In the world of banking and negotiable instruments, an Account Payee cheque is considered one of the safest ways to transfer money. It restricts payment exclusively to the payee’s account, thereby minimizing the risk of misuse or fraud. This article explains the legal meaning, features, and rules related to Account Payee cheques under Indian law.
What is an Account Payee Cheque?
An Account Payee cheque is a type of crossed cheque that contains specific instructions for the bank to deposit the funds only into the bank account of the payee whose name appears on the cheque.
Key Characteristic:
The cheque bears two parallel transverse lines on the top left-hand corner with the words “A/C Payee” or “Account Payee Only” written between or above them.
Purpose of Account Payee Cheques
- Ensures Payment to Intended Recipient Only
- Prevents Misuse by Unauthorized Persons
- Provides Legal Security in Business and Personal Transactions
- Facilitates Traceability and Documentation
Legal Recognition under Indian Law
While the Negotiable Instruments Act, 1881 does not directly define an “Account Payee” cheque, it does recognize crossed cheques under:
- Section 123: General crossing
- Section 124: Special crossing
- Section 126: Payment of crossed cheques
Judicial Recognition:
Courts in India have accepted the Account Payee crossing as a restrictive instruction that legally binds the bank to credit the amount only to the account of the named payee.
Features of an Account Payee Cheque
- Clearly marked with “A/C Payee” or “Account Payee Only”
- Cannot be encashed over the counter
- Amount is credited directly to the payee’s bank account
- Not transferable to third parties
- Offers a high level of safety and traceability
- Commonly used in salary payments, refunds, official disbursements, and high-value transactions
Difference Between Crossed and Account Payee Cheques
| Feature | Crossed Cheque | Account Payee Cheque |
|---|---|---|
| Safety Level | Safer than open cheques | Safest among all types of cheques |
| Payment Method | Through any bank account | Only into payee’s specified account |
| Transferable | Yes (unless marked “Not Negotiable”) | No |
| Used For | General payments | Business, official, or secure transactions |
How to Write an Account Payee Cheque
- Draw two parallel lines on the top left corner of the cheque.
- Write “A/C Payee” or “Account Payee Only” between the lines.
- Fill in the payee name, amount in figures and words, and date.
- Sign the cheque properly.
Bank’s Responsibility in Case of Breach
If a bank allows the encashment of an Account Payee cheque over the counter or deposits it into an unauthorized account, it may be held negligent and liable for the loss under banking and tort law principles.
Use Cases of Account Payee Cheques
- Salary payments to employees
- Vendor and contractor payments
- Insurance claim settlements
- Refunds from institutions or government bodies
- Payments in legal settlements
Legal Remedies in Case of Misuse
- The drawer or payee can file a complaint against the bank for negligence.
- In case of cheque bounce, provisions of Section 138 of the Negotiable Instruments Act, 1881 apply.
- Civil action can be taken for recovery of amount wrongfully debited or misappropriated.