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.— s
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.
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.
Legal Commentary & Landmark Judgments: Section 131
Section 131 confers statutory protection on collecting bankers, enacting that a banker who in good faith and without negligence receives payment for a customer of a crossed cheque shall not incur liability to the true owner by reason only of having received such payment.
In cheque conversion litigation where an employee opened a fraudulent account and diverted company cheques, sue the collecting bank under Section 131. If the bank opened the account without strict KYC verification or accepted cheques drawn in a corporate name into a personal account, the bank is guilty of negligence and must pay the full amount.