Crossing of Cheques

A cheque is an unconditional order drawn on a specified banker and is always payable on demand. The drawer of a cheque cannot attach any condition thereto. He may, however, give specific instruction to the paying banker regarding the mode of payment of the cheque. Ordinarily, the payee of a cheque is entitled to encash the cheque at the counter of the paying banker by presenting it within the specified banking hours. There is risk in paying a cheque across the counter

Crossing of Cheques
To avoid such risks or to detect payment made to wrong persons, the drawer may give a direction to the paying banker through certain words marked on the cheque itself, which constitute crossing . Crossing is an instruction given to the paying bank to pay the amount of the cheque through a banker or through an account in the same branch. A cheque bearing such instruction is called a Crossed cheque , others without such crossing are Open cheques

Crossing of Cheques
Section 123 to 131 of Negotiable Instruments act contain provisions relating to crossing. According to section 131-A, these Sections are also applicable in case of Drafts. Thus Drafts may also be crossed

Crossing of Cheques
TYPES OF CROSSING There are two types of crossing General Crossing and Special Crossing General Crossing According to Section 123 where a cheque bears across its face an addition of the words and company or any abbreviation thereof, between two parallel lines, or two parallel transverse lines simply, either with or without the words not negotiable that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally.

Crossing of Cheques
The lines must be on the face of the cheque Parallel to each other In cross direction Inclusion of the words and company is immaterial and of no special consequence SPECIAL CROSSING According to section 124 where a cheque bears across its face an addition of the name of a banker, either with or without the words not negotiable , that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed to that banker

Crossing of Cheques
Special crossing on the cheque is a direction to the paying banker to honour the cheque only when it is presented through the bank mentioned in the crossing and no other bank. In addition the words and company or Account Payee only or Not negotiable may also be written

Crossing of Cheques
What does not constitute crossing Sections 123 and 124 define the two types of crossing in very clear terms. The specific lines or words which constitute general or special crossings respectively are spelt out very categorically. The inclusion of any other word/words, without the essential ingredients of crossing on the face of a cheque does not constitute crossing. This means the two parallel are essential to constitute crossing

Crossing of Cheques
SPECIMEN OF CROSSING General Crossing - __________________
_____________________________ ______________________________ and company ______________________________ _______________________________ & Co _________________________________

Crossing of Cheques
General Crossing __________________ Not Negotiable ___________________ ___________________ Account Payee only ___________________

Crossing of Cheques
SPECIAL CROSSING Punjab National Bank ___________________ Punjab National Bank ___________________ ___________________ Account Payee only Punjab National Bank ___________________ ___________________ Not Negotiable Punjab National Bank ___________________

Crossing of Cheques
Persons who can cross a Cheque The holder of cheque The Bank to whom the cheque is crossed specially may again cross it specially to another bank, his agent for collection Liability of the Paying Banker on Crossed Cheque The paying bank on whom a crossed cheque is drawn must make payment there of in accordance with the crossing. Section 126 lays down this duty of the paying bank as follows:

Crossing of Cheques
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 bank on whom it is drawn shall not pay it otherwise than to the bank to whom it is crossed or his agent for collection. As per section 129 any bank paying a cheque crossed generally, otherwise than to a bank or a cheque crossed specially, otherwise than to the bank to whom the same is crossed, or his agent for collection being a bank, shall be liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid.

Crossing of Cheques
The Paying bank shall be liable to the true owner of the cheque and to the drawer as follows: Liability to the true owner Liability to drawer Not Negotiable Crossing A person taking a cheque crossed generally or specially, 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 the person from whom he took it had

Crossing of Cheques
Account Payee Crossing - These words constitute an instruction to the collecting bank that he should collect the amount of the cheque for the benefit of the payee s account only i.e., to credit the amount to the account of the payee only and no body else. RESERVE BANK S DIRECTIVE ON ACCOUNT PAYEE CHEQUE 1. Crediting of proceeds of account payee cheques to parties other than that clearly delineated in the instructions of the issuers of the cheques is unauthorized and should not be done in any circumstances 2. If any bank credits the account of a constituent who is not the payee named in the cheque without proper mandate of the drawer, it would do so at its own risk and would responsible for the unauthorized payment.

Crossing of Cheques
3. In case of an account payee cheque where a bank is a payee, the payee bank should always ensure that there are clear instructions for disposal of proceeds of the cheques from the drawer of the cheque. If there are no such instructions, the cheque should be returned to the drawer. Obliterating a crossing Section 89 provides protection to paying bank where a cheque is presented for payment which does not at the time of presentation appear to be crossed or to have had a crossing which has been obliterated, payment thereof by a bank liable to pay and paying the same according to the apparent tenor thereof at the time of payment and otherwise in due course, shall discharge such banker from all liability thereon and such payment shall not be questioned by reason of the cheque having been crossed.

Crossing of Cheques
This section provides statutory protection to the paying banker, provided the following conditions are fulfilled A. The cheque does not appear to be a crossed one at the time of presentation or the obliteration or erasing of the crossing is not apparent; and B. The payment is made according to the apparent tenor of the cheque and in due course (under section 10). The paying Banker is discharged from his liability if such cheque is paid at the counter on presentation. He can debit the amount the cheque to the drawer s account.

Crossing of Cheques
Opening 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 cancelling the crossing along with his full signature.