Chapter XIV - Of Crossed Cheques
Section 131
Section 131: Collecting banker and defective title
Section 131 gives a collecting banker qualified protection against a true owner’s claim based only on collecting a crossed cheque whose title proves defective.
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This article is for general information. Refer to the Negotiable Instruments Act, 1881 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment.
Explanation I.—A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that he credits his customer’s account with the amount of the cheque before receiving payment thereof.
Explanation II.—It shall be the duty of the banker who receives payment based on an electronic image of a truncated cheque held with him, to verify the prima facie genuineness of the cheque to be truncated and any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care.
Key rule and applicability
The bank must have received payment for a customer, in good faith and without negligence, for the stated crossed cheque. Earlier credit to the customer does not by itself remove the collection-for-customer character. The electronic-image explanation adds the stated checking duty for a truncated cheque held by the banker.
Limits and related provisions
This is qualified protection, not blanket immunity for all banking conduct or every title defect. Both good faith and absence of negligence matter, and the true owner’s claim must be analysed in light of the narrow reason-only wording and the actual collection facts.
Hypothetical business example
Hypothetical: a bank collects a crossed cheque for a customer before a title defect is discovered. It examines the crossing, customer collection role, good-faith and care records rather than assuming that processing through a bank automatically resolves liability.
Practical decision flow
Preserve the cheque image, crossing and customer collection records.
Assess good faith, negligence and any apparent warning signs in the transaction.
For the relevant truncated-cheque image, retain evidence of the checks required by Explanation II.
Practical checklist
Do
- Preserve the cheque image, crossing and customer collection records.
- Assess good faith, negligence and any apparent warning signs in the transaction.
- For the relevant truncated-cheque image, retain evidence of the checks required by Explanation II.
Avoid
- This is qualified protection, not blanket immunity for all banking conduct or every title defect. Both good faith and absence of negligence matter, and the true owner’s claim must be analysed in light of the narrow reason-only wording and the actual collection facts.
Glossary
- Collecting banker
- The banker receiving payment for its customer in the stated setting.
- Defective title
- A defect in the customer’s entitlement to the cheque.
Frequently asked questions
Does the bank receive unconditional immunity?
No. The provision requires good faith, absence of negligence and the specified collection setting.
Does crediting the account before collection automatically defeat protection?
Explanation I says that earlier credit does not prevent receipt from being for a customer within the section.
Is there an electronic-image checking duty?
Yes. Explanation II describes the banker’s duty to verify prima facie genuineness and apparent fraud, forgery or tampering with due diligence and ordinary care.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026