Importance of Crossing a Cheque – What is the significance of crossing a cheque. How and who can cancel the crossing of cheque? As we know, Cheque is a negotiable instrument defined under Section 123-131 of Negotiable Instrument Act 1881. Crossing is an important characterstic of cheque which provides an additional security to cheque. A person issue cheque to an intended person to make payment but in between the realisation process, cheque may be lost or stolen going into wrong hands. Therefore, crossing of cheque protect both the parties drawer and payee.
What is meant by Crossing of Cheque?
Crossing of Cheque refers to two parallel oblique or vertical lines across the cheque on top left hand corner or in top middle. In simple words, crossing a cheque refers to specified instruction on the way it is to be redeemed.
When a cheque is crossed, it can’t be encashed by the holder at bank counter. Crossing means that the amount of cheque can only be recovered from a specified banker and credited to payee account.
There are two types of Crossing – General Crossing and Special Crossing.
In General Crossing, two transverse parallel lines are drawn by the drawer of the Cheque with or without words “NOT NEGOTIABLE” in between parallel lines. Such a crossing is called General Crossing. Words such as ‘and Company’ or ‘& Co’ may be written between two parallel lines. “Account Payee” or “A/c payee” is written between two parallel lines. Cheques which are generally crossed by the drawer can only be paid into a bank account of the payee whose name written on the cheque.
In case of special crossing, drawer imposes restrictions on collecting or paying banker by writing particular bank’s name between two parallel lines. For example, “Canara Bank” , in this case the respective restrictions mandate to pay the cheque through Canara Bank (acting as collecting banker) only.
We had discussed already about effect of different types of crossing of cheque in our previous articles.
Who can cancel the crossing of Cheque?
Crossing on a cheque can be cancelled by the drawer or issuer of the cheque, writing that “Crossing is cancelled” and putting full signature verifying the crossing cancellation.
Importance of Crossing a Cheque
- A crossed cheque can’t be encashed by the holder or bearer at bank counter. Therefore, it protects both the parties.
- A crossed cheque can only be realized in the payee’s account in case of A/c Payee Crossing.
- Crossing a cheque provides protection to issuer of cheque against fraud.
- Unlike *open cheque, it can easily be detected who encashed the cheque in case of crossed cheque.
- A crossed cheque avoid the fraud which can take place in case said cheque is lost or stolen.
In case, if a bank fails to comply with the crossing it amounts to a breach of contract of the bank with its customer. A bank can’t debit drawer’s account without compliance with crossing on the cheque. Bank will be liable to pay for any losses arising out to the drawer or payee.