Crossing of Negotiable Instruments

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 Cheque Crossing

A cheque is a negotiable instrument used for the payment of a specific amount of money. Cheques can be either open or crossed. An open cheque, also known as a bearer cheque, can be cashed at the counter. A crossed cheque, however, cannot be cashed over the counter but must be deposited into the payee's bank account. Crossing a cheque adds a layer of security and ensures that the payment is traceable. There are various types of cheque crossing as outlined in Sections 123-131A of the Negotiable Instruments Act, 1881.

Types of Cheque Crossing

  • General Crossing:
  • Definition: Involves drawing two parallel transverse lines across the cheque, often with the words "and Co." or "not negotiable" between them.
  • Purpose: Ensures that the cheque can only be deposited into a bank account and not cashed directly over the counter.
  • Significance:
    • The words "and Co." have no significant legal effect.
    • The phrase "not negotiable" restricts the cheque’s negotiability, meaning the transferee cannot get a better title than the transferor.
  • Special Crossing:
  • Definition: Involves adding the name of a specific banker across the face of the cheque, with or without the words "not negotiable."
  • Purpose: Directs the paying banker to pay the cheque only through the specified bank.
  • Significance: The cheque must be collected only through the banker named in the crossing. Two parallel lines are not necessary, but the banker’s name is essential.
  • Restrictive Crossing (Account Payee’s Crossing):
    • Definition: Involves adding the words "Account Payee" or "Account Payee Only" to the crossing.
    • Purpose: Ensures that the cheque amount is credited only to the account of the payee named on the cheque.
    • Significance: The collecting banker must credit the amount to the payee's account only. If credited to any other account, the banker is liable for negligence and loses protection under Section 131 of the Act.
  • Non-Negotiable Crossing:
  • Definition: Involves adding the words "Not Negotiable" between the two parallel lines in the case of general crossing or alongside the name of the banker in the case of special crossing.
  • Purpose: Indicates that the cheque is transferable but the transferee does not obtain a better title than the transferor.
  • Significance: Removes the essential feature of negotiability, preventing the holder in due course from obtaining an indisputable title. Any defect in the title of a previous holder affects all subsequent holders.