A Cheque is a bill of exchange drawn on a specified bank and not expressed to be payable otherwise than on demand.
Parties to a cheque are drawer(the account holder), drawee (the bank with whom the account is maintained), payee (the person named in the cheque). There are other parties also which come into picture subsequently and include holder, in due course, endorser and endorsee.
The cheque is different from Bill of Exchange because
- It can be made payable to the bearer on demand
- It is drawn on a bank
- It does not require acceptance
- Notice of dishonour is not necessary
- It can be crossed
Crossing of a cheque implies two parallel transverse lines on the face with or without words, such as &co, ‘not-negotiable’, ‘payee’s account only’ etc. These words without lines will not constitute crossing.
The crossing is applicable in case of cheques only and does not cover the bill of exchange or promissory note.
As per the NI Act, the crossing is either general or special.
General Crossing is where a cheque bears across its face two parallel transverse lines (with or without words). A General crossing is a direction to the paying bank not to pay a cheque across the counter and should be paid to a banker only.
A general crossing can be converted to a special crossing by the drawer or ay any holder.
Where a cheque bears across its face, an addition of the name of the banker, (either with or without the words “not negotiable”), that addition shall be deemed as special crossing and the cheque shall be considered to be crossed specially to that banker.
Such cheques shall be paid to a banker to whom it is crossed specially or to his agent for collection. In other words , a special crossing is a direction to the paying bank for paying to the bank whose name is there on the face of the cheque.
If the cheque is crossed specially to more than one bank (unless one bank is acting as collecting agent to another), the payment shall be refused.
A cheque crossed to two or more branches of the same bank is considered to be crossed to one bank only.
A special crossing can be converted to a general crossing only under the signature of the drawer since this amounts to material alteration.
Crossing can be done by
- a drawer, at the time of issue
- a holder (general to special or not negotiable crossing)
- a banker who receives the cheque for collection (special crossing) can cross the instruments
Crossing can be cancelled only by drawer only by adding the words “Crossing cancelled” or “Pay Cash” and properly authenticating the same. Banks shall take extra precautions while paying such instruments since the element of forgery in such cases could be high.
Protection to Bank: Protection is available to a paying bank, under section 128 of NI act. According to which a bank is not liable in case of wrong payment when it can prove that the payment has been made in due course. Section 129 states that the paying banker cannot debit the account of the customer while paying a crossed cheque other than to a bank.