Week 7 & 8 Negotiable Instrument Act 1881

8/3/2019 Week 7 & 8 Negotiable Instrument Act 1881

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Department of

Management

Sciences

By

Muhammad Naveed Chohan

Wednesday, May 02, 2012 1

CORPORATE LAW

Week 7 &8Negotiable Instruments


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Introduction to Negotiable Instrument

Presentment of Negotiable Instrument

Negotiation of Negotiable Instrument

Dishonouring of Negotiable Instrument

Outline


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Law: Negotiable Instrument Act, 1881


Negotiable Instrument

Negotiable Instrument

Transferable byDelivery Written Documentwhich Creates

Rights in favour ofsome person


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What is Negotiable Instrument?

A negotiable instrument means a promissory note, bill of exchange or

cheque payable either to order or bearer

[Sec. 13 of Negotiable Instrument Act, 1881]

Kinds of Negotiable Instruments:

Promissory Note

Bills of Exchange

Cheque


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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 on demand or at fixed or determined future time a certain

sum of money only to, or to the order of, a certain person, or to bearer ofthe instrument


Rs 5,000 Lahore, 2nd August 2007

Sixty days after date, I promise to pay to Mr. A or order the sum of rupees fivethousand for value received

Sd/- Mr. A

22-A GardenRoad,Lahore (The Maker/Promisor)

Revenue StampSd/ Mr. B


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Essential Elements of Promissory Note:

In writing

Promise to pay

Unconditional Promise

Signed by maker

Certain maker

Certain payee

Certain sum

Other formalities

Parties in Promissory Note:

Maker

Payee


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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 on demand

or at a fixed or determinable future time a certain sum of money only to,

or to the order of, a certain person or to the bearer of the instrument


Rs 6,000 Lahore, 2nd August 2007

Three months after date, pay to B or order the sum of rupees six thousand onlyfor value received.

Sd/- Mr. B

122-A SquareRoad,Lahore (Drawer)

Sd/- Mr. A122-A Bank Road,Lahore (Drawee/Acceptor)

Revenue StampSd/ Mr. B




Essential Elements of Bill of Exchange:

In writing

Unconditional order

Signed by drawer

Certain drawee

Certain payee

Certain sum

Other formalities

Parties in Bill of Exchange:

Drawer

Drawee

Payee




Cheque:

A cheque is a bill of exchange drawn on a specified banker and not

expressed to be payable otherwise than on demand


Muslim Commercial Bank LimitedBank Square, The Mall Road, Lahore, Pakistan

Pay /orbearerRupees /

b/

Rs.

PLS A/C No. 5583-6Cheque No. CX 087792

Date: /

||||||||||||||||||||||||||||||||||| ||||||||||||| ||||||| ||||||||||||||||||||||| ||||||||||||||||||||||| |||||||||||||| |||||||||||||| ||||||||||||||

Signature


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Essential Elements of Cheque:

In writing

Unconditional order

Signed by drawer

Payable on demand

Certain sum

Payable to bearer or order

Parties in Chaque:

Drawer/Customer

Drawee/Bank

Payee


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Crossing of Cheque:

A cheque is said be crossed when two parallel transverse lines, with or

without any words, are drawn across the face of a cheque

Types Crossing of Cheque:1. General Crossing 3. Account Payee Crossing

2. Special Crossing 4. Not Negotiable Crossing

Muslim Commercial Bank LimitedBank Square, The Mall Road, Lahore, Pakistan

Pay /orbearerRupees /

b/

PLS A/C No. 5583-6Cheque No. CX 087792

Date: /

Rs.

||||||||||||||||||||||||||||||||||| ||||||||||||| ||||||| ||||||||||||||||||||||| ||||||||||||||||||||||| |||||||||||||| |||||||||||||| ||||||||||||||

Signature


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Types Crossing of Cheque:

1. General Crossing: (Sec. 123 & 126)

Where a cheque is crossed generally, the banker on whom it is

drawn shall not pay it otherwise than to the banker.

A general crossing can be made as follows:

a) Crossing with Parallel lines

b) Crossing containing words & Co

c) Crossing containing words not negotiable

d) Crossing containing words not negotiable & Co.

e) Crossing containing words account payee


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2. Special Crossing: (Sec. 124)

Where a cheque bears across its face an addition of the name of a

banker, either with or without words not negotiable that an addition

shall be deemed crossed specially

A Special crossing can be made as follows:

a) Crossing with Parallel lines containing name of a banker

b) Crossing containing words not negotiable in addition to bankers

name

c) Crossing containing words account payee in addition to bankers

name

d) Crossing containing words account payee and not negotiable in

addition to bankers name


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3. Account Payee: (Sec. 123-A)

Where a words account payee, or payees account only, or A/C

payee are added

An account payee crossing has following effect:

a) Becomes non-transferable

b) Duty of collecting banker to credit proceed in account

4. Not Negotiable Crossing: (Sec. 130)Protect original owner in case if goes to wrong hands


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What is meant by Presentment?

Presentment means presenting a negotiable instrument

Kinds of Presentment:

Presentment

For Acceptance

For Sight

For Payment


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1. Presentment for Acceptance:

Acceptance is only necessary in case of bill of exchange

Acceptance means acknowledgment of sum mentioned in a bill by the

drawee or any other person on his behalf

Bill of Exchange are not presented for acceptance:

Payable on demand

Payable on happening of a certain event

Drawee dead, insolvent, fictitious person or person with no capacity

Drawee can not be found or acceptance refused

Bill of Exchange are presented for acceptance:

Bill payable after a specified period

If there is express stipulation in bill about presentment for acceptance


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Essential of a valid acceptance:

Written

Signed by drawee

Appear on the bill

Must be delivered to holder

Types of acceptance:

General acceptance

Qualified acceptance


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Who can Present?

Holder himself

Authorised agent

Endorsee in case of endorsement

Effect of Non-Presentment:

All the concerned parties thereon discharged from liability


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Who can Accept?

Drawee or authorised agent

All drawees in case of several drawees

Legal representative

Official receiver

Time of Presentment: (U/S 61)

On business day

Reasonable time if no time is mentioned

At time in case of mentioned time

Place of Acceptance: (U/S 61)


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2. Presentment for Sight: (U/S 62)

Means showing of a promissory note to the maker for knowledge

No need of maker to validate for such presentment

Holder get acknowledgment


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3. Presentment for Payment:

Promissory note, Bill of exchange and Chaque are presented

for payment

Rules regarding presentment for payment:

Presentment through post office

Hours of presentment

Instrument payable after date or sight

Promisory not payable by instalment

Place of presentment Presentment of Chaque (U/S 72, 73, 84)

Instrument payable on demand

Agent, legal representative or assignee

Excuse for delay and right of holder under sec.131-H


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Presentment for payment unnecessary (U/S 76)

Intentional prevention by other party

Close of business

Payable at any other place

Payer cannot be found

Payer waives presentment

Dishonouring

Drawee is fictitious person

Drawer and drawee are same

Impossible to present


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Payment for honour

Bill must have been dishonoured for non payment

Noting and protest

Declaration before notary public

Recording of declaration by notary public


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Introduction:

Kinds of Negotiation:

1. Transfer by Negotiation: (Sec.14)

Holder will be entitled to in his own name to sue on the instrument and

receive the amount due thereon

Modes (U/s 47 & 48) : (1) By Delivery (2) By Endorsement and Delivery

2. Transfer by Assignment: Instrument is transferred by written and registered document

Who can negotiate?

Duration of negotiability


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Endorsement: (U/S 15)

When the maker or holder of a negotiable instrument signs the same,

otherwise than as such maker, for the purpose of negotiation, on the back

or face thereof or on a slip of paper annexed thereto, or so sign or for the

same purpose a stamped paper intended to be completed as negotiableinstrument, he is said to indorse the same, and is called the endorser

Parties : (1) Indorse (2) Endorser

Essentials of a valid Endorsement:

1. Signature of Holder 6. Attested by somebody

2. Made by the maker or holder 7. Intention

3. On back or face 8. Completion by delivery

4. Made in ink

5. Illiterate endorser than thumb impression


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Kinds of Endorsement:

1. Blank Endorsement:

Endorser signs his name only

Does not specify the name of the endorsee

2. Full/Special Endorsement:

Signature of Endorser

Direction to pay the amount

3. Partial Endorsement:

Can not be indorsed for a part of the amount due on the instrument

Partial payment than balance than it can be negotiated


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Kinds of Endorsement:

4. Restrictive Endorsement:

Endorser prohibits the endorsee from further negotiation

Express words

5. Conditional Endorsement:

Express words

Depend upon happening or not happening

6. Sans Recourse Endorsement:

When endorser expressly excludes his own liability

7. Facultative Endorsement:

Endorser expressly gives up some of his rights


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Instruments Obtained by Unlawful Means:

1. Lost instruments

2. Stolen Instruments

3. Instrument obtained by fraud

4. Instrument obtained for an unlawful consideration

5. Forged instrument

6. Forged endorsement

7. Instrument without consideration


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What is meant by dishonoring of negotiable instrument?

A negotiable instrument is dishonored when the drawee refuses to accept it

or to make payment.

Dishonouring

By Non-

Acceptance

By Non-

Payment


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1. Dishonoring by Non-Acceptance:

Drawee does not accept it in 48 hours of presentment

Any one of drawee does not accept

Presentment is not necessary and bill is not accepted

Drawee is incompetent

Drawee gives conditional acceptance

Drawee is a fictitious person

Drawee can not be found after reasonable search

Counter dishonored


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2. Dishonoring by Non-Payment:

Fail to make payment

Remains unpaid on maturity

Effect of Dishonoring :

Holder can sue parties liable and can initiate criminal proceedings

Liability of drawer, maker of note, acceptor and all Indorser

Collective and individual

Notice of Dishonoring: (U/S 93)

Holder or liable parties give notice to all prior parties

Discharge of liability in case of not giving a notice


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Notice by Whom :

Holder

Authorised agent

Party liable on the instrument

Receiving party can give notice to prior parties

Notice to Whom:

All parties

Authorized agent Any person in case of several persons

Legal representative

Official assignee


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Mode of Notice: (U/S 94)

Oral

Written

Post

Reasonable Time:

According to nature of instrument

Course of dealings

Distance

Nature of communication

Public holidays


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Place of Notice:

Place of business

Residence of party

No address then sender should try to find addressee

Not known than notice to dishonor dispensed with

Notice of Dishonor Unnecessary: (U/S 98)

Mention at the time of endorsement

Drawer stopped the payment Not suffer any damage

Party entitled to notice could not be found

Drawer and acceptor same

Notice can not be given due to unavoidable circumstances


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Noting: (U/S 99)

Noting is the authentic and official proof of presentment and

dishonoring

Noting byNotary Public

Upon the instrument or upon a paper attached thereto

Noting is not required in case of cheque

Protest:

Formal certification issued byNotary Public

Advantage of protest in court

Contents of Pretest;

1. Instrument or transcript 4. Time and place of dishonor

2. Name of parties 5. Signature of notary public

3. Facts and reasons of dishonor 6. In acceptance


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Protest for Better Security: (U/S 100)

Acceptor of Bill of exchange becomes insolvent

Holder can demand better security

Acceptor refuses or unable to give better security

Bill is dishonored and protest by holder

Compensation for Dishonor: (U/S 117)

Amount due + Noting and protesting expenses

Current rate of exchange

Interest 6% per annum from date of dishonoring to realization +

expenses

Drawing a new bill upon the liable party


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Dishonestly Issuing a Cheque: (U/S 489-F PPC 1860)

Cheque issued dishonestly towards repayment of loan or fulfillment of

obligation

Dishonored on presentation

Punishment 3 years or fine or both

Burden of proofmade arrangement for paymentbank was at fault

U/S 20(4) of financial institutions (recover of finance) ordinance, 2001

Cheque issued dishonestly towards repayment of loan or fulfillment ofobligation

Dishonored on presentation

Punishment 1 years or fine or both

Burden of proofmade arrangement for paymentbank was at fault


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End of Week # 6 and 7 Lecture Presentation

Thanks for Patience

Week 7 & 8 Negotiable Instrument Act 1881

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Transcript of Week 7 & 8 Negotiable Instrument Act 1881