cheque
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Kabir Jaiswal is a student of National University of Study and Research in Law, Ranchi (NUSRL) who writes about crossing cheque under the Negotiable Instrument Act.

Introduction

There are serious risks associated with payments to the wrong person. These risks can be avoided by giving the paying banker a clear direction about the person to whom the cheque is to be paid by specifying certain words on the cheque itself. This is crossing of a cheque. “Crossing is an instruction given to the paying banker to pay the amount of the cheque through a banker only and not directly to the person presenting it at the counter.”  The Negotiable Instruments Act, 1881, sets out in Section 123 – 131 the provisions concerning the crossing of cheques.

Section 6 of the Negotiable Instruments Act, 1881

The term cheque is defined as “A bill of exchange drawn on a banker specified and not expressed to be payable other than on request.” To understand this definition clearly, however, it is important that we also consider how an exchange bill was defined in accordance with the Act.

Section 5 of the Negotiable Instruments Act, 1881

“Bill of exchange is a written instrument containing an unconditional order signed by the manufacturer that directs a certain person to pay a certain amount of money only to, or to, a certain person or to the instrument holder.”

What is Crossing of Cheques?

  • Cheque crossing is recognized in the Negotiable Instruments Act of 1881.
  • Crossing a cheque means drawing two parallel transverse lines between the lines on the cheque with or without additional words such as “& CO.” or “Account Payee” or “Not Negotiable.”

Why Cross a Cheque?

  • Minimizing the risk: The crossing of the cheque gives the paying banker instructions to pay the amount only through the banker and not directly to the payee or holder presenting the amount at the counter. It is an effective way to minimize the risk of loss or falsification.
  • Paying instructions: Crossing is a way for the paying banker to generally pay the money to a bank or to a particular bank, as applicable.
  • Payment through the bank: Only a banker can secure the payment of a crossed cheque, which makes it easy for the holder to present it with a quarter of the respectability and credit that is known. By using a crossed cheque, you can ensure that the specified amount cannot be cashed but can only be credited to the bank account of the payee.
  • The receiver of the amount: As only a banker secures the payment of a crossed cheque, the money received can easily be traced for whose use.
  • Negotiability: Merely a cheque crossing does not affect its negotiability.

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Who is authorized to Cross a Cheque?

In accordance with the Sec. 125 of the Negotiable Instruments Act, the following persons are authorized to cross the cheque, apart from the drawer:

The Holder

  • The holder of a cheque is authorized to cross a cheque, either in general or in particular if the cheque is not crossed. 
  • He is also entitled to cross a cheque, especially if the same is generally crossed.
  • He can also add the words “non- negotiable” to crossed cheques in general and in particular.

The Banker 

  • The banker in whose favour a cheque is crossed in particular can also cross it in favour of another banker or his agent for collection purposes. Such a crossing is called Special Double-crossing.

Different Types Of Crossing of Cheque

A crossing of cheques is basically of 2 types: 

  • General Crossing 
  • Special Crossing of cheques. 

General Crossing

Section 123 of the Negotiable Instruments Act deals with the general crossing of cheque, In the following cases, a cheque is generally considered to be crossed:

  • If two parallel transverse lines are marked across the cheque face. 
  • If the cheque has an abbreviation “& C” between the two parallel transverse lines.
  • If the cheque is written between the two parallel lines, the words “Not Negotiable”.
  • When the cheque comes with the words “A / C. Payee” between the two parallel transverse lines.

Implications of General Crossing

  • The effect of the general crossing is that any other banker must submit such a cheque to the paying banker.
  • Payment can only be made by bank account and should not be made at the bank’s payment counter.
  • The banker then credits the cheque amount to either the owner of the cheque or the payee ‘s account.

Special Crossing

According to section 124 of the Negotiable instruments Act, 

  • For a cheque to be deemed to have been crossed, the banker’s name had to be added across the face of the cheque.
  • In case of a special crossing, a cheque must not be crossed by drawing two parallel lines.

Section 124 of The Negotiable Instruments Act, 1881 defines Special Crossing as: “Where a cheque bears across its face an addition of the name of a banker, either with or without the words “not negotiable”, that in addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially and to be crossed to that banker.”

  • Also known as Restricted Crossing.
  • Two transverse lines must not necessarily be drawn. 
  • The banker’s name is added across the face of the cheque. 
  • The banker’s name may or may not carry the abbreviated word’ & Co.’
  • Payment can only be made through the bank of the crossing. The banker mentioned at the crossing can appoint another banker to collect such cheques as his agent. Therefore, it is safer than ‘generally’ crossed cheques.
  • Specially Crossed Cheques are not convertible into General Crossing.

Implications of Special Crossing – The bank pays the banker with his name between the crossing lines.

General Crossing v. Special Crossing

There are also substantial differences between the special and general crossing of cheques. Whereas the inclusion of the banker’s name is a must in the case of a special crossing, the need for a general crossing is to draw two parallel lines. The special crossing of a cheque indicates that the paying banker must only honour the cheque if it is presented to him by the bank mentioned at the crossing. No other person can receive the cheque.

Double Crossing

Section 127 of The Negotiable Instruments Act, 1881

“Where a cheque is crossed specially to more than one banker except when crossed to an agent for the purpose of collection, the banker on whom it is drawn shall refuse payment thereof.”

  • A double-crossed cheque shall be paid by the banker if the second banker acts only as of the agent of the first collecting banker and this is clearly stated on the cheque. i.e., Crossing must specify that the banker to whom it was particularly crossed again acts as the first banker’s agent for the purpose of collecting the cheque.

Why Double Crossing a Cheque?

  • In the case that the banker to whom a cheque is crossed, has no branch at the place of the paying banker,
  • Or if he feels the need otherwise, he can cross the cheque to another banker( specifying clearly).

Non-Negotiable Crossing

  • Although the non- negotiable crossing does not result in the cheque becoming non- transferable, it still loses much of the negotiability of the cheques.
  • This prevents anyone other than the cheque transferor from holding a better title than the one he has.
  • However, if such a cheque is transferred for consideration and if such a transfer does not lead to a defect in the transferor ‘s title, the validity of such a non- negotiable crossing is still not removed from the cheque.

Section 130 of the Negotiable Instrument Act which deals with Non-Negotiable crossing states that “a person taking a cheque crossed generally or especially, bearing in either case the words ‘not negotiable’ shall not have and shall not be capable of giving a better title to the cheque than that which person from whom he took it had.”

A/C Payee Crossing

In order to ensure that a cheque will not be able to be encashed by anyone but the rightful owner of the cheque, the words “account payee” are often added to the crossing ensuring that the bank receiving such a cheque is to collect the amount only for the purposes of the payee’s account. 

 The Advantages of A/C Payee Crossing

  • The same does not lead to a reduction in the cheque ‘s negotiability or transferability. The Court held that this was also the case in various matters like National Bank v. Lilke and also in the case of A.Z. Underwood Ltd. v. Bank of Liverpool & Martins Ltd.  
  • Checking with an account payee crossing does not affect the paying banker in any way since it only has to ensure that even if the cheque cannot be collected by the payee himself, the proceeds of the payee are credited to the account of the payee.

Usage of A/C Payee: A Custom 

Although the words ‘ account payee’ is not mentioned in the Negotiable Instrument Act, they are still considered to be part of the law because of their widespread practice and use.

Non-Negotiable A/C Payee Crossing

It has often been observed that both non- negotiable crossing and crossing of accounts payee help to ensure that cheques are extremely secure. Sometimes, a type of crossing is referred to as a’ non- negotiable account payee crossing.’

Advantages of Non-Negotiable Account Payee Crossing for the Payee:

  • The non- negotiable element of the crossing makes the cheque non- negotiable and therefore removes the more insecure element of the cheque’s negotiability;
  • The crossing of the’ account payee’ element serves as a direction for the payee banker to collect the cheque from the payee only, serving as a warning of the banker’s responsibility if he does not do the same.

The Implication of Non-Negotiable Account Payee Crossing– Payment will be credited to the payee account named in the cheque.

Paying Banker Accountability

Paying banker is also accountable to:

  1. The true owner of the cheque;
  2. The drawer of such a cheque.

Reasons for such Accountability

  • If the paying banker pays for a cross-cheque that does not comply with the wishes of the drawer that is transmitted through the cheque, Then the banker in question shall be held liable for any loss suffered by him as a result of such payment to the true owner of the crossed cheque.
  • Similarly, if the paying banker fails to make the payment in accordance with the provisions of Sec. 126 of the Negotiable Instrument Act, the law considers it to be a payment not made in accordance with the instructions of the drawer. This law prevents such a banker from debiting the check amount on his customer’s account, as such payment is considered to have been made to the wrong person.

Duties of a paying banker as to crossed cheques

  1. For general Crossing- Sec. 126 of the Negotiable Instruments Act states that crossed cheques are usually only paid to a banker.
  2. For Special Crossing- A cheque crossed in particular should only be paid to the banker to whom it is crossed or who is a collection agent.
  3. For Second Special Crossing- Sec. 127 of the Negotiable Instruments Act, 1881, allows the banker who would act as the agent of the first banker to collect a second special crossing. In the second special crossing, it is, therefore, necessary to specify that the banker in whose favour he is made is the collection agent on behalf of the first banker.
  4. Care and Attention- A banker must not pay a cheque by ignoring the crossing since it is not legally justified to pay the payee in cash over the counter.

Duties of a Collecting Banker

  1. Drafts Collection: The collecting banker’s duty is to collect and place the proceeds of both cheques and drafts for his customer’s account, since 85-A of the Negotiable Instruments Act, 1881, defined drafts as “an order to pay money, drawn from one bank office to another bank office”.
  2. Checking Account Holder bona-fides: Establish the Bona- fides of the Account Holder: the banker must ask to determine the Bona- fides of the person who wishes to become a customer. If the banker fails to do so or fails to make a proper introduction or a reliable reference from the proposed customer, he will commit a breach of duty in accordance with section 131 of the Negotiable Instruments Act, 1881.
  3. Crossings Examination: The collecting banker must carefully examine all the crossings and cheques he receives for collection. If the customer gives him a cheque crossed to any banker, in particular, he should not accept it for collection. Likewise, a cheque crossed “Account Payee Only” should only be collected for the payee named in the cheque and nobody else.
  4. Indorsements Examination: While paying, the paying banker usually relies on the discharge of the collecting banker. It is, therefore, a very important duty of the collecting banker to examine all approvals and other material parts of all cheques and drafts before submitting them for collection and discharge on the instruments.
  5. Dishonour Notice: If a cheque is dishonoured upon presentation, the collecting banker is responsible for informing his client accordingly. In addition, the banker has the right to debit a dishonoured cheque to the account of his customer if he has already credited the cheque.

In accordance with Sec. 126 of the Negotiable Instrument Act, the paying banker is obliged to make the payment in accordance with the terms of the crossing on a crossed cheque. This was also laid down in Sec. 126 of the Negotiable Instrument Act, according to which:

“Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker and where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed or his agent for collection.”

  • Therefore, only a banker is allowed to receive a crossed cheque. 
  • The paying banker is not authorized to send the proceeds of a crossed cheque to the payer or the cheque holder.
  • Any failure by the paying banker to pay a crossed cheque shall be punishable by liability as defined in Sec. 129 of the Negotiable Instrument Act.

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