NEGOTIABLE INSTRUMENTS

Evolution & Revolution of Negotiable Instruments

which have Transformed the Commercial World into a
Virtual Single Global eace
Presented By :
(A1 Batch)
Rollno Names
26 Manisha Maheshwari
27 Mehak Kala
29 Mitesh Pomani
3 Mitesh K !hah
36 "a#i$ %esai
37 "a$i "a#&'rohit
3( "'chik )andhi
39 !a'ro$ !en*'&ta
+ !h'$ro !en
C!NTENTS "GE N!
,$ol'tion -. /e*otia0le 1nstr'ments #
2hat Are /e*otia0le 1nstr'ments $
3y&es -. /e*otia0le 1nstr'ments %%
%i..erence Between /e*otia0le 1nstr'ments ##
4eat'res -. /e*otia0le 1nstr'ments #&
/e*otiation -. 5ommercial Pa&er #'
,6ce&tions -. /e*otia0le 1nstr'ments #$
,73rans.ers
1ndian 8aw )o$ernin* 4orei*n 1nstr'ments
%ishonor -. /e*otia0le 1nstr'ments
/e*otia0le 1nstr'ments 5onnects )lo0al Peace
5ase !t'dies
4ra'd
5'rrent !cenario
!'mmary

Bi0lio*ra&hy
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%+ EV!,-TI!N !. TR"/E "N/ C!00ERCE ,E"/ING T! T1E
INTR!/-CTI!N !. NEG!TI"2,E INSTR-0ENTS+
3he world as a whole has 0een the 9cradle o. commerce: 0eca'se this
e6chan*e is not only 0etween indi$id'als 0't also 0etween &eo&les and
nations; 3his nat'rally im&lies the e6istence o.:
17 5,"3A1/ !<"P8<! -4 2,A83=
27 5,"3A1/ P"->1!1-/ 4-" 5-MM</15A31-/
Both o. which are essential .or *rowth o. commerce; <nless there is a s'r&l's
o. wealth and &ro$ision .or comm'nication? commerce cannot *row;
,@AMP8,7 1n the &rimiti$e economic society when each tri0e or .amily
&rod'ced all that is needed and cons'med all that it &rod'ced? need o.
commerce did not and co'ld not arise; -nly a.ter the di$ision o. la0o'r and
conseA'ent de$elo&ment o. e6chan*e? commerce 0e*an to *row; -nce it
started *rowin*? it s&read its in$isi0le thread thro'*ho't the len*th and
0readth o. the world leadin* to its &resent day com&le6 mechanism; 3hese
sta*es may 0e s'mmariBed as .ollows:
%+ N!N E3ISTENCE !. C!00ERCE4 1n the early sta*e o. economic li.e
o. man di$ision o. la0o'r scarcely e6isted; Man &rod'ced what he
needed and cons'med all that he &rod'ced; 3here.ore commerce did
not e6ist in this sta*e;
#+ TR"/E IN T1E .!R0 !. 2"RTER7 1n the second sta*e? wants o. the
.amily 0ecame more n'mero's and many .amilies .o'nd themsel$es
with certain *oods and s'r&l's and de.icient in certain other *oods;
3hese .amilies wanted to e6chan*e their s'r&l's *oods .or those *oods
which they did not &ossess; 3his *a$e rise to 9e6chan*e o. *oods .or
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*oods? i;e;? Barter system; 3h's this is the &lace .rom where commerce
may 0e said to ha$e 0e*'n;
&+ 0!NE5 "S " 0E/I-0 !. TR"/E "N/ T!WN "S T1E CENTRE !.
TR"/E4 5ommerce reached into its third sta*e o. *rowth when money
was e$ol$ed as medi'm o. e6chan*e to remo$e the limitations o. 0arter;
1ntrod'ction o. money 0e*an led to the e6tension o. di$ision o. la0o'r
and s&ecialiBation; Peo&le 0e*an to &rod'ce *oods .or certain local
markets; 3h's? di$ision o. la0o'r was e6tended to a locality; )rad'ally a
se&arate class o. artisans and traders came into e6istence; 3hey settled
down at .i6ed &laces which came to 0e known as towns;
)rowth o. these towns *a$e *reat stim'l's to commerce; 3he siBe o.
the market and the n'm0er o. commodities e6chan*ed in the market?
0oth increased; 3raders .rom other co'ntries 0ro'*ht l'6'ry articles?
metals and ornaments .or sale;
)+ EC!N!05 "N/ GR!WT1 !. C!00ERCE4 5ommerce contin'ed to
*row 0oth in $ol'me and s&ace; A.ter the decline o. )'ild system? a new
class o. &eo&le? ,/3,"P",/,<" class? came into e6istence; 3his class
o. &eo&le 0ecame a real intermediary 0etween the &rod'cers and
cons'mers; 4'rther? *rowth o. commercial enter&rise took &lace; 3rade
0e*an to ass'me .i6ed .orms; Prod'ction 0e*an to 0e 'ndertaken .or the
markets e6tended .or the whole co'ntry; %i$ision o. la0o'r recei$ed .'rther
im&et's; Prod'ction was di$ided into se$eral 0ranches and each 0ranch
tended to 0e localiBed; >ario's economic acti$ities came to 0e clearly
marked o.. into distinct *ro'&s:
"4 "GRIC-,T-RE
24 TR"/E
C4 C!00ERCE+
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4
W!R,/ EC!N!05 "N/ T1E W!R,/ 0"R6ET4 5ommerce
entered into another sta*e o. its *rowth when nations o. the world were
0ro'*ht into commercial relationshi&s thro'*h the in$isi0le thread o.
trade; As a res'lt o. the *eo*ra&hical disco$eries o. the late 1C
th
? 16
th
and 17
th
cent'ries new trade ro'tes were o&ened '& and commerce
*rew 0etween nations; /ow? in addition to the local market and the
trade e6tendin* o$er the whole area o. a sin*le co'ntry? commodities
came to 0e sold and &'rchased 0etween traders .rom di..erent
co'ntries in the world; 3his *a$e rise to an international world market
and to the international trade; 3h's the nations o. the world were linked
to*ether thro'*h the medi'm o. the world market;
,$ol'tion o. commerce is a ne$er endin* &rocess; Almost e$ery day
new e6&eriments in its mechanism are made; /ew .orms and methods
are 0ein* e$ol$ed in 0oth socialist and ca&italist co'ntries? in 0oth
de$elo&ed and de$elo&in* nations;
W15 W"S IT NECES"RR5 T! INTR!/-CE NEG!TI"2,E
INSTR-0ENTS7
=istorically 0'siness de$elo&ed 0y sta*es;
(1) Pastoral sta*e (2) A*ric'lt'ral sta*e (3) =andicra.ts sta*e (+) )'ild
sta*e (C) %omestic sta*e and (6) 4actory sta*e;
astoral stage8 1n &rimiti$e society man 'sed thin*s #'st as they were .o'nd
in nat're; 2ith time? he learned to domesticate animals and 0reed them .or
.ood and clothin*; !ince he had to .ind &ast'res .or his animals? he tended to
lead a wanderin* li.e; B't in this sta*e his work ser$ed mainly to s'&&ort only
him with his own needs and le.t $ery little s'r&l's a$aila0le .oe e6chan*e on a
0'siness 0asis;
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"gricultural stage: 1n co'rse o. time? the nomadic tri0es settled &ermanently
at .i6ed &laces? 0'ilt '& the h'ts and shelters .or their residences and 0e*an
c'lti$atin* the land in common; )rowin* corns? *rasses etc; 0ecame the main
occ'&ation; A*ric'lt're emer*ed as the 0asic .eat're o. economic li$in* o.
man; =e *rad'ally &rod'ced more and then started to e6chan*e it with other
commodities; 3his was known as 0arter system;
1andicraft stage8 1n this sta*e man'.act'rin* was limited to the h'man
e..orts to trans.orm raw materials into .inished *oods; 1t incl'ded candle and
soa& makin*? s&innin*? wea$in*? makin* o. clothes and shoes? 0lacksmithin*?
leather dressin*? car&entry etc;
Guild stage: A *'ild is an association o. &ersons .ollowin* a similar
occ'&ation and it is .ormed to &rotect and &romote the interest o. its mem0ers
thro'*h coo&erati$e endea$ors;
/omestic stage: A new class entre&rene'r emer*ed as a link 0etween
&rod'cer and cons'mer; /ow entre&rene'r &'rchased the raw materials .or
the &'r&ose o. man'.act're and sale n't did not do the &rocessin* himsel.;
=e took the risk o. &rod'ctions and sale; -'t o. the &roceeds o. his
'ndertakin*? he &aid .or the materials and la0o'r; 3he amo'nt le.t was his
&ro.it
.actor9 stage: 1n this sta*e an or*aniBed system o. &rod'ction 'nder a sin*le
roo. came to 0e identi.ied as a .actory; 8ar*e scale o&erations with the 'se o.
mechaniBed &rod'ction &rocesses res'lted in &rod'cin* *ood A'ality &rod'cts
at chea&er rates; =owe$er it was *reatly in.l'enced not only 0y its own
&rocesses 0't also 0y *o$ernment 'nder which it o&erates;
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3hese were the di..erent sta*es o. e$ol'tion o. 0'siness; =owe$er it was
noted that the *rowth was $ery slow and the system was $ery com&le6; 3here
were di..erent instr'ments 'sed to &'rchase di..erent commodities in di..erent
sta*es; 3he system o. e6chan*e was s'ch that it led to con.'sion and $ario's
com&le6ities; 3o a$oid s'ch con.'sion and to o&erate the 0'siness acti$ities
smoothly ne*otia0le instr'ments were introd'ced;
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#+ W1"T "RE NEG!TI"2,E INSTR-0ENTS7
,6chan*e o. *oods and ser$ices is the 0asis o. e$ery 0'siness acti$ity; )oods
are 0o'*ht and sold .or cash as well as on credit; All these transactions reA'ire
.low o. cash either immediately or a.ter a certain time; 1n modern 0'siness? lar*e
n'm0er o. transactions in$ol$in* h'*e s'ms o. money takes &lace e$ery day; 1t is
A'ite incon$enient as well as risky .or either &arty to make and recei$e &ayments
in cash; 3here.ore? it is a common &ractice .or 0'sinessmen to make 'se o.
certain doc'ments as means o. makin* &ayment; !ome o. these doc'ments are
called ne*otia0le instr'ments;
0eaning of Negotiable Instruments
3he conce&t o. ne*otia0ility is one o. the most im&ortant .eat'res o. commercial
&a&er; A ne*otia0le instr'ment is a written doc'ment? si*ned 0y the maker or
drawer? and containin* an 'nconditional &romise to &ay (or order to &ay) a
certain s'm o. money on deli$ery? or at a de.inite time? to the 0earer (or to the
order);
3o 'nderstand the meanin* o. ne*otia0le instr'ments let 's take a .ew
examples o. day7to7day 0'siness transactions;
E3"0,E
!'&&ose Pitam0er? a 0ook &'0lisher has sold 0ooks to Prashant .or "s 1?D7
on three months credit; 3o 0e s're that Prashant will &ay the money a.ter three
months? Pitam0er may write an order addressed to Prashant that he is to &ay
a.ter three months? .or $al'e o. *oods recei$ed 0y him? "s;1?D7 to Pitam0er
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or anyone holdin* the order and &resentin* it 0e.ore him (Prashant) .or &ayment;
3his written doc'ment has to 0e si*ned 0y Prashant to show his acce&tance o.
the order; /ow? Pitam0er can hold the doc'ment with him .or three months and
on the d'e date can collect the money .rom Prashant; =e can also 'se it .or
meetin* di..erent 0'siness transactions; 4or instance? a.ter a month? i. reA'ired?
he can 0orrow money .rom !'nil .or a &eriod o. two months and &ass on this
doc'ment to !'nil; =e has to write on the 0ack o. the doc'ment an instr'ction to
Prashant to &ay money to !'nil? and si*n it; /ow !'nil 0ecomes the owner o.
this doc'ment and he can claim money .rom Prashant on the d'e date; !'nil? i.
reA'ired? can .'rther &ass on the doc'ment to Amit a.ter instr'ctin* and si*nin*
on the 0ack o. the doc'ment; 3his &assin* on &rocess may contin'e .'rther till
the .inal &ayment is made;
1n the a0o$e e6am&le? Prashant who has 0o'*ht 0ooks worth "s; 1?D7 can
also *i$e an 'ndertakin* statin* that a.ter three month he will &ay the amo'nt to
Pitam0er; /ow Pitam0er can retain that doc'ment with himsel. till the end o.
three months or &ass it on to others .or meetin* certain 0'siness o0li*ation (like
with !'nil? as disc'ssed a0o$e) 0e.ore the e6&iry o. that three months time
&eriod;
Eo' m'st ha$e heard a0o't a cheA'e; 2hat is itF 1t is a doc'ment iss'ed to a
0ank that entitles the &erson whose name it 0ears to claim the amo'nt
mentioned in the cheA'e; 1. he wants? he can trans.er it in .a$o'r o. another
&erson; 4or e6am&le? i. Akash iss'es a cheA'e worth "s; C?D 7 in .a$o'r o.
Bidhan? then Bidhan can claim "s; C?D7 .rom the 0ank? or he can trans.er it to
5hander to meet any 0'siness o0li*ation? like &ayin* 0ack a loan that he mi*ht
ha$e taken .rom 5hander; -nce he does it? 5hander *ets a ri*ht to "s; C?D7
and he can trans.er it to %ayanand? i. reA'ired; !'ch trans.ers may contin'e till
the &ayment is .inally made to some0ody; 1n the a0o$e e6am&les? we .ind that
there are certain doc'ments 'sed .or &ayment in 0'siness transactions and are
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trans.erred .reely .rom one &erson to another; !'ch doc'ments are called
/e*otia0le 1nstr'ments;
3h's? we can say ne*otia0le instr'ment is a trans.era0le doc'ment? where
ne*otia0le means trans.era0le and instr'ment means doc'ment; 3o ela0orate it
.'rther? an instr'ment? as mentioned here? is a doc'ment 'sed as a means .or
makin* some &ayment and it is ne*otia0le i;e;? its ownershi& can 0e easily
trans.erred;
3h's? ne*otia0le instr'ments are doc'ments meant .or makin* &ayments? the
ownershi& o. which can 0e trans.erred .rom one &erson to another many times
0e.ore the .inal &ayment is made;
/efinition of Negotiable Instrument
Accordin* to section %& of the Negotiable Instruments "ct: %((%? a ne*otia0le
instr'ment means 9&romissory note? 0ill o. e6chan*e? or cheA'e? &aya0le either
to order or to 0earer:;
E;<lanation
=i>;7A &romissory note? 0ill o. e6chan*e or cheA'e is &aya0le to order which is
e6&ressed to 0e so &aya0le or which is e6&ressed to 0e &aya0le to a &artic'lar
&erson? and does not contain words &rohi0itin* trans.er or indicatin* an intention
that it shall not 0e trans.era0le;
=ii>;7A &romissory note? 0ill o. e6chan*e or cheA'e is &aya0le to 0earer which is
e6&ressed to 0e so &aya0le or on which the only or last endorsement is an
endorsement in 0lank;
=iii>;72here a &romissory note? 0ill o. e6chan*e or cheA'e? either ori*inally or 0y
endorsement? is e6&ressed to 0e &aya0le to the order o. a s&eci.ied &erson? and
not to him or his order? it is ne$ertheless &aya0le to him or his order at his o&tion;
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A ne*otia0le instr'ment may 0e made &aya0le to two or more &ayees
#ointly? or it may 0e made &aya0le in the alternati$e to one o. two? or one or
7some o. se$eral &ayees;
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&+ T9<es of Negotiable Instruments
Accordin* to the /e*otia0le 1nstr'ments Act? 1((1 there are #'st three ty&es o.
ne*otia0le instr'ments i;e;? &romissory note? 0ill o. e6chan*e and cheA'e;
=owe$er many other doc'ments are also reco*niBed as ne*otia0le instr'ments
on the 0asis o. c'stom and 'sa*e? like h'ndis? treas'ry 0ills? share warrants?
etc;? &ro$ided they &ossess the .eat'res o. ne*otia0ility; 1n the .ollowin* sections?
we shall st'dy a0o't Promissory /otes (&o&'larly called &ronotes)? Bills o.
,6chan*e (&o&'larly called 0ills)? 5heA'es and ='ndis (a &o&'lar indi*eno's
doc'ment &re$alent in 1ndia)? in detail;
i+ romissor9 Note
!'&&ose yo' take a loan o. "'&ees 4i$e 3ho'sand .rom yo'r .riend "amesh;
Eo' can make a doc'ment statin* that yo' will &ay the money to "amesh or the
0earer on demand; -r yo' can mention in the doc'ment that yo' wo'ld like to
&ay the amo'nt a.ter three months; 3his doc'ment? once si*ned 0y yo'? d'ly
stam&ed and handed o$er to "amesh? 0ecomes a ne*otia0le instr'ment; /ow
"amesh can &ersonally &resent it 0e.ore yo' .or &ayment or *i$e this doc'ment
to some other &erson to collect money on his 0ehal.; =e can endorse it in
some0ody elseGs name who in t'rn can endorse it .'rther till the .inal &ayment is
made 0y yo' to whosoe$er &resents it 0e.ore yo'; 3his ty&e o. a doc'ment is
called a Promissory /ote;
Section ) of the Negotiable Instruments "ct: %((% defines a &romissory note
as Han instr'ment in writin* (not 0ein* a 0ank note or a c'rrency note) containin*
an 'nconditional 'ndertakin*? si*ned 0y the maker? to &ay a certain s'm o.
money only to or to the order o. a certain &erson or to the 0earer o. the
instr'mentG;
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Illustration
A si*ns instr'ment in the .ollowin* terms
(a) I1 &romise to &ay B or order "s; C;I
(0) I 1 acknowled*e mysel. to 0e inde0ted to B in "s; 1? to 0e &aid on
demand? .or $al'e recei$ed;I
(c) Mr; B? - < "s; 1?;I
(d) 1 &romise to &ay B "s; C and all other s'ms which shall 0e d'e to him;I
(e) 1 &romise to &ay B "s; C? .irst ded'ctin* there o't any money which he may
owe me;I
(.) I 1 &romise to &ay B "s; C se$en days a.ter my marria*e with 5;I
(*) I 1 &romise to &ay B "s; C on %Js death? &ro$ided % lea$es me eno'*h to
&ay that s'm;I
(h) I 1 &romise to &ay B "s; C and to deli$er to him my 0lack horse on 1st
Kan'ary ne6t;I
3he instr'ments res&ecti$ely marked (a) and (0) are &romissory notes; 3he
instr'ments res&ecti$ely marked (c)? (d)? (e)? (.)? (*) and (h) are not &romissory
notes;
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Specimen of a Promissory Note
Rs. 10,000/- New Delhi
September 25, 2002
On demand, I promise to pay Ramesh, s/o Ramal o! "eer#t or order a s#m
o! Rs 10,000/- $R#pees %en %ho#sand only&, !or 'al#e re(ei'ed.
%o , Ramesh Sd/ San)ee'
*ddress++.. Stamp
arties to a romissor9 Note
3here are &rimarily two &arties in$ol$ed in a &romissory note; 3hey are
i+ The 0a?er or /rawer @ the &erson who makes the note and &romises to
&ay the amo'nt stated therein; 1n the a0o$e s&ecimen? !an#ee$ is the maker or
drawer;
ii+ The a9ee @ the &erson to whom the amo'nt is &aya0le; 1n the a0o$e
s&ecimen it is "amesh; 1n co'rse o. trans.er o. a &romissory note 0y &ayee and
others? the &arties in$ol$ed may 0e 7
a+ The Endorser @ the &erson who endorses the note in .a$o'r o. another
&erson; 1n the a0o$e s&ecimen i. "amesh endorses it in .a$o'r o. "an#an and
"an#an also endorses it in .a$o'r o. P'neet? then "amesh and "an#an 0oth are
endorsers;
b+ The Endorsee @ the &erson in whose .a$o'r the note is ne*otiated 0y
endorsement; 1n the a0o$e? it is "an#an and then P'neet;
(,ndorsement means trans.er o. any doc'ment or instr'ment to another &erson
0y si*nin* on its 0ack or .ace or on a sli& o. &a&er attached to it)
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.eatures of a <romissor9 note
8et 's know the .eat'res o. a &romissory note;
i+ A &romissory note m'st 0e in writin*? d'ly si*ned 0y its maker and &ro&erly
stam&ed as &er 1ndian !tam& Act;
ii+ 1t m'st contain an 'ndertakin* or &romise to &ay; Mere acknowled*ement o.
inde0tedness is not eno'*h; 4or e6am&le? i. someone writes H1 owe "s; CD7 to
!atya PrakashG? it is not a &romissory note;
iii+ 3he &romise to &ay m'st not 0e conditional; 4or e6am&le? i. it is written H1
&romise to &ay !'resh "s C?D7 a.ter my sisterGs marria*eG? is not a &romissory
note;
iv+ 1t m'st contain a &romise to &ay money only; 4or e6am&le? i. someone writes
H1 &romise to *i$e !'resh a Mar'ti carG it is not a &romissory note;
v+ 3he &arties to a &romissory note? i;e; the maker and the &ayee m'st 0e certain;
vi+ A &romissory note may 0e &aya0le on demand or a.ter a certain date; 4or
e6am&le? i. it is written Hthree months a.ter date 1 &romise to &ay !atinder or order
a s'm o. r'&ees 4i$e 3ho'sand onlyG it is a &romissory note;
vii+ 3he s'm &aya0le mentioned m'st 0e certain or ca&a0le o. 0ein* made
certain; 1t means that the s'm &aya0le may 0e in .i*'res or may 0e s'ch that it
can 0e calc'lated;
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15
$See spe(imen below&.
Rs. 10,000/- New Delhi
No'ember 1,, 2002
I, Ramesh , s/o Sadanand o! S#rat, -#)arat promise to pay Sashi.ant, s/o S#nil
/#mar o! *hmedabad, -#)arat or order, on demand, the s#m o! Rs 10,000/- $R#pees
%en %ho#sand only& with interest at the rate o! 10 per(ent per ann#m, !or 'al#e
re(ei'ed.
Sd/- Ramesh
Stamp
%o
Sashi.ant
*hmedabad, -#)arat
ii+ 2ill of E;change
!'&&ose "a#i$ has *i$en a loan o. "'&ees 3en 3ho'sand to !ameer? which
!ameer has to ret'rn; /ow? "a#i$ also has to *i$e some money to 3ar'n; 1n this
case? "a#i$ can make a doc'ment directin* !ameer to make &ayment '& to
"'&ees 3en 3ho'sand to 3ar'n on demand or a.ter e6&iry o. a s&eci.ied &eriod;
3his doc'ment is called a Bill o. ,6chan*e? which can 0e trans.erred to some
other &ersonGs name 0y 3ar'n;
Section ' of the Negotiable Instruments "ct: %((% defines a 0ill o. e6chan*e
as Han instr'ment in writin* containin* an 'nconditional order? si*ned 0y the
maker? directin* a certain &erson to &ay a certain s'm o. money only to or to the
order o. a certain &erson? or to the 0earer o. the instr'mentG;
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Specimen of a Bill of Exchange
Rs. 10,000/- New Delhi
"ay 2,2001
0i'e months a!ter date pay %ar#n or $to his& order the s#m o! R#pees %en
%ho#sand only !or 'al#e re(ei'ed.
%o *((epted Stamp
Sameer Sameer S/d
*ddress Ra)i'
arties to a 2ill of E;change
3here are three &arties in$ol$ed in a 0ill o. e6chan*e; 3hey are
i+ The /rawer @ 3he &erson who makes the order .or makin* &ayment; 1n
the a0o$e s&ecimen? "a#i$ is the drawer;
ii+ The /rawee @ 3he &erson to whom the order to &ay is made; =e is
*enerally a de0tor o. the drawer; 1t is !ameer in this case;
iii+ The a9ee @ 3he &erson to whom the &ayment is to 0e made; 1n this
case it is 3ar'n;
3he drawer can also draw a 0ill in his own name there0y he himsel. 0ecomes the
&ayee; =ere the words in the 0ill wo'ld 0e Pay to us or order; 1n a 0ill where a
time &eriod is mentioned? #'st like the a0o$e s&ecimen? is called a Time Bill; B't
a 0ill may 0e made &aya0le on demand also; 3his is called a Demand Bill;
.eatures of a bill of e;change
8et 's know the $ario's .eat'res o. a 0ill o. e6chan*e;
i; A 0ill m'st 0e in writin*? d'ly si*ned 0y its drawer? acce&ted 0y its drawee and
&ro&erly stam&ed as &er 1ndian !tam& Act;
ii; 1t m'st contain an order to &ay; 2ords like H&lease &ay "s C?D7 on demand
and o0li*eG are not 'sed;
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17
iii; 3he order m'st 0e 'nconditional;
i$; 3he order m'st 0e to &ay money and money alone;
$; 3he s'm &aya0le mentioned m'st 0e certain or ca&a0le o. 0ein* made certain;
$i; 3he &arties to a 0ill m'st 0e certain;
iii+ CheAues
5heA'e is a $ery common .orm o. ne*otia0le instr'ment; 1. yo' ha$e a sa$in*s
0ank acco'nt or c'rrent acco'nt in a 0ank? yo' can iss'e a cheA'e in yo'r own
name or in .a$o'r o. others? there0y directin* the 0ank to &ay the s&eci.ied
amo'nt to the &erson named in the cheA'e; 3here.ore? a cheA'e may 0e
re*arded as a 0ill o. e6chan*eL the only di..erence is that the 0ank is always the
drawee in case o. a cheA'e;
3he Negotiable Instruments "ct: %((% defines a cheA'e as a 0ill o. e6chan*e
drawn on a s&eci.ied 0anker and not e6&ressed to 0e &aya0le otherwise than on
demand. Act'ally? a cheA'e is an order 0y the acco'nt holder o. the 0ank
directin* his 0anker to &ay on demand? the s&eci.ied amo'nt? to or to the order o.
the &erson named therein or to the 0earer;
Specimen of a Cheque
+++......20.......
1ay++..............................................................................................................
++....................................................................................................... or
2earer
R#pees++++++++++++++++++
++++++++++++++++++++
STATE BANK OF N!A
3awaharlal Nehr# 4ni'ersity, New Delhi 5 110067
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18
"S2 " # $ % % $ & & % % % ' % # " & %
.eatures of a cheAue
8et 's look into some im&ortant .eat'res o. a cheA'e;
i; A cheA'e m'st 0e in writin* and d'ly si*ned 0y the drawer;
ii; 1t contains an 'nconditional order;
iii; 1t is iss'ed on a s&eci.ied 0anker only;
i$; 3he amo'nt s&eci.ied is always certain and m'st 0e clearly mentioned 0oth in
.i*'res and words;
$; 3he &ayee is always certain;
$i; 1t is always &aya0le on demand;
$ii; 3he cheA'e m'st 0ear a date otherwise it is in$alid and shall not 0e hono'red
0y the 0ank;
T9<es of CheAue
Broadly s&eakin*? cheA'es are o. .o'r ty&es;
a) -&en cheA'e? and
0) 5rossed cheA'e;
c) Bearer cheA'e
d) -rder cheA'e
8et 's know details a0o't these cheA'es;
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19
a> !<en cheAue8 A cheA'e is called H-&enG when it is &ossi0le to *et cash o$er
the co'nter at the 0ank; 3he holder o. an o&en cheA'e can do the .ollowin*:
i; "ecei$e its &ayment o$er the co'nter at the 0ank?
ii; %e&osit the cheA'e in his own acco'nt
iii; Pass it to someone else 0y si*nin* on the 0ack o. a cheA'e;
b> Crossed cheAue8 !ince o&en cheA'e is s'0#ect to risk o. the.t? it is dan*ero's
to iss'e s'ch cheA'es; 3his risk can 0e a$oided 0y iss'in* other ty&es o. cheA'e
called H5rossed cheA'eG; 3he &ayment o. s'ch cheA'e is not made o$er the
co'nter at the 0ank; 1t is only credited to the 0ank acco'nt o. the &ayee; A
cheA'e can 0e crossed 0y drawin* two trans$erse &arallel lines across the
cheA'e? with or witho't the writin* HAcco'nt &ayeeG or H/ot /e*otia0leG;
c> 2earer cheAue: A cheA'e which is &aya0le to any &erson who &resents it .or
&ayment at the 0ank co'nter is called HBearer cheA'eG; A 0earer cheA'e can 0e
trans.erred 0y mere deli$ery and reA'ires no endorsement;
d> !rder cheAue: An order cheA'e is one which is &aya0le to a &artic'lar
&erson; 1n s'ch a cheA'e the word H0earerG may 0e c't o't or cancelled and the
word HorderG may 0e written; 3he &ayee can trans.er an order cheA'e to someone
else 0y si*nin* his or her name on the 0ack o. it;
3here is another categoriBation o. cheA'es which is disc'ssed 0elow:
"nte4dated cheAues:7 5heA'e in which the drawer mentions the date earlier to
the date o. &resentin* i. .or &ayment; 4or e6am&le? a cheA'e iss'ed on 2th May
23 may 0ear a date Cth May 23;
Stale CheAue:7 A cheA'e which is iss'ed today m'st 0e &resented 0e.ore at
0ank .or &ayment within a sti&'lated &eriod; A.ter e6&iry o. that &eriod? no
&ayment will 0e made and it is then called Hstale cheA'eG; 4ind o't .rom yo'r
nearest 0ank a0o't the $alidity &eriod o. a cheA'e;
0utilated CheAue:7 1n case a cheA'e is torn into two or more &ieces and
&resented .or &ayment? s'ch a cheA'e is called a m'tilated cheA'e; 3he 0ank
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20
will not make &ayment a*ainst s'ch a cheA'e witho't *ettin* con.irmation o. the
drawer; B't i. a cheA'e is torn at the corners and no material .act is erased or
cancelled? the 0ank may make &ayment a*ainst s'ch a cheA'e;
ost4dated CheAue:7 5heA'e on which drawer mentions a date which is
s'0seA'ent to the date on which it is &resented? is called &ost7dated cheA'e; 4or
e6am&le? i. a cheA'e &resented on (th May 23 0ears a date o. 2Cth May 23?
it is a &ost7dated cheA'e; 3he 0ank will make &ayment only on or a.ter 2Cth May
23;
iv+ 1undis
A ='ndi is a ne*otia0le instr'ment 0y 'sa*e; 1t is o.ten in the .orm o. a 0ill o.
e6chan*e drawn in any local lan*'a*e in accordance with the c'stom o. the
&lace; !ometimes it can also 0e in the .orm o. a &romissory note; A h'ndi is the
oldest known instr'ment 'sed .or the &'r&ose o. trans.er o. money witho't its
act'al &hysical mo$ement; 3he &ro$isions o. the /e*otia0le 1nstr'ments Act shall
a&&ly to h'ndis only when there is no c'stomary r'le known to the &eo&le;
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21
T9<es of 1undis
3here are a $ariety o. h'ndis 'sed in o'r co'ntry; 8et 's disc'ss some o. the
most common ones;
%+ Shah4Cog 1undi8 3his is drawn 0y one merchant on another? askin* the latter
to &ay the amo'nt to a !hah; !hah is a res&ecta0le and res&onsi0le &erson? a
man o. worth and known in the 0aBaar; A shah7#o* h'ndi &asses .rom one hand
to another till it reaches a !hah? who? a.ter reasona0le enA'iries? &resents it to
the drawee .or acce&tance o. the &ayment;
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22
#+ /arshani 1undi8 3his is a h'ndi &aya0le at si*ht; 1t m'st 0e &resented .or
&ayment within a reasona0le time a.ter its recei&t 0y the holder; 3h's? it is similar
to a demand 0ill;
&+ 0uddati 1undi8 A m'ddati or miadi h'ndi is &aya0le a.ter a s&eci.ied &eriod o.
time; 3his is similar to a time 0ill;
3here are .ew other $arieties like /am7#o* h'ndi? %hani7#o* h'ndi? Kawa0ee
h'ndi? Kokhami h'ndi? 4irman7#o* h'ndi? etc;
)+ A( !ifferences )et*een Bill of Exchange + Promissory Notes
Promissory Note Bill of Exchange
1. It (ontains an #n(onditional
promise.
1. It (ontains an #n(onditional order.
2. %here are 2 parties 5 the ma.er 8
the payee.
2. %here are 9 parties 5 the drawer,
the drawee 8 the payee.
9. It is made by the debtor. 9. It is made by the (reditor.
,. *((eptan(e is not re:#ired. ,. *((eptan(e by the drawee is a
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23
m#st.
5. %he liability o! the ma.er/drawer
is primary 8 absol#te.
5. %he liability o! the ma.er/drawer is
se(ondary 8 (onditional #pon non-
payment by the drawee.
B( !istinction )et*een a Cheque an, a Bill of Exchange
Cheque Bill of Exchange
1. It is drawn only on a ban.er.
1; It (an be drawn on anybody
in(l#din; a ban.er.
2. %he amo#nt is always payable on
demand.
2; %he amo#nt is payable on
demand or a!ter a spe(i!ied period.
9. It (an be (rossed to end its
ne;otiability.
3; It (annot be (rossed.
,. *((eptan(e is not re:#ired.
+; *((eptan(e is a m#st.
'+ .eatures of Negotiable Instruments
A.ter disc'ssin* the $ario's ty&es o. ne*otia0le instr'ments let 's s'm '& their
.eat'res as 'nder
i+ A negotiable instrument is freely transferable; <s'ally? when we trans.er
any &ro&erty to some0ody? we are reA'ired to make a trans.er deed? *et it
re*istered? &ay stam& d'ty? etc; B't? s'ch .ormalities are not reA'ired while
trans.errin* a ne*otia0le instr'ment; 3he ownershi& is chan*ed 0y mere deli$ery
(when &aya0le to the 0earer) or 0y $alid endorsement and deli$ery (when
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24
&aya0le to order); 4'rther? while trans.errin* it is also not reA'ired to *i$e a notice
to the &re$io's holder;
ii. Negotiability confers absolute and good title on the transferee; 1t means
that a &erson who recei$es a ne*otia0le instr'ment has a clear and 'ndis&'ta0le
title to the instr'ment; =owe$er? the title o. the recei$er will 0e a0sol'te? only i. he
has *ot the instr'ment in *ood .aith and .or a consideration; Also the recei$er
sho'ld ha$e no knowled*e o. the &re$io's holder ha$in* any de.ect in his title;
!'ch a &erson is known as holder in d'e co'rse; 4or e6am&le? s'&&ose "a#i$
iss'ed a 0earer cheA'e &aya0le to !an#ay; 1t was stolen .rom !an#ay 0y a
&erson? who &assed it on to )irish; 1. )irish recei$ed it in *ood .aith and .or $al'e
and witho't knowled*e o. cheA'e ha$in* 0een stolen? he will 0e entitled to
recei$e the amo'nt o. the cheA'e; =ere )irish will 0e re*arded as Hholder in d'e
co'rseG;
iii; A negotiable instrument must be in writing; 3his incl'des handwritin*?
ty&in*? com&'ter &rinto't and en*ra$in*? etc;
iv; 1n e$ery ne*otia0le instr'ment there m'st 0e an unconditional order or
promise for payment;
v. 3he instr'ment m'st in$ol$e payment of a certain sum o. money only and
nothin* else; 4or e6am&le? one cannot make a &romissory note on assets?
sec'rities? or *oods;
vi. The time of payment must be certain; 1t means that the instr'ment m'st 0e
&aya0le at a time which is certain to arri$e; 1. the time is mentioned as Hwhen
con$enientG it is not a ne*otia0le instr'ment; =owe$er? i. the time o. &ayment is
linked to the death o. a &erson? it is ne$ertheless a ne*otia0le instr'ment as
death is certain? tho'*h the time thereo. is not;
vii. The payee must be a certain person; 1t means that the &erson in whose
.a$o'r the instr'ment is made m'st 0e named or descri0ed with reasona0le
certainty; 3he term H&ersonG incl'des indi$id'al? 0ody cor&orate? trade 'nions?
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25
e$en secretary? director or chairman o. an instit'tion; 3he &ayee can also 0e
more than one &erson;
viii; A ne*otia0le instr'ment must bear the signature of its maker; 2itho't the
si*nat're o. the drawer or the maker? the instr'ment shall not 0e a $alid one;
ix; Delivery of the instrument is essential; Any ne*otia0le instr'ment like a
cheA'e or a &romissory note is not com&lete till it is deli$ered to its &ayee; 4or
e6am&le? yo' may iss'e a cheA'e in yo'r 0rotherGs name 0't it is not a
ne*otia0le instr'ment till it is *i$en to yo'r 0rother;
x; Stamping of Bills of xchange and !romissory Notes is mandatory; 3his
is reA'ired as &er the 1ndian !tam& Act? 1(99; 3he $al'e o. stam& de&ends '&on
the $al'e o. the &ronote or 0ill and the time o. their &ayment;
D+ Negotiation of Commercial a<er
Assi*nment
/e*otiation
,ndorsements
4o'r 5ommon 3y&es o. ,ndorsements
Assignment 5ommercial &a&er that does not meet all o. the reA'irements o.
ne*otia0ility cannot 0e ne*otiated; 1t can only 0e trans.erred 0y assi*nment?
which is *o$erned 0y the ordinary &rinci&les o. contract law;
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26
Negotiation /e*otiation is the trans.er o. an instr'ment in s'ch a .orm that the
trans.eree 0ecomes a holder; A holder is a &erson who is in &ossession o. an
instr'ment iss'ed or indorsed to that &erson? to that &ersonJs order? to 0earer? or
in 0lank;
ndorsements An instr'ment is endorsed when the holder si*ns it? there0y
indicatin* the intent to trans.er ownershi& to another; ,ndorsements may 0e
written in ink? ty&ewritten? or stam&ed with a r'00er stam&;
Blank ndorsements" A 0lank endorsement consists o. the si*nat're alone
written on the instr'ment;
MSpecial ndorsements" A s&ecial endorsement is made 0y writin* the words
&ay to the order o. or &ay to .ollowed 0y the name o. the &erson to whom it is to
0e trans.erred and the si*nat're o. the endorser;
M#estrictive ndorsements" A restricti$e endorsement limits the ri*hts o. the
endorsee in some manner in order to &rotect the ri*hts o. the endorser; An
endorsement is restricti$e i. it is conditional;
M$onditional ndorsement" A conditional endorsement? a ty&e o. restricti$e
endorsement? makes the ri*hts o. the endorsee s'0#ect to the ha&&enin* o. a
certain e$ent or condition;
M%ualified ndorsements" A A'ali.ied endorsement is one in which words ha$e
0een added to the si*nat're that limit the lia0ility o. the endorser;
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27
$+ E;ce<tions
<nder the 5ode? the .ollowin* are not ne*otia0le instr'ments? altho'*h the law
*o$ernin* o0li*ations with res&ect to s'ch items may 0e similar to or deri$ed
.rom the law a&&lica0le to ne*otia0le instr'ments;
1. 8etters o. 5redit? which are *o$erned 0y Article C o. the 5ode;
2. Bills o. 8adin* and other doc'ments o. title? which are *o$erned 0y Article
7 o. the 5ode;
9. !ec'rities? s'ch as !tocks N Bonds? which are *o$erned 0y Article ( o. the
5ode;
,. %eeds N other doc'ments con$eyin* interests in real estate? altho'*h a
mort*a*e may sec're a &romissory note which is *o$erned 0y Article 3;
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28
5. 1-<s; relatin* to nettin* &ractices and domestic &ayments and settlement
systems;
(; E4 Transfers
Electronic .unds Transfer "ct
1n 199C? the "eser$e Bank had set '& the 5ommittee .or Pro&osin* 8e*islation
on ,lectronic 4'nds 3rans.er and other ,lectronic Payments (5hair&erson : !mt;
K;!;!here); 3he !here 5ommittee had recommended a set o. ,43 "e*'lations
0y the "eser$e Bank 'nder the "eser$e Bank o. 1ndia Act?193+ and amendment
to the BankersG Books ,$idence Act?1((1 as short term meas'res and &romotion
o. a .ew Acts like the ,lectronic 4'nds 3rans.er Act? the 5om&'ter Mis'se and
%ata Protection Act etc; as lon* term meas'res; 3he "eser$e Bank has already
initiated ste&s .or .ramin* o. ,43 "e*'lations; 3he )o$ernment o. 1ndia ha$e
Page
29
also initiated ste&s .or &romotin* 1n.ormation and 3echnolo*y Act? 1999 and
conseA'ential amendments to the "eser$e Bank o. 1ndia Act? 193+? the BankersG
Books ,$idence Act? 1((1 etc;
3he &ro&osed 1n.ormation 3echnolo*y Bill? 1999 and ,lectronic 5ommerce Bill?
1999 are intended to 0e *eneral &'r&ose le*islation co$erin* mainly iss'es like
sec're electronic records and si*nat'res? acce&tance o. di*ital si*nat'res? d'ties
o. certi.ication a'thority? lia0ility o. network ser$ice &ro$iders? com&'ter crime and
data &rotection; Both the 0ills deal with electronic contracts and they are 0ein*
&romoted 0y the )o$ernment o. 1ndia &rimarily to .acilitate introd'ction o.
,lectronic %ata 1nterchan*e in the commercial sector; =owe$er? they are eA'ally
a&&lica0le .or electronic .'nds trans.er already la'nched 0y the "eser$e Bank
and is *oin* to 0e increasin*ly resorted to 0y the 'ser 0anks o. the >!A3 0ased
network? the 1/41/,3; =owe$er? there is still a need .or a se&arate Act .or
,lectronic 4'nds 3rans.er 0eca'se certain transactional iss'es like &ayments
.inality? ri*hts and o0li*ations o. the &arties in$ol$ed in electronic .'nds trans.er
etc; cannot 0e co$ered in *eneral &'r&ose 0ills like the &ro&osed 1n.ormation
3echnolo*y Bill or the &ro&osed ,lectronic 5ommerce Bill; 3he ,43 "e*'lations
0ein* .ramed 0y the "eser$e Bank wo'ld address only the s&eci.ic ty&e o. ,43
system that the "eser$e Bank wo'ld 0e in$ol$ed with as a ser$ice &ro$ider as
also a re*'lator; 3he ,43 "e*'lations wo'ld? moreo$er? co$er only credit trans.er
related transactions and not %e0it 5learin* transactions; A se&arate le*islation
on the lines o. ,lectronic 4'nds 3rans.er Act o. <!A is? there.ore? reA'ired which
wo'ld 0e cons'mer &rotection oriented and wo'ld at the same time address
transactional iss'es like e6ec'tion o. &ayment order? settlement .inality? etc;
3he "eser$e Bank has taken the hel& o. a cons'ltant in dra.tin* a new
le*islation on ,lectronic 4'nds 3rans.er !ystem and &ro&osin* amendment to
the "eser$e Bank o. 1ndia Act 193+; 3he 5ommittee? a.ter a care.'l e6amination
o. the iss'e? has endorsed the $iew that the &ro&osed ,lectronic 4'nds 3rans.er
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30
Act sho'ld co$er all .orms o. electronic &ayments; 3he 5ommittee s'&&orts the
$iew that the "eser$e Bank? at an a&&ro&riate time? considers o&eratin* the inter7
0ank &ayment systems thro'*h an a*ency or s'0sidiary so that its re*'latory role
is rendered distinct .rom its s'&er$isory role; "etail &ayment systems s'ch as the
,5! and the ,43 "emittance Processin* !cheme &resently o&erational may 0e
mana*ed 0y a *ro'& o. lar*e 0anks with co'ntry wide 0ranch network and
technical ca&a0ility? with settlement assistance .rom the "eser$e Bank; 3his
wo'ld hel& the "B1 to .oc's its e..orts only on lar*e $al'e time critical .'nds
trans.ers to 0e settled on an "3)! 0asis; 1n the on*oin* de0ate on the role o.
central 0ank in &ayment systems? the trend is towards distin*'ishin* the central
0ank role as a re*'lator .rom that o. ser$ice &ro$iders which co'ld 0e commercial
0anks themsel$es or the entities 'nder the control o. commercial 0anks; 3he
5ommittee has considered it necessary that the le*al .ramework .or &ayment
system takes into acco'nt this international trend;
"dmission of electronic files as evidence and <reservation of records8
3he !here 5ommittee had disc'ssed the iss'es o. admittin* electronic .iles as
e$idence and o. &reser$in* electronic records and recommended the need to
amend the BankersJ Books ,$idence Act? 1((1 on the lines o. the 5'stoms and
5entral ,6cise 8aws (Amendment) Act? 19(( and 5entral ,6cise and !alt Act?
19++ .or the &'r&ose; 1t is learnt that )o$ernment o. 1ndia is &rocessin* the dra.t
Bill amendin* the BankersG Books ,$idence Act? 1((1; 3his is a welcome
de$elo&ment and wo'ld meet the le*al reA'irement o. acce&tance o. contracts?
doc'ments etc; in electronic .orm as e$idence;
3he 5ommittee considered certain &ro$isions o. the &ro&osed ,lectronic
5ommerce Bill .or admittin* electronic records D si*nat'res as e$idence; 5la'ses
9? 1? 11? 12 and 1+ o. this &ro&osed Bill which are rele$ant in this connection are
*i$en in "nne;ure %D + 1t is worth mentionin* that while cla'ses 9? 1 and 11 o.
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31
this Bill are 0ased on the </513"A8 Model 8aw? cla'ses 12 and 1+ are 0ased
on !in*a&ore ,lectronic 3ransactions Act; As and when the ,lectronic
5ommerce Bill is &assed? these &ro$isions will 0e made a&&lica0le? ipso facto? to
electronic .'nds trans.er transactions as well;
.unds Transfer through E.T S9stems from Ta; Com<liance "ngle
3he !here 5ommittee had recommended that the 5entral Board o. %irect 3a6es
(5B%3) may 0e reA'ested to take '& the A'estion o. clari.yin* and? i. reA'ired?
amendin* the relati$e &ro$isions o. the %irect 3a6 8aws like !ection +A o. the
1ncome73a6 Act? 1961; 3he 5ommittee howe$er .elt that? .or accordin* the .'nds
trans.er 'nder the ,43 system the same stat's o. &ayment as one made 0y an
ADc &ayee cheA'e? s'ita0le technolo*y may ha$e to 0e de$elo&ed .or treatin*
s'ch trans.ers as ADc &ayee trans.ers; A mere reco*nition to that e..ect 0y the
5B%3 may not 0e adeA'ate to treat s'ch trans.er as ADc &ayee cheA'es; 8e*al
&ro$isions need to 0e made i. s'ch reco*nition has to 0e *i$en; 3he .irst test
wo'ld arise when &a&er instr'ments like cheA'es are 'sed alon* with the 'se o.
,43 system; !o lon* as 0oth the systems are in e6istence at the same time? it
wo'ld reA'ire either amendments to the /e*otia0le 1nstr'ments Act or a
se&arate le*islation to deal with the matter;

CheAue Truncation
5heA'e 3r'ncation is a method o. &ayment &rocessin* where 'nder mo$ement
o. the &a&er instr'ment is tr'ncated 0y s'0stit'tin* with electronic transmission
o. the cheA'e details or data; 3he !here 5ommittee had e6amined the le*al
iss'es &ertainin* to cheA'e tr'ncation and had indicated that the de.inition o.
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32
presentment in the /e*otia0le 1nstr'ments Act may ha$e to 0e amended .or
ado&tion o. cheA'e tr'ncation system in 1ndia; <nder the /e*otia0le 1nstr'ments
Act? 1((1? cheA'es wo'ld ha$e to 0e &resented .or &ayment to drawee D drawer
0ank; 2itho't s'ch &resentment? no ca'se o. action arises a*ainst the drawer; 1n
de.a'lt o. &resentment o. a cheA'e to the drawee .or &ayment? other &arties to
the cheA'e are not lia0le to the holder; 1t is 0y 0ankin* &ractice and 'nder the
<ni.orm "'les and "e*'lations .or 5learin* =o'ses that 0anks ha$e a*reed .or
&resentment at any &lace other than the 0ranch? s'ch as the clearin* ho'se;
Besides? the im&lications o. the de.inition o. payment in due course 'nder the
/e*otia0le 1nstr'ments Act? 1((1 may make it di..ic'lt .or 0anks to introd'ce
cheA'e tr'ncation system sim&ly 0y a*reement amon* themsel$es; 3he ri*ht o.
the &ayin* 0ank to reA'ire &hysical &resentation and &ossession o. the cheA'e
are desi*ned to &ro$ide the 0ank with an o&&ort'nity to e6amine the si*nat're
and other a'thentication o. the cheA'e; 3his is meant essentially to &rotect the
interest o. the drawer; 3here.ore? in <K? the cheA'e tr'ncation system started
with customer consent agreements and was e$ent'ally introd'ced a.ter a .air
de*ree o. .amiliariBation with ima*in* technolo*y 0y the 0anks; 3h's?
introd'ction o. cheA'e tr'ncation system may reA'ire ado&tion o. a .airly
standardiBed ima*in* technolo*y and a&&ro&riate amendments to the /e*otia0le
1nstr'ments Act? 1((1;

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33
E+ Section %&) to %&$ is of an International ,aw
and the said ) sections read as follows8
13+; 8aw *o$ernin* lia0ility o. maker? acce&tor or endorser o. .orei*n instr'ment;
1n the a0sence o. a contract to the contrary? the lia0ility o. the maker o. drawer o.
a .orei*n &romissory note? 0ill o. e6chan*e or cheA'e is re*'lated in all essential
matters 0y the law o. the &lace where he made the instr'ment? and the
res&ecti$e lia0ilities o. the acce&tor and endorser 0y the law o. the &lace where
the instr'ment is made &aya0le;
Illustration
A 0ill o. e6chan*e was drawn 0y A 5ali.ornia where the rate o. interest is 2C &er
cent and acce&ted 0y B? &aya0le in 2ashin*ton where the rate o. interest is 6 &er
cent; 3he 0ill is endorsed in O1ndiaP? and is dishono'red; An action on the 0ill is
0ro'*ht a*ainst B in O1ndiaP; =e is lia0le to &ay interest at the rate o. 6 &er cent?
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34
onlyL 0't i. A is char*ed as drawer? A is lia0le to &ay interest at the rate o. 2C &er
cent;
13C; 8aw o. &lace o. &ayment *o$erns dishono'rs;
2here a &romissory note? 0ill o. e6chan*e or cheA'e is made &aya0le in a
di..erent &lace .rom that in which it is made or endorsed? the law o. the &lace?
where it is made &aya0le determines what constit'tes dishono'r and what notice
o. dishono'r is s'..icient;
&llustration
A 0ill o. e6chan*e drawn and endorsed in O1ndiaP? 0't acce&ted &aya0le in
4rance? is dishono'red; 3he endorsee ca'ses it to 0e &rotested .or s'ch
dishono'r and *i$es notice thereo. in accordance with the law o. 4rance thro'*h
not in accordance with the r'les herein contained in res&ect o. 0ills which are not
.orei*n; 3he notice is s'..icient;

136; 1nstr'ment made? etc; o't o. 1ndia? 0't in accordance with the law o. 1ndia
1. a ne*otia0le instr'ment is made? drawn acce&ted or endorsed Oo'tside 1ndiaP?
0't in accordance with the Olaw o. 1ndiaP? the circ'mstance that any a*reement
e$idenced 0y s'ch instr'ment is in$alid accordin* to the law o. the co'ntry
wherein it was entered into does not in$alidate any s'0seA'ent acce&tance or
endorsement made thereon Owithin 1ndiaP;
137; Pres'm&tion as to 4orei*n 8aw;
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35
3he law o. any .orei*n co'ntry OQQQP re*ardin* &romissory note? 0ills o. e6chan*e
and cheA'es shall 0e &res'med to 0e the same as that o. O1ndiaP? 'nless and 'ntil
the contrary is &ro$ed;
%* /ishonor !f Negotiable Instruments
Com<laints of cheAue 8
3o answer in n'tshell? a &erson desiro's to initiate action 'nder section 13( o.
/e*otia0le 1nstr'ments Act (I5om&lainantI)? sho'ld ens're .ollowin*:
73he instr'ment is a cheA'e (and not any other instr'ment like 0ill o. e6chan*e or
&romissory note)
75om&lainant is a &ayee or holder in d'e co'rse o. a ret'rned cheA'e
73he cheA'e sho'ld ha$e 0een in dischar*e o. de0t or lia0ility (and not *i.t etc)
73he cheA'e sho'ld ha$e ret'rned .or reasons Iwant o. .'ndsI? 9aDc closed: or
9sto&&ed &ayment:
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36
75om&lainant sho'ld make o't a &rima .acie case; 3herea.ter? the acc'sed has
to &ro$e a0sence o. consideration
75om&lainant sho'ld iss'e a demand notice within 3 days .rom the
5om&lainantJs recei$in* in.ormation o. ret'rn; the notice need not 0e recei$ed 0y
the acc'sed (i;e; drawer o. the cheA'e) within 3 days
71t is ad$isa0le to *i$e demand notice only once 0y a sin*le mode? say re*istered
ad letter
7%emand notice may co$er more than one ret'rned cheA'e
7%emand notice sho'ld demand the drawer to &ay within 1C days .rom its recei&t
0y the drawer o. the cheA'e
7Ad$isa0le to *ather the date and e$idence o. recei&t o. demand notice 0y the
drawer o. the cheA'e
75a'se o. action arises on 16th day when the drawer o. the cheA'e doesnJt &ay
within 1C days .rom the %rawerGs recei$in* or re.'sin* demand notice
75a'se o. action arises only once? tho'*h there can 0e se$eral ret'rns; =ence
ad$isa0le to *i$e notice only when it is decided to .ile a com&laint
75om&laint sho'ld 0e .iled within 3 days .rom 16th day .rom the date o. recei&t
0y %rawer o. the %emand /otice
71. the last day o. limitation .or .ilin* a com&laint is a holiday? may .ile it on the
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37
ne6t workin* day; 5o'rts not allowed to condone delay in .ilin* a com&laint and
hence timin* sho'ld 0e adhered to
75om&laint is maintaina0le a*ainst all the &artners .or a cheA'e ret'rn o. their
.irm
71n case o. a com&any? mana*in* directorD de&'ty mana*in* directorGs lia0ility is
ass'med while as re*ards other directors etc it is necessary that s'ch &erson
was in char*e o. and res&onsi0le .or the cond'ct o. 0'siness o. the com&any and
this is s&eci.ically a$erred in the com&laint
71t is not necessary to make the com&any or the .irm a &arty to the com&laint
75om&laint r'ns inde&endent o. any other &roceedin*
75om&laint is not maintaina0le a*ainst le*al heirs o. the %rawer;
2I,,S !. E3C1"NGE
%ishonor o. the 0ill: when the 0ill o. e6chan*e is not acce&ted or not &aid on
mat'rity the 0ill is said to ha$e 0een dishonored; 4rom the a0o$e it is clear that
the 0ill is dishonored on two acco'nts:
a; %ishonor 0y non7acce&tance
0; %ishonor 0y non7&ayment
%ishonor 0y non7acce&tance: when the drawee re.'ses to acce&t the 0ill? it
stands to 0e dishonored; 3he dishonor 0y7non7acce&tance may ha$e the
.ollowin* reasons:
1; 3he drawee doesnGt acce&t the 0ill within 2+ ho'rs o. its recei&t;
2; 2hen the drawee is not entitled to acce&t it;
3; 2hen the drawee is a .ake &erson;
+; 1. the 0ill is to 0e conditionally acce&ted
C; 2hen the drawee disa&&ears;
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38
6; 1n case there are many drawees? and all the drawees do not si*n the 0ill;
%ishonor 0y /on7Payment: Another reason .or the dishonor o. a 0ill is its non7
&ayment at mat'rity the drawee may re.'se to make the &ayment o. the 0ill when
it is &resented at mat'rity? this re.'sal *i$es rise to dishonor 0y non&ayment;
3he dishonor a..ects all the &arties to the 0ill; 3hey incl'de the drawer? all
endorse and endorse? who are all acco'nta0le and lia0le to the holder;
%%+Negotiable instruments connects global <eace
A *lo0al world means di..erent &eo&le? di..erent c'lt're? di..erent o&inions?
di..erent 'nderstandin* and di..erent laws in e$ery co'ntry; 2hen trade o. *oods
and ser$ices started? &ro0lems also started takin* '& their roles; 3he cases o.
&ayment &ro0lems were o0ser$ed amon* the e6&ortin* &arties; !ince the laws o.
di..erent di..er .rom each other? these matters co'ld not 0e sol$ed le*ally and the
distance 0etween each co'ntry made it e$en more 'ncom.orta0le; 3he '&s and
downs in the .orei*n e6chan*e o. e$ery co'ntry were makin* them *o thro'*h
sta*nancy; A certain kind o. ne*otiation was reA'ired at an international le$el to
make the road o. trade *o smooth; 3here was indeed a need .or a ne*otia0le
instr'ment which is acce&ted 0y e$ery law internationally;
3akin* these .actors into consideration 3he /e*otia0le 1nstr'ment Act was
&assed; /e*otia0le instr'ment incl'de &romissory notes? Bills o. e6chan*e and
5heA'e; 3hese instr'ments had conditional and 'nconditional 'ndertakin*s
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39
si*ned 0y the maker; 3hese instr'ments are internationally acce&ted; 1t hel&ed
many co'ntries who were *oin* thro'*h .orei*n e6chan*e de.icit;
/e*otia0le instr'ment hel&ed e6&orters and im&orters o. *oods and
ser$ices to dra* their de.a'lters to co'rt;
A smooth .low o. trade was o0ser$ed a.ter the introd'ction o. ne*otia0le
instr'ments;
,6&orters o. *oods and ser$ices .elt a si*h o. relie. when they e6&ort their
*oods and ser$ices on credit 0asis as they had the ne*otia0le instr'ment
with them d'ally si*ned 0y 0oth the &arties i;e; drawer and the drawee
which was a stron* &roo. doc'ment;
/e*otia0le instr'ments &lay a $ital role in the economic de$elo&ment o. e$ery
co'ntry with its si*ni.icant .eat'res; -ne o. the main .eat'res incl'des that
/e*otia0le instr'ments are .reely trans.era0le and while trans.errin* it is also not
reA'ired to *i$e a notice to the &re$io's holder; /e*otia0le instr'ment is always
in writin* so there is no .ear o. the drawee 0ackin* o.. the instr'ment; 2hereas
stam&in* o. 0ills o. e6chan*e and &romissory notes are mandatory;
3he &eace and harmony which we see today in re*ards to the wholesome
trade which *oes on a $ery 0i* scale and which is risin* e$ery sin*le day is
0eca'se o. the e6istin* ne*otia0le instr'ments which are acce&ted internationally
0y e$ery indi$id'al; 3he com&laints re*ardin* ne*otia0le instr'ments sho'ld 0e
.iled as early as &ossi0le in there near0y allocated co'rt; !o it hel&s the
com&lainant to *et its #'d*ment at the earliest; 3he *rie$ances re*ardin* the
ne*otia0le instr'ments are taken at the to& &riority as it directly a..ects the
economy o. the co'ntry; ,ach co'ntry is tryin* hard to do the necessary
amendments .or makin* these ne*otia0le instr'ments r'n more smoother and
e..iciently so that the *rowin* economy *rows with more &ace and &eace;
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40
12. Case studies
T1E FVG SC"N/",
K>)Js tro'0les started in K'ne 1997? a.ter the !ec'rities and ,6chan*e
Board o. 1ndia (!,B1) asked K>) 4inance to re.'nd the "s +C crore it had
raised .rom a &'0lic iss'e in March 1997; A day a.ter the iss'e had
o&ened? "B1 iss'ed a show7ca'se notice askin* why K>) 4inance sho'ld
not 0e 0arred .rom acce&tin* de&osits as the *ro'& com&anies had
already e6ceeded their de&osit limits; By the time "B1 conditionally cleared
the iss'e a.ter ass'rances .rom !harma? the 77day sti&'lated &eriod .or
listin* the shares had &assed; Beca'se o. the time7la&se? !,B1 inter$ened
and ordered the re.'nd o. the &'0licJs money accordin* to the allotment
r'les; !harma re.'sed to re.'nd the money to the in$estors and a&&ealed
a*ainst the order to the 4inance ministry;
=e admitted that K>) had e6ceeded its limits while acce&tin* de&osits
0't claimed that since %ecem0er 1996 (m'ch 0e.ore the "B1 0an) it had
sto&&ed acce&tin* de&osits on its own and had e$en *i$en "B1 an
'ndertakin*; "B1 did not acce&t the ar*'ment and 0arred the *ro'& .rom
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41
acce&tin* any more &'0lic de&osits; 1n !e&tem0er 1997? &ost7dated
cheA'es iss'ed .or &rinci&al as well as interest on K>)Js de&osits
0o'nced; 1n$estors then com&lained to the ci$il co'rts? cons'mer co'rts?
5om&any 8aw Board and criminal co'rts 'nder the /e*otia0le 1nstr'ments
Act '&on which le*al &roceedin*s were initiated a*ainst the *ro'&; 3he
*o$ernment recei$ed a lar*e n'm0er o. com&laints on non7re&ayment o.
de&osits on mat'rity 0y the K>) *ro'&;
-n a com&laint .iled 0y the "B1? the %elhi =i*h 5o'rt ordered the windin*
'& o. the com&any; 3he co'rt also a&&ointed an o..icial liA'idator and said
that the "B1 did not consider the re$i$al scheme .iled 0y the com&any
$ia0le; 3he "B1 also .iled criminal &rosec'tion &etitions in the Metro&olitan
Ma*istratesJ 5o'rts in /ew %elhi;
"B1 alle*ed that the com&any had acce&ted de&osits worth "s ((;(2 crore
which was 7C6;6(R o. its net owned .'nd; 3his was m'ch hi*her than the
&ermissi0le limit o. 2CR O1P; !imilarly? K>) 8easin* had recei$ed de&osits
worth "s 19;2( crore which was 1+7;C(R o. its net owned .'nd; 3he "B1
com&laint also said that the de&osit .orms iss'ed 0y the K>) )ro'& did not
contain any in.ormation re*ardin* &remat're withdrawals? which was
necessary as &er "B1 &ro$isions; 3he com&anies had not &ro$ided any
in.ormation a0o't the rate o. interest to the in$estors on the recei&ts iss'ed
to them; 4'rther? the com&anies .ailed to s'0mit their a'dited 0alance
sheets .or the &eriod endin* March 31? 199+ and 199C 1C days a.ter their
ann'al *eneral meetin* (A)M) and did not in.orm the "B1 a0o't the
chan*es in the com&osition o. the 0oard o. directors;
"B1Js &etition also stated that the com&any had not maintained liA'id
assets as reA'ired 0y section +C1B o. the "B1 Act? 193+; "B1 .'rther
contended that K>) !ec'rities acce&ted &'0lic de&osits thro'*h K>)
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42
8easin* 8td; and had ille*ally credited it to the acco'nt o. K>) 4inance 8td;
3h's? K>) !ec'rities .acilitated collection o. .'rther de&osits 0y K>)
4inance 8td;? a com&any which had already acce&ted &'0lic de&osits
0eyond the &ermissi0le limit in s&ite o. the warnin* .rom "B1 not to acce&t
any .'rther de&osits;
"dvocate arrested in credit card fraud case
,aw9ers: <olice on war<ath
Tribune News Service
8'dhiana? A&ril 2(
3he local &olice and the lawyers are headin* .or a showdown o$er the iss'e o.
arrest o. an ad$ocate 0y the %i$ision /o ( &olice in an alle*ed credit card .ra'd
case;
A $er0al s&at took &lace 0etween a *ro'& o. local lawyers and city &olicemen at
the %i$ision /o ( &olice station when the &olicemen were *i$in* details a0o't a
credit card .ra'd alle*edly committed 0y a city70ased ad$ocate? a &ick&ocket and
a .ormer em&loyee o. a &ri$ate tele&hone com&any;
3he &olice was claimin* that it had arrested ad$ocate Amar#it !in*h o. 4a'#i
Mohalla here on the 0asis o. e$idence alon* with >ikas? .ormer em&loyee o. a
tele&hone com&any? .or doin* sho&&in* worth o$er "s + lakh .rom a stolen credit
card o. an /"1; 3he third acc'sed was !on'? an alle*ed &ick&ocket? who had
stolen the credit card; =e was missin*;
3he credit card was stolen si6 months a*o in /o$em0er 2+ .rom )"%
Academy here where the Miss 2orld P'n#a0an contest was 0ein* held; 3he
alle*ed $ictim? /"1 Kaswinder !in*h? was watchin* the show when his &ocket
was &icked;
=owe$er? a *ro'& o. lawyers led 0y a .ormer &resident o. the %istrict Bar
Association? Mr; =arish "ai %handa? o&enly char*ed the &olice with .alsely
im&licatin* the acc'sed ad$ocate; 3hey also alle*ed that some &olicemen had
demanded money .rom the ad$ocate 0't when he re.'sed to &ay? he was 0ooked
in a .alse case; 3he &olice ha$e denied the alle*ations;
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43
%!P !imrat&al !in*h %hindsa stated at a &ress con.erence that the acc'sed had
ind'l*ed in sho&&in* 'sin* the stolen credit card .rom showrooms o. Adidas?
/ike? 2eekender? 3anishA? 3itan and !ant "am Man*at "am;
3he &olice narrowed down on the acc'sed a.ter the com&lainant learnt that the
credit card was 0ein* mis'sed;
=owe$er? Mr; %handa alle*ed that the lawyer was innocent and had 0een .alsely
im&licated in the case; =e said the lawyer was tort'red in &olice c'stody; A *ro'&
o. lawyers later .iled a com&laint 0e.ore a local K'd*e a*ainst &olice tort're and
harassment;
Meanwhile? takin* a to'*h stand a*ainst the arrest and the alle*ed c'stodial
tort're o. the ad$ocate? the %istrict Bar Association (%BA) has demanded
immediate s's&ension o. the *'ilty &olicemen;
Mr; "ana =ar#asdee& !in*h? !ecretary? %BA? said in a statement that they had
*ot the medical e6amination o. the acc'sed ad$ocate cond'cted .rom the 5i$il
=os&ital; A dele*ation o. the %BA wo'ld meet the !!P tomorrow and demand
action a*ainst the !=- and other &olicemen o. the %i$ision /o ( &olice station;
4ormer %BA &resident K;"; !ikri condemned the incident and termed it as
0reach o. tr'st and o. an 'nderstandin* reached 0etween the lawyers and a
.ormer %)P? %r A A !iddiA'i? last year that the &olice wo'ld take the %BA into
con.idence 0e.ore arrestin* an ad$ocate in any case? e6ce&t a ra&e or a m'rder
case;
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44
%&+ .R"-/
2ithin this s&eci.ication 0y a ne*otia0le instr'ment is meant a
cheA'e? a credit card? a de0it card? a 0ond? a share certi.icate? an acco'nt
card? a tra$elerGs cheA'e? an electronic trans.er? and any other instr'ment
that has inherent $al'e to the owner thereo. and in relation to which the
owner can s'..er a .inancial loss as a res'lt o. 'na'thoriBed andDor
.ra'd'lent dealin* therewith 0y third &arties;
.raud in relation to the 'se o. ne*otia0le instr'ments is an international
&ro0lem; Many di..erent .orms o. .ra'd that can res'lt in the owner o. a
ne*otia0le instr'ment s'..erin* a .inancial loss are known? with the
common element *enerally 0ein* that the ne*otia0le instr'ment is
&resented .or ser$in* as a &ayment .or *oods &'rchased? .or con$ertin* its
$al'e into cash? or .or de&ositin* its $al'e into a third &arty acco'nt?
witho't a'thoriBation o. the ori*inal owner or in a .orm in which it has 0een
.ra'd'lently tam&ered with to the detriment o. the ori*inal owner;
Altho'*h the in$ention as de.ined and descri0ed herea.ter is directed
mainly at inhi0itin* .ra'd in relation to the 'se o. cheA'es and credit
cards? it m'st 0e 'nderstood that the in$ention a&&lies also to inhi0itin*
o. .ra'd in relation to the 'se o. any other ne*otia0le instr'ment and the
.eat'res o. the in$ention m'st 0e inter&reted as s'ch;
4or the sake o. con$enience and clarity? the ori*inal owner o. a ne*otia0le
instr'ment as herein en$isa*ed shall merely 0e re.erred to as the owner o.
the ne*otia0le instr'ment who? in relation to certain ne*otia0le
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45
instr'ments s'ch as cheA'es? &romissory notes? and the like? will 0e the
&erson iss'in* s'ch instr'ments? and in relation to other ne*otia0le
instr'ments s'ch as credit cards? will 0e the &erson who le*ally &resents
s'ch instr'ments in order to ser$e their intended &'r&ose; 3he owner is
th's *enerally the &erson? whether a nat'ral or a #'ristic &erson? who can
s'..er a loss as a res'lt o. the 'na'thoriBed or .ra'd'lent 'se o. the
ne*otia0le instr'ment o. which he is the owner;
3he &erson or 0ody to whom a ne*otia0le instr'ment is &resented shall
hereina.ter 0e re.erred to as the &resentee who? .or e6am&le? in relation
to cheA'es? and the like? *enerally will 0e a 0ank and &artic'larly an
em&loyee o. a 0ank? and in relation to credit cards? *enerally will 0e a
$endor who acce&ts the 'se o. a credit card as &ayment .or *oods
&'rchased or .or ser$ices rendered; 3he &resentee also is the &arty who? in
accordance with the &resent in$ention? is *enerally res&onsi0le .or
ens'rin* that the owner o. the ne*otia0le instr'ment is not &re#'diced;
3he &erson &resentin* a ne*otia0le instr'ment to the &resentee shall
hereina.ter merely 0e re.erred to as the &resentor and? in &ractice? this
may 0e a le*itimate &erson to whom the instr'ment has 0een iss'ed or
who owns the instr'ment? or an ille*itimate &erson who may 0e attem&tin*
a .ra'd'lent act andDor who is not a'thoriBed to &resent the instr'ment;
1t will 0e a&&reciated that the $ario's ne*otia0le instr'ments as herein
en$isa*ed can 0e associated with $ario's di..erent Sty&esS o. &resenters
and &resentees; Presentees need not necessarily 0e 0anks or $endors?
0't may 0e any third &arty who *enerally deals with andDor who is
res&onsi0le .or dealin* with? s'ch instr'ments;
3he a&&lication o. the system .or inhi0itin* .ra'd in relation to the 'se
o. ne*otia0le instr'ments is associated with a s'ita0ly &ro*rammed central
comm'nication and &rocessin* 'nit that can 0e comm'nicated with $ia a
direct tele&hone line? $ia the internet? or the like; 3his 'nit shall
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46
herein 0e re.erred to as a central comm'nication and &rocessin* 'nit and
any re.erence to this 'nit m'st 0e inter&reted as a re.erence to a
s'ita0ly &ro*rammed 'nit that incl'des means .or comm'nicatin* with the
'nit? as well as data &rocessin* means and data stora*e means that
&ermit &rocessin* o. stored data and o. data comm'nicated to it? .or
ena0lin* the system o. the in$ention as de.ined herea.ter;
2RIE. S-00"R5 !. T1E INVENTI!N
Accordin* to the in$ention there is &ro$ided a system .or inhi0itin* .ra'd
in relation to the 'se o. ne*otia0le instr'ments? which incl'des the ste&s
o.:
the owners o. ne*otia0le instr'ments comm'nicatin* with a central
comm'nication and &rocessin* 'nit in order to re*ister with the 'nit 0y
&ro$idin* in.ormation? incl'din* at least identi.ication n'm0ers? linked
directly with the res&ecti$e owners and in.ormation linked directly with
the ne*otia0le instr'ments in res&ect o. which .ra'd is to 0e inhi0ited?
each owner then 0ein* &ro$ided with an indi$id'al secret code 0y the 'nitL
and the &resentees o. ne*otia0le instr'ments comm'nicatin* with the
central comm'nication and &rocessin* 'nit in order to re*ister with the 'nit
0y &ro$idin* in.ormation? incl'din* at least identi.ication n'm0ers? linked
directly with the res&ecti$e &resentees? each &resentee then 0ein*
&ro$ided with an indi$id'al secret code 0y the 'nit? and which incl'des?
in relation to each ne*otia0le instr'ment to 0e iss'ed or 'sed 0y a
re*istered owner? the ste&s o.:
the re*istered owner comm'nicatin* with the central comm'nication and
&rocessin* 'nit in order to a'thoriBe the ne*otia0le instr'ment? 0y
identi.ication $ia the identi.ication n'm0er and the indi$id'al secret
code linked with the owner and 0y &ro$idin* s'..icient details in res&ect
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47
o. the ne*otia0le instr'ment .or s'0seA'ently &ermittin* the instr'ment to
0e $eri.ied? the 'nit then iss'in* an a'thoriBation code to 0e linked with
the instr'mentL and '&on &resentation o. the a'thoriBed ne*otia0le
instr'ment 0y a &resentor to a &resentee? the &resentee comm'nicatin*
with the central comm'nication and &rocessin* 'nit in order to $eri.y the
ne*otia0le instr'ment? 0y identi.ication $ia the indi$id'al secret code linked
with the &resentee and &ro$idin* the a'thoriBation code linked with the
instr'ment? the 'nit in res&onse comm'nicatin* to the &resentee the
details .or $eri.yin* the instr'ment &ro$ided 0y the owner o. the instr'ment
and there0y &ermittin* the &resentee to $eri.y the instr'ment as the
instr'ment a'thoriBed 0y the owner;
3he system o. the in$ention &artic'larly may &ro$ide .or the central
comm'nication and &rocessin* 'nit to &ermit comm'nication $ia a direct
tele&hone line and? as s'ch? incl'des an a'dio te6t electronic &rocessin*
system that &ermits $er0al in.ormation to 0e con$erted into 0inary code?
and a &rocessin* and memory system linked to the a'dio te6t electronic
&rocessin* system .or &rocessin* in.ormation recei$ed 0y the a'dio te6t
electronic &rocessin* system and there0y carryin* o't the .'nctions o. the
'nit; Alternati$ely? or in addition? the central comm'nication and
&rocessin* 'nit may &ermit comm'nication $ia the internet and? as s'ch?
may incl'de a &rocessin* and memory system .or recei$in* and
&rocessin* in.ormation recei$ed $ia the internet and there0y carryin* o't
the .'nctions o. the 'nit;
Presentees re*isterin* with the 'nit also will &ro$ide the 'nit with any
other in.ormation? incl'din* at least their names? that will s'0seA'ently
&ermit the 'nit to identi.y a &artic'lar &resentee that dealt with the
$eri.ication o. a &artic'lar ne*otia0le instr'ment;
-wners re*isterin* with the 'nit? inso.ar as the owners are nat'ral
&ersons? may &ro$ide at least their names and their o..icial identity
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48
n'm0ers; 1nso.ar as owners are #'ristic &ersons s'ch as re*istered
0'sinesses? '&on re*isterin* with the 'nit they will &ro$ide at least their
names and their o..icial re*istration n'm0ers;
3he system o. the in$ention may &ro$ide .or owners re*isterin* with the
'nit? inso.ar as they wish to 'se the system .or inhi0itin* .ra'd in
res&ect o. ne*otia0le instr'ments s'ch as cheA'es rendered &aya0le $ia
their 0ank acco'nts? to &ro$ide the 'nit with the name o. each rele$ant
0ank? the 0ranch code associated with the said rele$ant 0ank and the
rele$ant 0ank acco'nt n'm0er;
1nso.ar as owners re*isterin* with the 'nit wish to 'se the system .or
inhi0itin* .ra'd in res&ect o. ne*otia0le instr'ments s'ch as credit cards
iss'ed to them 0y 0anks and linked to acco'nts? the system will &ro$ide
.or s'ch owners to &ro$ide the 'nit with the name o. each rele$ant 0ank
and the card ty&e? the n'm0er o. each rele$ant card and the name o. the
card owner that a&&ears on the card;
4'rther accordin* to the in$ention? the system may &ro$ide .or the
re*istered owner o. a cheA'e 0ein* iss'ed 0y the owner? when a'thoriBin*
the cheA'e? to &ro$ide to the 'nit 0ank acco'nt details o. the &ayee and
an identi.ication n'm0er linked with the &ayee? the cheA'e n'm0er? the
amo'nt indicated on the cheA'e and the name o. the &ayee and? when
iss'ed 0y the 'nit with an a'thoriBation code? to a&&ly the code to the
cheA'e; 1n relation to an a'thoriBed cheA'e? the system may &ro$ide .or
the &resentee? '&on 0ein* &resented with an a'thoriBed cheA'e and in
order to $eri.y the cheA'e? .ollowin* the identi.ication o. the &resentee to
the 'nit and the &ro$ision o. the a'thoriBation code a&&lied to the cheA'e?
.or the 'nit to comm'nicate to the &resentee acco'nt details o. a &ayee?
the identi.ication n'm0er linked with a &ayee? a cheA'e n'm0er? an
amo'nt and a &ayee name and i. this in.ormation matches the in.ormation
a&&lied to the cheA'e &resented? to $eri.y the cheA'e; !till .'rther?
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49
.ollowin* $eri.ication o. the cheA'e? the system may &ro$ide .or the 'nit to
&ro$ide the &resentee with a transaction code which m'st 0e a&&lied 0y
the &resentee to the cheA'e? the transaction code &ermittin* details o.
$eri.ication as stored 0y the 'nit to 0e retrie$ed .rom the 'nit;
3he system o. the in$ention may &ro$ide still .'rther .or the re*istered
owner o. a credit card iss'ed 0y a 0ank? '&on a'thoriBin* a tele&honic or
an online credit card transaction? .or the owner to &ro$ide the 'nit with
the name o. the 0ank that iss'ed the card and the ty&e o. card? the card
n'm0er and the name o. the card owner that a&&ears on the card? and
when iss'ed with an a'thoriBation code 0y the 'nit? to s'&&ly the code to
the $endor with whom the transaction is takin* &lace to &ermit the $endor
as &resentee to $eri.y the credit card 0y comm'nicatin* with the 'nit;
!till .'rther accordin* to the in$ention? the system may &ro$ide? when a
re*istered owner o. a credit card iss'ed 0y a 0ank &resents as &resentor
the card to a $endor as &resentee? in order to &er.orm a direct credit
card transaction? .or the a'thoriBation and $eri.ication o. the card to 0e
sim'ltaneo'sly &er.ormed 0y the &resentee &ro$idin* the 'nit with the
credit card n'm0er and the &resentor &ro$idin* the 'nit with the
indi$id'al secret code o. the owner? in res&onse to which the 'nit
&ro$ides the &resentee a name o. a 0ank that iss'ed a card? a card
n'm0er and a name o. a card owner and i. this in.ormation matches the
in.ormation on the card as &resented to the &resentee? the card is 0oth
a'thoriBed and $eri.ied there0y;
3he in$ention e6tends also to a central comm'nication and &rocessin* 'nit
which is controlled 0y a so.tware &ro*ram .or ena0lin* a system .or
inhi0itin* .ra'd in relation to the 'se o. ne*otia0le instr'ments in
accordance with the in$ention; !till .'rther? the in$ention e6tends to a
so.tware &ro*ram .or controllin* the o&eration o. a central comm'nication
and &rocessin* 'nit .or ena0lin* a system .or inhi0itin* .ra'd in relation to
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50
the 'se o. ne*otia0le instr'ments in accordance with the in$ention;
1t m'st 0e a&&reciated that the system o. the in$ention as a0o$e de.ined
may 0e a&&lied s&eci.ically also to the a'thoriBation and $eri.ication o.
ne*otia0le instr'ments not &artic'larly in the .orm o. cheA'es or credit
cards? 0y a&&lyin* the same &rinci&les to those a&&lied when a'thoriBin*
and $eri.yin* cheA'es or credit cards? and the system o. the in$ention as
de.ined m'st 0e inter&reted as s'ch;
Ins<ite of all the inventions made to sto< fraudulent <ractices: the
fraud ?ee<s ta?ing <lace + Ever9 da9 we read in the news <a<er how
a credit card is stolen and easil9 used for ma?ing <urchases b9 the
thief without the ?nowledge of the real owner+ Then when ma?ing
<a9ments online b9 credit card so man9 times the credit card number
gets hac?ed and then used b9 the hac?er for ma?ing online
<urchases +29 the time the owner realiBes the thief gets awa9 b9
ma?ing big <urchases+
New laws and wa9s are being ado<ted for sto<<ing fraudulent
<ractices but the best and the onl9 wa9 it can be ?e<t under control is
b9 the owner of these negotiable instruments himself+ 1e should be
careful and ta?e all necessar9 <recautions while using these
negotiable instruments +When ma?ing online <a9ments one should
ma?e sure later b9 calling his ban? customer care and confirming
that onl9 the transaction made b9 him is showing +In the event of
misuseGtheft: one should immediatel9 re<ort to the concerned
authorities for sto<<ing <a9ment from that account
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51
REC"-TI!NS T! 2E T"6EN T! "V!I/ .R"-/
1; Kee& an eye on yo'r credit card e$ery time yo' 'se it? and make s're yo' *et
it 0ack as A'ickly as &ossi0le; 3ry not to let yo'r credit card o't o. yo'r si*ht
whene$er &ossi0le;
2; Be $ery care.'l to whom yo' *i$e yo'r credit card; %onJt *i$e o't yo'r acco'nt
n'm0er o$er the &hone 'nless yo' initiate the call and yo' know the com&any is
re&'ta0le; /e$er *i$e yo'r credit card in.o o't when yo' recei$e a &hone call;
(4or e6am&le? i. yo'Jre told there has 0een a Jcom&'ter &ro0lemJ and the caller
needs yo' to $eri.y in.ormation;) 8e*itimate com&anies donJt call yo' to ask .or a
credit card n'm0er o$er the &hone;
3; /e$er res&ond to emails that reA'est yo' &ro$ide yo'r credit card in.o $ia
email 77 and donJt e$er res&ond to emails that ask yo' to *o to a we0site to $eri.y
&ersonal (and credit card) in.ormation; 3hese are called J&hishin*J scams;
+; /e$er &ro$ide yo'r credit card in.ormation on a we0site that is not a sec're
site;
C; !i*n yo'r credit cards as soon as yo' recei$e them;
6; !hred all credit card a&&lications yo' recei$e;
7; %onJt write yo'r P1/ n'm0er on yo'r credit card 77 or ha$e it anywhere near
yo'r credit card (in the e$ent that yo'r wallet *ets stolen);
(; /e$er lea$e yo'r credit cards or recei&ts lyin* aro'nd;
9; !hield yo'r credit card n'm0er so that others aro'nd yo' canJt co&y it or
ca&t're it on a cell &hone or other camera;
1; Kee& a list in a sec're &lace with all o. yo'r acco'nt n'm0ers and e6&iration
dates? as well as the &hone n'm0er and address o. each 0ank that has iss'ed
yo' a credit card; Kee& this list '&dated each time yo' *et a new credit card;
11; -nly carry aro'nd credit cards that yo' a0sol'tely need; %onJt carry aro'nd
e6tra credit cards that yo' rarely 'se;
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52
12; -&en credit card 0ills &rom&tly and make s're there are no 0o*'s char*es;
3reat yo'r credit card 0ill like yo'r checkin* acco'nt 77 reconcile it monthly; !a$e
yo'r recei&ts so yo' can com&are them with yo'r monthly 0ills;
13; 1. yo' .ind any char*es that yo' donJt ha$e a recei&t .or 77 or that yo' donJt
reco*niBe 77 re&ort these char*es &rom&tly (and in writin*) to the credit card
iss'er;
1+; Always $oid and destroy incorrect recei&ts;
1C; !hred anythin* with yo'r credit card n'm0er written on it;
16; /e$er si*n a 0lank credit card recei&t; 5are.'lly draw a line thro'*h 0lank
&ortions o. the recei&t where additional char*es co'ld 0e .ra'd'lently added;
17; 5ar0on &a&er is rarely 'sed these days? 0't i. there is a car0on that is 'sed
in a credit card transaction? destroy it immediately;
1(; /e$er write yo'r credit card acco'nt n'm0er in a &'0lic &lace (s'ch as on a
&ostcard or so that it shows thro'*h the en$elo&e &ayment window);
19; 1deally? itJs a *ood idea to carry yo'r credit cards se&arately .rom yo'r wallet
77 &erha&s in a Bi&&ered com&artment or a small &o'ch;
2; /e$er lend a credit card to anyone else;
21; 1. yo' mo$e? noti.y yo'r credit card iss'ers in ad$ance o. yo'r chan*e o.
address;
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53
%)+ RESENT SCEN"RI! !. NEG!TI"2,E
INSTR-0ENTS
8e*al iss'es relatin* to electronic transaction &rocessin* at 0anks are $ery
many and the need to address them 0y amendin* some o. the e6istin* Acts
and 0y &romotin* le*islation in a .ew hitherto 'ne6&ected areas has ass'med
critical 'r*ency; /ecessary le*islati$e s'&&ort is essential to &rotect the
interests as m'ch o. the c'stomers as o. the 0anks D 0ranches in se$eral
areas relatin* to electronic 0ankin* and &ayment systems; 3his is s&ecially
reA'ired to esta0lish the credi0ility o. ,5! and ,43 schemes 0ased on the
electronic messa*e trans.er; !ince the "eser$e Bank is em0arkin* on lar*e
electronic schemes s'ch as the nationwide "3)!? it is time that e..orts are
made to 0rin* a0o't necessary le*islati$e .ramework that synchroniBes and
synthesiBes with the initiati$es taken 0y the )o$ernment o. 1ndia? %e&artment
o. ,lectronics .or &romotion o. the 1n.ormation 3echnolo*y Bill? 1999 and D or
the ,lectronic 5ommerce Bill? 1999;
Need for Regulation G ,egislation on Netting
3here is a *rowin* de0ate on the le*ality o. netting in inter70ank .'nds trans.er
transactions; 3his is more so in the case o. lar*e $al'e transactions; 3he &osition
*ets all the more com&licated in the case o. cross 0order nettin* arran*ements;
1n .act? the iss'e *ained critical si*ni.icance while e6aminin* the &ro&osal .or
settin* '& o. a .orei*n e6chan*e clearin* and settlement system in 1ndia; 3he
0asic iss'e in nettin* systems is that o. the settlement risk and the systemic risks
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54
0orne 0y the &artici&ants i. one or some o. the &artici&ants .ail to meet the
clearin* lia0ility; 1n case o. .'nds trans.ers settled on a gross 0asis? the &arties
in$ol$ed are only two and principal risk i. any? is only .or the s&eci.ic transaction;
B't in m'ltilateral nettin* systems where claims and o0li*ations acc'm'late o$er
a &eriod o. time (called the clearin* cycle)? incomin* and o't*oin* &ayments are
set o.. a*ainst each other; 1n case o. .ail're o. a &arty in meetin* the clearin*
lia0ility? the methodolo*y o. identi.yin* the co'nter7&arties D co'nter&arts and
determinin* the e6&os're le$el 0ecomes di..ic'lt; Altho'*h nettin* system is in
$o*'e in 1ndia .or all inter70ank clearin*s 0y way o. &roced'ral details em0odied
in the <ni.orm "'les and "e*'lations .or 5learin* =o'ses? it is necessary that
the &ro$isions are made stat'tory; 3here is a need to amend !ection C( o. the
"eser$e Bank o. 1ndia Act? 193+ with a $iew to ena0lin* "B1 to .rame s&eci.ic
re*'lations
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55
%'+ S-00"R5
3he &ro#ect on ne*otia0le instr'ments starts with the e$ol'tion o. trade and
commerce which in t'rn leads to the disco$ery o. ne*otia0le instr'ments; 2e as
a *ro'& workin* on this to&ic had c'riosity on the need o. ne*otia0le instr'ments
in the market; -'r research *a$e 's an idea and an o$er$iew o. the e$ol'tion o.
trade and commerce as a whole which ke&t on de$elo&in* and *rowin* 0i**er;
2e came across the di..erent sta*es thro'*h which trade and commerce went:
1; PA!3-"A8 !3A), where 0'siness was limited and s'r$i$al 0y 0reedin*
o. animals was the main motto; 3he .irst sta*e had to do nothin* with
money? &eo&le li$ed a nomadic li.e;
2; =owe$er man learned A'ickly to *row .ood .or their own need which can
0e termed as the A)"15<83<"A8 !3A),; 3he demand increased .or
other commodities as well and th's BA"3," !E!3,M was introd'ced;
3his can 0e termed as the t'rnin* &oint o. trade and commerce;
3; A.ter this man ne$er looked 0ack; 3hey started &rod'cin* s&ecialiBed
&rod'cts which led to the introd'ction o. =A/%15"A43 !3A),;
+; 3hen came the era in which &eo&le started to think a0o't de$elo&ment and
th's .ormed *ro'&s to &rotect their ri*hts? this was known as the )<18%
!3A),;
C; 3hen came the sta*e where technolo*y was introd'ced and 0'siness
.orms 0ecame com&le6? this is where the necessity o. introd'cin*
ne*otia0le instr'ments were .elt;
3his was known as the 4A53-"E !3A),
=owe$er it was noted that the *rowth was $ery slow and the system was $ery
com&le6; 3here were di..erent instr'ments 'sed to &'rchase di..erent
commodities in di..erent sta*es; 3he system o. e6chan*e was s'ch that it led
to con.'sion and $ario's com&le6ities; 3o a$oid s'ch con.'sion and to o&erate
the 0'siness acti$ities smoothly ne*otia0le instr'ments were introd'ced;
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56
/ow as we ha$e come across the term ne*otia0le instr'ments and why it was
e$ol$ed? lets now ha$e a 0rie. knowled*e a0o't ne*otia0le instr'ment;
Negotiable instruments are &artic'lar ty&e o. doc'ments 'sed .or makin*
&ayment in 0'siness transactions? the ownershi& o. which can 0e .reely
trans.erred .rom one &erson to another;
T9<es of Negotiable Instruments
7 Promissory note
7 Bill o. e6chan*e
7 5heA'e
7 ='ndi
%+ romissor9 note 7 An instr'ment in writin* containin* an 'nconditional
'ndertakin*? si*ned 0y the maker? to &ay a certain s'm o. money only to or to the
order o. a certain &erson or to the 0earer o. the instr'ment;
#+ 2ill of e;change 7 An instr'ment in writin* containin* an 'nconditional order?
si*ned 0y the maker? directin* a certain &erson to &ay a certain s'm o. money
only to or to the order o. a certain &erson or to the 0earer o. the instr'ment;
&+ CheAue 7 1t is an order 0y the acco'nt holder o. the 0ank directin* his 0anker
to &ay on demand the s&eci.ied amo'nt? to or to the order o. the &erson named
therein or to the
0earer;
)+ 1undi 7 1t is .orm o. a 0ill o. e6chan*e drawn in any local lan*'a*e in
accordance with the c'stom o. the &lace;
.eatures of negotiable instruments are4
1; 4ree trans.era0ility
2; A0sol'te N *ood title
3; Always in written .orm
+; <nconditional order or &romise .or &ayment
C; 5ertainty o. &ayment
6; Payee
7; !i*nat're o. the maker
(; %eli$ery o. the instr'ment
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9; !tam&in* o. B-, N Promissory notes mandatory
Negotiation of Commercial <a<er
1; Assi*nment
2; /e*otiation
3; ,ndorsements
E;ce<tions
1; 8etters o. 5redit T ArticleC
2; Bills o. 8adin* and other doc'ments o. title TArticle7
3; !ec'rities TArticle(
+; %eeds N other doc'ments con$eyin* interests in real estate TArticle3
C; 1-<s
2I2,!GR"15
1; damodaran;com
2; knowle*eworld;com
3; indialaw;com
+; casest'dy;com
C; *oo*le;com
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