A cheque is a negotiable instrument that is used in fund transfers and also serves as identity proof. A cheque can be presented as crossed or open. The open cheque is also called as the bearer cheque and is used for over the counter transactions. A crossed cheque is used as an identity proof and cannot be used over the counter for transactions. The crossing of the cheque can be done in several ways which have different effects.
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Cheque crossing is a technique used to convey that the underlying amount is to be paid to the banker and not over the counter. Crossing a cheque ensures payment is made to that account only. There are certain fixed words that can be added to the crossing of the cheque to ensure that the payment is made to the banker and the instrument is not negotiable for other use. Words like “NOT NEGOTIABLE”, “ACCOUNT PAYEE ONLY” can be used to confirm such transactions. A crossed cheque ensures the protection of the cheque holder.
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However, there are exceptions to the crossed cheques of different types. A crossed bearer cheque can be negotiated by delivery and a crossed order cheque can be negotiated by endorsement and delivery.
The use of crossed cheques enjoys provisions under Sections 123 and 131A of the Negotiable Instruments Act, 1881.
Here are different types of cheque crossings and their effects;
Under general cheque crossing, the crossing is done by drawing two parallel transverse lines across the cheque. Words like “and Co.”, “& Co.”, “not negotiable” can also be added to a crossed cheque. This crossing is also called banker’s crossing wherein it becomes evident that the cheques have been issued only to pay a bank. Hence, the paying banker credits the amount directly to the receiving banker.
A general crossing is considered only when two transverse parallel lines are drawn at the corner of the cheque. The cheque holder receives the money that can only be done directly through the bank.
Effect: Over the counter payment cannot be made in case of a generally crossed cheque, it can be made only through a bank account.
A special crossed cheque that bears the name of the bank within two transverse parallel lines that are used to cross the cheque. The words “not negotiable” are not necessary in a special crossed cheque.
The amount on the crossed cheque is paid only to the banker whose name is written on the cheque. If the banker is not available, his or her collecting agent can also collect the money. The honoring of the cheque takes place only after the mentioned bank orders it.
Effect: The money is paid only to the bank whose name is mentioned on the cheque.
The amount mentioned on the cheque is credited only to the payee whose name is mentioned on the cheque. The party named or the agent can also accept the mentioned amount. If the paying banker processes the cheque in someone else’s favor, he or she will be charged with negligence.
Effect: The payment will only be credited to the account of the payee mentioned in the cheque.
Under this type of crossing, the cheque is crossed with two parallel transverse lines with “not negotiable” written within them. the banker's name is also written on the cheque.
This crossing does not affect the transferability of the cheque. It means that the person bearing a cheque with not negotiable is in no position to give the cheque a better title than the person who previously held it. A cheque with this crossing does entitle the transferees in due course to claim the title of the cheque or be known as the holders.
The same title is followed in due course as given by the primary bearer. If it was a good title, it will remain good and vice versa.
Effect: Not negotiable crossing takes away the negotiable title of a cheque. The transferee cannot bear the title of the cheque holder while the instrument is still transferable.
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