Negotiable Instruments Act, Section 127

Negotiable Instruments Act, Section 127: Payment of Cheque Crossed Specially More Than Once

Section 127 of the Negotiable Instruments Act, 1881 deals with cheques specially crossed to more than one banker and provides that the drawee banker must refuse payment in such cases, except where the second crossing is to a banker acting as an agent for collection.

The provision is intended to prevent confusion, fraud, and unauthorized handling of cheques while promoting secure banking practices.

1. Meaning of Special Crossing

A cheque is specially crossed when it bears the name of a specific banker across its face, directing the drawee banker to make payment only through that banker and thereby providing greater security than a general crossing.

2. Purpose of Section 127

The object of Section 127 is to regulate multiple special crossings on a cheque and protect the banking system from misuse, fraud, and uncertainty.

The provision prevents confusion regarding the proper collecting banker, maintains certainty in banking transactions, protects the true owner and drawer, and therefore restricts multiple special crossings.

3. Meaning of Multiple Special Crossing

A cheque is said to be specially crossed more than once when the names of two or more bankers appear across its face as special crossings, though such multiple special crossings are ordinarily not permitted.

4. Reason for Refusal of Payment

The law requires refusal of payment where multiple special crossings create uncertainty regarding the authorized collecting banker and increase the risk of fraud or wrongful payment.

Such crossings may also make it difficult to trace proper ownership or collection, and the banking system therefore treats these cheques with caution.

5. Crossing to Agent for Collection

The section creates an important exception where the banker named in the first special crossing makes a second special crossing to another banker acting as his agent for collection.

In such a case, payment is permitted because the arrangement is a recognized banking practice adopted for collection convenience.

6. Meaning of Agent for Collection

An agent for collection is a banker appointed by another banker to collect a cheque on his behalf and act in the collection process.

Such an arrangement may be necessary when a cheque is payable in another city or when banking operations require assistance through branch or correspondent banks.

7. Valid Double Special Crossing

A cheque may validly contain two special crossings only where the first banker crosses it to another banker acting solely as a collection agent, thereby facilitating practical banking operations.

8. Duty of the Drawee Banker

The drawee banker must carefully examine the cheque before making payment and determine whether it contains more than one special crossing.

The banker must also verify whether any second crossing is a valid agency crossing for collection, and if the crossing is improper, payment must be refused.

9. Consequences of Wrongful Payment

If the drawee banker pays a cheque contrary to Section 127, the banker may lose statutory protection and incur liability for negligence or wrongful payment.

The true owner may also claim damages or compensation, and therefore strict compliance with the section is essential.