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CS Professional · Banking and Insurance - Laws and Practice · Payment and Collection of Cheques and Other Negotiable Instruments

A cheque drawn on Bank X is crossed specially to Bank P and also specially to Bank Q. Neither bank is acting as agent of the other for collection. Bank Q presents the cheque to Bank X for payment. What must Bank X do under the Negotiable Instruments Act, 1881?

Bank X must refuse payment. Under Section 127, a cheque crossed specially to more than one banker must be refused by the drawee banker, unless the second crossing is to an agent for collection. No such agency exists here, so priority or indemnity does not matter.

  1. APay Bank Q, since it presented first
  2. BPay Bank P, since it was the first named bank
  3. CRefuse payment, because the cheque is crossed specially to more than one banker without being for collection through an agentCorrect
  4. DPay either bank after obtaining an indemnity from both

Explanation

Section 127 provides that where a cheque is crossed specially to more than one banker, except when crossed to an agent for the purpose of collection, the drawee banker shall refuse payment. Here neither bank is the other's collecting agent, so the exception does not apply. Bank X must refuse payment, irrespective of who presented first or of any indemnity.

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