08624negotiable Instruments Act, 1881[1]-1

8/2/2019 08624negotiable Instruments Act, 1881[1]-1

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NEGOTIABLE INSTRUMENTS ACT,

1881

Prof. K.M.Vishnu NambudiriM.COM.; LL.B.; PGDBM


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NEGOTIABLE + INSTRUMENTS

(section 13) Negotiable means something legally

transferable from one person to another for a

consideration.

Instrument means a written document by

which some legal rights are created in favour

of some person


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CHARASTERICS OF NEGOTIABLE

INSTRUMENTS

Though there is no clear definition for negotiableinstruments in the Act, sec.13 says Negotiable

instrument means a promissory note, bill of exchange or

cheque, payable either to order or to bearer

Freely transferable, by delivery (to bearer) or endorsement(to order)

Title of holder-in-due-course free from all defects.

Recovery can be made in own name.

It presupposes certain presumptions such as Consideration is paid,made on date of signature, it is accepted properly, transferred in

time, endorsed properly, stamped properly, holder is in-due-course,

protest is a proof of dishonour, etc.


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PROMISORY NOTE (section 4)

Promissory note is an instrument in writing

containing an unconditional undertaking

signed by the maker to pay a certain sum of

money only to, or to the order of, a certain

person or to the bearer of the instrument.

Sec.4


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ESSENTIALS OF A P/N

In Writing Undertaking/Promise to pay

Definite and unconditional

Signed by the maker Certainty of the maker and payee.

Certainty of amount, money only.

Formalities like number, date, place,consideration, Stamp etc.

Never payable to bearer on demand.


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BILL OF EXCHANGE (section 5)

A Bill of Exchange is an instrument in writing,

containing an unconditional order, signed by

the maker, directing a certain person, to a pay

a certain sum of money only to, or to the

order of a certain person or to the bearer of

the instrument Sec.5

Three parties The drawer, drawee(acceptor),and the payee.


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BILL OF EXCHANGE

Rs.1,00,000/-

Panvel,1

stAugust 2009

STAMP

Three months hereafter, pay a sum of Rs.50,000/- (Rupees fifty thousandsonly) to, or to the order of Shri Bharat Sajjan Sheth, or to the bearer of theinstrument , for value received.

To

Ramanlal Vadilal Shah,

Prop: Ramanlal Sweets,

Sector 29, Vashi,

Navi Mumbai.

Sd/-Keshav Kanti Patel

Accepted

Sd/-

Bharat Sajjan Sheth


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ESSENTIALS OF BILL OF EXCHANGE

In Writing

Order

Definite and unconditional

Signed by the maker

Certainty of the maker, drawee and payee.

Certainty of amount, money only.

Formalities like number, date, place,

consideration, Stamp etc. Payable to order or bearer on demand.

Acceptance by drawee is compulsory


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DISTINCTION BETWEEN BILLOF

EXCHANGE AND PROMISORY NOTE

BILL OF EXCHANGE

Three parties

Orders to pay

Drawer is both debtor toone and creditor to another.

Acceptance compulsory

Conditional Acceptance OK

Liability of maker secondary

Maker & payee can be same

Can be payable to bearer

PROMISORY NOTE

Two parties

Promise to pay

Maker is debtor

No acceptance is necessary

No conditional making

Liability of maker primary

Maker cannot be payee

Cannot be bearer

instrument


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MATURITY AND DAYS OF GRACE

A Promissory Note or Bill of Exchange can be

made payable:

i) On demand;

ii) On a specific date;

iii) After a specified period months or days.(a) in case of months, calendar dates are counted

(b) The drawing date to be excluded for counting

(c) If the due date is a holiday, the next day is due.

If the instrument is not on demand three

days of grace is granted.


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CHEQUE (section 6)

A Cheque is a Bill of Exchange drawn upon a

specified banker and payable on demand

Sec.6

It is always drawn on (drawee is) a bank

It is always payable on demand

Separate acceptance is not necessary

In the case of Draft, both the drawer and

drawee are banks.


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DISTINCTION BETWEEN BILLOF

EXCHANGE AND CHEQUE

BILL OF EXCHANGE

Drawn on any body

Acceptance compulsory

Payable after a date or ondemand.

Days of grace available

Delay in presentation may

exonerate the drawer

Cannot be crossed

Cannot be countermanded

Noted/protested in dishonour

CHEQUE

Drawn on bank only

No Acceptance needed

Payable on demand No days of grace available.

Delay in presentation does notexonerate the drawer

Cheque can be crossed

can be countermanded (Stoppayment)

Noting /Protesting notnecessary


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CROSSING OF CHEQUE

(section 123 to 131A)

General crossing Two parallel lines or with

word & Co. etc.

Special crossingNot negotiable Clearable

through a the bank named. (Title of transferee

not any better than transferor

Restrictive crossingA/c payee only or A/c

payee - Bank of India Bank of India A/c.

Nambudiri


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DISHONOUR OF CHEQUE BY BANK

(section 31 & section 138)i) When sufficient funds are not in credit.

ii) Where the fund is held in trust

iii) Where the cheque is ambiguous or

doubtful legality.

iv) When the cheque is mutilated

v) Where the cheque is irregular or materially

alteredvi) When the cheque is not duly presented


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DISHONOUR OF CHEQUE BY BANK..vii) Drawers signature does not agree with

specimen signature.

viii) Where the cheque is post dated, prior to that

date.

ix) Stale cheques six months after the date.x) Presented in a wrong branch

xi) In accounts of joint drawers, without signature

of all prescribed

xii) If the cheque amount exceeds the minimum

balance or agreed set-off limits


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COMPULSORY DISHONOUR BY BANK..

i) When the drawer becomes insolvent or

adjudicated accordingly;

ii) When drawer countermands payment;

iii) After the bank received notice of death of

drawer;

iv) When the bank receives notice of drawers

insanity;

v) When a garnishee or attachment of account

is served on the banker;


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COMPULSORY DISHONOUR BY BANK..

vi) When notice of closure account is received;vii) When notice is received, being credit

balance is assigned;

viii)When the bank has reason to believe thatthe title of the presenter is defective;

ix) When the loss of cheque is intimated to the

bank. It is advisable to get the chequecountermanded.


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PARTIES OF INSTRUMENTS

Drawer is the maker of instrument.

Drawee is the person on whom it is drawn. In

the case of B/E drawee is the acceptor.

Payee is the person to whom amount is

payable. Drawer can be payee.

Endorser is the one who endorses

Endorsee is the one to whom it is endorsed

Drawee in case of need.


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HOLDER-IN-DUE-COURSE

(section 8 & section 9) Holder of an instrument means a person

legally entitled to possess and receive in his

own name

Holder-in-due-course is a holder having:a) he is named/possesses it for value

received i.e. for good consideration.

b) he is holder before maturity;

c) became holder in good faith (i.e. Having no

reasonable cause to doubt its title)


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PRIVILEGES OF HOLDER-IN-DUE-COURSE All earlier parties are liable to him;

He is protected even from an earlier defect ofno-consideration

Protected even from an earlier conditional

delivery. Instruments are cleansed from all defects.

Protected from an earlier obtainment by

unlawful means or for unlawful consideration. Presumption is that every holder is holder-in-

due course, unless otherwise proved.


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NEGOTIATION AND ASSIGNMENT

Negotiation is delivery or endorsement and

delivery, for value received. If it is conditional

or for specific purpose, the property in

instrument would not pass, till the event.

If the transfer is made with the sole intention

of assigning the power of collection of

payment to transferee, it is assignment, which

is not recognised by Negotiable InstrumentsAct.


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DISTINCTION - NEGOTIATION AND ASSIGNMENT

NEGOTIATION

Consideration is presumed

The title of transferee is

better than transferee

Notice to debtor is not

necessary

Instrument payable can benegotiated by mere

delivery.

ASSIGNMENT

Consideration must beproved

Title of transferee depends

on title of transferor.

Until debtor gets notice,

assignment has no value

The assignment notice hasto be in writing


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PRESENTMENT

Presentment for acceptance (B/E)

Presentment for sight (P/N)

Presentment for payment


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PRESENTMENT FOR ACCEPTANCE

Acceptance must be written on the bill.

It must be signed by drawee (personally or

through authorized agent)

The accepted bill must be delivered to holder.


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PRESENTMENT FOR SIGHT

No acceptance needed for Promissory Note. Ifthe P/N payable at a certain period after sight,

it should be presented for sight.


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PRESENTMENT FOR PAYMENT

The negotiable instrument should be

presented (to the maker in case of P/N, to the

acceptor for B/E, to the bank for cheque or

draft) for payment, failing he is not liable for

payment. (Presentment will not be necessary, only if the

payable at the place of maker and it is closed, or

drawer/payee intentionally prevents presentment, ifthe concerned parties are not present at the

specified time and place, acceptor exonerates or

when presentment is waived.)


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DISHONOUR NOTICE

If the drawee/acceptor fails to make payment

on presentment, it is called dishonour.

In case of dishonour, the payee should give

notice to endorser/drawer(i.e. earlier party)

written or not, but clear and unambiguous,

within reasonable time (by the next day)and

manner.


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DISHONOUR NOTICE EXCUSED

Notice can be excused if

(i) dispensed with by parties,

(ii)if it is countermanded by any, (to him)

(iii)when no damage by dishonour,

(iv)when the party to whom notice tobe given is not

found,

When the payee is acceptor of his bill(mutual)

If P/N has become not negotiable

In case of novation (replacement)


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DISHONOUR OF CHEQUE

When a cheque is dishonoured forinsufficiency of funds, the drawer is

punishable with imprisonment up to two

years or with a fine up to twice the amount of

the cheque or both,if the following eight

conditions are satisfied:

i) Dishonoured for insufficiency of funds;

ii) payment is for a legal liability;

iii) payee is a holder-in-due-course;


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DISHONOUR OF CHEQUE.

iv) presented within its validity of time;

v) the payee should have given a notice

demanding payment within 30 days of

information of dishonour;

vi) the drawer fails to pay within 15 days of

such notice;

vii) the payee should have made a complain

within one month of cause of action.


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DISHONOUR OF CHEQUE. The holder of the cheque is presumed to be

holder-in-due-course, unless otherwiseproved.

The drawer has no defense that he had no

reason to believe that the funds areinsufficient.

In case of a company or firm or AOP, all the

responsible persons are jointly and severallyliable alongwith the company/firm/AOP unless

otherwise proved.


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DISCHARGE OF NEGOTIABLE

INSTRUMENTS

i) By payment in due course i.e. paid properly whenpresented by payee who is holder-in-due-course.

ii) By party primarily liable becoming holder drawer

becomes the payee.

iii) When the holder renounces his rights absolutely

and unconditionally in writing, after maturity.

iv) When it is cancelled by holder, by disfiguring or

destroying the instrument.v) By novation, rescission, or by expiry of time.


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DISCHARGE OF PARTIES

i) By Payment;

ii) By Cancellation or Release (Holder

cancels/reseases the name of one party from instrument) ;

iii) If drawee is allowed more than 48 hours to

accept;

iv) Non-presentment of cheque;

v) When cheque is paid in due course, when

endorsed;


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DISCHARGE OF PARTIES.

vi) Sans-recourse endorsements;

vii) By operation of law :

a) By order of insolvency

b)By merger into judgment debt

c)By lapse of time

viii)By material alterationix) By payment of altered instrument.


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MATERIAL ALTERATION

(sections 20, 49, 87, 89, 125)

Alters the character or identity of instrument;

Changes the rights and liabilities of any of the

parties;

Alters the operation of the instrument.

Eg: the date, the sum payable, time of payment, place of

payment, addition of place of payment, the rate of interest

If the alteration is with consent of all concerned, then it is notrendered defective.

08624negotiable Instruments Act, 1881[1]-1

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