1) Section 131 of the Negotiable Instruments Act provides protection to bankers who receive payment for crossed cheques in good faith and without negligence. 2) Even if the title to the cheque later proves defective, the banker will not be liable to the true owner as long as they received payment without negligence. 3) This section protects bankers who act as both paying bankers and collecting bankers, allowing them to deposit funds from a collected cheque into an account before receiving final payment.

1. PRESENTED BY-
ABHINAV SINGH

2. • Section6 “Cheque”. —A “cheque” is a bill of exchange drawn on a specified
banker and not expressed to be payable otherwise than on demand and it
includes the electronic image of a truncated cheque and a cheque in the
electronic form. Explanation I. —For the purposes of this section, the
expressions—(a) “a cheque in the electronic form” means a cheque which
contains the exact mirror image of a paper cheque, and is generated, written
and signed in a secure system ensuring the minimum safety standards with
the use of digital signature (with or without biometrics signature) and
asymmetric crypto system;
• (b) “a truncated cheque” means a cheque which is truncated during the
course of a clearing cycle, either by the clearing house or by the bank
whether paying or receiving payment, immediately on generation of an
electronic image for transmission, substituting the further physical
movement of the cheque in writing.
• Explanation II. —For the purposes of this section, the expression “clearing
house” means the clearing house managed by the Reserve Bank of India or a
clearing house recognised as such by the Reserve Bank of India.]

3. • Payment of Cheques and protection to paying banker:
• Sections -10 (Payment in due course)
• Section-31 (Liability of drawee of cheque)
• Section 85 ( Cheque payable to order)
• Section 85A (Drafts drawn by one branch of a bank on another
payable to order)
• Section 87 ( Effect of material alteration)

4. • Section 89- (Payment of instrument on which alteration is not
apparent)
• Sections 126-131

5. • Section 131
• Non-liability of banker receiving payment of cheque.

6. 1) Uneqivocal obligation of banker to honour customer’s
cheque-(Section 31)
i. Bank has liability to honour cheque and make payment to the
undersigned.
2) Limitations on bankers duty to honour customer’s cheques:
a) Unless the banker is indemnified he is not bound to honour any
ambiguous instruments.
b) It is binding only so long as the customer account permits.(Sufficient
credit )

7. 1. See whether it is an open or crossed cheque.
Crossed cheque:
Crossed Generally ( Holder is asked to present it through a
banker)
Specially ( Through the banker to whom it is crossed.)

8. 2.) ‘Not negotiable ‘ or ‘A/c Payee’ :
-The crossing not negotiable does not restrict the transferability
of cheque.
3.) Effects of double crossing:(Section 127)
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.

9. 4.)Mutilated Cheques:
-Banker should see that it is not mutilated, torn or cancelled.
-In case if cheque is torn accidentally,then the drawer must
confirm it by written words such as ‘accidentally torn by me’and
affix his signature thereto.
5.)Risk in honouring post dated cheque and stale cheques-

10. 6.) Where the amount in words & figures differ:-
-If amount has been altered/alteration is duly supported by his
customer’s full signature.
-Sec.18 of N.I Act which corresponds to Sec 9(2) of Bills of
Exchange Act,1882 lays down:-If amount is different, then the
amount stated in words shall be the amount undertaken.
7.)Cheques with Material alteration:

11. In India Sec.89 read with Sec 10,protects them completely for
payments in due course of materially altered cheques. 2
conditions must be fulfilled i.e
• That the alteration should not be apparent.
• Payment should be a payment in due course i.e according to
the apparent tenor thereof, in good faith and without
negligence.

12. 8.)Once a bearer, always a bearer.(Sec.85(2))
-With passage of N.I (Amendment) Act,1934,this principle has
been recognized.The amendment introduced a sub section to
Sec 85.
-Therefore Bank is not required to look into regularity of
endorsements on a bearer cheque.

13. 9.) Spelling (correct and incorrect)
-Where name of payee is spelt incorrectly the spelling of the
endorsement must correspond with that of mis-spelt name. For
eg-If cheque is made payable to ‘P.S Aiyar or order’,when the
correct spelling of payee is ‘Iyer’,the proper endorsement would
be ‘P.S Aiyar’ but if payee wishes he may add his correct name
in brackets.

14. 10.)Customer’s Signature-(Last but not least)
i)Whether the cheque purports to bear the signature which the
banker has been instructed to honour-
-Of his customer,or,
-Of the customer agent duly authorised in his behalf.
ii)Whether the signature on cheque is genuine.

15. • Section 131 in The Negotiable Instruments Act, 1881
• “131. Non-liability of banker receiving payment of cheque.—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 case 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 means ,“A banker receives payment of a crossed cheque for
a customer within the meaning of this section not
withstanding that he credits his customers’s account with the
amount of the cheque before receiving the payment thereof.”

16. • To make payments of the cheque & to collect money &deposit it into the account
are two compulsory functions for any banker. A banker can be performing the
function of paying banker for one customer and collecting banker for another.
• Paying banker & collecting banker both are getting legal protection or statutory
protection when they perform their duties in accordance with the laws with good
faith and without negligence.( Sec.131)
• In case when paying & collecting banker is same, the bank must pay money on
same day of presentation. If banker is having any objection in the cheques drawn,
the information of dishonour must be given to the customer.
• In case both the duties performed at the same time, the banker gets statutory
protection for both the cases.(As a payment and collecting banker).
• Paying banker gets protection u/s 85 and collecting banker gets protection u/s 131.
• When a banker is performing both the functions at the same time, the banker may
not be liable as paying banker but will be liable as collecting banker.