payable to bearer on demand
It must be dishonoured by non acceptance
It must be stamped unless made payable on demand
It may be made payable by instalment
It may be renewed for a further period/ extended
Advance payment/settlement may be accepted at a rebate.

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TYPES / KINDS OF BILL OF EXCHANGE
The bill of exchange can be classified on the basis of (a) place, (b) purpose, (c) documents, (d)
parties and (e) time
(a)On the basic of Place
It can be classified as Inland Bill and Foreign Bill. In Inland Bill, parties belong to the same country
in foreign bill, parties belong to different countries. Inland bill may be a trade bill or accommodation
bill, while bring bill will be mostly a trade bill.
(b)On the basis of Purpose
Trade bills can be classified as trade bill or accommodation bill. Trade bill arises out of genuine
trade transaction.
Accommodation bill or kits bill is meant for raising funds among the parties and it is for the purpose
of discounting in the money market.
(c)Documents
When bills are accompanied by trade documents, they are called documentary bill. It is again
classified as documents against acceptance bill or D/A bill and documents against payment bill or
D/P bill.
(d)Parties or Payee
When a bill is payable to a specific person whose name is appearing on the bill it is called an order
bill. Bearer bill on the other hand is payable to any person who is in passion of the bill legally on the
date of maturity and to whom payment will be made by the drawee.
(e)Time Bill
A bill payable after a specific data or time is known as time bill a bill payable on demand is a

8. CHEQUE
A cheque is a negotiable instrument which is supplied by a banker to the customer who opens
a savings or current account in a bank.
A cheque is a printed leaf supplied by the banker and its consists of a book or 10 or 20 printed
leaves.
DEFINES CHEQUE.
According to section 6 of the negotiable instruments act “A cheque is a bill of exchange
drawn on a specified banker and not expressed to be payable otherwise than on demand”
1)A cheque is always drawn upon a banker
2)It is always payable on demand.
USE OF CHEQUE
It is the safest means of making a payment and eliminates the risk of carrying cash
It is also highly suitable method for receiving payment
Avoid the necessity of demanding acknowledgement from the debts through endorsement and
delivery
The use of cheques encourages the banking habits and by which banks can play an important role
in the economic development of the country
Usage of cheque enables the effective implementation of the monetary and fiscal policies
Crossing a cheques prevents possibilities of wrong payments being make under forgery.

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KINDS/TYPES/CLASSIFICATION OF CHEQUE.
Cheque can be grouped under three heads they are
1.Bearer Cheque: the bearer cheque is payable to a certain person or to the bearer
2.An order Cheque: This cheque is payable to the person on whose favour it is drawn or
subsequent endorsee. Hence, the banker seeks identification of the person receiving payment.
Crossed Cheque:
It is a cheque is payable only through a collecting banker and not directly at the couter of the bank.
State Cheque
After an expiry of six months the cheque becomes out dated cheque or state cheque. The acceptance
of stale should be for a length of three years period because law of limitation operations for it.
Anti dated Cheque
While drawing cheque, a drawer gives the date in that cheque prior to the date on which it is drawn.
It is called antedated cheque. Banker can accept such cheque if it does not exceed 6 months period.
Mutilated Cheque
A cheque which is cut into many pieces is called multilated cheque. The drawer bank
should see in honoring a cheque, whether it is multilated, canceled or torn. If the cheque is torn into
two or many pieces it should be return with the remarks multilated cheque. If he is satisfied
that the multilated cheque gets the original shape of the instruments, he may accept the cheque”.
3.Post dated Cheque
Drawer of a cheque gives the date in the cheque later or after the date on which it is drawn. It is
known as post –dated cheque. The banker must accept the post dated cheque only after the
ostensible date given the cheque.

10. 10
DIFFERENT BETWEEN CHEQUE AND BILL OF EXCHANGE.
DIFFERENT BETWEEN CHEQUE AND A PROMISSORY NOTE
S.No CHEQUE BILL OF EXCHANGE
1 Drawn on a specified banker only Can be drawn on any party
2 Payable on demand only Payable either on demand or after a fixed
period
3 No need for acceptance Acceptance is a must
4 When a cheque is not paid it is said to be
dishornour
A bill can be dishoured even for non
acceptance
5 A cheque can be crossed generally or specially No crossing is allowed
6 No documents will accompany a cheque Accompanied by trade documents
7 Nothing and protesting is not necessary for a
cheque
A dishourned bill requires noting and
protesting
8 Generally cheque are not discounted It is payable to order
S.No CHEQUE PROMISSORY NOTE
1 It is an conditional order It is an unconditional promise
2 A cheque is drawn by the drawer who is a
creditor
It made by the promisor who is a debtor
3 The bank is primarily liable a cheque The promisor is primarily liable
4 A cheuqe can be crossed generally or specially There is no crossing for a promissory
note
5 No need for a stamp for a cheque Stamp is a must for promissory note
6 The valid period for a cheque is six months It is three years
7 No interest is mentioned on a cheque It is three years
8 A cheque is payable either to bearer or order It is payable to order

11. DIFFERENCE BETWEEN BILL OF EXCHANGE AND PROMISSORY NOTE
S.NO BILL OF EXCHANGE PROMISSORY NOTE
1 It is an unconditional order It is an unconditional under taking or promise
2 It is drawn by the drawer
who is a creditor
It is drawn by the promisor who is a debtor
3 A bill requires acceptance by the
drawee
It is drawn by the promisor there is no need for
acceptance
4 The drawee is primarily liable on
a bill
The promisor is primarily liable
5 Foreign bill are drawn in set of
three
It is a single document
6 Acceptor may impose condition
which accepting a bill
A promisor cannot impose conditions while
making a promissory note
7 Notice of dishounour has to be
given by the holder to the drawer
No need for such notice

12. HOLDER AND HOLDER IN DUE COURSE
A person who is legally entitled to the possession of the negotiable instrument in his own name to
receive the amount there of is called a “Holder”. He is the original payee. In case the bill is payable to
the bearer, the person in possession of the negotiable instrument is called the holder.
DEFINE HOLDER.
According to section 8 the “holder of a promissory note, bill of exchange, or cheque means any person entitle in
his own name to the possession there of and to receive or recover the amount due there on from the parties there
to”.
RIGHTS OF A HOLDER.
The holder of the negotiable instrument point out certain right viz
To cross open cheques either generally or specially
To convert a blank endorsement into a full endorsement
To negotiable the instrument to a third party
To present it to the market or drawee
To use in his own name and
To obtain a duplicate of a lost instrument

13. HOLDER IN DUE COURSE
Holder in due course in the person
Who receive an instrument innocently?
Who has paid value for the same?
Who has received the instrument before its maturity?
Who is in passion of the instrument as a bearer payee or endorse
It is said that every holder in due course in s holder, but every holder is not a holder in due course.
DEFINE HOLDER IN DUE COURSE.
According to section 9 of the negotiable instrument act defined the holder in due course as “any person who for
consideration become the possessor of a promissory note, bill of exchange or cheque if payable to bearer
or the payee or endorse thereof it payable to order before the amount mentioned in it became payable and without
having sufficient cause to believe that any defect existed in the title of the person from whom he
demand his title”.

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CROSSING OF CHEQUES
When a cheque is crossed across the face with two transverse parallel line it is said to be crossed. In
between the two parallel lines, the cheque will contain words such as ‘any company’ or an
abbreviation as & co such cheque is said to be crossed generally.
When a cheque is crossed it implies two things
1.Payment will not be made across the counter by a bank when a crossed cheque is presented
2.The crossed cheque will have to be presented in an account through a pay – in –slip.
MEAN BY CROSSED CHEQUE
A crossed cheque is payable only thorough a collecting banker and not directly at the counter of
the bank. Crossing ensures security to the holder of the cheque as only the collecting banker credits
the proceeds to the account of the payee of the cheque.
WHO CAN CROSS A CHEQUE
A cheque can be crossed by four persons
1.Drawer: when a drawer issues a cheque to a party he will cross the cheque generally or specially
2.Holder : when a cheque is given to the holder by the drawer without crossing the holder
can cross the cheque
3.Holder in due course: A holder in due course can also cross the cheque provided the cheque is not
crossed
4.Banker: A banker can cross a cheque when he receives if for collection.
RIGHTS
The holder in due course enjoys the following privileges under various section of the
negotiable instrument act.

15. Presumptions:
According to section 168 every holder is deemed primed facie to be a holder in due course
and have obtained the instrument for valuable consideration.
Transfer of Better Title
According to section 53, a holder of a negotiable instrument who derives title from a
holder in due course gets rights thereon of that holder in due course.
Purging of Prior Defects
According to section 58 of the act, the party liable to pay on an instrument cannot contended against
a holder in due course that he had lost the instrument or obtained from him by fraud or
for an unlawful consideration.
Liability of Prior Party to Holder in Due Course
According to section 36 every prior party to a negotiable instrument is liable there on a holder in
due course until the instrument is duly satisfied.
Conditional Delivery
Where a negotiable instrument delivered conditionally is negotiable to the holder in due course,
the other parties to the instrument cannot escape liability on the ground that the delivery of
the instrument was conditional or for a special purpose only.
Estoppels Against Denying Original Validity of Instrument
No mater of a promissory note, no drawer of a bill of exchange or cheque and no acceptor of a bill
of exchange for the honour of a drawer shall, in a suit thereon by a holder in due course, be
permitted to deny the validity of the instrument as originally made or drawn.
Estoppels Against Denying Capacity of Payee to Endorse
No maker of a promissory note and no acceptor of bill of exchange payable to order shall
in a suit thereon by a holder in due course be permitted to deny the validity of the instrument as

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DISTINCTION BETWEEN HOLDER AND HOLDER IN DUE COURSE
From the definitions of the terms “holder” and holder in due course we may derive the
following points of different between them
Consideration
The existence of consideration is not essential in case of a holder, but a holder in due course
obtains the instrument after paying its full value. For example, if a cheque is issued to
provide a gift or donation to a charitable trust, the trust does not become its holder in
due course. On the other hand, tuition fee paid to a school or college is for a valuable
consideration. Hence the school or the college acquires the status of holder in due course.
Possession
The person entitled to be called holder in due course must become he possessor of the
instrument before it become payable. For example if a bill of exchange is payable on March
20, 1997 a person who possesses it before this date is entitled to be its holder in due course. If
it is obtained after this date, the possessor will not be called its holder in due course. In case
of a holder neither actual possession nor any time limit within which it must be acquired is
required.
Defect in the Transfer’s Title
The person claiming to be a holder in due course should have obtained the instrument in good
faith i.e without the knowledge of the defective title of the transferor but this condition in not
essential in the case of a holder.

17. TYPES OF CROSSING
Crossing of a cheque can be classified in to three viz.
1. General Crossing
Section 123 of the negotiable instruments act define
general crossing as where a cheque bears across its face an additional of the words “any
company” or any abbreviation therefore between two parallel transverse lines or of two parallel
transverse line simply, either with or without the words “not negotiable” that additional
shall be deemed a crossing and the cheque shall be crossed generally
The effect of general crossing is the cheque must be presented to the paying banker through any
banker and not by the payee himself at the counter. The collecting banker credits the proceeds to
the account of the payee or the holder of the cheque. The latter may thereafter withdraw the money.
2. Special Crossing
According to section 124 where a cheque bears across its face an addition of the name of banker,
either with or without the words “not negotiable” that addition shall be deemed to be crossing and
the cheque shall be crossed specially and to be crossed to that banker”.
The special crossing on the cheque is a direction to the paying banker to honour the
cheque only when it is presented through the bank mentioned in the crossing and no other
bank. The cheque crossed specially thus become more safe than the generally crossed
cheque. The banker to whom a cheque is crossed specially may appoint another banker as the
agent for the collection of such cheque.
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18. 3. Restrictive Crossing
It is a direction to the collecting banker that the proceeds are to be creditor only to the account payee
mentioned in the cheque. If the collection banker allows the proceeds to be credited to some other
account, the bank er is held liable for this wrong conversion of the funds. The paying banker is
under no responsibility or duties to verity that the cheque is infect being collected for the person
named as the payee.
4. Double Crossing
If a cheque is bearing two separate special crossings, it is said to be double crossed section 127 of
the negotiable instruments act 1881 – payment of cheque specially more than once, where a
cheque is crossed specially to more than one banker, except when crossed to an agent for the
purpose of collection, the banker on whom it is drawn shall refuse payment thereof.
A paying banker could pay a doubly crossed cheque only in the situation where the second banker
and this is clearly expressed in the instruments.
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19. ENDORSEMENT- MEANING
Endorsement means the signature instructions etc, placed on the reverse of a negotiable instrument
for the purpose of assigning the interest there in to another. If the available space on the
back side has been completely covered than a piece of paper is pasted to the instrument and
subsequent endorsement are made on that paper. The paper that is pasted is called as ‘allorge’.
DEFINE ENDORSEMENT.
Endorsement is define under section 15 of the negotiable instruments act as “when the maker or
holder of negotiable instrument signs the some otherwise then as such maker, for the purpose of
negotiation, on the back or face there of or on a ship of paper annexed there to or so sings for the
same purpose a stamped paper indented to completed as a negotiable instrument, he is said to have
endorsed the same and is called endorser.
ESSENTIALS
At the time of endorsement the endorser has a good title to the instrument
The instrument is a genuine one
All prior endorsements are genuine and regular
The instrument will be duty paid at maturity.
FEATURE
There is no proper procedure to be followed
It needs the signature of holder or his agent
The payee or the holder must signs in their exact names
Endorsement should be by pen only
An illiterate also can endorse by thumb impression
Endorsement should be for full value

20. 20
TYPES/ KINDS OF ENDORSEMENT.
The different types of endorsement are as follows.
1)Blank Endorsement
When an endorsement in made on the reverse side of the instrument with a
mere signature of the endorse without any name or any other remark, it is called
blank endorsement.
2)Full Endorsement
When the endorser writes the name of the endorsee on the reverse side of the
instrument such as: pay to Raman or order
(Sd) Krishnan - Here the endorser is Krishnan and the orders see in Raman. Thus the full
endorsement is complete in all respects.
3)Conditional Endorsement
When an endorsement is made with a specific condition to be fulfilled by the endorsee
for acquiring the ownership right on the instrument, it is conditional endorsement
Example: Pay to Raman on delivery of bill of lading
(Sd) Krishnan
Raman will be given the instrument or the amount on the instrument only when he
delivers bill of lading.
4)Restrictive Endorsement
Here the endorser takes away the right of the endorsee for further endorsement of the
instrument Example: pay to Raman only
(Sd) Krishnan - Now Raman cannot endorse further

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5)Sans- Recourse Endorsement
If the endorse wants to avoid liability as endorse, he can do so by adding
words at the time of endorsement. He may endorse like this “pay A or order sans
recourse” or pay A or order at his own risk.
6)Sans Frais Endorsement
It is made where the endorse does not want that endorse or any subsequent
holder should incur any expense on his account on the instruments.
7)Facultative Endorsement
When the endorser excuses the endorsee from performing any duty in the case of
dishonour Example: Pay to Raman: Notice of dishornour waived
(Sd) Krishnan
From this endorsement the endorser does not escape his liability in card of dishonour
of the instrument.

22. 22
DISHONOURING OF CHEQUES.
The following circumstance also makes the banker in dishonouring the cheques.
1)When the Drawer countermands payment
The Drawer of a cheque can cancel or withdraw at any time before its payment is made. The banker
should obey the countermand order issued by the drawer without enquiring any reason thereof.
Some points are considered in this regard.
1.It should be in writing i.e. oral instruction not to be accepted.
2.The written instruction should have all information like date of cheque, number of the cheque,
the amount, payee’s name, whether crossed or not etc.
3.The drawer of the cheque should sign the order stopping payment without fail.
4.The banker is liable to the drawer if the pays the cheque by oversight after the receipt of the
countermand order.
5.The stop payment order remains effective until it is reworked by the drawer subsequently.
2)Drawer’s Death: When the banker comes to know officially about a customer’s death, the
account becomes in operative. Hence, no cheque on that account could be honoured.
3)Customer’s Insolvency: When the customer becomes insolvent, the whole property of the
insolvent person vests in the court. Hence the banker should stop payment from customer’s
account.

23. 23
1)When the customer becomes insane:
The banker should not honour cheques of his customer on receipt of information about the
customer becoming absolutely insane.
2)Notice of Assignment of credit balance:
The credit balance can be transferred by the customer to another person. In this case, on the receipt
of notice the banker must stop payment of the cheque drawn by the assignor, as he ceases to be the
owner of such funds.
3)Defective title of the party:
If the banker knows any defective title in the cheque, he could refuse payment to such a cheque.
4)Insanity of the customer:
If the banker receives notice of the insanity of a customer, he should note the fact and
should stop honouring cheque drawn on his account.
5)Usual Answers her dishonouring cheques:
Normally, the drawee banker attaches a slip to dishonoured cheques and marks the number
of the appropriate answer. When refusing payment, he must not enter into any discussion with the
payee; instead the appropriate reason must be stamped on the cheque as the answer.

24. PAYING BANKER
A paying banker is one who is a drawee of a cheque. He takes the responsibility of making payment
on a cheque to the true owner. Any wrong payment will make the paying banker liable to the true
owner of cheque and also to the drawer of the cheque.
DEFINE PAYING BANKER.
According to section 31 of the Negotiable instrument act paying banker in defined as “the drawee of
a cheque having sufficient funds of the drawer in his hands, properly applicable to the payment of
such cheque must pay the cheque when duly required to do so and in default of such payment must
compensate the drawer for any loss or damage caused by such default.
DUTIES AND RESPONSIBILITIES OF PAYING BANKER
According to section 31 if the drawee of a cheque has sufficient funds of the drawer in his hand
which could be used properly to pay the cheque, he must pay the cheque whenever required to do
so. Failure to do so would render him liable to compensate the drawer for any less or damage caused
to him by such non-payment of the cheque, so drawn.
As per the direction issued by the cusotme the paying banker is expected to pay the
cheque to the genuine payee as per the direction issued by the customer.
The payment is made only during banking hours
The banker should honour the cheque which is drawn against the account maintained at the
branch of the bank where the cheque is presented
The banker should not make payment of crossed cheque at the counter is crossed cheques must be
paid only through a banker if cheques are crossed generally or through the specified banker in case
of special crossing.

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PROTECTION OF THE PAYING BANKER
A paying banker pays a cheque which bears a forged signature of the payee/endorsee; he is liable
to the true owner of the cheque. But it is quite unjustifiable to make the banker responsible for
such errors. It is so because he is not expected to know the signature of the payee/endorsee the
law relives the paying banker from his liability to the true owner in such cases. This relief is
known as ‘statutory protection”.
Section 86 reads as “where a cheque payable to order purpose to be endorsed by or on behalf of
the payee, the drawee is discharged by payment in due course”. Drafts drawn by one branch of a
bank on another payable to order
Section 85 A reads as “ where any draft that is an order to pay money drawn by the office of a
bank upon another office of the same bank for a sum of money payable to order on demand
purpose to be endorsed by or on behalf of the payee, the bank is discharged by payment in due
course”.
Payment in due course of crossed cheque section 128 reads as “where the banker on when a
crossed cheque is
drawn has paid the same in due course, the banker paying the cheque and the drawer thereof shall
respectively be entitled to the same rights, and be placed in the same position in all respects as
they would respectively be entitle to and placed in if the amount of the cheque had been paid to
and received by the true owner thereof” Condition for statutory protection
It does not offer protection to the banker if the drawer’s signature is forged
Entitles the banker to protection only in case of cheque that turn out to be wrongly endorsed
There must be payment in due course

26. COLLECTING BANKER
A collecting banker is one who collects the cheque and other negotiable instrument deposited by his
customers and places the amount to the credit of the customer’s accounts.
DEFINE COLLECTING BANKER.
Sir, John Paget, defined collecting banker as “the collection of cheque whether crossed or uncrossed
is one the functions of the banker. Here the role of the banker is referred as the collecting banker”.
DUTIES AND RESPONSIBILITIES OF COLLECTING BANKER.
Due Care and Diligence to be taken in Collection of Cheque
The following banker has to show diligence in the collection of cheques given to him.
Suppose the banker fails to do so, the customer suffers a loss. The collecting banker shall be
required to compensate that loss.
Reasonable Time
When the banker and the drawee bank are in the same place, the collecting banker should present
the cheque the very next day after he received it. It the cheque are from out station, the collecting
banker should dispatch for same to the paying banker on the day after it is received by him
Advising the Customer about Collection Status
When the proceeds are collected the collecting banker could debit his customers account in respect
of his commission or service charges and credit the proceeds to the customer’s account. The banker
informs this through a credit slip. With the help this slip the customer knows that the cheque was
collected.
To Serve Notice of Dishonor
When the cheque deposited was dishonored the collecting banker gets the information in writing
from the paying gets the information in writing from the paying banker. Hence, it becomes the duty

27. 27
PROTECTION OF A COLLECTING BANKER
Negotiable instrument act, section 131, say “A banker who has in good faith and
without negligence received payment for a customer of a cheque crossed generally or
specially to himself shall not, in care the title to the cheque proves defective, incur any
liability to the true owner of the cheque by reason only of having received such
payment”.
It is clear that the collecting banker can claim protection and also doest not incur
liability when certain conditions are fulfilled like
The bank behaves like an agent and not as a holder of value
On behalf of cutomers collection of cheques are made
Before cheques are deposited for collection it must be crossed
The banker should receive payment in good faith and without negligence.

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IMPORTANT QUESTIONS 2 MARKS
1.What is negotiable instrument?
2.What is bill of exchange?
3.What is a promissory note?
4.What do you meant by endorsement?
5.Who is drawer & drawee?
6.What is cheque?
7.Who can cross a cheque?
8.Define holder
9.Define Holder in Due Course
10.List out the any two kinds of Cheque.
10 MARKS
1. What are the kinds of bill of exchange?
2.What is meant by crossing of cheque? State its
3.Elaborate the statutory protection to paying banker and collecting banker.