Negotiable Instruments Act and Paying Banker :

The relationship between a customer who has deposited money with the bank and the banker is one of creditor and debtor. The customer who has deposited money with the bank has the right to withdraw. It is the duty of the banker to pay the money on demand or after the expiry of the period for which deposit is kept depending upon whether it is a demand deposit or a term deposit. In the case of demand deposit signified by savings bank account or current account banker has to pay the money on demand. Duty on the part of the banker is laid down under section 31 of Negotiable Instruments Act, 1881 which states as under:

“The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required to do so. And in default of such payment, must compensate the drawer for any loss or damage caused by such default.”

1. Section 31 applies to bankers only. The drawee in the case of a cheque is the banker and banker only. You may recall the definition of the term ‘cheque’ which runs as follows:

“Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.”

2. Availability of sufficient balance in the account is the pre-requisite. In other words, if there is no balance in the account, there is obligation to pay on account of the cheque drawn on a banker.

3. The balance available in the account should be properly available to the payment of the cheque. Under the following circumstances, balance in the account may not be available for payment:

– Where the banker has exercised, his right to set off for amounts due from the customer.

– Where there is an order passed by a court, competent authority or other lawful authority restraining the bank from making payment.

4. The banker is duly-bound to pay the cheque only when he is duly required to do so. If the cheque is not properly drawn, there is no obligation of payment arising there from.

5. In case the banker refuses payment wrongfully, then he is liable only to the drawer of the cheque and not to any endorsee or holder except when:

– The bank is wound up, in which case the holder become the creditor to make a claim.

– The banker pays a cheque disregarding the crossing; the true holder can hold the banker liable.

6. A banker is liable to the drawer for any loss or damage which may have occurred to the drawer due to the wrongful dishonor of the customer’s cheque.