Negotiable instrument act 1881 & Types of Negotiable Instrument
Negotiable Instruments ( Kanchan Pandey)
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Transcript of Negotiable Instruments ( Kanchan Pandey)
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Negotiable InstrumentB.Legislation
CP (302)
Presented By :- Kanchan Pandey
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Meaning of Negotiable
Instrument The term Negotiable Instrument consists of
two parts viz; Negotiable and Instrument.
The word negotiable means transferable bydelivery and the word instrument mean
written documents by which a right is
created in favour of some person.
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Definition of Negotiable InstrumentAccording to section 13 of the Negotiable
Instruments Act, 1881, a negotiableinstrument means
Promissory note, bill of exchange, orcheque, payable either to order or to
bearer.
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Payable to orderPayable to orderA note , bill or cheque is payable to order which isA note , bill or cheque is payable to order which is
expressed to be payable to a particular person or hisexpressed to be payable to a particular person or his
order. For exampleorder. For example
(i) Pay A(i) Pay A(ii) Pay A or order(ii) Pay A or order
(iii) Pay to the order of A(iii) Pay to the order of A
(iv) Pay A and B(iv) Pay A and B
(v) Pay A or B(v) Pay A or B
Are various forms in which an instrument may be madeAre various forms in which an instrument may be made
payable to order.payable to order.
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Payable to bearerPayable to bearerPayable to bearer means payable to any personPayable to bearer means payable to any person
whosoever bears it . A note, bill or cheque inwhosoever bears it . A note, bill or cheque inthe form pay to A or bearer or Pay bearerthe form pay to A or bearer or Pay bearer
is payable to bearer.is payable to bearer.
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Negotiable instrument must possess two
features The right of ownership contained in the instrument can be
transferred from one person to another by mere delivery.
The transferee taking the instrument in good faith and forconsideration gets a good title to the same even though thetitle of the transfer is defective.
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Essential Characteristic Features of a
Negotiable InstrumentPayable to order or bearer Freely transferable Presumption as to holder
Title of holder in due coursePresumption as to consideration
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Essential Characteristic Features of a
NegotiableInstrumentPayable to order or bearer: - It must be payable either to
order or bearer
Freely Transferable:- A instrument payable to order is
negotiable by endorsement and delivery and an instrument
payable to bearer is negotiable by mere delivery
Presumption as to Holder:- Every holder of negotiable
instrument is presumed to be holder in due course (Section
118)
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Essential Characteristic Features of a
Negotiable InstrumentTitle of holder in due course:- A holder in due course ( i.e.
the person who become the possessor of negotiable
instrument before maturity, for valuable consideration and
in good faith ) get the instrument free from all defects in the
title of transferor
Presumption as to considerations:- Every negotiable
instrument is presumed to have been made, drawn,
accepted, endorsed , negotiated or transferred for
consideration.
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Types of Negotiable Instruments
According to the Negotiable Instruments Act, 1881there are just three types of negotiable instruments
Promissory note
Bill of exchange
Cheque.However many other documents are also recognized
as negotiable instruments on the basis of custom and
usage, like hundis, treasury bills, share warrants, etc.,
provided they possess the features of negotiability
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Promissory Note
Promissory Note: A promissory note is an
instrument in writing containing an
unconditional undertaking, signed by themaker to pay a certain sum of money only to or
to the order of, a certain person or to the
bearer of the instrument ( Section 4).
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Sample of promissory note
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Parties to a Promissory Note
There are two parties involved in a promissorynote.
The Maker or Drawer the person whomakes the note and promises to pay theamount Stated.
The Payee the person to whom the amountis payable.
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Characteristic of Promissory Note
It must be in writing .
The promise to pay must be unconditional .
The amount promised must be a certain anda definite sum of money .
The instrument must be signed by the maker
The person to whom the promise is mademust be a definite person.
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Bill ofExchange
Bill of Exchange :- . A bill of exchange is an
instrument in writing containing an
unconditional order signed by the maker,directing a certain person to pay a certain
sum of money only to, or to the order of
certain person to the bearer of theinstrument (Section 4).
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Characteristic of bill of exchange
The bill of exchange must be in writing
It must contain an order to pay. Words likeplease pay Rs 5,000/- on demand and obligeare not used.
The order must be unconditional. The order must be to pay money and money
alone.
The sum payable mentioned must be certainor capable of being made certain. The parties to a bill must be certain .
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Samples of Bill of exchange
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Parties to a Bill ofExchange
There are three parties involved in a bill of
exchange.
The Drawer The person who makes theorder for making payment.
The Drawee The person to whom the
order to pay is made. He is generally a
debtor of the drawer.
The Payee The person to whom the
payment is to be made.
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Types of bill
Accommodation Bill :- Accommodation bill is quite similar toan ordinary trade bill of exchange. The feature which
distinguish it from ordinary bill is that it is not supported by
any consideration or a trading transaction.
Fictitious Bill :- When in a bill of exchange the name of boththe drawer and the payee are fictitious , the bill is said to be a
fictitious bill.
Documentary Bill:- When document relating to the goodsrepresented by bill( railway receipt, invoice ) are attached to a
bill, then that is called as documentary bill.
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Cheques
Cheques:- a cheque as a bill of exchange drawnon a specified banker and not expressed to be
payable otherwise than on demand. Actually, a
cheque is an order by the account holder of thebank directing his banker to pay on demand, thespecified amount, to or to the order of the personnamed therein or to the bearer.
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Sample of
Cheques
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Features of a cheque
A cheque must be in writing and duly signed by the
drawer.
It contains an unconditional order.
It is issued on a specified banker only. The amount specified is always certain and must be
clearly mentioned both in figures and words.
The payee is always certain.
It is always payable on demand. The cheque must bear a date otherwise it is invalid and
shall not be honored by the bank.
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Types of Cheque
Open cheque.
Crossed cheque.
Bearer cheque.
Order cheque.
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Open cheque
Open cheque: A cheque is called Open when it ispossible to get cash over the counter at the bank.
The holder of an open cheque can do the
following: Receive its payment over the counter at the
bank,
Deposit the cheque in his own account
Pass it to some one else by signing on the back ofa cheque
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Crossed cheque
Crossed cheque: Since open cheque is subject torisk of theft, it is dangerous to issue suchcheques. This risk can be avoided by issuinganother types of cheque called Crossed
cheque. The payment of such cheque is notmade over the counter at the bank. It is onlycredited to the bank account of the payee. Acheque can be crossed by drawing two
transverse parallel lines across the cheque,with or without the writing Account payee orNot Negotiable
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Bearer cheque
Bearer cheque: A cheque which is payable toany person who presents it for payment at
the bank counter is called Bearer cheque. A
bearer cheque can be transferred by meredelivery.
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Order cheque
Order cheque: An order cheque is one which is
payable to a particular person. In such a
cheque the word bearer may be cut out or
cancelled and the word order may be
written. The payee can transfer an order
cheque to someone else by signing his or her
name on the back of it.
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BankDraft
A bank draft is an order issued by one bank on another bank or on
its own branch instructing the latter to pay a specified sum of
money to a specified person or his order.
Distinguishing features of draftIt can be drawn only by a bank on another bank or on its another branch and
not by an individual as in the case of cheque.
It cannot so easily be countermanded as a cheque.
It cannot be made payable to bearer.
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Time andDemand Instruments
An instrument payable after a fixed time or on a
specified date is termed as a time instrument. An
instrument payable after happening of an eventwhich is certain to happen, (e.g. Death) is also
called a time instrument.
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Ambiguous Instruments
An instrument , which in form is such that it may either
be treated as a bill of exchange or a promissory note
, is an ambiguous instrument.
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Thank You
Kanchan Pandey