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CA Foundation · Business Laws · The Negotiable Instruments Act, 1881

A cheque payable to Mehul Traders is crossed specially with the name of 'Canara Bank'. The drawee bank, HDFC Bank, pays it across the counter to the person presenting it, who is not Canara Bank. Which statement is correct as per the Act?

HDFC Bank is not protected. A specially crossed cheque must be paid only to the banker named in the crossing or his collecting agent. If the drawee pays elsewhere, it is liable to the true owner for the loss suffered.

  1. AHDFC Bank is protected because it paid in due course to the holder
  2. BHDFC Bank is not allowed to pay a specially crossed cheque otherwise than to the named banker, and is liable to the true owner for any lossCorrect
  3. COnly the drawer, not the true owner, can claim from HDFC Bank
  4. DHDFC Bank is liable only if the cheque was also marked 'not negotiable'

Explanation

Where a cheque is crossed specially, the drawee banker must pay only to the banker to whom it is crossed or his agent for collection. Paying otherwise makes the drawee bank liable to the true owner for any loss caused. The 'not negotiable' words are not needed for this liability.

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