Rights of Paying banker
by Paying Banker has certain legal rights while making payment of cheques to protect itself from loss and fraud. These rights allow the banker to refuse payment in specific situations and to act safely according to law. They are mainly provided under the Negotiable Instruments Act, 1881, and general banking practices in India.
1. Right to Refuse Payment in Certain Cases
The paying banker has the right to dishonour a cheque when proper conditions are not fulfilled. It can refuse payment if there is insufficient balance in the account, if the cheque is irregular, damaged, post dated, stale, or missing signature. The banker can also refuse if stop payment instructions are received from the customer. This right protects the banker from financial loss and legal liability. Refusing payment in such cases is lawful and does not harm the banker’s reputation. It ensures cheques are paid only when all banking and legal requirements are satisfied.
2. Right to Close Account on Customer’s Death or Insolvency
When the banker receives official information about the death, insanity, or insolvency of a customer, it has the right to stop all payments from the account immediately. The banker must not honour cheques after such notice because the legal ownership of money changes. This right helps the banker avoid making illegal payments. The account is usually frozen until legal heirs or authorities give proper instructions. This protects both the banker and the rightful owners of the money.
3. Right to Set Off
The paying banker has the right to adjust money lying in a customer’s account against any loan or overdraft taken by the same customer in the same bank. For example, if a customer has a fixed deposit and also has an unpaid loan, the banker can use the deposit amount to recover the loan. This right is called the right of set off. It helps the bank recover its dues without court action. However, this right is used only after giving proper notice to the customer.
4. Right to Lien
The banker has the right to retain securities, goods, or valuable documents of the customer until the customer repays the loan or debt. This right is known as banker’s lien. For example, if a customer deposits fixed deposit receipts or title deeds as security, the banker can hold them until payment is made. This right provides safety to the bank against loan default. It applies only to lawful debts and not to items kept for safe custody.
5. Right to Charge Interest and Service Fees
The paying banker has the right to charge interest on loans, overdrafts, and advances given to customers. It can also collect reasonable service charges for cheque books, account maintenance, fund transfers, and other banking services. These charges must follow RBI guidelines and be clearly informed to customers. This right allows banks to cover operating costs and earn profit. Without this right, banks would not be able to provide continuous financial services efficiently.
6. Right to Refayment in Proper Manner
The paying banker has the right to insist that cheques must be presented in proper form and at the correct branch within banking hours. If a cheque is presented late, at a wrong branch, or without required details, the banker can refuse payment. The banker can also demand proper identification if payment is made in cash. This right ensures safety in transactions and helps prevent fraud. It protects the banker from making wrongful payments and ensures smooth and lawful banking operations.
7. Right to Protection for Payment in Due Course
When a banker makes payment honestly, carefully, and according to banking rules, it is called payment in due course. Under the Negotiable Instruments Act, the paying banker gets legal protection for such payments. Even if the cheque later turns out to have some defect unknown to the banker, the banker is not held liable if there was no negligence. This right encourages bankers to carry out transactions confidently while following proper verification procedures.
8. Right to Recover Wrong Payments
If the paying banker mistakenly pays money due to clerical error, fraud, or double payment, it has the right to recover the amount from the person who wrongly received it. For example, if extra money is credited or paid by mistake, the banker can ask for a refund. If the receiver refuses, legal action can be taken. This right protects banks from financial loss and ensures fairness in transactions.