NEGOTIABLE INSTRUMENT ACT

NEGOTIABLE INSTRUMENT ACT 1881Nature of Negotiable Instruments.The word negotiable means transferable by delivery and the word instrument means a written document by which a right is created in favor of some person. In short it means a written document transferrable by delivery. The act mentions three kinds of negotiable instruments viz, - Notes- Bills - Cheques.

TYPES OF INSTRUMENTS

- NEGOTIABLE INSTRUMENTS

- NON- NEGOTIABLE INSTRUMENTSFeatures of Negotiable InstrumentsWriting and Signature .Money . Freely Transferable. Title of Holder free from all defects. NoticePresumptionsSpecial Procedures. PopularityEvidence.

PROMISSORY NOTESDEFINITION AND CONCEPT( Section 4) A 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 instruments. FeaturesIts an Instrument in writing. Its a Promise to pay. Signed by the maker.Definite and unconditional promisePromise to pay money only.Maker must be a certain person.Payee must be a certainSum payable must be certainPeriod It can not be made payable to bearer on Demand. Specimen of Promissory Note

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 to pay a certain sum of money only to, or to the order of , a certain person or to the bearer of the instrument.Parties involved- Drawer : maker of bill- Drawee : the person directed to pay the money by drawer is called drawee. - Payee: the person named in the instrument to whom order or whose order the money are directed to be paid by the instrument are called the payee.

Essential elements It must be in writing . Order to payDraweeSignature of the Drawer. Unconditional OrderPartiesCertainty of AmountPayment in kind is not valid.StampingCannot be made payable to bearer on demand.

SPECIMEN OF BILL OF EXCHANGE

CHEQUE SECTION 6 A bill of exchange drawn on specified banker and not expressed to be payable otherwise than on demand.Drawer: The person who draws the cheque is called the drawer of the cheque. The drawer is the accountholder of the bank. Drawee: The bank on whom the cheque is drawn is called the drawee. In case of cheques, the drawee is always a bank.Payee: The person on whom the cheque is payable is called the payee.

Features of a cheque:

A cheque is a bill of exchange. But it has some special features. They are as follows- A cheque must be in writing. - The cheque must be dated. - It contains an unconditional order to pay. - The drawer must sign the cheque. The signature of the drawer must match with the specimen signature given by the drawer (accountholder) to the bank at the time of opening the account.- The cheque is always payable on demand. It means the banker must pay the cheque as and when presented for payment, if all other legal conditions are fulfilled like, availability of funds in the account of the accountholder, the amount of the cheque written in words must tally with the amount written in words etc. - A cheque is always drawn on a specified banker.- The parties to the cheque must be certain.- The amount of money to be payable must be certain.

BOUNCING OR DISHONOUR OF CHEQUELiabilities of Banker for dishonor of cheque : the cases in which a banker is bound to dishonor their customers cheque are as follows Stop Payment Garnishee order : when banker receives a Garnishes order, i.e a prohibiting order but any court attaching the money in customers account. Death Insolvency InsanityAssignmentDefect in title Loss of Cheque Material AlterationNotice of ClosureIrregular Endorsement.

LIABILITIES OF PARTIES TO NEGOTIABLE INSTRUMENTLiability of Drawer ( Section 30)

Liability of Drawee of Cheque ( section 31)

Maker of note and acceptance of bill (Section 32)

Liabilities of Endorser ( section 35)

Liabilities prior to parties to a holder in due course (section 36)

Liability of acceptor of a bill drawn in fictitious name ( section 42)

Liability on negotiable instrument ..made without consideration.