BANKING AFFAIRS

Detailed explanation-1: -31. Liability of drawee of cheque.-The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required so to do, and, in default of such payment, must compensate the drawer for any loss or damage caused by such default.

Detailed explanation-2: –A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment.

Detailed explanation-3: -The Banker is under statutory obligation to honour his customer’s cheques, provided the following conditions are satisfied : There must be sufficient funds (credit balance) or within the permissible limit of overdraft. The funds must be properly applicable to the payment of cheque.

Detailed explanation-4: -Section 6 in The Negotiable Instruments Act, 1881.

Detailed explanation-5: -Under this Section, a collecting bank has protection only if the collecting bank, in good faith and without negligence, receives payment of the customer by a cheque, i.e. if there is negligence in receiving of a cheque on behalf of the customer, the collecting bank would be liable for negligence.