Collecting bank means the bank which collects the cheques and bills on behalf of the customers. In other words, every crossed cheque is necessarily to be collected through any bank, which is known as Collecting bank or collecting banker.
While collecting the
cheques of a customer, the banker may act in the capacity of either(a) as a
holder for value, or (b) as an agent of the customer.
The duties and responsibilities
of a collecting banker are discussed below:
1. Due care and diligence
in the collection of cheque.
2. Serving notice of
dishonour.
3. Agent for collection.
4. Remittance of proceeds
to the customer.
5. Collection of bill of
exchange.
The collecting banker
is bound to show due care and diligence in the collection of cheques
presented to him.In case a cheque is entrusted with the banker for collection,
he is expected to show it to the drawee banker within a reasonable time.
According to Section 84 of the Negotiable Instruments Act, 1881, “Whereas a
cheque is not presented for payment within a reasonable time of its issue,
and the drawer or person in whose account it is drawn had the right, at
the time when presentment ought to have been made, as between himself and
the banker, to have the cheque paid and suffers actual damage, through the
delay, he is discharged to the extent of such damage, that is to say, to the
extent to which such drawer or person is a creditor of the banker to a large
amount than he would have been if such cheque had been paid.” In case a
collecting banker does not present the cheque for collection through proper
channel within a reasonable time, the customer may suffer loss. In case the
collecting banker and the paying banker are in the same bank or where the
collecting branch is also the drawee branch, in such a case the collecting
banker should present the cheque by the next day. In case the cheque is drawn
on a bank in another place,it should be presented on the day after receipt.
2.
Serving Notice of Dishonour:
When the cheque is
dishonoured, the collecting banker is bound to give notice of the same to
his customer within a reasonable time. It may be noted here, when a cheque is
returned for confirmation of endorsement, notice must be sent to his customer.
If he fails to give such a notice, the collecting banker will be liable to
the customer for any loss that the customer may have sufferedon account of such
failure. Whereas a cheque is returned by the drawee banker for confirmation
of endorsement, it is not called dishonour. But in such a case, notice
must be given to the customer. In the absence of such a notice, if the cheque
is returned for the second time and the customer suffers a loss, the collecting
banker will be liable for the loss.
3.
Agent for Collection:
In case a cheque is drawn
on a place where the banker is not a member of the ‘clearing-house’, he
may employ another banker who is a member of the clearing-house for the
purpose of collecting the cheque. In such a case the banker becomes a
substituted agent. According to Section 194 of the Indian Contract Act,1872,
“Whereas an agent, holding an express or implied authority to name another
person to act in the business of the agency has accordingly named another
person, such a person is a substituted agent. Such an agent shall be taken as
the agent of a principal for such part of the work as is entrusted to him.”
In case a collecting
banker has realized the cheque, he should pay the proceeds to the customer as
per his (customer’s) direction. Generally, the amount is credited to the
account of the customer on the customer’s request in writing, the proceeds may
be remitted to him by a demand draft. In such circumstances, if the customer
gives instructions to his banker, the draft may be forwarded. By doing so, the
relationship between principal and agent comes to an end and the new
relationship between debtor and creditor will begin.
There is no legal
obligation for a banker to collect the bills of exchange for its customer.
But, generally, bank gives such facility to its customers. In collection of
bills, a banker should examine the title of the depositor as the statutory
protection under Section 131 of the Negotiable Instruments Act, 1881.Thus, the
collecting banker must examine very carefully the title of his customer towards
the bill. In case a new customer comes, the banker should extend this facility
to him with a trusted reference. From the above discussion, there is no doubt
to say that the banker is acting as a mere agent for collection and not in the
capacity of a banker. If the customer allows his banker to use the
collecting money for its own purpose at present and to repay an equivalent
amount on a fixed date in future the contract between the banker and the
customer will come to an end.