In the realm of negotiable instruments, a crossed cheque is considered a safer and more traceable form of payment than an open (bearer) cheque. It offers greater protection against fraud or theft and ensures that the funds are deposited directly into a bank account. This legal guide explores the definition, types, and implications of crossed cheques under Indian law.
What is a Crossed Cheque?
A crossed cheque is a cheque that contains two parallel transverse lines on the top left corner or across the cheque with or without additional words like “A/C Payee” or “Not Negotiable.” It is not payable over the counter but only through a bank account.
Legal Definition under Section 123 of the Negotiable Instruments Act, 1881:“Where a cheque bears across its face an addition of the words ‘and company’ or any abbreviation thereof between two parallel transverse lines… the cheque is said to be crossed generally.”
Purpose of Crossing a Cheque
- Prevents Encashment Over the Counter
- Ensures Payment Is Made to the Account Holder Only
- Reduces Risk of Theft or Fraud
- Enables Easy Traceability
Crossing converts a negotiable instrument into a non-negotiable one (in some cases), thus adding legal security to the transaction.
Types of Crossed Cheques
1. General Crossing (Section 123)
- Contains two parallel lines with or without words such as “& Co.” or “Not Negotiable.”
- Cheque can be deposited into any bank account, not limited to a specific bank.
Example:
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& Co.
2. Special Crossing (Section 124)
- Contains the name of a specific bank written between the lines.
- Payment can only be made through the mentioned bank.
Example:
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State Bank of India
3. Restrictive Crossing / A/C Payee Only
- Contains words like “A/C Payee” or “Account Payee Only.”
- Can only be deposited into the account of the named payee.
- Offers the highest level of security.
Example:
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A/C Payee Only
Legal Provisions Governing Crossed Cheques
Section 123 – General Crossing
- Any cheque with parallel lines and optional words like “and Co.” is considered generally crossed.
Section 124 – Special Crossing
- A cheque that specifies a particular banker is said to be specially crossed.
Section 126 – Payment of Crossed Cheques
- Prohibits payment except through a bank account.
- Makes it mandatory for the banker to credit the amount into a bank account.
Key Legal Implications of Crossed Cheques
- Bank’s Duty: The bank must honour only those crossed cheques that follow the instructions given in the crossing.
- Drawer’s Protection: Reduces chances of wrongful encashment.
- Payee’s Safety: Guarantees payment directly into their bank account.
- Holder in Due Course Rights: Some rights may be limited in “Not Negotiable” crossed cheques.
- Cheque Bounce: If a crossed cheque is dishonoured, legal remedies under Section 138 of the Negotiable Instruments Act are still applicable.
Difference Between Open and Crossed Cheques
| Feature | Open Cheque | Crossed Cheque |
|---|---|---|
| Payment Method | Over the counter | Through bank account only |
| Risk Factor | High (can be encashed by bearer) | Low (traceable and secure) |
| Identification Required | Not necessary | Required for bank deposit |
| Common Usage | Informal or personal transactions | Business and secured transactions |
Recent Trends and Usage
- In digital banking, cheque truncation systems (CTS) allow scanned images of crossed cheques to be processed securely.
- Many businesses and government institutions use crossed cheques for salary disbursal, payments, and refunds to ensure proper accounting and traceability.