Sections 131-131A explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 131 protects a banker who collects a crossed cheque for a customer in good faith and without negligence, even if the customer's title turns out to be defective. Section 131A applies the whole Chapter on crossed cheques to a draft as if it were a cheque. As per the consolidated text consulted, Section 131 carries two Explanations, one on crediting the customer early and one on truncated cheques.
A banker who has in good faith and without negligence received payment, for a customer, of a cheque crossed generally or specially to himself does not incur liability to the true owner merely because the customer's title proves defective (s.131). Explanation I says early credit to the customer's account does not take the banker outside the section. Explanation II puts a duty to verify the prima facie genuineness of a truncated cheque on a banker who receives payment on its electronic image (s.131). Section 131A treats a draft as a cheque for the Chapter on crossed cheques.
The problem Section 131 solves
When a crossed cheque is paid into a customer's account, the collecting banker handles it. If it later turns out that the customer had no right to the cheque, the true owner might seek to hold the collecting banker responsible. Section 131 says the banker is not liable for that reason alone, if he acted in good faith and without negligence. It is the collecting banker's counterpart to the drawee bank's rules in Sections 126 and 127 and the liability in Section 129.
For banks, customers and businesses that issue or collect crossed cheques, the dividing line is "good faith and without negligence". If a dispute arises on that line, our legal dispute resolution team can help you collect and present the facts. A note on spelling: the Act writes "indorse"; "endorse" is the common spelling.
Section 131: non-liability of a banker receiving payment
The text: "A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment."
Elements of the protection:
- A banker. The copy consulted defines "banker" in Section 3.
- Received payment for a customer. The banker is collecting for a customer.
- In good faith and without negligence. Both are required.
- Cheque crossed generally or specially to himself. The cheque must be crossed to the banker (a general crossing is open to any banker, and a special crossing names him).
- Title proves defective. The protection arises where the customer's title is bad.
- No liability by reason only of receiving payment. The words "by reason only" mean the protection covers the bare fact of receiving payment, not other wrongs.
Explanation I: early credit
"A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that he credits his customer's account with the amount of the cheque before receiving payment thereof."
So a banker who credits the customer's account first, before actually receiving the money from the drawee bank, is still treated as receiving payment "for a customer". The text does not say anything else about early credit.
Explanation II: truncated cheques
"It shall be the duty of the banker who receives payment based on an electronic image of a truncated cheque held with him, to verify the prima facie genuineness of the cheque to be truncated and any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care."
For a truncated cheque (see Section 6 for what that means in the copy consulted), the banker holds the electronic image. The duty is to verify two things: the prima facie genuineness of the cheque to be truncated, and any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care. The text sets the standard at "due diligence and ordinary care" and does not describe procedures.
Section 131A: application of the Chapter to drafts
The text: "The provisions of this Chapter shall apply to any draft, as defined in section 85A, as if the draft were a cheque."
The copy has no Chapter headings, so this article does not give a Chapter number; the text consulted places the rules on crossed cheques at ss.123 to 131A. Section 85A defines a draft (see our article on Sections 85 and 85A). Under Section 131A, a draft may be crossed, and the rules in Sections 123 to 131 apply to it as if it were a cheque.
Summary
| Provision | What it says | Key condition |
|---|---|---|
| 131 | Collecting banker not liable to true owner by reason only of receiving payment | Good faith, without negligence, for a customer, cheque crossed generally or specially to himself, title proves defective |
| Explanation I | Early credit does not defeat the protection | Banker credits customer's account before receiving payment |
| Explanation II | Duty to verify the cheque to be truncated | Payment based on electronic image; due diligence and ordinary care |
| 131A | Draft treated as a cheque for the Chapter on crossed cheques | Draft as defined in Section 85A |
Two examples
Example 1 (Section 131). Qazi Enterprises deposits a cheque crossed specially to its own bank, Rao Bank, into its account. Rao Bank credits the amount and collects from the drawee bank. Later it emerges that Qazi Enterprises obtained the cheque by a fraud on the true owner, Saxena Stores. If Rao Bank acted in good faith and without negligence, Section 131 says it does not incur liability to Saxena Stores by reason only of having received the payment. The early credit does not matter (Explanation I).
Example 2 (Explanation II). A cheque is truncated and Rao Bank holds only its electronic image. A visible alteration appears on the face of the instrument that could be spotted with due diligence and ordinary care. Explanation II places on Rao Bank the duty to verify such matters; if it fails to do so, the claim to the protection of Section 131 is open to challenge, though the text does not describe the consequence in so many words.
Points to watch
- Both good faith and absence of negligence. The text uses "and".
- Crossed to himself. The protection is for a cheque crossed generally or specially to the banker himself.
- Not a licence for fraud. The protection is stated "by reason only of having received such payment".
- Truncation. Explanation II covers the electronic image, and the standard is "due diligence and ordinary care".
- Different from a bounce. A returned cheque and the offence under Section 138 are a separate subject.
Need help with a collecting bank dispute?
If a crossed cheque has been paid to someone without title and you are the true owner, a collecting bank, or the bank's customer, the order of facts matters: who crossed it, who collected, and what the bank checked. Our legal dispute resolution team can help you set out that order against Sections 131 and 131A.
Key takeaways
- A collecting banker acting in good faith and without negligence is not liable to the true owner merely for receiving payment on a defective title (s.131).
- Early credit to the customer's account does not remove the protection (Explanation I).
- On a truncated cheque, the banker must verify prima facie genuineness and visible fraud, forgery or tampering with due diligence and ordinary care (Explanation II).
- A draft is treated as a cheque for the crossed-cheque provisions (s.131A).
Read next
- Sections 128 to 130: crossed cheque paid in and out of due course, and not negotiable
- Sections 85 and 85A: cheque payable to order and bank drafts
- Sections 132 and 133: bills of exchange drawn in sets
- Types of negotiable instruments: cheque, bill, promissory note
Disclaimer: Based on a consolidated text of the Negotiable Instruments Act, 1881 stating the position as of 26 December 2015 and on the Negotiable Instruments (Amendment) Act, 2018, as consulted on 2 October 2026. Later amendments and current criminal procedure law should be checked. This article is general information, not legal advice; check the official text before acting.