1. A Paying Banker gets statutory protection under Section 85(1) of the NI Act for payment of an "Order Cheque" only if:
The cheque is crossed specially.
The endorsement is regular and payment is in due course.
The customer has confirmed the payment on phone.
The payment is made to the true owner.
Explanation:
Section 85(1) protects the paying banker for order cheques if the endorsement purports to be regular (even if forged), provided the payment is made in Due Course (good faith and without negligence).
2. Section 131 of the NI Act protects the Collecting Banker only if:
The cheque is an open cheque.
He credits the account after the cheque is cleared.
The cheque is uncrossed.
He acts in good faith and without negligence for a customer.
Explanation:
Protection to Collecting Banker (Section 131) applies only for crossed cheques collected for a customer in good faith and without negligence .
3. In the Cheque Truncation System (CTS), the physical cheque is truncated by:
The Paying Bank
The Collecting Bank
The RBI
The Customer
Explanation:
In CTS, the Presenting/Collecting Bank captures the image of the cheque and sends the electronic data to the Paying Bank. The physical movement of the cheque is stopped (truncated) at the Collecting Bank's end.
4. Under Section 85(2) of the Negotiable Instruments Act, 1881, a paying banker is discharged from liability for payment of a bearer cheque even if:
It bears a forged endorsement at the back.
The drawer's signature is forged.
The payment is not made in due course.
The cheque is crossed specially.
Explanation:
Section 85(2) provides that where a cheque is originally expressed to be payable to bearer, the banker is discharged by payment in due course to the bearer of the instrument, notwithstanding any endorsement whether in full or in blank appearing thereon. This means the banker need not verify the regularity of endorsements on a bearer cheque because the title passes by delivery, and endorsements are legally superfluous for negotiation.
5. Section 131A of the Negotiable Instruments Act extends the protection available to a collecting banker (under Section 131) to which other instrument?
Demand Drafts
Promissory Notes
Treasury Bills
Bills of Exchange
Explanation:
Section 131 protects a banker collecting crossed cheques. Section 131A explicitly applies this chapter to Demand Drafts drawn by one branch of a bank upon another, ensuring that collecting bankers get the same protection for DDs as they do for cheques.
6. Under Section 10 of the NI Act, "Payment in Due Course" requires payment to be made in accordance with the apparent tenor of the instrument, in good faith, and:
In cash only.
Before maturity.
To the holder only.
Without negligence.
Explanation:
The definition of Payment in Due Course (Sec 10) has three pillars: 1. Payment according to apparent tenor. 2. Payment in good faith. 3. Payment without negligence to any person in possession thereof. If the bank is negligent (e.g., ignores a visible alteration), it is not Payment in Due Course and protection is lost.
7. Which of the following alterations is allowed under the NI Act without the drawer's signature (i.e., it is not a material alteration)?
Changing "Order" to "Bearer".
Converting a general crossing into a special crossing.
Changing the date to a future date.
Altering the name of the payee.
Explanation:
Section 125 of the NI Act permits a holder to convert a general crossing into a special crossing. This enhances security and is not considered a material alteration that voids the instrument.
8. If a cheque is crossed "Account Payee Only", the collecting banker acts negligently if he:
Collects it for an endorsee (transferee).
Credits the proceeds to the payee's account.
Collects it for the payee named in the cheque.
Verifies the identity of the payee.
Explanation:
An "Account Payee" crossing directs the collecting banker to credit the proceeds ONLY to the account of the payee named. If the banker collects it for someone else (an endorsee), they lose statutory protection under Section 131 because it is considered negligence.
9. If a banker pays a cheque before the date mentioned on it (Post-Dated Cheque), the payment is:
Not Payment in Due Course.
Valid if the customer consented verbally.
Payment in Due Course.
Valid if the amount is small.
Explanation:
Payment in Due Course must be "in accordance with the apparent tenor". A post-dated cheque becomes payable only on or after the date on its face. Paying it earlier violates the tenor and is negligent, stripping the bank of statutory protection.
10. A "Paying Banker" is protected under Section 85(1) of the NI Act against a forged endorsement on an "Order Cheque" because:
The bank has verified the signature with the drawer.
Forgery is valid in banking.
The customer is always liable.
Banks are not expected to know the signatures of payees/endorsees.
Explanation:
A banker is bound to know the drawer's signature (their customer) but cannot possibly know the signatures of all payees and endorsees in the world. Hence, statutory protection is given if the endorsement appears regular.