This 142 year old law proved costly for the bank, it had to pay compensation – The Daily Connection

This law of check clearance proved costly for the bank

In the digital world, our phones have made many tasks easier. Banking transactions are now done in the blink of an eye. It has also reduced transactions through cheques. In such a situation, what happens if someone reminds the bank of the 142 year old law related to check clearance? Hey sir, when this happens the bank has to pay compensation. This has happened in reality. Let us tell you the whole story?

Now ‘Cheque Truncation System’ (CTS) has come in the country for clearance of checks of banks. Due to this, physical clearance of checks has almost stopped. But a law of 1881 is still in force in the country, which legalizes many methods of physical check clearance. One of these rules proved costly for Bank of Baroda.

The bank had to pay compensation

This case pertains to the country’s financial capital Mumbai. According to a TOI news, Avinash Nuns, who works in the insurance sector, was given a check by Saraswat Bank, which he deposited in Bank of India. Saraswat Bank had endorsed this check in favor of Avinash Nuns. Along with this, signature verification also had to be done from other banks.

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Bank of India employees returned the check saying that it had a cross mark on it and as per law it was a non-transferrable cheque. Such checks cannot be endorsed in favor of a third party. This mistake cost the Bank of India dearly because it had forgotten the ‘Negotiable Instruments Act-1881’ of 1881.

Avinash complained about this to the Reserve Bank of India (RBI) and ultimately the bank had to pay a nominal compensation of Rs 1,000 to Avinash Nuns.

What is this 142 year old law?

The ‘Negotiable Instruments Act’ of 1881 gives the right to transfer the ownership of all payment instruments like cheques, promissory notes, bills of exchange and checks and bills to a third party. For this, the paying party has to endorse it on the back of the check in favor of a third party, that’s all. Banks may not accept such check endorsement requests today, but this 142 year old law is still in force.


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