CROSSING AND MAKING OF ENDORSEMENT

INTRODUCTION

A crossed cheque is a cheque that has been marked to specify an instruction about the
way it is to be redeemed. A common instruction is to specify that it must be deposited
directly into an account with a bank and not immediately cashed by a bank over the counter.
The format and wording varies between countries, but generally two parallel lines and/or the
words 'Account Payee' or similar may be placed either vertically across the cheque or in the
top left hand corner. By using crossed cheques, cheque writers can effectively protect the
cheques they write from being stolen and cashed. Cheques can be open (uncrossed) or
crossed.

OPEN CHEQUE

An open cheque is a cheque that is not crossed on the left corner and payable at the
counter of the drawee bank on presentation of the cheque.

CROSSED CHEQUE

A crossed cheque is a cheque that is payable only through a collecting banker and not
directly at the counter of the bank. Crossing ensures security to the holder of the cheque as
only the collecting banker credits the proceeds to the account of the payee of the cheque.
When two parallel transverse lines, with or without any words, are drawn generally, on the
left hand top corner of the cheque. A crossed cheque does not affect the negotiability of the
instrument.

TYPES OF CROSSING

Cheque crossed generally

A cheque crossed generally is a cheque that bears two parallel transverse lines across
its face, optionally with the words 'and company' (or any abbreviation thereof) or 'not
negotiable' between the lines. Such a cheque can be credited to any account without
endorsement but through a banking account, so that the beneficiary can be traced.

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Meaning

According to section-123 of NI Act, where a cheque bears across its face an addition
of the words and company or any abbreviation thereof between two parallel transverse
lines or two parallel transverse lines simply, either with or without the words not negotiable
that addition shall be deemed a crossing & the cheque shall be deemed to be crossed
generally.

Specimen of General Crossing

Features of General Crossing

i. From the above section we find that a cheque is said to be crossed generally when it
bears across its face any of the following:

Two transverse parallel lines.

Two transverse parallel lines with the word And Company.
Two transverse parallel lines with any abbreviation of the word & Company.
Two transverse parallel lines with the words Not Negotiable.
Two transverse parallel lines with the words Account Payee Only.

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 ii. The cheque crossed generally does not ceases to be negotiable further.

iii. The collecting banker can collect the proceeds of the cheque in the account of that
person mentioned on the cheque.

Significance of General Crossing

i. The effect of general crossing is that it gives a direction to the paying banker.

ii. The direction is that, the paying banker should not pay the cheque at the counter. It
should be paid only to a fellow banker. In other words, payment is made through an account
and not at the counter. Sec.126 of the NI Act clearly lays down that, Where a cheque is
crossed generally, the banker on whom it is drawn, shall not pay it otherwise than to a
banker.

iii. If a crossed cheque is paid at the counter in contravention of the crossing:

a) The payment does not amount to payment in due course. So, the paying banker will
lose his statutory protection;

b) He has not right to debit his customers account, since, it will constitute a breach of
his customers mandate;

c) He will be liable to the drawer for any loss, which he may suffer;

d) He will be liable to the true owner of the cheque who may be a third party,
irrespective of the fact, that, there is no contract between the banker and the third party. As a
general rule, a banker is answerable only to his customer.

iv. The main intention of crossing a cheque is to give protection to it. When a cheque
is crossed generally, a person who is not entitled to receive its payment, is prevented from
getting that cheque cashed at the counter of the paying banker.

But, it gives only a limited protection, in the sense, that if the thief is not the customer
of the paying banker, he can encash that cheque through his banker, by forging the signature
of the payee. However, it can be detected. To avoid this danger, special crossing was
introduced.

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ACCOUNT-PAYEE OR RESTRICTIVE CROSSING

Not-negotiable crossing

The words 'not negotiable' can be added to general-crossing as well as special-

crossing and a crossing with these words is known as not negotiable crossing. The effect of
such a crossing is that it removes the most important characteristic of a negotiable instrument:
the transferee of such a crossed cheque cannot get a better title than that of the transferor
(cannot become a holder in due course) and cannot convey a better title to his own transferee,
but the instrument remains transferable.

Consequence of a bank not complying with the crossing

A bank's failure to comply with the crossings amounts to a breach of contract with its
customer. The bank may not be able to debit the drawer's account and may be liable to the
true owner for his loss.

MAKING ENDORSEMENT

A person who signs the cheque and transfers the instrument is an endorser and in
whose favor it is transferred is endorsee. The endorsee acquires a right to negotiate the
instrument to anyone he / she likes. By making an endorsement the endorser promises that in
case of dishonor, he / she provides a guarantee to compensate the holder. Crossing a cheque
by making two parallel lines with or without such words as ___& company is general
crossing. Section 126 of the NI Act says that this is a direction to the bank to not to pay the
cheque across the counter. This crossed cheque is no more a bearer cheque where anyone can
negotiate and get payment across the counter. In case of a crossed cheque, the payee is free to
make further endorsements.

For example , Ayesha receives a check from Rohan which has been crossed, Ayesha
can get this payment in her account only and not across the counter. But in this case Ayesha
is free to endorse the cheque in favor of Suresh and further Suresh is free to endorse the
instrument in favor of Mukesh and so onThis means that crossing a cheque does not put
restrictions on endorsements. In case the cheque gets dishonored, Mukesh can sue Suresh and
Suresh can sue Ayesha and Ayesha can sue Rohan.

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 Now lets discuss A/C Payee cheques. The NI act does not talk about the A/C payee
crossing. There is no definition of A/C payee crossing in the NI act and it is a child of
banking practice. Making a cheque A/C Payee is a result of custom, use and practice and is
now accepted legally. But, the A/C payee cheque cannot be further endorsed. This means that
if the cheque in the above example which is in favor of Ayesha bears A/C Payee, payment
can be collected in Ayeshas account only. The paying bank makes sure that amount is being
credited to the account of the payee only.

CONCLUSION

Ordinarily, the payee of a cheque is entitled to encash at the counter of the paying
banker by presenting it within the specified banking hours. In case of a bearer cheque, the
paying banker does not need to go into an elaborate exercise with regard to the identity of the
holder of the cheque. An order cheque is also paid by the paying banker on being apparently
satisfied about the true identity of the presenter of the cheque. To ensure that the cheque is
not encashed by a wrong person, by concealing his identity, there has developed a practice
called crossing of a cheque.

The practice has been given legal coverage in the Negotiable Instrument Act, 1881.
When cheque is crossed it in effects means a request-more appropriately, an instruction by
the client not to pay the cheque directly over the counter but to a banker only for crediting the
payees account with the bank. A cheque bearing such an instruction is called a crossed
cheque. The crossing of a cheque is intended to ensure that its payment is made to the right
payee. Section 123 to 131 of the Negotiable Instrument Act contain provisions relating to
crossing. According to section 131-A, these sections are also applicable in case of drafts.
Thus not only cheques but bank drafts also may be crossed.

REFERENCES

https://en.wikipedia.org/wiki/Crossing_of_cheques
http://www.gktoday.in/difference-between-a-crossed-cheque-and-ac-payee-
cheque/
http://bankingarticle.blogspot.in/2011/07/crossing-and-endorsement-of-
cheque.html
bankessentials.blogspot.com/endorsement-and-crossing-of-negotiable.html