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The Negotiable Instruments

Presented by :- Group 1

6210 DEVVART MISHRA [G.L.]

6165 AMIT JAIN

6187 ANISH MODI

6186 NITESH TIWARI

6178 OMKAR CHAVHAN

6190 VINCENT ELUE

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Introduction

• The law relating to negotiable instruments is contained in the Negotiable Instruments Act. 1881 which applies and extends to the whole of India.

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Definitions

The word negotiable’ means “transferable by delivery” and instrument means “a written document by which a right is created 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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• A negotiable instrument is a piece of paper which entitles a person to a certain sum of money and which is transferable from one to another person by a delivery or by endorsement and delivery.

Eg - Promissory note, Cheque and a Bill of exchange, documents such as Railway or ST Receipts; Dividend, warrants; Railway Bonds payable etc.

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Characteristics of negotiable Instruments• Free transferability or easy negotiability

Negotiable instrument is freely transferable.

• Title of holder is free from all defects A person who takes negotiable instrument bona-fide and for value gets the instrument free from all defects in the title. The holder in due course is not affected by defective title of the transferor or of any other party.

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Presumptions:

• Of consideration : that every negotiable instrument, was made or drawn for consideration.

• As to date : that every negotiable instrument bearing a date was made or drawn on such date.

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• As to time of acceptance : that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity.

• As to time of endorsements : that the endorsements appearing upto negotiable instrument were made in the order in which they appear thereupon.

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• As to stamps : that a last promissory-note, bill of exchange or cheque was duly stamped.

• As to a holder in due course : that every holder of a negotiable instrument is holder in due course.

• As to time of transfer : that every transfer of a negotiable instrument was made before its maturity.

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Types of Negotiable Instruments

Negotiable instruments are of two types which areas follows:

• Negotiable Instruments recognized by status: e.g. Bills of exchange, cheque and promissory notes.

• Negotiable instruments recognized by usage or customs of trade: e.g. Bank notes, exchequer bills, share warrants, bearer debentures, dividend warrants, share certificate.

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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 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 :

A “promissory –note” is an instrument in writing [not being a bank-note or a currency-note} 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 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 of Mumbai or order a sum of Rupees Fifty Thousand for value received.

To

Mr.

Address………..

…………… Stamp

Mumbai Signature of Mr Y

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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 to pay must be unconditional.

• It must be signed by the maker.

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• Maker of the promissory note must be a certain person and the payee must also be certain.

• Amount of the promissory note must be certain.

• Other formalities like number, date, consideration, place etc. are generally found in the promissory notes but they are not essential in law.

• Promissory note must be properly stamped according to the provisions of the Indian Stamp Act, 1899.

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Cheque

“A cheque is a bill of exchange drawn on a specified banker and expressed to be payable otherwise than on demand.”

The maker of a bill of exchange or Cheque is called the “Drawer"; the person thereby directed 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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• A cheque requires no acceptance in the ordinary course of business as it is intended for immediate payment.

• In case of a cheque, a drawee is always a specified bank, a drawer is a person who draws a cheque and who has an account in the bank ad payee is a person to whom the amount of cheque is made payable.

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Negotiation

“It is a process of transferring the ownership, right, title, interest of a person in a negotiable 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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Negotiation does not mean a simple transfer. Simple transfer may not necessarily involve the transfer of property in the negotiable instrument but negotiation implies the transfer of property or 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 asking him to keep the same in his safe, the cheque is not negotiated to Mr. Y, Mr. Y does not become its holder but only a bailee.

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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 negotiable Instrument 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.

• Negotiation by endorsement and delivery – The negotiable Instrument payable to order is negotiable by the holder by endorsement and delivery thereof.

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Endorsement

“Literal meaning of the term endorsement is writing on an instrument.”

Endorser - The person who signs on the back or on the face of the instrument or on the slip is an endorser.

Endorsee - The person to whom the instrument is endorsed is called the endorsee.

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Types of Endorsement

• General or blank endorsement - Endorser signs his name either on the back or face of the instrument.

• Full or special endorsement - It specifies the name of the person to whom or to whose order the payment must be made.

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• Partial endorsement – Endorsement is made for remaining balance of payment.

• Conditional endorsement – The liability of the endorser is limited or negative.

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Dishonour of negotiable instrument

• Negotiable instruments, Promissory notes and Cheques may be dishonored by non payment

• Bills of exchange may be dishonored by non payment or by non-acceptance as they require acceptance from drawees.

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