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5.1 DEFINITION OF A NEGOTIABLE INSTRUMENT [SECTION 13]
• The word 'negotiable' means transferable from one person to another, and the term 'instrument' means 'any written document by which a right is created in favour of some person.' Thus, the negotiable instrument is a document by which rights vested in a person can be transferred to another person in accordance with the provisions of the Negotiable Instruments Act, 1881. The term 'negotiable instrument' has been defined as - A 'negotiable instrument' means a promissory note, bill of exchange or cheque payable either to order or to bearer."
MAIN FEATURES OF A NEGOTIABLE INSTRUMENT
• An instrument may be negotiable either by (1) Statute - Promissory notes, bills of exchange and cheques are negotiable instruments under the Negotiable Instruments Act, 1881; or (2) By usage - Bank notes, bank drafts, share warrants, bearer debentures, dividend warrants, scripts and treasury bills • An instrument is to be called 'negotiable' if it possesses the following characteristic features: 1) Freely transferable - Transferability may be by (a) delivery, or (b) by endorsement and delivery. 2) Holder's title free from defects: The holder (of the negotiable instrument) in due course acquires a good title not withstanding any defect in a previous holder's title. A holder in due course is one who receives the instrument for value and without any notice as to the defect in title of the transferor. 3) The Holder can sue in his own Name - Another characteristic feature of a negotiable instrument, is that its holder in due course, can sue on the instrument in his own name. 4) A negotiable instrument can be transferred infinitum, i.e., can be transferred any number of times till its maturity. 5) A negotiable instrument is subject to certain presumptions.
Presumptions as to negotiable instruments [Sections 118-119] 1) As to Consideration - Every negotiable instrument is deemed to have been made, drawn, and accepted
2) 3) 4) 5) 6) 7) 8)
endorsed, negotiated or transferred for consideration. As to date- Every negotiable instrument bear the date on which it is made or drawn. As to Acceptance- Every bill of exchange was accepted within a reasonable time after the date mentioned therein and before the date of its maturity. As to Transfer- Every transfer of a negotiable instrument was made before the date of its maturity in case of an instrument payable otherwise than on demand. As to the order of Endorsements - The endorsements appearing on it were made in the order in which they appear thereon. As to lost Instruments - Where an instrument has been lost or destroyed, that it was duly stamped and the stamp was duly cancelled. As to holder-in-due course - The holder of the instrument is a holder in due course. As to dishonour - If a suit is filed upon an instrument, which has been dishonoured, the Court shall, on proof of the protest, presume the fact of dishonour unless it is disproved.
5.2 PROMISSORY NOTE [Section 4] Definition
• A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money to, or to the order of, a certain person or to the bearer of the instrument
The order must be unconditional. (6) Certain sum of money . (1) In writing . viz." Followings are Not Promissory Notes. and (ii) it is always payable on demand and not otherwise. It must be signed by the drawer. (5) Certain Parties . The sum payable must be certain or capable of being made certain.: (i) it is always drawn on a specified banker. 10.These are usually found in a promissory note but are not essential in law. I. (8) Number. 9. provided he leaves me enough to pay that sum. (4) Signed by the Maker – The promissory note must be signed by the maker. 8. directing a certain person to pay a certain sum of money only to or to the order of.It means that the stamps of the requisite amount must have been affixed on the instrument and duly cancelled either before or at the time of its execution. (11) It cannot be made payable to bearer on demand or even payable to bearer after a certain period (12) It must be duly stamped under the Indian Stamp Act . 500 seven days after my marriage with C. (3) Unconditional . (I owe you) Rs. to be paid on demand. – 5 NEGOTIABLE INSTUMENTS Examples of Promissory Notes • • Essentials or Characteristics of a Promissory Note “A” signs instruments in the following terms: "I acknowledge myself to be indebted to 'B' in Rs. viz. it is deemed to have been made when it was delivered. It must be duly stamped as per the Indian Stamp Act. There must be three parties. a mere acknowledgement of indebtedness is not sufficient. (2) Promise to pay . or to the bearer of the instrument. A demand promissory note becomes time barred on expiry of 3 years from the date it bears. instruments payable on performance or non-performance of a particular act or on the happening or non-happening of an event are not promissory notes. Notice that the use of the word `promise' is not essential to constitute an instrument as promissory note. 5. Thus. 2. it is clear that a promissory note must have the following essential elements. signed by the maker. LECTURES BY PROF.It must contain an undertaking or promise to pay.3 BILL OF EXCHANGE [Section 5] • A 'bill of exchange' is defined by as an instrument in writing." (iii) "I promise to pay B Rs. 6. Characteristic Features of a Bill of Exchange 1. Writing includes print and typewriting. (i) "Mr. place. date and place are not essential.U. 4. 1000. Thus. The order must be to pay money and money alone.O. If a promissory note does not bear a date.A promissory note must be in writing.The promise to pay must not be conditional. Number. drawer." • From the definition. otherwise it is of no effect. is a nullity. S N GHOSH . which is not so stamped.IIPM ACT 31 CH. 5.The sum payable must be certain or capable of being made certain. The parties must be certain.Payable 'on demand' means payable immediately or any time till it becomes time-barred. 1500 on D's death. Thus. 7. A promissory note. B. a cheque is a bill of exchange with two added features. containing an unconditional order. (9) It may be payable in installments (10) It may be payable on demand or after a definite period .The instrument must point out with certainty the maker and the payee of the promissory note.If the instrument contains a promise to pay something in addition money.4 CHEQUE [Section 6] • • A cheque is defined as 'a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand’. 3. It must contain an order to pay and not a promise or request. drawee and payee. it cannot be a promissory note." (ii) "I promise to pay B Rs. 5. 1000. It must be in writing. a certain person. (7) Promise to pay money only . date etc .. for value received.
The cheque is not entitled to days of grace. Bill of Exchange 1) It can be drawn on any person including a banker.although any two of these capacities may be filled by one and the same person. even if no notice of dishonour is given. 6) The maker of the note stands in immediate relation with the payee. The liability of the drawer is secondary and conditional upon non-payment by the drawee. 3) No prior acceptance is needed. A cheque can be crossed Notice of dishonour is not necessary. 7) A bill is noted or protested to establish dishonour. The parties thereon remain liable. Notice of dishonour must be given by the holder to the drawer and the intermediate endorsers to hold them liable thereon. – 5 NEGOTIABLE INSTUMENTS Bill of Exchange and Cheque distinguished 1) 2) 3) 4) 5) 6) Cheque It must be drawn only on a banker. Thus. 5. 5.5 HOLDER AND HOLDER-IN-DUE-COURSE [Section 8 & 9] Holder of negotiable instrument • • • A 'holder in-due-course' A holder of a negotiable instrument is a person entitled in his own name to the possession of that negotiable instrument and to receive or recover the amount due thereon from the parties thereto. where a person receives a negotiable instrument without consideration. the drawee and the payee. A bill payable `after sight` must be accepted by the drawee or his agent before it is presented for payment. Where Amount is stated differently in Figures and Words (Section 18) . 5) No notice of dishonour need be given. A 'holder in-doe-course'. specified time. 4) A bill payable after sight must be accepted. on the other hand. 4) The liability of the maker or drawer is primary and absolute. 3) A usance (time) bill is entitled to three days of grace. The amount is always payable on demand. LECTURES BY PROF. 5) Crossing of a bill of exchange is not possible. Promissory Note and Bill of Exchange distinguished Promissory Note 1) There are only two parties – the maker (debtor) and the payee (creditor). A party who does not receive a notice of dishonour can generally escape its liability thereon.the amount stated in words shall be the amount undertaken or ordered to be paid. 7) A cheque is not to be noted or protested in case of dishonour. he may be a holder but will not be called as a holder in due course. The maker or drawer does not stand in immediate relation with the acceptor drawee.6 CERTAIN IMPORTANT CONCEPTS AND EXPLANATIONS Ambiguous Instrument (Section 17) . 2) A note contains an unconditional promise by the maker to pay the payee. Acceptance is not needed.the holder may at his election treat it as either and the instrument shall be thenceforward treated accordingly. It contains an unconditional order to the drawee to pay according to the drawer`s directors. 2) The amount may be payable on demand or after a. is a person who for consideration became the possessor of a negotiable instrument before the due date of payment of that instrument and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.IIPM ACT 32 CH. 6) Notice of dishonour is necessary to hold the parties liable thereon. 8) No such protection is available in the case of bills. S N GHOSH . 8) The protection given to the paying banker in respect of crossed cheques is peculiar to this instrument. 1) 2) 3) 4) 5) 6) Bill of Exchange There are three parties – the drawer.
. (ii) contain an unconditional order to pay (iii) drawn on a specified banker. Crossing on a cheque is a direction to the paying banker by the drawer that payment should not be made across the counter.As a general rule. Crossing is a unique feature associated with a cheque affecting to a certain extent the obligation of the paying banker and also its negotiable character. (v) the payee must be a definite person.In such instances. A cheque that is not crossed is called an `open cheque`. either by the clearing house or by the Bank whether paying or receiving payment. A 'Cheque in the electronic form' means a Cheque. As payment cannot be claimed across the counter on a crossed cheque. written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system. The payment on a crossed cheque can be collected only through a banker. Crossing of a cheque is effected by drawing two parallel transverse lines with or without the words 'and company' or any abbreviation thereof. Such an instrument is thus incomplete (inchoate). (vi) amount must be written both in figures and words. (iv) for a certain sum of money.IIPM ACT 33 CH. – 5 NEGOTIABLE INSTUMENTS Inchoate Instruments (Section 20) . the specified amount. (viii) it is always drawn on a specified banker. It is a peculiar method of modifying the instrument to the banker for payment of the cheque. The drawer of a Cheque is expected to date it before it leaves his hands. 2002]. (Exception – when the later (finder) person is holder in due course). and is generated. acquires a better title than its transferor. (vii) it must be dated. • Where one person signs and delivers to another person a duly stamped negotiable instruments and however.e. and (ix) it is always payable on demand and not otherwise. like that of the cheque on which payment is due. substituting the further physical movement of the cheque in writing. (i) must be in writing. In view of the banking transforming from traditional banking to e-banking. viz. is an order by the customer of the bank directing his banker to pay on demand. to or to the order of the person named therein or to the bearer.. • The maker of the instrument has thereby prima facie authorises the holder thereof to make or complete.7 CHEQUE [Section 6] Meaning of a Cheque • A Cheque. Lost or Stolen Instruments (Sec. i. the possessor or endorsee who has found or had obtained the instrument by fraud shall not be entitled to receive the amount due thereon from such maker of the lost instrument. if he is a holder in due course. for any amount therein but not exceeding the amount covered by the stamp. A Cheque is a bill of exchange with following features. Even a holder in due course cannot claim payment on a forged instrument. crossing of cheques serves as a LECTURES BY PROF. A "truncated Cheque" means a Cheque which is truncated during the course of a clearing cycle. S N GHOSH • • Features of a Cheque • Cheques in electronic form • Dating of cheques • • Crossing of cheques • • • • Significance of crossing . which contains the exact mirror image of a paper Cheque. It has been defined as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. the transferee of a postdated cheque. that negotiable instrument is either wholly blank or having written thereon. A post-dated cheque is as much negotiable as a cheque for which payment is due. 58) . a forged signature does not confer a good title.It means an instrument that is incomplete in certain respects. immediately on generation of an electronic image for transmission. in essence. Forged Instruments . the electronic form or electronic image of a Cheque as a valid Cheque has also now been recognized [Negotiable Instruments (Amendment) Act. A cheque without a date is considered incomplete and is returned unpaid by the banks. 5.
in whose favour the cheque has been crossed specially.IIPM ACT 34 CH. • It is immaterial as to who makes the alteration. – 5 NEGOTIABLE INSTUMENTS Types of crossing • measure of safety against theft or loss of cheques in transit. (ix) converting an order cheque into a bearer cheque. which has not been. Marking or certification is a method adopted when the paying banker verifies the customer's account and indicates thereon that there are enough funds in his account torn that cheque. that addition shall be deemed a crossing and the cheque shall be deemed to be crossed generally (2) Special . Effect of Material Alteration • Any material alteration of a negotiable instrument. 3. The holder of a cheque. (vii) legal character of the instrument. • • Not Negotiable Crossing Account Payee Crossing (A/c Payee Crossing) • Not Negotiable. the cheque is deprived of its special feature of negotiability. which alters the business effect of the instrument if used for any business purpose.to mean as where a cheque bears across its face an addition of the words 'and company' or any abbreviation thereof.implies the specification of the name of the banker on the face of the cheque The object of special crossing is to direct the drawee banker to pay the cheque only if it is presented through the particular bank mentioned therein. In Aldons v. An alteration is material if it alters materially or substantially the operation of the instrument and thereby the rights and liabilities of the parties. consented to by either the drawee or the payee is void as against them. An alteration made by an outsider or stranger to the instrument will be considered as an alteration made by the holder himself as it is the duty of the holder to preserve the instrument. Thus. from whom he took it in the first instance. Thus. (ii) the time of payment. (viii) opening a crossed cheque. 2. An A/c payee crossing signifies that the drawer intends the payment to be credited only to the payee’s account and in none else. (iv) the sum payable. A bank. Alterations which are not material (i) filling blanks of the instrument. LECTURES BY PROF. should be extra careful in paying such cheques. either with or without the words 'not negotiable'. between two parallel transverse lines or of two parallel transverse lines simply. A/c Payee Crossing • Who can cross a cheque • Marking of cheques • Material alterations • • Ex(i) date. had. it makes the cheque system still safer. Bombay Bullion Association (1965)]. [Sita Ram v. (iii) the place of payment. (v) the number of parties. The Banker. (vi) the relationship between parties. The instrument is rendered not negotiable (making the 'paying banker' responsible to see that payment is made to the person who is entitled to receive it) plus A/c payee crossing directs the collecting banker to collect it for the payee only. A person who takes such a cheque shall not have and shall not be capable of giving a better title to the cheque than that which the person. The drawer of a cheque. Cornwall. A cheque may be crossed by any of the following: 1. S N GHOSH . Crossing may be either (1) General . a material alteration was defined as "an alteration. Marking only certifies the genuineness of the drawer's signature and the sufficiency of funds. The addition of 'A/c payee' to a crossing has no legal sanctity and the paying banker may ignore such a direction without being liable for any damages. by including the words 'not negotiable'. free from such forgeries. therefore.
(iii) crossing of cheques.8 THE PAYING BANKER • • The 'paying banker' is a term used to denote the position and duties of the drawee-banks in paying cheques of their customers. The enhancement in the penal provisions was made by Negotiable Instruments (Amendment) Act 2002 w. The drawer.2. – 5 NEGOTIABLE INSTUMENTS (ii) conversion of blank endorsement into endorsement in full. On suspicious misuse by trustee Where the cheque is post-dated. Bank of New Zealand]. the paying bank must compensate the drawer for any loss or damage caused by such default Ex In Rolin v. A banker paying the cheques crossed generally to a banker or to the specified banker. 2. Payment in due course means payment in accordance with the apparent tenor of the instrument made in good faith and without negligence. [Fleming v. and in fact the cheque was subsequently paid. Steward it was held that even though the default arose through inadvertence. In default of such payment. Payment must be made in money only. the Court will not award merely nominal damages. On receipt of a notice of the customer's insanity 5. the banker to whom crossed. DUTIES AND RESPONSIBILITIES OF A 'PAYING-BANKER' Protection in case of crossed cheques • • The drawee of a cheque having sufficient funds of the drawer in his hands must pay the cheque when duly required so to do. 138. his agent for collection. is protected even if it turns out to be a payment to a wrong payee. Payment must be made to the person in possession of the instrument 4. 5. Not properly signed joint holders Material alteration or irregularity Presented after validity period When banker may refuse payment 1. On assignment of Credit balance 7. 4.e. When banker must refuse payment • A paying banker must refuse payment on cheques if any of the following circumstances exist: 1. Where the funds of the customer are insufficient. Payment must be made to the person entitled to receive. (v) canceling the word bearer and making the cheque payable to order. 3. and (vi) alteration made with the consent of the parties. This would be the case even if the customer's account was overdrawn but the banker had agreed to pay his cheques on an overdraft within certain limits. 5. 5. and where a cheque is crossed specially. addition of the words 'account payee' negotiable' to a crossing. 5. following conditions must be satisfied: • LECTURES BY PROF. On customer's becoming insolvent 4. (iv) altering a general crossing into a special crossing. 'paying banker' is a banker upon whom a cheque is drawn. Payment must be in accordance with the apparent tenor of the instrument 2.9 DISHONOUR OF A CHEQUE ON GROUNDS OF INSUFFICIENCY OF FUNDS [Sections 138 to 142] • Section 138 to 142 of the Negotiable Instruments Act provide for criminal penalties in the event of dishonour of cheques for insufficiency of funds. In order to attract the aforesaid penalties. Where a cheque is not duly presented.IIPM ACT 35 CH. Thus. under Sec. Where the customer countermands the payment (stopped by the drawer) 2. They are as follows: - Payment in due course [Section 10] 1. may be punished with imprisonment upto 2 years (earlier I year) or with a fine up to twice the amount of the cheque or with both. S N GHOSH .f. 5.2003. Payment must be made in good faith and without negligence 3. because credit of the customer was seriously affected. 5. On receipt of Garnishee order 5. On receipt of a notice of customer's death 3. crossing it specially to another banker.
a bank pays the proceeds of a cheque drawn upon another banker. the maximum sentence that may be passed by the Magistrate shall be imprisonment for a term not exceeding one year and an amount of fine not exceeding five thousand rupees.Payment against an enforceable debt (3). Every offence punishable under Negotiable Instruments Act shall be compoundable (Section 147) 5. However. Nagarjuna Investments (1997) and N. a person will not be liable in a case. . before collection.E.M.10 THE COLLECTING BANKER One of the principal functions of a banker is to receive instruments from his customer in order to collect the proceeds and credit them to his customer's account. (1999)]. Further. 1973. (ii) Request to the payee not to present the cheque till further information [Modi Cement Ltd. Notice of Dishonour Duties and responsibilities of a collecting banker • • • 5. Some of these are: LECTURES BY PROF. Offences by companies • • POWER OF COURT TO TRY CASES SUMMARILY [SECTION 143] • • • • • • • This is a non-obstante clause. he is treated as a holder for value. be continued from day to day. It overrides the provisions contained in the Code of Criminal Procedure. The trial shall.A collecting banker acts. secretary or other officer of the company shall be liable to be proceeded against and punished accordingly in case the offence has been committed with the consent or connivance. so far as practicable. a customer pays in a cheque and the banker expressly or impliedly permits him to draw against it before it is cleared. C. (1996)]. Ltd. (iii) Cheque received back from the payee-bank with the remarks 'Account Closed' [G. or (ii) where he had exercised all due diligence to prevent the commission of such offence. When acting in this capacity he is called a "collecting banker". every trial shall be conducted as expeditiously as possible and an endeavour shall be made to conclude the trial within six months from the date of filing of the complaint. manager.When. Drawer liable upon failure to pay within 30 days` Upon failure Complaint in writing. It has been now provided that offences for dishonour of cheques shall be tried by a Judicial magistrate of the first class or by a Metropolitan Magistrate. (2).IIPM ACT 36 CH.P. Anil Bhalla (2001). a banker acts either: (i) Banker as Holder for value . v. – 5 NEGOTIABLE INSTUMENTS (1). Magna Leasing Ltd. the banker will be regarded as a holder for value. Due Care and Diligence in Collection of Cheques Presentation for payment by the next working day after the receipt of the cheques. This is a cognizable offence and shall be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class. While collecting his customer's cheques. A director. to oblige a customer. (iii) where he is nominated as a Director of a company by the Central Government or State Government or financial institutions. (ii) Banker as Agent . as an agent of the customer if he credits the customer's account with the amount of the cheque after it is actually realised. Mittal Stainless Steel vs. Similarly. Kuchil Kumar Nandi (1998)]. (i) where such person proves that the offence was committed without his knowledge. In the case of summary trial. demanding payment within 30 days (5).11 BIILS OF EXCHANGE AND PROMISSORY NOTE Kinds of bills • Bills are of different kinds. or is attributable to any neglect on his part in this regard.Rajneesh Aggarwal v. Insufficiency of funds The Courts have held the following amounting to dishonour for insufficiency of funds: (i) Stop-payment instructions to the payee-bank [ET & TD Corpn. where. S N GHOSH . Payee to serve Default Notice. v. Micon Ltd. shall have to make a police complaint in this regard. Cheque should be presented to the paying bank within the validity period (generally 6 months from the date on which it is drawn) (4). Ltd. vs. Id Technologies & Engross P. Offence triable by 1st Magistrate • The payee having failed to receive the payment within 30 days` of notice of dishonour of the cheuqe. consistent with the interests of justice.
The Drawer . for Rs. Where the acceptor does not express for whose honour it is made. it is called as Documents against Payment ad Bill (DIP Bill). also called as usance bills. all bills are not genuine bills i. 3. or (b) drawn outside India and payable in India. Since an accommodation bill is drawn and accepted without any consideration. called an 'Accommodation Bill'. or (b) must be drawn in India upon a person resident in India although it may be payable outside India. It is a common practice in home as well as foreign trade to deliver to the banker along with the bills of exchange. On maturity.). Such bills are drawn by the seller on the buyer in respect of payment of the price of the goods sold and purchased. a bill drawn payable at 90 days after sight is again a time or usance bill. 2. it shall be LECTURES BY PROF. The Payee . If the credit of Y is good it lends a currency to the bill and it can be discounted with the bankers or any other person. No time for payment is mentioned therein (Section 19). are bills payable at a fixed period after date or sight of the bills.is the original payee but where the bill has been endorsed. it provides an accommodation to the party and is. 5.. 2. Hence.is the person to whom the bill is negotiated by endorsement. Ex . a bill payable at 90 days after the death of the drawer will be a valid time bill. Railway Receipt or Bill or Lading). accepts the bill in order to safeguard the honour of the drawer or any endorser.the person to whom the amount of the bill is payable. it creates no obligation of payment between the parties to the transaction. Similarly.IIPM ACT 37 CH. Thus.000. The Drawee . Clean and Documentary Bill Parties to a Bill of Exchange Acceptor for Honour • • 1. A time bill may also be made payable at a fixed period after an event which is certain to happen.the person on whom the bill is drawn. 3.Lorry Receipt. therefore. An acceptor for honour is a person who. X may be in need of money and approaches his friend Y who instead of lending money directly. 4. The language and form of an accommodation bill is. Acceptor for honour must specify as to whose honour he is accepting the bill of exchange . 4. 5. ExX of Bombay draws a bill of exchange on Y of London payable at London.K. (Ex. say. – 5 NEGOTIABLE INSTUMENTS 1. Inland Bill An inland bill: (a) must be drawn and made payable in India.e. Time Bills (Usance Bills) Time bills. a bill of exchange drawn payable at 3 months after the date it is drawn is a time or usance bill. The Holder . they do not represent a trade transaction but are drawn as a convenient mode of accommodating a friend. however. Demands Bills (i) (ii) 6. S N GHOSH . Foreign Bills A foreign bill of exchange is (a) drawn in India upon a person resident outside India and made payable outside India. draws and accepts a bill of exchange. the documents of title to the goods. the endorsee. 6. on the refusal by the original drawee to accept the bill or to furnish better security when demanded by the notary.is the person who endorses a bill. 5. X remits the amount with Y who in turn pays it in honouring the bill of exchange on presentment. The endorser . Trade and Accommodation Bills A trade bill is a bill of exchange issued in respect of a genuine trade transaction. ExX of Bombay draws a bill on Y of Delhi payable at Yorkshire (U. The endorsee .the person who draws or makes the bill.Thus. A bill of exchange or a promissory note is payable on demand when It is made payable 'on demand' or 'at sight' or 'on presentation’. But. Where the banker is instructed to deliver to the drawee of the bill the documents of title against acceptance of the bill. the bill is called as Documents against Acceptance of Bill (D/A Bill) and where the documents are to be released only against payment. similar to a genuine trade bill. however. Thus.
is either the original payee or any other person in whose favour the note been endorsed. 4. (4) An agent of any of the person mentioned above. by the holder or his agent. ACCEPTANCE • • • • The acceptance of a bill is the indication by the drawee of his assent to the order of the drawer.the person who makes the note promising 'to pay the amount stated therein.the person to whom the amount of the note is payable. 3. thereof. where the acceptance is qualified. acceptor or drawee. The Maker . not accept it within 48 hours from the time of presentment for acceptance. and (d) completed by delivery to the holder or by notice of acceptance to him or some person on his behalf [Jagjivan Mauji Vithlani v. Presentment for acceptance . has to present the bill first to the drawee for payment and if it is also dishonoured for payment by the drawee and noted or protested as the case may be it should then be presented to the acceptor for honour for payment. • Presentment of a negotiable instrument is made for two purposes. (6) An agent of the acceptor for honour. Acceptance for Honour • • PRESENTMENT 1. when presentment for acceptance is excused and it remains unaccepted. (7) In case no drawee is mentioned in the bill and a person accepts it. (c) on bill of exchange. The Endorsee . DISHONOUR 1. (5) An acceptor for honour. M/s Ranchahodas Meghaji. Presentment for payment . Each party receiving notice of dishonour must in order to render any prior party liable to himself give notice of dishonour to such party within a reasonable time after he has received it. When a bill of exchange has been noted or protested for non-acceptance or for better security and any person accepts it supra protest for honour of the drawer or of anyone of the endorsers.the person who indorses the note in favour of another person. as the case may be.A negotiable instrument must be presented for payment to the maker. The Endorser . The Payee . 2. such person is called an acceptor for honour. by all or some of them. when the drawee could not be found after a reasonable search. Dishonour by Non-Acceptance (Section 91) (I) (2) (3) (4) (5) (6) When the drawee does.the person in whose favour the note is negotiated by indorsement. (a) General Acceptance (b) Qualified Acceptance Who may Accept • A bill of exchange may be accepted by the following persons (1) The drawee of the bill (2) Where there are more than one drawees. An acceptance to be valid must be (a) in writing. the payee. when the drawee is a person incompetent to contract. The Holder . The notice may be oral or in writing though for safety it is advisable to LECTURES BY PROF. 2.It is only bills of exchange that require presentment for acceptance and that too not all but certain kind of bills only. at the due date. It has been defined as the signature of the drawee of a bill who has signed his assent upon bill and delivered it or given notice of such signing to the holder to some person on his behalf. Dishonour by Non-Payment Notice of Dishonour • When a negotiable instrument is dishonoured by non-acceptance or non-payment. 5. – 5 NEGOTIABLE INSTUMENTS Parties to A Promissory Note 1. (b) signed by the drawee or his agent. Bill payable on demand or on a fixed date need not be presented for acceptance. where one or more of the several drawees refuse to accept the bill. 2. the holder must give notice of dishonour to the drawer and all other parties whom he seeks to make liable.IIPM ACT 38 CH. (3) A drawee in case of need. 1945] An acceptance of a bill may be general or qualified. he becomes an acceptor by estoppel. After acceptance of the bill by the acceptor for honour. S N GHOSH .
IIPM ACT 39 CH. 1881. 1956]. If an endorser of a bill has paid the amount due thereon. When the party entitled to notice cannot after reasonable search be found. to give it. besides giving the above notice. the reason why the holder treats it as dishonoured and the notary's charges should be metioned. Where an instrument is dishonoured. The notary public presents the instrument. 2. from the Sanskrit work 'hund' which means 'to collect'.12 HUNDIS • Hundis are instruments written in an oriental language. without any fault of its own. The fact and reason/reasons for dishonour. 'Noting' must be made within a reasonable time after dishonour. the holder.A Shah-jog hundi is drawn by one merchant on another asking the latter to pay the said LECTURES BY PROF. Where the party liable to give notice is unable. and the manner in which. the Act becomes applicable. (6) Where the promissory note is not negotiable. 5. if s required by the law of the place where drawn. The instrument itself. If the instrument has been expressly dishonoured. long before the Negotiable Instrument Act. hundis shall be governed by local usages applying to such documents [Kanhyalal v. COMPENSATION Compensation to holder • • • Compensation to Endorser The holder is entitled to the amount due upon the instrument with interest plus the expenses properly incurred in noting and protesting it.g. 3. death or serious illness of the holder or his agent or any other accident. by any words in the instrument itself. 4. S N GHOSH . In the event of an acceptance for honour or of a payment for honour. Place and time of dishonour or refusal to give better security. The names of the parties against whom the instrument is protested. These hundis were. Ramkumar. such acceptance or payment was offered and effected. or a literal transcript thereof. knowing the facts. When the protest is drawn up it relates back to the date of noting. or where it is expressly indicated that the legal relations of the parties thereto shall be governed by the Negotiable Instruments Act 1881. The word 'hundi' appears to have been derived. the name of the person by whom or the person for whom. the formal protest may be drawn up by the notary at his leisure. After the noting has been made. if any. A protest to be valid must contain the following particulars: 1. Hundis have been in circulation in India from very early times. notes down in his register date of its dishonour and the reason. PROTESTING The protest is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. Noting is not compulsory in the case of an inland bill or note. given by the acceptor. therefore. 5. Compensation that may be claimed include damages to credit and reputation of the drawer. (7) In case the drawer himself is acceptor. he is entitled to the amount so paid plus expenses with interest @ 6 per cent per annum from the date of his paying to the date of his receiving back amount. e. NOTING • • • • • Noting is a convenient method of authenticating the fact of dishonour. the usages regarding such instruments are excluded. no notice is necessary to charge the drawer. When the party charged could not suffer damages for want of notice. (8) When the party entitled to notice. but where. should get the bill or promissory note 'noted' by the notary public. It is to be noted that The Negotiable Instruments Act does not apply to hundis. but foreign bills must be protested. and the Court would normally award exemplary or vindictive damages. – 5 NEGOTIABLE INSTUMENTS Notice of dishonour unnecessary (1) (2) (3) (4) (5) When it is dispensed with by the party entitled thereto. Signature of the notary public. • Kinds of hundis Shah-Jog Hundi . give a written notice. When the payment has been countermanded by the drawer or endorser. Compensation against banker 5. promises unconditionally to pay the amount due on the instrument. In the absence of any of the above indications. originally used for the collection of debts.
Muddati Hundi or Miadi Hundi – Hundi payable agter a specified period of time. Nam Jog Hundi .A darshni hundi must be presented for payment within a reasonable time after its receipt by the holder.A dhani-jog hundi is payable to a dhani. a man of worth and known in the bazar. Nishan. – 5 NEGOTIABLE INSTUMENTS hundi to a 'Shah'. Darshni Hundi (payable at sight) .A hundi payable to the specified person is called Nam-jog hundi.Jog Hundi. S N GHOSH .Jog Hundi – This hundi is payable only to the persons who presents it. 'Shah' is a respectable and responsible person. Dhani. Firman-Jog and Dekhanhar Hundis – There are payable to order. LECTURES BY PROF.IIPM ACT 40 CH. owner.
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