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The various types of cheques

Section 6 of the Negotiable Instruments Act, 1881 defines cheque as “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand." A cheque is, therefore, a bill of exchange with certain qualifications, the qualifications being, that it is always drawn on a specified banker and should be payable on demand. Every cheque therefore is a bill of exchange.

Through this paper, I would be dealing with the various types of cheques, the types of crossing of cheques, the liabilities and the question of negotiability and transferability arising from the crossing of cheques.

Types of Cheques: Open and Crossed Cheques.

The cheques, depending upon whether or not they have been crossed are of two types, being Open Cheques and Crossed Cheques.

An Open Cheque is a cheque which can be presented directly to the bank for payment over the counter of the bank. A cheque of this kind does not bear any crossing over their face. These cheques may either be a bearer cheque or an on order cheque.

A Crossed Cheque is a cheque cannot be presented directly to the banker over the counter for payment and the payment for a cheque of this kind must be made only through a bank. The detection or tracing of the transfers between accounts through the different banks is one of the reasons for the evolution and subsequent preference for crossed cheques since the detection of fraud is less difficult than otherwise. Also, in cases where the crossed cheque has been lost, the possessor of the crossed cheque would not be able to encash the said cheque. A crossing of a cheque may, as a result be understood to be a direction to the drawee banker not to pay the money over the bank’s counter but through the bank.

The crossed cheques are considered in further detail through the course of this paper.

Crossing of Cheques - Origin

Before we consider the details of the crossed cheque, it is essential to understand the origin of the crossed cheque in order to better understand the purpose that crossed cheques serve in the banking practice and law. In England, prior to 1853, when drafts on a banker, payable to order on demand were rendered valid if stamped with a stamp of value one penny. The long established practice usual with banker’s clerks presenting cheques, at the Clearing House, was to stamp the names of the bank across the cheques as an indication of the channel though whom the payment was desired to be made. In cases where the name of the payee’s banker was not known, it became usual to cross the cheque with two lines and insert the words “& Co." between them. This was done in order to indicate that it was to be paid through some banker. Crossing was also done to ensure safety, in case a clerk, carrying cheques to the Clearing House was robbed of them. This practice of crossing cheques developed gradually with the growth of commerce and industry as a means of protection. [1] 

In 1856, crossing had become a subject of legislation. Through the Statute of 1856 it had been enacted that where a cheque was crossed only with two lines with or without the words “& Co.", the cheque must be presented through some banker and when crossed in favor of a particular banker, its payment should be made only to that banker, or another banker acting as an agent for collection of the banker named in the special crossing. The Statute had imposed an obligation on the paying banker to make payment of crossed cheques only to or through some banker, as had been directed by the crossing of the cheque. The Court of Common Pleas and the Exchequer Chamber, in Simmons v Taylor held that the crossing of a cheque was not an essential part of a cheque. [2] Tannan notes that in order to nullify the effect of this decision, the Act of 1858 was passed which declared crossing to be a material part of a cheque once it was there and thus foundation of the law of special crossings was laid down. The holder of the cheque was identified as having the power to cross it, but no express remedy was given to him against a banker who had paid the cheque disregarding the crossing.

The concept of negotiability had evolved as a method of providing efficient commercial substitutes for money. The cheque, it must be remembered, is essentially a payment and not a credit instrument. Daniel Murray very succinctly deals with the problems caused by this application of negotiability principles to cheques and argues that the cheques had developed in such a manner that the negotiability principles should not have been made applicable to the instruments such as cheques. [3] The questions on whether or not cheques should have or should not have been negotiable in the first place are beyond the scope of this paper.

Crossing In Indian Law

Crossing of Cheques is dealt with in Indian Law, under the Negotiable Instruments Act, 1881 under sections 123 and 124. Section 123 deals with the general crossing while section 124 deals with special crossing. [4] 

It should be remembered that by crossing a cheque generally, the banker is directed not to make payment unless the same is made through another banker. Thus a person not entitled to receive its payments, is prevented from getting the cheque cashed at the counter of the paying banker. In order to receive a payment from a crossed cheque, it is essential that the holder or payee of the said crossed cheque must have an account with the drawee bank. He can even negotiate it to someone who has an account with the drawee bank.

In case of a special crossing, the name of the banker is written on the face of the cheque to whom or to whose collecting agent (a different banker), payment of the cheque should be made. The special crossing cheques are safer since the person having no claim will find it difficult to obtain payment, except through the banker named in the crossing, who is likely to know the payee, and therefore, will not collect it for any other person. The addition of the words ‘account payee’ ensures that the receiving bank is to collect the money for the benefit of the payee’s account only. [5] 

Who can cross a cheque?

The drawer of a cheque can cross the cheque if he wishes to do so. When the drawer of the cheque issues an open cheque, any holder of it can cross it generally, thereby converting a general crossing into a special one or can add the words ‘non-negotiable’. Tannan notes that when the cheque is specially crossed, the banker in whose favor it is crossed may once again cross it specially to another banker. In this case, the latter would be acting as the collection agent of the former. He further notes that if a cheque is further crossed by a drawer, he has the right to cancel the crossing by writing the words, “pay cash", across the cheque and by putting down his full signature on the cheque. [6] Therefore, the Drawer can generally cross a cheque. This may be done generally or specially. In cases where the drawer has not crossed the cheque, the holder of the cheque may cross it either generally or specifically. In some instances, where the cheque is specially crossed, the banker may cross it again to another banker as his agent for collection. This is referred to as double special crossing and is dealt with later in this paper.

Account Payee Crossing

Another very commonly used form of crossing is one where the cheque has been crossed using the words ‘Account Payee’. This type of crossing of the cheque does not affect the negotiability of the cheque. It had been held, in the case of Atlanta Mines Ltd. v Economic Bank [7] , that where a cheque has been crossed indicating the name of the account or the person in the crossing, it is a mere direction to the receiving bank as to how the money is to be dealt with. In National Bank v Like [8] a crossed cheque bearing the words “account of J.F.Moriarty Esq., National Bank Dublin" was held to be negotiable.

Not Negotiable Crossing

‘Not Negotiable Crossing’ has been dealt with under section 130 of the Negotiable Instruments Act, 1881 and serves similar purposes as the crossing with the words ‘account payee’ or ‘payee’s account’. Section 130 of the Negotiable Instruments Act, 1881 lays down that the a person taking a cheque generally crossed or specially crossed, which bear the words ‘not negotiable’ shall not have and shall not be capable of giving the person a title better than the one that was available with whom the cheque was in the first instance. It is often wrongly understood that the use of the words ‘not negotiable’ affects the transferability of the cheque. This however is not the case and the use of the words ‘not negotiable’ does affect the aspect of transferability of the cheque but affects the aspect of negotiability of such a crossed cheque. It has been observed by the Court of Appeal in the case of Great Western Railway Co. v London & County Banking Co. [9] that in case of a stolen crossed cheque, the cheque being crossed using the words ‘not negotiable’, the receiver of the said cheque does not attain a better title than the thief who steals the said cheque. Question of how the use of the words ‘not negotiable’ when found on a cheque should be understood or interpreted had come up in the case of Hibernian Bank v Gysin & Hanson [10] where it has been held that the where the words ‘not negotiable’ appear on a bill, they must be assigned their ordinary meaning in law which is that the instrument is deprived of both the characteristics of negotiability i.e. transferability free from defects and transferability by endorsement. [11] 

Negotiability after Account Payee Cheque

When a crossed cheque only contains the words “account payee" and bears no other endorsement, the cheque would be a negotiable instrument, capable of being negotiated as has been held in the case of Manish Mehta v State Bank of India [12] . In this case, the court had cited the judgment in Tailors Priya v Gulabchand Dhanraj [13] where the court held that a cheque crossed as ‘account payee’ without further endorsement is a negotiable instrument and may be negotiated.

Double Crossing

Section 127 of the Negotiable Instruments Act, 1881 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."

The general rule is that a cheque cannot have two special crossings since in that case, the purpose of having the first special crossing is defeated. There is an exception to this rule i.e. if a banker to whom a cheque is crossed specially does not have a branch at the place of the paying banker, he may cross the cheque specially to another banker. In this situation, the second banker would participate in the capacity of an agent of the former banker.

Liability of the Paying Banker on the Crossed Cheques

Section 126 of the Negotiable Instruments Act, 1881 lays down the duty of the paying banker to make payment as per the crossing of the cheque. Section 126 states “Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker and where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to a banker to whom it is crossed or his agent for collection".

This shows that the payment of the crossed cheque must be made only to a banker. In case the banker does not adhere to the requirement under section 126, then section 129 of the Negotiable Instruments Act, 1881, the “banker paying a cheque crossed generally, otherwise than to a banker, or a cheque crossed specially, otherwise than to the banker to whom the same is crossed, or his agent for collection being a banker, shall be liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid."

The paying banker is usually not responsible to the payee or the holder of the crossed cheque since there is no contract between the two. The contract exists between the banker and the true owner of the crossed cheque. Therefore, in case of non adherence to the requirements of the crossed cheque, the paying banker will be liable to the true owner of the crossed cheque, for any loss sustained by him as a result of the (faulty) payment. [14] 

In the case of Indian Overseas Bank v Bismilla Trading Co. [15] , the court (Madras High Court) held that where a bank wrongfully dishonored the cheque, the award of a compensation to the customer for loss of reputation to the extent of one lakh rupees was held to be neither high nor excessive.

The Liability of the Drawer

In case of failure of adherence to section 126 of the Negotiable Instruments Act, 1881, the payment so made will not be considered to be one made with the mandate of the customer. Therefore, in case the banker has paid the amount over the counter, is not entitled to debit the account of the customer with the amount of the cheque and is not considered to be a payment made in due course. Where a person signs and delivers to another a negotiable instrument, he gives authority to the holder of the cheque to complete it if it is incomplete, to make a negotiable instrument for an amount. The drawer of such a cheque who signs the cheque shall become liable for the instrument to any holder in due course for the amount. This is provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder. [16] 

Opening of A Crossing

The cancellation of a crossing on a cheque is known as opening of crossing. The crossed cheque after the cancellation or opening becomes an open cheque and loses the properties of the crossed cheque. In this case, only the drawer of the cheque is entitled to open the crossing of a cheque. This is often done by writing the words ‘pay cash’ and cancelling the crossing accompanied by the drawer’s signature. [17] 


Through this paper, I have tried to trace, from the origins of the concept of a crossed cheque, the reasons for the same. I have also attempted to look at the various types of crossing of cheques and consequences, liabilities for the bankers, the drawer etc. for the many possibilities arising from the crossed cheque apart from the question of negotiability and transferability in the various types of crossing and the double crossing and opening of crosses. It has been established now that the crossing of cheques has been followed in a manner such that it would lead to greater safety and risk diminution in case of loss of the crossed cheque in terms of liabilities.

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