Crossed Cheque

A crossed cheque is a type of cheque that bears two parallel transverse lines across its face, usually at the top left corner. This crossing indicates that the cheque cannot be encashed directly at the bank counter and must instead be deposited into a bank account. The crossing ensures that payment is made only through the banking system, thereby enhancing security, traceability, and preventing fraud or misuse.

Meaning and Definition

A crossed cheque is one that includes two parallel lines on its face, with or without additional words such as “& Co.”, “Account Payee”, or “Not Negotiable.” These lines instruct the paying bank to route the payment only through a banker rather than paying cash to the bearer.
In simple terms, a crossed cheque ensures that the money is credited directly to the payee’s bank account, making the transaction safer and more accountable.
The legal recognition of crossed cheques in India is provided under Sections 123 to 131 of the Negotiable Instruments Act, 1881, which defines their form, nature, and implications.

Purpose of Crossing

The crossing of a cheque serves several important purposes:

• To ensure safe payment by preventing unauthorised encashment.
• To provide a traceable record of the transaction through the banking system.
• To make sure that payment is made only to the person with a valid bank account.
• To minimise risks of loss, theft, or fraudulent encashment.

Types of Crossing

The crossing of cheques is broadly divided into two main types: General Crossing and Special Crossing. In addition, there are variations such as Account Payee and Not Negotiable crossings, which offer additional protection.

1. General Crossing

Definition: According to Section 123 of the Negotiable Instruments Act, a cheque is said to be generally crossed when it bears across its face two parallel transverse lines, with or without the words “& Co.”, “Not Negotiable,” or “A/c Payee.”
Example:

——————–
& Co.
——————–

Effect:

• The cheque cannot be encashed over the counter.
• It must be deposited into a bank account.
• The paying bank is authorised to make payment only through another bank.

This is the most common and widely used form of crossing.

2. Special Crossing

Definition: Under Section 124 of the Negotiable Instruments Act, a cheque is said to be specially crossed when the name of a particular bank is written between the parallel lines or across the face of the cheque.
Example:

————————–
Account Payee
State Bank of India
————————–

Effect:

• The cheque can only be collected through the bank specifically mentioned.
• The paying banker will pay the cheque only to that bank, which in turn credits the amount to the payee’s account.
• It offers higher security since payment is restricted to the designated bank.

If a cheque is specially crossed to two banks, it is valid only if one of the banks acts as an agent of the other.

3. Account Payee Crossing (Restrictive Crossing)

This form of crossing, though not defined in the Negotiable Instruments Act, is recognised by banking practice.
Format:

A/C Payee Only

Effect:

• The cheque must be deposited only into the account of the named payee.
• It cannot be transferred or endorsed to another person.
• It ensures the highest level of payment security and prevents diversion of funds.

This form is commonly used for salary payments, refunds, and business transactions.

4. Not Negotiable Crossing

Definition: According to Section 130 of the Negotiable Instruments Act, adding the words “Not Negotiable” does not prevent transferability of the cheque but restricts the transferee’s rights.
Effect:

• The cheque remains transferable, but the transferee cannot obtain a better title than the transferor.
• It provides legal protection against theft or fraudulent transfer.

Example:

——————-
& Co.
Not Negotiable
——————-

This type of crossing is used when transfer of the cheque is permitted, but the drawer wishes to maintain legal control over its circulation.

Legal Provisions under the Negotiable Instruments Act, 1881

Difference between Open and Crossed Cheques

Advantages of Crossing

1. Safety: Protects against unauthorised encashment.
2. Traceability: Ensures the transaction is recorded through banks.
3. Fraud Prevention: Reduces the chances of theft or forgery.
4. Accountability: Maintains documentary proof of payment.
5. Transparency: Promotes responsible and verifiable financial dealings.

Banking Procedure

When a crossed cheque is used:

1. The payee deposits the cheque in their bank account.
2. The collecting bank sends it to the clearing house.
3. The drawee bank verifies the cheque details and releases the funds.
4. The amount is credited to the payee’s account once clearing is completed.

If the cheque is crossed incorrectly or altered, it may be returned unpaid during the clearing process.

Example in Practice

If a company issues a cheque marked “A/C Payee Only” in favour of an employee, the payment:

• Cannot be encashed in cash.
• Must be deposited directly into the employee’s account.
• Remains traceable through banking records.

This ensures secure and transparent payment transfer.

Importance in Modern Banking

Though digital transactions have become more common, crossed cheques remain vital for ensuring safe and verifiable non-cash payments. They are widely used in:

• Salary and pension disbursements.
• Corporate and government transactions.
• Legal settlements and official payments.

Crossed cheques continue to embody a fundamental banking principle — security through controlled payment.