COLLECTING BANKER

(Agent / Principal  Relationship)

Collecting Banker receives instruments from his customers to collect proceeds & credit to their accounts.

Duties……

Acts as a customer’s agent in collecting of cheques.

Must exercise with utmost care and diligent in…

Presenting for payment.

Obtaining payment.

Crediting customer’s accounts in time.

Returning the dishonored instruments to the customer without delay.

Risks & Liabilities

 Breach Of Contract.

Conversion

Breach of Contract

When a Banker fails to carryout the statutory or legally recognized duties , he may incur liability to his customer.

Conversion

Conversion is willful interference in depriving the true owner the rightful benefit of the instrument.

(When a customer has no title or has defective title to a cheque , and when he request the bank to collect this instrument to his  a/c ; by doing so the bank may become liable to the true owner.)

Statutory Protection

(Section 82 of BOE Ord)

Provides statutory protection to the collecting bank against conversion provided the bank collects…..

For customer (An Current Account holder)

In Good Faith (Done honestly whether it is done negligently or not)

Without Negligence

Negligence……

Negligence towards the true owner.

Negligence for a collecting banker is when a cheque is presented for collection and the surrounding circumstances are so out of the ordinary, which ought to have aroused doubts in the banker’s mind and caused him in to make inquiry.

This does not mean that the bank officials have to be amateur detectives , but are expected to act with reasonable care.

Acts of Negligence

Failure to attend to account opening formalities.

Failure to make inquiry when there is a fiduciary relationship between the Customer , Drawer or Payee.

Failure to inquire in the surrounding circumstance where the collection appears to be unusual.

Account Opening Formalities

(By case law)

Failure to obtain the name of the customer’s employer.

Failure to obtain / follow up references before opening an account.

Fiduciary Relationship

(By case law)

Collection of cheques in the following instances….

Collection of Cheque                                    Cheque payable to

Company official                                              The Company

Private a/c of a partner                                     The Partnership

Private a/c of employee/wife                             The Employer

Limited Liability Company                                Another Limited Liability Co

Private a/c                                                        His official capacity

Private a/c of a director                                    Limited liability co

Surrounding Circumstances

Collection  cheques for amounts which are inconsistent with the customer’s standing in life.

Collecting third party cheques where circumstances warrant inquiry.

Collection of cheques crossed “A/c Payee only” to an account other than the person to whom the cheque is payable.

By

Sanjeeva Pieris