EI poder de iniciativa normativa

A cheque is an unconditional order, drawn on a specified banker and is always payable on demand. The drawer of a cheque attach any condition thereto. He may, however, give specific instruction to the paying banker regarding the mode of payment of the cheque. Ordinarily, the payee of a cheque is entitled to encash the cheque at the counter of the paying banker by presenting it within the specified banking hours on any working day of the bank.

In case of a bearer cheque, the paying banker need not seek the identification of the holder of the cheque. An order cheque is paid by the paying banker on being satisfied about the true identity of the presenter of the cheque.

However, even in the latter case, there is some risk involved. The cheque might have fallen in the hands of a wrong person, who might have taken payment from the banker. To avoid such risks, or at least to detect payments made to wrong persons, the drawer may give a direction to the paying banker through certain words marked on the cheque itself, which constitute ‘crossing’. Crossing is an ‘instruction’ given to the paying banker to pay the amount of the cheque through a banker only and not directly to the person presenting it t the counter. A cheque bearing such an instruction is called a ‘crossed cheque’, others without such crossing are ‘open cheques’ which may be encashed at the counter of the paying banker as well. The crossing on a cheque is intended to ensure that its payment is made to the right payee.

Section 123 to 131 of the Negotiable Instruments Act contains provisions relating to crossing. According to Section 131-A, these Sections are also applicable in case of drafts. Thus not only cheques but bank drafts also may be crossed.

Type of Crossing

Crossing on cheques is of two types-General Crossing and Special Crossing.

General Crossing

According to Section 123, “where a cheque bears across its face an addition of the words “and company” or any abbreviation thereof, between two parallel transverse lines, or two parallel transverse lines simply, either with or without the words ‘not negotiable’ the addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally”.

It is to be noted from the above that drawing of two parallel transverse lines on the face of the cheque constitutes ‘general crossing’. The lines must be (i) on the face of the cheque, (ii) parallel to each other, and (iii) in cross direction (i.e. transverse). Inclusion of the words ‘and company’ is immaterial and of no special consequences.

The effect of general crossing is that the cheque must be presented to the paying banker through any banker and not by the payee himself at the counter. The collecting banker credits the proceeds to the account of the payee or the holder of the cheque. The latter may thereafter withdraw the money.

Special Crossing

According to Section 124, “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”.

The addition of the name of a banker across the face of a cheque constitutes ‘special crossing’. Drawing of two parallel lines on the face of the cheque is not essential in case of special crossing. Special crossing differs from General crossing because in case of the former inclusion of the name of a banker is essential whereas in General crossing drawing of two parallel transverse lines is a must. It should be noted that in addition to these minimum statutory requirements for two types of crossing addition of words or lines may also he included, e.g., in case of Special Crossing, the name of banker may be written within two parallel transverse lines or with the words and company ‘or’ ‘Account Payee only’ or ‘Not negotiable’. The inclusion of these words has become rather customary.

The Special Crossing on the cheque is a direction to the paying banker to honour the cheque only when it is presented through the bank mentioned in the crossing and no other bank. The cheque crossed specially this becomes more safe than the generally crossed cheque. The banker, to whom a cheque is crossed specially, may appoint another banker as his agent for the collection of such cheques.

What does not Constitute Crossing?

Sections 123 and 124 defines the two types of crossing in very clear terms. The specific lines or words which constitute general or special crossing respectively are spelt out very categorically. The inclusion of any other word/words, without the essential ingredients of crossing, on the face of a cheque does not constitute crossing.

Examples: (1) A cheque bears the words ‘not negotiable’ or ‘account payee’ without two parallel lines or the name of any bank. This is not deemed to be a crossed cheque because the words ‘not negotiable’ within two parallel transverse lines on the face on the cheque constitute general crossing (section 123). The two transverse lines are essential in case of general crossing. The name of a bank without two parallel lines is a must for Special Crossing.

(2) If a cheque bears single line acrossits face or simply an X mark, the cheque is not treated as crossed cheque.

(3) The inclusion of any other word/words within two parallel lines is irrelevant and the cheque is still deemed to be a crossed cheque e.g.,

---Under Rupees one hundred

---& Co. Lucknow

---Persons Authorised to Cross A Cheque

Section 125 of the Negotiable Instruments Act 1881, which corresponds with Section 77 of the Bill of Exchange, Act 1882 enacts:

“A cheque may be crossed generally or specially by the drawer”.

“Where is cheque is uncrossed, the holder may cross it generally or specially”.

“Where a cheque is crossed generally or specially, the holder may add the words not negotiable”.

“Where a cheque is crossed specially, the baker to whom it is crossed may again cross it specially to another banker his agent, for collection”.

“Where an uncrossed cheque or a cheque crossed generally is sent to the banker for collection, he may cross/it specially to himself”.

It should be, however, noted that in the last case, such crossing does not enable the collecting banker to avail himself of the statutory protection against being sued for conversion.

‘Not Negotiable’ Crossing

The addition of the words “not negotiable” to a crossing is authorized by the Negotiable Instruments Act.

Section 130 of the Act provides.

“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”.

A cheque being a negotiable instrument, it is possible for a bona fide transferee for value to have a good title eventhough the transferor’s title was faulty or non-existante or there was any prior defect in the chain of title. Suppose that a bearer cheque or an order cheque duly endorsed in stolen and the thief transferred it for value to one who was not aware of the situation. Under such circumstances, the transferee has a right to the value represented by the cheque and the previous parties would be liable. Thus, the drawer of a stolen cheque may still find himself liable for the amount of it even though he may have placed a ‘stop’ on it. The way to avoid such possible liability for the drawer is to cross cheques “not negotiable”.

If a cheque is crossed “not negotiable”, this quality of negotiability is destroyed and no one taking subsequent to theft can acquire a good title even though the transferee gives value for it. This means that a break in the “good title” remains broken and an innocent transferee can not acquire any better rights than those of the person from whom he received it. No one can, therefore, be a holder in due course of such a cheque. The words “not negotiable” are a danger signal equivalent to saying “Take care, this cheque may be stolen”. The object of the addition is to give protection to the true owner of he cheque by preserving his rights against any subsequent holder.

A cheque crossed “not negotiable” is still transferable. This does not mean, as is often mistakenly though, that the cheque cannot be transferred from one person to another. The cheque is deprived of one of the attributes of negotiability, i.e., the transferability free from equities, but is left with the other attribute unaffected, viz., the transferability be deliver or by endorsement and delivery. A cheque crossed “not negotiable” may pass from open person to another but the transferee should be continuous because he cannot acquire a better title than his transferor had. This applied whether the cheque is payable to order or bearer.

A crossed cheque “Not negotiable” does not solely, by reason of the crossing, put a collecting banker upon enquiry, even though the cheque is tendered for collection by someone other than the payee. As Sir John Paget observed. “the ‘non-negotiable’ crossing has nothing to do with the collecting banker and he can deal with it freely”.

Likewise, the crossing does not concern the paying banker.

Account Payee Crossing

The expression “Account Payee” or “Account…… (name of payee, say, S. Sharma)”, are often added to the crossing of a cheque, but such a crossing has no statutory significance as it is not sanctioned by the Negotiable Instruments Act. In so far as the paying the cheque is good faith and without negligence, his responsibility ceases, and he cannot be expected to follow the money after it has reached the collecting banker, and insist upon the collecting banker paying into the proper account. But the collecting banker is in a different position.

The crossing “Account payee” operates by customers instructions to the collecting banker that the proceeds of the cheque are not to be collected for any account other than that of the specific payee, as otherwise he stands to lose his statutory protection on the ground of negligence and may be liable for conversion (allowing a cheque intended to be of benefit of one person to be converted to the benefit of another). Hence the collecting banker should not collect cheques so marked except for the named payee.

This crossing does present something of a legal anomaly, since be means of it the drawer of a cheque can enforce a duty of enquiry upon a collecting bank eventhough in the majority of cases there will be no contractual link between the drawer and the collecting bank, which will be acting for the payee or other holder of the cheque.

Double Crossing

A cheque bearing a special crossing is to be collected through the banker specified therein. It cannot, therefore, be crossed specially again to another banker, i.e., a cheque cannot have two special crossing, as the very purpose of the first special crossing is frustrated by the second one.

However, there is one exception to this rule for a specific purpose. If the banker, to whom a cheque is specially crossed, does not have a branch at the place of the paying banker, or if he, otherwise, feels the necessity, he may cross the cheque specially to another banker, who acts as his agent for the purpose of collection of the cheques. In such a case, the latter crossing must specify that the banker to whom it has been specially crossed again shall act as the agent of the first banker for the purpose of collection of the cheque, e.g.,

---Punjab National Bank to

Allahabad Bank as agent for collection

---It essential that the words “as agent for collection” must be included in the special crossing, subsequent to endorsement or discharge. Section 127 provides that “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” Thus a cheque bearing a double special crossing as given below shall not be honoured by the paying banker.

---Punjab National Bank Allahabad bank ---Obliterating a crossing

Sometimes the crossing on a cheque is obliterated or erased by a dishonest person so cleverly and skillfully that the paying banker is unable, despite utmost efforts on his part, to detect such obliteration and pays the cheque as an open cheque. Section 89 provides protection to the paying banker under such circumstances as follows:

“Where a cheque is presented for payment which does not at the time of presentation appear to the crossed or to have had a crossing which has been obliterated, payment thereof by a banker liable to pay and paying the same according to the apartment tenor thereof at the time of payment and otherwise in due course, shall discharge such banker from all liability thereon and such payment shall not be questioned by reason of the cheque having been crossed.

This Section provides statutory protection to the paying banker, provided the following conditions are fulfilled:

(a) The cheque does not appear to be a crossed one at the time of presentation or the obliteration of the crossing is not apparent, and

(b) The payment is made according to the apparent tenor of the cheque and in due course (under Section 10) The paying banker is discharged from his liability if such cheque is paid at the counter on presentment. He can debit the amount of the cheque to the drawer’s account .

Opening of Crossing

A cheque once crossed need not remain so forever. The drawer has the right to cancel the crossing by writing the words “pay cash” and putting his full signature. The need for full signatures was also emphasized by the London Clearing Bankers Committee, in their resolution passed in 1912. It stated that “no opening of cheques be recognized unless the full signatures of the drawer be appended to the alternation”. It should be noted that if holder writes the words “pay cash” and forges the drawer’s signatures, the paying banker is not protected. The reason is that paying banker is expected to know the drawer’s signatures and, thereof, forgery of drawer’s signatures does not entitle him to any protection.

M.I.C.R. Cheques/Drafts

What a view to speeding up the cheque clearing process, both local as well as intercity cheques, the Reserve Bank of India has introduced mechanized cheque processing system using MICR (Magnetic Ink Character Recognition) technology initially in the four metropolitan cities of Bombay, Calcutta, Madras and New Delhi. Under this system, the cheques are processed at his speed on machines Banks issues cheques, drafts and other payment instruments in MICR format using the special quality paper and printing securitizations. On MICR instruments, there is code line at the bottom containing information printed in magnetic ink, which is required for mechanical processing.

The code line contains the following information.

i) first six numbers indicate the cheque Number ii) next three numbers indicate the City Code iii) next three numbers indicate the Bank Code iv) next three number indicate the Branch Code

After some space there is the number for transaction code (i.e., whether the transaction is for a savings or current account)

This magnetized portion, when placed under MICR equipment, allows for instant readability and identification.

MICR cheque should not be folded. Pins, stables, etc., should only be used on the top left had corner or the cheque. Signature of the drawer, rubber stamp, etc., should be affixed above the code line. Nothing should be written on the code line. In place of the counterfoils, MICS cheque books provide for Record slips at the end which are used for recording the details of every cheque issued.

LESSON – 22