Responsibility of Collecting Bank | PAPER II – PRINCIPLES & PRACTICES OF BANKING | MODULE A: GENERAL BANKING OPERATIONS
Banker: Responsibilities and Duties of the Collecting Bank
Responsibility of Collecting Bank
A collecting bank is responsible for receiving payments on behalf of its customers through instruments like cheques and drafts. The bank must act with due care and diligence while collecting the payment, ensuring that it does not collect for a fraudulent or non-existent account. The collecting bank is a holder for collection and acts as an agent for the customer.
Statutory Protection to Collecting Bank
Under Section 131 of the Negotiable Instruments Act, a collecting bank is granted statutory protection if it collects a crossed cheque in good faith and without negligence for a customer who has a legal title to the cheque. This protection shields the bank from liability in case the title turns out to be defective, provided the bank has acted honestly and without negligence.
Duties of the Collecting Bank
- Act as an agent for the customer to collect cheques and bills of exchange.
- Exercise due care and diligence in verifying the title of the instrument.
- Ensure timely collection and credit to the customer’s account.
- Check for any signs of fraud, forgery, or alteration on the instrument.
- Maintain proper records of the instruments collected and credited.
- Promptly inform the customer in case of dishonor or delay.
Multiple Choice Questions (MCQs)
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What is the primary role of a collecting bank?
- A. To issue cheques
- B. To lend money
- C. To collect cheques on behalf of the customer ✅
- D. To endorse cheques
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Statutory protection to collecting banks is available under which section of the Negotiable Instruments Act?
- A. Section 138
- B. Section 131 ✅
- C. Section 126
- D. Section 120
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A collecting bank is liable if it:
- A. Acts in good faith
- B. Acts without negligence
- C. Collects for a customer without verifying their title ✅
- D. Collects a bearer cheque
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Which of the following is NOT a duty of the collecting bank?
- A. Ensuring timely collection
- B. Verifying the signature of the drawer ✅
- C. Informing the customer in case of dishonor
- D. Maintaining proper records
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Which of the following protects a bank from liability in cheque collection?
- A. Negotiable Instruments Act Section 131 ✅
- B. Indian Contract Act
- C. Companies Act
- D. RBI Act
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A bank can lose its statutory protection if:
- A. It collects an order cheque
- B. It acts negligently while collecting the cheque ✅
- C. It collects on behalf of a regular customer
- D. It collects a crossed cheque
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Which one of the following is a crossed cheque?
- A. A cheque with only the date and signature
- B. A cheque with two parallel lines on the top left ✅
- C. A cheque marked as bearer
- D. A cheque with no amount written
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The relationship between a customer and collecting bank is:
- A. Debtor and creditor
- B. Principal and agent ✅
- C. Seller and buyer
- D. Employer and employee
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Who bears the loss if the collecting bank is negligent?
- A. Drawer
- B. Drawee bank
- C. Collecting bank ✅
- D. Customer
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Which one of the following is true about statutory protection?
- A. It is absolute and unconditional
- B. It is available even in case of negligence
- C. It applies only if the cheque is collected in good faith ✅
- D. It applies to bearer cheques
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