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NI ACT-Sig, Implication, Cross,Endorsement

NI ACT-Sig, Implication, Cross,Endorsement

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Published by: md nazirul islam on Oct 02, 2009
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NEGOTIABLE INSTRUMENT ACT – 1881(Significance, Types, Crossing, Endorsement & Implication)Introduction:
The Negotiable Instrument Act -1881 was mainly derived from the English Common law. Adraft for the act was first formulated in the year 1866 and having undergone several subsequentamendments, the act was finally formulated in the year 1881. The law of contracts, the law of torts, law related to carriage of goods by sea, judge made laws and other commercial & civillaws helped formulate the Negotiable Instrument Act. Besides, contemporary law relating toreligion, customs and practice of the land and procedure were taken into consideration for formulation of the act. It came into effect from March 01, 1882. It contains 17 chapters and 141sections. The Act defines and amends the law relating to Negotiable Instrument e.g. Promissory Notes, Bill of Exchange, Cheque and Demand Drafts. This Act has been enacted in our countryvide PO No. 127 of 1972. Since inception several amendments have been made to this Act.
Significance & evolution of NI :
 Negotiable instruments occupy an important place in our modern business world and have beenan integral part of our business. It represents money and used for setting debts just as money, providing some extra advantages.Differences in resource endowments have necessitated the people to go for cross border transactions, i.e. exchange of resources, which are hardly possible to be met through onlytransactions in cash form. Also arrival of goods from the point of production to the place of consumption involves a good number of transactions and executing these transactions by cash isa real handicap. Thus there was a need of a method, which would facilitate transaction andeliminate the actual movement of money in the form of cash. There should be something tosymbolize the amount of money involved in a transaction and responsibility of the person whohas to pay it. Merchants solved this problem by creating documents, which subsequently cameto be known as negotiable instruments. The transfer of this document from hand to handsymbolized actual payment. This crated the need for special law dealing with the documentsevolved by merchants as a substitute for money.
Kinds of NI:
Section 13 of the Act speaks of only of the following three negotiable instruments:
Promissory note
Bill of exchange
ChequeHowever, it does not limit the negotiable instruments to these three only. The followinginstruments also come under the purview of NIA:Demand DraftTreasury Bill DebentureTravelersChequeBank Note
 Page 1 of 7 
 Md Masudur Rahman Senior Executive Officer  Shahjalal Islami Bank Ltd. Investment Division Head Office, Dhaka
 NI Act - 1881
Kinds of NNI:
Postal OrderShare Certificate Payment OrdeGovt. NotesMoney Orde
Purview of NIA
The purview of NIA extends from drawing/making of an instrument to its encashment. It coversthe matters with drawing, acceptance, endorsement, crossing, transfer, delivery, payment,maturity, grace period to maturity, parties to NI, responsibility the parties thereto, punishment of the parties for violation, protection for the banker and so on.
Crossing is a direction to the paying banker that the cheque should be paid only to a banker onwhose favor the cheque is crossed or to some other bank and not to the holder at the counter. Soto prevent any one but the payee from cashing, cheques are crossed. Crossing may be in written,stamped, printed or purported.
Purpose of Crossing:
Crossing provides security and protection to the true owner, since payment of such cheque hasto be made through a banker. Cheques are crossed in order to avoid losses resulting from opencheques falling into the hand of undue persons. Crossing of a cheque does not affect itsnegotiability. Crossed cheques are negotiable by delivery in case they are payable to bearer andendorsement and delivery when they are payable to order. Holder of a crossed cheque, who hasno account in the bank, can obtain payment by endorsing in favor of some persons who has gotan account with a bank.
Types:a.General Crossing
As per Section 123 of NI Act, where a cheque bears across its face an addition of the words “andcompany” or any abbreviation thereof, between two parallel transverse lines, or of two paralleltransverse lines simply, either with or without the words “not negotiable” that addition shall bedeemed a crossing and the cheque shall be deemed crossed generally.An account payee cheque also falls under the type of general crossing.
 Page 2 of 7 
 NI Act - 1881
b.Special Crossing:
As per Section 124 of NI Act, where a cheque bears across its face an addition of the name of a bank, either with or without the words “not negotiable” that addition shall be deemed a crossingand the cheque shall be deemed crossed specially, and to be crossed to that banker.
Cheque crossed Account Payee:
As per Section 123(A) of NI Act, when a cheque crossed generally, bears across its face anaddition of words “Account Payee”.When a cheque is crossed “Account Payee”-
It shall cease to be negotiable, and
It shall be the duty of the collecting bank to credit the proceedsonly to the account of the payee named in the cheque.
Opening of Crossed cheque:
The drawer or maker of a cheque only has the right to open a crossed cheque by adding hissignature.
Some NI Act Interpretations on Crossing:
Crossing after Issue: As per Section 125:-
Where a cheque is uncrossed, the holder may cross it generally or specially.Where a cheque is crossed generally, the holder may cross it specially.Where a cheque is crossed generally or specially, the holder may add the words “Not Negotiable”.Where a cheque is crossed specially, the banker to whom it is crossed may again cross itspecially to another, his collection agent, for collection.When an uncrossed cheque or a cheque crossed generally, is sent to a banker for collection,he may cross it specially to himself. b.
Crossing is a material part of cheque: As per Section 125(A):-
A crossing authorized by this Act is a material part of the cheque, it shall not be lawful for any person to obliterate or except as authorized by this Act, to add to or alter the crossing.c.
Payment of cheque crossed generally or specially: As per Section 126:-
Where a cheque is crossed generally, the banker on whom it is drawn shall not pay itotherwise than to a banker.Where a cheque is crossed specially, the banker on whom it is drawn shall not pay itotherwise than to a banker to whom it is crossed or his agent for collection.d.
Payment of cheque crossed specially more than once: As per Section 127:-
 Page 3 of 7 

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