RESPONSIBILITY OF COLLECTING BANK
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Principles and Practices of Banking — JAIIB.
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What is the primary legal basis for a collecting bank's protection under the Negotiable Instruments Act?
Section 131 of the Negotiable Instruments Act, 1881 provides statutory protection to a collecting bank that acts in good faith and without negligence while collecting a crossed cheque for a customer.
Under which section of the NI Act does a collecting bank receive statutory protection?
Section 131 of the Negotiable Instruments Act.
What does 'good faith' mean in the context of a collecting bank's responsibility?
Good faith means the bank acts honestly and without any fraudulent intent; it does not require the bank to be free from negligence, but negligence may defeat the statutory protection under Section 131.
What is the primary duty of a collecting bank toward its customer?
Collect cheques diligently and credit proceeds promptly.
What condition must a customer fulfill for the collecting bank to claim protection under Section 131?
The person for whom the bank collects the cheque must be a genuine customer of the bank, meaning there must be an account-opening relationship with the bank before or at the time of collection.
In what capacity does a collecting bank generally act for its customer?
As an agent of the customer.
What type of cheques does the protection under Section 131 NI Act apply to?
The protection under Section 131 applies only to crossed cheques, not to open (uncrossed) cheques, since crossing signals that the cheque must be collected through a bank account.
What is the legal consequence if a collecting bank fails to present a cheque within a reasonable time?
Bank becomes liable for any resulting loss to customer.
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