CHAPTER-1

INTRODUCTION
Ordinarily, the payee of a cheque is entitled to encash at the counter of the paying banker by
presenting it within the specified banking hours. In case of a bearer cheque, the paying
banker does not need to go into an elaborate exercise with regard to the identity of the holder
of the cheque. 1An order cheque is also paid by the paying banker on being apparently
satisfied about the true identity of the presenter of the cheque. To ensure that the cheque is
not encashed by a wrong person, by concealing his identity, there has developed a practice
called crossing of a cheque. The practice has been given legal coverage in the Negotiable
Instrument Act, 1881.

When cheque is crossed it in effects means a request-more appropriately, an instruction by

the client not to pay the cheque directly over the counter but to a banker only for crediting the
payees account with the bank. A cheque bearing such an instruction is called a crossed
cheque. The crossing of a cheque is intended to ensure that its payment is made to the right
payee. Section 123 to 131 of the Negotiable Instrument Act contains provisions relating to
crossing. According to section 131-A, these sections are also applicable in case of drafts.
Thus not only cheques but bank drafts also may be crossed.

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Before we consider the details of the crossed cheque, it is essential to understand the origin
of the crossed cheque in order to better understand the purpose that crossed cheques serve in
the banking practice and law. In England, prior to 1853, when drafts on a banker, payable to
order on demand were rendered valid if stamped with a stamp of value one penny. The long
established practice usual with bankers clerks presenting cheques, at the Clearing House,
was to stamp the names of the bank across the cheques as an indication of the channel though
whom the payment was desired to be made. In cases where the name of the payees banker
was not known, it became usual to cross the cheque with two lines and insert the words &
Co." between them. This was done in order to indicate that it was to be paid through some
banker. Crossing was also done to ensure safety, in case a clerk, carrying cheques to the
Clearing House was robbed of them. This practice of crossing cheques developed gradually
with the growth of commerce and industry as a means of protection.
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In 1856, crossing had become a subject of legislation. Through the Statute of 1856 it had
been enacted that where a cheque was crossed only with two lines with or without the words
& Co.", the cheque must be presented through some banker and when crossed in favour of a
particular banker, its payment should be made only to that banker, or another banker acting as
an agent for collection of the banker named in the special crossing. The Statute had imposed
an obligation on the paying banker to make payment of crossed cheques only to or through
some banker, as had been directed by the crossing of the cheque. The Court of Common

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Pleas and the Exchequer Chamber, in 4Simmons v Taylor held that the crossing of a cheque
was not an essential part of a cheque. Tannan notes that in order to nullify the effect of this
decision, the Act of 1858 was passed which declared crossing to be a material part of a
cheque once it was there and thus foundation of the law of special crossings was laid down.
The holder of the cheque was identified as having the power to cross it, but no express
remedy was given to him against a banker who had paid the cheque disregarding the crossing.

The concept of negotiability had evolved as a method of providing efficient commercial

substitutes for money. The cheque, it must be remembered, is essentially a payment and not a
credit instrument. Daniel Murray very succinctly deals with the problems caused by this
application of negotiability principles to cheques and argues that the cheques had developed
in such a manner that the negotiability principles should not have been made applicable to the
instruments such as cheques.

A cheque is either "open" or "crossed". An open cheque can be presented by the payee to the
paying banker and is paid over the counter. A crossed cheque cannot be paid across the
counter but must be collected through a banker.
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A crossing is a direction to the paying banker to pay the money generally to a banker or to a
particular banker, and not to pay otherwise. The object of crossing is to secure payment to a
banker so that it could be traced to the person receiving the amount of the cheque. Crossing is
a direction to the paying banker that the cheque should be paid only to a banker or a specified
banker. To restrain negotiability, addition of words "Not Negotiable" or "Account Payee
Only" is necessary. A crossed bearer cheque can be negotiated by delivery and crossed order
cheque by endorsement and delivery. Crossing affords security and protection to the holder of
the cheque.

CROSSING IN INDIAN LAW

Crossing of Cheques is dealt with in Indian Law, under the Negotiable Instruments Act, 1881
under sections 123 and 124. Section 123 deals with the general crossing while section 124
deals with special crossing.
It should be remembered that by crossing a cheque generally, the banker is directed not to
make payment unless the same is made through another banker. Thus a person not entitled to
receive its payments, is prevented from getting the cheque cashed at the counter of the paying
banker. In order to receive a payment from a crossed cheque, it is essential that the holder or
payee of the said crossed cheque must have an account with the drawee bank. He can even
negotiate it to someone who has an account with the drawee bank.
In case of a special crossing, the name of the banker is written on the face of the cheque to
whom or to whose collecting agent (a different banker), payment of the cheque should be
made. The special crossing cheques are safer since the person having no claim will find it
difficult to obtain payment, except through the banker named in the crossing, who is likely to

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know the payee, and therefore, will not collect it for any other person. The addition of the
words account payee ensures that the receiving bank is to collect the money for the benefit
of the payees account only.
 CHAPTER-2
LEGISLATIVE FRAMEWORK

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MODES OF CROSSING (Sections 123-131A)
There are two types of crossing which may be used on cheque, namely: (i) General,
and (ii) Special. To these may be added another type, Le. Restrictive crossing.
It is general crossing where a cheque bears across its face an addition of two parallel
transverse lines and/or the addition of the words "and Co." between them, or addition of "not
negotiable". As stated earlier, where a cheque is crossed generally, the paying banker will pay
to any banker. Two transverse parallel lines are essential for a general crossing (Sections 123-
126).
In case of general crossing, the holder or payee cannot get the payment over the counter of
the bank but through a bank only. The addition of the words "and Co." do not have any
significance but the addition of the words "not negotiable" restrict the negotiability of the
cheque and in case of transfer, the transferee will not give a better title than that of a
transferor.
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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 constitutes a crossing and the cheque is
crossed specially and to that banker. The paying banker will pay only to the banker whose
name appears across the cheque, or to his collecting agent. Parallel transverse lines are not
essential but the name of the banker is the insignia of a special crossing.
In case of special crossing, the paying, banker is to honour the cheque only when it is
prescribed through the bank mentioned in the crossing or it's agent bank.

WHO CAN CROSS A CHEQUE?

The drawer of a cheque can cross the cheque if he wishes to do so. When the drawer of the
cheque issues an open cheque, any holder of it can cross it generally, thereby converting a
general crossing into a special one or can add the words non-negotiable. Tannan notes that
when the cheque is specially crossed, the banker in whose favor it is crossed may once again
cross it specially to another banker. In this case, the latter would be acting as the collection
agent of the former. He further notes that if a cheque is further crossed by a drawer, he has
the right to cancel the crossing by writing the words, pay cash", across the cheque and by
putting down his full signature on the cheque. Therefore, the Drawer can generally cross a
cheque. This may be done generally or specially. In cases where the drawer has not crossed
the cheque, the holder of the cheque may cross it either generally or specifically. In some
instances, where the cheque is specially crossed, the banker may cross it again to another

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banker as his agent for collection. This is referred to as double special crossing and is dealt
with later in this paper.
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ACCOUNT PAYEES CROSSING
Such crossing does, in practice, restrict negotiability of a cheque. It warns the collecting
banker that the proceeds are to be credited only to the account of the payee, or the party
named, or his agent. If the collecting banker allows the proceeds of a cheque bearing such
crossing to be credited to any other account, he will be guilty of negligence and will not be
entitled to the protection given to collecting banker under Section 131. Such crossing does
not affect the paying banker, who is under no duty to ascertain that the cheque is in fact
collected for the account of the person named as payee.

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NOT NEGOTIABLE
CROSSING

A cheque may be crossed not negotiable by writing across the face of the cheque the words
"Not Negotiable" within two transverse parallel lines in the case of a general crossing or
along with the name of a banker in the case of a special crossing. Section 130 of the
Negotiable Instruments Act provides "A person taking a cheque crossed generally or
specially bearing in either case with 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". The crossing of cheque "not negotiable" does not mean that it is non-
transferable. It only deprives the instrument of the incident of negotiability. Normally
speaking, the essential feature of a negotiable instrument as opposed to chattels is that a
person who takes the instrument in good faith, without negligence, for value, before maturity
and without knowledge of the defect in the title of the transferor, gets a good title to the
instrument.
In other words, he is called a holder in due course who acquires an indisputable title to the
cheque. (When the instrument passes through a holder-in-due course, it is purged of all
defects and the subsequent holders also get good title). It is exactly this important feature
which is taken away by crossing the cheque "not negotiable". In other words, a cheque
crossed not negotiable" is like any other chattel and therefore the transferee gets same title
to the cheque which his transferor had. That is to say that the transferee cannot claim the
rights of a holder-in-due-course. So long as the title of the transferors is good, the title of the
transferees is also good but if there is a taint in the title to the cheque of one of the endorsers,
then all the subsequent transferees' title also become tainted with the same defect-they cannot
claim to be holders-in-due-course.
The object of this Section is to afford protection to the drawer or holder of a cheque who is
desirous of transmitting it to another person, as much protection as can reasonably be
afforded to him against dishonestly or actual miscarriage in the course of transit. For

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example, a cheque payable to bearer is crossed generally and is marked "not negotiable". It is
lost or stolen and comes into the possession of X who takes it in good faith and gives value
for it, X collects the cheque through his bank and paying banker also pays. In this case, both
the paying and the collecting bankers are protected under Sections 128 and 131 respectively.
But X cannot claim that he is a holder-in-due course which he could have under the normal
circumstances claimed. 10The reason is that cheque is crossed "not negotiable" and hence the
true owner's (holder's) right supercedes the rights of the holder-in-due-course. Since X
obtained the cheque from a person who had no title to the cheque (Le. from one whose title
was defective) X can claim no better title solely because the cheque was crossed "not
negotiable" and not for any .other reason. Thus "not negotiable" crossing not only protects the
rights of the true owner of the cheque but also serves as a warning to the endorsees' to
enquire thoroughly before taking the cheque as they may have to be answerable to the true
owner thereof if the endorser's title is found to be defective.
"Not negotiable" restricts the negotiability of the cheque and in case of transfer, the transferee
will not get a better title than that of a transferor.
If the cheque becomes "not negotiable" it lacks negotiability. A cheque crossed specially or
generally bearing the words "not negotiable lacks negotiability and therefore is not a
negotiable instrument in the, true sense. It does not restrict transferability but restricts
negotiability only.

TYPES OF CROSSING OF CHEQUE

GENERAL CROSSING

a) Meaning: According to section-123 of NI Act, where a cheque bears across its face an
addition of the words and company or any abbreviation thereof between two parallel
transverse lines or two parallel transverse lines simply, either with or without the words not
negotiable that addition shall be deemed a crossing & the cheque shall be deemed to be
crossed generally.

b) Specimen of General Crossing:

c) Features of General Crossing:

I. From the above section we find that a cheque is said to be crossed generally when it bears
across its face any of the following:
Two transverse parallel lines.
Two transverse parallel lines with the word And Company.
Two transverse parallel lines with any abbreviation of the word & Company.
Two transverse parallel lines with the words Not Negotiable.
Two transverse parallel lines with the words Account Payee Only.

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ii. The cheque crossed generally does not cease to be negotiable further.
iii. The collecting banker can collect the proceeds of the cheque in the account of that person
mentioned on the cheque.

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 customers account, since, it will constitute a breach of his
customers 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.

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SPECIAL CROSSING

a) Meaning: A special crossing implies the specification of the name of a banker on the face
of the cheque. Sec.124 of N.I. Act 1881 reads. 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.
Drawing of two transverse and parallel lines is not necessary in case of a special crossing.
When a cheque has been specially crossed, the banker upon whom it has been drawn will
make the payment only to that banker in whose favour it has been crossed.

b) Specimen of Special Crossing:

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.

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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 payees
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.

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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.

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LIABILITY OF THE PAYING BANKER ON THE CROSSED CHEQUES
Section 126 of the Negotiable Instruments Act, 1881 lays down the duty of the paying banker
to make payment as per the crossing of the cheque. Section 126 states 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 a banker to whom it is crossed or his agent for collection".
This shows that the payment of the crossed cheque must be made only to a banker. In case
the banker does not adhere to the requirement under section 126, then section 129 of the
Negotiable Instruments Act, 1881, the banker paying a cheque crossed generally, otherwise
than to a banker, or a cheque crossed specially, otherwise than to the banker to whom the
same is crossed, or his agent for collection being a banker, shall be liable to the true owner of
the cheque for any loss he may sustain owing to the cheque having been so paid."
The paying banker is usually not responsible to the payee or the holder of the crossed cheque
since there is no contract between the two. The contract exists between the banker and the

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true owner of the crossed cheque. Therefore, in case of non adherence to the requirements of
the crossed cheque, the paying banker will be liable to the true owner of the crossed cheque,
for any loss sustained by him as a result of the (faulty) payment.
In the case of Indian Overseas Bank v Bismilla Trading Co. the court (Madras High Court)
held that where a bank wrongfully dishonored the cheque, the award of a compensation to the
customer for loss of reputation to the extent of one lakh rupees was held to be neither high
nor excessive.
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THE LIABILITY OF THE DRAWER
In case of failure of adherence to section 126 of the Negotiable Instruments Act, 1881, the
payment so made will not be considered to be one made with the mandate of the customer.
Therefore, in case the banker has paid the amount over the counter, is not entitled to debit the
account of the customer with the amount of the cheque and is not considered to be a payment
made in due course. Where a person signs and delivers to another a negotiable instrument, he
gives authority to the holder of the cheque to complete it if it is incomplete, to make a
negotiable instrument for an amount. The drawer of such a cheque who signs the cheque shall
become liable for the instrument to any holder in due course for the amount. This is provided
that no person other than a holder in due course shall recover from the person delivering the
instrument anything in excess of the amount intended by him to be paid there under.
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OPENING OF A CROSSING CHEQUE
The cancellation of a crossing on a cheque is known as opening of crossing. The crossed
cheque after the cancellation or opening becomes an open cheque and loses the properties of
the crossed cheque. In this case, only the drawer of the cheque is entitled to open the crossing
of a cheque. This is often done by writing the words pay cash and cancelling the crossing
accompanied by the drawers signature.

RIGHT AND OBJECTIVES OF CROSSING

Following parties have the right to cross a cheque;

1. Drawer of the Cheque can cross the cheque at the time of writing the cheque. This
crossing can be general, special or restricted.
2. Holder of the cheque, can cross the cheque in his possession, if it is already not
crossed by the drawer for any reason.
3. Collecting bank crosses the cheque deposited with it, for receiving the amount of said
cheque named therein or any uncrossed cheque is deposited by a customer in his
account for collection. It is necessary to cross all the cheques before depositing.

It is possible that payment of a bearer or even of an order cheque is made or received to a

wrong person. In this case bank has got no responsibility except for order cheque. Hence the
main objective of the crossing is to make sure that the payment is made or credited to the

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right person. In case of any fraud or wrong payment , it is easy to detect the person or party
receiving the wrong payment just by checking the record of the bank, because the said cheque
is deposited , collected and posted in bank ledger though a bank account of the person
concerned.

The other objective of crossing is that large amount of money is transferred from one person
or place to another, without any risk of cash involved in payment.

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The only disadvantages of crossing is that sometimes it becomes inconvenient for the
holder of a cross cheque to get the cash at once if he is urgency. If the cross cheque is of the
same branch or of local branch, then the inconvenience is not so much as compared to the
out-station cross cheque, in which mail process involves and the efficiency of the other
branch in releasing payments.

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 CHAPTER-3
JUDICIAL ANALYSIS
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1. RAVI CHOPRA vs. STATE & ANR

JUDGEMENT-the Supreme Court has held that the document should be sent for
comparison by a handwriting expert to enable the Magistrate to compare the "disputed
signature or writing with the admitted writing or signature of the accused" not only the
cheque but also the letter ought to have been referred for opinion of the handwriting expert
this Court finds no infirmity in the order of the learned MM declining to refer to the cheques
for the opinion of the handwriting expert. The petitions are accordingly dismissed but in the
circumstances with no order as to costs. The pending applications are disposed of.

2. 18MUNISH MEHRA & GROW GOLD EXAM & ANR vs STATE

BANK OF INDIA

JUDGEMENT- it has been observed that where only summoning order has been passed
and evidence is yet to be recorded, charge is yet to be framed against the petitioner, if any
offence is made out, then quashing of the proceedings before the commencement of the trial
and leading of evidence would not be proper.

3. 19SYDICATE BANK vs. UNITED COMMERCIAL BANK &

OTHERS

JUDGEMENT- it was held that it is not open to the appellant to contend that a suit cannot
lie on the basis of a forged document. Though, in that case, the court did not go into the
question of negligence under section 131 of the Act since the cheques in question were not
cheques crossed specially in favour of the party in whose favour the cheques had been drawn,
the facts in that case would show that whenever a cheque is drawn in favour of a fictitious
person, a duty was cast on the collecting bank to prove that it had not acted negligently and
that it had collected the amount in good faith. The appellant-bank having failed to discharge
the burden cast on it under section 131 of the Act, the trial court was justified in decreeing the
suit.
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4. Smt. HARSHILA CHORDIA vs. INCOME-TAX OFFICER

JUDGEMENT- It was, therefore, held by the Supreme Court that when that was the only
evidence available and when such evidence was accepted by the Tribunal, it was not open to
the High Court to interfere with such a finding of fact.

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 CHAPTER-4
CONCLUSION
Through this paper, I have tried to trace, from the origins of the concept of a crossed cheque,
the reasons for the same. I have also attempted to look at the various types of crossing of
cheques and consequences, liabilities for the bankers, the drawer etc. for the many
possibilities arising from the crossed cheque apart from the question of negotiability and
transferability in the various types of crossing and the double crossing and opening of
crosses. It has been established now that the crossing of cheques has been followed in a
manner such that it would lead to greater safety and risk diminution in case of loss of the
crossed cheque in terms of liabilities.
 ANNEXURES
INTERNET SITES REFERRED

1. www.indiankanoon.com
2. www.legalserviceindia.com
3. www.lawctopus.com
4. www.vakilno1.com

BOOKS REFERRED

1. BANKING LAW & NEGOTIABLE INSTRUMENTS ACT, SHARMA & NAINTA.

2. BANKING SYSTEM, FRAUDS AND LEGAL CONTROL, R.P. NAMITA.
3. BANKING LAW & PRACTICES IN INDIA- M.L. TANNAN.