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-Group 10
Section -A
 M 
d A law relating to negotiable instruments
d Deals with promissory notes, bills of
exchange & cheques
d Act extends to whole of India
d The Act came into existence on 1st March,
1882
d The latest amendment to the act was
made in 1988
12/8/2010 The Negotiable Instruments Act,1881 2
 
d Jhat is a negotiable Instrument?

d A negotiable instrument is the one which

transfers a debt from one person to
another.

d Special class of contracts.

12/8/2010 The Negotiable Instruments Act,1881 3

  
 
d ½reely transferable
d Title of holder free from all defects
d Recovery
d Presumptions: Consideration, date, time,
time of acceptance & transfer, order of
indorsements , stamp, holder is a holder
in due course, proof of protest

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 c




 


d Negotiable by Statute

d Negotiable by custom or usage

12/8/2010 The Negotiable Instruments Act,1881 5

 





Promissory Note : -

A Ơpromissory noteơ is an instrument in writing (not a

bank--note or a currency-
bank currency-note) containing an
unconditional under­taking, signed by the maker, to pay
a certain sum of money only to, or to the order of, a
certain person, or to the bearer of the instrument.

Parties Involved: -
d Maker

d Payee

12/8/2010 The Negotiable Instruments Act,1881 6

ÿ

 

d Must be in writing
d Promise to pay
d Definite & unconditional
d Signed by the maker
d Certain parties
d Certain sum of money
d Promise to pay only money
d No bank note or currency note
d Other formalities

12/8/2010 The Negotiable Instruments Act,1881 7

 

ÿ  

A Ơbill of exchangeơ is an instrument in writing

containing an unconditional order, signed by the
maker, directing a certain person to pay a
certain sum of money only to, or to the order of,
a certain person or to the bearer of the
instrument.
Parties Involved: -
d Drawer
d Drawee
d Payee

12/8/2010 The Negotiable Instruments Act,1881 8

 ÿ





 ÿ
d In writing
d Order to pay
d Unconditional
d Requires 3 parties & certain
d Signed
d Sum to be certain
d Order to pay money
d Other formalities

12/8/2010 The Negotiable Instruments Act,1881 9

 


[ Ơa bill of exchange drawn on a specified

banker and not expressed to be payable
otherwise than on demand
[ it includes the electronic image of a
truncated cheque and a cheque in the
electronic form.ơ

12/8/2010 The Negotiable Instruments Act,1881 10

 


Marking of Cheques

d At drawer's instance
d At holderƞs instance
d At collecting Bankerƞs instance

Crossing of Cheques

d General crossing
d Special crossing

12/8/2010 The Negotiable Instruments Act,1881 11

 ’


d 0


 d Prom oryot
d Three parties-
parties-drawer, d Two parties-
parties-maker,
drawee, payee payee
d Unconditional order d Unconditional promise
d Drawer--creditor
Drawer d Maker--debtor
Maker
d Liability is secondary d Liability is primary
d Can be drawn payable to d Cannot be drawn payable
bearer to bearer
d Drawer stands in d Maker stands in
immediate relation with immediate relation with
acceptor and not payee. the payee

12/8/2010 The Negotiable Instruments Act,1881 12

 ’   
  
d 0

o
 d 
d Drawn on any person d Drawn on a banker
d Bill must be accepted d Cheque requires no
before drawee can be acceptance
called for payment d Not entitled to any days
d Entitled to 3 days of of grace
grace d May be crossed
d Not crossed d Does not require stamp
d Requires stamp d Not protested for
d May be protested for dishonour
dishonour

12/8/2010 The Negotiable Instruments Act,1881 13

 
 



 

d Bearer or order instruments
d Inland & ½oreign instruments
d Instruments payable on demand
d Time instruments
d Accommodation Bill
d ½ictitious bill
d Documentary or clean bill
d Escrow
d Ambiguous Instrument
d Inchoate Instrument

12/8/2010 The Negotiable Instruments Act,1881 14

 





d Bill in sets
d Maturity & days of grace
d Payment in due course
d Interest on bills & notes

12/8/2010 The Negotiable Instruments Act,1881 15

 
 
Every person capable of contracting, according to the law to which
he is subject, may bind himself and be bound by the making,
drawing, acceptance, endorsement, delivery and negotiation of a
promissory note, bill of exchange or cheque.

d Minors
d Persons of unsound mind
d Corporations
d Agents
d Partners
d Hindu Joint ½amily
d Legal Representatives

12/8/2010 The Negotiable Instruments Act,1881 16

 




 

1) Parties to Bill of Exchange: -

d Drawer
d Drawee
d Acceptor
d Payee
d Holder
d Indorser
d Indorsee
d Drawee in case of need
d Acceptor of honour

12/8/2010 The Negotiable Instruments Act,1881 17

 




 

d 2) Parties to a Promissory Note: -
Maker, Payee, Holder, Indorser,
Indorsee

d 3)Parties to a cheque: -
Maker, Drawee, Payee, Holder,
Indorser, Indorsee
12/8/2010 The Negotiable Instruments Act,1881 18
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12/8/2010 The Negotiable Instruments Act,1881 19

 ·   
  
1) Liability of drawer
2) Liability of drawee of cheque
3) Liability of maker of note and acceptor of
bill
4) Liability of indorser
5) Liability of prior parties to a holder in due
course

12/8/2010 The Negotiable Instruments Act,1881 20

 

ü Jhen a promissory note, bill of exchange or cheque is
transferred to any person, so as to constitute the
transferee the holder thereof, the instrument is said to
be negotiated.

ü This Transfer may take place either:

1)By Negotiation
d Negotiation by delivery
d Negotiation by indorsement & delivery

2)By Assignment

12/8/2010 The Negotiable Instruments Act,1881 21

 


ü Jhen the maker or holder of a negotiable instrument signs the
same for the purpose of negotiation, on the back or face thereof or
on a slip of paper annexed thereto, or so signs for the same
purpose a stamped paper intended to be completed as a negotiable
instrument, he is said to indorse the same, and is called the
inndorser

Essentials of Valid Indorsement: -

d It must be on the instrument itself

d It must be signed by the indorser
d It must be completed by the delivery of the instrument

12/8/2010 The Negotiable Instruments Act,1881 22

  



d Blank or general Indorsement

d ½ull or special Indorsement
d Restrictive Indorsement
d Partial Indorsement
d Conditional Indorsement

12/8/2010 The Negotiable Instruments Act,1881 23

  
  
 

 


d Stolen instruments
d Coercion or ½raud
d Unlawful consideration
d ½orged instruments
d ½orged indorsement
d Jithout Consideration
d Lost negotiable instruments

12/8/2010 The Negotiable Instruments Act,1881 24

 
  
 
d Presentment means showing a negotiable
instrument to the drawee, acceptor or
maker for acceptance, sight or payment.
d Types:
d Presentment of bill of exchange for
acceptance.
d Presentment of promissory note for sight.
d Presentment of negotiable instruments for
payment..

12/8/2010 The Negotiable Instruments Act,1881 25

 
  
d It is only bills of exchange of certain type that
require acceptance. A bill is said to be accepted
when the drawee put his signature on it.
d Essentials of a valid acceptance-
acceptance-
d It must be written on bill.
d It must be signed by the drawee personally or
through a authorised agent.
d The accepted bill must be delivered to the
holder.

12/8/2010 The Negotiable Instruments Act,1881 26

 
  
d General acceptance.
d Qualified acceptance.
d An acceptance is qualified when it is
d Conditional
d Partial
d Qualified as to place and
d Qualified as to time
d Acceptance by some of drawees but not all.

12/8/2010 The Negotiable Instruments Act,1881 27







!
d The drawee
d All or some of several drawees
d Drawee in case of need
d All the drawees in case of several
drawees
d Duly authorized agent of the drawee
d Legal representative in case of death of
the drawee
d Official Receiver or Assignee in case of
insolvency of the drawee

12/8/2010 The Negotiable Instruments Act,1881 28

 




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d Jhen:

a. If a time for presentment for

acceptance is specified in the bill.
b. If time is not specified in the bill.
c. In case of a bill payable after sight.

12/8/2010 The Negotiable Instruments Act,1881 29

 




"





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d Jhere
a. If place for presentment is mentioned in
the bill
b. If the place of presentment is not
mentioned in the bill
c. The holder must allow the drawee forty-
forty-
eight hours to consider whether to
accept the bill

12/8/2010 The Negotiable Instruments Act,1881 30

d Effect of non-
non-presentment

Jhen presentment for acceptance is excused:

a. drawee after reasonable search cannot
be found
b. drawee is dead or insolvent
c. drawee is a fictitious person or one incapable of
contracting

12/8/2010 The Negotiable Instruments Act,1881 31

 

 
d Jhen the bill is dishonoured by non-
non-
acceptance holder may allow any other
person to accept it for the honour of
drawer or any one of the indorsers.

Conditions for valid acceptance for

honour:
d The bill must have been noted or
protested.
12/8/2010 The Negotiable Instruments Act,1881 32
 Ʀ..
d The acceptance for honour must be made with
the consent of the holder.

d It must be written on the bill indicating that it is

an acceptance for honour of the party liable on
the bill.

d It must be signed by the acceptor who must not

be already liable on the bill .

12/8/2010 The Negotiable Instruments Act,1881 33

 
   


 
d Obligation of the acceptor for honour is not
absolute.

The following conditions has to be fulfilled:

ƥ The bill should once more be presented to the

drawee for payment at maturity.

ƥ If the drawee still refuses to pay, the bill should

be noted or protested for payment.

12/8/2010 The Negotiable Instruments Act,1881 34

 
 




d Presentment for sight.

d Presentment for payment.

12/8/2010 The Negotiable Instruments Act,1881 35

 ’ 



 

d A bill of exchange may be dishonoured by non-
non-
acceptance or non-
non-payment.

d A promissory note and a cheque may be

dishonoured by non-
non-payment only.

d Notice of dishonour must be given to all the

prior parties in order to make them liable on the
instrument.

12/8/2010 The Negotiable Instruments Act,1881 36

 o

d Notice of dishonour by whom?

d Notice of dishonour to whom?

d ½orm of notice.

12/8/2010 The Negotiable Instruments Act,1881 37

 
d Noting means the recording of the fact of
dishonour by a notary public upon the
instrument or upon a paper attached there to or
partly upon each.

d Noting must contain following particulars:

d The fact of dishonour.
d Date of dishonour.
d Reasons, if any assigned.
d The notary charges.

12/8/2010 The Negotiable Instruments Act,1881 38

 
½act of dishonour of bill of exchange or promissory note
is noted and certified by Notary Public. Such certificate is
called protest.

Contents of protest:
d The instrument or literal transcript of the instrument.
d The name of the person for whom and against whom the
instrument has been protested.
d The reason for dishonour.
d The place and time of dishonour.
d The signature of the Notary Public

12/8/2010 The Negotiable Instruments Act,1881 39

 ’  
 


d By payment in due course

d Payment of interest (Sec 80)
d By express waiver
d By cancellation

12/8/2010 The Negotiable Instruments Act,1881 40

 ’  


d By payment [Sec 82(c)]

d By cancellation [Sec 82(a)]
d By release [Sec 82(b)]
d By operation of law
d By material alteration (Sec 87)

12/8/2010 The Negotiable Instruments Act,1881 41

 




Instances of material Alteration

d The date
d Sum Payable
d Time of payment
d Place of payment & addition of place of
payment
d Rate of interest

12/8/2010 The Negotiable Instruments Act,1881 42

 ÿ
ÿ·
Jhen a person by his conduct or words
spoken or written leads another person to
believe that a certain state of affairs
exists, he is estopped from denying the
facts of that statement later.

12/8/2010 The Negotiable Instruments Act,1881 43

 Ô 
ÿ
d Estoppel against denying original validity
of instrument (sec 120)

d Estoppel against denying capacity of

payee to indorse (sec 121)

d Indorse not permitted to deny the

capacity of prior parties (sec 122)
12/8/2010 The Negotiable Instruments Act,1881 44
  
   · 
1. Liability: The liability of the maker or drawer of foreign
promissory note is determined by the law of place
where the instrument has been made .The liability of
the acceptor is determined by the law of place where
the instrument is payable.

2. Dishonour: A promissory note,bill of exchange is made

payable in different place from that in which it is made
or indorsed,the law of place determines what
constitute dishonour

3. Instruments made out of India according to the

provisions of Indian law

12/8/2010 The Negotiable Instruments Act,1881 45

 M
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d Unconditional order in writing made by a person
directing another to pay a certain sum of money
to a person named in the order.

d Expressed in vernacular language also.

d Being a part of the informal system have no

legal status and are not covered under the
Negotiable Instruments Act, 1881.

12/8/2010 The Negotiable Instruments Act,1881 46

12/8/2010 The Negotiable Instruments Act,1881 47
 #
 

Banking is defined as an activity of
accepting deposits from the public,
repayable on demand or otherwise and
withdrawal by cheque, draft or otherwise
and such acceptance of money is for the
purpose of lending or investments.

12/8/2010 The Negotiable Instruments Act,1881 48

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12/8/2010 The Negotiable Instruments Act,1881 49
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1. Jhen a Cheque is post-
post-dated and presented
for payment before that date
2. Lack of sufficient funds
3. The funds are not available for the purpose
4. Cheque is of doubtful legality
5. Jhen the Cheque is not duly presented
6. Signature doesn't match
7. Cheque presented at a branch where the
customer has no account
8. Jhen the Cheque has become stale
12/8/2010 The Negotiable Instruments Act,1881 50
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12/8/2010 The Negotiable Instruments Act,1881 51



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1. Paying banker will not be liable if holder of

a bearer Cheque is not actual owner of the
Cheque [Sec 85(2)].
2. If a Cheque is crossed generally
(Sec 126 Para 1)
If a cheque is crossed specially
(Sec 126 Para 2)

12/8/2010 The Negotiable Instruments Act,1881 52

 o
Paying banker will not be protected if
the drawerƞs signature is forged and the
banker makes the payment on the
cheque

12/8/2010 The Negotiable Instruments Act,1881 53

 
Akanksha Kedia(½PB0709/007)
Anindita Kundu(½PB0709/015)
Anupama(½PB0709/020)
Isha Mehta(½PB0709/056)
Yageshwari Trivedi(½PB0709/158)

12/8/2010 The Negotiable Instruments Act,1881 54