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RBI/2005-06/292
UBD. BPD.Cir. No.30 /14.01.062/ 2005-06
January 30, 2006
Chief Executive Officers of
All Primary (Urban) Co-operative Banks
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 UCBs, 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 has come to our notice that banks had credited the
proceeds of individual account payee cheques into the accounts of other customers,
at times, under the pretext of prudent market practice. This has resulted in
manipulation of the payment system and has facilitated the perpetration of irregularities.
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 UCBs 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 UCBs 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payee mandate thereon withdrawn by the drawer.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.
5. These directions are issued in exercise of
the powers conferred under section 35A of the Banking Regulation Act, 1949 (AACS).
Yours faithfully,
(N.S.Vishwanathan)
Chief General Manager in-Charge
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