Paying Bank : ‗Paying Banker‘ is the ‗drawee‘ bank or in other words the banker upon whom a cheque is drawn. It pays the cheque to the collecting banker who presents those before him on behalf of their customers. He is responsible to the customers and duty bound to make payments to the right persons in accordance with the instructions of the drawer.
Responsibility
of Paying Banker.
01. Cheques
drawn on Branch:
The paying banker shall honour only those cheques which are drawn against the account maintained
at a branch
of the bank where the cheques are presented.
02. Presentation within validity
needed:
The paying banker is legally bound to pay only such cheques which are presented to him for
payment within
a reasonable time.
Reasonable time is 6 months from the date of issue of
the cheque.
03. Presentation within banking
hours:
Cheque must be presented within the banking hours. Any cheque presented after the banking hours
has no legal effect and
therefore banker cannot be
held liable for refusing payment
on such cheques.
04. Sufficient
balance:
Funds in the a/c must be sufficient and available to honour the cheques. For dishonour of cheque
due to shortage of funds banks are
not held responsible. Rather, if cheques are
drawn without funds,
drawers by punishable
under
Section-138.
05. Must
be valid instrument:
Cheques not drawn in the proper form are refused by the paying banker. Section-5 & 6 of the N.I.
Act provide that the bank should examine the contents of the cheque to ensure that it is perfectly a valid instrument containing an unconditional
order
to pay a certain sum
of money.
Statutory
protection
to paying banker.
01. Protection
in
case of order cheque:
In case of an order cheque, Section-85(1) provides statutory protection to the paying banker as
follows : ―Where a cheque payable to order purports to
be endorsed by or on
behalf
of the payee, the
drawee is discharged by payment
in due course‖. However, two conditions
must be fulfilled to avail of such protection.
(a) Endorsement must be regular : To avail of the statutory protection, the banker must confirm that the endorsement is regular.
(b) Payment must
be made in Due Course : The paying banker must make payment
in due course. If not, the paying banker will be deprived of
statutory protection.
02. Protection
in
case of Bearer cheque:
Section-85(2) provides
protection to the paying banker in respect of bearer cheques as follows
:
―Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof, notwithstanding any endorsement whether in full or
blank appearing thereon and notwithstanding that any
such endorsement purports to restrict or
exclude further negotiation‖. This section implies that a cheque originally
issued as a bearer cheque remains always bearer. In other words it retains its bearer character
irrespective of whether
it bears endorsement in full or in blank or whether any endorsement restricts further negotiation or not. So
the banks are not required to verify the regularity of the endorsement on bearer cheque, even if the instruments bears endorsement in full. The banker shall free from any liability (discharged) if he
makes payment of
an
uncrossed bearer cheque
to the bearer in due course. If
such cheque
is a stolen one and the
banker makes its payment without the knowledge of such theft, he will be discharged of his obligation and
will be protected under Section-85(2).
03. Protection
in
case of Crossed cheque:
The paying banker has to make payment of the crossed cheques as per the instruction of the drawer
reflected through the crossing. If it is done, he is protected by Section-128. This section states
―Where the banker on whom a crossed cheque is drawn has paid the same in due course, the banker paying
the cheque and (in case such cheque has come to the hands of the payee) 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 entitled to and be placed in if the amount of the cheque had been paid to and
received by the true owner thereof‖.