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

Ramesh Traders issued a cheque to Kavita Exports and crossed it generally. The cheque was presented over the counter at the drawee bank's branch by a person who claimed to be Kavita's employee and asked for cash. Under the Negotiable Instruments Act, 1881, what should the drawee bank do?

The drawee bank must refuse cash payment. Under Section 126, a generally crossed cheque can be paid only to a banker, so payment over the counter to an individual, even with an authority letter or an indemnity, is not allowed.

  1. APay cash to the person, because he is in possession of the cheque
  2. BPay cash only if the person produces an authority letter from Kavita Exports
  3. CRefuse cash payment, because a generally crossed cheque can be paid only to a bankerCorrect
  4. DPay cash only after getting an indemnity from the person presenting it

Explanation

Section 126 provides that where a cheque is crossed generally, the drawee banker shall not pay it otherwise than to a banker. Cash over the counter is therefore not permitted. An authority letter or indemnity does not alter this statutory restriction.

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