The Negotiable Instruments Act, 1881 (Dk)

8/8/2019 The Negotiable Instruments Act, 1881 (Dk)

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The NegotiableThe Negotiable

Instruments Act, 1881.Instruments Act, 1881.Presented by:Presented by:

Dharmender Dharmender

0909--AIT AIT--MBAMBA--015015



DefinitionsDefinitions

The word negotiable¶ means ³transferable by

delivery´ and instrument means ³a 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.



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 byendorsement and delivery.

Eg - Promissory note, Cheque and a Bill of

exchange, documents such as Railway or STReceipts; Dividend, warrants; Railway Bonds payable etc.



Characteristics of negotiableCharacteristics of negotiable

InstrumentsInstruments

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.



Types of Negotiable InstrumentsTypes of Negotiable Instruments

Negotiable instruments are of two types whichareas follows:

Negotiable Instruments recognized by

status: e.g. Bills of exchange, cheque and promissory notes.

Negotiable instruments recognized by usageor customs of trade:

e.g. Bank notes, exchequer bills, sharewarrants, bearer debentures, dividendwarrants, share certificate.



Bill of ExchangeBill 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 personor 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.



Promissory NotePromissory Note ::

A ³promissory ±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.



Specimen of a promissory noteSpecimen 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 FiftyThousand for value received.

To

Mr .

Address«««..

««««« Stamp

Mumbai Signature of Mr Y



Essential characteristics of aEssential characteristics of a

Promissory NotePromissory 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 bedefinite.

It must be unconditional. Undertaking to pay must

be unconditional.

It must be signed by the maker.



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 Stam Act 1899.



ChequeCheque

³A 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 ³Drawer"; the person thereby directed to pay is calledthe "Drawee".



Essential characteristics of aEssential characteristics of a

ChequeCheque

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



Continued«Continued«

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.



HundisHundis

A hundi is the negotiable instrument used for the pur pose of transfer of money without itsactual physical movement

It is in the form of bill of exchange or promissorynote

It is governed by local usage & customs



Types of HundisTypes of Hundis

1. DarshaniH

undi :- Payable at sight2. Muddati or Miadi Hundi :- Payable after

specific period of time



DifferenceDifference

Bill Of Exchange

Three parties-drawer,drawee, payee

Unconditional order

Drawer-creditor

Liability is secondary

Can be drawn payable tobearer

Drawer stands inimmediate relation withacceptor and not payee.

Promissory Note

Two parties-maker,payee

Unconditional promise

Maker-debtor

Liability is primary

Cannot be drawn payableto bearer

Maker stands inimmediate relation withthe payee



Distinguishing FeaturesDistinguishing Features

Bill of Exchange

Drawn on any person

Bill must be acceptedbefore drawee can becalled for payment

Entitled to 3 days of grace

Not crossed

Requires stamp May be protested for

dishonour

Cheque

Drawn on a banker

Cheque requires no

acceptance Not entitled to any days

of grace

May be crossed

Does not require stamp Not protested for

dishonour



NegotiationNegotiation

The transfer of a negotiable instrument by one

person to another so as to constitute the

transferee, the holder of the instrument, is

known as negotiation. A negotiable instrumentcan be transferred in two ways.

1. By negotiation under the negotiable instrument

act

2. By assignment under the transfer of property

act



EgEg --X hands over a cheque to Mr. Y here Mr. X hasX hands over a cheque to Mr. Y here Mr. X has

negotiates the instrument. But if he hands over a chequenegotiates the instrument. But if he hands over a cheque

to Mr. Y asking him to keep the same in his safe, theto Mr. Y asking him to keep the same in his safe, thecheque is not negotiated to Mr. Y, Mr. Y does notcheque is not negotiated to Mr. Y, Mr. Y does not

become its holder but only a bailee. become its holder but only a bailee.

There are 2 essentials of negotiations.

a) The instrument should be transferred from one

person to another .

b) The transfer should be in such a manner so asto constitute the transferee of its holder .



Modes of NegotiationModes of Negotiation

1. Negotiation by delivery : A negotiable instrumentpayable to the bearer can be transferred by meredelivery and the transferee becomes the holder of the instrument. The transferor need not sign hisname on such instrument. E.g. A, a holder of anegotiable instrument payable to bearer, delivers itto B¶s agent to keep for B. The instrument hasbeen negotiated.

2. Negotiation by endorsement and delivery : Aninstrument payable to order is negotiable by theholder by endorsement and delivery thereof



EndorsementEndorsement

³Literal 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.



Types of EndorsementTypes 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.



Continued«Continued«

Partial endorsement ± Endorsement is made for

remaining balance of payment.

Conditional endorsement ± The liability of the

endorser is limited or negative.



Dishonour of Negotiable InstrumentDishonour of Negotiable Instrument

When an instrument on its maturity remains unsatisfied, theinstrument is said to be dishonoured. It may be either by (i) non-acceptance or (ii) non payment.

1. Dishonour by non acceptence : A bill of exchange is

said to be dishonoured by acceptance when thedrawee, or one of the several drawees not beingpartners, makes default in acceptance to accept thebill.

2. Dishonour by non payment : An instrument is said to bedishonoured where the maker of the note, acceptor of the bill or drawee of the cheque makes default inpayment upon being duly required to pay the same.



Consequences of Dishonour Consequences of Dishonour

In case of dishonour the holder takes the following

steps

1. He becomes entitled to file a suit for the

recovery.

2. He must, subject to the certain exceptions,

give notice of dishonour to parties against

whom he intends to proceed.

3. He may also have the instrument noted and

protested before a notary public.



Thank YouThank You

The Negotiable Instruments Act, 1881 (Dk)

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