Paying banker and its duties

Banking

1. PAYING BANKER AND ITS DUTIES l. PRAKASH KANNAN, M.COM., M.PHIL., (PH.D.), ASSISTANT PROFESSOR, S. J. MONISHA, II B. COM.,

2. PAYING BANKER The paying banker is a banker on whom a cheque is drawn and presented of payment. It is his statutory obligations to honour his customer’s cheques when there is sufficient funds of the customer in his hands. Other wise, he will be liable to compensate for any loss for damage caused to the customer. However, he should not honour the cheques carelessly and negligently without obeying the instructions of the drawer. Therefore, the paying banker should ensure that the cheque is proper in all respect for making payment by taking certain precautions.

3. Duties of Paying Banker Form of Cheque Date of Cheque Amount of Cheque Material Alteration Sufficiency of Funds Drawer’s Signature Mutilation Payment during banking hours Open or Crossed Cheque Endorsement Legal Restrictions Countermanding Order Notice Death, Insanity or Insolvency of a Customer

4. Form of Cheque The cheque should be in proper form. The form of a cheque has not been prescribed by law. But the banks have made the drawing up of cheques in printed forms as a condition for opening an account. The opening of an account is a contract between the banker and customer. Therefore, the cheques between the banker and customer. Therefore, the cheques must be drawn only in printed forms supplied by the banks. Otherwise, the banker may refuse payment. The printed forms are convient for both banker and customer. Date of Cheque A cheque may be current dated, ante-dated, post-dated undated. If a cheque is current dated, there is no problem. If it is ante-dated, the banker can very well make payment on it until the expiry of 6 months from such date. In case of undated and post-dated cheques, the banker should not make payment on them. As regards undated cheques, it will not be possible for the banker to decide whether they are stale or not. In no case, a banker should honour a stale cheque.

5. Amount of Cheque The amount of cheque must be written both in words and figures. If the amount in words and figures differs, the amount in words shall be taken as correct. However, if a cheque is written only in figures, it should not be honoured. Material Alteration The banker should not honour a cheque materially altered unless such alteration has been authorised by the drawer by his full signature. However, the banker will not be liable for the payment made on a materially altered cheque if he proves that, The alteration is not apparent The payment has been made in due course.

6. Sufficiency of Funds The sufficiency of funds means the funds atleast equal to the amount of cheque. If the funds are insufficient, the banker should refuse payment of a cheque. He need not even make part payment. The cheques should be paid in the following order: When the cheques are received one by one, they should be pain in chronological order of their receipt by the bank. When several cheques are received at the same time and the funds are insufficient to meet all of them, the cheque for greater amount should be paid first. In the above case, if two or more cheques are for equal amounts, the banker has the direction to honour any of them to the extent of funds available.

7. Mutilation A cheque is said to be mutilated when it is torn into two or more pieces. Such a cheque should not be honoured unless the banker is satisfied that- There is no intention to cancel it; No material fact of the cheque is erased or illegible; The drawer has confirmed it. Payment during banking hours A cheque is payable on demand only during banking hours. Any payment made by the banker after the working hours will not be considered as payment in due course. The banker will be held liable for any loss resulting therefrom to the customer.

8. Open or Crossed Cheque An open cheque can be paid across the counter. But when a cheque is crossed, the banker should see whether I is generally or specially crossed. If it is crossed generally, the payment should be made only to a banker whose name is mentioned in the crossing. If any payment is made contrary to crossing, the payment will not be considered as payment in due course. The banker will be liable for any loss reslting therefrom to the drawer and true owner of the cheque. Endorsement The banker should see the regularity of endorsements made in the order cheques before making payment. Otherwise, he will be liable if a payment is made on an order cheque bearing irregular endorsement.

9. Legal Restriction If there is any legal restriction regarding the payment of a cheque like Garnishee Order, the banker should act carefully. Countermanding Order If any order is received form the drawer to stop payment of a cheque, the banker should not make payment on it. Notice of Death, Insanity or Insolvency of a Customer The banker should also take into consideration the information received regarding the death, insanity or insolvency of a customer before honouring his cheques.

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