Banker and Customer: Complete Notes (Part H)

Part H covers the law of cheques from the banks' side: the banker and customer relationship, crossing, the paying banker, the collecting banker, and wrongful dishonour and negligence. This consolidated note covers Topics 33 to 37.

33. Banker and Customer

A banker includes anyone acting as a banker (Section 3); a customer is one who has an account, however short the dealing. The relationship is debtor and creditor, with the debt repayable on demand (Foley v. Hill; Joachimson), and the bank may also act as agent, bailee, lessor or trustee. Under Section 31 the bank must pay a duly presented cheque when it holds sufficient funds properly applicable, and must compensate the drawer for default. It must follow the mandate and keep secrecy subject to the Tournier exceptions; it has a general lien, set-off and appropriation rights. Its authority ends on countermand, notice of death, insanity or insolvency, a garnishee order or closure.

34. Crossing

• General (Section 123): two parallel lines, with or without "& Co." or "not negotiable"; pay only to a banker.
• Special (Section 124): a bank's name; pay only to that bank or its collecting agent; refuse if crossed to two banks (Sections 126 and 127).
• Who may cross (Section 125): drawer, holder, and collecting bank.
• Payment (Sections 128 and 129): payment in due course is as if to the true owner; payment contrary to crossing makes the bank liable to the true owner.
• "Not negotiable" (Section 130): no better title than the transferor's. "Account payee" is a practice-based direction to the collecting bank. Chapter XIV applies to drafts (Section 131A).

35. Paying Banker

The paying bank must refuse payment on countermand, notice of death, insanity or insolvency, court orders, defects, crossing or suspicion. It is discharged by payment in due course of an order cheque that purports to be indorsed by the payee, and of a cheque originally payable to bearer whatever its indorsements (Section 85); of a draft purporting to be indorsed (Section 85A); of a crossed cheque (Section 128); and of a cheque whose alteration or crossing is not apparent (Section 89). There is no protection for a forged drawer's signature (Canara Bank v. Canara Sales Corporation, 1987).

36. Collecting Banker

A collecting bank that in good faith and without negligence receives payment for a customer of a crossed cheque is not liable to the true owner if the customer's title proves defective, even if it credited the account before clearance; for truncated cheques it must verify apparent genuineness (Section 131). The bank must prove absence of negligence in opening the account (KYC, introduction) and collecting the cheque (company cheques into personal accounts, account payee cheques for others, unusual amounts); but it need not be abnormally suspicious (Indian Overseas Bank v. Industrial Chain Concern, 1989). A bank that gave value may be a holder in due course.

37. Wrongful Dishonour and Negligence

Refusing a cheque despite sufficient funds and due presentment is wrongful dishonour, actionable by the drawer in contract and possibly defamation, with damages for loss of credit (Rolin v. Steward; Gibbons; Kpohraror). Indian remedies include suits, consumer fora, the RBI Integrated Ombudsman Scheme, 2021, and a complete defence to Section 138. Under Section 77, a bank where an accepted bill was payable and dishonoured must compensate the holder for loss from negligently keeping, dealing with or returning it.

38. The Topics of This Part

Topic 33: banker and customer (Section 31); Topic 34: crossing (Sections 123 to 131A); Topic 35: paying banker (Sections 85, 85A, 89 and 128); Topic 36: collecting banker (Section 131); Topic 37: wrongful dishonour and negligence (Sections 31 and 77).