Assignment On

NOT NEGOTIABLE CROSSING & ACCOUNT PAYEE CROSSING

Submitted by: Ravi Kumar Bhardwaj Enroll. No. 09417003910

TECNIA INSTITUTE OF ADVANCED STUDIES

Approved by AICTE, Ministry of HRD, Govt. of India Affiliated To Guru Gobind Singh Indraprastha University, Delhi INSTITUTIONAL AREA, MADHUBAN CHOWK, ROHINI, DELHI- 110085 E-Mail: director.tecniaindia@gmail.com, Website: www.tecnia.in

CROSSING OF CHEQUES

Cheques can be of two types:1. Open or an uncrossed cheque 2. Crossed cheque Open Cheque An open cheque is a cheque which is payable at the counter of the drawee bank on presentation of the cheque. A cheque which has not been crossed or marked 'not negotiable', which can be cashed at the bank on which it is drawn and does not have to be paid into an account. a cheque which is not crossed and can be exchanged for cash anywhere Crossed Cheque A crossed cheque is a cheque which is payable only through a collecting banker and not directly at the counter of the bank. Crossing ensures security to the holder of the cheque as only the collecting banker credits the proceeds to the account of the payee of the cheque. When two parallel transverse lines, with or without any words, are drawn generally, on the left hand top corner of the cheque. A crossed cheque does not affect the negotiability of the instrument. It can be negotiated the same way as any other negotiable instrument. Types of Crossing There are two types of negotiable instruments: General Crossing Special Crossing Account Payee or Restrictive Crossing Not Negotiable Crossing Cheque crossed generally Where a cheque bears across its face an addition of the words and company or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words not negotiable, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally. [section 123]

Cheque crossed specially Where a cheque bears across its face an addition of the name of a 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, and to be crossed to that banker. [section 124].

Not Negotiable Crossing The words 'Not Negotiable' can be added to general as well as special crossing and a crossing with these words is known as Not Negotiable crossing. The effect of such a crossing is that it removes the most important characteristic of a negotiable instrument i.e. the transferee of such a crossed cheque cannot get a better title than that of the transferor ( cannot become a holder in due course ) and cannot covey a better title to his own transferee, though the instrument remains transferable. Words marked or written on a bill of exchange (such as a draft) which stop the bill from being a negotiable instrument. While a check may be made non-negotiable merely by crossing it (drawing two parallel lines across its face), all other bills must have the words "Not Negotiable" written on their face. Any transferee (the current holder) of such a bill cannot have better right of ownership of the bill than the transferor (the previous holder). See also crossed check CHEQUE BEARING NOT NEGOTIABLE - A person taking a cheque crossed generally or specially, bearing in either case the words not negotiable, shall not have, and shall not be capable of giving, a better title to the cheque than that which the person form whom he took it had. [section 130]. Thus, mere writing words Not negotiable does not mean that the cheque is not transferable. It is still transferable, but the transferee cannot get title better than what transferor had.

Presentment of Negotiable Instrument - The Negotiable Instrument is required to be presented for payment to the person who is liable to pay. Further, in case of Bill of Exchange payable after sight, it has to be presented for acceptance by drawee. Acceptance means that drawee agrees to pay the amount as shown in the Bill. This is required as the maker of bill (drawer) is asking drawee to pay certain amount to payee. The drawee may refuse the payment as he has not signed the Bill and has not accepted the liability. In case of Promissory Note, such acceptance is not required, as the maker who has signed the note himself is liable to make payment. However, if the promissory note is payable certain days after sight [say 30 days after sight], it will have to be presented for sight.

If the instrument uses the expressions on demand, at sight or on presentment, the amount is payable on demand. In such case, presentment for acceptance is not required. The Negotiable Instrument will be directly presented for payment. Acceptance and payment for honour and drawee in need - Provisions for acceptance and payment for honour have been made in case when the negotiable instrument is dishonored. Bill is accepted for honour when it is dishonored when presenting for acceptance, while payment for dishonor is made when Bill is dishonored when presented for payment. Negotiation of Instrument - The most salient feature of the instrument is that it is negotiable. Negotiation does not mean a mere transfer. After negotiation, the holder in due course can get a better title even if title of transferor was defective. If the instrument is to order, it can be negotiated by making endorsement. If the instrument is to bearer, it can be negotiated by delivery. As per definition of delivery, such delivery is valid only if made by party making, accepting or indorsing the instrument or by a person authorized by him. An instrument can be negotiated any number of times. As per section 118(e), endorsements appearing on the negotiable instrument are presumed to have been made in the order in which they appear on the instrument, unless contrary is proved. [There is no mandatory provision to put date while signing, though advisable to do so]. Section 118(d) provides that there is presumption that the instrument was negotiated before its maturity, unless contrary is proved. As per section 60, Bill can be negotiated even after date of maturity by persons other than maker, drawee or acceptor after maturity. However, person getting such instrument is not holder in due course and does not enjoy protections available to holder in due course.

PRESUMPTIONS AS TO NEGOTIABLE INSTRUMENTS - Until the contrary is proved, the following presumptions shall be made : (a) of consideration - that every negoticble instrument was made or drawn for consideration, and that every such instrument, when it has been $ accepted, indorsed, negotiated or transferrgd, was accepted, indorsed, negotiated or transferred for consideration; - - (b) as to date - that every negotiable instrument bearing a date was oide or drawn on such date; - - (c) as to time of acceptance - that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity; - - (d) as to time of transfer - - that every transfer of a negotiable instrument was made before its maturity; - - (e) as to order of indorsements - that the indorsements appearing upon a negotiable instrument were made in the order in which they appear thereon; (f) as to stamps - that a lost promissory note, bill of exchange or cheque was duly stamped; - - (g) that holder is a holder in due course - that the holder of a negotiable instrument is a holder in due course : provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder in due course lies upon him. [section 118]

Account Payee or Restrictive Crossing This crossing can be made in both general and special crossing by adding the words Account Payee. In this type of crossing the collecting banker is supposed to credit the amount of the cheque to the account of the payee only. The cheque remains transferable but the liability of the collecting banker is enhanced in case he credits the proceeds of the cheque so crossed to any person other than the payee and the endorsement in favor of the last payee is proved forged. The collecting banker must act like a blood hound and make proper enquiries as to the title of the last endorsee from the original payee named in the cheque before collecting an 'Account Payee' cheque in his account. Crossing does not affect the negotiatability of Checque/demand Draft. The payment. The only condition is that the "payment in due course" means payment in accordance with apparent tenor of the instruement in good faith and without negligence to any person in possession under the cirumtances which do not afford any reasonable ground of doubt. By convention and practise the endorsemnet of "account Payee" crossing i Please note that endorsement is done for negotiation. The person who is legal holder of the cheque/draft can endorse the cheque even it is acrossed cheque. In India it is my practise that "Account Payee" crossing should only go to payee's account only hence no further endorsement/negotiation is possible. However I repeat Crossing has not effect in negotiability of the cheques not allowed but not denied by orginal law. It means that payee has endorsed the instrument to someone else, who can now bank the instrument and get the credit. As per law the new payee can do further endorsement. Restrictive crossing is usually done on the left hand corner of cheques, a/c payee only being written in between the lines. Basically what this does is that it ensures that the money is not obtained at the counter as a crossed cheque can only be drawn from bank to bank or by a banker. A crossed cheque is one on which two parallel transverse lines with or without the word & co. not negotiableetc. are drawn. A crossed cheque is not payable across the counter of the bank. It must be collected through a bank. It is paid into the bank account of a person and cannot be encashed at the counter of the bank. By crossing cheques safety is ensured and the person to whom payment is eventually made can be traced because such a cheque is always paid into a bank account. A crossed cheque provides protection not only to the holder of the cheque but also to the receiving and collecting bankers The act of drawing two parallel transverse lines on the face of a cheque is called crossing of a cheque. It is a direction to the banker not to pay the cheque across the counter of the bank but to pay to a bank only or to particular bank in account with the bank.