Banking Law

1. KARACHIUNIVERSITYBUSINESSSCHOOL
MBABanking&FinanceSemesterII
2014
CROSSINGANDENDROSEMENT

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We are thank full to Almighty Allah for giving us strength and ability to understand learn and
complete this report
“………The beauty of destination is half veiled and the fragrance of success half dull until the
traces of all those enlightening the path are left to fly with the wind spreading words of
thankfulness….”
Keeping this in view, it would be unfair on our part if I don’t thank the mentioned few. We
expressed our sincere gratitude to SIR SHAN who gave us opportunity to make report and
guided us on every step of preparing report.

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GROUP MEMBERS
REPORT SUMMITED TO:

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TABLE OF CONTENTS
S.No Topics Page No
01 What is crossing? 04
02 Types of crossing 05
03 General crossing 06
04 Features of general crossing 06
05 Significance of general crossing 06
06 Special crossing 07
07 Significance of special crossing 07
08 Difference between General crossing & Special crossing 08
09 Double crossing 09
10 Opening of crossing / Cancelation of crossing 09
11 Negotiable instrument 09
12 Endorsement 10
13 Essentials of valid endorsement 10
14 Types of endorsement 11
15 Effects of endorsement 12
16 Usual forms of bank endorsement 12

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What is crossing?
Ordinarily, the payee of a cheque is entitled to encash at the counter of the paying banker by
presenting it within the specified banking hours. In case of a bearer cheque, the paying banker
does not need to go into an elaborate exercise with regard to the identity of the holder of the
cheque. An order cheque is also paid by the paying banker on being apparently satisfied about
the true identity of the presenter of the cheque. To ensure that the cheque is not encashed by a
wrong person, by concealing his identity, there has developed a practice called ‘crossing of a
cheque’. The practice has been given legal coverage in the Negotiable Instrument Act, 1881.
When cheque is crossed it in effects means a request-more appropriately, an instruction by the
client not to pay the cheque directly over the counter but to a banker only for crediting the payees
account with the bank. A cheque bearing such an instruction is called a ‘crossed cheque’. The
crossing of a cheque is intended to ensure that its payment is made to the right payee. Section
123 to 131 of the Negotiable Instrument Act contains provisions relating to crossing. According
to section 131-A, these sections are also applicable in case of drafts. Thus not only cheques but
bank drafts also may be crossed

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TYPES OF CROSSING
There are two types of crossing such that:
1. General Crossing.
2. Special Crossing

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GENERAL CROSSING:
According to section-123 of NI Act, where a cheque bears across its face an addition of the
words “and company” or any abbreviation thereof between two parallel transverse lines or two
parallel transverse lines simply, either with or without the words “not negotiable” that addition
shall be deemed a crossing & the cheque shall be deemed to be crossed generally
Features of General Crossing:
i. From the above section we find that a cheque is said to be crossed generally when it
bears across its face any of the following:
• Two transverse parallel lines.
• Two transverse parallel lines with the word “And Company”.
• Two transverse parallel lines with any abbreviation of the word “& Company”.
• Two transverse parallel lines with the words “Not Negotiable”
• Two transverse parallel lines with the words “Account Payee Only”.
ii. The cheque crossed generally does not ceases to be negotiable further.
iii. The collecting banker can collect the proceeds of the cheque in the account of that
person mentioned on the cheque
Significance of General Crossing:
i. The effect of general crossing is that it gives a direction to the paying banker.
ii. The direction is that, the paying banker should not pay the cheque at the counter. It
should be paid only to a fellow banker. In other words, payment is made through an
account and not at the counter. Sec.126 of the NI Act clearly lays down that, “Where
a cheque is crossed generally, the banker on whom it is drawn shall not pay it
otherwise than to a banker”.
iii. If a crossed cheque is paid at the counter in contravention of the crossing:
o The payment does not amount to payment in due course. So, the paying banker will lose
his statutory protection;
o He has not right to debit his customer’s account, since, it will constitute a breach of his
customer’s mandate;
o He will be liable to the drawer for any loss, which he may suffer;
o He will be liable to the true owner of the cheque who may be a third party, irrespective of
the fact, that, there is no contract between the banker and the third party. As a general
rule, a banker is answerable only to his customer.
iv. The main intention of crossing a cheque is to give protection to it. When a cheque is
crossed generally, a person who is not entitled to receive its payment, is prevented
from getting that cheque cashed at the counter of the paying banker. But, it gives only
a limited protection, in the sense, that if the thief is not the customer of the paying
banker, he can encash that cheque through his banker, by forging the signature of the

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payee. However, it can be detected. To avoid this danger, special crossing was
introduced
Special Crossing
A special crossing implies the specification of the name of a banker on the face of the cheque.
Sec.124 of N.I. Act 1881 reads. “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”.
Drawing of two transverse and parallel lines is not necessary in case of a special crossing. When
a cheque has been specially crossed, the banker upon whom it has been drawn will make the
payment only to that banker in whose favour it has been crossed.
Significance of Special Crossing:
i. It is also a direction to the paying banker. The direction, is the, that paying banker should pay
the cheque only to the banker, whose name appears in the crossing or to his agent. Sec.126 the
NI Act clearly lays down that “where a cheque is crossed specially the banker on whom it is
drawn, shall not pay it, otherwise than to the banker to whom it is crossed or his agent for
collection.
ii. If a cheque specially crossed to a bank is presented by another bank, not in the capacity of its
agent, the paying banker is justified in returning the cheque.
iii. A special crossing gives more protection to the cheque than a general crossing. It makes a
cheque still safer because a person, who does not have a real claim for it, would find it difficult
to obtain payment. In special crossing, the cheque is specially crossed to the payee’s banker.
Hence, the banker, in whose favour the cheque has been crossed, knows the payee and his
specimen signature well. So, he will not collect if for any person other than the payee. If there is
any forgery, it can be easily detected by the banker. But, we can not say that, it gives full
protection in the sense, that, an unscrupulous person, who has an account in the same bank but at
a different branch, can encash it by forging the signature of the payee. It can also be detected

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Difference between General and Special Crossing
General Crossing Special Crossing
1. Drawing of two parallel transverse
lines is a must.
1. Drawing of two parallel transverse lines is not
essential.
2. Inclusion of the name of a banker is
not essential.
2. Inclusion of the name of a banker is essential.
3. In General Crossing paying banker to
honor the cheque from any bank A/C.
3. In Special Crossing paying banker to honor the
cheque only when it is presented through the
bank mentioned in the crossing and no other
bank.
4. General Crossing can be converted
into a Special Crossing.
4. Special Crossing can never be converted to
General Crossing.

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5. In case of General Crossing the words
“And Company” or “& Company” or
“Not Negotiable” between the transverse
lines to highlight the crossing does not
carry special significance.
5. In case of Special Crossing the name of a
banker may be written within two parallel
transverse lines or with the words “And
Company” or “Account Payee Only” or “Not
Negotiable” the inclusion of these words has
become customary
Double Crossing
When a cheque bears two separate special crossing, it is said to have been doubly crossed.
As per section-127, “where a cheque is crossed specially to more than one banker except when
crossed to an agent for the purpose of collection, the banker on whom it is drawn shall refuse
payment thereof.”
Thus a paying banker shall pay a cheque doubly crossed only when the second banker is acting
only as the agent of the first collecting banker and this has been made clear on the instrument.
Such crossing may be done in those cases where that banker in whose favour the cheque is to be
paid
Opening of crossing/cancellation of crossing
If the crossing on a cheque is cancelled, it is called opening of the crossing. The cheque
thereafter becomes an open cheque. Only the drawer of the cheque is entitled to open the
crossing of the cheque by writing the words “Pay Cash” and canceling the crossing along with
his full signature. His initials are not sufficient for this purpose.

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The paying banker must be very careful in ascertaining the validity or genuineness of the
drawer’s signature opening the crossing. If drawer’s signature (already on the cheque) is forged
by the holder in order to open the crossing and the payment is obtained at the counter, the banker
will remain liable to the true owner of the cheque. The banker is under an obligation to pay the
cheque according to the direction of the drawer conveyed through the crossing on the cheque
Negotiable Instrument
Negotiable Instrument means a promissory note, bill of exchange or cheque payable either to
order or bearer (Section-13).
Endorsement
An endorsement is the mode of negotiating a negotiable instrument. A negotiable instrument
payable otherwise than to a bearer can be negotiated only by endorsement and delivery. An
endorsement, according to sec. 15 of the NI Act is “when the maker or holder of a negotiable
instrument signs the same, otherwise than as such marker. For the purpose of negotiation on the
back or face thereof or on a slip of paper annexed thereto, he is said to endorse the same and is
called the endorser. The person to whom the instrument is endorsed is called the endorsee.
“The word endorsement is said to have been derived from Latin ‘en’ means ‘upon’ and ‘dorsum’
meaning ‘the back’. Thus usually the endorsement is on the back of the instrument though it may
be even on the face of it. Where no space is left on the instrument, the endorsement may be made
on a slip of paper attached to it. This attached slip of paper is called ‘Allonge’
Essentials of a Valid Endorsement:

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An endorsement in order to operate as mode of negotiation must comply with the following
conditions, namely:
i. It must be written on the instrument itself and be signed by the endorser. The simple
signature of the endorser, without additional words, is sufficient. An endorsement
written on an allonge is deemed to be written on the instrument itself.
ii. The endorsement must be of the entire instrument. A partial endorsement, that is to
say, an endorsement, which purports to transfer to the endorsee a part only of the
amount payable, or which purports to transfer the instrument to two or more
endorsees severally (i.e. separately), does not operate as a negotiation of the
instrument.
iii. Where a negotiable instrument is payable to the order of two or more payees or
endorsees who are not partners, all must endorse unless the one endorsee has
authority to endorse for the others.
iv. Wherein a negotiable instrument payable to order, the payee or endorsee is wrongly
designated or his name is misspell, he should sign the instrument in the same manner
as given in the instrument. Though, he may add, if he thinks fit, his proper signature.
v. Where there are two or more endorsements on an instrument, each endorsement is
deemed to have been made in the order in which it appears on the instrument, until
contrary is provided.
vi. An endorsement may be made in blank or special. It may also be restrictive
Types of Endorsement
According to the N.I. Act, 1881 endorsement may take any of the following forms:
1. Endorsement in blank or general endorsement.
2. Endorsement in full or special endorsement.
3. Restrictive endorsement.
4. Partial endorsement.
5. Conditional endorsement
1. Endorsement in Blank or General Endorsement:
In case of an endorsement in blank, the payee or endorser does not specify an endorsee and he
simply signs his name (S. 16 NIA).
2. Endorsement in Full or Special Endorsement:

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When the payee or endorser specifies the person to whom or to whose order the instrument is to
be paid, the endorsement is called special endorsement or endorsement in full. The specified
person i.e. the endorsee then becomes the payee of the instrument.
3. Restrictive Endorsement:
An endorsement is restrictive when it prohibits further negotiation of a negotiable instrument.
Sec. 50 of the NI Act 1881states. “The endorsement may, by express words, restrict of exclude
the right to negotiable or pay constitutes the endorsee an agent to endorse the instrument or to
receive its contents for the endorser or for some other specified person.”
For example, if B endorses an instrument payable to barer as follows, the right of C to further
negotiate is excluded
• Pay the contents to C only
• Pay C for my use
4. Partial Endorsement:
If only a part of the amount of the instrument is endorsed, it is a case of partial endorsement. An
endorsement which purports to transfer to the endorsee only a part of the amount payable, or
which purports to transfer the instrument to two or more endorsees severally, is not valid.
5. Conditional Endorsement:
If the endorser of a negotiable instrument, by express words in the endorsement, makes his
liability or the right of the endorsee to receive the amount due thereon, dependent on the
happening of a specified event, although such event may never happen, such endorsement is
called a conditional endorsement (Section 52 of NI Act). Such an endorser gets the following
rights:
He may make his liability on the instrument conditional on the happening of a particular event.
He will not be liable to the subsequent holder if the specified event does not take place to the
instrument even before the particular event takes place.
For example, “pay C if he returns from London”. Thus C gets the right to receive payment only
on the happening of a particular event, i.e. if he returns from London.
Effect of Endorsement

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An unconditional endorsement of a negotiable instrument followed by its unconditional delivery
has the effect of transferring the property therein to the endorsee. The endorsee acquires a right
to negotiate the instrument further to anyone he likes.
Section 50 of NI Act also permits that an instrument may also be endorsed so as to constitute the
endorsee an agent of the endorser.
• To endorse the instrument further or
• To receive its amount for the endorser or for some other specified person.
Usual forms of Banks Endorsement:
1. Payee’s Account Credited
2. Payee’s Account will be credited on realization
3. Our Branch endorsement conformed
4. Purchaser’s Account Credit
5. Received Payment