Crossing Cheque Under Negotiable Instrument Act, 1881

Cheques remain one of the most commonly used negotiable instruments in banking and commercial transactions. However, the risk of loss, fraud, unauthorised encashment, and wrongful payment has always been associated with cheque transactions. To reduce these risks and ensure secure transfer of money, the system of cheque crossing was developed. The provisions relating to crossing of cheques are governed under the Negotiable Instruments Act, 1881, particularly Sections 123 to 131, which provide legal protection and banking instructions regarding payment of crossed cheques.

Meaning of Crossing of Cheque

Crossing of cheque refers to drawing two parallel transverse lines across the face of a cheque, with or without additional words such as “Account Payee”, “Not Negotiable”, or “& Co.”. The purpose of crossing is to direct the paying banker not to make payment over the counter in cash, but only through a bank account.

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A crossed cheque therefore adds an additional layer of security to banking transactions. It ensures that the amount mentioned in the cheque reaches the intended recipient through banking channels.

Under Section 123 of the Negotiable Instruments Act, a cheque crossed generally bears two parallel lines across its face. The crossing may also contain words like “not negotiable”.

Purpose of Crossing a Cheque

Crossing of cheques serves several important banking and commercial purposes. It is widely used because it enhances safety and accountability in financial transactions.

Prevention of Fraud and Misuse

A crossed cheque cannot normally be encashed directly at the bank counter. The amount is credited through a bank account, reducing the possibility of theft, fraud, or wrongful encashment by unauthorised persons.

Ensuring Payment Through Banking Channels

Crossing directs the banker to make payment only through another banker. This creates a proper banking record and ensures transparency in financial dealings.

Identification of the Recipient

Since payment is routed through a bank account, the identity of the person receiving the amount can easily be traced. This reduces disputes relating to payment.

Security in Commercial Transactions

Businesses, institutions, and individuals often use crossed cheques because they provide greater reliability and legal protection compared to open cheques.

Who Can Cross a Cheque?

Section 125 of the Negotiable Instruments Act authorises certain persons to cross a cheque.

Drawer of the Cheque

The person issuing the cheque has the primary authority to cross it either generally or specially before delivering it to the payee.

Holder of the Cheque

The holder of a cheque may also cross an uncrossed cheque. A generally crossed cheque may also be converted into a specially crossed cheque by the holder.

The holder may additionally add the words “Not Negotiable” to increase protection.

Banker

A banker to whom a cheque is specially crossed may further cross it to another banker acting as an agent for collection purposes. This is known as double crossing.

Types of Crossing of Cheques

The Negotiable Instruments Act recognises different types of cheque crossing. Each type carries a distinct legal effect and banking instruction.

General Crossing

General crossing is governed by Section 123 of the Negotiable Instruments Act.

A cheque is said to be generally crossed when:

• Two parallel transverse lines are drawn across the face of the cheque.
• The words “& Co.” or “Not Negotiable” may appear between the lines.
• The words “Account Payee” may also be written within the crossing.

In the case of general crossing:

• Payment cannot be made across the counter in cash.
• The cheque must be presented through a banker.
• The amount is generally credited into the account of the holder or payee.

General crossing therefore ensures safer banking transactions by restricting direct cash payment.

Special Crossing

Special crossing is provided under Section 124 of the Negotiable Instruments Act.

A cheque is specially crossed when the name of a specific banker is written across the face of the cheque, with or without the words “Not Negotiable”.

Unlike general crossing, drawing two parallel lines is not compulsory in special crossing.

• The name of a particular bank is specifically mentioned.
• Payment can only be made through the bank named in the crossing.
• It offers greater protection than general crossing.

The paying banker must honour the cheque only when it is presented through the banker named in the crossing. No other banker can receive payment unless acting as an authorised agent.

Difference Between General Crossing and Special Crossing

General crossing and special crossing differ in several important aspects.

• Presence of Banker’s Name: In general crossing, the banker’s name is not necessary. In special crossing, the name of a specific banker must be mentioned.
• Mode of Payment: A generally crossed cheque can be collected through any banker. A specially crossed cheque can only be collected through the banker named in the crossing.
• Degree of Security: Special crossing provides greater security because payment is restricted to a particular bank.
• Drawing of Parallel Lines: General crossing requires two parallel lines. In special crossing, mentioning the banker’s name itself is sufficient.

Double Crossing

Section 127 of the Negotiable Instruments Act deals with double crossing. Double crossing occurs when a cheque specially crossed to one banker is again crossed specially to another banker for collection purposes. Such crossing is valid only when the second banker acts as an agent of the first banker.

Double crossing is generally used when:

• The original collecting banker has no branch at the place of payment.
• Another banker is appointed as collection agent.

If a cheque is specially crossed to more than one banker without any agency relationship, the paying banker must refuse payment.

Non-Negotiable Crossing

Section 130 of the Negotiable Instruments Act deals with non-negotiable crossing.

When the words “Not Negotiable” are added to a crossed cheque, the cheque becomes non-negotiable in nature.

The cheque may still be transferred, but the transferee cannot acquire a better title than the transferor.

This means that if the transferor had defective title, the transferee also receives defective title.

This type of crossing provides additional protection against fraud and wrongful transfer of cheques.

Account Payee Crossing

Account payee crossing is commonly used in banking practice though it is not expressly mentioned in the Negotiable Instruments Act. Under this crossing, the words “Account Payee” or “A/C Payee Only” are written between the crossing lines.

The collecting banker is directed to credit the cheque amount only to the account of the payee named in the cheque. This crossing significantly reduces the risk of misuse or unauthorised collection.

Non-Negotiable Account Payee Crossing

Sometimes both “Not Negotiable” and “Account Payee” are added together.

This creates a non-negotiable account payee crossing, which combines the protections of both forms of crossing.

Duties of Paying Banker

The paying banker has important legal duties regarding crossed cheques.

Payment According to Crossing

Under Section 126 of the Negotiable Instruments Act:

• A generally crossed cheque must be paid only to a banker.
• A specially crossed cheque must be paid only to the banker named in the crossing or its authorised agent.

Avoiding Wrongful Payment

The banker must carefully examine the crossing before making payment. Payment contrary to the crossing instructions may result in liability.

Duty of Care

A banker must not ignore crossing instructions and make cash payment over the counter. Failure to follow legal requirements may amount to negligence.

Liability of Paying Banker

A paying banker may become liable to:

• The true owner of the cheque.
• The drawer of the cheque.

If payment is made contrary to the crossing instructions, the banker may be responsible for the resulting loss.

Section 129 of the Negotiable Instruments Act imposes liability where payment of a crossed cheque is made improperly.

Duties of Collecting Banker

The collecting banker also has several important responsibilities while dealing with crossed cheques.

• Examination of Crossings: The banker must carefully inspect the nature of crossing before accepting the cheque for collection.
• Collection for Proper Account: A cheque marked “Account Payee” should be collected only for the account of the named payee.
• Verification of Endorsements: The banker must verify endorsements and material particulars before collecting the cheque.
• Intimation of Dishonour: If the cheque is dishonoured, the collecting banker must inform the customer promptly.
• Establishing Bona Fides: The banker should exercise proper caution while opening accounts and collecting cheques for customers in order to avoid negligence.

Conclusion

Crossing of cheques is an important safeguard under the Negotiable Instruments Act, 1881 that ensures security, accountability, and proper banking procedures in cheque transactions. Through different forms of crossing such as general crossing, special crossing, account payee crossing, and non-negotiable crossing, the law seeks to minimise fraud and ensure safe transfer of funds. The provisions relating to paying bankers and collecting bankers further strengthen the banking system by imposing duties and liabilities regarding payment and collection of crossed cheques.