RRBs - Collection of Account Payee Cheques - Prohibition on Crediting Proceeds to Third Party Account

RBI/2011-12/256

RPCD.CO.RRB.BC.No. 30 /03.05.33/2011-12

November 11, 2011

The Chairmen 

All Regional Rural Banks (RRBs)

Dear Sir,

Collection of Account Payee Cheques - Prohibition on Crediting Proceeds to Third Party Account

Please refer to our circular RPCD. CO. RF. BC. No. 78 / 07.38.03 / 2005-06 dated April 27, 2006 in terms of which RRBs are prohibited from crediting 'account payee' cheque to the account of any person other than the payee named therein.

2. In view of concerns raised that these instructions are not being adhered to, we reiterate that banks shall strictly adhere to the instructions contained in our circular referred to above and not collect account payee cheques for any person other than the payee constituent.

3. With a view to mitigating the difficulties faced by the members of co-operative credit societies in collection of account payee cheques, relaxation was extended vide our circular RPCD.CO.RRB.BC.No.25/03.05.33/2010-11 dated October 19, 2010. In terms of the said circular, RRBs may consider collecting account payee cheques drawn for an amount not exceeding Rs.50,000/- to the account of their customers who are co-operative credit societies, if the payees of such cheques are the constituents of such co-operative credit societies. The above relaxation will continue as hitherto, subject to the conditions outlined in the circular dated October 19, 2010 referred to above.

4. RRBs may note that the above prohibition and relaxation shall also extend to drafts, pay orders and bankers’ cheques.

5. Please acknowledge the receipt of the circular to our Regional Office concerned.

Yours faithfully,

(C.D.Srinivasan) 

Chief General Manager

_____________________

Note : RPCD.CO.RRB.BC.No.25/03.05.33/2010-11 dated October 19, 2010 and RPCD. CO. RF. BC. No. 78 / 07.38.03 / 2005-06 dated April 27, 2006 is mentioned below

RBI/2010-11/ 238

RPCD.CO RRB.BC.No. 25 /03.05.33/2010-11

October 19, 2010

The Chairmen

All Regional Rural Banks (RRBs)

Dear Sir,

Collection of third party account payee cheques – Prohibition on 

crediting proceeds to third party accounts

Please refer to our circular RPCD.CO.RRB.BC.No.19/03.05.33/2009-10 dated September 11, 2009 on the captioned subject, in which it has been stated that the practice of collection of cheques crossed ‘account payee’ through third party accounts (of co-operative credit societies) is not permissible. However, to facilitate collection of cheques from a payment system angle, it has been clarified therein that sub-members of the clearing houses may collect the cheques of their customers for the credit to their accounts through the sponsor member, under certain circumstances referred to therein.

2.  It has been brought to notice that since co-operative credit societies are not even sub-members of clearing houses, members of such co-operative credit societies who do not have bank accounts have difficulties in collection of account payee cheques drawn in their name. With a view to mitigating the difficulties faced by the members of co-operative credit societies in collection of account payee cheques, it is further clarified that collecting banks may consider collecting account payee cheques drawn for an amount not exceeding Rs.50,000/- to the account of their customers who are co-operative credit societies, if the payees of such cheques are the constituents of such co-operative credit societies. While collecting the cheques as aforesaid, banks should have a clear representation in writing given by the co-operative credit societies concerned that, upon realization, the proceeds of the cheques will be credited only to the account of the member of the co-operative credit society who is the payee named in the cheque. This shall, however, be subject to the fulfillment of the requirements of the provisions of Negotiable Instruments Act, 1881, including Section 131 thereof.

3.  The collecting bank shall also carry out proper due diligence with respect to such co-operative credit societies and ensure that KYC documents of the customers are preserved in the society's records and are available to the bank for scrutiny.

4. The collecting banks should, however, be aware that in the event of a claim by the true owner of the cheque, the rights of the true owner of the cheque are not in any manner affected by this circular and banks will have to establish that they acted in good faith and without negligence while collecting the cheque in question.

Yours faithfully,

(B.P.Vijayendra)

Chief General Manager

_______________________________

StCBs/DCCBs/RRBs prohibited from crediting Account Payee Cheque Proceeds to Third Party Account

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