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Wednesday, October 24, 2018

Business Laws Notes: Negotiable Instruments Act, 1881


Unit – 3: Negotiable Instruments Act
Meaning of Negotiable Instruments
Negotiable Instruments are money/cash equivalents. These can be converted into liquid cash subject to certain conditions. They play an important role in the economy in settlement of debts and claims. The transactions involving the Negotiable Instruments in our country are regulated by law and the framework of the Statute which governs the transaction of these instruments is known as The Negotiable Instruments Act. This act was framed in our country in the year 1881 when the British ruled our country. Prior to 1881 the transactions governing Negotiable Instruments were regulated under the cover of Indian Contract Act 1872.
The term ‘negotiable’ means transferable and the word ‘document’ means ‘in writing’. Therefore, negotiable means a written promise or order to pay money which may be transferred from one person to another.
Section 13 of the Negotiable Instruments Act, 1881 states, “A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.” A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees.
Essentials or Characteristics of Negotiable Instruments:
a)      Witting and Signature according to the rules: A Negotiable Instrument must be in writing and signed by the parties according to the rules relating to (a) promissory notes, (b) Bills of Exchange and (c) Cheques.
b)      Payable by Money: Negotiable Instruments are payable by the legal tender money of India. The Liabilities of the parties are governed in terms of such money only.
c)       Unconditional Promise: If the instrument is a promissory note, it must contain an unconditional promise to pay. If the instrument is a bill or cheque, it must be an unconditional order to pay money.
d)      Freely transferable: A negotiable instrument is transferable from one person to another by delivery or by endorsement and delivery.
e)      Acquisition of Property: Any person, who possesses a negotiable instruments, becomes its owner and entitled to the sum of money, mentioned on the face of the instrument. When it is payable to bearer, the property in its passes from one holder to another by mere delivery. If it is payable to order, the property passes by endorsement, i.e. by the signature of its holder on its back and its delivery.
f)       Acquisition of Good Title: The holder in due course, i.e. the transferee of a negotiable instrument in good faith and for value, acquires a good title to the instrument even if the title of the transferor is defective. Further his title will not be affected, by any defect in the title of the transferor.
g)      No Need of Giving Notice: There is no need of giving a notice of transfer of a negotiable instrument to the party liable to pay the money.
h)      Right of the Holder in Due Course: The holder in the due course remains unaffected by certain defenses, which might be available against previous holders, as for example, fraud, to which he is not a party.
i)        Certain Presumptions: Unless contrary proved certain presumptions are in the made case of all negotiable instruments. Consideration, date, signature of holder in due course, for example, is presumed in the case of all instruments. The presumptions from Special rules of Evidence under section 118 to 119.
Presumptions of Negotiable instruments note
Unless contrary proved certain presumptions are in the made case of all negotiable instruments. Consideration, date, signature of holder in due course, for example, is presumed in the case of all instruments. The presumptions from Special rules of Evidence under section 118 to 119. Sec. 118 and 119 deal with the following presumptions:
1. Consideration: It is presumed that every negotiable instrument was made or drawn, accepted, endorsed, negotiated or transferred for consideration. As such the holder need not prove consideration. However, this presumption would not arise if it is proved that the instrument was obtained from its owner by any offence, fraud, or for unlawful consideration.
2. Date: Every negotiable instrument is presumed to have been made on the date which it bears.
3. Time of acceptance: It is presumed that every accepted bill was accepted within a reasonable time and before its maturity.
4. Time of transfer: It is presumed that every transfer was made before maturity.
5. Order of endorsements: The endorsements are presumed to have been made in the same order in which they appear.
6. Stamp: In case an instrument is lost, it is presumed that it was duly stamped and the stamp was duly cancelled.
7. Every holder is a holder in due course: Every holder is presumed to be a holder in due course.
8. Dishonour of instrument: In case a suit is filed for dishonour of an instruments the Court, on the proof of protest presumes that the instrument was dishonoured.
It should be noted that where the promisor denies the execution of the promissory note taking the plea that he signed on a blank paper, then the burden is on the plaintiff to prove execution.
It should be noted further that presumption, as consideration, is not conclusive. If execution of promissory note is proved, then burden to prove lack of consideration is on the defendant.

Promissory Note
Promissory Note, in the law of negotiable instruments, is a written instrument containing an unconditional promise by a party, called the maker, who signs the instrument, to pay to another, called the payee, a definite sum of money either on demand or at a specified or ascertainable future date. The note may be made payable to the bearer, to a party named in the note, or to the order of the party named in the note.
According to the Section 4 of the Negotiable Instrument Act, 1881 “A Promissory Note is an instrument in writing not being a bank note or a current note containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or do the order of, a certain person, or to the bearer of the instrument.”
In other words, we can say that a promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand to the payee, or at fixed or determinable future time, certain in money, to order or to bearer.
There are two parties to a Promissory Note:
a) Maker: It is the debtor, who promises to make the payment. It must be signed by its maker.
b) Payee: The person who receives the payment of the promissory note is the payee.
A signs instruments in the following terms:
(a) "I promise to Pay B or order Rs.500".
(b) "I acknowledge myself to be indebted to B in Rs.1, 000, to be paid on demand, for value received”.
(c) “I promise to pay B Rs.500/- on 01-10-2005. etc are promissory notes”.
The essentials of a valid Promissory note
1)      The Promissory Note Must Be in Writing: Mere verbal promises or oral undertaking does not constitute a promissory note. The intention of the maker of the note should be signified by writing in clear words on the instrument itself that he undertakes to pay a particular sum of money to the payee or order or to the bearer
2)      It Must Contain an Express Promise or Clear Undertaking to Pay: The promise to pay must be expressed. It cannot be implied or inferred. A mere acknowledgment of indebtness is not enough.
3)      The Promise to Pay must be Definite and Unconditional: The promise to pay contained in the note must be unconditional. If the promise to pay is coupled with a condition, it is not a promissory note.
4)      The Maker of the Pro-note Must Be Certain: The instrument should show on the fact of it as to who exactly is liable to pay. The name of the maker should be written clearly and ascertainable on seeing the document.
5)      It Should be Signed By the Maker: Unless the maker signs the instrument, it is incomplete and of no legal effect. Therefore, the person who promises to pay must sign the instrument even though it might have been written by the promisor himself.
6)      The Amount Must Be Certain: The amount undertaken to be paid must be definite or certain or not vague. That is, it must not be capable of contingent additions or subtractions.
7)      The Promise Should Be to Pay Money: The promissory note should contain a promise to pay money and money only, i.e., legal tender money. The promise cannot be extended to payments in the form of goods, shares, bonds, foreign exchange, etc.
8)      The Payee Must Be Certain: The money must be payable to a definite person or according to his order. The payee must be ascertained by name or by designation. But it cannot be made payable either to bearer or to the maker himself.
9)      It Should Bear the Required Stamping: The promissory note should, necessarily, bear sufficient stamp as required by the Indian Stamp Act, 1889.
10)   It Should Be Dated: The date of a promissory note is not material unless the amount is made payable at particular time after date. Even then, the absence of date does not invalidate the promissory note and the date of execution can be independently proved. However to calculate the interest or fixing the date of maturity or lm\imitation period the date is essential. It may be ante-dated or postdated. If post-dated, it cannot be sued upon till ostensible date.
11)   Demand: The promissory note may be payable on demand or after a certain definite period of time.
12)   The Rate of Interest: It is unusual to mention in it the rated of interest per annum. When the instrument itself specifies the rate of interest payable on the amount mentioned it, interest must be paid at the rate from the date of the instrument.
Specimen of Promissory note
Rs.1,000                                                                                                                                        Mumbai, July 2, 2017
Three months after date I promise to pay Shyam Sunder or order the sum of one thousand rupees, for value received.

To,
Shyam Sunder
222, D.N.Nagar,
Andheri (W), Mumbai – 400 053.

Bills of Exchange
A bill of exchange or “draft” is a written order by the drawer to the drawee to pay money to the payee. It is an unconditional order issued by a person or business which directs the recipient to pay a fixed sum of money to a third party at a future date. The future date may be either fixed or negotiable. A bill of exchange must be in writing and signed and dated. Bills of exchange are used primarily in international trade, and are written orders by one person to his bank to pay the bearer a specific sum on a specific date.
As per Section 5 a “bill of exchange” is “an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.”
Essentials of a Bills of exchange
1)      Number of parties:  A bill of exchange has 3 parties:
Ø  the drawer, who draws the bill of exchange
Ø  the drawee, who has to make the payment
Ø  the payee, who is entitled to the payment.
Sometimes the drawer and the payee can be one and the same person.
2)      It Must be in writing: The Bill of Exchange must be in writing.
3)      Express order to pay:  This is the essence of a bill of exchange. There must be an ‘order by the drawer to the drawee to pay’. The order must be a command and not an excessive request.
4)      Order must be unconditional:  The order to pay must be unconditional. In other words the happening of the condition must be certain.
5)      Order to pay money only:  Just as a promissory note, the instrument must be for money only.
6)      Sum payable to be certain:  The amount payable must be certain. There should be no ambiguity in the amount to be paid through the Bill of Exchange.
7)      Must be signed:  The instrument is complete only when it is signed by the drawer and the drawee.
8)      Must bear the stamp:  A Bill of Exchange must be properly stamped in accordance with the Indian Stamp Act, 1899 and must also be properly cancelled.
9)      Other formalities:  Formalities such as date, place, consideration, etc. are usually found in a Bill of Exchange.
10)   Requisites of a contract to be complied with:  All requisites of a valid contract like capacity to contract, consideration, free consent, lawful object must be present.
Specimen of Bills of exchange
Mr. X
Rs.50,000
Assam, April 01,2010
Three months after date pay to me or my order, the sum of rupees Fifty Thousand only, for value received.

To
Mr. Y
Dibrugarh, Assam

Accepted                                                           Stamp
Mr. X                                                                  Sd/-
Tinsukia, Assam

Sd/-

Cheque and its essentials:
Cheque is a very common form of negotiable instrument. If you have a savings bank account or current account in a bank, you can issue a cheque in your own name or in favor of others, thereby directing the bank to pay the specified amount to the person named in the cheque. A cheque is an instrument drawn on a specified banker and not expressed to be payable otherwise than on demand Therefore, a cheque may be regarded as a bill of exchange; the only difference is that the bank is always the drawee in case of a cheque.
The maker of a cheque is called the ‘drawer’, and the person directed to pay is the ‘drawee’. The person named in the instrument, to whom or to whose order the money is, by the instrument directed, to be paid, is called the ‘payee’
The Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
From the above definition it appears that a cheque is an instrument in writing, containing an unconditional order, signed by the maker, directing a specified banker to pay, on demand, a certain sum of money only to, to the order of, a certain person or to the bearer of the instrument. Actually, a cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or to the bearer.
The essentials or features of a Cheque are:
1. An Instrument in Writing: A cheque must be in writing. It can be written in ink pen, ball point pen, typed or even printed. Oral orders are not considered as cheques.
2. Cheque Contains an Unconditional Order: Every cheque contains an unconditional order issued by the customer to his bank. It does not contain a request for payment. A cheque containing conditional orders is dishonoured by the bank.
3. Cheque is Drawn by a Customer on His Bank: A cheque is always drawn on a specific bank mentioned therein. Cheque drawn by stranger is of no meaning. Cheque book facility is made available only to account holder who are supposed to maintain certain minimum balance in the account.
4. Cheque Must be Signed By Customer: A cheque must be signed by customer (Account holder). Unsigned cheques or signed by persons other than customers are not regarded as cheque.
5. Cheque Must be Payable on Demand: A cheque when presented for payment must be paid on demand. If cheque is made payable after the expiry of certain period of time then it will not be a cheque.
6. Cheque Must Mention Exact Amount to Be Paid: Cheque must be for money only. The amount to be paid by the banker must be certain. It must be written in words and figures.
7. Payee Must be Certain to Whom Payment is Made: The payee of the cheque should be certain whom the payment of a cheque is to be made i.e. either real person or artificial person like joint stock company. The name of the payee must be written on the cheque or it can be made payable to bearer.
8. Cheque Must be Duly Dated By Customer of Bank: A cheque must be duly dated by the customer of bank. The cheque must indicate clearly the date, month and the year. A cheque is valid for a period of six months from the date of issue.
9. Cheque has 3 Parties: Drawer, Drawee & Payee:
Ø  Drawer: A drawer is a person, who draws a cheque.
Ø  Drawee: A drawee is a bank on whom a cheque is drawn.
Ø  Payee : A payee is a person in whose favour a cheque is drawn
10. Deliveries: Delivery of the Cheque is Essential
Types of Cheques:
Based on this characteristic, cheques can be classified into two main groups. They are:
1. Open cheques; and
2. Crossed cheques
In case of open cheques, the amount of such cheques can be collected by the payee over the counter of the bank. These cheques are of two types:
1. Bearer cheque: The cheque which is payable to the bearer or the possessor, is called the bearer cheque. Such cheque can be transferred by mere delivery without any endorsement. For example, “Pay Ram or bearer” is a bearer cheque, where Ram or any other person who possess the cheque, can collect the amount of the cheque.
2. Order cheque: The cheque which is payable only to a certain person (whose name appears on the cheque) or to his order, is called the order cheque. The word ‘Order’ is written instead of the word ‘Bearer’ on the cheque. The drawer can strike off the word ‘bearer’ and can write the word ‘order’ to make it an order cheque. An order cheque cannot be transferred without endorsement and the paying banker takes reasonable care before making the payment of such cheque. For example, “Pay Ram or order” is an order cheque, where payment will be made only to Ram or to the person to whom Ram has endorsed the cheque.
In case of crossed cheques, the amount of such cheques cannot be collected over the counter of the bank. The amount of such a cheque is paid through the bank account of the payee. Hence, they are safer as compared to the open cheques. 
A cheque can be crossed by drawing two parallel transverse lines across the face of the cheque with or without the words “and company” or “not negotiable” or “account payee” between the parallel transverse lines. Crossing of a cheque means paying the money to the specified person only by transferring the money to his account and not directly (cash). A cheque can be crossed by the-
1. Drawer; or 
2. The holder; when the cheque is open; or
3. The collecting banker.
Difference between bearer cheque and order cheque
a)      Bearer cheque is payable to the person named on the cheque or to any bearer. But an order cheque is payable to the person named on the cheque or to his order.
b)      Bearer cheque may be negotiated by more delivery of cheque. But order cheque needs to be endorsed for the purpose of negotiation.
c)       The risk is more in case of bearer cheque as it can be encashed by anybody, even a thief. But, the degree of risks is less in case of order cheque as it is payable to a particular person.
d)      Bearer cheque is suitable for making small payments. But, order cheque is suitable for making big payments.
e)      There is no record of movement of bearer cheque as it is transferred without endorsement. But there is a record of movement of order cheque because it bears endorsement.
f)       Bearer cheque can be converted into order cheque. But order cheque cannot be converted into bearer cheque.
Difference between open cheque and crossed cheque
a)      Open cheque is payable across the counter of the bank. But crossed cheque is payable only through a bank account.
b)      Open cheque does not require any parallel lines on the face of the cheque. But crossed cheque requires two parallel lines or some other indicators signifying crossing.
c)       Open cheque may be a bearer or order cheque. But crossed cheque is not a bearer or order cheque.
d)      The degree of risk is more in case of open cheque as it can be encashed by anybody across the bank’s counter. But, the degree of risk is less in case of crossed cheque as it cannot be encashed by any unauthorized person.
e)      Open cheque is used by the drawer to withdraw money for himself. But crossed cheque is not used by the drawer to withdraw money for his own use.
f)       Open cheque can be easily converted into crossed cheque. But crossed cheque cannot be converted into open cheque except by the drawer of the cheque.
Conditions where a Banker honour/dishonour a cheque
The Paying banker is bound to pay the cheque if the following conditions are satisfied
a)      When the cheque has been drawn on the proper form i.e. on the forms supplied by the banker.
b)      When the cheque bears a date and which is due.
c)       When there is sufficient fund in the account of the customer to pay the cheque in full.
d)      When the fund is properly applicable for the payment of the cheque.
e)      When the amount of the cheque is mentioned in both words and figures and they are same.
f)       When the banker has no doubt regarding the signature of the drawer i.e. it has not been forged.
g)      Incase of joint account, when all the account holders have signed the cheque.
h)      When the cheque has been drawn on the particular bank and branch in which the account has been opened by the customer.
The bank may dishonour a cheque for the following cases.
a)      When the cheque is post dated and it is presented for payment before the date it bears.
b)      When there are insufficient funds to the credit of the drawer.
c)       When the cheque is presented for payment at branch where the drawer of the cheque has no account.
d)      When a cheque is not duly, presented, as for example a cheque presented outside banking hours.
e)      When the cheque is ambiguous, mutilated, materially altered or irregular.
f)       When the cheque has become stale, that is it is not presented within six months of the issue of the cheque.
g)      When the signatures of the drawer of a cheque do not tally with the specimen signatures in the records of the bank.
h)      When the amount in figures and in words is not the same in a cheque.
i)        When the cheque is crossed and it is not presented through a bank.
j)        Where the bank receives a notice of the insolvency or insanity of the customer.

Endorsement:
The term “Endorsement” of a negotiable instrument means writing of a person’s name of the back of the instrument for the purpose of negotiation. According to Section 15 of the Negotiable Instrument Act, 1881, “When the maker or holder of a negotiable instrument sings his name, otherwise than such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto he is said to have endorsed the instrument.” The person who puts his signature is called the “endorser” and the person in whose favour it is being endorsed in called the “endorsee”.
Endorsement of negotiable instruments can be made only by the following parties of to the instrument:
a) The Payee b) The holder c) The drawer of a bill of exchange d) The endorsee e) The maker.
Different kinds of endorsement with their respective significance are explained below:
a)      Blank or General Endorsement: An endorsement is said to be blank or general, if the endorser sings on the back or on the face of the instrument without specifying the name of any endorsee. The effect of his endorsement makes the instrument payment to bearer even though originally it was payable to order. For example, a cheque payable to Mr. X or order and Mr. X endorse the cheque by simply affixing her signature. The effect of this endorsement makes the instrument payable to bearer even though originally it was payable to order.
b)      Full or Special Endorsement: If an endorser signs his name and adds a direction to pay the amount mentioned in the instrument to or to the order of a specified persons, such an endorsement is said to be a full or special endorsement.  For example, “Pay to Mr. X or order” S/d Mr. Y is an example of full endorsement. Here Mr. Y is the endorser and he has mentioned the name of the endorsee – Mr. X.
c)       Conditional Endorsement: An endorsement is conditional or qualified if it limits or neglects the liability of the endorser.  For example, “Pay to Mr. X on his marriage” s/d Mr. Y is a conditional endorsement. In case of conditional endorsement, the liability of the endorser and the rights of the endorsee becomes conditional on the happening of a particular event.
d)      Restrictive Endorsement: An endorsement is said to be Restrictive, when it prohibits or restrictive the future negotiability of the instrument, it merely entitles the holder of the instrument to receive the amount on the instrument for a specified purpose. For example,”Pay to Mr. X only” s/d Mr. Y. This endorsement confers all the rights of an endorser to the endorsee except the right of negotiation.
e)      San Recourse endorsement and San frais endorsement: In San recourse endorsement, the endorser by his expressed words excludes his own liability and in San frais endorsement, the holders have no right against the endorser if the instrument is dishonoured. For example,”Pay to Mr. X or order – Notice of dishonour waived.” These types of endorsement are generally used to avoid personal liability.
f)       Facultative endorsement: In such type of endorsement, the endorser by his express words increases his liability or give up some of his rights.
g)      Partial Endorsement: When the endorser intends to transfer to the endorsee only a part of the amount of instrument by endorsement, the endorsement is said to be partial. A partial endorsement does not operate as a negotiation of the instrument. For example, when a cheque of Rs. 10,000 is endorsed for Rs. 5000 is an example of partial endorsement.
h)      Forged endorsement: When a negotiable instrument is endorsed with the forged signature of the endorser, the endorsement is called forged endorsement.
The rules and regulations regarding endorsement may be summarised as follows:
a)      Signature of the endorser: A regular endorsement implies signature of the holder of the negotiable instrument himself or his duly authorised agent on its face or back for the purpose of negotiation.
b)      Spelling: The endorser must sign his name in the exact spelling as appearing on the negotiable instrument.
c)       Prefixed and suffixes to be excluded: Endorsement need not contain the complementary Prefixes or Suffixes e.g. Mr., Mrs., Shri, Smt etc.
d)      Sign in Ink: Endorsement in pencil or by a rubber stamp is usually not accepted.
e)      Endorsement by a married woman: In the case of married women, the name of her husband must also be mentioned in the endorsement.
f)       Endorsement by illiterate person: An illiterate person can make a valid endorsement by putting his thumb impression on the instruments in the presence of a witness.
g)      Endorsement by companies, firms: In case of joint stock companies, firms, associations etc., the endorsement should be made by persons who are dully authorised to sign on behalf of these institutions.
h)      Delivery of the instrument: An endorsement must be completed by delivery of the instrument.
Difference between bill of exchange and Promissory Note
Basis
Bill of Exchange
Promissory Note
Parties
There are 3 parties – drawee, drawer and payee.
There are 2 parties – maker or promisor and payee or promisee.
Drawer
It is drawn by the creditor
It is drawn by the debtor
Order or Promise
It contains an order to make payment. There can be three parties to it, viz. the drawer, the Drawee and the payee.
It contains a promise to make payment. There are only two parties to it, viz. the drawer and the payee.
Acceptance
It requires acceptance by the Drawee or someone else on his behalf.
It does not require any acceptance.
Payee
Drawer and payee can be the same party
Drawer cannot be the payee of it
Set
A bill of exchange can be drawn in sets.
Promissory note cannot be drawn in sets.

Notice
The maker of the bill of exchange is secondarily and conditionally liable to payee. He becomes liable to pay only when the drawee refuses to honour the bill. Drawer stands in immediate relation to the drawee or acceptor and not the payee.
The maker of the Promissory note is primarily and absolutely liable to payee. Promisor stands in the immediate relation to the payee.
Notice
In case of its dishonour due notice of dishonour is to be given by the holder to the drawer
No notice needs to be given in case of its dishonour

Difference between cheque and bills of exchange:
Basis
Cheque
Bills of Exchange
Drawee
A cheque is always drawn on a bank or banker.
A bill of exchange can be drawn on any person including a banker.

Acceptance
A cheque does not require any acceptance.
A bill must be accepted before the Drawee can be made liable upon it.
Payment
A cheque is payable immediately on demand without any days of grace.
A bill of exchange is normally entitled to three days of grace unless it is payable on demand.

Stamp
A cheque does not require any stamp.

A bill of exchange must be stamped.
Protection
A banker is given statutory protection with regard to payment of cheques in certain circumstances.
No such protection is available to the Drawee or acceptor of a bill of exchange.

Crossing
A cheque may be crossed.
Bill can never be crossed.
Presentment
If not presented to the banker for payment, it does not discharge the drawer unless he suffers injury or damages.
Drawer is discharged, if bill is not presented for payment to the acceptor.

 Noting and Protesting
A cheque is not required to be noted or protested for dishonour.
A bill of exchange may be noted or protested for dishonour.
Crossing of a cheque
A cheque is said to be crossed when two parallel transverse line with or without any words are drawn on the left hand corner of the cheque. The negotiability of a cheque doesn’t affect for crossing. Crossing of a cheque refers to the instruction to the banker relating to the payment of the cheque. A crossing is the direction to the paying banker that the cheque should be paid only to a banker. Crossing of cheque is very safety because the holder of the cheque is not allowed to cash it across the counter. A crossed cheque provides protection not only to the holder of the cheque but also to the receiving and collecting bankers.
The following parties can cross a cheque:
a)      The Drawer: The drawer of a cheque may cross a cheque before issuing it. He may cross it generally or specially.
b)      The Holder: The holder of a cheque can cross in the following way:
Ø  The holder may cross an open cheque generally or specially.
Ø  The holder may specially cross a generally crossed cheque.
Ø  The holder may add the words “Not-Negotiable” in a generally or specially crossed cheque.
c)       The Banker: The banker to whom the cheque is crossed specially may again cross it especially to another banker's agent, for collection. This is called double special crossing.
Types of crossing:
1. General crossing: A general crossing is a crossing where a cheque simply bears two parallel lines with or without any words and without any specification. According to Sec. 123 of the Negotiable Instrument Act, 1881, “When a cheque bears across its face an addition of the words. “And company” or any abreactions thereof between two parallel transverse line or of two parallel transverse lines simply either or without the words, “Not Negotiable” that addition shall be deemed a general crossing. Simplify, In case of General Crossing words such as “and company”, “not Negotiable”, “Account payee” etc. may be inserted between the lines.
A general crossing cheque protects the drawer and also the payee or the holder thereof. Whenever a drawer desires to make payment to an outstation party, he can cross the cheque so that even if the cheque is lost, only a piece of paper is lost and nothing beyond that. If by any chance, it is encashed by a third and unauthorized person, it is possible to find out to whose account the amount is credited and the unauthorized person can be identifies and suitable action taken against him.
2. Special crossing: Section 124 of the Negotiable Instruments Act, 1881 defines special crossing as “where a cheque bears across its face, an addition of the name of a banker 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.”
Thus, in case of special crossing, the name of a particular bank is written in between the parallel lines. The main implication of this type of crossing is that the amount of the cheque will be paid to the specified banker whose name is written in between the lines. Special crossing is in a particular bank and by special crossing, he is assured of double safety, safety to the drawer and safety to the payee.
3. Account payee crossing: This type of crossing is done by adding the words ‘Account Payee’. This can be made both in general crossing and special crossing. The implication of this type of crossing is that the collecting banker has to collect the amount of the cheque only for the payee. If he wrongly credits the amount of the cheque to another account, he will be held responsible for the same. 
4. Not negotiable crossing: When the words ‘not negotiable’ is added in generally or specially crossed cheques, it is called not negotiable crossing. A cheque bearing not negotiable crossing cannot be transferred. If a cheque bearing ‘Not negotiable crossing’ is transferred, care must be taken regarding the ownership of title of both the transferor and transferee.

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