A person who signs the cheque and transfers the instrument is an endorser and in whose favor it is transferred is endorsee. The endorsee acquires a right to negotiate the instrument to anyone he / she likes. By making an endorsement the endorser promises that in case of dishonor, he / she provides a guarantee to compensate the holder.
Crossing a cheque by making two parallel lines with or without such words as ___& company is general crossing. Section 126 of the NI Act says that this is a direction to the bank to not to pay the cheque across the counter.
This crossed cheque is no more a bearer cheque where anyone can negotiate and get payment across the counter.
In case of a crossed cheque, the payee is free to make further endorsements.
For example , Asha receives a check from Rohan which has been crossed, Asha can get this payment in her account only and not across the counter. But in this case Asha is free to endorse the cheque in favor of Suren and further Suren is free to endorse the instrument in favor of Mukesh and so on...This means that crossing a cheque does not put restrictions on endorsements. In case the cheque gets dishonored, Mukesh can sue Suren and Suren can sue Asha and Asha can sue Rohan.
Now let's discuss A/C Payee cheques. The NI act does not talk about the A/C payee crossing. There is no definition of A/C payee crossing in the NI act and it is a child of banking practice. Making a cheque A/C Payee is a result of custom, use and practice and is now accepted legally.
But, the A/C payee cheque cannot be further endorsed. This means that if the cheque in the above example which is in favor of Asha bears "A/C Payee", payment can be collected in Asha's account only. The paying bank makes sure that amount is being credited to the account of the payee only.
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