RE: LEGAL OPINION ON CROSSING OF CHEQUES
We refer to your letter dated 15.05.2005 on the above subject.
We understand that the article of Mr. X, ‘Writer and Banker’ on crossed cheques has drawn the attention of BANK 1. Now BANK 1 wants us to provide opinion on how many sorts of cross cheques are recognised under the existing law of the Country and what are their legal implications.
Necessary provisions in connection with the crossing of cheque are enumerated in section 123 to section 131 of the Negotiable Instruments Act, 1881(“Act”). We hereunder provide with a summary of the different mode of crossing of cheque(s) and other details as follows:
TYPES OF CROSSED CHEQUES:
According to the relevant provision of the said Act, there are three types of crossing of cheques, they are general, account payee and especial.
According to section 123 of the Act, where a cheque bears across two parallel transverse lines simply or an addition of the words “and company” or any abbreviation of it between the said two parallel transverse lines either with or without words “not negotiable” shall be deemed to be crossed generally.
Pursuant to section 123 (A) of the Act, where a cheque crossed generally bears across its face an addition of the words “account payee” between the two parallel transverse lines constituting the general crossing, the cheque besides being crossed generally, is said to be crossed “account payee”.
As per section 124 of the Act, where a cheque bears across its face an addition of the name of a banker, either with or without the words “not negotiable”, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker.
Further, it appears from the reading of above sections, that apart from the above, there is another mode of crossing of cheque by putting the term ‘non-negotiable’ in any cheque.
WHO CAN CROSS CHEQUE:
The issuer/drawer of a cheque can, if he likes, cross it. However, a holder of a cheque also can cross an uncrossed cheque. Under section 125 of the Act, where a cheque is uncrossed, the holder may cross it generally or specially. Further, where a cheque is crossed either generally or specially, the holder may add the words “not negotiable”. Where a cheque is crossed specially, the banker to whom it is crossed may again cross it specially to another banker, his agent, for collection.
EFFECT OF CROSSINGS AND THE MANNER OF PAYMENT:
According to section 126 of the Act, where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to banker. It means that the payment of any crossed cheque shall be made through a bank to other bank and as such cannot be encashable on the counter of any bank upon presentation.
Further pursuant to section 123 (A) of the Act, that when a cheque is crossed ‘account payee’ it shall cease to be negotiable and it shall be the duty of the banker collecting payment of the cheque to credit the proceeds thereof only to the account of the payee named in the cheque.
As per section 126 of the Act, where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed, or his agent for collection. In this connection, it is mentionable that where a cheque is crossed specially to more than one banker, the banker on whom it is drawn shall refuse payment of the same as per section 127.
Further, any general or special crossed cheque may be marked with ‘Not negotiable’. In such situation, both the characteristics of negotiability and transferability by endorsement have been restricted by the drawer.
LIABILITY OF THE BANK FOR NON-COMPLIANCE OF THE ABOVE PROVISIONS:
According to section 129 of the Act, if any banker make payment to a cheque crossed generally otherwise than to a banker, or a cheque crossed specially otherwise than to the banker to whom it is crossed shall be liable to the true owner of for any loss he may sustain owing to the cheque having been so paid. However, such paying bank may not have any liability to compensate if the banker can prove that it paid in good faith and without any negligence on its part.
According to section 131 of the Act, if any banker receives payments for a customer, who has no title or defective title of the cheque, the banker shall not incur any liability to the true owner of the cheque by reason only of having received such payment. Further, under section 131B of the Act, such banker and the cheque appears to the banker to be crossed or to have had a crossing “account payee” but has been obliterated or altered, the banker, in good faith and without negligence collecting payment of the cheque and crediting the proceeds thereof to a customer shall not incur any liability by reason of the cheque having been crossed “account payee” or of such crossing having been obliterated or altered and of the proceeds of the cheque having been credited to a person who is not the payee thereof.
If you have any further query, please revert back to us.
For: “The Lawyers & Jurists”