RBI./2005-06/282
DBOD.BP.BC No. 56 / 21.01.001/ 2005-06
January 23, 2006
The Chairmen/Chief Executives of all Commercial Banks
(excluding RRBs)
Dear Sir,
Collection of account payee cheque – Prohibition
on crediting proceeds to third party account
As banks are aware an account payee cheque is
required to be collected for the payee constituent. As regards, account payee
cheques drawn in favour of banks, it had been indicated, vide our circular DBOD.NO.BC.23/21.01.001/92
dated September 9, 1992, that banks which credit cheques drawn in their favour
by other banks marked 'A/c. payee' to the accounts of constituents who are not
named payees therein, without proper mandate of the drawer do so at their own
risk and will be responsible for the unauthorized payment.
2. In view of the recent misuse of Initial Public
Offer (IPO) process by certain individuals/entities and reports received in
this regard from SEBI, the Reserve Bank of India took up detailed investigations
at some banks to ascertain the modus operandi adopted by different parties in
manipulating the system. It was observed that despite the abovementioned instructions,
banks had credited the proceeds of individual account payee refund orders into
the accounts of the brokers instead of to the individual accounts on the request
of the associates of DP providers. This has resulted in manipulation of the
payment system and has facilitated the perpetration of irregularities. This
manipulation would not have taken place but for the banks deviating from the
procedure for collection of account payee cheques. The deviations can also not
be sanctified as a prudent market practice since it has the potential to expose
the banks to various risks.
3. Being satisfied that in consonance with the
legal requirements and in particular the intent of the Negotiable Instruments
Act, and with a view to protect the banks being burdened with liabilities arising
out of unauthorized collections, and in the interest of the integrity and soundness
of the payment and banking systems, and in order to prevent recurrence of deviations
observed in the recent past, the Reserve Bank has considered it necessary to
prohibit the banks from crediting 'account payee' cheque to the account of any
person other than the payee named therein. The Reserve Bank accordingly directs
the banks that they should not collect account payee cheques for any person
other than the payee constituent.
4. Where the drawer/payee instructs the bank
to credit the proceeds of collection to any account other than that of the payee,
the instruction being contrary to the intended inherent character of the 'account
payee' cheque, bank should ask the drawer/payee to have the cheque or the account
payee mandate thereon withdrawn by the drawer. This instruction would also apply
with respect to the cheque drawn by a bank payable to another bank. Instructions
contained in the Bank's circular DBOD No.BC.23/21.01.001/92 dated September
9, 1992 shall stand modified to that extent.
5. These directions are issued in exercise of
the powers conferred under section 35A of the Banking Regulation Act, 1949.
Yours faithfully,
(Anand Sinha)
Executive Director
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