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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 Godavari Bank is crossed specially to Eastern Bank. Eastern Bank crosses it specially to Frontier Bank, stating that Frontier Bank is its agent for collection, and Frontier Bank presents it. Separately, another cheque on Godavari Bank was crossed specially by the holder to Eastern Bank and also to Western Bank, with neither an agent for collection. How should Godavari Bank act?

Godavari Bank should pay the first cheque to Frontier Bank and refuse the second. A second special crossing to an agent for collection is permitted, whereas Section 127 requires refusal when a cheque is crossed specially to more than one banker and no agent for collection is involved.

  1. APay both cheques, since special crossings are always valid
  2. BRefuse both cheques, as each has more than one special crossing
  3. CPay the first cheque to Frontier Bank and refuse the second chequeCorrect
  4. DRefuse the first cheque and pay the second to the earlier-named banker

Explanation

Under Section 125, the banker to whom a cheque is crossed specially may cross it again specially to another banker, his agent, for collection, and Section 127 excepts this case. The second cheque is crossed to two bankers with no agency, so Section 127 requires the drawee to refuse payment.

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