Negotiability of the cheque and various other possibilities of misuse make the position of the banker somewhat difficult in terms of making payment to discharge the liability in the cheque. Both the collecting banker and the paying banker are involved in this. Hence the Act provides special protection to these bankers under certain circumstances.
Protection to Paying Banker
A paying banker is one who pays the money on a cheque on behalf of his customer. The Act protects the paying banker under the following circumstances:
1) In the case of order cheque, the paying banker is discharged from liability if he makes payment of an order cheque to the payee or the apparent endorsee thereof in good faith and without negligence even though subsequently it may turn out that such an indorsement was forged (section 85).
For example, a cheque drawn ‘payable to A’s order (not crossed) has indorsement upon it and gets paid in due course. The banker is protected if he has acted with care and in good faith on his part. If in the same case, for example, the drawer’s signature was found forged, the banker will not be protected because the banker is supposed to recognise the correct signature of his customer who was the drawer. The protection applicable to order cheques is also applicable to bank drafts. If a draft is lost, for example, it may be presented by someone who is not entitled to be the holder and there may be a forged indorsement. In such cases, the purchaser of the draft may ask the bank to be on its guard against presentation by a wrong person.
2) In the case of a cheque originally issued as a bearer cheque, subsequent indorsements which are in the nature of restricting or excluding further indorsements may be ignored by the paying banker and payment in due course can be made.
Protection to Collecting Banker
A collecting banker is one who receives the payment of a crossed cheque on behalf of his customer. If the title in the crossed cheque is defective, then only the question of his involvement or liability arises. According to the Act he will have no liability if he has acted: i) in good faith, ii) without negligence. iii) received the payment on behalf of a ‘customer’ and not on his own behalf, and iv) the customer was the bank’s own customer. This protection is restricted to crossed cheques only. When one person deals with the money of other person, it should not be construed as ‘conversion’ or misappropriation and their protection is important. A conversion is a wrongful interference with goods, by taking, using or destroying them violating the owner’s right of possession.
