DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : P. Samba Murthy
Designation : Head of Department
Branch : D.C.C.P.
Institute : S.R.R.S. Govt. Polytechnic, Sircilla,
Karimnagar District
Year/Semester : V Semester
Subject : Banking – I
Subject Code : CCP- 504(B)
Topic : Negotiable Instrument Act
Duration : 50 Minutes
Sub-Topic : Powers and duties of a banker in
payment of cheques
Teaching Aids : PPT
CCP-504(B).69 1
Objectives

On completion of this period, you would be able to

 Understand the powers and duties of a banker
in payment of cheques.

CCP-504(B).69 2
Known to unknown

1. What is a cheque?
2. What are the duties and responsibilities of a
banker while honouring cheques?

CCP-504(B).69 3
Introduction

 It is one of the important duties of the banker to

honour the cheques of its customers.
 Besides that, a banker may also agree to collect
cheques of its customers on their behalf.
 The liability of a banker is as paying and
collecting banker.

CCP-504(B).69 4
Honouring of cheques

 Section 31 of the Negotiable Instrument Act

provides “ 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 so to do and in default of such
payment, must compensate the drawer for any
loss or damage caused by such default “

CCP-504(B).69 5
Duties and responsibilities of a
paying banker

 Ensure that there is sufficient balance:

 The banker should ensure that there is sufficient
balance in the account of the customer or the
amount drawn does not exceed the overdraft
limit.
 If the funds are not sufficient or if the amount
drawn is beyond the overdraft limit, the cheque
cannot be honoured.

CCP-504(B).69 6
Effects of honouring a post-dated
cheque :

 The banker honouring a post-dated cheque has no

right to debit the customer’s account.
 Suppose the bank honours the post-date cheque,
and the drawer issued another cheque, then the bank
dishonours it due to insufficiency of funds.
 Under such circumstance, the bank will be liable to
pay damages to the drawer for wrongly dishonouring
the other cheque.

CCP-504(B).69 7
Forged cheque:

 If the cheque was a forged one, the banker is not

absolved of liability, even if the signature tallies.
 The banker will be liable for payment of forged
cheque.
 Where one of the signatures in joint account is
forged, the bank has no mandate to pay and the
bank is liable for payment.

CCP-504(B).69 8
Forged cheque:

 The bank cannot defend itself stating that the

customer was negligent having left the cheque
book carelessly and as a result, a third party
could take advantage of the negligence and
forge the signature.
 The banker was held liable for payment.

CCP-504(B).69 9
When a cheque is presented after banking
hours:

 If a cheque is presented after banking hours, the

bank can debit the drawer’s account only the next
day.
 In the mean time, if the drawer instructs the bank
to stop payment, the banker cannot debit the
amount to the account of the customer.

CCP-504(B).69 10
When a cheque is presented after banking
hours:

 When the banker pays the amount on the cheque

after office hours and the customer dies on the
same day, then the payment of the cheque will
become invalid.
 Likewise, if the drawer becomes insolvent or
insane, then also the cheque becomes invalid.

CCP-504(B).69 11
Legal affects of ‘material alteration’ of a
cheque:

 Any material alteration of a negotiable instrument

renders the same void as against any one who is a
party thereto at the time of making such alteration
and does not consent thereto, unless it was made
in order to carry out the common intention of the
original parties.
 Any such alteration, if made by an endorsee,
discharges his endorser from all liability to him in
respect of the consideration thereof.
CCP-504(B).69 12
Crossed cheques:

 In the case of crossed cheques, it is the duty of

the paying banker to see that the cheque is paid
only to a banker.
 Where a banker makes such an irregular
payment, he would be responsible to the drawer
for any loss the drawer may suffer.

CCP-504(B).69 13
Double crossing:

 Where a cheque is crossed specially to more than

one banker, it may be honoured only when the
crossing in favour of the first bank is cancelled in
a proper way.
 The usual practice of canceling a banker’s rubber
stamp on a cheque is to write All our stamps
cancelled and such writing should carry his
signature.

CCP-504(B).69 14
Effect of forged endorsements:

 While making payment of a cheque, the banker

has to see whether the endorsements on the
cheque are regular.
 If the endorsement is irregular, the banker may
return the cheque stating the same.
 But if the endorsement is forged, the banker is
protected from forged endorsement.

CCP-504(B).69 15
Effect of forged endorsements:

 In the case of forged signature of the customer,

the banker is expected to verify the signature of
the customer as the specimen signature of the
customer is available in the records of the banker.
 But the banker cannot be expected to know the
signatures of the endorsees and hence he is
protected against forged endorsements.

CCP-504(B).69 16
Summary

 It is the obligation of the banker to honour the

cheques issued by the customer if there is
sufficient balance in his account, the cheque is
properly drawn and presented and if there is no
legal restriction on payment.

CCP-504(B).69 17
Quiz

1. When can a banker refuse to dishonour the

cheque
a) Post dated cheques
b) Forged signature
c) Submitted after banking hours
d) All the above

CCP-504(B).69 18
Frequently asked questions

1. What are the duties and responsibilities of a

banker while honouring a cheque

CCP-504(B).69 19