RBI/2005-06/376
RPCD.CO.RF. BC No. 78/07.38.03 / 2005-06
April 27, 2006
All State Co-operative Banks/ District Central Co-operative
Banks/ Regional Rural Banks
Dear Sir
Collection of account payee cheques – Prohibition on crediting
proceeds to third party account
Please refer to our circular RPCD.No.BC 31/07.38.01/96-97
dated September 2, 1996, advising that the banks should not collect third party
' account payee' instruments on behalf of their constituent societies. As banks
are aware, an account payee cheque is required to be collected for the payee
constituent.
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 above mentioned 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 depository service 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 protecting 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. These directions are issued in exercise of
the powers conferred under section 35A of the Banking Regulation Act, 1949 (As
Applicable to Co-operative Societies and Regional Rural Banks).
Yours faithfully,
(V.S Das)
Executive Director
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