Negotiable Instruments Act, Section 123

Negotiable Instruments Act, Section 123: Cheque Crossed Generally

Section 123 of the Negotiable Instruments Act, 1881 provides that a cheque bearing two parallel transverse lines across its face, with or without words such as & Co. or Not Negotiable, is deemed to be crossed generally.

The provision introduces an important banking safeguard that enhances security in cheque transactions and reduces the risk of wrongful payment or misuse.

1. Meaning of Crossing of Cheque

Crossing of a cheque means drawing two parallel lines across its face, with or without additional words, indicating that the cheque should be paid only through a bank and not directly over the counter.

It serves as a direction to the banker regarding the mode of payment and acts as a protective device to enhance the safety of cheque transactions.

2. Meaning of General Crossing

A general crossing is the simplest and most common form of crossing, and under Section 123 a cheque is generally crossed when it bears two parallel transverse lines across its face.

Such crossing may appear with or without the words & Co., any abbreviation thereof, or the words Not Negotiable, and once marked in this manner the cheque is treated as generally crossed.

3. Two Parallel Transverse Lines

A general crossing consists of two parallel transverse lines across the face of the cheque, indicating that it must be collected through a banker and not paid directly over the counter.

4. Addition of Words & Company

The section also recognizes the addition of the words “& Company” or “& Co.”, whose presence reinforces the intention that the cheque is generally crossed.

5. Use of Words Not Negotiable

A generally crossed cheque may also bear the words Not Negotiable, which do not prevent its transfer but ensure that a transferee cannot acquire a better title than the transferor, thereby providing additional protection against fraud or defective title.

6. Purpose of General Crossing

The object of general crossing is to enhance the security of cheque transactions by ensuring payment through banking channels, reducing the risk of misuse, creating a transaction record, and protecting the true owner of the cheque.

7. Effect of General Crossing

When a cheque is crossed generally, the paying banker should make payment only through another banker and not directly over the counter, thereby ensuring safer handling and traceability of funds.

8. Importance in Banking Practice

General crossing is widely used in commercial and banking transactions because it provides an additional layer of safety, protecting both the drawer and the payee or holder while reducing the risk of wrongful payment by banks.

9. Difference Between Open and Crossed Cheques

An open cheque can generally be encashed directly at the bank counter, whereas a crossed cheque must ordinarily be routed through a banker.

A crossed cheque provides greater security and traceability, and Section 123 specifically deals with generally crossed cheques.

10. Difference Between General Crossing and Special Crossing

A general crossing contains only parallel lines, with or without words such as “& Co.” or “Not Negotiable,” and does not specify any particular bank.

A special crossing specifies the name of a particular banker through whom payment must be made, whereas Section 123 deals exclusively with general crossing.