Ø  Difference between P-notes and BOE

o   Number of parties- p notes (two parties debtor and creditor) BOE (three parties-
drawer, drawee, payee)
o   P notes contains an unconditional promise by the maker to pay the money to
payee or his order. In BOE, there is an unconditional order by the drawer to the
drawee to pay the money to payee or his order.
o   Acceptance- a p-note does not require acceptance as it contains a promise by
the buyer only to pay the money. You have to accept it becoz you have created a
financial liability for yourself only. In BOE, there are three parties, hence the
acceptance is required. Drawee has to accept, although the acceptance is not
necessary for determining the validity of the instrument. If he rejects the BOE,
then the drawer can himself make the payment to the payee.
o   Liability- in p-note, the liability of the maker is primary and absolute. In BOE,
the liability of drawer is secondary and conditional. If the drawee does not accept
then he has to pay.
o   Position of the maker or the drawer- maker of the p-note stands in immediate
relation with the payee. In BOE, the immediate relation is with the drawee and not
the payee.
o   P-note cannot be payable to the bearer. BOE can be paid to bearer provided.
o   Protest- section 100 of NI Act. foreign BOE must be protested for dishonour of
the bill. No such protest is required for p-notes.
o   When BOE is dishonoured, a notice has to be given by the payee to the drawer.
In p notes, no such notice is needed becoz when you have not made the payment,
you already know that.
Ø  Types of bill of exchanges
o   Trade bill- BOE is drawn and accepted to settle a business transaction. It is
drawn by the seller and accepted by the buyer.
o   Accommodation bill- a bill which is drawn by one and accepted by another
without consideration. It is merely to raise money on the bill. It is distinct from a
trade bill, becoz there money is transacted. Here, it is drawn as a security to raise
money. This is an exception of presumptions. Refer Section 46 and 48.
o   Usance bill- time fixed for the purpose of payment drawn in one country and
payable in another country. Foreign BOE
o   Documentary BOE- along with other documents necessary for the transaction,
Doctrine of strict compliance- whatever is written, should be clearly stated with
no overlapping.
o   Claused BOE- a particular clause is inserted in BOE specifying the rate of
exchange or rate of interest. It is known as claused BOE. Rate of interest is not
certain then how will it be valid? Section 80 of NI act- 18% will apply.
o   Irregular BOE- if the BOE bears an irregular indorsement, then it is void becoz
BOE is a currency and there should be no doubt or suspicion regarding the same.
What is irregular indorsement? BOE is transferrable infinitely. But the
transference must be in chronological order. If the order is not proper, or not in
order, then it becomes void as the pay-ability is questionable.
o   Avalised bill- putting a signature at the time of formation of the bill, in case the
drawer or drawee does not pay the money, then the person who has provided the
signature will pay the amount. Not only to the principal payee but even to all
others, in case the bill is indorsed further. He has to pay anyone who is in
possession of the bill. He will have the right of subrogation from the drawer
 afterwards, or may waive his right to claim back the paid amount. Avalised person
is no longer considered as a stranger.
o   Fine trade bill- the drawee accepts the BOE, it is known as fine trade bill.
o   Inland BOE- where all the three parties are in India. Section 11. Drawn and
made in India, payable in India or drawn on a person residing in India. Acceptor
for honor is also in India.
o   Foreign instrument- if any party is outside India, then it will make the bill a
foreign bill. Section 12 and article 2 of Convention on BOE
o   Bill in sets- where many copies are issued or copy is issued in many parts, or
payment is in parts or payment to one is considered as payment to all. Section 132
of NI act.
Ø  There are witnesses at the end of the negotiable instrument, there liability in terms of
payment is negligible. They are there to accept the fact that a NI has been drawn on such
and such date and day.
Ø  Note- acceptor honour
Ø  “Acceptor for honour” [Chapter XI]: When a BoE has been noted or protested for non-
acceptance or better security, and any person accepts it supra protest for honour of the
drawer or any one of the indorsers, such a person is known as an acceptor for honour.
§  Role of strangers to the instrument is recognisedà Chapter XI (Sections 108 to
116)
§  Chapter IX (Sections 99 to 104-A)à of notice and protesting
Ø  Now 148 sections are there in the NI act.
Ø  148th 16th August, 2018.
Ø  When we say that BOE can also be indorsed further, then after 10 signatures the space
will finish then what will happen in that case?
Ø  A new paper is attached, and write the term ‘elongee’, and put your signature, then it
will be considered as a continuance.
Ø  The term is not mentiones in SOGA or NI act. It is a customary practice.
Cheques
Ø  Cheque is drawn to a bank or banker
Ø  It is always payable on demand immediately without any period of grace.
Ø  P notes and BOE- 3 day extra time is permitted to make the payment. Section 22.
Ø  No such extra time is permitted to the bank on cheque as it is payable on demand,
provided it is under the validity period.
Ø  Validity period is 3 months.
Ø  The cheques require no acceptance, it is only presented for payment under section 61
and 64.
Ø  When presented to a bank, it is presumed that it is presented for the purposes of
acceptance as well as payment.
Ø  Under no circumstance can the bank take more than 48 hours for the payment,
otherwise it is deemed to be dishonoured.
Ø  In case of dishonor, the drawer will be sued and not the bank. The payee has to sue the
payer and not the banker as there is no privity to contract between payee and banker.
Ø  A cheque is supposed to be drawn upon the funds in the hands of a banker. It is
presumed that the drawer has sufficient  money in his running (not dormant) account as
against the cheque issued.
Ø  A drawer of the cheques is not discharged by failure of holder to present in due time.
Ø  Cheque is not noted or protested for dishonour. It is generally inland.
Ø  Cheques can be crossed. There are two types of crossing:
 o   General
o   Special
Ø  Differences between  BOE and Cheques
o   BOE can be drawn on any person including a banker but a cheque is always
drawn on a specified banker.
o   BOE is not always payable on demand. Cheque always payable on demand.
o   Cheque is payable to bearer on demand. BOE not possible
o   BOE requires acceptance before the drawee can be made liable for it. A cheque
however needs no acceptance.
o   BOE requires stamping, Indian Stamp Act. Cheques do not require stamps.
o   BOE cannot be crossed. Cheques can be crossed
o   In BOE dishonoured, notice can be issued under section 93 (oral or written). In
cheque, only a written notice will work in case of dishonour. (section 138(b))
o   Dishonour of BOE is a civil offence. Dishonour of cheque is a criminal offence.
o   Dishonour of BOE- damages only. But in dishonour of cheque, damages are
granted in the form of penalty and also jail term.
Ø  Cheques is a bill of exchange with certain differences. All cheques are bill of exchange
but not vice versa.

Bank Drafts
Ø  Section 85A of NI act recognises bank draft
Ø  BD is a BOE drawn by a bank on another bank or on its own bank instructing latter to
pay a sum of money to the specified payee.
Ø  Also called demand draft.
Ø  DD is a NI and is similar to a cheque becoz its freely transferrable and rules of crossing
are applicable to it.
Ø  However, it is different from cheque in the respect that it cant be drawn by an
individual or made payable to the bearer.
Ø   
Can state/universities/local authorities declare public holidays?
Ø  Section 25 of NI act gives power to the central govt to declare a day as public holiday.
Ø  This amendment took place in 1955
o   Christmas and good Friday were omitted as we are longer ruled by them.
o   If Christmas fell on Sunday, then the next day would be a holiday, declared by
a notification.
Ø  RBI website says that this section is also used by industries and commercial businesses.
Ø  Therefore universities and local govt are also allowed to use this section to declare
public holidays.
Classification of negotiable instruments
Ø  Order instrument- section 13 of NI act.
o   The instrument which is payable to a particular person (named payee)
o   Or to other person on the order of payee
o   Payable to the order of the a particular person
Ø  Bearer instrument- Section 13
o   Oder instrument can be converted into a bearer instrument by indorsing it to the
self.
o   Expressed to be payable to the bearer.
 o   Last indorsement is in blank. (There are two types of endorsement: General
indorsement/ indorsement in blank- can be given to anyone; which means that if a
payee’s name is there but there is an endorsement in blank it can go from an order
instrument to a bearer instrument. Second is special indorsement where the payee
explicitly mentions the name of the indorsee.) Blank means indorsee’s name is not
there.
Ø  Demand instrument- section 21
o   The time for payment is not specified, the instrument is payable on demand.
o   Cheque is always payable on demand within the period of its validity. The
automatic period of validity is three months. This is written in S138 and S142.
o   Grace period (extra time alotted tomaker or drawee to make the payment) is not
given.
o   The instrument is valid till its validity period.
o   If the instrument is a demand instrument, no grace period is given. Section 22.
(difference in maturity and validity Section 22 and 138. Maturity- date when
payment is due, i.e. the date written on the top)
o   May be presented for payment at any time. (Within the period of its validity)
Does not have to be an exact date. There is no limitation on the number of times
an instrument can be presented.
o   Bank can say "refer to drawer" or "stop payment" or "account closed" or
"Insufficiency of funds" or "dormant account" (every bank has a different policy
as to what is a dormant account). After dishonour a 30-day notice, then 15-day
time to reply to it, then further proceedings. Since there must be debt and liability-
and only then there can be an offence. So even if you issue another cheque with
insufficient funds, only for one will you be prosecuted. 
Ø  Time instrument
o   Payable on a specified date.
o   Payable after a specific period.
o   Payable on the happening of an even which is certain to happen.
Ø  Inland instrument- Section 11
o   Drawer, drawee, payee, all located in India. (agents appointed maybe located
outside)
o   Necessary parties must be located in India
Ø  Foreign instrument
o   Section 12 of NIA
o   Article 2 of UN Convention
o   If even on of them is locate outside India, then it becomes a foreign instrument.
Ø  Ambiguous instrument- section 17
o   The drawer and drawee are the same
o   Drawee is a fictious person
o   Drawee is a person incapable of entering into a contract.
Ø  Inchoate instrument- section 20
o   Inchoate means incomplete in terms of stamp and signature. These both should
be fixed and other are incomplete.
o   Stamp indicates to the fact that how much money can be put on the instrument,
and regain its certainty.
 o   They are used when the parties know each other very well. Uberima fidie. If the
payee is honest, he will only apply for that much money as he is entitled to. Or he
can even indorse it. How much money will the indorsee get?
o   Section 20: incompleteness to the extent of amount to be filled. It is generally
expected that the holder will fill that amount which is in consonance with the
stamp to be fixed
o   Applied on BOE necessarily and sometimes on P-notes. Cheques don’t require
stamping, therefore no application.
o   Section 118 (f): talks about stamping but over the years stamping act is not
applicable to cheques. Thus cheques don’t come under the terms of Section 20.
o   Stamp fixes the maximum amount which can be there.
o   Even though any excessive money is filled (previous holder’s right is defective)
and indorsed to someone else, nemo dat maxim is not applicable here. Indorsee
has to look for 3 requirements to be fulfilled:
§  received in good faith,
§  before maturity and for consideration.
§  Nothing is suspicious about the instrument.
o   If these 3 are cumulatively fulfilled the indorsee becomes holder in due course.
Stamp loses importance in such a case. [Privilege]
o   Section 9 mentions that if you prove these three conditions, you become the
holder in due course. And your title is effective irrespective of the defective title
of the transferer.
Ø  Truncated cheque- Section 6 Explanation 1(b)
o   It means a negotiated cheque
o   The payment has already been done but the bank keeps it for the purposes of
record.
o   It can only be a cheque and not p note or BOE.
Ø  “a truncated cheque” means a cheque which is truncated during the course of a
clearing cycle, either by the clearing house or by the bank whether paying or receiving
payment, immediately on generation of an electronic image for transmission, substituting
the further physical movement of the cheque in writing.
Ø  Explanation II: For the purposes of this section, the expression “clearing house”
means the clearing house managed by the Reserve Bank of India or a clearing house
recognised as such by the Reserve Bank of India.]
Ø  Clearing house will see to it that the instrument is negotiated.
Ø  Three ways of discharge- section 82
o   cancellation
o   release
o   Payment- related to truncated cheque.
o   Material alteration
Ø  Electronic cheque- section 6. Explanation 1
o   mirror image of the paper cheque generated, written and signed .
o   “a cheque in the electronic form” means a cheque drawn in electronic form by
using any computer resource and signed in a secure system with digital signature
(with or without biometrics signature) and asymmetric crypto system or with
electronic signature, as the case may be
Ø  Explanation III: For the purposes of this section, the expressions “asymmetric crypto
system”, “computer resource”, “digital signature”, “electronic form” and “electronic
signature” shall have the same meanings respectively assigned to them in the
Information Technology Act, 2000.