Chapter 14: The Negotiable Instruments Act, 1881

Chapter XIV: Of Crossed Cheques

Section 123: Cheque crossed generally

This section defines the most common form of security crossing, where payment must be handled through a bank.

1. General Crossing Definition:

Legal Terminology: Where a cheque bears across its face an addition of the words “and company” or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words “not negotiable,” that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally.
Simple English Translation (Two Lines are Enough): A cheque is “generally crossed” if two parallel lines are drawn across its face. Adding the words “and Company,” “& Co.,” or “Not Negotiable” between the lines is optional, but the lines themselves are the defining feature.
Practical Example: A Drawer simply draws two parallel lines on the top left corner of the cheque. This is sufficient to make it a generally crossed cheque.

Section 124: Cheque crossed specially

This section defines a crossing that is even more restrictive, directing the payment to a specific bank only.

1. Special Crossing Definition:

Legal Terminology: 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.
Simple English Translation (Name the Bank): A cheque is “specially crossed” when the name of a specific bank is written across its face, usually between or near the parallel lines. Payment can only be routed through that named bank.
Practical Example: The Drawer writes “HDFC Bank A/C Payee” across the cheque. This is a specially crossed cheque directed to HDFC Bank for collection.

Section 125: Crossing after issue

This section confirms that certain parties can add a crossing or make an existing crossing more restrictive after the cheque has been written.

1. Holder May Cross an Uncrossed Cheque:

Legal Terminology: Where a cheque is uncrossed, the holder may cross it generally or specially.
Simple English Translation (Adding Security): If a Drawer issues a cheque without any lines, the person who receives it (the Holder) is allowed to add two parallel lines (general crossing) or name a specific bank (special crossing) to protect their payment.
Practical Example: A vendor receives a blank cheque and immediately adds two parallel lines to ensure it cannot be cashed over the counter if lost.

2. Holder May Change General to Special:

Legal Terminology: Where a cheque is crossed generally, the holder may cross it specially.
Simple English Translation (Making it More Specific): If a cheque has a simple general crossing (just two lines), the Holder can make it a special crossing by writing their own bank’s name within the lines.
Practical Example: The Holder receives a cheque with a general crossing. The Holder then writes “Bank of India” between the lines, making it a specially crossed cheque for deposit into their Bank of India account.

3. Holder May Add “Not Negotiable”:

Legal Terminology: Where a cheque is crossed generally, or specially, the holder may add the words “not negotiable”.
Simple English Translation (Adding Title Protection): The Holder can add the words “not negotiable” to an existing crossing to protect the payment against theft or fraud (see Section 130).
Practical Example: The Holder adds the phrase “Not Negotiable” to the specially crossed cheque before depositing it.

4. Banker’s Agent Crossing:

Legal Terminology: 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.
Simple English Translation (Collection Agent): If a bank receives a specially crossed cheque, they are allowed to cross it again to another bank that acts as their collection agent (e.g., a central clearing bank).
Practical Example: Bank A receives a specially crossed cheque. Bank A sends the cheque to Central Clearing Bank (CCB) for processing. Bank A adds a second special crossing to the cheque, directing it to CCB, which is a permissible agent crossing.

Section 126: Payment of cheque crossed generally and specially

This section lays down the strict rules for the Drawee Bank (the bank ordered to pay) when dealing with a crossed cheque.

1. General Crossing Rule:

Legal Terminology: Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker.
Simple English Translation (Must Go Through a Bank): The Drawee Bank is legally forbidden from giving cash over the counter for a generally crossed cheque. The money must be paid to a receiving bank, which then credits the Payee’s account.
Practical Example: A customer tries to cash a generally crossed cheque at the counter of the Drawee Bank. The bank teller must refuse and tell the customer to deposit it into their account at any bank.

2. Special Crossing Rule:

Legal Terminology: 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.
Simple English Translation (Must Go Through the Named Bank): The Drawee Bank is restricted further: they must only pay the exact bank named in the crossing, or that named bank’s official collection agent.
Practical Example: A cheque is specially crossed to “Axis Bank.” The Drawee Bank must only transfer the funds to Axis Bank or Axis Bank’s registered clearing agent, not to any other bank.

Section 127: Payment of cheque crossed specially more than once

This section provides an exception to the special crossing rule regarding multiple banks.

1. Multiple Special Crossings are Forbidden (Exception):

Legal Terminology: Where a cheque is crossed specially to more than one banker, except when crossed to an agent for the purpose of collection, the banker on whom it is drawn shall refuse payment thereof.
Simple English Translation (Stop Payment on Double Crossing): A Drawee Bank must refuse to pay any cheque that has two different banks named in the special crossing. The only exception is if the second bank name is clearly the first bank’s clearing or collection agent (as per Section 125, Clause 4).
Practical Example: A cheque is crossed “Bank A” and then later someone adds “Bank B.” The Drawee Bank sees two different collecting banks and must refuse payment to prevent potential fraud.

Section 128: Payment in due course of crossed cheque

This section gives legal protection to the Drawer and the Drawee Bank once a crossed cheque is paid correctly.

1. Protection for Drawer and Bank:

Legal Terminology: Where the banker on whom a crossed cheque is drawn has paid the same in due course… the banker paying the cheque, and… the drawer thereof, shall respectively be entitled to the same rights, and be placed in the same position in all respects, as they would respectively be entitled to and placed in if the amount of the cheque had been paid to and received by the true owner thereof.
Simple English Translation (The Debt is Settled): If the Drawee Bank correctly follows the rules of the crossing (Section 126) and pays the cheque honestly and without negligence (payment in due course, Section 10), then both the bank and the Drawer are fully protected. The debt is legally considered paid, even if the money ultimately reached the wrong person (e.g., due to a receiving bank error).
Practical Example: A crossed cheque is stolen and deposited into a fraudulent account at Receiving Bank X. The Drawee Bank pays Receiving Bank X according to the crossing rules. Because the Drawee Bank paid in due course, they are discharged from liability, and the Drawer’s debt is legally settled.

Section 129: Payment of crossed cheque out of due course

This section defines the severe penalty for a Drawee Bank that ignores the crossing rules.

1. Liability for Ignoring Crossing Rules:

Legal Terminology: Any banker paying a cheque crossed generally otherwise than to a banker, or a cheque crossed specially otherwise than to the banker to whom the same is crossed, or his agent for collection, being a banker, shall be liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid.
Simple English Translation (Bank Pays the Price): If the Drawee Bank ignores the crossing (e.g., gives cash over the counter for a crossed cheque, or pays the wrong named bank), the bank is entirely responsible and must reimburse the True Owner (the person who was supposed to get the money) for the loss.
Practical Example: A Drawee Bank teller cashes a generally crossed cheque over the counter. The cheque was stolen. The Drawee Bank is liable to the true owner (the Payee) for the full amount of the cheque.

Section 130: Cheque bearing “not negotiable”

This section defines the powerful, protective effect of adding the words “not negotiable” to a crossed cheque.

1. Protection from Defects in Title:

Legal Terminology: A person taking a cheque crossed generally or specially, bearing in either case the words “not negotiable,” shall not have, and shall not be capable of giving, a better title to the cheque than that which the person from whom he took it had.
Simple English Translation (Title Warranty Removed): These words warn anyone receiving the cheque that they cannot automatically become a super-protected Holder in Due Course (HDC). If the cheque was originally stolen, or obtained by fraud, the current holder has the same defective title as the thief or fraudster. The words make the instrument trackable and less attractive to steal.
Practical Example: A cheque marked “Not Negotiable” is stolen by Thief T, who then deposits it with Company C (an innocent third party) in payment for goods. Later, the true owner sues Company C. Company C does not have the protection of an HDC and must return the cheque because Thief T had no legal title to give them.

Section 131: Non-liability of banker receiving payment of cheque

This section provides crucial legal protection to the Collecting Banker (the bank receiving the funds for the customer), shielding them from liability if the cheque’s title is defective.

1. Protection for the Collecting Banker:

Legal Terminology: A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment.
Simple English Translation (Collecting Bank Is Safe): If a bank accepts a crossed cheque from its customer for deposit (collection) and acts honestly and carefully (without negligence), that bank cannot be sued or held responsible by the true owner if the customer later turns out to have stolen the cheque or obtained it fraudulently. The responsibility lies with the fraudulent party, not the collecting bank.
Practical Example: A thief steals a crossed cheque payable to “Alex” and deposits it into their own account at Collecting Bank C. If Bank C processes the cheque without any reason to suspect the theft, it is not liable to Alex. Alex must sue the thief.

2. Explanation I (Crediting Account):

Legal Terminology: A banker receives payment of a crossed cheque for a customer… notwithstanding that he credits his customer’s account with the amount of the cheque before receiving payment thereof.
Simple English Translation (Advance Credit is Allowed): The bank is still protected even if they allow the customer to use the money (credit the account) before the funds have officially cleared and been transferred from the Drawee Bank.
Practical Example: A customer deposits a cheque and the bank allows them to withdraw the funds instantly. If the cheque later proves to have a defective title, the bank is still protected by Section 131, despite advancing the credit.

3. Explanation II (Electronic Cheques – Verification Duty):

Legal Terminology: It shall be the duty of the banker who receives payment based on an electronic image of a truncated cheque… to verify the prima facie genuineness of the cheque to be truncated and any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care.
Simple English Translation (Duty to Check the Scan): When dealing with modern electronic images of cheques, the collecting bank must ensure the original paper cheque they are scanning (truncating) appears genuine and free from obvious fraud or forgery, using reasonable care before transmitting the image for payment.
Practical Example: A bank employee scans a cheque that has clearly visible erasure marks or two different handwriting styles. If the bank ignores this and proceeds, they fail the “due diligence” test and may lose the protection of Section 131.

Section 131A: Application of Chapter to drafts

This section simply extends the security rules of crossed cheques to bank drafts.

1. Drafts Treated as Cheques:

Legal Terminology: The provisions of this Chapter shall apply to any draft, as defined in section 85A, as if the draft were a cheque.
Simple English Translation (Bank Drafts Get the Same Protection): A bank draft (a money order drawn by one branch of a bank on another) is subject to all the same rules regarding crossing (General, Special, Not Negotiable) as a regular cheque.
Practical Example: A bank issues a draft to a customer. The customer can add a special crossing to the draft, and the Drawee Bank must follow Section 126, treating it just like a specially crossed cheque.