18269848 the Negotiable Instruments Act 1881

8/9/2019 18269848 the Negotiable Instruments Act 1881

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05/08/10 The Negotiable Instruments Act,1881

The Negotiable InstrumentsThe Negotiable Instruments

Act ,1881Act ,1881

-


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05/08/10 The Negotiable Instruments Act,188105/08/10 The NegotiableInstruments Act,1881

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HistoryHistory

A law relating to negotiable instruments

Deals with promissory notes, bills of

exchange & chequesAct extends to whole of India

The Act came into existence on 1st March,1882

The latest amendment to the act wasmade in 1988


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05/08/10 The Negotiable Instruments Act,1881

Object of the ActObject of the Act

TheThe mainmain objectobject ofof thethe NegotiableNegotiable InstrumentsInstruments ActAct isis toto

legaliselegalise thethe systemsystem byby whichwhich instrumentsinstruments contemplatedcontemplated byby itit

couldcould passpass fromfrom handhand toto handhand byby negotiationnegotiation likelike anyany otherother

goodsgoods.. TheThe purposepurpose ofof thethe ActAct waswas toto presentpresent anan orderlyorderly andand

authoritativeauthoritative statementstatement ofof leadingleading rulesrules ofof lawlaw relatingrelating toto thethe

negotiablenegotiable instrumentsinstruments..


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IntroductionIntroduction

What is a negotiable Instrument?

A negotiable instrument is the one whichtransfers a debt from one person toanother.

Special class of contracts.


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CharacteristicsCharacteristics

Freely transferable

Title of holder free from all defects

Recovery Presumptions: Consideration, date, time,

time of acceptance & transfer, order ofindorsements , stamp, holder is a holder indue course, proof of protest


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8/7/2010 The Negotiable Instruments Act,1881 6

Notes Bills & ChequesNotes Bills & Cheques

Promissory Note :Promissory Note : --

A promissory note is an instrument in writing (not aA promissory note is an instrument in writing (not a

bankbank--note or a currencynote or a currency--note) containing annote) containing anunconditional undertaking, signed by the maker, to payunconditional undertaking, signed by the maker, to paya certain sum of money only to, or to the order of, aa certain sum of money only to, or to the order of, acertain person, or to the bearer of the instrument.certain person, or to the bearer of the instrument.

Parties Involved:Parties Involved: -- MakerMaker

PayeePayee


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Essentials of Promissory noteEssentials of Promissory note

Must be in writingMust be in writing

Promise to payPromise to pay

Definite & unconditionalDefinite & unconditional

Signed by the makerSigned by the maker

Certain partiesCertain parties

Certain sum of moneyCertain sum of money

Promise to pay only moneyPromise to pay only money No bank note or currency noteNo bank note or currency note

Other formalitiesOther formalities


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Bill ofExchangeBill ofExchange

A bill of exchange is an instrument in writingA bill of exchange is an instrument in writingcontaining an unconditional order, signed by thecontaining an unconditional order, signed by the

maker, directing a certain person to pay amaker, directing a certain person to pay acertain sum of money only to, or to the order of,certain sum of money only to, or to the order of,

a certain person or to the bearer of thea certain person or to the bearer of theinstrument.instrument.

Parties Involved:Parties Involved: --

DrawerDrawer DraweeDrawee PayeePayee


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Essential elements of BOEEssential elements of BOE

In writingIn writing

Order to payOrder to pay

UnconditionalUnconditional Requires 3 parties & certainRequires 3 parties & certain

SignedSigned

Sum to be certainSum to be certain

Order to pay moneyOrder to pay money

Other formalitiesOther formalities


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DifferenceDifference

Bill Of ExchangeBill Of Exchange

Three partiesThree parties--drawer,drawer,drawee, payeedrawee, payee

Unconditional orderUnconditional order DrawerDrawer--creditorcreditor

Liability is secondaryLiability is secondary

Can be drawn payable toCan be drawn payable tobearerbearer

Drawer stands inDrawer stands inimmediate relation withimmediate relation withacceptor and not payee.acceptor and not payee.

Promissory NotePromissory Note

Two partiesTwo parties--maker,maker,payeepayee

Unconditional promiseUnconditional promise MakerMaker--debtordebtor

Liability is primaryLiability is primary

Cannot be drawn payableCannot be drawn payableto bearerto bearer

Maker stands inMaker stands inimmediate relation withimmediate relation withthe payeethe payee


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"Cheque"

A"cheque" is a bill of exchange drawnon a specified banker (b) payable

otherwise than on demand.

Thus all the cheques are bill of exchangein the sense thatthese have all the

essential elements of a bill of exchange.But all bill of exchange are notCheques.


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Type of ChequeType of Cheque

Open ChequeOpen Cheque

Crossed ChequeCrossed Cheque

Bearer ChequeBearer Cheque Order ChequeOrder Cheque


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Parties to a ChequeParties to a Cheque

Drawer :Drawer :-- The Person Who draws theThe Person Who draws thecheque is called the drawer.cheque is called the drawer.

Banker :Banker :-- The bank on which the chequeThe bank on which the chequeis drawn is called the draweeis drawn is called the drawee

Payee :Payee :-- The person in whose favour theThe person in whose favour thecheque is drawn is called the payee. Thecheque is drawn is called the payee. Thepayee may be a third party or the drawerpayee may be a third party or the drawerhimself.himself.


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Essential of ChequeEssential of Cheque

In writingIn writing

Express order to payExpress order to pay

Definite and unconditional orderDefinite and unconditional order

Signed by the DrawerSigned by the Drawer

Order to pay certain sumOrder to pay certain sum

Order to pay money onlyOrder to pay money only

Certain three partiesCertain three parties-- drawer, drawee & payeedrawer, drawee & payee Drawn upon a specified bankerDrawn upon a specified banker

Payable on demandPayable on demand


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Difference between Cheque andDifference between Cheque and

BoE

BoE

Bai of di tinction Cheque Bi of exchane

1Drawer t i awa drawnonaban

t canbedrawnuonanindi idua

a we a aban

2 Paabeonde and t i awa aabeonde andt neednot awa be aabeonde and

3 Sta t doe not requirea ta t require a ta

4 Cro in t canbeCro ed t cannot becro ed

5 ccetance t doe not requireanaccetance

t require anaccetanceof the

drawee


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Capacity Of Partners:Capacity Of Partners:

Every person capable of contracting, according to the law to whichEvery person capable of contracting, according to the law to whichhe is subject, may bind himself and be bound by the making,he is subject, may bind himself and be bound by the making,drawing, acceptance, endorsement, delivery and negotiation of adrawing, acceptance, endorsement, delivery and negotiation of apromissory note, bill of exchange orpromissory note, bill of exchange or chequecheque..

MinorsMinors

CorporationsCorporations

AgencyAgency

Legal RepresentativesLegal Representatives


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Parties to NegotiableParties to Negotiable

InstrumentsInstruments1) Parties to Bill of Exchange:1) Parties to Bill of Exchange: --

DrawerDrawer

DraweeDrawee AcceptorAcceptor

PayeePayee

HolderHolder

EndorserEndorser EndorseeEndorsee


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Parties to NegotiableParties to Negotiable

InstrumentsInstruments 2) Parties to a Promissory Note:2) Parties to a Promissory Note: --

Maker, Payee, Holder,Maker, Payee, Holder,

3)3)Parties to aParties to a chequecheque:: --

Maker,Maker, DraweeDrawee, Payee, Holder,, Payee, Holder,Endorser,Endorser, IndorseeIndorsee


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Holder:Holder: The holderofa promissorynote, billofexchange orThe holderofapromissorynote, billofexchange or

chequecheque meansanypersonentitledinhisownname tomeansanypersonentitledinhisownname tothe possessionthereofandtoreceive orrecoverthethe possessionthereofandtoreceive orrecovertheamountdue thereonfromthe partiesthereto.amountdue thereonfromthe partiesthereto.

Where the note, billorWhere the note, billorchequecheque islostordestroyed,itsislostordestroyed,itsholderisthe personsoentitledatthe time ofsuchlossholderisthe personsoentitledatthe time ofsuchlossordestruction.ordestruction.

EgEg-- A isthe realholderofpromissorynote hadA isthe realholderofpromissorynote haddisappearedbutwascivillyalive . OnmaturityhissonBdisappearedbutwascivillyalive . OnmaturityhissonBsuedforthe amount, butthe courtdismissedhisactionsuedforthe amount, butthe courtdismissedhisactiononthe groundthathe wasnotentitledinhisownonthe groundthathe wasnotentitledinhisownnametothe possessionofthe instrumentasathiefornametothe possessionofthe instrumentasathieforfinderwouldhave beenfinderwouldhave been


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HOLDER IN DUECOURSEHOLDER IN DUECOURSE::

Holderindue coursemeansanypersonwhoforHolderindue coursemeansanypersonwhoforconsiderationbecame the possessorofaconsiderationbecame the possessorofa

promissorynote, billofexchange orpromissorynote, billofexchange orchequecheque ifif

payable tobearer,orthe payee orpayable tobearer,orthe payee orindorseeindorseethereof,ifpayable toorder.thereof,ifpayable toorder.

A person who takes an instrument inA person who takes an instrument in

good faith and for value become the truegood faith and for value become the trueowner of the instrument as is known as aowner of the instrument as is known as aholder in due course.holder in due course.



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Liability OfParties:Liability OfParties:

1) Liability of drawer1) Liability of drawer

2) Liability of2) Liability of draweedrawee ofof chequecheque

3) Liability of maker of note and acceptor of3) Liability of maker of note and acceptor ofbillbill

4) Liability of endorser4) Liability of endorser

5) Liability of prior parties to a holder in due5) Liability of prior parties to a holder in duecoursecourse


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NegotiationNegotiation

When a promissory note, bill of exchange or cheque isWhen a promissory note, bill of exchange or cheque istransferred to any person, so as to constitute thetransferred to any person, so as to constitute thetransferee the holder thereof, the instrument is said totransferee the holder thereof, the instrument is said tobe negotiated.be negotiated.

This Transfer may take place either:This Transfer may take place either:

1)By Negotiation1)By Negotiation Negotiation by deliveryNegotiation by delivery Negotiation by indorsement & deliveryNegotiation by indorsement & delivery

2)By Assignment2)By Assignment


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Endorsement:Endorsement:

When the maker or holder of a negotiable instrument signs theWhen the maker or holder of a negotiable instrument signs thesame for the purpose of negotiation, on the back or face thereof orsame for the purpose of negotiation, on the back or face thereof oron a slip of paper annexed thereto, or so signs for the sameon a slip of paper annexed thereto, or so signs for the samepurpose a stamped paper intended to be completed as a negotiablepurpose a stamped paper intended to be completed as a negotiableinstrument, he is said to indorse the same, and is called theinstrument, he is said to indorse the same, and is called the

EnndorserEnndorser

Essentials of Valid Endorsement:Essentials of Valid Endorsement: --

It must be on the instrument itselfIt must be on the instrument itself It must be signed by theIt must be signed by the indorserindorser

It must be completed by the delivery of the instrumentIt must be completed by the delivery of the instrument


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Kinds ofEndorsement:Kinds ofEndorsement:

Blank or general IndorsementBlank or general Indorsement

Full or special IndorsementFull or special Indorsement Restrictive IndorsementRestrictive Indorsement

Partial IndorsementPartial Indorsement

Conditional IndorsementConditional Indorsement


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Instruments obtained byInstruments obtained by

unlawful meansunlawful means Stolen instrumentsStolen instruments

Coercion or FraudCoercion or Fraud

Unlawful considerationUnlawful consideration

Forged instrumentsForged instruments Forged indorsementForged indorsement

Without ConsiderationWithout Consideration

Lost negotiable instrumentsLost negotiable instruments


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Presentment of a negotiablePresentment of a negotiable

instrument.instrument. Presentment means showing a negotiablePresentment means showing a negotiableinstrument to the drawee, acceptor orinstrument to the drawee, acceptor ormaker for acceptance, sight or payment.maker for acceptance, sight or payment.

Types:Types: Presentment of bill of exchange forPresentment of bill of exchange for

acceptance.acceptance. Presentment of promissory note for sight.Presentment of promissory note for sight.

Presentment of negotiable instruments forPresentment of negotiable instruments forpayment.payment...


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Presentment for acceptance.Presentment for acceptance.

It is only bills of exchange of certain type thatIt is only bills of exchange of certain type thatrequire acceptance. A bill is said to be acceptedrequire acceptance. A bill is said to be acceptedwhen the drawee put his signature on it.when the drawee put his signature on it.

Essentials of a valid acceptanceEssentials of a valid acceptance--

It must be written on bill.It must be written on bill.

It must be signed by the drawee personally orIt must be signed by the drawee personally or

through a authorised agent.through a authorised agent. The accepted bill must be delivered to theThe accepted bill must be delivered to the

holder.holder.


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Modes of acceptance.Modes of acceptance.

General acceptance.General acceptance.

Qualified acceptance.Qualified acceptance.

An acceptance is qualified when it isAn acceptance is qualified when it is

ConditionalConditional

PartialPartial

Qualified as to place andQualified as to place and

Qualified as to timeQualified as to time

Acceptance by some of drawees but not all.Acceptance by some of drawees but not all.


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Presentment of acceptance toPresentment of acceptance to

whom?whom? The draweeThe drawee All or some of several draweesAll or some of several drawees Drawee in case of needDrawee in case of need

All the drawees in case of severalAll the drawees in case of severaldraweesdrawees

Duly authorized agent of the draweeDuly authorized agent of the drawee Legal representative in case of death ofLegal representative in case of death of

the draweethe drawee Official Receiver or Assignee in case ofOfficial Receiver or Assignee in case of

insolvency of the draweeinsolvency of the drawee


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Presentment for acceptancePresentment for acceptance --

when and wherewhen and where When:When:

a. If a time for presentment fora. If a time for presentment foracceptance is specified in the bill.acceptance is specified in the bill.

b. If time is not specified in the bill.b. If time is not specified in the bill.

c. In case of a bill payable after sight.c. In case of a bill payable after sight.


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Presentment for acceptancePresentment for acceptance --

when and wherewhen and where WhereWherea.a. If place for presentment is mentioned inIf place for presentment is mentioned in

the billthe bill

b.b. If the place of presentment is notIf the place of presentment is notmentioned in the billmentioned in the bill

c.c. The holder must allow the drawee fortyThe holder must allow the drawee forty--

eight hours to consider whether toeight hours to consider whether toaccept the billaccept the bill


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Effect of nonEffect of non--presentmentpresentment

When presentment for acceptance is excused:When presentment for acceptance is excused:

a. drawee after reasonable search cannota. drawee after reasonable search cannot

be foundbe found

b. drawee is dead or insolventb. drawee is dead or insolvent

c. drawee is a fictitious person or one incapable ofc. drawee is a fictitious person or one incapable of

contractingcontracting


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Acceptance for honourAcceptance for honour

When the bill is dishonoured by nonWhen the bill is dishonoured by non--acceptance holder may allow any otheracceptance holder may allow any otherperson to accept it for the honour ofperson to accept it for the honour of

drawer or any one of the indorsers.drawer or any one of the indorsers.

Conditions for valid acceptance forConditions for valid acceptance for

honour:honour: The bill must have been noted orThe bill must have been noted or

protested.protested.


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ContdContd....

The acceptance for honour must be made withThe acceptance for honour must be made withthe consent of the holder.the consent of the holder.

It must be written on the bill indicating that it isIt must be written on the bill indicating that it isan acceptance for honour of the party liable onan acceptance for honour of the party liable onthe bill.the bill.

It must be signed by the acceptor who must notIt must be signed by the acceptor who must notbe already liable on the bill .be already liable on the bill .


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Obligations and rights ofObligations and rights of

acceptance for honouracceptance for honour Obligation of the acceptor for honour is notObligation of the acceptor for honour is notabsolute.absolute.

The following conditions has to be fulfilled:The following conditions has to be fulfilled:

The bill should once more be presented to theThe bill should once more be presented to thedrawee for payment at maturity.drawee for payment at maturity.

If the drawee still refuses to pay, the bill shouldIf the drawee still refuses to pay, the bill shouldbe noted or protested for payment.be noted or protested for payment.


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Dishonour of a negotiableDishonour of a negotiable

instrumentinstrument A bill of exchange may be dishonoured by nonA bill of exchange may be dishonoured by non--

acceptance or nonacceptance or non--payment.payment.

A promissory note and a cheque may beA promissory note and a cheque may bedishonoured by nondishonoured by non--payment only.payment only.

Notice of dishonour must be given to all theNotice of dishonour must be given to all theprior parties in order to make them liable on theprior parties in order to make them liable on theinstrument.instrument.


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ContdContd....

Notice of dishonour by whom?Notice of dishonour by whom?

Notice of dishonour to whom?Notice of dishonour to whom?

Form of notice.Form of notice.


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NotingNoting

Noting means the recording of the fact ofNoting means the recording of the fact ofdishonour by a notary public upon thedishonour by a notary public upon theinstrument or upon a paper attached there to orinstrument or upon a paper attached there to or

partly upon each.partly upon each.

Noting must contain following particulars:Noting must contain following particulars:

The fact of dishonour.The fact of dishonour.

Date of dishonour.Date of dishonour. Reasons, if any assigned.Reasons, if any assigned.

The notary charges.The notary charges.


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ProtestProtest

Fact of dishonour of bill of exchange or promissory noteFact of dishonour of bill of exchange or promissory note

is noted and certified by Notary Public. Such certificate isis noted and certified by Notary Public. Such certificate iscalled protest.called protest.

Contents of protest:Contents of protest:

The instrument or literal transcript of the instrument.The instrument or literal transcript of the instrument.

The name of the person for whom and against whom theThe name of the person for whom and against whom theinstrument has been protested.instrument has been protested.

The reason for dishonour.The reason for dishonour. The place and time of dishonour.The place and time of dishonour.

The signature of the Notary PublicThe signature of the Notary Public


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Discharge of an InstrumentDischarge of an Instrument

By payment in due courseBy payment in due course

Payment of interest (Sec 80)Payment of interest (Sec 80) By express waiverBy express waiver

By cancellationBy cancellation


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Discharge of a Party or PartiesDischarge of a Party or Parties

By payment [Sec 82(c)]By payment [Sec 82(c)]

By cancellation [Sec 82(a)]By cancellation [Sec 82(a)] By release [Sec 82(b)]By release [Sec 82(b)]

By operation of lawBy operation of law

By material alteration (Sec 87)By material alteration (Sec 87)


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MaterialMaterial AlterationAlteration

Instances of material AlterationInstances of material Alteration

The dateThe date

Sum PayableSum Payable

Time of paymentTime of payment

Place of payment & addition of place ofPlace of payment & addition of place ofpaymentpayment

Rate of interestRate of interest


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ESTOPPELESTOPPEL

When a person by his conduct or wordsWhen a person by his conduct or wordsspoken or written leads another person tospoken or written leads another person tobelieve that a certain state of affairsbelieve that a certain state of affairsexists, he is estopped from denying theexists, he is estopped from denying thefacts of that statement later.facts of that statement later.


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Rules ofEstoppelRules ofEstoppel

Estoppel against denying original validityEstoppel against denying original validityof instrument (sec 120)of instrument (sec 120)

Estoppel against denying capacity ofEstoppel against denying capacity ofpayee to indorse (sec 121)payee to indorse (sec 121)

Indorse not permitted to deny theIndorse not permitted to deny thecapacity of prior parties (sec 122)capacity of prior parties (sec 122)


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International LawInternational Law

1.1. Liability: The liability of the maker or drawer of foreignLiability: The liability of the maker or drawer of foreignpromissory note is determined by the law of placepromissory note is determined by the law of placewhere the instrument has been made .The liability ofwhere the instrument has been made .The liability ofthe acceptor is determined by the law of place wherethe acceptor is determined by the law of place wherethe instrument is payable.the instrument is payable.

2.2. Dishonour: A promissory note,bill of exchange is madeDishonour: A promissory note,bill of exchange is madepayable in different place from that in which it is madepayable in different place from that in which it is madeor indorsed,the law of place determines whator indorsed,the law of place determines whatconstitute dishonourconstitute dishonour

3.3. Instruments made out of India according to theInstruments made out of India according to theprovisions of Indian lawprovisions of Indian law


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HUNDISHUNDIS

Unconditional order in writing made by a personUnconditional order in writing made by a persondirecting another to pay a certain sum of moneydirecting another to pay a certain sum of moneyto a person named in the order.to a person named in the order.

Expressed in vernacular language also.Expressed in vernacular language also.

Being a part of the informal system have noBeing a part of the informal system have nolegal status and are not covered under thelegal status and are not covered under theNegotiable Instruments Act, 1881.Negotiable Instruments Act, 1881.


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Banker & CustomerBanker & Customer

Banking is defined as an activity ofBanking is defined as an activity ofaccepting deposits from the public,accepting deposits from the public,repayable on demand or otherwise andrepayable on demand or otherwise andwithdrawal by cheque, draft or otherwisewithdrawal by cheque, draft or otherwiseand such acceptance of money is for theand such acceptance of money is for thepurpose of lending or investments.purpose of lending or investments.


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Rights & Obligations ofRights & Obligations of

Bankers towards CustomersBankers towards Customers

Honourthe chequeHonourthe cheque

Maintain records of all the transactionsMaintain records of all the transactions

Abide bythe instructions of the customerAbide bythe instructions of the customer

Notto disclose the state of his customersNotto disclose the state of his customersaccountaccount

SetoffSetoff


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When a BankerMAY RefuseWhen a BankerMAY Refuse

(Dishonour) Payment(Dishonour) Payment

1.1. When a Cheque is postWhen a Cheque is post--dated and presenteddated and presentedfor payment before that datefor payment before that date

2.2. Lack of sufficient fundsLack of sufficient funds3.3. The funds are not available for the purposeThe funds are not available for the purpose4.4. Cheque is of doubtful legalityCheque is of doubtful legality5.5. When the Cheque is not duly presentedWhen the Cheque is not duly presented

6.6. Signature doesn't matchSignature doesn't match7.7. Cheque presented at a branch where theCheque presented at a branch where the

customer has no accountcustomer has no account8.8. When the Cheque has become staleWhen the Cheque has become stale


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When a BankerMUST RefuseWhen a BankerMUST Refuse

(Dishonour) Payment(Dishonour) Payment

The customer countermands paymentThe customer countermands payment

A customer dies and the bank has notice ofA customer dies and the bank has notice of

the dea

th

the dea

th

Customer has been adjudged insolventCustomer has been adjudged insolvent

Bankerreceives notice of customers insanityBankerreceives notice of customers insanity

When payment is prohibited by an orderof aWhen payment is prohibited by an orderof acourtcourt

Customer gives notice to his bankerto closeCustomer gives notice to his bankerto closehis accountshis accounts


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Protection of the Paying Banker:Protection of the Paying Banker:--

Sec 85Sec 85

1.1. Paying banker will not be liable if holder ofPaying banker will not be liable if holder of

a bearer Cheque is not actual owner of thea bearer Cheque is not actual owner of theCheque [Sec 85(2)].Cheque [Sec 85(2)].

2.2. If a Cheque is crossed generallyIf a Cheque is crossed generally

(Sec 126 Para 1)(Sec 126 Para 1)

If a cheque is crossed speciallyIf a cheque is crossed specially(Sec 126 Para 2)(Sec 126 Para 2)


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Contd.Contd.

Paying banker will not be protected ifPaying banker will not be protected ifthe drawers signature is forged and thethe drawers signature is forged and thebanker makes the payment on thebanker makes the payment on thechequecheque


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Presented byPresented by

Akanksha Kedia(FPB0709/007)Akanksha Kedia(FPB0709/007)

Anindita Kundu(FPB0709/015)Anindita Kundu(FPB0709/015)

Anupama(FPB0709/020)Anupama(FPB0709/020)Isha Mehta(FPB0709/056)Isha Mehta(FPB0709/056)

Yageshwari Trivedi(FPB0709/158)Yageshwari Trivedi(FPB0709/158)


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Thank YouThank You

18269848 the Negotiable Instruments Act 1881

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Transcript of 18269848 the Negotiable Instruments Act 1881