Crossing of Cheques

Crossing of Cheques:

In negotiable instrument act 1881 section 123-131,details is written about crossed cheques.

Cross cheques means the sum of that cheque only recovered from a specified banker and it will be credited to the holder account .

It is not payable in the counter.Its considerable only as cheque not as Bill of exchange or promissory note.

Types Of Cheques:

There are two types of cross cheques 

1.General Crossing.

2.Special Crossing.

1.General Crossing:

In NI Act section 123 ,General cross cheque bears two parallel lines with words such as:

                       

                      

                   

In section 126,Sum of general crossed can only be paid from bank to bank.

2.Special Crossing:

NI act section 124 refers to special crossed cheques.It is written as:

Along with :

                              

                      

                   

d) Significance of General Crossing:

i. The effect of general crossing is that it gives a direction to the paying banker.

ii. The direction is that, the paying banker should not pay the cheque at the counter. It should be paid only to a fellow banker. In other words, payment is made through an account and not at the counter. Sec.126 of the NI Act clearly lays down that, “Where a cheque is crossed generally, the banker on whom it is drawn, shall not pay it otherwise than to a banker”.

iii. If a crossed cheque is paid at the counter in contravention of the crossing:

a) The payment does not amount to payment in due course. So, the paying banker will lose his statutory protection;

b) He has not right to debit his customer’s account, since, it will constitute a breach of his customer’s mandate;

c) He will be liable to the drawer for any loss, which he may suffer;

d) He will be liable to the true owner of the cheque who may be a third party, irrespective of the fact, that, there is no contract between the banker and the third party. As a general rule, a banker is answerable only to his customer.

iv. The main intention of crossing a cheque is to give protection to it. When a cheque is crossed generally, a person who is not entitled to receive its payment, is prevented from getting that cheque cashed at the counter of the paying banker. But, it gives only a limited protection, in the sense, that if the thief is not the customer of the paying banker, he can encash that cheque through his banker, by forging the signature of the payee. However, it can be detected. To avoid this danger, special crossing was introduced.

c) Significance of Special Crossing:

i. It is also a direction to the paying banker. The direction, is the, that paying banker should pay the cheque only to the banker, whose name appears in the crossing or to his agent. Sec.126 the NI Act clearly lays down that “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.

ii. If a cheque specially crossed to a bank is presented by another bank, not in the capacity of its agent, the paying banker is justified in returning the cheque.

iii. A special crossing gives more protection to the cheque than a general crossing. It makes a cheque still safer because a person, who does not have a real claim for it, would find it difficult to obtain payment. In special crossing, the cheque is specially crossed to the payee’s banker. Hence, the banker, in whose favour the cheque has been crossed, knows the payee and his specimen signature well. So, he will not collect if for any person other than the payee. If there is any forgery, it can be easily detected by the banker. But, we can not say that, it gives full protection in the sense, that, an unscrupulous person, who has an account in the same bank but at a different branch, can encash it by forging the signature of the payee. It can also be detected.

Difference between General and Special Crossing

General Crossing	Special Crossing
1. Drawing of two parallel transverse lines is a must.	1. Drawing of two parallel transverse lines is not essential.
2. Inclusion of the name of a banker is not essential.	2. Inclusion of the name of a banker is essential.
3. In General Crossing paying banker to honor the cheque from any bank A/C.	3. In Special Crossing paying banker to honor the cheque only when it is presented through the bank mentioned in the crossing and no other bank.
4. General Crossing can be converted into a Special Crossing.	4. Special Crossing can never be converted to General Crossing.
5. In case of General Crossing the words “And Company” or “& Company” or “Not Negotiable” between the transverse lines to highlight the crossing does not carry special significance.	5. In case of Special Crossing the name of a banker may be written within two parallel transverse lines or with the words “And Company” or “Account Payee Only” or “Not Negotiable” the inclusion of these words has become customary.

Double Crossing

When a cheque bears two separate special crossing, it is said to have been doubly crossed.

As per section-127, “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.”

Thus a paying banker shall pay a cheque doubly crossed only when the second banker is acting only as the agent of the first collecting banker and this has been made clear on the instrument. Such crossing may be done in those cases where that banker in whose favour the cheque is to be paid.

Opening of crossing/cancellation of crossing:

If the crossing on a cheque is cancelled, it is called opening of the crossing. The cheque thereafter becomes an open cheque. Only the drawer of the cheque is entitled to open the crossing of the cheque by writing the words “Pay Cash” and canceling the crossing along with his full signature. His initials are not sufficient for this purpose.

The paying banker must be very careful in ascertaining the validity or genuineness of the drawer’s signature opening the crossing. If drawer’s signature (already on the cheque) is forged by the holder in order to open the crossing and the payment is obtained at the counter, the banker will remain liable to the true owner of the cheque. The banker is under an obligation to pay the cheque according to the direction of the drawer conveyed through the crossing on the cheque.

General cross cheques: