Crossing of Cheques is a measure to restrict the payment of said cheques. There are various ways of crossing a cheque.
The implications of crossing of various types of cheques is explained —
- Payment of crossed cheques — generally and specially crossed: As per Sec. 126 of the Negotiable Instrument Act, the paying banker is obliged to make the payment as per the terms of crossing on a cheque —
- Payment of generally cheque crossed: Where a cheque is generally crossed, the banker on whom it is drawn shall not pay it to anyone but the banker.
- Payment of specially cheque crossed: Where a cheque is specially crossed, the banker on whom it is drawn shall not pay it to anyone but the banker to whom it is crossed, or his agent for the purpose of collection.
- Any failure to pay a crossed cheque by the paying banker shall be punishable by liability as per the provisions in Sec. 129 of the Negotiable Instrument Act.
- Payment in Contravention of crossing/out of due course of crossing (section 129):
- Payment in contravention of crossing does not amount to ‘payment in due course’ and the paying banker shall stand liable to the drawer or true owner of such crossed cheque for any kind of loss that he may suffer.
- Also, the banker paying the crossed cheque shall not be liable to any kind of statutory protection if the payment is made out of due course of crossing.
- Under this section, the drawer is not, as a general rule, liable to the holder for refusing to pay a crossed cheque, but still if a banker pays such a cheque out of due course of crossing, he shall be liable for breach of duty outside statutory provisions.
- With regards to the effects of ‘non-negotiable’ crossed cheque, as the paying banker and the collecting banker are secured, following effects emerge:
- Even if the cheque cannot be negotiated, it still with-holds its transferability i.e. it is still transferable but there will be no holder in case of such transfer. Such a cheque can be transferred; but every person who takes it shall do so at his own risk.
- The rule “nemo dat quod non habet” i.e. “a seller cannot transfer a better title than he himself has” applies in case such cheque is transferred.
- The holder of the cheque will be accountable to the true owner and the true owner can reclaim the cheque or the amount of that cheque.
- In the case of Great Western Rly Co. v. London & County Banking Co., it was held that if a cheque is marked ‘non-negotiable’ and a person obtains such a cheque by false pretence, and thus also obtains payment from the banker, then in such a case, banker’s title is affected by fraud and the banker is accountable to the true owner for the amount of that cheque.
- As for implications of crossing the cheque with ‘A/c. Payee’ or ‘A/c. Payee Only’, there are two —
- Firstly, it may effect the negotiability of such a cheque, but the cheque still remains transferable. However, such transferability is recognised only between the parties concerned.
- Secondly, the collecting banker shall collect the amount of such crossed cheque only for the payee because paying banker will pay the crossed cheque only to the payee.
- Crossed cheque with words ‘A/c. Payee’ is considered to be restrictive in nature, also known as restrictive crossing and can be paid only through a bank account. These words act as a direction to collecting banker that the amount collected off the cheque is to be credited to the account of the payee.
- Even if ‘Bearer’ is cut and the cheque is crossed, it can still be paid through an account only and not be encashed across the counter.
- No cash can be insisted across the counter of the bank and the bank is obliged not to pay cash to the presenter, even if the name on the cheque tallies with the credentials the presenter gives.
- Alteration of such crossed cheque amounts to fraud.
- The bank that has paid a crossed cheque has to give the details as to whom (which bank/branch) it has handed over the proceeds of the cheque. Similarly the bank which has collected the proceeds of such cheque will have to give the details of the customer to whom the proceeds have been handed over.
- The effect of crossing is that in addition to the person who has got the proceeds, the banker collecting and banker paying the cheque will have to take responsibility for the transaction. Any mischief monger will get caught if he/she has acted against the rules or law of the land.
