Evolution & Revolution of Negotiable Instruments which have Transformed the Commercial World into a Virtual Single Global Peace
CONTENTS Evolution Of Negotiable Instruments What Are Negotiable Instruments Types Of Negotiable Instruments Difference Between Negotiable Instruments Features Of Negotiable Instruments Negotiation Of Commercial Paper Exceptions Of Negotiable Instruments E-Transfers Indian Law Governing Foreign Instruments Dishonor Of Negotiable Instruments Negotiable Instruments Connects Global Peace Case Studies Fraud Current Scenario Summary Bibliography
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EVOLUTION OF TRADE AND COMMERCE LEADING TO THE INTRODUCTION OF NEGOTIABLE INSTRUMENTS.
The world as a whole has been the “cradle of commerce” because this exchange is not only between individuals but also between people and nations. This naturally implies the existence of: 1- CERTAIN SURPLUS OF WEALTH 2- CERTAIN PROVISION FOR COMMUNICATION Both of which are essential for growth of commerce. Unless there is a surplus of wealth and provision for communication, commerce cannot grow. EXAMPLE- In the primitive economic society when each tribe or family produced all that is needed and consumed all that it produced, need of commerce did not and could not arise. Only after the division of labour and consistent development of exchange, commerce began to grow. Once it started growing, it spread its invisible thread throughout the length and breadth of the world leading to its present day complex mechanism. These stages may be summarized as follows: 1. NON EXISTENCE OF COMMERCE- In the early stage of economic life of man division of labour scarcely existed. Man produced what he needed and consumed all that he produced. Therefore commerce did not exist in this stage.
2. TRADE IN THE FORM OF BARTER - In the second stage, wants of the family became more numerous and many families found themselves with certain goods and surplus and deficient in certain other goods. These families wanted to exchange their surplus goods for those goods which they did not possess. This gave rise to “exchange of goods for goods, i.e., Barter system. Thus this is the place from where commerce may be said to have begun. 3. MONEY AS A MEDIUM OF TRADE AND TOWN AS THE CENTRE OF TRADE- Commerce reached into its third stage of growth when money was evolved as medium of exchange to remove the limitations of barter. Introduction of money began led to the extension of division of labour and specialization. People began to produce goods for certain local markets. Thus, division of labour was extended to a locality. Gradually a separate class of artisans and traders came into existence. They settled down at fixed places which came to be known as towns. Growth of these towns gave great stimulus to commerce. The size of the market and the number of commodities exchanged in the market, both increased. Traders from other countries brought luxury articles, metals and ornaments for sale. 4. ECONOMY AND GROWTH OF COMMERCE- Commerce continued to grow both in volume and space. After the decline of Guild system, a new class of people, ENTERPRENEUR class, came into existence. This class of people became a real intermediary between the producers and consumers. Further, growth of commercial enterprise took place. Trade began to assume fixed forms. Production began to be undertaken for the markets extended for the whole country. Division of labour received further impetus. Production was divided into several branches and each branch
tended to be localized. Various economic activities came to be clearly marked off into distinct groups: A- AGRICULTURE B- TRADE C- COMMERCE. WORLD ECONOMY AND THE WORLD MARKET- Commerce entered into another stage of its growth when nations of the world were brought into commercial relationships through the invisible thread of trade. As a result of the geographical discoveries of the late 15 th, 16th and 17th centuries new trade routes were opened up and commerce grew between nations. Now, in addition to the local market and the trade extending over the whole area of a single country, commodities came to be sold and purchased between traders from different countries in the world. This gave rise to an international world market and to the international trade. Thus the nations of the world were linked together through the medium of the world market. Evolution of commerce is a never ending process. Almost every day new experiments in its mechanism are made. New forms and methods are being evolved in both socialist and capitalist countries, in both developed and developing nations. WHY WAS IT NECESARRY TO INTRODUCE NEGOTIABLE
INSTRUMENTS? Historically business developed by stages. (1) Pastoral stage (2) Agricultural stage (3) Handicrafts stage (4) Guild stage (5) Domestic stage and (6) Factory stage. Pastoral stage: In primitive society man used things just as they were found in nature. With time, he learned to domesticate animals and breed them for
Handicraft stage: In this stage manufacturing was limited to the human efforts to transform raw materials into finished goods. The amount left was his profit
. leather dressing. the nomadic tribes settled permanently at fixed places. Guild stage: A guild is an association of persons following a similar occupation and it is formed to protect and promote the interest of its members through cooperative endeavors.food and clothing. He took the risk of productions and sale. Growing corns. grasses etc. Agriculture emerged as the basic feature of economic living of man. Out of the proceeds of his undertaking. Domestic stage: A new class entrepreneur emerged as a link between producer and consumer. built up the huts and shelters for their residences and began cultivating the land in common. Agricultural stage: In course of time. carpentry etc. he tended to lead a wandering life. blacksmithing. Since he had to find pastures for his animals. spinning. This was known as barter system. making of clothes and shoes. It included candle and soap making. weaving. He gradually produced more and then started to exchange it with other commodities. he paid for the materials and labour. became the main occupation. But in this stage his work served mainly to support only him with his own needs and left very little surplus available for exchange on a business basis. Now entrepreneur purchased the raw materials for the purpose of manufacture and sale nut did not do the processing himself.
These were the different stages of evolution of business. However it was noted that the growth was very slow and the system was very complex. Large scale operations with the use of mechanized production processes resulted in producing good quality products at cheaper rates. However it was greatly influenced not only by its own processes but also by government under which it operates. The system of exchange was such that it led to confusion and various complexities.
.Factory stage: In this stage an organized system of production under a single roof came to be identified as a factory. To avoid such confusion and to operate the business activities smoothly negotiable instruments were introduced. There were different instruments used to purchase different commodities in different stages.
it is a common practice for businessmen to make use of certain documents as means of making payment. In modern business.
. Goods are bought and sold for cash as well as on credit. and containing an unconditional promise to pay (or order to pay) a certain sum of money on delivery. large number of transactions involving huge sums of money takes place every day.
To understand the meaning of negotiable instruments let us take a few examples of day-to-day business transactions. All these transactions require flow of cash either immediately or after a certain time. or at a definite time.2. Meaning of Negotiable Instruments The concept of negotiability is one of the most important features of commercial paper. Therefore. It is quite inconvenient as well as risky for either party to make and receive payments in cash. Some of these documents are called negotiable instruments.
WHAT ARE NEGOTIABLE INSTRUMENTS?
Exchange of goods and services is the basis of every business activity. to the bearer (or to the order). A negotiable instrument is a written document. signed by the maker or drawer.
Now Pitamber can retain that document with himself till the end of three months or pass it on to others for meeting certain business obligation (like with Sunil. He can also use it for meeting different business transactions.000/. 5. For example. 5. If he wants. You must have heard about a cheque. 10. Rs.10. as discussed above) before the expiry of that three months time period.000/. He has to write on the back of the document an instruction to Prashant to pay money to Sunil. after a month. he can borrow money from Sunil for a period of two months and pass on this document to Sunil. for value of goods received by him. if required. What is it? It is a document issued to a bank that entitles the person whose name it bears to claim the amount mentioned in the cheque. In the above example. Sunil. and sign it. This passing on process may continue further till the final payment is made.from the bank.000/on three months credit. Pitamber may write an order addressed to Prashant that he is to pay after three months.000/ . To be sure that Prashant will pay the money after three months. or he can transfer it to
. can further pass on the document to Amit after instructing and signing on the back of the document.can also give an undertaking stating that after three month he will pay the amount to Pitamber. Now Sunil becomes the owner of this document and he can claim money from Prashant on the due date. For instance. he can transfer it in favour of another person. if required.to Pitamber or anyone holding the order and presenting it before him (Prashant) for payment. a book publisher has sold books to Prashant for Rs 10.EXAMPLE Suppose Pitamber.in favour of Bidhan.000/. then Bidhan can claim Rs. if Akash issues a cheque worth Rs. Prashant who has bought books worth Rs. Pitamber can hold the document with him for three months and on the due date can collect the money from Prashant. Now. This written document has to be signed by Prashant to show his acceptance of the order.
In the above examples. Chander gets a right to Rs. and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable. a negotiable instrument means “promissory note. payable either to order or to bearer”. negotiable instruments are documents meant for making payments. 1881 . where negotiable means transferable and instrument means document. its ownership can be easily transferred.000/and he can transfer it to Dayanand.
.Chander to meet any business obligation. like paying back a loan that he might have taken from Chander. or cheque. Such transfers may continue till the payment is finally made to somebody. Explanation (i). we find that there are certain documents used for payment in business transactions and are transferred freely from one person to another. an instrument. Such documents are called Negotiable Instruments. we can say negotiable instrument is a transferable document. bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person. the ownership of which can be transferred from one person to another many times before the final payment is made. 5. Definition of Negotiable Instrument According to section 13 of the Negotiable Instruments Act.-A promissory note. Thus. Thus. if required. bill of exchange. as mentioned here. is a document used as a means for making some payment and it is negotiable i. Once he does it.. To elaborate it further.e.
-Where a promissory note. either originally or by endorsement. bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank.(ii). or one or -some of several payees. and not to him or his order. (iii). is expressed to be payable to the order of a specified person. bill of exchange or cheque. or it may be made payable in the alternative to one of two.
. it is nevertheless payable to him or his order at his option.-A promissory note. A negotiable instrument may be made payable to two or more payees jointly.
to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument’. Now Ramesh can personally present it before you for payment or give this document to some other person to collect money on his behalf. becomes a negotiable instrument. i. treasury bills. provided they possess the features of negotiability. This document.. 1881 defines a promissory note as ‘an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking. once signed by you. You can make a document stating that you will pay the money to Ramesh or the bearer on demand. Section 4 of the Negotiable Instruments Act. duly stamped and handed over to Ramesh. Bills of Exchange (popularly called bills). share warrants. Promissory Note Suppose you take a loan of Rupees Five Thousand from your friend Ramesh. 1881 there are just three types of negotiable instruments i. signed by the maker. In the following sections. Cheques and Hundis (a popular indigenous document prevalent in India). like hundis. in detail. He can endorse it in somebody else’s name who in turn can endorse it further till the final payment is made by you to whosoever presents it before you.
. etc.3. bill of exchange and cheque. Or you can mention in the document that you would like to pay the amount after three months. we shall study about Promissory Notes (popularly called pronotes).e.. This type of a document is called a Promissory Note.
Types of Negotiable Instruments
According to the Negotiable Instruments Act. promissory note. However many other documents are also recognized as negotiable instruments on the basis of custom and usage.
500 on D's death. (f)." (h) " I promise to pay B Rs. 500." (e) I promise to pay B Rs." (d) I promise to pay B Rs." (f) " I promise to pay B Rs. The instruments respectively marked (c). (g) and (h) are not promissory notes. (d). first deducting there out any money which he may owe me. 500 and to deliver to him my black horse on 1st January next." The instruments respectively marked (a) and (b) are promissory notes.000. 500 seven days after my marriage with C." (g) " I promise to pay B Rs. 1.Illustration A signs instrument in the following terms (a) "I promise to pay B or order Rs. for value received. B." (b) " I acknowledge myself to be indebted to B in Rs. O U Rs.000 to be paid on demand. 1. (e)." (c) Mr. provided D leaves me enough to pay that sum. 500 and all other sums which shall be due to him. 500.
Specimen of a Promissory Note Rs. for value received. then Ramesh and Ranjan both are endorsers. In the above specimen.. (Endorsement means transfer of any document or instrument to another person by signing on its back or face or on a slip of paper attached to it)
. The Payee – the person to whom the amount is payable. I promise to pay Ramesh. 10. In the above specimen if Ramesh endorses it in favour of Ranjan and Ranjan also endorses it in favour of Puneet.000/New Delhi September 25. The Endorser – the person who endorses the note in favour of another person.(Rupees Ten Thousand only). The Maker or Drawer – the person who makes the note and promises to pay the amount stated therein. it is Ranjan and then Puneet. Sd/ Sanjeev Stamp
Parties to a Promissory Note There are primarily two parties involved in a promissory note. the parties involved may be a. Ramesh Address……. s/o RamLal of Meerut or order a sum of Rs 10. To . 2002 On demand. The Endorsee – the person in whose favour the note is negotiated by endorsement. In the above specimen it is Ramesh. In the above.000/. ii. They are i. Sanjeev is the maker or drawer. b. In course of transfer of a promissory note by payee and others.
A promissory note may be payable on demand or after a certain date. if someone writes ‘I promise to give Suresh a Maruti car’ it is not a promissory note. duly signed by its maker and properly stamped as per Indian Stamp Act. It means that the sum payable may be in figures or may be such that it can be calculated. Mere acknowledgement of indebtedness is not enough. if it is written ‘I promise to pay Suresh Rs 5. if it is written ‘three months after date I promise to pay Satinder or order a sum of rupees Five Thousand only’ it is a promissory note. It must contain a promise to pay money only.after my sister’s marriage’. vii.000/. i. v. For example. 5000/. ii. For example. it is not a promissory note. the maker and the payee must be certain.e.
. iii. i. For example. The sum payable mentioned must be certain or capable of being made certain. A promissory note must be in writing.Features of a promissory note Let us know the features of a promissory note. iv. if someone writes ‘I owe Rs.to Satya Prakash’. It must contain an undertaking or promise to pay. vi. is not a promissory note. For example. The promise to pay must not be conditional. The parties to a promissory note.
2002 I. Gujarat ii. s/o Sadanand of Surat. This document is called a Bill of Exchange.(See specimen below). s/o Sunil Kumar of Ahmedabad. on demand.(Rupees Ten Thousand only) with interest at the rate of 10 percent per annum. 1881 defines a bill of exchange as ‘an instrument in writing containing an unconditional order. or to the bearer of the instrument’. Section 5 of the Negotiable Instruments Act. In this case. Gujarat or order. Rajiv can make a document directing Sameer to make payment up to Rupees Ten Thousand to Tarun on demand or after expiry of a specified period. Rajiv also has to give some money to Tarun. signed by the maker. which Sameer has to return. Ramesh . Now. Bill of Exchange Suppose Rajiv has given a loan of Rupees Ten Thousand to Sameer.
. Rs. which can be transferred to some other person’s name by Tarun. for value received. Gujarat promise to pay Sashikant. directing a certain person to pay a certain sum of money only to or to the order of a certain person. the sum of Rs 10. 10.000/New Delhi November 14. Sd/.Ramesh Stamp To Sashikant Ahmedabad.000/.
Here the words in the bill would be Pay to us or order. The Drawee – The person to whom the order to pay is made. The Payee – The person to whom the payment is to be made. is called a Time Bill. In this case it is Tarun. The Drawer – The person who makes the order for making payment. But a bill may be made payable on demand also. just like the above specimen. duly signed by its drawer.Specimen of a Bill of Exchange Rs. To Sameer Address Parties to a Bill of Exchange There are three parties involved in a bill of exchange. Rajiv is the drawer. A bill must be in writing. ii. It is Sameer in this case. iii. In a bill where a time period is mentioned.000/New Delhi May 2. 10. They are i. The drawer can also draw a bill in his own name thereby he himself becomes the payee. This is called a Demand Bill. accepted by its drawee and properly stamped as per Indian Stamp Act. i. Features of a bill of exchange Let us know the various features of a bill of exchange. Accepted Sameer Stamp S/d Rajiv
.2001 Five months after date pay Tarun or (to his) order the sum of Rupees Ten Thousand only for value received. He is generally a debtor of the drawer. In the above specimen.
ii. iii. a cheque may be regarded as a bill of exchange. thereby directing the bank to pay the specified amount to the person named in the cheque. to or to the order of the person named therein or to the bearer. Words like ‘please pay Rs 5. iii. Actually. The parties to a bill must be certain. vi. The Negotiable Instruments Act. a cheque is an order by the account holder of the bank directing his banker to pay on demand. It must contain an order to pay. iv. Therefore. the only difference is that the bank is always the drawee in case of a cheque. If you have a savings bank account or current account in a bank. the specified amount. The sum payable mentioned must be certain or capable of being made certain. you can issue a cheque in your own name or in favour of others. The order must be unconditional. 1881 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. The order must be to pay money and money alone. Cheques Cheque is a very common form of negotiable instrument. v.000/.on demand and oblige’ are not used.
............. iv...................... The amount specified is always certain and must be clearly mentioned both in figures and words....... New Delhi – 110067 MSBL 653003 110002056 10
Features of a cheque Let us look into some important features of a cheque.... A cheque must be in writing and duly signed by the drawer....... It is always payable on demand....... The payee is always certain.. cheques are of four types................ ii.......
......20............... vii.................................. a) Open cheque.......... The cheque must bear a date otherwise it is invalid and shall not be honoured by the bank. Pay……......... It is issued on a specified banker only. ……........... i.........Specimen of a Cheque ………......... v........ iii.. It contains an unconditional order.................... and b) Crossed cheque............ Types of Cheque Broadly speaking. vi...... or Bearer
Rupees……………………………………………… …………………………………………………… STATE BANK OF INDIA Jawaharlal Nehru University........
c) Bearer cheque: A cheque which is payable to any person who presents it for payment at the bank counter is called ‘Bearer cheque’. There is another categorization of cheques which is discussed below: Ante-dated cheques:. a cheque issued on 20th May 2003 may bear a date 5th May 2003. a) Open cheque: A cheque is called ‘Open’ when it is possible to get cash over the counter at the bank. It is only credited to the bank account of the payee. Pass it to someone else by signing on the back of a cheque.A cheque which is issued today must be presented before at bank for payment within a stipulated period. with or without the writing ‘Account payee’ or ‘Not Negotiable’. it is dangerous to issue such cheques. After expiry of that period. d) Order cheque: An order cheque is one which is payable to a particular person. Deposit the cheque in his own account iii. Receive its payment over the counter at the bank. In such a cheque the word ‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. The payee can transfer an order cheque to someone else by signing his or her name on the back of it. b) Crossed cheque: Since open cheque is subject to risk of theft. no
. For example.Cheque in which the drawer mentions the date earlier to the date of presenting if for payment. A bearer cheque can be transferred by mere delivery and requires no endorsement. This risk can be avoided by issuing other types of cheque called ‘Crossed cheque’. ii. The holder of an open cheque can do the following: i.c) Bearer cheque d) Order cheque Let us know details about these cheques. Stale Cheque:. A cheque can be crossed by drawing two transverse parallel lines across the cheque. The payment of such cheque is not made over the counter at the bank.
A hundi is the oldest known instrument used for the purpose of transfer of money without its actual physical movement. such a cheque is called a mutilated cheque. if a cheque presented on 8th May 2003 bears a date of 25th May 2003. It is often in the form of a bill of exchange drawn in any local language in accordance with the custom of the place.payment will be made and it is then called ‘stale cheque’. The bank will not make payment against such a cheque without getting confirmation of the drawer.Cheque on which drawer mentions a date which is subsequent to the date on which it is presented. The provisions of the Negotiable Instruments Act shall apply to hundis only when there is no customary rule known to the people. Sometimes it can also be in the form of a promissory note. iv.In case a cheque is torn into two or more pieces and presented for payment. For example.
. The bank will make payment only on or after 25th May 2003. Find out from your nearest bank about the validity period of a cheque. Hundis A Hundi is a negotiable instrument by usage. the bank may make payment against such a cheque. Post-dated Cheque:. Mutilated Cheque:. But if a cheque is torn at the corners and no material fact is erased or cancelled. it is a post-dated cheque. is called post-dated cheque.
who.Types of Hundis There are a variety of hundis used in our country. after reasonable enquiries. asking the latter to pay the amount to a Shah. 1. Shah is a respectable and responsible person. Let us discuss some of the most common ones. Shah-jog Hundi: This is drawn by one merchant on another. A shah-jog hundi passes from one hand to another till it reaches a Shah. presents it to the drawee for acceptance of the payment. a man of worth and known in the bazaar.
4. Jokhami hundi. Firman-jog hundi. The liability of the maker/drawer is secondary & conditional upon nonpayment by the drawee. There are 3 parties – the drawer. There are 2 parties – the maker & the payee. Dhani-jog hundi. There are few other varieties like Nam-jog hundi.
. 2. the drawee & the payee. It is made by the creditor. Differences between Bill of Exchange & Promissory Notes
Promissory Note 1. 3. The liability of the maker/drawer is primary & absolute. Jawabee hundi. Thus. It contains an unconditional order. This is similar to a time bill. 4.
Bill of Exchange 1. Acceptance by the drawee is a must.
4. Darshani Hundi: This is a hundi payable at sight.
A. 5. It is made by the debtor. It contains an unconditional promise. 5. Muddati Hundi: A muddati or miadi hundi is payable after a specified period of time. 3. Acceptance is not required. etc. 3.2. It must be presented for payment within a reasonable time after its receipt by the holder. 2. it is similar to a demand bill.
It means that a person who receives a negotiable instrument has a clear and undisputable title to the instrument. 3. But. 4. 4.Features of Negotiable Instruments
After discussing the various types of negotiable instruments let us sum up their features as under i. 2. get it registered. Further. pay stamp duty.
5. the title of the receiver will be absolute. Acceptance is not required. 2. Acceptance is a must. The amount is payable on demand or after a specified period. 3. It cannot be crossed. such formalities are not required while transferring a negotiable instrument. Usually. It can be drawn on anybody including a banker. while transferring it is also not required to give a notice to the previous holder. It is drawn only on a banker. we are required to make a transfer deed. ii. etc. The amount is always payable on demand. when we transfer any property to somebody. Distinction between a Cheque and a Bill of Exchange
Cheque 1. Negotiability confers absolute and good title on the transferee . The ownership is changed by mere delivery (when payable to the bearer) or by valid endorsement and delivery (when payable to order).B. only if he has got the instrument in good faith and for a consideration. It can be crossed to end its negotiability. Also the receiver
. A negotiable instrument is freely transferable. However. Bill of Exchange 1.
one cannot make a promissory note on assets. computer printout and engraving. typing. A negotiable instrument must be in writing. The payee must be a certain person . Such a person is known as holder in due course. etc. However. It was stolen from Sanjay by a person. viii. or goods. Here Girish will be regarded as ‘holder in due course’. It means that the instrument must be payable at a time which is certain to arrive. The time of payment must be certain. director or chairman of an institution. body corporate. securities. trade unions. A negotiable instrument must bear the signature of its maker. The instrument must involve payment of a certain sum of money only and nothing else. ix. he will be entitled to receive the amount of the cheque. Any negotiable instrument like a cheque or a promissory note is not complete till it is delivered to its payee. the instrument shall not be a valid one. who passed it on to Girish. For example. if the time of payment is linked to the death of a person. It means that the person in whose favour the instrument is made must be named or described with reasonable certainty. The payee can also be more than one person. it is nevertheless a negotiable instrument as death is certain. iii. This includes handwriting. even secretary. vii. For example. For
.should have no knowledge of the previous holder having any defect in his title. though the time thereof is not. Delivery of the instrument is essential. v. If Girish received it in good faith and for value and without knowledge of cheque having been stolen. If the time is mentioned as ‘when convenient’ it is not a negotiable instrument. In every negotiable instrument there must be an unconditional order or promise for payment. iv. vi. Without the signature of the drawer or the maker. The term ‘person’ includes individual. suppose Rajiv issued a bearer cheque payable to Sanjay.
Negotiation of Commercial Paper
• Assignment • Negotiation • Endorsements • Four Common Types of Endorsements Assignment Commercial paper that does not meet all of the requirements of negotiability cannot be negotiated. It can only be transferred by assignment. The value of stamp depends upon the value of the pronote or bill and the time of their payment. you may issue a cheque in your brother’s name but it is not a negotiable instrument till it is given to your brother. x. This is required as per the Indian Stamp Act. 1899. Stamping of Bills of Exchange and Promissory Notes is mandatory .example. which is governed by the ordinary principles of contract law.
to bearer. typewritten. •Special Endorsements: A special endorsement is made by writing the words pay to the order of or pay to followed by the name of the person to whom it is to be transferred and the signature of the endorser. A holder is a person who is in possession of an instrument issued or indorsed to that person. •Conditional Endorsement: A conditional endorsement. Endorsements may be written in ink.Negotiation Negotiation is the transfer of an instrument in such a form that the transferee becomes a holder. Endorsements An instrument is endorsed when the holder signs it. a type of restrictive endorsement. •Qualified Endorsements: A qualified endorsement is one in which words have been added to the signature that limit the liability of the endorser. makes the rights of the endorsee subject to the happening of a certain event or condition. or in blank. An endorsement is restrictive if it is conditional. to that person's order.
. Blank Endorsements: A blank endorsement consists of the signature alone written on the instrument. •Restrictive Endorsements: A restrictive endorsement limits the rights of the endorsee in some manner in order to protect the rights of the endorser. thereby indicating the intent to transfer ownership to another. or stamped with a rubber stamp.
although a mortgage may secure a promissory note which is governed by Article 3. such as Stocks & Bonds. which are governed by Article 7 of the Code. Deeds & other documents conveying interests in real estate. the following are not negotiable instruments.
5. Securities. which are governed by Article 5 of the Code. IOUs.
4. Bills of Lading and other documents of title.
Letters of Credit. relating to netting practices and domestic payments and settlement systems. which are governed by Article 8 of the Code.7.
Under the Code. although the law governing obligations with respect to such items may be similar to or derived from the law applicable to negotiable instruments.
acceptance of digital signatures. duties of certification authority. 1999 and consequential amendments to the Reserve Bank of India Act.1881 as short term measures and promotion of a few Acts like the Electronic Funds Transfer Act. The proposed Information Technology Bill. the Computer Misuse and Data Protection Act etc.S. The Reserve Bank has already initiated steps for framing of EFT Regulations.Shere).1934 and amendment to the Bankers’ Books Evidence Act. The Government of India have also initiated steps for promoting Information and Technology Act. 1999 are intended to be general purpose legislation covering mainly issues like secure electronic records and signatures. liability of network service providers.Transfers
Electronic Funds Transfer Act In 1995. 1999 and Electronic Commerce Bill. K. as long term measures. However. the Bankers’ Books Evidence Act. Both the bills deal with electronic contracts and they are being promoted by the Government of India primarily to facilitate introduction of Electronic Data Interchange in the commercial sector. The Shere Committee had recommended a set of EFT Regulations by the Reserve Bank under the Reserve Bank of India Act.8. 1881 etc. computer crime and data protection. 1934.
E. the Reserve Bank had set up the Committee for Proposing Legislation on Electronic Funds Transfer and other Electronic Payments (Chairperson : Smt. they are equally applicable for electronic funds transfer already launched by the Reserve Bank and is going to be increasingly resorted to by the user banks of the VSAT based
the trend is towards distinguishing the central bank role as a regulator from that of service providers which could be commercial
. after a careful examination of the issue. cannot be covered in general purpose bills like the proposed Information Technology Bill or the proposed Electronic Commerce Bill. However. the INFINET. with settlement assistance from the Reserve Bank. moreover. required which would be consumer protection oriented and would at the same time address transactional issues like execution of payment order. rights and obligations of the parties involved in electronic funds transfer etc. Retail payment systems such as the ECS and the EFT Remittance Processing Scheme presently operational may be managed by a group of large banks with country wide branch network and technical capability. etc. settlement finality. The EFT Regulations would. there is still a need for a separate Act for Electronic Funds Transfer because certain transactional issues like payments finality. The Committee. This would help the RBI to focus its efforts only on large value time critical funds transfers to be settled on an RTGS basis. cover only credit transfer related transactions and not Debit Clearing transactions. considers operating the interbank payment systems through an agency or subsidiary so that its regulatory role is rendered distinct from its supervisory role.network. The EFT Regulations being framed by the Reserve Bank would address only the specific type of EFT system that the Reserve Bank would be involved with as a service provider as also a regulator. A separate legislation on the lines of Electronic Funds Transfer Act of USA is. The Reserve Bank has taken the help of a consultant in drafting a new legislation on Electronic Funds Transfer System and proposing amendment to the Reserve Bank of India Act 1934. In the ongoing debate on the role of central bank in payment systems. has endorsed the view that the proposed Electronic Funds Transfer Act should cover all forms of electronic payments. therefore. at an appropriate time. The Committee supports the view that the Reserve Bank.
1961. if required. It is worth mentioning that while clauses 9. Admission of electronic files as evidence and preservation of records: The Shere Committee had discussed the issues of admitting electronic files as evidence and of preserving electronic records and recommended the need to amend the Bankers' Books Evidence Act. The Committee has considered it necessary that the legal framework for payment system takes into account this international trend. for according the funds transfer under the EFT system the same status of payment as one made by an
. The Committee considered certain provisions of the proposed Electronic Commerce Bill for admitting electronic records / signatures as evidence. 1944 for the purpose. documents etc. amending the relative provisions of the Direct Tax Laws like Section 40A of the Income-Tax Act. This is a welcome development and would meet the legal requirement of acceptance of contracts. 1881. 1988 and Central Excise and Salt Act. clauses 12 and 14 are based on Singapore Electronic Transactions Act. 10 and 11 of this Bill are based on the UNCITRAL Model Law. Clauses 9. 10. these provisions will be made applicable. As and when the Electronic Commerce Bill is passed. It is learnt that Government of India is processing the draft Bill amending the Bankers’ Books Evidence Act. The Committee however felt that. ipso facto. Funds Transfer through EFT Systems from Tax Compliance Angle The Shere Committee had recommended that the Central Board of Direct Taxes (CBDT) may be requested to take up the question of clarifying and. 12 and 14 of this proposed Bill which are relevant in this connection are given in Annexure 16 . in electronic form as evidence. to electronic funds transfer transactions as well. 1881 on the lines of the Customs and Central Excise Laws (Amendment) Act.banks themselves or the entities under the control of commercial banks. 11.
the implications of the definition of payment in due course under the Negotiable Instruments Act. 1881 may make it difficult for banks to introduce cheque truncation system simply by agreement among themselves. Besides. Without such presentment.A/c payee cheque. no cause of action arises against the drawer. Legal provisions need to be made if such recognition has to be given. The Shere Committee had examined the legal issues pertaining to cheque truncation and had indicated that the definition of presentment in the Negotiable Instruments Act may have to be amended for adoption of cheque truncation system in India. The first test would arise when paper instruments like cheques are used along with the use of EFT system. Under the Negotiable Instruments Act. It is by banking practice and under the Uniform Rules and Regulations for Clearing Houses that banks have agreed for presentment at any place other than the branch. cheques would have to be presented for payment to drawee / drawer bank. So long as both the systems are in existence at the same time. suitable technology may have to be developed for treating such transfers as A/c payee transfers. A mere recognition to that effect by the CBDT may not be adequate to treat such transfer as A/c payee cheques. 1881. it would require either amendments to the Negotiable Instruments Act or a separate legislation to deal with the matter. other parties to the cheque are not liable to the holder. In default of presentment of a cheque to the drawee for payment.
Cheque Truncation Cheque Truncation is a method of payment processing where under movement of the paper instrument is truncated by substituting with electronic transmission of the cheque details or data. The right of
. such as the clearing house.
the cheque truncation system started with customer consent agreements and was eventually introduced after a fair degree of familiarization with imaging technology by the banks. in UK.
. 1881.the paying bank to require physical presentation and possession of the cheque are designed to provide the bank with an opportunity to examine the signature and other authentication of the cheque. introduction of cheque truncation system may require adoption of a fairly standardized imaging technology and appropriate amendments to the Negotiable Instruments Act. This is meant essentially to protect the interest of the drawer. Thus. Therefore.
the liability of the maker of drawer of a foreign promissory note. but if A is charged as drawer. He is liable to pay interest at the rate of 6 per cent. Law governing liability of maker. Where a promissory note. payable in Washington where the rate of interest is 6 per cent. Illustration
. An action on the bill is brought against B in [India]. Law of place of payment governs dishonours. In the absence of a contract to the contrary. where it is made payable determines what constitutes dishonour and what notice of dishonour is sufficient. 135. the law of the place. and is dishonoured. bill of exchange or cheque is made payable in a different place from that in which it is made or endorsed.9. only. and the respective liabilities of the acceptor and endorser by the law of the place where the instrument is made payable. bill of exchange or cheque is regulated in all essential matters by the law of the place where he made the instrument. Section 134 to 137 is of an International Law and the said 4 sections read as follows:
134. Illustration A bill of exchange was drawn by A California where the rate of interest is 25 per cent and accepted by B. The bill is endorsed in [India]. acceptor or endorser of foreign instrument. A is liable to pay interest at the rate of 25 per cent.
The law of any foreign country [***] regarding promissory note. but in accordance with the law of India If a negotiable instrument is made. The endorsee causes it to be protested for such dishonour and gives notice thereof in accordance with the law of France through not in accordance with the rules herein contained in respect of bills which are not foreign. bills of exchange and cheques shall be presumed to be the same as that of [India]. but accepted payable in France. but in accordance with the [law of India]. unless and until the contrary is proved. out of India. drawn accepted or endorsed [outside India].
.A bill of exchange drawn and endorsed in [India]. 137. etc. the circumstance that any agreement evidenced by such instrument is invalid according to the law of the country wherein it was entered into does not invalidate any subsequent acceptance or endorsement made thereon [within India]. The notice is sufficient. Instrument made. is dishonoured. Presumption as to Foreign Law.
“a/c closed” or “stopped payment” -Complainant should make out a prima facie case.e.10 Dishonor Of Negotiable Instruments
Complaints of cheque : To answer in nutshell. a person desirous to initiate action under section 138 of Negotiable Instruments Act ("Complainant"). the notice need not be received by the accused (i. the accused has to prove absence of consideration -Complainant should issue a demand notice within 30 days from the Complainant's receiving information of return. Thereafter. say registered ad letter
. drawer of the cheque) within 30 days -It is advisable to give demand notice only once by a single mode. should ensure following: -The instrument is a cheque (and not any other instrument like bill of exchange or promissory note) -Complainant is a payee or holder in due course of a returned cheque -The cheque should have been in discharge of debt or liability (and not gift etc) -The cheque should have returned for reasons "want of funds".
Hence advisable to give notice only when it is decided to file a complaint -Complaint should be filed within 30 days from 16th day from the date of receipt by Drawer of the Demand Notice -If the last day of limitation for filing a complaint is a holiday. though there can be several returns. managing director/ deputy managing director’s liability is assumed while as regards other directors etc it is necessary that such person was in charge of and responsible for the conduct of business of the company and this is specifically averred in the complaint -It is not necessary to make the company or the firm a party to the complaint
.-Demand notice may cover more than one returned cheque -Demand notice should demand the drawer to pay within 15 days from its receipt by the drawer of the cheque -Advisable to gather the date and evidence of receipt of demand notice by the drawer of the cheque -Cause of action arises on 16th day when the drawer of the cheque doesn't pay within 15 days from the Drawer’s receiving or refusing demand notice -Cause of action arises only once. may file it on the next working day. Courts not allowed to condone delay in filing a complaint and hence timing should be adhered to -Complaint is maintainable against all the partners for a cheque return of their firm -In case of a company.
2. The dishonor affects all the parties to the bill. Dishonor by Non-Payment: Another reason for the dishonor of a bill is its nonpayment at maturity the drawee may refuse to make the payment of the bill when it is presented at maturity. 4.-Complaint runs independent of any other proceeding -Complaint is not maintainable against legal heirs of the Drawer. Dishonor by non-payment Dishonor by non-acceptance: when the drawee refuses to accept the bill. this refusal gives rise to dishonor by nonpayment. When the drawee disappears. 3. 6. When the drawee is not entitled to accept it. The drawee doesn’t accept the bill within 24 hours of its receipt. Dishonor by non-acceptance b. They include the drawer. If the bill is to be conditionally accepted 5. From the above it is clear that the bill is dishonored on two accounts: a. The dishonor by-non-acceptance may have the following reasons: 1. it stands to be dishonored. When the drawee is a fake person.
. and all the drawees do not sign the bill. all endorse and endorse.
BILLS OF EXCHANGE
Dishonor of the bill: when the bill of exchange is not accepted or not paid on maturity the bill is said to have been dishonored. who are all accountable and liable to the holder. In case there are many drawees.
When trade of goods and services started. different opinions. A smooth flow of trade was observed after the introduction of negotiable instruments. It helped many countries who were going through foreign exchange deficit.
A global world means different people. Since the laws of different differ from each other. problems also started taking up their roles. The cases of payment problems were observed among the exporting parties. These instruments are internationally accepted. A certain kind of negotiation was required at an international level to make the road of trade go smooth. These instruments had conditional and unconditional undertakings signed by the maker. Negotiable instrument helped exporters and importers of goods and services to drag their defaulters to court. Negotiable instrument include promissory notes. The ups and downs in the foreign exchange of every country were making them go through stagnancy. Exporters of goods and services felt a sigh of relief when they export their goods and services on credit basis as they had the negotiable instrument
. different culture. There was indeed a need for a negotiable instrument which is accepted by every law internationally. different understanding and different laws in every country. Bills of exchange and Cheque. Taking these factors into consideration The Negotiable Instrument Act was passed. these matters could not be solved legally and the distance between each country made it even more uncomfortable.11.
Whereas stamping of bills of exchange and promissory notes are mandatory. drawer and the drawee which was a strong proof document. Negotiable instrument is always in writing so there is no fear of the drawee backing off the instrument. So it helps the complainant to get its judgment at the earliest.e.
. Negotiable instruments play a vital role in the economic development of every country with its significant features. Each country is trying hard to do the necessary amendments for making these negotiable instruments run more smoother and efficiently so that the growing economy grows with more pace and peace. One of the main features includes that Negotiable instruments are freely transferable and while transferring it is also not required to give a notice to the previous holder. The peace and harmony which we see today in regards to the wholesome trade which goes on a very big scale and which is rising every single day is because of the existing negotiable instruments which are accepted internationally by every individual.with them dually signed by both the parties i. The grievances regarding the negotiable instruments are taken at the top priority as it directly affects the economy of the country. The complaints regarding negotiable instruments should be filed as early as possible in there nearby allocated court.
after the Securities and Exchange Board of India (SEBI) asked JVG Finance to refund the Rs 45 crore it had raised from a public issue in March 1997. In September 1997. He admitted that JVG had exceeded its limits while accepting deposits but claimed that since December 1996 (much before the RBI ban) it had stopped accepting deposits on its own and had even given RBI an undertaking. RBI did not accept the argument and barred the group from accepting any more public deposits. the 70-day stipulated period for listing the shares had passed. post-dated cheques issued for principal as well as interest on JVG's deposits bounced.
THE JVG SCANDAL
JVG's troubles started in June 1997. RBI issued a show-cause notice asking why JVG Finance should not be barred from accepting deposits as the group companies had already exceeded their deposit limits. The
. SEBI intervened and ordered the refund of the public's money according to the allotment rules. consumer courts. A day after the issue had opened. Sharma refused to refund the money to the investors and appealed against the order to the Finance ministry. Because of the time-lapse. Investors then complained to the civil courts. By the time RBI conditionally cleared the issue after assurances from Sharma. Company Law Board and criminal courts under the Negotiable Instruments Act upon which legal proceedings were initiated against the group.12.
Further. JVG Securities facilitated collection of further deposits by JVG Finance Ltd.28 crore which was 147. the companies failed to submit their audited balance sheets for the period ending March 31. the Delhi High Court ordered the winding up of the company. 1994 and 1995 15 days after their annual general meeting (AGM) and did not inform the RBI about the changes in the composition of the board of directors.68% of its net owned fund. Thus. a company which had already accepted public deposits
.58% of its net owned fund.. The RBI also filed criminal prosecution petitions in the Metropolitan Magistrates' Courts in New Delhi. and had illegally credited it to the account of JVG Finance Ltd. RBI further contended that JVG Securities accepted public deposits through JVG Leasing Ltd. RBI alleged that the company had accepted deposits worth Rs 88. On a complaint filed by the RBI. The court also appointed an official liquidator and said that the RBI did not consider the revival scheme filed by the company viable.82 crore which was 756. The companies had not provided any information about the rate of interest to the investors on the receipts issued to them. Similarly. 1934. which was necessary as per RBI provisions.
RBI's petition also stated that the company had not maintained liquid assets as required by section 45IB of the RBI Act.government received a large number of complaints on non-repayment of deposits on maturity by the JVG group. This was much higher than the permissible limit of 25% . The RBI complaint also said that the deposit forms issued by the JVG Group did not contain any information regarding premature withdrawals. JVG Leasing had received deposits worth Rs 19.
who had stolen the credit card. openly charged the police with falsely implicating the accused advocate. A verbal spat took place between a group of local lawyers and city policemen at the Division No 8 police station when the policemen were giving details about a credit card fraud allegedly committed by a city-based advocate.
. was watching the show when his pocket was picked. They also alleged that some policemen had demanded money from the advocate but when he refused to pay. for doing shopping worth over Rs 4 lakh from a stolen credit card of an NRI. a pickpocket and a former employee of a private telephone company. He was missing. police on warpath Tribune News Service
Ludhiana. Mr. The credit card was stolen six months ago in November 2004 from GRD Academy here where the Miss World Punjaban contest was being held. The police narrowed down on the accused after the complainant learnt that the credit card was being misused. a group of lawyers led by a former president of the District Bar Association. The alleged victim. NRI Jaswinder Singh. an alleged pickpocket. former employee of a telephone company. However. he was booked in a false case. The police was claiming that it had arrested advocate Amarjit Singh of Fauji Mohalla here on the basis of evidence along with Vikas.beyond the permissible limit in spite of the warning from RBI not to accept any further deposits. April 28 The local police and the lawyers are heading for a showdown over the issue of arrest of an advocate by the Division No 8 police in an alleged credit card fraud case. Titan and Sant Ram Mangat Ram. The police have denied the allegations. The third accused was Sonu. Nike. Tanishq. Harish Rai Dhanda.
Advocate arrested in credit card fraud case Lawyers. Weekender. DSP Simratpal Singh Dhindsa stated at a press conference that the accused had indulged in shopping using the stolen credit card from showrooms of Adidas.
the District Bar Association (DBA) has demanded immediate suspension of the guilty policemen. Meanwhile. last year that the police would take the DBA into confidence before arresting an advocate in any case. Rana Harjasdeep Singh. Secretary.R. He said the lawyer was tortured in police custody. A delegation of the DBA would meet the SSP tomorrow and demand action against the SHO and other policemen of the Division No 8 police station. DBA. A group of lawyers later filed a complaint before a local Judge against police torture and harassment. Mr. except a rape or a murder case.However. Dhanda alleged that the lawyer was innocent and had been falsely implicated in the case. said in a statement that they had got the medical examination of the accused advocate conducted from the Civil Hospital. Mr.
. Sikri condemned the incident and termed it as breach of trust and of an understanding reached between the lawyers and a former DGP. Former DBA president K. Dr A A Siddiqui. taking a tough stand against the arrest and the alleged custodial torture of the advocate.
without authorization of the original owner or in a form in which it has been fraudulently tampered with to the detriment of the original owner. an account card. Many different forms of fraud that can result in the owner of a negotiable instrument suffering a financial loss are known. with the common element generally being that the negotiable instrument is presented for serving as a payment for goods purchased. a credit card. or for depositing its value into a third party account. and in relation to other negotiable instruments such as credit cards. and any other instrument that has inherent value to the owner thereof and in relation to which the owner can suffer a financial loss as a result of unauthorized and/or fraudulent dealing therewith by third parties.13. Although the invention as defined and described hereafter is directed mainly at inhibiting fraud in relation to the use of cheques and credit cards. an electronic transfer. will be the person who legally presents such instruments in order to serve their intended purpose.
Within this specification by a negotiable instrument is meant a
cheque. a bond. a debit card. promissory notes. a share certificate. for converting its value into cash. the original owner of a negotiable instrument as herein envisaged shall merely be referred to as the owner of the negotiable instrument who. and the like. it must be understood that the invention applies also to inhibiting of fraud in relation to the use of any other negotiable instrument and the features of the invention must be interpreted as such. a traveler’s cheque. Fraud in relation to the use of negotiable instruments is an international problem. will be the person issuing such instruments. For the sake of convenience and clarity. in relation to certain negotiable instruments such as cheques. The owner is
The person presenting a negotiable instrument to the presentee shall hereinafter merely be referred to as the presentor and. in relation to cheques. generally will be a vendor who accepts the use of a credit card as payment for goods purchased or for services rendered. or the like. this may be a legitimate person to whom the instrument has been issued or who owns the instrument. It will be appreciated that the various negotiable instruments as herein envisaged can be associated with various different `types` of presenters and presentees. The person or body to whom a negotiable instrument is presented shall hereinafter be referred to as the presentee who. and in relation to credit cards. in accordance with the present invention. whether a natural or a juristic person. such instruments. who can suffer a loss as a result of the unauthorized or fraudulent use of the negotiable instrument of which he is the owner. or an illegitimate person who may be attempting a fraudulent act and/or who is not authorized to present the instrument. The application of the system for inhibiting fraud in relation to the use of negotiable instruments is associated with a suitably programmed central communication and processing unit that can be communicated with via a direct telephone line. in practice. via the internet. for example. but may be any third party who generally deals with and/or who is responsible for dealing with. Presentees need not necessarily be banks or vendors. generally will be a bank and particularly an employee of a bank. and the like. This unit shall herein be referred to as a central communication and processing unit and any reference to this unit must be interpreted as a reference to a suitably programmed unit that includes means for communicating with the unit. is generally responsible for ensuring that the owner of the negotiable instrument is not prejudiced. as well as data processing means and data storage means that
. The presentee also is the party who.thus generally the person.
in relation to each negotiable instrument to be issued or used by a registered owner. and upon presentation of the authorized negotiable instrument by a presentor to a presentee. which includes the steps of: the owners of negotiable instruments communicating with a central communication and processing unit in order to register with the unit by providing information. for enabling the system of the invention as defined hereafter. and the presentees of negotiable instruments communicating with the central communication and processing unit in order to register with the unit by providing information. the steps of: the registered owner communicating with the central communication and processing unit in order to authorize the negotiable instrument. linked directly with the respective presentees. each presentee then being provided with an individual secret code by the unit. the presentee communicating
.permit processing of stored data and of data communicated to it. each owner then being provided with an individual secret code by the unit. linked directly with the respective owners and information linked directly with the negotiable instruments in respect of which fraud is to be inhibited. the unit then issuing an authorization code to be linked with the instrument. by identification via the identification number and the individual secret code linked with the owner and by providing sufficient details in respect of the negotiable instrument for subsequently permitting the instrument to be verified. and which includes. including at least identification numbers. including at least identification numbers. BRIEF SUMMARY OF THE INVENTION According to the invention there is provided a system for inhibiting fraud in relation to the use of negotiable instruments.
The system of the invention particularly may provide for the central communication and processing unit to permit communication via a direct telephone line and. may provide at least their names and their official identity numbers. upon registering with the unit they will provide at least their names and their official registration numbers. The system of the invention may provide for owners registering with the
. as such. Owners registering with the unit. including at least their names. may include a processing and memory system for receiving and processing information received via the internet and thereby carrying out the functions of the unit. Alternatively.with the central communication and processing unit in order to verify the negotiable instrument. the unit in response communicating to the presentee the details for verifying the instrument provided by the owner of the instrument and thereby permitting the presentee to verify the instrument as the instrument authorized by the owner. the central communication and processing unit may permit communication via the internet and. as such. insofar as the owners are natural persons. or in addition. Presentees registering with the unit also will provide the unit with any other information. that will subsequently permit the unit to identify a particular presentee that dealt with the verification of a particular negotiable instrument. by identification via the individual secret code linked with the presentee and providing the authorization code linked with the instrument. and a processing and memory system linked to the audio text electronic processing system for processing information received by the audio text electronic processing system and thereby carrying out the functions of the unit. Insofar as owners are juristic persons such as registered businesses. includes an audio text electronic processing system that permits verbal information to be converted into binary code.
to verify the cheque. Insofar as owners registering with the unit wish to use the system for inhibiting fraud in respect of negotiable instruments such as credit cards issued to them by banks and linked to accounts. the system may provide for the unit to provide the presentee with a transaction code which must be applied by the presentee to the cheque. to apply the code to the cheque. to provide the unit with the name of each relevant bank. when issued by the unit with an authorization code.unit. the system may provide for the presentee. following the identification of the presentee to the unit and the provision of the authorization code applied to the cheque. insofar as they wish to use the system for inhibiting fraud in respect of negotiable instruments such as cheques rendered payable via their bank accounts. when authorizing the cheque. following verification of the cheque. an amount and a payee name and if this information matches the information applied to the cheque presented. In relation to an authorized cheque. the transaction code permitting details of verification as stored by the unit to be retrieved from the unit. to provide to the unit bank account details of the payee and an identification number linked with the payee. the amount indicated on the cheque and the name of the payee and. the identification number linked with a payee. the cheque number. Further according to the invention. upon being presented with an authorized cheque and in order to verify the cheque. the branch code associated with the said relevant bank and the relevant bank account number. the number of each relevant card and the name of the card owner that appears on the card. Still further. a cheque number. the system will provide for such owners to provide the unit with the name of each relevant bank and the card type. the system may provide for the registered owner of a cheque being issued by the owner.
. for the unit to communicate to the presentee account details of a payee.
to supply the code to the vendor with whom the transaction is taking place to permit the vendor as presentee to verify the credit card by communicating with the unit. Still further.The system of the invention may provide still further for the registered owner of a credit card issued by a bank. the system may provide. in response to which the unit provides the presentee a name of a bank that issued a card. It must be appreciated that the system of the invention as above defined may be applied specifically also to the authorization and verification of negotiable instruments not particularly in the form of cheques or credit
. The invention extends also to a central communication and processing unit which is controlled by a software program for enabling a system for inhibiting fraud in relation to the use of negotiable instruments in accordance with the invention. for the authorization and verification of the card to be simultaneously performed by the presentee providing the unit with the credit card number and the presentor providing the unit with the individual secret code of the owner. upon authorizing a telephonic or an online credit card transaction. Still further according to the invention. the card number and the name of the card owner that appears on the card. the invention extends to a software program for controlling the operation of a central communication and processing unit for enabling a system for inhibiting fraud in relation to the use of negotiable instruments in accordance with the invention. when a registered owner of a credit card issued by a bank presents as presentor the card to a vendor as presentee. and when issued with an authorization code by the unit. a card number and a name of a card owner and if this information matches the information on the card as presented to the presentee. in order to perform a direct credit card transaction. the card is both authorized and verified thereby. for the owner to provide the unit with the name of the bank that issued the card and the type of card.
Then when making payments online by credit card so many times the credit card number gets hacked and then used by the hacker for making online purchases .When making online payments one should make sure later by calling his bank customer care and confirming that only the transaction made by him is showing . He should be careful and take all necessary precautions while using these negotiable instruments .By the time the owner realizes the thief gets away by making big purchases.In the event of misuse/theft. one should immediately report to the concerned authorities for stopping payment from that account
. the fraud keeps taking place . by applying the same principles to those applied when authorizing and verifying cheques or credit cards. New laws and ways are being adopted for stopping fraudulent practices but the best and the only way it can be kept under control is by the owner of these negotiable instruments himself. and the system of the invention as defined must be interpreted as such.cards. Inspite of all the inventions made to stop fraudulent practices. Every day we read in the news paper how a credit card is stolen and easily used for making purchases by the thief without the knowledge of the real owner.
as well as the phone number and address of each bank that has issued you a credit card.or have it anywhere near your credit card (in the event that your wallet gets stolen). Only carry around credit cards that you absolutely need. (For example. 2. Never leave your credit cards or receipts lying around. 5. Don't write your PIN number on your credit card -. Never respond to emails that request you provide your credit card info via email -. Never provide your credit card information on a website that is not a secure site.
. 9. Keep a list in a secure place with all of your account numbers and expiration dates. 11.and don't ever respond to emails that ask you to go to a website to verify personal (and credit card) information. 7. Sign your credit cards as soon as you receive them. Shred all credit card applications you receive.PRECAUTIONS TO BE TAKEN TO AVOID FRAUD 1. Shield your credit card number so that others around you can't copy it or capture it on a cell phone or other camera. Never give your credit card info out when you receive a phone call. 8. Try not to let your credit card out of your sight whenever possible. 10. Don't give out your account number over the phone unless you initiate the call and you know the company is reputable. if you're told there has been a 'computer problem' and the caller needs you to verify information. 12. Don't carry around extra credit cards that you rarely use.reconcile it monthly. 4.) Legitimate companies don't call you to ask for a credit card number over the phone. Keep this list updated each time you get a new credit card. Keep an eye on your credit card every time you use it. Be very careful to whom you give your credit card. 3. These are called 'phishing' scams. Open credit card bills promptly and make sure there are no bogus charges. Save your receipts so you can compare them with your monthly bills. 6. Treat your credit card bill like your checking account -. and make sure you get it back as quickly as possible.
Shred anything with your credit card number written on it. Never write your credit card account number in a public place (such as on a postcard or so that it shows through the envelope payment window). 18. If you find any charges that you don't have a receipt for -. 19. If you move.report these charges promptly (and in writing) to the credit card issuer. but if there is a carbon that is used in a credit card transaction. 17. notify your credit card issuers in advance of your change of address. Ideally. Never sign a blank credit card receipt. 20. it's a good idea to carry your credit cards separately from your wallet -. Always void and destroy incorrect receipts. 21. Never lend a credit card to anyone else.perhaps in a zippered compartment or a small pouch.or that you don't recognize -. Carefully draw a line through blank portions of the receipt where additional charges could be fraudulently added. 14. 15. destroy it immediately. 16.13.
. Carbon paper is rarely used these days.
Since the Reserve Bank is embarking on large electronic schemes such as the nationwide RTGS. The position gets all the more complicated in the case of cross border netting arrangements.
PRESENT SCENARIO OF NEGOTIABLE
Legal issues relating to electronic transaction processing at banks are very many and the need to address them by amending some of the existing Acts and by promoting legislation in a few hitherto unexpected areas has assumed critical urgency. 1999 and / or the Electronic Commerce Bill. 1999. the parties
. Necessary legislative support is essential to protect the interests as much of the customers as of the banks / branches in several areas relating to electronic banking and payment systems. This is specially required to establish the credibility of ECS and EFT schemes based on the electronic message transfer. The basic issue in netting systems is that of the settlement risk and the systemic risks borne by the participants if one or some of the participants fail to meet the clearing liability.14. the issue gained critical significance while examining the proposal for setting up of a foreign exchange clearing and settlement system in India. This is more so in the case of large value transactions.
Need for Regulation / Legislation on Netting There is a growing debate on the legality of netting in inter-bank funds transfer transactions. In fact. Department of Electronics for promotion of the Information Technology Bill. In case of funds transfers settled on a gross basis. it is time that efforts are made to bring about necessary legislative framework that synchronizes and synthesizes with the initiatives taken by the Government of India.
Although netting system is in vogue in India for all inter-bank clearings by way of procedural details embodied in the Uniform Rules and Regulations for Clearing Houses. incoming and outgoing payments are set off against each other. the methodology of identifying the counter-parties / counterparts and determining the exposure level becomes difficult. In case of failure of a party in meeting the clearing liability.involved are only two and principal risk if any. 1934 with a view to enabling RBI to frame specific regulations
. But in multilateral netting systems where claims and obligations accumulate over a period of time (called the clearing cycle). There is a need to amend Section 58 of the Reserve Bank of India Act. is only for the specific transaction. it is necessary that the provisions are made statutory.
Then came the stage where technology was introduced and business forms became complex. This was known as the FACTORY STAGE However it was noted that the growth was very slow and the system was very complex. We as a group working on this topic had curiosity on the need of negotiable instruments in the market. Our research gave us an idea and an overview of the evolution of trade and commerce as a whole which kept on developing and growing bigger. 2. 3. The demand increased for other commodities as well and thus BARTER SYSTEM was introduced. PASTORAL STAGE where business was limited and survival by breeding of animals was the main motto.15. After this man never looked back. They started producing specialized products which led to the introduction of HANDICRAFT STAGE. The first stage had to do nothing with money. There were different instruments used to purchase different
. 5. this is where the necessity of introducing negotiable instruments were felt. 4. this was known as the GUILD STAGE. However man learned quickly to grow food for their own need which can be termed as the AGRICULTURAL STAGE. Then came the era in which people started to think about development and thus formed groups to protect their rights. people lived a nomadic life.
The project on negotiable instruments starts with the evolution of trade and commerce which in turn leads to the discovery of negotiable instruments. This can be termed as the turning point of trade and commerce. We came across the different stages through which trade and commerce went: 1.
3.Promissory note . Now as we have come across the term negotiable instruments and why it was evolved.It is an order by the account holder of the bank directing his banker to pay on demand the specified amount. To avoid such confusion and to operate the business activities smoothly negotiable instruments were introduced. 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. signed by the maker. Cheque .Hundi 1. lets now have a brief knowledge about negotiable instrument. to or to the order of the person named therein or to the bearer.
. Bill of exchange . Hundi . 2.commodities in different stages. The system of exchange was such that it led to confusion and various complexities. the ownership of which can be freely transferred from one person to another. Negotiable instruments are particular type of documents used for making payment in business transactions. to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. Types of Negotiable Instruments . signed by the maker. Promissory note .Bill of exchange .An instrument in writing containing an unconditional undertaking.An instrument in writing containing an unconditional order. 4.Cheque .It is form of a bill of exchange drawn in any local language in accordance with the custom of the place.
Letters of Credit – Article5 2. Absolute & good title 3. IOUs
. Free transferability 2. Always in written form 4. Unconditional order or promise for payment 5. Assignment 2. Certainty of payment 6. Stamping of BOE & Promissory notes mandatory Negotiation of Commercial paper 1. Deeds & other documents conveying interests in real estate –Article3 5.Features of negotiable instruments are1. Payee 7. Securities –Article8 4. Endorsements Exceptions 1. Negotiation 3. Signature of the maker 8. Delivery of the instrument 9. Bills of Lading and other documents of title –Article7 3.
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.com 4.com 2.com 3. indialaw.com 5. casestudy. knowlegeworld.