What is the effect of crossing of cheques? Discuss the (i) General, (ii) Particular and not negotiable crossing.

The crossing of a cheque is one of the most practical and commercially significant innovations woven into Chapter XIV of the Negotiable Instruments Act, 1881. An open cheque — one that bears no crossing — carries with it the risk that it may be encashed at the counter by any person who presents it, making it extremely vulnerable to theft, forgery, and misuse. Crossing was introduced precisely to address this risk, compelling payment through the banking channel and thereby creating a trail through which the recipient of the money can be traced. As Lord Hatherley put it, the object of crossing is "to compel the holder to present it through a quarter of known respectability and credit." It is important to understand at the outset, however, that crossing does not destroy or restrict the negotiability of a cheque — it only affects the mode of payment.

The Concept and Object of Crossing

A crossing is a direction to the paying bank. Its singular legal effect, as stated in Section 126, is that a crossed cheque cannot be paid over the counter; it must be paid only through a banker. As the Allahabad High Court clarified in Durga Shah Mohan Lal Bankers v Governor-General-in-Council (AIR 1952 All 590), the mere crossing of a cheque — whether general or special — does not destroy its negotiability. The negotiability of a cheque can be taken away only when the words "not negotiable" appear on its face. In other words, crossing is a caution to the paying bank; not negotiable is a warning to the world.

(i) General Crossing — Section 123

A cheque is said to be crossed generally when it bears across its face either (a) the words "and company" or any abbreviation thereof, between two parallel transverse lines, with or without the words "not negotiable," or (b) simply two parallel transverse lines, with or without the words "not negotiable." The two parallel transverse lines are the essential feature of general crossing; the words "and company" or "& Co" are merely conventional additions that are not legally required.

Effect of General Crossing

Section 126 provides the governing rule: "Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker." This means that the drawee bank cannot pay the cheque to any individual across its counter — payment must be routed through some bank, which will present the cheque on behalf of its account-holder customer. If the drawee bank violates this direction and pays the cheque across the counter to a private individual, it becomes liable under Section 129 to the true owner of the cheque for any loss the true owner may sustain by reason of such payment.

The protection that this crossing affords to the drawer is that money will not directly reach the hands of a stranger or a wrongful holder; since payment must go through a bank, it is always possible to trace who received it. However, since general crossing does not carry the words "not negotiable," a holder in due course who receives a generally crossed cheque may still have a perfectly good title free from defects of prior parties.

(ii) Particular (Special) Crossing — Section 124

A cheque is said to be crossed specially when it bears across its face the name of a particular banker, either with or without the words "not negotiable." Importantly, for a special crossing, the two parallel transverse lines are not essential. The addition of a banker's name alone — such as "Union Bank of India" written across the face — constitutes a valid special crossing.

Effect of Special Crossing

Section 126 provides that "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." This is a more narrowly targeted direction than general crossing. The drawee bank is not merely told to pay to "some banker" — it is told to pay to only that specific banker, or to a bank acting as that banker's agent for collection.

Section 127 carries this further. If a cheque bears two special crossings — that is, it has been crossed specially to two different banks — the drawee bank must refuse payment entirely. The only permitted exception is when the second special crossing is made by the first banker to another banker as his agent for collection, which is a common procedure in inter-city cheque clearing operations. The rationale is plain: if a cheque could be specially crossed to two different banks, the drawee bank would face impossible and contradictory instructions.

Special crossing thus provides a higher degree of security than general crossing. While a generally crossed cheque can be collected by any bank, a specially crossed cheque is payable only through the named bank. This ensures that the money can be traced with far greater precision. If the drawee bank pays to any banker other than the one specified in the crossing, it will be liable to the true owner under Section 129.

(iii) "Not Negotiable" Crossing — Section 130

The third and most powerful form of crossing is the "not negotiable" crossing. Section 130 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."

This provision strikes at the very heart of what makes a negotiable instrument valuable in commerce — the ability of a holder in due course to take the instrument free from defects in the title of prior parties. Under the ordinary law of negotiable instruments, a holder in due course who takes a cheque in good faith, for value, and without notice of any defect, acquires a title superior to all prior parties. Section 130 entirely abolishes this advantage in the case of a "not negotiable" cheque.

What "Not Negotiable" Does Not Mean

This is a point of considerable importance, and one that is frequently misunderstood. The words "not negotiable" do not make the cheque non-transferable. The cheque can still be transferred from one person to another. What the words do is this: they ensure that the transferee can never get a better title than the transferor had. As the courts and commentators have consistently affirmed — and as the Calcutta High Court confirmed in Tailors Priya v Gulabchand Danraj (AIR 1963 Cal 36) — crossing merely affects the mode of payment and does not restrain negotiability, but the addition of "not negotiable" deprives the instrument of the incident of negotiability without rendering it non-transferable.

The practical consequence is this: if the cheque was stolen or obtained by fraud at any point in its journey, every subsequent holder — no matter how innocently they acquired it — takes subject to that taint. The true owner can always reclaim the money, regardless of whether the paying bank and the collecting bank are exonerated under Sections 128 and 131. As the House of Lords stated in Great Western Railway Co v London and County Banking Co (1901 AC 414) — a case involving a "not negotiable" cheque obtained by fraud — the bank collecting it for a person with no title was liable to the true owner, even though it had acted without negligence.

A Practical Illustration

The difference between an ordinary crossed cheque and a "not negotiable" crossed cheque can be seen in a simple example. Suppose a cheque crossed generally is stolen and reaches the hands of B, who takes it in good faith for value and deposits it in his bank. B, as a holder in due course, gets good title and can enforce the cheque. But if the cheque were crossed "not negotiable," B gets no better title than the thief had — which is no title at all. The true owner can recover the money from B.

The Banker's Position in All Three Cases

While the crossing protects the drawer and the true owner, the law also takes care to protect the paying and collecting banks who act in good faith. Section 128 provides that a drawee bank which pays a crossed cheque in due course — that is, in accordance with the terms of the crossing, in good faith, without negligence — is discharged from all liability, even if the amount does not actually reach the true owner. Similarly, Section 131 protects the collecting bank that receives payment of a crossed cheque for its customer in good faith and without negligence, even if the customer's title later turns out to be defective. These twin protections ensure that the banking system can function smoothly without bankers being required to investigate the entire history of every cheque that passes through their hands.