B.

Law (CAF - 3) Page | 159 ICAP Recommended Answers

Chapter 15 – Provisions relating to Cheques

1 (a) Following are the types of crossing of a cheque:

(i) General crossing:
A cheque is said to be crossed generally where it bears across its face an addition of the words
“and company” or any abbreviation of it between two parallel transverse lines.
Effect of crossing:
The banker on whom cheque is drawn shall not pay it otherwise than to a banker.
(ii) Special crossing:
A cheque is said to be crossed especially where it bears across its face an addition of the name of
the banker, either with or without the words “not negotiable”, that addition shall be deemed a
crossing, and the cheque shall be deemed to be crossed specially. Parallel lines are not necessary.
Effect of crossing:
The banker on whom cheque is drawn shall not pay it otherwise than to a banker to whom it is
crossed or his agent for collection.
(iii) Restrictive crossing:
Restrictive crossing may be added with general crossing by adding the words “A/c Payee” or “A/c
Payee only”.
Effect of crossing:
The cheque shall cease to be negotiable. The amount collected by the banker on the cheque must
be credited only to the account of payee named in the cheque.
(iv) Not Negotiable crossing:
The addition of the words ‘not negotiable’ does not restrict the further transferability of the
cheque. It only takes away the main feature of negotiability, which is transferability free from
defects.
Effect of crossing:
The effect of the words ‘not negotiable’ on a crossed cheque is that the title of the transferee of
such a cheque cannot be better than that of its transferor.

2 Effect(s) of the words ‘Not negotiable’ on a cheque crossed generally

The effect of the words “not negotiable” on a crossed cheque is that the title of the transferee of such
a cheque cannot be better than that of its transferor. The addition of the words not negotiable does
not restrict the further transferability of the cheque. It only takes away the main feature of
negotiability, which is transferability, free from defects.

3 Effect(s) of the words ‘Not negotiable' on a cheque crossed specially.

The effect of the words “not negotiable” on a crossed cheque is that the title of the transferee of such
a cheque cannot be better than that of its transferor. The addition of the words not negotiable does
not restrict the further transferability of the cheque. It only takes away the main feature of
negotiability, which is transferability free from defects.

4 Purpose of crossing a cheque:

The purpose of crossing a cheque is to direct the drawee (banker) to pay the amount of the cheque
only to a banker so that the party who receives the payment can easily be traced.
Can a Cheque be Crossed Specially more than Once:
Yes. It is allowed when a banker in whose favor a crossing is made, once again crosses it specially in
favor of his agent (another banker) for collection.

5 Crossing after issue

 Where a cheque is uncrossed, the holder may cross it generally or specially.
 Where a cheque is crossed generally, the holder may cross it specially.
B.Law (CAF - 3) Page | 160 ICAP Recommended Answers

 Where a cheque is crossed generally or specially, the holder may add the words “not negotiable”.
 Where a cheque is crossed specially, the banker to whom it is crossed may again cross it specially
to another banker, his agent, for collection.
 When an uncrossed cheque, or a cheque crossed generally, is sent to a banker for collection, he
may cross it specially to himself.

6 A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise
than on demand. General crossing:
A cheque is said to be crossed generally when it bears across its face an addition of:-
(i) the words “and company” or any abbreviation thereof, between two parallel transverse lines, either
with or without the words “not negotiable”; or
(ii) two parallel transverse lines simply, either with or without the words “not negotiable”.

7 Payment in due course of a cheque crossed generally:

In order that payment of a cheque crossed generally may be considered a payment in due course it is
necessary that the banker on whom it is drawn should pay it in good faith without negligence to a
banker.

Consequences of payment of a cheque, crossed generally, in due course:

If a banker pays a cheque crossed generally in due course, he can debit his customer, the drawer, with
the amount so paid even though the amount of the cheque does not reach the true owner and is entitled
to and be placed in the same position in all respects as if the amount of the cheque had been paid to
and received by the true owner thereof

Payment out of due course of a cheque crossed generally:

If a banker pays a cheque crossed generally otherwise than to a banker, in contravention of the
direction of the cheque, is said to have paid it out of due course.

Consequences of payment of a cheque, crossed generally, out of due course:

If a banker pays a cheque crossed generally in contravention of the direction of the crossing he is liable
to compensate the true owner of the cheque for any loss sustained by him owing to the cheque having
been so paid.

8 A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise
than on demand.

Essential elements of a valid cheque:

Following are the essential elements of a valid cheque.
(i) It must be in writing,
(ii) It must contain an unconditional order to pay,
(iii) It must contain an order to pay in terms of money,
(iv) It must contain an order to pay a definite amount of money,
(v) The parties to the cheque must be certain (real),
(vi) It must be signed by the drawer,
(vii) It must be drawn on a specified banker,
(viii) It must be payable on demand.

9 Who can cross the cheque after issue

Following persons can cross the cheque:
(i) Holder
(ii) Banker
B.Law (CAF - 3) Page | 161 ICAP Recommended Answers

Crossing of cheque after issue

(i) Where a cheque is uncrossed, the holder may cross it generally or specially.
(ii) Where a cheque is crossed generally, the holder may cross it specially.
(iii) Where a cheque is crossed generally or specially, the holder may add the words “not negotiable”.
(iv) Where a cheque is crossed specially, the banker to whom it is crossed may again cross it specially
to another banker, his agent, for collection.
(v) When an uncrossed cheque, or a cheque crossed generally, is sent to a banker for collection, he
may cross it specially to himself

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