JAIIB LRAB Unit 7 - Case Laws on Responsibility of Collecting Bank

Statutory Protection to Collecting Bank

Section 131 of the NI Act grants protection to a collecting banker

1. Non-liability of a banker receiving payment of cheque
2. Conditions for protection

Duties of Collecting Bank

1. Duty to open account with references
2. Duty to follow up the reference where the referee is not known
3. Duty to Ensure Crossing : It is duty of the banker to ensure that the cheque is crossed specifically to himself and if the cheque is crossed to some other banker they should refuse to collect it. Similarly where the cheque is crossed to a specific account then crediting the same to another account without necessary enquiry’s would make him liable on the grounds of negligence.
4. Duty to verify the instruments / any apparent defect in the Instruments
5. Duty to take into account the state of customers account
6. Negligence of Collecting Bank in Collecting Cheques Payable to Third parties.