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Paying Banker

A banker on whom a cheque is drawn should pay the cheque when it is presented for payment.

Precautions before Honoring a Cheque

I. a. b. c. d. e. Presentation of the Cheque Type of the Cheque Branch Account Banking Hours Mutilation

II. Form of a Cheque a. Printed form b. Unconditional order c. Date d. Amount e. Material alteration III. Sufficient Balance IV. Signature of the Drawer V. Endorsement VI. Legal Bar VII. Minor Precautions

Circumstances under which a cheque can be dishonoured

1. Countermanding 2. Upon the receipt of Notice of death of a customer 3. Notice of insolvency 4. Notice of Insanity 5. Notice of Garnishee order 6. Defective title 7. If a cheque is Stale,postdated,Mutilated,words and figures differ,signature,endorsement, crossed cheque is presented at counter.

Statutory Protection to Paying Banker

The paying banker is at the statutory obligation to pay cheque amount out the balance available to his customer and as per the direction of the customer. the banker runs under greater risk for the payment by cheque on behalf the drawer. But the paying banker is provided protection under certain circumstances of honoring the cheque of his customer.

Protection is provided only when the paying banker is acting in good faith, i.e. honoring cheques in a responsible manner, without negligence. Sec.85 of the N.I Act, 1881 Offers protection to the paying banker in india.

Payment in Due course

According to section 10 payment in due course means payment in accordance with the apparent tenor of the instrument,/ in good faith and without negligence to any person in possession thereof under circumstances which do not afford a responsible ground for believing that he not entitle to receive payment of the amount therein mentioned. That is,

The payment must in an apparent tenor of the instrument means according to the instruction of the party or customer as it appears on the cheque. Payment must be in good faith and not with negligence, i.e. payment made with reasonable skill and care. Payment made must be to a person who is in the possession of the cheque. There must not be any unreasonable ground for believing that the payee is not entitle for the cheque payment.

Protection in case of Order cheque:

Section 85 (1) provides statutory protection to the paying banker when the order cheque is paid,

Protection in respect of Bearer cheques: {Section 85(2)} Once a bearer cheque is always a bearer cheque, if in case a cheque originally made payable to a bearer is crossed generally or specially, then the paying banker will not be discharged from his liability and not entitled for protection under this section.

Protection in respect of Materially altered cheques: Paying banker is protected under section 89 in respect of payment made on a materially altered cheque if the banker fulfils the following conditions,
Where a promissory note, bill of exchange, has been materially altered, but does not appear to been so altered. Where the cheque is presented for payment that does not at the time of presentation appears to be crossed or to have had a crossing, which has been obtained. the instrument is accepted in good faith and the payment is a payment in due course.

Protection in respect of Crossed cheques: (Section 128) The paying banker is protected by section 128 in respect of payment of a crossed cheque as per the instruction of the customer.

Holder in Due Course

Sec 9 of the N.I Act lays down that holder in due course means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer.

Holder in due course is the person

who receives an instrument innocently (i.e in good faith and without negligence) Who has paid value for the same Who has received the instrument before its maturity who is in possession of the instrument as a bearer or payee or endorsee.

Every holder in due course is a holder, but every holder is not a holder in due course

Recovery of Money paid by Mistake

Money can be Recovered Money received mala fide is recoverable Money paid under a mistake of fact is recoverable. Mistake between the party paying and the party receiving

Money cannot be Recovered Money paid under a mistake of law is not recoverable Holt & Co Vs Markhan
Money paid on a negotiable instrument to an innocent holder is not recoverable.

Indicate the answers you would give for returning the cheques mentioned below, giving reasons for your answer. a. Cheque dated February 2009 b. Cheque dated 8th May 2008 presented on 9th November 2008 c. Cheque dated 12th March 2008 presented on 7th March 2008 d. Cheque dated 13th January 2008 presented on 12th april 2008.