LEGAL ASPECTS OF A PAYING BANKER :

Law relating to payment of cheques and the role and responsibility of paying banker is clearly spelt out under Negotiable Instruments Act. There are circumstances under which banks get protection as a paying banker. At the same time, they do not get protected if they are found wanting in taking necessary precautions as a prudent banker. Law is specific and clear-cut as to when they can seek protection under Negotiable Instruments Act and when they cannot. The concept of payment in due course is very relevant in establishing whether a payment is in order or otherwise. Knowledge about the legal aspects governing the payment of cheques under various circumstances is a must to function as a banker as also to seek protection under Negotiable Instruments Act. This section deals with all those pertinent matters in good detail.

The Negotiable Instruments Act,1881 deals with negotiable instruments like promissory notes, bills of exchanges, cheques and similar payment instruments such as demand drafts, dividend warrants, etc. A banker in his capacity as a banker deals with the above mentioned negotiable instruments on different occasions. The NI Act lays down the law relating to payment of a customer’s cheque by a banker and also the protection available to a banker. The relationship between a banker and customer, being debtor-creditor relationship the banker is bound to pay the cheques drawn by his customer. This duty on the part of the banker, to honour his customers’ mandate, is laid down in Section 31 of the Negotiable Instruments Act.

Sections 10, 85, 85A, 89 and 128 of the Negotiable Instruments Act, 1881 grants protection to a paying banker. We shall in detail, examine individually these Sections and with the help of case laws apply the provisions of these
Sections to a given set of facts.