NEGOTIABL INSTRUMENT ACT,1881

PRESENTED BY

SUDHIR PARIHAR SIDDARTHA KATHIL

SWATI DEWEDIVIPIN SINGH

DEFINITION OF NEGOTIABLE INSTRUMENT

The term negotiable instrument means a document transferable from one person to another person .however the act has not defined the term .it merely say that negotiable instrument means a promissory notes , bill of exchange or cheque payable either to order or to bearer [section 13(1)]

TYPES OF NEGOTIABLE INSTRUMENT

Promissory Notes section (4)

Bills of exchange section (5)

Inland bills section (11,12) Hundis

Trade bills

Cheques section (6)

Promissory Notes A promissory note is a negotiable instrument, wherein one party (the maker or issuer) makes an unconditional promise in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms.Referred to as a note payable in accounting, or commonly as just a "note", it is internationally regulated by the Convention providing a uniform law for bills of exchange and promissory notes. Bank note is frequently referred to as a promissory note: a promissory note made by a bank and payable to bearer on demand.

“A 1926 Promissory Note from the Imperial bank of India, Rangoon, Burma for 20,000 Rupees plus interest”

Bills of exchangeA bill of exchange or "draft" is a written order by the drawer to

the drawee to pay money to the payee. A bill of exchange is essentially an order made by one person to another to pay money to a third person. A bill of exchange requires in its inception three parties—the drawer, the drawee, and the payee. The person who draws the bill is called the drawer. He gives the order to pay money to the third party. The party upon whom the bill is drawn is called the drawee. He is the person to whom the bill is addressed and who is ordered to pay. He becomes an acceptor when he indicates his willingness to pay the bill. The party in whose favor the bill is drawn or is payable is called the payee. The parties need not all be distinct persons. Thus, the drawer may draw on himself payable to his own order.A bill of exchange may be endorsed by the payee in favour of a third party, who may in turn endorse it to a fourth, and so on indefinitely. The "holder in due course" may claim the amount of the bill against the drawee and all previous endorsers, regardless of any counterclaims that may have disabled the previous payee or endorser from doing so. This is what is meant by saying that a bill is negotiable.

HundiHundis were legal financial instruments that evolved on the Indian sub-continent. These were used in trade and credit transactions; they were used as remittance instruments for the purpose of transfer of funds from one place to another. In the era of bygone kings and the British Raj these Hundis served asTravellers Cheques. They were also used as credit instruments for borrowing and as bills of exchange for trade transactions.Technically, a Hundi is an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order. Being a part of an informal system, hundis now have no legal status and were not covered under the Negotiable Instruments Act, 1881. They were mostly used as cheques by indigenous bankers

Types of Hundis

Sahyog Hundi Darshani Hundi Muddati Hundi

Sahyog Hundi:

This is drawn by one merchant on another, asking the latter to pay the amount to a third merchant. In this case the merchant on whom the hundi is drawn is of some 'credit worthiness' in the market and is known in the bazaar. A sahyog hundi passes from one hand to another till it reaches the final recipient, who, after reasonable enquiries, presents it to the drawee for acceptance of the payment. Sahyog means co-operation in Hindi and Gujrati, the predominant languages of traders. The hundi is so named because it required the co-operation of multiple parties to ensure that the hundi has an acceptable risk and fairly good likelihood of being paid, in the absence of a formalized credit monitoring and reporting framework

Darshani Hundi: This is a hundi payable on sight. It must be presented for payment within a reasonable time after its receipt by the holder. Thus, it is similar to a demand bill.

Muddati Hundi: A muddati or miadi hundi is payable after a specified period of time. This is similar to a time bill.

ChequeCheques are a type of bill of exchange and were

developed as a way to make payments without the need to carry large amounts of gold and silver. While paper money evolved from promissory notes, another form of negotiable instrument, similar to cheques in that they were originally a written order to pay the given amount to whomever had it in their possession (the "bearer"). The word cheque is derived from the Arabic word saqq which was a promise to pay a certain amount of money for delivered goods. Transporting a paper saqq was more secure than transporting money. In the 9th century, a merchant in country A could cash a saqq drawn on his bank in country B

An English cheque from 1956 having a bank clerk's red mark verifying the signature, a two-pence stamp duty, and holes punched by hand to cancel it. This is a "crossed cheque" disallowing transfer of payment to another account.

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