Date 24 Nov 2017 Banking Law and Practice Hand out No 14

BA/BSc (Hons.) BAF Year IVSem.VII Session 2017-18 Pages 1/9

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Learn New Skills.
I would recommend you to learn ‘touch-typing’

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What is Touch Typing?

Crossings and Endorsements

14.1. Background;
The crossing of a cheque is a feature of law in Pakistan adopted from laws applicable in
British India. In United Kingdom the use of the term ‘crossings’ originated in the eighteenth
century. When the employees of different banks brought their cheques to the clearing
centre, for the sake of identification and to facilitate remittance, they wrote the names of
their banks on the face of cheques. In UK the crossed cheques were governed by the
Crossed Cheques Act, 1856.

Please note a Common characteristic of ALL TYPES of crossings. If an instrument, cheque,

draft, etc is crossed----whatever the type of crossing----the paying bank will not pay cash
against a crossed instrument, it can only be credited into a bank account.

14.2. Types of crossing;

The first type of crossing is known as “general crossing” and consists of placing of two
parallel transverse lines across the cheque. These lines may be with or without the words
“and company” or an abbreviation thereof such as “& Co”. The second type is known as
“special crossing” which carries name of the bank collecting the cheque on the face of
the cheque. The effect of a crossing on the cheque is that it can only be collected by a
bank for a customer and cannot be paid over the counter to the payee or to holder in
cash.

14.3. Definition;
Section 123 of the Negotiable Instruments Act, 1881 says:
“Where a cheque bears across its face an addition of the words ‘and company’ or any
abbreviation thereof between two parallel transverse lines simply, either with or without
the words ‘not negotiable’ the addition shall be deemed to be a crossing and the cheque
shall be deemed to be crossed generally”

14.4. Features of a ‘general crossing’;

(a) Two parallel transverse lines drawn across the face of the cheque;
(b) With or without the words ‘and company’;
Cash cannot be paid against a generally crossed cheque.
Amount can be paid only to a bank, to any bank where the payee has an account.

14.5. Special Crossing;

Section 124 of the Act defines it as under:
Date 24 Nov 2017 Banking Law and Practice Hand out No 14
BA/BSc (Hons.) BAF Year IVSem.VII Session 2017-18 Pages 2/9
“Where a cheque bears across its face an addition of the name of a banker, that addition
shall be deemed to be a special crossing and the cheque shall be deemed to be crossed
‘specially’. A ‘specially crossed’ cheque can be paid to (i.e. it can be collected by) only
that bank whose name is written in the special crossing and by no other bank.”

14.6. Difference between ‘general’ and ‘special’ crossings

i. In general crossing two parallel transverse lines are necessary whereas in special
crossing need not; Just the name of a bank written across a cheque constitutes special
crossing.

ii. In special crossing the name of the collecting bank appearing on the face of the
cheque is necessary whereas in general crossing the name does not appear.

iii. A cheque crossed generally can be collected by any bank whereas a cheque crossed
specially must be collected by only that bank whose name appears across the face of
the Cheque;

All other crossings can be cancelled by the “drawer” of the cheque but a special crossing
can be cancelled only by the bank in whose favour it is specially crossed.

iv. A cheque may bear more than one banks name where the other bank is acting as
collecting agent for the bank where the payee of the cheque maintains his account.

14.7. “Not negotiable”;

According to Section 130 of the Act, if in a crossed cheque, the words ‘Not Negotiable’
appear, the holder taking the cheque shall not have and shall not be capable of giving, a
better title to the cheque than that which the person from whom he took it, had. ‘Not
Negotiable’ crossing does not restrict further transferability of a cheque. It is freely
transferable by delivery in case of bearer and by indorsement and delivery in case it is an
order cheque. The effect of these words on a cheque is that it is a warning to the payee or
holder that if the cheque had a defective title, the endorsee or holder thereof will not
acquire a better title than that of the transferor. By the same token the holder will not be
capable of passing a better title than that of his own to the subsequent holder.

To reiterate a negotiable instrument is one the property in which is transferred by mere

delivery or by endorsement and delivery. Moreover a ‘holder in due course’ who receives
the instrument ‘for value’ and ‘in good faith’, ‘without notice of any defect’ in its title can
get a better title than the previous holder.
If an instrument is marked ‘not negotiable’ then the subsequent holders do not get a
better title than the previous holders.

An example will explain the impact of ‘Not Negotiable’ crossing. Person “A” stole a
cheque bearing ‘Not Negotiable’ crossing, then he indorsed it to “B” for valuable
consideration. A, having stolen cheque has no title to it and he cannot pass on any title to
any subsequent holder thereof. This is so only if the cheque is crossed Not Negotiable.
Although “B” received it for value and without notice that the title of “A” was defective but
it was clearly marked ‘not negotiable’ which is a declaration that this instrument is devoid
of the important quality of negotiability and he ‘B’ cannot get a better title than ‘A’. Since
the title of ‘A’ was defective-----the title of ‘B’ will also be defective.
Date 24 Nov 2017 Banking Law and Practice Hand out No 14
BA/BSc (Hons.) BAF Year IVSem.VII Session 2017-18 Pages 3/9

Another Example.
If a person x finds a negotiable instrument, one which is not marked non- negotiable and
x gives the found cheque to another person y and y has given consideration for it, it
means y has either provided a service to x or given value in exchange for the (found)
cheque and y is not aware that that the title of x is defective and y receives it in good faith
and for value then y will have a good title to the cheque even though the person x from
whom he received it had no title and y can legally enforce his right against the drawer of
the cheque who issued a negotiable instrument but did not take good physical care of
the negotiable instrument.

A non-negotiable crossing means that the cheque is devoid of its quality of negotiability
and an endorsee will receive the cheque subject to any defects in the title of the
endorser.

In the above example if the cheque was not marked “non-negotiable”, ‘B’ who had
received the cheque for valuable consideration without knowledge of any defect in its
title would get a better title than A and the person B could enforce the cheque against the
drawer and the endorser ‘A’.

14.8. “Account Payee Only Crossing”;

In Pakistan it is a crime to credit “Account Payee Only” cheque to any account other than
the payee named in the cheque.

Section 123A was added to the Negotiable Instrument Act, 1881 by an amendment
Ordinance of 1962. It states that where a cheque crossed generally bears across its face
an addition of the words “account payee” between the two parallel transverse lines
constituting the general crossing, the cheque besides being crossed generally, is said to
be crossed “account payee”. When a cheque is crossed “account payee”, it shall cease
to be negotiable and it shall be the duty of the banker collecting payment of the cheque
to credit the proceeds thereof only to the account of the payee named in the cheque.
{Transverse= placed across sth}

The practice of using this type of crossing has been in vogue (in fashion) since the 19th
century. Such a cheque is not transferable but valid only between the parties. It is said
that the safest crossing will be the combination of two crossings i.e. “Account Payee only”
along with “Not Negotiable”.
{Vogue= a fashion for something}

“Account Payee Only” crossing means that in addition to the restriction that the payment
cannot be made in cash and can only be collected by a bank the proceeds of an
“Account Payee Only” cheque CAN only be credited TO THE ACCOUNT OF THE PAYEE
NAMED IN THE CHEQUE. Such cheque cannot be endorsed or transferred to any other
person or institution.

In Pakistan it is a crime to credit such cheque to any account other than the payee
named in the cheque.

14.9. Purpose and benefits of Crossing;

Date 24 Nov 2017 Banking Law and Practice Hand out No 14
BA/BSc (Hons.) BAF Year IVSem.VII Session 2017-18 Pages 4/9
A general crossing though not affecting the negotiability of the cheque does restrict its
presentation through a bank i.e. it has to be deposited in an account thereby minimizing
the risk of fraud which could be easier if the cheque was paid on the counters of a bank.
Moreover the crossing gives directions to the paying banker to pay the proceeds to the
collecting bank.

When sending a cheque to a beneficiary by mail or courier or through a person whom

you cannot rely upon fully, it is better to cross a cheque preferably “Account Payee Only”
because if it is so crossed it can only go into the bank account of the named payee and
the chance of somebody else obtaining the money in question is minimized appreciably.

Since many persons have same names therefore there is a small chance of the amount
being credited to the wrong person’s account bearing the same name. Now that it is
mandatory that every Pakistani should obtain a CNIC from NADRA, if the drawer of the
cheque adds the CNIC number with the name of the payee, even this risk will be fully
covered.

14.10. Who can cross a cheque?

According to Section 125 of the Negotiable Instrument Act

a) Where a cheque is uncrossed, the holder may cross it generally or specially;

b) Where a cheque is crossed generally, the holder may cross it specially;
c) Where a cheque is crossed generally or specially, the holder may add the words ‘not
negotiable’;
d) Where a cheque is crossed specially, the banker to whom it is crossed may again cross
it specially to another banker, his agent, for collection;
e) When an uncrossed cheque or a cheque crossed generally comes to the hands of a
banker, he may cross it specially to himself’.
(Narrate story of frauds by bank staff when uncrossed bearer cheques are tendered for credit
of account in a bank by laymen customers)

14.11. Duties of a Bank with regard to crossed cheques

As explained earlier Section 126 of the Act states that a cheque crossed generally must
be paid only to a banker and a cheque crossed specially shall only be paid to the banker
named therein. As per Section 127 of the Act a cheque may bear second special crossing
in favor of a second bank which is acting as an agent for collection for the first banker.

14.13. Who can open a crossing on a cheque?

We have earlier mentioned as to who can add crossing on the cheque. However as to
who can remove the crossing is a totally different matter. A crossing being a material part
of the cheque, its cancellation can only be done by the drawer of the cheque i.e., only a
person who issued the cheque can open the crossing. This is for general crossing.
However for cancellation of ‘special crossings’ these can only be removed by the banker
whose name appears in the crossing.

14. 14. Indorsements

“Indorsun” is Latin word and from it “Indorsement” is derived, the literal meaning of which
is “on the back or reverse.” But its legal definition under Section 15 of Negotiable
Date 24 Nov 2017 Banking Law and Practice Hand out No 14
BA/BSc (Hons.) BAF Year IVSem.VII Session 2017-18 Pages 5/9
Instruments Act, makes things clearer: “When the maker or holder of a negotiable
instrument signs the same, otherwise than as such maker, for the purpose of negotiation,
on the back or face thereof or on a slip of paper annexed thereto or so signs for the same
purpose a stamped paper intended to be completed as a negotiable instrument, he is
said to indorse the same and is called the “endorser.”

The following points emerge from this definition:

• Indorsement means the writing of a person’s name either on the back or the face of a
negotiable instrument.

• In the event of insufficient space on the instrument, indorsement can even be made on
a piece of paper annexed to the instrument, technically called “allonge.” The
Indorsement should be so made that part of the name appears on the instrument and
partly on the piece of paper attached as “allonge.”

• The Indorsement should be made only when the instrument is intended for negotiation
as per definition of ‘negotiation’ given in Section 14 of Negotiable Instruments Act which
reads: “when a promissory note, a bill of exchange or cheque is transferred to any person
by the holder thereof, the instrument is said to have been negotiated.”

• Negotiation thus means the transfer of a ‘negotiable instrument’ to a third party in such a
way that the third party is constituted as the holder of the instrument who is entitled to
the possession of the same in a manner that he can sue upon it in his own name.

• There is no exact form of indorsement prescribed in banking law, but the bankers have
developed their own principles in consonance with the basic legal requirements in this
regard.

Bankers in Pakistan generally observe the following principles:

a) The indorser’s name must be exactly in the same spelling as written in the instrument as
payee or indorsee, i.e. it should be verbatim.

b) Indorsement should be made in payee’s or indorsee’s hand writing only. Signature in

the form of facsimile is not acceptable.

c) Vernacular indorsement is not acceptable unless it is confirmed and guaranteed by the

collecting banker.

14.15. Types of Indorsements

Indorsements are of the following types:

i) “In blank” indorsement,

ii) “In full” indorsement,
iii) Conditional indorsement,
iv) Restrictive indorsement,
v) Partial indorsement.
Date 24 Nov 2017 Banking Law and Practice Hand out No 14
BA/BSc (Hons.) BAF Year IVSem.VII Session 2017-18 Pages 6/9
14.15.1. “In blank “endorsement — If the indorser signs his name only, the indorsement is
said to be “in blank- and if he adds a direction to pay the amount mentioned in the
instrument, to or to the order of, a specified person the indorsement is said to be “in full”
and the person so specified is called the indorsee of the instrument (Section 16(1)). “The
provision of this Act relating to a payee shall apply with necessary modification to an
indorsee.” (Section 16(2)).

In a blank indorsement, the indorser signs his name only. It is also called “general
indorsement.” The instrument bearing a blank indorsement becomes payable to bearer.
It can thus be negotiated to subsequent holders by mere delivery as in case of an
instrument payable to bearer.

14.15.2. “In full “endorsement

As mentioned earlier in Section 16 of the Negotiable Instruments Act, if an indorser
specifies with his signature the name of the person to whom the instrument is made
payable, this indorsement is called an indorsement “in full”.

14.15.3. Conditional endorsement According to Section 52, conditional indorsement is

one where an indorser excludes his own liability thereon when signing his name,
e.g. “Pay XY & Co. or order without recourse to me.”

14.15.4. Restrictive endorsement (Not allowing further endorsement)

When an indorser attaches a condition with his signature which prevents further
negotiation of the instrument, it is called “restrictive indorsement.” For example, if a bill of
exchange is endorsed as “Pay XY only” or “Pay XY for the account of DE” etc. it restricts
further negotiability. The indorsee has no power to transfer his rights to any one thereafter.

14.15.5. Partial endorsement

Under Section 56(1), negotiation by indorsement must be of the entire instrument. Partial
endorsement not allowed. Under 56 (2) an indorsement which purports to transfer to the
indorsee only a part of the amount payable or which purports to transfer the instrument to
two or more indorsees severally, is not valid as a negotiation of the instrument.

14.16. Who can indorse?

(Bona fide = [usually before noun] (from Latin) genuine, real or legal; not false: a bona fide reason . Use
in sentence -- Is it a bona fide, reputable organization?)
A bona fide payee, indorsee or holder of an order instrument can endorse as an
individual, if endorsed to him as such, or as partner if made payable to a partnership firm
or as Chairman, Director, Secretary, or Manager if made payable to a joint stock
company, as per following examples:

14.16.1. Indorsements by individual;

The name of the indorser should correspond exactly to the name of the payee written in
the instrument. Titles of courtesy, rank, marital status are not to be prefixed with
Indorsements.

a) Payee: Ahmed Hussain

Regular: Ahmed Hussain
Irregular: Ahmad Hossain
Date 24 Nov 2017 Banking Law and Practice Hand out No 14
BA/BSc (Hons.) BAF Year IVSem.VII Session 2017-18 Pages 7/9
b) Payee: Mufti Samee-ullah Khan
Regular: Samee-ullah Khan
Irregular: Mufti Samee-ullah Khan

14.16.2. Indorsements by agents for individuals.

Indorsement must indicate that the agent is signing on behalf of the payee under proper
authority.

a) Payee: Abdul Mannan

Regular: Abdul Mannan
By Shahzad Khan
(his) attorney

Irregular: Abdul Mannan

Shahzad Khan
Attorney

b) Payee: Rizwan Rasheed

Regular: For and on behalf of Rizwan Rasheed

Shahzad Khan

14.16.3. Indorsement by a firm as the agent to an individual.

Indorsement must indicate that firm is signing as an agent of the individual.

a) Payee: Imtiaz Shafi

Regular: for and on behalf of Imtiaz Shafi

Shafi &Co.

Irregular: Imtiaz Shafi

Shafi & Co.

14.16.4. Indorsement by Joint Payees.

In case of joint payees, all payees must endorse individually or one of them should sign
under an authority from rest of them.

a) Payee : Muhammad Imran & Saleem Butt

Regular: Muhammad Imran (Both signing individually)
Saleem Butt
or
Muhammad Imran
For self & Saleem Butt

Irregular: Muhammad Imran (Both names written in the same handwriting)

Saleem Butt

14.16.5. Indorsement by firms as an agent of another firm. A firm can indorse as an agent
on behalf of another firm.
Date 24 Nov 2017 Banking Law and Practice Hand out No 14
BA/BSc (Hons.) BAF Year IVSem.VII Session 2017-18 Pages 8/9
a) Payee: Messrs Karman Shah & Co.

Regular: Per pro Karman Shah & Co.

Shahjee & Co.

Irregular: Shahjee & Co. for Karman Shah & Co.

14.16.6. Indrosement for and on behalf of a firm.

A person indorsing an instrument for and on behalf of a firm, the indorser must indicate his
designation.

a) Payee: Messrs Karman Shah & Co.

Regular: for and on behalf of

Karman Shah & Co.
Syed Ali
(Manager.)

Irregular: for and on behalf of Karman Shah & Co.

Syed Ali

14.16.7. Indorsement for Joint Stock Company.

A person indorsing an instrument on behalf of a Joint Stock Company must be a duly
authorized official or agent who must indicate his authority and designation thereon.

a) Payee: Messrs Salman Jamal & Co. Ltd.

Regular: Per pro Salman Jamal & Co. Ltd.

Mansoor Ali
(Secretary)

Irregular: Per pro Salman Jamal & Co. Ltd.

Mansoor Ali

b) Payee: Messrs A B Fashion & Co. Ltd.

Regular: A B Fashion & Co. Ltd.
Shahid Ahmed
(Director)

Irregular: Per pro A B Fashion & Co. Ltd.

Shahid Ahmed

14.16.8. Indorsements by Clubs, Societies, Administrators, Trustees etc

Indorsements by persons on behalf of the institutions like clubs, societies, trusts etc. must
be made by an authorized office bearer who must indicate his designation.

a) Payee: Karachi Services Club

Regular: for and on behalf of
Karachi Services Club
Sheraz Khan
Date 24 Nov 2017 Banking Law and Practice Hand out No 14
BA/BSc (Hons.) BAF Year IVSem.VII Session 2017-18 Pages 9/9
(Hony. Secretary)

Irregular: Karachi Services Club

Sheraz Khan

b) Payee: Lawyers Forum

Regular: for Lawyers Forum
Wali Khan
(President)

Irregular: for and on behalf of Lawyers Forum

Wali Khan

14.9. Liability of indorser

Sec 35 states that in the absence of a contract to the contrary, the indorser of a
negotiable instrument, by indorsing it, engages that on due presentment it shall be
accepted and paid according to its tenor and that if it be dishonored he will compensate
the holder or subsequent indorser who is compelled to pay it for any loss or damage
caused to him by such dishonor. Every indorser after dishonor is liable as upon an
instrument payable on demand.

It may be noted that “dishonor by drawee is necessary”. Therefore a holder cannot come
straight to an indorser and demand payment. The instrument has to be presented to the
drawee and if he refuses to pay, only then the holder can claim from the indorser.

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