Crossing is a direction to the paying banker not to pay the cheque at the counter but only through a banking channel. It adds a layer of safety by ensuring payment is routed through a bank account, creating an audit trail. Crossing is governed by S.123 to S.131 of the Negotiable Instruments Act, 1881.
Legal Framework
| Provision | Subject |
|---|---|
| S.123 | General crossing defined |
| S.124 | Special crossing defined |
| S.125 | Crossing after issue (holder may cross) |
| S.126 | Payment of cheque crossed generally |
| S.127 | Payment of cheque crossed specially |
| S.128 | Payment of crossed cheque not in accordance: banker's liability |
| S.129 | Payment in due course of crossed cheque: protection |
| S.130 | Protection to collecting banker (true owner) |
| S.131 | Non-liability of banker receiving payment of crossed cheque |
Types of Crossing
General Crossing (S.123)
A cheque is crossed generally when it bears across its face:
- Two parallel transverse lines, OR
- Two parallel lines with the words "and company" (or abbreviation) between them, OR
- Two parallel lines with the words "not negotiable" between them
Effect: Paying banker must pay only to a banker, not over the counter. The cheque can still be negotiated (transferred to another party) unless restricted.
Special Crossing (S.124)
A cheque is crossed specially when it bears across its face the name of a particular banker (with or without parallel lines, with or without "not negotiable").
Effect: Paying banker must pay only to the named banker or the named banker's agent for collection. More restrictive than general crossing.
Account Payee Crossing
When the words "Account Payee" or "A/c Payee" are added to the crossing (general or special):
Effect: The cheque becomes non-transferable. It can be credited ONLY to the account of the named payee. The collecting banker must not collect for anyone other than the payee.
| Crossing Type | Payable To | Negotiable? | Protection Level |
|---|---|---|---|
| No crossing (open) | Cash at counter or through bank | Fully negotiable | Lowest |
| General crossing | Through any banker | Still negotiable | Medium |
| Special crossing | Only through named banker | Still negotiable | Higher |
| Account Payee | Only to payee's account | NON-negotiable | Highest |
| Not Negotiable crossing | Through banker; transferee cannot get better title | Transferable but without negotiability privilege | High |
Why: Crossing creates a chain of accountability. If a cheque is stolen or forged, the banking channel leaves a paper trail that cash payment at the counter would not.
Who May Cross (S.125)
| Person | Power |
|---|---|
| Drawer | May cross at time of drawing (any type) |
| Holder | May cross generally if uncrossed; may add "not negotiable" |
| Holder of generally crossed cheque | May cross it specially (add banker's name) |
| Banker (to whom specially crossed) | May cross it specially to another banker for collection |
Cannot Be Done (S.125)
- Crossing CANNOT be cancelled or opened (once crossed, always crossed)
- Special crossing cannot be converted to general crossing
- Only the drawer can reopen a crossed cheque (by writing "Pay Cash" and signing)
"Not Negotiable" Crossing (S.130)
Adding "Not Negotiable" within the crossing lines does NOT make the cheque non-transferable. It means:
- The cheque can still be transferred (by endorsement/delivery)
- BUT the transferee cannot acquire a better title than the transferor
- If the transferor had defective title, the transferee also gets defective title
- The "holder in due course" privilege is removed
Why: "Not Negotiable" protects the true owner. If a "Not Negotiable" cheque is stolen and negotiated, the thief has no title; therefore no subsequent holder (even bona fide) gets good title.
Banker's Liability for Wrong Payment (S.128-S.129)
| Situation | Liability |
|---|---|
| Paying banker pays crossed cheque over counter | Liable to true owner for loss (S.128) |
| Paying banker pays to wrong banker (violates special crossing) | Liable to true owner (S.128) |
| Paying banker pays in due course to a banker | Protected (S.129) |
| Collecting banker collects for non-owner (A/c Payee cheque) | Not protected under S.131; liable for conversion |
Illustrations
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General crossing (two parallel lines): A writes a cheque to B and draws two parallel lines across it (with or without "& Co." between them). B cannot go to A's bank and get cash over the counter. B must deposit this cheque into HIS bank account. B's bank (collecting banker) then claims the money from A's bank (paying banker). The crossing forces the money through banking channels creating a paper trail. If the cheque is stolen, the thief can't just walk into a bank and get cash.
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Special crossing (bank name between lines): A draws two lines and writes "State Bank of India" between them. Now this cheque can ONLY be collected through SBI. Even if B has an account at HDFC, HDFC cannot collect this cheque. B must deposit it into an SBI account (his own SBI account, or get someone with an SBI account to help). This adds another layer of safety narrows the channel to one specific bank.
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Account Payee crossing (the strongest protection): A writes a cheque to "B" and adds "Account Payee" or "A/c Payee Only" between the crossing lines. Now: (a) B cannot endorse it to C, (b) only B's account can be credited, (c) if C somehow gets the cheque and his bank collects it into C's account, the collecting bank LOSES protection under S.131 (acted negligently by collecting an A/c Payee cheque for someone other than the named payee). This is why salary cheques are always Account Payee.
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What happens when someone steals a crossed cheque: Thief steals a generally crossed cheque payable to "Ramesh or order." Thief forges Ramesh's endorsement and deposits into thief's account at Bank X. Bank X collects the money from the paying bank. When Ramesh discovers the loss, he sues Bank X for conversion (wrongfully dealing with his property). Bank X's defence: S.131 protection (collected in good faith, without negligence). But if it was an Account Payee cheque payable to Ramesh, Bank X CANNOT claim S.131 collecting an A/c Payee cheque for someone other than the named payee IS negligence per se.
Recall Check
- What is the distinction between general crossing and special crossing?
- Why does "Not Negotiable" crossing not make the cheque non-transferable?
- What is the consequence of collecting an "Account Payee" cheque for someone other than the payee?
Key Cases
A L Underwood v. Bank of Liverpool (1924) AL-Underwood-v-Bank-of-Liverpool-1924 Issue: Whether a collecting banker is liable in conversion for collecting a crossed cheque for a person who is not the true owner. Rule: A collecting banker who collects for someone other than the true owner may be liable for conversion unless protected by S.131 (good faith and without negligence). Held: The bank was liable for conversion because it collected a crossed cheque for a person who was not the true owner without exercising due care. S.131 protection is available only when the banker acts in good faith and without negligence.
Motor Traders Guarantee Corporation v. Midland Bank (1937) Motor-Traders-v-Midland-Bank-1937 Issue: Whether a collecting banker is protected when collecting an "Account Payee" crossed cheque for an account other than the payee's. Rule: "Account Payee" is a direction to the collecting banker; collection for any other account constitutes negligence. Held: Collecting a cheque marked "Account Payee" for someone other than the named payee is per se negligent. The collecting banker loses S.131 protection and is liable for conversion to the true owner.
Distinctions
| Aspect | "Not Negotiable" Crossing | "Account Payee" Crossing |
|---|---|---|
| Transferability | Still transferable | Non-transferable |
| Title of transferee | Cannot get better title than transferor | Cannot transfer at all |
| Effect on holder in due course | HDC privilege removed | No HDC possible (only payee can collect) |
| Who is protected | True owner (if cheque stolen) | Payee (even against innocent transferee) |
| Statutory basis | S.130 NI Act | Banking practice (not expressly in NI Act; recognised by RBI and judicial precedent) |
| Can be endorsed | Yes (but transferee takes at own risk) | No (endorsement ineffective for transferring title) |
Flashcards
Q: What is general crossing under S.123? A: Two parallel transverse lines across the face of the cheque (with or without "& Co." or "Not Negotiable"). Effect: payable only through a banker, not at counter.
Q: What is special crossing under S.124? A: Crossing that bears the name of a particular banker. Effect: payable only through the named banker.
Q: What is the legal effect of "Account Payee" crossing? A: The cheque becomes non-transferable. It can be credited only to the account of the named payee. Collecting for anyone else is negligence.
Q: Can a crossing be cancelled once made? A: No. Once crossed, a cheque cannot be uncrossed (S.125). Only the drawer can reopen by writing "Pay Cash" and authenticating with full signature.
Q: What does "Not Negotiable" on a crossed cheque mean? A: The cheque remains transferable but the transferee cannot acquire a better title than the transferor. The HDC privilege is removed (S.130).
Q: When is a paying banker liable under S.128? A: When the paying banker pays a crossed cheque otherwise than to a banker (general crossing) or otherwise than to the named banker (special crossing).
Q: What protection does S.129 give the paying banker? A: If the paying banker pays a crossed cheque in due course (to a banker, in good faith), the banker is discharged and not liable to the true owner.
Q: What protection does S.131 give the collecting banker? A: If the collecting banker receives payment of a crossed cheque in good faith and without negligence for a customer, the banker is not liable merely because the customer had no title or defective title.
Exam Scenario
C steals a cheque issued by D in favour of P. The cheque is crossed generally with "Not Negotiable." C endorses it to E, who deposits it through Alpha Bank for collection. E claims to be a holder in due course. Advise.
Under S.130, a person taking a cheque crossed "Not Negotiable" cannot have or give a better title than that of the person from whom he took it. C (thief) has no title; therefore E acquires no title, regardless of E's good faith and value paid. The "Not Negotiable" crossing removes the HDC privilege that would otherwise protect E under S.9.
E cannot recover on the cheque. P (true owner) can claim from E for conversion. Alpha Bank (collecting banker) may also be liable if it collected without exercising due care (failed to verify E's title). If Alpha Bank acted without negligence and in good faith, it may claim S.131 protection, but collecting a "Not Negotiable" cheque from someone other than the payee without inquiry would likely constitute negligence.