Home JAIIB Case Laws on Responsibility of Paying Bank (Legal Unit-06

Case Laws on Responsibility of Paying Bank (Legal Unit-06

Legal Unit-06

Case Laws on Responsibility of Paying Bank

In India negotiable instrument play important role in making payment .

It includes the law relating to promissory notes, bills of exchange and cheques.

Negotiable Instruments Act, 1881

31The banker is bound to pay the cheques drawn by customer i,e, to honor his customer’s mandate  
10,85,89, 128  Grants protection to paying banker  
6Cheque is defined as bill of exchange. Protection to Paying Banker if payment is in due course  
10Payment In Due Course  
85Grants protection to a Paying banker, but it is not absolute Banker can seek protection under section 85 only where payment has been made to the holder, his servant or his agent, i.e. payment must be made in due course. Payment to a person who had nothing to do with the firm or a payment to an agent of the bank would not be payment in due course.  
89Payment of instrument on which alternation is not apparent   The material alteration on both the cheques are visible and since they were not authenticated by the drawers initials, the payment made by the bank was not according to apparent tenor of the instrument and as such bank cannot claim protection under section 89 When the customers Signature on the cheque is forged there is no mandate to the bank to pay. As such banker is not entitled to debit the customers account on such forged cheque In a Joint account if one of the signature is forged then there is no mandate and banker cannot make payment.
 244AIndian companies Act : An official liquidator was required to open an account with a bank and pay therein moneys received by him in the course of the liquidation Paying bank was bound to keep an ultraviolet ray lamp and to scrutinize the cheque under the said lamp.

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