LEGAL ASPECTS OF COLLECTION OF A CHEQUE :

Collection of cheques, bills of exchange and other instruments on behalf of a customer is an indispensable service rendered by a banker to his customer. When a customer of a banker receives a cheque drawn on any other banker he has two options before him – (i) either to receive its payment personally or through his agent at the drawee bank, or (ii) to send it to his banker for the purpose of collection from the drawee bank. In the latter case the banker, deputed to collect the amount of the cheque from another banker, is called the ‘collecting banker’. He presents the cheque for encashment to the drawee banker and on its realization credits the account of the customer with the amount so realized.

A banker is under no legal obligation to collect his customer’s cheques but collection of cheques has now become an important function of a banker with the growth of banking habit and with wider use of crossed cheques, which are invariably to be collected through a banker only. While collecting his customer’s cheques, a banker acts either

(i) as a holder for value, or

(ii) as an agent of the customer.

The legal position of the collecting banker, therefore, depends upon the capacity in which he collects the cheques.

If the collecting banker pays to the customer the amount of the cheque or credits such amount to his account and allows him to draw on it, before the amount of the cheque is actually realized from the drawee banker, the collecting banker is deemed to be its ‘holder for value’. He takes an undertaking from the customer to the effect that the latter will reimburse the former in case of dishonour of the cheque.