Validity and Types of Crossed Cheques

An Introduction to the Negotiable Instruments Act, 1881

Money and other forms of credit instruments have been an integral part of India since time memorial. And with the advent of the colonial era, each aspect of the Indian economy, including those of money and credit instruments were largely governed by the colonial laws and legislations. The Negotiable Instrument Act, 1881, is one such colonial legislation that continues to govern the flow of Negotiable Instruments in India. A negotiable instrument can be defined as a document that contains a promise to pay a particular amount of money to the assignee (the person to whom it is assigned to) or any other specific person. The instruments are signed by the issuer and are payable to the holder when demanded or at any time in the future. 

Section 13 of the Negotiable Instrument Act, 1881[1] defines a ‘negotiable instrument’ as a promissory note, bill of exchange or cheque payable either to order or to the bearer. Since cheques are a kind of negotiable instrument, they are too governed under the Negotiable Instruments Act, 1881. 

Along with defining what a negotiable instrument is, the act also governs various aspects and rules relating to the negotiation, presentation, liabilities, dishonor, and compensation of negotiable instruments.

What is a Crossed Cheque?

To better understand what a crossed cheque is, we must first understand what a cheque is. A 'cheque' is a negotiable instrument or in other words, a document that represents a promise to pay which has been defined under Section 6 of the Negotiable Instruments Act, 1881. The person who issues the Cheque is called the ‘Drawer’, while the person in whose favor a cheque is issued is called the ‘Payee’.

Cheques are generally classified under 2 heads; these include open cheques and closed cheques. An open cheque is a cheque which is capable of being paid over-the-counter by the collecting bank, whenever presented by the payee.

A crossed cheque, on the other hand, is a cheque which can only be paid through a monetary deposit in the account of the holder, rather than over-the-counter cash payments. Section 123 of the Negotiable Instruments Act, 1881 governs cheques which are ‘generally crossed’.

Table of Content:

• What is a Crossed Cheque?
• Types of Crossed Cheques
• Who may cross a cheque?        
• Reasons and Rules for crossing a cheque
• Judicial Pronouncements on Crossing of Cheques 
• The validity of a cheque
• Do Cheque Books have an expiry date?
• What happens if a cheque is not crossed?
• What is the difference between account payee, crossed and bearer cheques?
• Revalidation of a Stale Cheque 
• Frequently Asked Questions

Types of Crossed Cheques

Based upon the provisions of the Negotiable Instruments Act, 1881 and practical banking operations, cheques can be crossed in either of the following ways:

1) General Crossing

According to the Section 123 of the Negotiable Instruments Act, 1881, a general crossing cheque is a type of cheque that has an addition of two parallel transverse lines across the cheque or on the top left corner of the cheque with/ without the addition of the words ‘and Co.’ or ‘not negotiable’ between them.

As mentioned above, a cheque is generally crossed so as to specify the paying banker to pay the amount mentioned only to a banker and not in cash. While generally crossing a cheque, it is important to make two transverse parallel lines. Even though the non-inclusion of words, ‘and Co.’ and ‘not negotiable’ between the parallel lines do not render the cheque uncrossed, however, adding the words ‘ non-negotiable’ restricts further negotiability of the cheque.

2) Special Crossing

According to Section 124 of the Negotiable Instruments Act, 1881, a special crossing cheque is a type of cheque that bears across it, the banker’s name, with or without the words ‘not negotiable’.

In contrast to general crossing, a special crossing of cheques does not require the making of two parallel lines. However, mentioning the name of the banker is crucial.

A cheque is specially crossed so as to specify the paying banker to pay the cheque amount, only to the banker whose name appears in the crossing or to his collecting agent (if any). Thus, a banker will honour the cheque when it is ordered through the bank/agent of the bank which is mentioned in the crossing.

3) Non-Negotiable Crossing

According to Section 130 of the Negotiable Instruments Act, 1881, if in any specially or generally crossed cheque, the words ‘not-negotiable’ are added, then the cheque becomes a non-negotiable cheque.

This means that even if the cheque is further transferred, the transferee will not be able to give a title better than that of a transferor.

4) Account Payee Crossing/Restrictive Crossing

The Account Payee crossing is a type of special crossing that restricts the negotiability of a cheque. By adding the words ‘account payee’ in between the parallel lines, a cheque is said to be crossed especially with an account payee.

An account payee crossing directs the collecting banker that the amount of the cheque must be credited only to the account of the payee, or the party named in the cheque or his agent.

Who may cross a cheque?        

A cheque may be crossed by:

The Drawer: The drawer of a cheque may cross it either generally or especially.

The Holder: When a cheque is open, the holder may cross it generally or especially. Whereas, when the cheque is crossed generally, the holder may cross it specially.

 

Reasons and Rules for crossing a cheque

While making a payment through the cheque, you can make sure that your funds are securely utilized by crossing a cheque. Whenever you cross a cheque, you provide specialized instruction to a bank regarding the use of your monetary assets.

A cheque can be crossed by drawing two parallel transverse lines anywhere across the cheque. Once crossed, you can choose to either leave the parallel lines as it is or add words like ‘and company’ or ‘not negotiable’ between the lines. Either way, your cheque stands duly crossed.

With a Crossed cheque, your funds are protected from being stolen or encashed by an unauthorized person. Moreover, since payment of a crossed cheque can only be made through a bank account, the beneficiary’s transaction can later be traced in case of discrepancies.

Judicial Pronouncements on Crossing of Cheques 

Since rules regarding the crossing of the cheques are duly laid down in the Negotiable Instruments Act, 1881, they are often enforced by the judiciary through landmark judgments.

• In Anupama Stationary vs Vishnuvardhana Enterprises[1], it was held that when a cheque is crossed by words ‘account payee’ the paying bank cannot claim protection under section 131 of the Act, and will be held negligent if the payment is made to a person other than the payee.

• In Fisher vs Roberts[2], it was held that when a cheque is crossed with words ‘not-negotiable’ it no longer remains a negotiable instrument as it loses its essential quality of negotiability. The cheque, however, remains transferable and can be transferred by the holder to another person.

• In the case of National Bank vs Silkep[3], it was held that when a cheque is crossed with the words ‘account payee’ then the collecting bank collects it on the behalf of the payee and no one else. If the bank collects it on the behalf of some other person, it shall be held guilty and responsible for the same.

The validity of a cheque

Receiving and making payments through the cheque is an omnipresent scenario in the Indian economy. However, payments made through a cheque do not come with a life-long validity. As per the RBI guidelines, the validity of a cheque drawn after 1 April 2012 is three months from the date of the drawing. Post expiry, a cheque becomes stale and can only be re-validated by the drawer.

Do Cheque Books have an expiry date?

Cheque Books issued by banks do not come with an expiry date. One can utilize the cheques whenever required. However, there are certain scenarios that render a chequebook inoperative, these include:

• End of funds in the cheque book account
• Change in Account Number mentioned in the book
• Change in the routing numbers of the bank

What happens if a cheque is not crossed?

A check can be crossed so as to ensure that funds are utilized in a safer manner. By crossing a cheque you can instruct a bank to pay the amount mentioned in the cheque through a deposit/transfer in the account of the holder, rather than over-the-counter cash payments.

However, if a check is left uncrossed, it becomes an open cheque. An open cheque can be either crossed by the holder or encashed over the counter in a collecting bank.

What is the difference between account payee, crossed and bearer cheques?

A 'Crossed Cheque’ is a type of cheque which can only be paid through a deposit in the account of the holder, rather than over-the-counter cash payments. According to Section 123 of the Negotiable Instruments Act, 1881, a general crossing cheque bears an addition of two parallel transverse lines across the cheque with/ without the addition of the words ‘and Co.’ or ‘not negotiable’ between them.

An ‘Account Payee’ cheque is a type of cheque that is marked with an account payee crossing. The Account Payee crossing is a type of special crossing that restricts the negotiability of a cheque. By adding the words ‘account payee’ in between the parallel transverse lines, a cheque is said to be crossed especially with an account payee.

A ‘Bearer Cheque’, on the other hand, is an open and uncrossed cheque, which can either be crossed or encashed over the counter by the holder.

Revalidation of a Stale Cheque 

As per the RBI guidelines, the validity of a cheque drawn after 1st April 2012 is three months from the date of the drawing. Post expiry, a cheque becomes stale and can only be re-validated by the drawer and in order to revalidate the cheque, the drawer must make necessary endorsements upon the original cheque and changing its date. Once re-endorsed to the effect of having a new validity, the cheque can be presented to the collection bank for payment.

Frequently Asked Questions

What are the crossing of a cheque and its types?

Cheques are generally classified under two heads; these include open cheques and closed cheques. An open cheque is a cheque which is capable of being paid over-the-counter by the collecting bank, whenever presented by the payee. A crossed cheque, on the other hand, is a cheque which can only be paid through a deposit in the account of the holder, rather than over-the-counter cash payments.

Section 123 of the Negotiable Instruments Act, 1881 governs cheques which are ‘generally crossed’. The various types of crossed cheques include:

1) General Crossing

According to Section 123 of the Negotiable Instruments Act, 1881, a general crossing cheque is a type of cheque that has an addition of two parallel transverse lines across the cheque or on the top left corner of the cheque with/ without the addition of the words ‘and Co.’ or ‘not negotiable’ between them. As mentioned above, a cheque is generally crossed so as to specify the paying banker to pay the amount mentioned only to a banker and not in cash. While generally crossing a cheque it is important to make two transverse parallel lines.

2) Special Crossing

According to Section 124 of the Negotiable Instruments Act, 1881, a special crossing cheque is a type of cheque that bears across it, the banker’s name, with or without the words ‘not negotiable’. A cheque is specially crossed so as to specify the paying banker to pay the cheque amount, only to the banker whose name appears in the crossing or to his collecting agent (if any). Thus, a banker will honor the cheque when it is ordered through the bank/agent of the bank which is mentioned in the crossing.

3) Non-Negotiable Crossing

According to Section 130 of the Negotiable Instruments Act, 1881, if in any specially or generally crossed cheque, the words ‘not-negotiable’ are added, then the cheque becomes a non-negotiable cheque. This means that even if the cheque is further transferred, the transferee will not be able to give a title better than that of a transferor.

4) Restrictive Crossing/Account Payee Crossing

The Account Payee crossing is a type of special crossing that restricts the negotiability of a cheque. By adding the words ‘account payee’ in between the parallel lines, a cheque is said to be crossed especially with an account payee. An account payee crossing directs the collecting banker that the amount of the cheque must be credited only to the account of the payee, or the party named in the cheque or his agent.

What is the validity of a cheque?

As per the RBI guidelines, the validity of a cheque drawn after 1st April 2012 is three months from the date of the drawing. Post expiry, a cheque becomes stale and can only be re-validated by the drawer.

What are the different types of cheques?

The various types of cheques are:

• Bearer Cheque: A cheque that is payable over the counter to the bearer of the checker.

• Order Cheque: A cheque upon which the word ‘bearer's' marked out, implying that the cheque can be paid only to the person whose name is mentioned in the drawee column.

• Crossed Cheque: A cheque that specifies a banker to make payment of the cheque amount only into a banker’s account.

• Open Cheque: An uncrossed cheque is also called an open cheque and can be paid over the counter to the holder of the cheque.

• Post-Dated Cheque: A cheque which bears a date later than on which it was issued.

• Stale Cheque: A cheque which has crossed three months from the date of issue.

• Self Cheque: A cheque that mentions ‘self’ in place of the drawee, and is usually made to withdraw money for personal use.

• Bankers Cheque: A cheque which is issued by a bank on behalf of its account holder to make a payment by order to another person within the same city/town.

What happens if a cheque is not crossed?

A check can be crossed so as to ensure that funds are utilized in a safer manner. By crossing a cheque you can instruct a bank to pay the amount mentioned in the cheque through a deposit/transfer in the account of the holder, rather than over-the-counter cash payments. However, if a check is left uncrossed, it becomes an open cheque. An open cheque can be either crossed by the holder or encashed over the counter in a collecting bank.

What is the purpose of crossing a cheque?

While making a payment through cheque, you can make sure that your funds are securely utilized by crossing a cheque. With a crossed cheque, your funds are protected from being stolen or encashed by an unauthorized person. Moreover, since the payment of a crossed cheque can only be made through a bank account, the beneficiary’s transaction can later be traced in case of discrepancies.

Who may cross a cheque?

A cheque may be crossed by:

The Drawer: The drawer of a cheque may cross it either generally or especially.

The Holder: When a cheque is open, the holder may cross it generally or especially. Whereas, when the cheque is crossed generally, the holder may cross it specially.

Do cheque books have an expiry date?

Cheque Books issued by the banks do not come with an expiry date. One can utilize the cheques present in them as in when required. However, there are certain scenarios that render a chequebook inoperative, these include:

• End of funds in the cheque book account leading to cheque bounce
• Change in Account Number mentioned in the book
• Change in the routing numbers of the bank

[1] (1987) 62 Comp. Cas. (Karn.)

[2] (1890) 116 T.L.R 354 (C.A.)

[3] (1891) 1 Q.B. 435