What is Crossing of Cheque? Types, Meaning, Dishonoured

What is Crossing of Cheque?

The crossing of Cheque means that the specific cheque can only be deposited straightway into a bank account and cannot be instantly cashed by a bank or any credit institution.

This ensures a level of security to the payer since it requires the funds to be handled through a collecting bank.

Crossing of a cheque means “Drawing Two Parallel Lines”

A cheque is either ‘open’ or ‘crossed’.

An open or uncrossed cheque is the one for which the banker has to pay cash across the counter when it is presented by the customer.

• An open cheque is risky because, if the holder of the cheque loses it, any person, who is in possession of it, can take the payment from the bank.
  
• The payment of such cheques can be stopped by the drawer by writing a letter to the banker regarding loss of cheque.

To make cheques secure and useful, crossing of cheques was adopted.

Types of Cheque Crossing

Basically, there are 3 types of cheque crossing:

1. General crossing
2. Special Crossing
3. Restrictive crossing

General crossing

General crossing on a cheque can be made by inserting two parallel lines on the left-hand top corner of a cheque.

Between the two parallel transverse lines the options are to add certain words like – ‘and company’, ‘& company’ or ‘not negotiable’. It is one of the common types of cheque crossing.

Special Crossing

A cheque is deemed to be specially crossed when in the parallel transverse lines in a cheque the name of the banker is written with or without the words “not negotiable“.

In a special crossing, the paying banker will pay the sum only to the banker whose name is stated in the cheque or to his agent.

Restrictive crossing

Restrictive crossing involves the crossing of a cheque through two parallel lines on the left corner of a cheque. The words A/c payee are inserted inside the parallel lines.

According to this crossing, the cheque can be collected by the bank only for the person, whose name is written on the cheque.

It provides higher protection to the drawer of the cheque, in a case; a cheque is misplaced or lost.

Boucing of Dishonour of Cheques

A cheque is said to be bounced or dishonoured by non-payment when the drawee of cheque makes a default in payment in when cheque is presented to him for payment.

1. Liability of drawee on dishonour
2. Liability of drawer on dishonour

Liability of drawee on dishonour

In case of default by the drawee (i.e. Banker), the drawee shall compensate the drawer for loss caused to him. The liability of a drawee arises by non-payment, if the following three conditions are fulfilled on the dishonour of cheque:

1. The drawer has sufficient funds in the account;
   
   
2. Such funds are properly applicable to payment of the cheque;
   
   
3. The drawee is duly required to pay the cheque.

Liability of drawer on dishonour

On the dishonour of the cheque, the drawer is punishable with imprisonment up to two years or fine not exceeding twice the amount of cheque or both if the following conditions are satisfied:

1. The cheque was issued to discharge a legally enforceable debt.
   
   
2. The cheque was returned or dishonoured for insufficiency of funds.
   
   
3. The cheque was presented within six months from which it was drawn or validity period of cheque.
   
   
4. The payee or the holder in due course has made a demand from the drawer within 30 days of dishonour.
   
   
5. The drawer of cheque has failed to make a payment within 30 days of demand made.
   
   
6. A complaint can be made only by the payee or the holder within one month of expiry of 30 days of the receipt of notice by the drawer.

Business Law Notes

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Business Law Book References

1. Goel, P. K. (2006). “Business Law for Managers” Wiley
2. Sheth, T. (2017). “Business Law” (2ed.) Pearson.
3. Kuchhal. M.C. & Prakash. “Business Legislation for Management” (2ed.) Vikas Publishing.

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