What is Crossed Cheque under Negotiable Instruments Act, 1881

In this article we made a discussion about the Crossed Cheque under NI Act, including meaning, types, benefits, limitation and Sections relate Crossed Cheque under the Act

 

Introduction:

 

A crossed cheque is one that bears two parallel lines across its face, generally in the top-left corner. This symbolic crossing signifies that the cheque cannot be encashed directly at the counter of the bank by the bearer. Instead, it has to be deposited into the payee's account through the banking system. In essence, the crossing serves as an instruction to the collecting bank to ensure that the proceeds are credited to the account of the payee rather than being handed over in cash.

 

The primary purpose behind introducing crossed cheques was to minimize the risk of fraud and theft associated with open or uncrossed cheques. By requiring cheques to be processed through the formal banking channels, crossed cheques significantly reduce the likelihood of unauthorized parties misusing the instrument.

 

Types of Crossed Cheques:

 

1. General Crossing: This is the most common form of crossing. In a general crossed cheque, the two parallel lines are accompanied by the words “and Co.” or “not negotiable.” This conveys that the cheque is only payable to a bank and not to an individual. If the cheque is lost or stolen, the risk of unauthorized encashment is mitigated since it can only be deposited into a bank account.
2. Special Crossing: A special crossing involves adding the name of a specific bank between the parallel lines. This mandates that the cheque be paid only through that particular bank. This type of crossing is often used when the payee holds an account with the specified bank. It further enhances the traceability of the transaction.

Benefits of Crossed Cheques:

 

1. Reduced Fraud: Crossed cheques serve as a deterrent to fraudsters and unauthorized individuals who might attempt to encash stolen or forged cheques. The requirement of processing the cheque through banking channels makes it harder for criminals to manipulate the instrument.
2. Accountability: The use of crossed cheques creates a clear paper trail of the transaction. This transparency benefits both parties involved and helps in resolving any disputes that may arise during the payment process.
3. Payment Efficiency: Crossed cheques promote the use of formal banking channels, thereby contributing to the efficiency of the payment system. Funds are transferred electronically and securely, reducing the reliance on physical cash.
4. Legal Protection: The NI Act provides legal remedies for instances of wrongful dishonor or mishandling of crossed cheques. This offers a level of assurance to individuals and businesses that their financial transactions are protected by law.

 

Limitations and Considerations:

 

While crossed cheques offer numerous advantages, it's essential to recognize their limitations as well:

1. Technological Advances: As the financial landscape continues to evolve, electronic payment methods have gained prominence. Crossed cheques, being a paper-based instrument, might need to adapt to these changes to remain relevant.
2. Global Variations: The concept of crossed cheques varies from one jurisdiction to another. Different countries may have distinct regulations and practices regarding their use and recognition.

 

Crossed Cheques (Section 123-130 of the Negotiable Instruments Act)

 

Crossed Cheques (Section 123)

 

Where a cheque bears across its face an addition of the words 'and company' (or any abbreviation thereof) between two parallel transverse lines, or of two parallel transverse lines simply (either with or without the words "not negotiable"), that addition is deemed to be a "crossing," and the cheque is deemed to be crossed 'generally (Section 123)

 

Payment of cheque cross generally (Section 126)

 

When a cheque is crossed generally, the banker on whom it is drawn cannot pay it otherwise than to a banker.

 

Cheque Crossed Specially (Section 124)

 

Where a cheque bears across the face an addition of the name of a banker (either with or without the words 'not negotiable"), that addition is deemed to be a crossing, and the cheque is deemed to be crossed specially, and to be crossed to that banker.

 

Payment of Cheque Crossed Specially (Section 126)

 

Where a cheque is crossed specially, the banker on whom it is drawn cannot pay it otherwise than to the banker to whom it is crossed or his agent for collection.

 

Payment of Cheque Crossed Specially more than One (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 must refuse payment thereof.

 

Payment in due course of Crossed Cheque (Section 128)

 

Where the banker on whom a crossed cheque is drawn has paid the same in due course, the banker paying the cheque and (in case such cheque has come to the hands of the payee) the drawer thereof, are respectively entitled to the same rights, and are placed in the same position in all respects, as they would respectively be entitled to, and placed in, if the amount of the cheque had been paid to, and received by the true owner thereof.

 

Payment of crossed cheques out of due course (Section 129)

 

Any 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) becomes liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid.

 

Cheque bearing 'not negotiable' (Section 130)

 

A person taking a cheque crossed generally or specially, bearing, in either case, the words "not negotiable", does not have, and is not capable of giving, a better title to the cheque than that which the person from whom he took it had.

 

Conclusion:

 

Crossed cheques, introduced under the NI Act of 1881, have played a crucial role in enhancing the security and efficiency of financial transactions involving cheques. By mandating that these instruments be processed through formal banking channels, the risk of fraud and unauthorized encashment has been significantly reduced. While they have their limitations in the face of technological advancements, crossed cheques remain a robust tool for secure and accountable fund transfers, contributing to the stability of the financial ecosystem.