The Negotiable Instruments Act ,1881

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History 
 

 

A law relating to negotiable instruments Deals with promissory notes, bills of exchange & cheques Act extends to whole of India The Act came into existence on 1st March, 1882 The latest amendment to the act was made in 1988
The Negotiable Instruments Act,1881 2

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Introduction 

What is a negotiable Instrument? A negotiable instrument is the one which transfers a debt from one person to another. Special class of contracts.  

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The Negotiable Instruments Act,1881

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Characteristics 
  

Freely transferable Title of holder free from all defects Recovery 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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The Negotiable Instruments Act,1881

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Types of Negotiable Instruments 

Negotiable by Statute 

Negotiable by custom or usage

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The Negotiable Instruments Act,1881

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Notes Bills & Cheques Promissory Note : A promissory note is an instrument in writing (not a bankbank-note or a currency-note) containing an currencyunconditional under­taking.1881 6 . signed by the maker. or to the bearer of the instrument. to pay a certain sum of money only to. or to the order of. Parties Involved:  Maker  Payee 12/8/2010 The Negotiable Instruments Act. a certain person.

1881 7 12/8/2010 .Essentials of Promissory note          Must be in writing Promise to pay Definite & unconditional Signed by the maker Certain parties Certain sum of money Promise to pay only money No bank note or currency note Other formalities The Negotiable Instruments Act.

Parties Involved:  Drawer  Drawee  Payee 12/8/2010 The Negotiable Instruments Act.Bill of Exchange A bill of exchange is an instrument in writing containing an unconditional order. signed by the maker.1881 8 . 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.

Essential elements of BOE         In writing Order to pay Unconditional Requires 3 parties & certain Signed Sum to be certain Order to pay money Other formalities The Negotiable Instruments Act.1881 9 12/8/2010 .

Cheque  a 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. 12/8/2010 The Negotiable Instruments Act.1881 10 .

Cheque Marking of Cheques    At drawer's instance At holder s instance At collecting Banker s instance Crossing of Cheques   General crossing Special crossing The Negotiable Instruments Act.1881 11 12/8/2010 .

Difference        Bill Of Exchange Three parties-drawer. payee Unconditional order DrawerDrawer-creditor Liability is secondary Can be drawn payable to bearer Drawer stands in immediate relation with acceptor and not payee. partiesdrawee. partiespayee Unconditional promise MakerMaker-debtor Liability is primary Cannot be drawn payable to bearer Maker stands in immediate relation with the payee 12/8/2010 The Negotiable Instruments Act.        Promissory Note Two parties-maker.1881 12 .

1881 13 .Distinguishing Features        Bill of Exchange Drawn on any person Bill must be accepted before drawee can be called for payment Entitled to 3 days of grace Not crossed Requires stamp May be protested for dishonour        Cheque Drawn on a banker Cheque requires no acceptance Not entitled to any days of grace May be crossed Does not require stamp Not protested for dishonour 12/8/2010 The Negotiable Instruments Act.

1881 14 12/8/2010 .Classification of Negotiable Instruments           Bearer or order instruments Inland & Foreign instruments Instruments payable on demand Time instruments Accommodation Bill Fictitious bill Documentary or clean bill Escrow Ambiguous Instrument Inchoate Instrument The Negotiable Instruments Act.

1881 15 .Notes Bills & Cheques     Bill in sets Maturity & days of grace Payment in due course Interest on bills & notes 12/8/2010 The Negotiable Instruments Act.

according to the law to which he is subject.        Minors Persons of unsound mind Corporations Agents Partners Hindu Joint Family Legal Representatives The Negotiable Instruments Act.Capacity Of Partners: Every person capable of contracting. endorsement. drawing. delivery and negotiation of a promissory note. bill of exchange or cheque.1881 16 12/8/2010 . may bind himself and be bound by the making. acceptance.

Parties to Negotiable Instruments 1) Parties to Bill of Exchange:          Drawer Drawee Acceptor Payee Holder Indorser Indorsee Drawee in case of need Acceptor of honour The Negotiable Instruments Act.1881 17 12/8/2010 .

Indorsee 12/8/2010 The Negotiable Instruments Act. Payee. Drawee. Indorsee  3)Parties to a cheque: - Maker.1881 18 . Payee. Holder. Indorser. Indorser.Parties to Negotiable Instruments  2) Parties to a Promissory Note: - Maker. Holder.

if payable to order. Where the note.1881 19 . its holder is the person so entitled at the time of such loss or destruction.Holder:  The holder of a promissory note. or the payee or indorsee thereof. bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. bill of exchange or cheque if payable to bearer. 12/8/2010 The Negotiable Instruments Act.  HOLDER IN DUE COURSE: Holder in due course means any person who for consideration became the possessor of a promissory note. bill or cheque is lost or destroyed.

Liability Of Parties: 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 .

Negotiation  When a promissory note. the instrument is said to be negotiated. This Transfer may take place either:  1)By Negotiation   Negotiation by delivery Negotiation by indorsement & delivery 2)By Assignment 12/8/2010 The Negotiable Instruments Act.1881 21 . bill of exchange or cheque is transferred to any person. so as to constitute the transferee the holder thereof.

1881 22 12/8/2010 .Indorsement:  When the maker or holder of a negotiable instrument signs the same for the purpose of negotiation. and is called the inndorser Essentials of Valid Indorsement:    It must be on the instrument itself It must be signed by the indorser It must be completed by the delivery of the instrument The Negotiable Instruments Act. he is said to indorse the same. 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.

Kinds of Indorsement:      Blank or general Indorsement Full or special Indorsement Restrictive Indorsement Partial Indorsement Conditional Indorsement 12/8/2010 The Negotiable Instruments Act.1881 23 .

1881 24 .Instruments obtained by unlawful means        Stolen instruments Coercion or Fraud Unlawful consideration Forged instruments Forged indorsement Without Consideration Lost negotiable instruments 12/8/2010 The Negotiable Instruments Act.

Presentment of negotiable instruments for payment.. 12/8/2010 The Negotiable Instruments Act. Types:    Presentment of bill of exchange for acceptance. sight or payment.   Presentment means showing a negotiable instrument to the drawee.Presentment of a negotiable instrument.1881 25 . acceptor or maker for acceptance. Presentment of promissory note for sight.

     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.1881 26 12/8/2010 . Essentials of a valid acceptanceacceptanceIt must be written on bill.Presentment for acceptance. It must be signed by the drawee personally or through a authorised agent. The Negotiable Instruments Act. The accepted bill must be delivered to the holder.

The Negotiable Instruments Act.1881 27 12/8/2010 . An acceptance is qualified when it is Conditional Partial Qualified as to place and Qualified as to time Acceptance by some of drawees but not all.         General acceptance.Modes of acceptance. Qualified acceptance.

1881 28 12/8/2010 .Presentment of acceptance to whom?        The drawee All or some of several drawees Drawee in case of need All the drawees in case of several drawees Duly authorized agent of the drawee Legal representative in case of death of the drawee Official Receiver or Assignee in case of insolvency of the drawee The Negotiable Instruments Act.

In case of a bill payable after sight. b. a.Presentment for acceptance when and where  When: If a time for presentment for acceptance is specified in the bill. c. 12/8/2010 The Negotiable Instruments Act.1881 29 . If time is not specified in the bill.

b.1881 30 . c.Presentment for acceptance when and where  a. Where If place for presentment is mentioned in the bill If the place of presentment is not mentioned in the bill The holder must allow the drawee fortyfortyeight hours to consider whether to accept the bill 12/8/2010 The Negotiable Instruments Act.

1881 31 . drawee is dead or insolvent c. Effect of non-presentment non- When presentment for acceptance is excused: a. drawee after reasonable search cannot be found b. drawee is a fictitious person or one incapable of contracting 12/8/2010 The Negotiable Instruments Act.

The Negotiable Instruments Act.Acceptance for honour  When the bill is dishonoured by nonnonacceptance holder may allow any other person to accept it for the honour of drawer or any one of the indorsers.1881 32  12/8/2010 . Conditions for valid acceptance for honour: The bill must have been noted or protested.

1881 33   12/8/2010 .. It must be signed by the acceptor who must not be already liable on the bill . It must be written on the bill indicating that it is an acceptance for honour of the party liable on the bill. The acceptance for honour must be made with the consent of the holder.Contd  . The Negotiable Instruments Act.

12/8/2010 The Negotiable Instruments Act. If the drawee still refuses to pay.1881 34 . the bill should be noted or protested for payment.Obligations and rights of acceptance for honour  Obligation of the acceptor for honour is not absolute. The following conditions has to be fulfilled: The bill should once more be presented to the drawee for payment at maturity.

 12/8/2010 The Negotiable Instruments Act. Presentment for payment.Other forms of presentment  Presentment for sight.1881 35 .

Dishonour of a negotiable instrument  A bill of exchange may be dishonoured by nonnonacceptance or non-payment.1881 36   12/8/2010 . nonNotice of dishonour must be given to all the prior parties in order to make them liable on the instrument. The Negotiable Instruments Act. nonA promissory note and a cheque may be dishonoured by non-payment only.

 Notice of dishonour by whom? Notice of dishonour to whom? Form of notice..Contd«.1881 37 .   12/8/2010 The Negotiable Instruments Act.

Noting  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. The Negotiable Instruments Act. if any assigned. Date of dishonour.1881 38      12/8/2010 . Noting must contain following particulars: The fact of dishonour. Reasons. The notary charges.

 The signature of the Notary Public 12/8/2010 The Negotiable Instruments Act.  The place and time of dishonour.  The name of the person for whom and against whom the instrument has been protested.1881 39 .Protest Fact of dishonour of bill of exchange or promissory note is noted and certified by Notary Public. Such certificate is called protest.  The reason for dishonour. Contents of protest:  The instrument or literal transcript of the instrument.

Discharge of an Instrument     By payment in due course Payment of interest (Sec 80) By express waiver By cancellation 12/8/2010 The Negotiable Instruments Act.1881 40 .

Discharge of a Party or Parties By By By By By payment [Sec 82(c)] cancellation [Sec 82(a)] release [Sec 82(b)] operation of law material alteration (Sec 87)      12/8/2010 The Negotiable Instruments Act.1881 41 .

Material Alteration Instances of material Alteration      The date Sum Payable Time of payment Place of payment & addition of place of payment Rate of interest The Negotiable Instruments Act.1881 42 12/8/2010 .

ESTOPPEL When a person by his conduct or words spoken or written leads another person to believe that a certain state of affairs exists.1881 43 . he is estopped from denying the facts of that statement later. 12/8/2010 The Negotiable Instruments Act.

1881 44   12/8/2010 .Rules of Estoppel  Estoppel against denying original validity of instrument (sec 120) Estoppel against denying capacity of payee to indorse (sec 121) Indorse not permitted to deny the capacity of prior parties (sec 122) The Negotiable Instruments Act.

12/8/2010 The Negotiable Instruments Act. 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 .1881 45 .International Law nternational 1.the law of place determines what constitute dishonour Instruments made out of India according to the provisions of Indian law 2.bill of exchange is made payable in different place from that in which it is made or indorsed. 3.The liability of the acceptor is determined by the law of place where the instrument is payable. Dishonour: A promissory note.

1881.HUNDIS  Unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order.1881 46   12/8/2010 . The Negotiable Instruments Act. Expressed in vernacular language also. Being a part of the informal system have no legal status and are not covered under the Negotiable Instruments Act.

1881 47 .12/8/2010 The Negotiable Instruments Act.

repayable on demand or otherwise and withdrawal by cheque.1881 48 . draft or otherwise and such acceptance of money is for the purpose of lending or investments. 12/8/2010 The Negotiable Instruments Act.Banker & Customer Banking is defined as an activity of accepting deposits from the public.

Rights & Obligations of Bankers towards Customers  Honour the cheque Maintain records of all the transactions Abide by the instructions of the customer Not to disclose the state of his customer s account Set off The Negotiable Instruments Act.1881 49     12/8/2010 .

8. 7. 6. 3.1881 50 . 4. 2. 5.When a Banker MAY Refuse (Dishonour) Payment 1. 12/8/2010 When a Cheque is post-dated and presented postfor payment before that date Lack of sufficient funds The funds are not available for the purpose Cheque is of doubtful legality When the Cheque is not duly presented Signature doesn't match Cheque presented at a branch where the customer has no account When the Cheque has become stale The Negotiable Instruments Act.

When a Banker MUST Refuse (Dishonour) Payment       The customer countermands payment A customer dies and the bank has notice of the death Customer has been adjudged insolvent Banker receives notice of customer s insanity When payment is prohibited by an order of a court Customer gives notice to his banker to close his accounts 12/8/2010 The Negotiable Instruments Act.1881 51 .

Protection of the Paying Banker:Banker:Sec 85 1.1881 52 . 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.

Paying banker will not be protected if the drawer s signature is forged and the banker makes the payment on the cheque 12/8/2010 The Negotiable Instruments Act.Contd«.1881 53 .

1881 54 .Presented by Akanksha Kedia(FPB0709/007) Anindita Kundu(FPB0709/015) Anupama(FPB0709/020) Isha Mehta(FPB0709/056) Yageshwari Trivedi(FPB0709/158) 12/8/2010 The Negotiable Instruments Act.

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