Chapter 14: Responsibility of Collecting Bank (JAIIB – Paper 2)
1. Statutory protection to a collecting bank under Section 131 of the Negotiable Instruments Act is available only if the bank acts:
A. Without any service charge
B. As per instructions of the customer
C. Under implied authority
D. In good faith and without negligence
Section 131 of the NI Act protects a collecting bank from liability for conversion if it has acted in good faith and without negligence while collecting a crossed cheque.
2. A collecting bank will lose its statutory protection if it:
A. Fails to verify the apparent genuineness of the endorsement
B. Credits the proceeds to the customer’s account
C. Collects a crossed cheque through clearing
D. Acts under customer’s mandate
Negligence such as not checking endorsements or ignoring suspicious circumstances can deprive the bank of statutory protection.
3. Which of the following conditions is NOT required for a collecting bank to claim statutory protection?
A. Cheque must be crossed
B. Collection must be for a customer
C. Cheque must be free from material alteration
D. Bank must act without negligence
Section 131 does not specifically require the bank to check for alterations; however, if alterations are apparent and ignored, it may amount to negligence.
4. If a collecting bank collects a cheque for a person who is not its customer, will it get statutory protection?
A. Yes, if cheque is crossed
B. No, because statutory protection is available only when collection is done for a customer
C. Yes, if collected in good faith
D. Yes, if collected without negligence
Statutory protection under NI Act is applicable only when the bank collects the cheque on behalf of its customer. Collection for a non-customer is not protected.
5. A forged endorsement on a crossed cheque is collected by the bank. What is the liability of the collecting bank?
A. Bank will be liable if it failed to act without negligence
B. Bank has absolute protection
C. Liability is of the drawer only
D. Liability is of the paying bank
If a collecting bank is negligent in detecting forged endorsements, it loses statutory protection and may be held liable for conversion.
6. The foremost duty of a collecting bank is to:
A. Ensure payment from the drawer
B. Act as guarantor for the cheque
C. Act as an agent of the customer in collecting the cheque
D. Verify drawer’s balance before sending for collection
The collecting bank acts only as an agent of the customer to collect payment from the paying bank. It does not guarantee payment.
7. When collecting cheques, a bank must ensure that:
A. The instrument is collected only for an existing customer
B. The drawer is known to the bank
C. The paying banker has sufficient funds
D. The cheque is not post-dated beyond six months
Statutory protection applies only if the bank collects cheques for its own customer. Collecting for a non-customer is not protected under NI Act.
8. One of the duties of the collecting bank is to verify:
A. Drawer’s financial position
B. Apparent regularity of endorsements
C. Existence of consideration for the cheque
D. Drawer’s intention for issuing cheque
The collecting bank must ensure that endorsements are regular and in proper order to avoid negligence.
9. A cheque is materially altered but appears suspicious. What is the duty of the collecting bank?
A. Still collect if signature is genuine
B. Ignore alterations as bank is only an agent
C. Seek indemnity from customer and proceed
D. Refuse to collect as alterations indicate possible forgery
Collecting altered or suspicious instruments may amount to negligence and make the bank liable; hence, the bank must refuse collection.
10. Duty of care requires the collecting bank to:
A. Guarantee the funds of the drawer
B. Take reasonable precautions to avoid negligence while handling cheques
C. Ensure customer has sufficient balance
D. Act as trustee of the cheque amount
The bank must exercise reasonable care while collecting cheques, such as verifying endorsements and avoiding suspicious transactions.
