Negotiable Instrument [AHSEC Class 11 Finance notes 2024 Exam]

ASHEC Class 11 Finance Notes
Unit 5: Negotiable Instruments

Q.1. What is Negotiable Instruments? What are its various kinds? Mention its features/essentials/characteristics and presumptions. 2+1+6     1999, 2001, 2003, 2005, 2010, 2011, 2013, 2015

Ans: Negotiable instrument: Negotiable Instrument means a written document which guarantees the specific amount of money to the person named therein and is transferable by delivery or by endorsement. According to Section 13 of the Negotiable Instrument Act 1881, “A Negotiable Instrument means a Promissory Note, Bill of Exchange and Cheque, payable either to order or to bearer.

There are different kinds of negotiable instruments:

a) Negotiable Instruments by statue: Bills of Exchange, Promissory Notes and Cheques.

b) Negotiable Instruments by customs or usages: Treasury Bills, Dividend Warrants, Share Warrants, Bearer Debentures, Hundi, Banker’s Draft.

The characteristics of a Negotiable Instrument are:

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.

c)       Unconditional Promise and order:  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 instrument, becomes its owner and entitled to the sum of money, mentioned on the face of the instrument.

f)        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.

Presumptions regarding Negotiable Instruments:

a)       Every negotiable must be drawn for consideration.

b)      The date mentioned on the instrument in the date on which it was made.

c)       The instruments were accepted within a reasonable time after being made.

d)      The instrument was duly signed and stamped.

e)      The holder of the instrument is the holder in due course unless it is proved otherwise.

Q.2. What is Bills of Exchange? What are its essentials? Mention three parties of bills of exchange.         2002, 04, 10,

Ans: Bills of Exchange: According to Section 5 of the Negotiable Instrument Act 1881, “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.”

Features of bills of exchange:

a)       A bill of exchange is an instrument in writing.

b)      It contains an unconditional order to pay money and money only.

c)       It must be signed by the drawer. Unsigned document will be invalid.

d)      It must be stamped as per the requirement of law.

e)      The payment to be made must be certain.

f)        The date on which payment is made must also be certain.

g)       The bill of exchange must be payable to a certain person.

h)      The amount mentioned in the bill of exchange is payable either on demand or within a stipulated time.

i)        There are three parties in bills of exchange: Drawer, Drawee and Payee.

There are three parties to a bill of exchange namely:

a)       Drawer: Drawer is the maker of the bill of exchange. A seller/creditor that is entitled to receive money from the debtor can draw a bill of exchange upon the buyer/debtor.

b)      Drawee: Drawee is the person upon whom the bill of exchange is drawn. Drawee is the purchaser or debtor of the goods who is liable to pay the bill.

c)       Payee: A payee is the person to whom the payment is to be made. The drawer of the bill himself will be the payee if he keeps the bill with him till the date of its payment.

Q.3. What are various types of bills of exchange? Explain them briefly.

Ans: Types of bills of exchange:

A)      Inland bill and Foreign bill: An inland bill or instrument is defined as a negotiable instrument which is drawn or made or payable in India and a foreign bill is a negotiable instrument which is drawn or made or payable outside India.

B)      Time bill and Demand bill: A time bill is payable at a fixed period after its date or after sight and a demand bill is to be payable on demand or on sight.

C)      Trade bill and Accommodation bill: A trade bill is bills which arise out of genuine trade transaction. An accommodation bill is drawn, accepted or endorsed without consideration to provide financial assistance.

D)      Clean bill and Documentary bill: Clean bill is that bill which is not accompanied by any documents. Documentary bill is that bill to which certain documents are attached.

Q.4. Mention advantages of bills of exchange. Give a specimen of bills of exchange.       2013

Ans: Advantages of bill of exchange

a)       Framework for relationship: A bill of exchange represents a device, which provides a framework for enabling the credit transaction between the seller/creditor and buyer/debtor on an agreed basis.

b)      Certainty of terms and conditions: The creditor knows the time when he would receive the money so also debtor is fully aware of the date by which he has to pay the money.

c)       Convenient means of credit: A bill of exchange enables the buyer to buy the goods on credit and pay after the period of credit.

d)      Conclusive proof: The bill of exchange is a legal evidence of a credit transaction implying thereby that during the course of trade buyer has obtained credit from the seller of the goods; therefore, he is liable to pay to the seller.

e)      Easy transferability: A debt can be settled by transferring a bill of exchange through endorsement and delivery.

Specimen of bill of exchange

Q.5. What is Promissory note? Mention its two parties? What are its essentials? Draft a specimen of a promissory note. 2+1+6+5                   2004, 06, 13

Ans: 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.”

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.

Features of Promissory note are:

a)       A promissory note is an instrument in writing.

b)      It contains an unconditional promise to pay money and money only.

c)       It must be signed by the maker. Unsigned note will be invalid.

d)      It must be stamped as per the requirement of law.

e)      The payment to be made must be certain.

f)        The date on which payment is made must also be certain.

g)       The promissory note must be payable to a certain person.

h)      The amount mentioned in the bill of exchange is payable either on demand or within a stipulated time.

i)        There are two parties in a promissory note: Maker and Payee.

Specimen of Promissory Note

Q.6. Distinguish between bills of exchange and promissory note.                             2013

Ans: Difference between bill of exchange and Promissory Note

Q.7. Define Cheque. Name its parties. Mention its features and advantages.

Ans: According to Section 6 of the Negotiable Instrument Act, 1881, “A Cheque is a bill of exchange, drawn upon a specified banker and payable on demand.”

A cheque has three parties: The Drawer, The Drawee and The payee.

The features (Contents) of a cheque are:

a)       A cheque is payable on demand either to the bearer or to the order.

b)      A cheque has three parties, viz the drawer, the drawee and the payee.

c)       A cheque is always drawn on a specified banker who is to pay the sum involved on its presentation.

d)      The signature on the cheque must tally with the specimen signature kept in the bank.

e)      A cheque must be dated and is valid for period of three months from the date of the cheque.

f)        A cheque with a future date is valid but it is payable on or after the specific date.

The following are the important advantages of cheque:

a)       It is very easy and safe to transfer of funds through cheque. The customer of a bank can transfer any amount by the help of a cheque.

b)      Cheque is the easiest from of making payment. It saves time which would have been wasted in country notes and coins.

c)       Payment by cheque can serve the purpose of receipt. Cheque can become an evidence for the payment made.

d)      The traders can make bulk payments by just drawing a cheque.

e)      The record of money transaction by cheque is kept in bank so it serves as legal evidence.

Q.8. Distinguish between cheque and bills of exchange and promissory note and cheque.            2012, 2017

Ans: Difference between cheque and bill of exchange                                   

Difference between Promissory Note and Cheque:                          2015

Q.9. Define holder and holder in due course of Negotiable Instrument. When a person becomes a holder in due course?

Ans: According to Section 8 of the Negotiable Instrument Act, 1881, “Holder of a promissory note, bills of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties there to.”

According to Section 9 of the Negotiable Instrument Act, 1881, “Holder in due course means any person who, for consideration, become the possessor of a promissory note, bill of exchange or cheque, if payable to bearer, or the payee or endorsee thereof if payable to order, before the amount mentioned, in it became payable and without having sufficient course to believe that defect existed in the title of the person from whom he derived his title.”

A person is said to be holder in due course in the following cases:

a)       A negotiable instrument must be in the possession of the holder-in-due-course.

b)      A negotiable instrument must be regular and complete in all aspects.

c)       The instrument must have been obtained for valuable consideration.

d)      The instrument must have been obtained before the amount mentioned therein becomes payable or before maturity.

Q.10. What are the rights enjoyed by the Holder of Negotiable Instrument?

Ans: The Holder of a Negotiable Instrument enjoys the following rights:

a)       He can claim payment of the instrument and can sue in his own name on the instrument.

b)      An endorsement in blank may be converted by him into an endorsement in full.

c)       He is entitled to cross a cheque either generally or special and also with the words “Not Negotiable”.

d)      He can negotiate a cheque to a third person, if such negotiation is not prohibited by the direction given in the cheque.

e)      A duplicate copy of a lost cheque may be obtained by a holder.

Q.11. Explain the rights and privileges of Holder in due course.

Ans: A Holder in Due Course enjoys the following rights and privileges:

a)       He possesses better title free from all defects: He always possesses better title than that of his transferor or any of the previous parties and can give to the subsequent parties the good title that he possesses. The holder in due course is entitled to recover the amount of the instrument from any or all of the previous parties.

b)      All prior parties liable: All prior parties to the instrument i.e. its maker or drawer, acceptor or endorser, is liable thereon to a holder in due course until the instrument is duly satisfied. The holder in due course can file a suit against the parties liable to pay in his own name.

c)       No effect of conditional delivery: Where a negotiable instrument delivered conditionally or for a special purpose and is negotiated to a holder in due course, a valid delivery of it is conclusively presumed and he acquires good title to it.

d)      Right in case of fictitious bills: Where both drawer and payee of a bill are fictitious persons, the acceptor is liable on the bill to a holder in due course.

e)      Right of the holder in due course in case of inchoate instrument: If a negotiable instrument was originally an inchoate (incomplete) instrument and subsequent transferor completed the instrument for a sum greater than what was the intention of the market, the right of a holder in due course to recover the money of the instrument is not at all affected.

f)        Right is cane the instrument is obtained by unlawful means or for unlawful consideration: A person liable on negotiable instrument cannot denied himself against payment to a holder in due course on the ground that the instrument was lost or obtained from him by means of an offense or fraud or far an unlawful consideration.

g)       Estoppel against endorser to deny capacity of prior parties: The endorser of a negotiable instrument in a suit thereon by the holder-in-due-course cannot deny the signatures or capacity to contract of any prior party to the instrument.

Q.12. Write the differences between “Holder” and “Holder in due course”.

Ans: Distinction between “Holder” and “Holder in due course”:

Q.13. What do you mean by Negotiation and endorsement? Who can endorse? What are the different kinds of endorsement? Explain them briefly. 99, 09, 14

Ans: Negotiation refers to the act of transferring a negotiable instrument by one person to another with a view to convey the title or ownership to the other. It can be done by mere delivery and by endorsement and delivery.

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 to Mr. Y by simply affixing his 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 under the negotiable instruments Act.

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. Such type of endorsement is legally invalid. 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.

Q.14. Write briefly about the rules and regulations of a valid endorsement.    2012, 2016

Ans: 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 of the instrument for the purpose of negotiation.

b)      Spelling: The endorser must sign his name in the exact spelling as appearing on the negotiable instrument.

c)       Prefixes and suffixes to be excluded: Endorsement need not contain the complementary Prefixes or Suffixes e.g. Mr., Mrs., Shri, Smt etc. need not be given by the endorser otherwise the endorsement would not be regular.

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)      Endorsement by an agent: When a negotiable instrument is endorsed by an agent on behalf of the principal he should disclose the fact that he is endorsing as an agent by adding the words “For and on behalf of”.

i)        Delivery of the instrument: An endorsement must be completed by delivery of the instrument.

Q.15. What are the liabilities or responsibilities of an Endorser?

Ans: Following are the most important liabilities of an Endorser:

a)       As per Section 35 of Negotiable Instrument Act, the endorser is liable to all subsequent holders in case of dishonour of the instrument by the drawee or payee.

b)      The liability does not cease with the death of either the endorser or endorsee. The legal representatives of an endorsee may sue the legal heirs of the endorser.

c)       The endorser shall be discharged once the payment is made to the holder in due course.

d)      Endorser cannot be held liable if he is not served the notice of dishonour.

e)      Endorser can endorse ‘sans recourse’ and thus get rid of his liability.

Q.16. What is Bank Draft? What are the differences between Bank Draft and Cheque?

Ans: Bank Draft also known as banker’s cheque which is drawn by one branch after receiving cash from his customer and such payable on demand by another branch of the same bank to the person named in the draft.

Features of bank draft:

a) It is payable on demand. b) It is drawn by one branch on another. c) It is conditional order of payment. d) It bears no stamp. e) The name of the person to whom payment is to be made is written on bank draft.

Distinction between bank draft and cheque:

a)       Bank Draft is payable in different cities, whereas Cheque is payable in same city it is prepared.

b)      Demand Draft is drawn on individuals also whereas Cheque is drawn on banks.

c)       Bank Draft or Demand Draft can be prepared for any station, where we need money. But a cheque is like a local draft, which can be encashed locally only.

Q.17. What do you mean by Payment in Due Course? What are its essential features?

Ans: The payment of a negotiable instrument should be made to the right person by the paying banker or the acceptor of the bill; otherwise the latter shall be responsible for the same. The negotiable instrument Act provides protection to the paying banker or the acceptor of the bill only when payment is made as per the provisions of the Act. Payment of the amount due as per the provisions of the Act is called payment in due course.

According to Section 10 of the Negotiable Instrument Act, 1881, “Payment in due course means payment according to the true intention of the parties and without negligence to any person in possession thereof under circumstances which do not arouse suspicion about his title to possess the instrument and to receive payment.”

Essential features or conditions of payment in due course:

a)       The payment should be made according to the true intention of the parties thereto.

b)      Payment may be made either in cash or through a clearing house or by a draft.

c)       The paying banker should have made payment in good faith and without negligence.

d)      Payment must be made to the person who has the actual possession of the instrument.

e)      The payment must be made under the circumstances which do not arouse suspicion about his title to possess the instrument and to receive payment.

18. What is bearer cheque? Mention its features, advantages and disadvantages.

Ans: Bearer cheque is one which is payable to any payee who present it for payment over the counter of the bank. In other words, it is payable by the banker to the person named on the cheque or any other bearer. For example, “pay to X or bearer” is a bearer cheque transferable.

The features of bearer cheque are as follows:

a)       It is freely transferrable from one person to another by simple delivery.

b)      Bearer Cheques does not need endorsement for their negotiation.

c)       In case of lost or stolen, the banker shall not be responsible for the payment made to an unauthorized person.

The main advantages of bearer cheques are:

a)       It is quite easy to obtain the payment of bearer cheque at the counter.

b)      It is easy to negotiate a bearer cheque as it does not need endorsement for its negotiations.

c)       It is suitable for making small payments.

d)      A person who does not have any bank account can collect the payment of the cheque easily from the bank without any verification and attestation of sign adores.

e)      A bearer cheque can be easily converted into order cheque.

The disadvantages of bearer cheque are:

a)       A bearer cheque is not safe because payment of bearer cheque may be made to any person whoever he may be, genuine payee or a thief.

b)      A bearer cheque is not suitable for big payment due to their lots of risk.

c)       Bearer cheque passes freely from hand to hand, so there is no record of its movements.

19. What is order cheque? Mention its features, advantages and disadvantages.

Ans: Order cheque is a cheque which is payable to a certain person named in the cheque by the drawer or to the order of the payee. For example, “pat to X or order”.

The features of order cheque are:

a)       Order cheque may be transferred from another by making endorsements on the cheque.

b)      Order cheque is paid by the banker only when he is satisfied about the identity of the payee.

The advantages of order cheque are:

a)       Order cheques are safe because payment is made by the bank only. When the bank is satisfied about the identity of the payee.

b)      An order cheque cannot be transferred without the signature of the transferor. So, there is record of movement and it can be easily traced.

c)       It is suitable for making big payment.

The disadvantages of order cheque are:

a)       Order cheque cannot pass freely from hand to hand.

b)      Order cheque is not easily encashable. The banker makes payment only when the bank is satisfied about the identity of the payee.

c)       Order cheque cannot be converted into bearer cheque.

20. Write down the difference between bearer cheque and order cheque?

Ans: The main difference between bearer cheque and order cheque are:

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.

21. Distinguish between open cheque and crossed cheque.

Ans: The difference between open cheque and crossed cheque are:

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.

22. What do you mean by Crossing of cheque? Who can cross a cheque? Explain briefly about the different types of crossing and their significance.

Ans: 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. It is simply a direction to the paying banker that the cheque should be paid only to a banker. Crossing of cheque is very safe because the holder of the cheque is not allowed to encashed it across the counter of the bank. 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:            2012

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 abbreviations 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, it means 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 identified 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.

23. Write the differences between General and Special crossing?

Ans: The difference between General and Special crossing are:

a)       In case of general crossing drawing two parallel transverse lines on the face of the cheque is must. But, in case of special crossing drawing two parallel lines is not necessary.

b)      In case of general crossing writing the name of a bank across the face of the cheque is not required. But in case of special crossing the name of a bank must be mentioned across the face of the cheque.

c)       Generally crossed cheque is payable through any bank account. But specially crossed cheque is payable only through the specific bank mentioned in the crossing.

d)      A generally crossed cheque is safer as compared to open cheque. But a specially crossed cheque is safer than open cheque as well as generally crossed cheque.

e)      General crossing can be easily converted into special crossing by inserting the name of a bank in between the two lines. But special crossing is not convertible into general crossing except by the drawer.