Crossing of Cheques under Sections 123 to 131 NI Act: Effect on the Banker

Crossing is the simplest security device in banking and one of the oldest. Two lines across the face of a cheque mean that it cannot be turned into cash over a counter by whoever happens to be holding it, and must instead pass through a bank account, leaving a trace of who received the money. The law of crossing is almost entirely about the duty it places on the paying banker, which is why it belongs in banking law as much as in the law of negotiable instruments.

Figure 1: The four kinds of crossing

1. General Crossing

• The lines are essential: for a general crossing the two parallel transverse lines are the crossing. Words alone, without the lines, do not make a general crossing.
• The words are optional: and company, its abbreviation, and not negotiable may be added but are not necessary.
• Where it appears: across the face of the cheque. The usual place is the top left corner, but position is not prescribed and any place across the face will do.
• The effect: the cheque cannot be paid over the counter in cash. It must be paid to a banker, which means in practice that it must be collected into an account.

2. Special Crossing

Figure 2: The two statutory crossings compared

• The name is essential: for a special crossing the name of a banker is the crossing. The parallel lines are not necessary, which is the exact reverse of a general crossing.
• The effect: the cheque may be paid only to the banker named, or to his agent for collection, so it narrows the class of permissible recipients from all bankers to one.
• A stronger protection: a thief must now not merely open an account somewhere, but must get the cheque collected through one particular bank.
• Conversion: a general crossing may be made special, but a special crossing may not be made general again, because that would reduce the protection the drawer intended.

3. Who May Cross, and When

• The drawer: may cross the cheque before issuing it, which is the ordinary case and needs no statutory authority.
• Section 125: after issue, the holder may cross an uncrossed cheque generally or specially; may cross a cheque crossed generally specially; and may add the words not negotiable to either crossing.
• The collecting banker's power: where a cheque is crossed specially, the banker to whom it is crossed may again cross it specially to another banker as his agent for collection. This is the only permitted double crossing.
• Opening a crossing: the drawer may cancel a crossing by writing pay cash and signing it in full. This is a matter of banking practice rather than of the Act, and a paying banker acts on it only where the signature matches the specimen.
• Obliterated crossing: where a crossing has been obliterated and the cheque does not appear to be crossed when presented, Section 89 protects a banker who pays according to the apparent tenor and otherwise in due course.

4. The Paying Banker's Duty

• Section 126, general crossing: where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker.
• Section 126, special crossing: where a cheque is crossed specially, the banker shall not pay it otherwise than to the banker to whom it is crossed, or his agent for collection.
• Section 127, double crossing: 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. Two conflicting special crossings are a sign of interference with the instrument.
• Section 129, payment out of due course: a banker paying a crossed cheque otherwise than in accordance with these provisions is liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid. The liability is to the true owner, who may be a person the bank has never dealt with.
• Section 128, the protection: where the banker on whom a crossed cheque is drawn has paid it in due course, the banker, and, if the cheque has come into the hands of the payee, the drawer, are placed in the same position as if the amount had been paid to and received by the true owner. Compliance with the crossing is therefore rewarded with a complete discharge.

5. The Not Negotiable Crossing

• It does not stop transfer: the cheque remains transferable. What it loses is negotiability in the technical sense, which is the capacity to give a transferee a better title than the transferor had.
• The consequence: a transferee who takes such a cheque in good faith and for value nonetheless takes it subject to every defect in his transferor's title. He cannot be a holder in due course free of prior equities.
• Who is protected: the true owner. If the cheque is stolen and passed on, even an innocent purchaser must return it or answer in conversion, which is the opposite of the ordinary rule for negotiable instruments.
• Both crossings: the words may be added to a general or a special crossing, and may be added after issue by the holder under Section 125.
• No effect on the paying banker's protection: the words are directed at title between transferees, not at the bank. A paying banker who pays in due course through a banker is still protected by Section 128.

6. The Account Payee Crossing

• Not in the statute: the account payee crossing appears nowhere in the Negotiable Instruments Act. It rests entirely on banking practice, and has been recognised by the courts and by the Reserve Bank's directions.
• To whom it is addressed: not to the paying banker but to the collecting banker. It is a direction that the proceeds be credited only to the account of the named payee.
• Effect on the collecting banker: a banker who collects an account payee cheque for anyone other than the named payee will find it very difficult to show that he acted without negligence, and so loses the protection of Section 131.
• Effect on the paying banker: strictly none, since the direction is not addressed to him and he cannot see into the collecting bank's ledger. A paying banker who pays a crossed cheque to a banker has complied with Section 126.
• Effect on transferability: in principle the words do not restrict transfer, but in practice an account payee cheque is not collected for anyone but the payee, so it has become effectively non-transferable. The Reserve Bank has directed banks not to collect account payee cheques for any person other than the payee, with a narrow exception allowing a bank to collect such cheques of up to ₹50,000 for a co-operative credit society customer where the payees are the society's own constituents.
• Why it is the strongest crossing: a general crossing requires a bank account somewhere, a special crossing requires a particular bank, but an account payee crossing requires the payee's own account, which leaves a thief with nothing to do with the instrument.

7. Questions Arising

Does a crossing make a cheque non-transferable?

A plain crossing does not. It only directs how payment is to be made, through a banker rather than across the counter, and leaves transferability untouched. A not negotiable crossing leaves the cheque transferable but destroys negotiability, so no transferee can take a better title than his transferor. Only words such as pay X only, which strike at transfer itself, make a cheque genuinely non-transferable, and in practice an account payee crossing has the same effect because no bank will collect it for anyone else.

Can a paying banker ignore an account payee crossing?

In strict law the direction is not addressed to him, and he complies with Section 126 by paying a crossed cheque to a banker. He has no means of knowing into whose account the collecting bank will credit the proceeds. In practice the Reserve Bank's directions make the collecting banker responsible for the crossing, and a paying banker who notices something irregular on the face of the instrument should still enquire, since ignoring a visible warning is itself evidence of want of care.

8. Quick Revision

9. Frequently Asked Questions

What is the difference between a general and a special crossing?

A general crossing under Section 123 consists of two parallel transverse lines across the face, with or without words, and means the cheque may be paid only to a banker. A special crossing under Section 124 consists of the name of a banker, with or without lines, and means the cheque may be paid only to that banker or his agent for collection. The lines are essential to the first and unnecessary to the second.

What does a not negotiable crossing do?

Under Section 130, a person taking a cheque crossed generally or specially and bearing the words not negotiable shall not have, and shall not be capable of giving, a better title than his transferor had. The cheque remains transferable, but no transferee can become a holder in due course free of defects in the earlier title, so the true owner is protected against a thief's innocent purchaser.

Is the account payee crossing recognised by the Negotiable Instruments Act?

No. It appears nowhere in the Act and rests on banking practice, recognised by the courts and by the Reserve Bank. It is a direction to the collecting banker to credit the proceeds only to the account of the named payee, and a collecting banker who disregards it will struggle to prove he acted without negligence under Section 131.

What must a paying banker do with a cheque crossed to two banks?

Refuse payment, under Section 127, unless the second crossing is to a banker as an agent for collection, which is the only permitted double special crossing. Two independent special crossings suggest that the instrument has been interfered with.

What happens if a bank pays a crossed cheque across the counter?

It has paid out of due course, and under Section 129 it is liable to the true owner for any loss he sustains, however honest the mistake. It also loses the protection of Section 128, which rewards only payment in due course, and it cannot debit its customer's account if the payment was outside the mandate.

10. Related Topics and Provisions

• The cheque as a banker's instrument
• The paying banker and payment in due course
• The collecting banker and the protection of Section 131
• Dishonour of cheques under Section 138
• Duties of a banker: secrecy, care and honouring cheques