NEGOTIABLE INSTRUMENT1

8/7/2019 NEGOTIABLE INSTRUMENT1

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The Negotiable InstrumentsAct, 1881.

Presented By :-Dhiraj Sadhwani

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Introduction

The law relating to negotiable instrumentsis contained in the Negotiable Instruments

Act. 1881 which applies and extends to thewhole of India.

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Definitions

The word negotiable means transferable

by delivery and instrument means a

written document by which a right iscreated in favor of some person or persons.

Thus, the term negotiable instrument

literally means a written document which

creates a right in favor of somebody and is

freely transferable.

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Continued

According to Section 13, A negotiableinstrument is a piece of paper which entitles

a person to a certain sum of money andwhich is transferable from one to another

person by a delivery or by endorsement and

delivery.

E.g. - Promissory note, Cheque and a Bill of

exchange, documents such as Dividend,

warrants [email protected]


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Characteristics of negotiable

Instruments Free transferability or easy negotiabilityNegotiable instrument is freelytransferable.

Title of holder is free from all defectsA person who takes negotiable instrumentbona-fide and for value gets the instrument

free from all defects in the title. The holderin due course is not affected by defectivetitle of the transferor or of any other party.

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Types of Negotiable Instruments

Negotiable instruments are of two types whichareas follows:

Negotiable Instruments recognized by status:e.g. Bills of exchange, cheque and promissorynotes.

Negotiable instruments recognized by usage

or customs of trade:e.g. Bank notes, exchequer bills, share warrants,bearer debentures, dividend warrants, sharecertificate.

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Bill of Exchange (Sec.5)

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

maker, directing a certain person to pay a certainsum of money only to, or to the order of a

certain person or to the bearer of the instrument.

Eg - Mr. X purchases goods from Mr. Y for Rs. 1000/-

Mr. Y buys goods from Mr. S for Rs. 1000/-

Then Mr. Y may order Mr. X to pay Rs. 1000/- Mr. S

which will be nothing but a bill of exchange.

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Promissory Note (Sec.4)

Acc to sec4 - A promissory note is an

instrument in writing containing anunconditional undertaking, signed by the

maker; to pay a certain sum of money only

to or to the order of a certain person or the

bearer of the instrument.

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Specimen of a promissory note

Rs. 5000/- Pune November 25, 2008

Three moths after the date, I promise to pay Mr. X ofMumbai or order a sum ofRupees Fifty Thousand for

value received.

ToMr.

Address..

Stamp

Mumbai Signature of Mr [email protected]


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Essential characteristics of a

Promissory Note

Promissory note is a negotiable instrument

It must be in writing

It is a promise to pay money only. It must be definite. The promise to pay

must be definite.

It must be unconditional. Undertaking topay must be unconditional.

It must be signed by the [email protected]


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Cheque (Sec.6)

A cheque is a bill of exchange drawn on aspecified banker and expressed to be

payable otherwise than on demand.

The maker of a bill of exchange orCheque

is called the Drawer"; the person therebydirected to pay is called the "Drawee".

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Essential characteristics of a

Cheque

A cheque is a negotiable instrument.

It is a bill of exchange.

It is always drawn on a specified banker. It is always payable on demand.

A cheque can be bearer, order or crossed

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Negotiation (sec.14)

It is a process of transferring the ownership,

right, title, interest of a person in anegotiable instrument to another person so

as to give a good title to the transferee and

make a transferee a holder of such

instrument.

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Continued

Negotiation does not mean a simple transfer.Simple transfer may not necessarily involve thetransfer of property in the negotiable instrument

but negotiation implies the transfer of propertyor ownership.

Eg -X hands over a cheque to Mr. Y here Mr. X

has negotiates the instrument.But if he hands over a cheque to Mr. Y askinghim to keep the same in his safe, the cheque isnot negotiated to Mr. Y, Mr. Y does not become

its holder but only a [email protected]


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Essentials of negotiation

There must be transfer of a negotiable

instrument to another person. As a result of such transfer, the transferee

must become the holder of the instrument.

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Modes of negotiation:

Negotiation by delivery The negotiableInstrument is transferred by delivery, actual or

constructive. It is physical act of delivering

the instrument or handing over the delivery,

actual possession of the instrument is not

passed. (Sec.47)

Negotiation by endorsement and delivery The negotiable Instrument payable to order is

negotiable by the holder by endorsement and

delivery thereof. (Sec.48)[email protected]


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HOLDER ANDHOLDER IN DUE COURSE

Holder :-As per sec 8 the holder of a

negotiable instrument means any person entitled

to the possession of instrument in his own name

& to receive or recover the amount due thereon

from the parties liable thereto.

`

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Holder in due Course

Holder in due course means any person who

for the consideration became the possessor of a

promissory note, a bill of exchange or a cheque

if payable to bearer, or the payee or endorseethereof, if payable to order, before the amount

mentioned in it becomes payable and without

having sufficient cause to believe that anydefect existed in the title of the person from

whom he derived his title (section 9) .

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Distinctionbetween holder and holder in due course

Holder is different from a holder in due course. A holder in due

course enjoys certain rights and privileges.

1. A holder can obtain an instrument without consideration while a

person cannot be a holder in due course unless he obtains an

instrument with consideration and for value.

2. A holder of an instrument may acquire the instrument if it

becomes payable. But the person is not treated as a holder in

due course if he acquires an instrument when it becomes

payable.

3. A holder need not bother about the defect, if any, in the

title. But no holder is considered a holder in due course who

acquires an instrument knowingly the defect of the [email protected]


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DISHONOUROF NEGOTIABLE INSTRUMENT

Dishonour by Non-acceptance (sec.91)

Dishonour by Non- payment (sec.92)

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THANK YOU

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