Professional Documents
Culture Documents
Inchoate Instruments (Section 20) - It means an instrument that is incomplete in certain respects.
• Where one person signs and delivers to another person a duly stamped negotiable instruments and however,
that negotiable instrument is either wholly blank or having written thereon. Such an instrument is thus
incomplete (inchoate).
• The maker of the instrument has thereby prima facie authorises the holder thereof to make or complete, for any
amount therein but not exceeding the amount covered by the stamp.
Lost or Stolen Instruments (Sec. 58) - In such instances, the possessor or endorsee who has found or had
obtained the instrument by fraud shall not be entitled to receive the amount due thereon from such maker of the lost
instrument. (Exception – when the later (finder) person is holder in due course).
Forged Instruments - As a general rule, a forged signature does not confer a good title. Even a holder in due
course cannot claim payment on a forged instrument.
5.7 CHEQUE
[Section 6]
Meaning of a Cheque
• A Cheque, in essence, is an order by the customer of the bank directing his banker to pay on demand, the
specified amount, to or to the order of the person named therein or to the bearer. It has been defined as a bill of
exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
• A 'Cheque in the electronic form' means a Cheque, which contains the exact mirror image of a paper Cheque,
and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of
digital signature (with or without biometrics signature) and asymmetric crypto system.
• A "truncated Cheque" means a Cheque which is truncated during the course of a clearing cycle, either by the
clearing house or by the Bank whether paying or receiving payment, immediately on generation of an electronic
image for transmission, substituting the further physical movement of the cheque in writing.
Features of a Cheque
• A Cheque is a bill of exchange with following features, viz.,
(i) must be in writing;
(ii) contain an unconditional order to pay
(iii) drawn on a specified banker;
(iv) for a certain sum of money;
(v) the payee must be a definite person;
(vi) amount must be written both in figures and words;
(vii) it must be dated.
(viii) it is always drawn on a specified banker; and
(ix) it is always payable on demand and not otherwise.
Cheques in electronic form
• In view of the banking transforming from traditional banking to e-banking, the electronic form or electronic
image of a Cheque as a valid Cheque has also now been recognized [Negotiable Instruments (Amendment)
Act, 2002].
Dating of cheques
• The drawer of a Cheque is expected to date it before it leaves his hands. A cheque without a date is considered
incomplete and is returned unpaid by the banks.
• A post-dated cheque is as much negotiable as a cheque for which payment is due, i.e., the transferee of a post-
dated cheque, like that of the cheque on which payment is due, acquires a better title than its transferor, if he is
a holder in due course.
Crossing of cheques
• Crossing is a unique feature associated with a cheque affecting to a certain extent the obligation of the paying
banker and also its negotiable character. It is a peculiar method of modifying the instrument to the banker for
payment of the cheque.
• Crossing on a cheque is a direction to the paying banker by the drawer that payment should not be made
across the counter. The payment on a crossed cheque can be collected only through a banker.
• Crossing of a cheque is effected by drawing two parallel transverse lines with or without the words 'and
company' or any abbreviation thereof. A cheque that is not crossed is called an `open cheque`.
Significance of crossing
• As payment cannot be claimed across the counter on a crossed cheque, crossing of cheques serves as a
1. Inland Bill
An inland bill:
(a) must be drawn and made payable in India, or
(b) must be drawn in India upon a person resident in India although it may be payable outside India.
Ex-
X of Bombay draws a bill on Y of Delhi payable at Yorkshire (U.K.).
2. Foreign Bills
A foreign bill of exchange is
(a) drawn in India upon a person resident outside India and made payable outside India, or
(b) drawn outside India and payable in India.
Ex-
X of Bombay draws a bill of exchange on Y of London payable at London.
3. Trade and Accommodation Bills
A trade bill is a bill of exchange issued in respect of a genuine trade transaction. Such bills are
drawn by the seller on the buyer in respect of payment of the price of the goods sold and purchased.
Since an accommodation bill is drawn and accepted without any consideration, it creates no obliga-
tion of payment between the parties to the transaction.
But, however, all bills are not genuine bills i.e., they do not represent a trade transaction but are
drawn as a convenient mode of accommodating a friend.
Ex - Thus, X may be in need of money and approaches his friend Y who instead of lending money
directly, draws and accepts a bill of exchange, say, for Rs. 5,000. If the credit of Y is good it lends a
currency to the bill and it can be discounted with the bankers or any other person.
On maturity, X remits the amount with Y who in turn pays it in honouring the bill of exchange on
presentment.
Thus, it provides an accommodation to the party and is, therefore, called an 'Accommodation Bill'. The
language and form of an accommodation bill is, however, similar to a genuine trade bill.
4. Time Bills (Usance Bills)
Time bills, also called as usance bills, are bills payable at a fixed period after date or sight of the bills. Thus,
a bill of exchange drawn payable at 3 months after the date it is drawn is a time or usance bill.
Similarly, a bill drawn payable at 90 days after sight is again a time or usance bill. A time bill may also be
made payable at a fixed period after an event which is certain to happen.
Hence, a bill payable at 90 days after the death of the drawer will be a valid time bill.
5. Demands Bills
A bill of exchange or a promissory note is payable on demand when
(i) It is made payable 'on demand' or 'at sight' or 'on presentation’.
(ii) No time for payment is mentioned therein (Section 19).
6. Clean and Documentary Bill
It is a common practice in home as well as foreign trade to deliver to the banker along with the bills
of exchange, the documents of title to the goods. (Ex- Lorry Receipt, Railway Receipt or Bill or Lading).
Where the banker is instructed to deliver to the drawee of the bill the documents of title against
acceptance of the bill, the bill is called as Documents against Acceptance of Bill (D/A Bill) and where the
documents are to be released only against payment, it is called as Documents against Payment ad Bill
(DIP Bill).
Parties to a Bill of Exchange
1. The Drawer - the person who draws or makes the bill.
2. The Drawee - the person on whom the bill is drawn.
3. The Payee - the person to whom the amount of the bill is payable.
4. The Holder - is the original payee but where the bill has been endorsed, the endorsee.
5. The endorser - is the person who endorses a bill.
6. The endorsee - is the person to whom the bill is negotiated by endorsement.
Acceptor for Honour
• An acceptor for honour is a person who, on the refusal by the original drawee to accept the bill or to furnish
better security when demanded by the notary, accepts the bill in order to safeguard the honour of the drawer or
any endorser.
• Acceptor for honour must specify as to whose honour he is accepting the bill of exchange . Where the acceptor
does not express for whose honour it is made, it shall be
hundi to a 'Shah'. 'Shah' is a respectable and responsible person, a man of worth and known in the bazar.
Darshni Hundi (payable at sight) - A darshni hundi must be presented for payment within a reasonable
time after its receipt by the holder.
Muddati Hundi or Miadi Hundi – Hundi payable agter a specified period of time.
Nam Jog Hundi - A hundi payable to the specified person is called Nam-jog hundi.
Nishan.Jog Hundi – This hundi is payable only to the persons who presents it.
Dhani.Jog Hundi- A dhani-jog hundi is payable to a dhani, owner.
Firman-Jog and Dekhanhar Hundis – There are payable to order.