Saturday, October 6, 2012

(Chapter 4) Endorsement and Crossing of Negotiable Instrument

Negotiable Instrument:

The negotiable Instruments Act (1881) does not define a negotiable instrument but merely state that a “negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or bearer (Section- 13)

A negotiable instrument is a transferable document that passes freely from hand to hand & forms an integral part of the modern business mechanism.


Endorsement means the signature of the maker/ drawer or a holder of a negotiable instrument, either with or without any writing, for the purpose of negotiation. The endorsement is done by the payee or endorsee, as the case may be by signing on the instrument customarily on its back & where the space is insufficient on a slip of paper annexed thereto called “allonge”.

There are five kinds of endorsement:

1.         Blank endorsement: If the endorser signs his name only, the endorsement is said to be in blank and it becomes payable to bearer, e.g. Mahbubul Haq.

2.         Special or Full endorsement: An endorsement “in full” or a special endorsement is one where the endorser not only puts his signature on the instrument but also writes the name of a person to whom or to whose order the payment is to be made. Example: Pay to Mr. Rafiqul Islam or order-Sd/Sarafat All.

3.         Conditional endorsement: In conditional endorsement the endorser puts his signature under such a writing which makes the transfer of title subject to fulfillment of some conditions of the happening of some events. Example: Pay to Mr. Sarwar Jahan or order after his marriage-Sd/Badrul Kamal.

4.         Restrictive endorsement: An endorsement is called restrictive when the endorser restricts or prohibits further negotiation. Example: “Pay to Miss. / A. Pereira only” Sd/Hosne Ara.

5.         Partial endorsement: In Partial endorsement only a part of the amount of the bill is transferred or the amount of the bill is transferred to two or more endorsees severally. This does not separate as a negotiation of the instrument. The law lays down that an endorsement must relate to the whole instrument. However, where the amount has been partly paid, a note to that affect may be endorsed on the instrument which may then be negotiated for the balance. This is not done in case of cheques or banker’s drafts.

Give correct endorsement on cheques payable to the order of the following:

i) M/s. Ralli; ii) A. B. C. Co. Limited; iii) A. K. Khan & Co.; iv) A. R. Chowdhury (non-deceased) v) The Dhaka club;

I)         For M/s. Ralli
P. Ralli

ii)         For A. B. C. Co. Limited.
Z. H. Chowdhury
Managing Director/Chairman

iii)        For A. K. Khan & Co.
Aminul Karim Khan

iv)        A. R. Chowdhury

v)         For and on behalf of
The Dhaka Club
Azizur Rashid


When an instrument bears across its face two parallel transverse lines or an addition of the name of a Banker, either with or without the words “& Co.”, “Account Payee” etc.

The significance of crossing is that the payment of the instrument can only be made through a Banker( Account Holder). When it is a crossed instrument it gives direction to the paying Banker (Bank) to pay the money to a Banker. Thus the holder of such an instrument must deposit the same into his or same other person’s Bank a/c for collection. An instrument is crossed in order to provide a safeguard against theft of fraud.

Persons who can Cross a Cheque:  Crossing is an instruction or a direction to the paying banker. Obviously, the drawer of a cheque is competent to cross it generally or specially. Section 125, however, permits the following persons also to cross the cheque.

(1) The holder of a cheque may cross it generally or specially, if it is uncrossed or may cross it specially if it is crossed generally or may add the words ‘not negotiable’ in case of both types of crossing.

(2) The banker to whom the cheque is crossed specially may again cross it especially to another banker, his agent, for collection. This is called Double Special Crossing.

A general crossing may be converted into a special crossing by a holder by adding the name of a banker to make the payment of the cheque safer. But the reverse is not possible into a general crossing, because such alteration amounts to a material alteration and needs confirmation by the drawer.

Types of Crossing:

Crossing are mainly two types, these are (i) General Crossing (ii) Special Crossing.

i)          General Crossing: Section 123 of Negotiation Instruments Act, 1881, defines a general crossing as follows:

Where a cheque bears across its face an addition of the words ‘and company’ or any abbreviation thereof, between two parallel traverse lines or two parallel lines simply either with or without the words “not negotiable” and that addition shall be deemed a crossing and the cheque shall be deemed to be crossed generally.

e.g.      (1)                    (2) & Co.                     (3) A/c. Payee

(4) Payee’s Account only                    (5) Not negotiable

ii          Special Crossing: Section 124 of the Negotiable Instruments Act, 1881, defines special crossing as follows:

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.

(1) Pubali Bank                       (2) Payee’s A/c. at Sonali Bank

(3) Janata Bank                       (4) Not negotiable Agrani Bank

Opening 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.

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.

Significance of “Not Negotiable” Crossing:

The terms of not negotiable literally means not transferable. But in case of crossing of a cheque or bill of exchange, the phrase does not mean that the instrument is not at all transferable. The instrument may still pass from hand to hand, but only with certain degree of care and caution. According to section 130 of the Negotiable Instruments Act, any person taking a cheque crossed generally or specially with the words ‘not negotiable’ shall not have and shall not be capable to give a better title to the cheque than that which the person from whom he took it at the first hand.

The cheque remains transferable but its important quality i.e. negotiable is withdrawn. Negotiability means that a holder in due course derives a better title than that of the transferor provided he comes to the possession thereof for value, in good faith and without any reason to believe that the transferor from whom he took it, had a defective title. Not negotiable crossing destroys this feature. Suppose cheque crossed with Not negotiable” has been stolen by B form A and handed over to C who receives it bonafide and for value without any knowledge of B’s defective title. C does not acquire a better title to the cheque, than B. In case of dispute, C will have to return the cheque or pay equivalent in money to A, the true owner of the cheque. C can not also pass a good title to any one else, say to D.

A stolen cheque with this crossing is just like a stolen pen and can be claimed by the true owner.

Significance of “Not Transferable” Crossing:

Every cheque is transferable unless it contains words prohibiting transfer or indication intention that it shall not be transferable. If the drawer wishes to make the cheque a non transferable one, he should indicate the fact by the way he draws the cheque e.g. pay A or B only with further words “Not Transferable” should be plainly written horizontally on the face of the cheque. A cheque so crossed restricts the transferability to any other person and is only payable to the person or payee noted therein.

Significance of “Payee’s Account” Crossing:

Section 123 of Negotiable Instruments Act defines that when a cheque crossed generally bears across its face an addition of the words ‘Payee’s Account’ between the two parallel transverse lines, it is known as Payee’s Account Crossing.
It has two characteristics:
a)         It cases to be negotiable,
b)         The collecting Banker is required to credit the proceeds thereof only to the account of the payee. The collecting Banker will be liable if he does not adhere to this mandate of the drawer. A cheque crossed ‘Payee’s Account’ bearing endorsements subsequent to that of the payee proves that it has been negotiated. If such cheque is paid, the drawer is entitled to sue for conversion. It is a notice to the collecting Banker who will be looked upon as having acted negligently if he disregards the crossing.


  1. very good explanation

  2. In Bill of Exchange what is the difference between payee and endorsee; when drawer is not the payee? and what is the significance of this difference?

  3. Most Common types of negotiable instruments are;
    - Promissory notes.
    - Bill of exchange.
    - Check.
    - Government promissory notes.
    - Delivery orders.
    - Customs Receipts.

    Most negotiable instruments fall under the following two categories; the Negotiable instrument by statute and Negotiable instruments by custom or usages.

  4. Good explanation.. I understood