CROSSED CHEQUES AND THEIR

Question 1

Crossing

Answer 1

Crossing: After drawing a cheque the drawer puts two parallel transverse lines across the cheque and the cheque is then said to have been `crossed’. Crossing is a special feature of cheques and there are two kinds of it—General and Special.

Question 2

(1) GENERAL CROSSING:

Answer 2

Under Section 123 of the Negotiable instruments Act, 1881, Genera! Crossing has been defined as under:
“Where a cheque bears across its face an addition of the words ‘and company’ or any abbreviation thereof between two parallel transverse lines simply, either with or without the words ‘not negotiable‘, that addition shall be deemed to be a crossing, and the cheque shall be deemed to be crossed generally”.

Question 3

Cheque Crossed “Account Payee”

Answer 3

Section 123-A of the Negotiable Instruments Act. 1881. defines that, “Where a cheque crossed generally bears across its face an addition of the words “Account Payee” between the two parallel transverse lines constituting the general crossing. the cheque, besides being crossed generally, is said to be crossed “Account Payee”.

Question 4

Section 124 of Negotiable Instrument Act:

Answer 4

“Where a cheque hews 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 special crossing. and the cheque shall be deemed crossed specially: and to be crossed to that banker.”

not negotiable crossing does not restrict in any way the transferability of a cheque. How-ever, the holder in good faith. and for value. takes the in­strument free from any defect in the title of his transferor. and is therefore. authorised to sue on the instrument in his own name.

Question 5

Crossing has following advantages:

1/2

Answer 5

1. It is an effective means of minimizing the risk of loss or forgery.
2. Crossing is a direction to the paying banker to pay the money generally to a bank or to a particular bank, as the case may be.
3. Only a banker can secure payment of a crossed cheque, as such it is easy to compel the holder to present it through a quarter of known respectability, and credit.

Question 6

Crossing has following advantages:

2/2

Answer 6

4. Since only a banker secures payment of a crossed cheque. it can easily be traced for whose use the money was received.
5. Mere crossing of a cheque does not effect its negotiability.

Question 7

Crossing is a material part of a cheque:

Answer 7

Section 125-A of the Negotiable Instruments Act, 1881, reads: “A crossing authorized by this act is a material part of the cheque; it shall:, not be lawful for any person to obliterate. or except as’ authorised by this Act. to add to or alter the crossing“.

Question 8

Duties of a Paying Banker as to Crossed Cheques

1/2

Answer 8

1. Section 126 of the Negotiable Instruments Act lays down that cheques crossed generally be paid only to a banker.
2. A cheque crossed specially should be paid only to the banker to whom it is crossed or is an agent for collection.

Question 9

Duties of a Paying Banker as to Crossed Cheques

2/2

Answer 9

3. Section 127 of the Negotiable Instruments Act. 1881, allows a Second Special Crossing in favour of the banker who would be acting as the agent of the first banker for collection. Therefore, it is necessary to specify in the Second Special Crossing that the banker in whose favour it is made is the agent for collection on behalf of the first banker.
4. A banker must not pay a cheque by ignoring the crossing. as 1w is not legally justified in making cash payment over the counter to the payee.

Question 10

Protection to a Paying Banker

1/2

Answer 10

Section 128 of the Negotiable Instruments Act makes it obligatory to a banker that the payment of crossed cheques should be only in due course’: and ‘due course’ entails the payment in good faith and without negligence to a banker. If the banker makes payment out of ‘due course’ in contraven­tion of Sections 10 and 126 of the Negotiable Instruments Act, he gets no legal protection. and will have to compensate the customer for any loss $offered by him by such payment. For. Section 129 of the Negotiable Instruments Act lays down that the hanker “shall be liable to the true owner of the cheque for any loss he may sustain owing to the cheque hav­ing been so paid”.

Question 11

Protection to a Paying Banker

2/2

Answer 11

However. Section 89 provides a relief to the hanker. If a cheque presented for payment does not appear to he crossed or has had a crossing which has been obliterated at the time of presentation. the banker may make the payment according to the apparent tenor of the instrument, and he will be dis­charged from all liabilities.

Question 12

Opening of Crossed Cheques

Answer 12

Since crossing is a material part of the cheque. its cancellation amounts to material alteration. Hence. only the drawer of the cheque is authorised to cancel the general crossing. even though the instrument was crossed after being delivered to the payee.

Since a Special Crossing specifically mentions the name of the banker through whom the instrument is to he col­lected. only the banker named in such a crossing is authorised to cancel. In both the cases the opening of the cheque should not he recognized unless the full signature of the authorised person has been appended to the alteration.

Question 13

COLLECTION OF CROSSED CIIEQUES

Answer 13

A banker has no legal obligation to collect cheques drawn upon other banks for the customers, though modern banks have assumed this important function of their own choice. Therefore. it is very important that since they have assumed this function. the bankers should be very careful in their performance. otherwise they will face difficulties: more so if- they provide this facility when the cheques are crossed.

Question 14

Collecting Banker:

Answer 14

A collecting banker is one who has ‘assumed duty of collecting the proceeds of a cheque for the customer or for himself-hen he collects the proceeds for t the customer. he acts as his agent, whereas in case of collect­ing for himself, he is a holder for value due by virtue of the fact that:

he makes the payment before collection:
he credits the customer’s account with the value of the cheque before it is realized:
the cheque is received in adjustment of an over-draft.

Question 15

Duties of a Collecting Banker:

Answer 15

‘Section 85-A of the Negotiable Instruments Act, 1881, has defined drafts as “an order to pay money. drawn, by one office of a bank upon another office of the same bank”.

Question 16

COLLECTION OF CROSS CHEQUE

Answer 16

Collection of Drafts
Establish the bonafides of the account holder
Examination of Crossings
Examination of Indorsements etc
Notice of Dishonour

Question 17

Protection to the Collecting Banker

Answer 17

Section I.31 of the Negotiable Instruments Act. 1581. reads as under:
“Subject to the provisions of this Act relating to cheques crossed ‘Account Payee’. where a banker in good faith and without negligence receives payment for a customer of a cheque crossed generally or spe­cially to himself, and the customer has no title or defective title thereto. the bankers shall not incur any liability to the true owner of the cheque by reason only of having received such payment”.