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

Meena Textiles drew a cheque in favour of Anand Dyes. Anand Dyes crossed it specially to Bank A, and Bank A then crossed it specially to Bank B for collection as its agent. The cheque is presented to the drawee bank. How should the drawee bank act under the Act?

The drawee bank should pay Bank B. Section 127 directs refusal when a cheque is specially crossed to more than one banker, but excepts a crossing to an agent for collection. Bank B is Bank A's collecting agent, so the exception applies.

  1. APay Bank B, because the second crossing was to an agent for collectionCorrect
  2. BRefuse payment, because two special crossings always invalidate the cheque
  3. CPay Bank A, because it was the first banker named
  4. DPay either bank, whichever presents it first

Explanation

Section 127 requires refusal where a cheque is crossed specially to more than one banker, except when crossed to an agent for the purpose of collection. Here Bank B is Bank A's collecting agent, so the exception applies and payment is made to Bank B under Section 126.

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