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Section 3: Interpretation clause

Negotiable Instruments Act • Official Statutory Text & Practice Guide

Statutory Regulation
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Act 1881
Section 2 All 148 Sections of Negotiable Instruments Act Section 4

Legal Commentary & Landmark Judgments: Section 3

Section 3 provides the statutory definition of a 'banker', recognizing all persons, partnerships, and incorporated companies acting as bankers within the ambit of the Act's regulatory rights and duties.

  • Comprehensive Scope: Includes any person or body of persons, whether incorporated or not, who carry on the business of banking, accepting deposits withdrawable by cheque or draft.
  • Interplay with Banking Regulation Act: Operates in tandem with Section 5(b) of the Banking Regulation Act, 1949, standardizing duties regarding cheque collection and clearing.
  • Fiduciary & Contractual Duties: Imposes strict duties on bankers regarding verification of signatures, execution of mandates, and prompt return of dishonoured instruments.
Key Landmark Precedents:
  • Canara Bank v. Canara Sales Corporation (1987) 2 SCC 666: The Supreme Court held that the relationship between a banker and its customer is debtor and creditor; the bank cannot debit a customer's account based on a forged cheque signature.
  • Federal Bank Ltd. v. V.M. Jog Engineering Ltd. (2001) 1 SCC 663: Examined the standard of care expected from a prudent commercial banker when dealing with letters of credit, negotiable instruments, and commercial paper clearances.
Courtroom Practice & Strategic Litigation Guidance:

In financial litigation, establishing whether an intermediary or fintech clearing house qualifies as a 'banker' is pivotal. The statutory protection afforded to collecting bankers under Section 131 and paying bankers under Section 85 depends directly on satisfying Section 3 criteria.

Section 2 All 148 Sections of Negotiable Instruments Act Section 4