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There are certain documents which are freely used in commercial transactions and monetary dealings. These documents, if they satisfy certain conditions, are known as "negotiable instruments". The word "negotiable" means "transferable from one person to another in return for consideration" and "instrument" means a "written document by which a right is created in favour of some person." Thus, a negotiable instrument is a document which entitles a person to a sum of money and which is transferable from one person to another by mere delivery or by indorsement and delivery. The terms 'delivery' and 'indorsement' have been explained in a subsequent Chapter. The law relating to negotiable instruments is contained in the Negotiable Instruments Act, 1881, which deals with promissory notes, bills of exchange and cheques, as also hundis (a bill of exchange in a vernacular language). It is based, except where conditions in India require a departure, mainly upon the English Law as to negotiable instruments and judicial decisions. The Act extends to the whole of India. It does not affect any local usage relating to any instrument in a vernacular language. The local usages may however be excluded by any words in the body of the instrument (Sec.l). The Act came into force on first day of March, 1882. The latest amendment to the Act was made in 1988. References to Sections in Chapters 6-1 to 6-10, unless otherwise indicated, are to the Negotiable Instruments Act, 1881. The Reserve Bank of India Act, 1934 The Negotiable Instruments Act does not affect the provisions of Sees. 31 and 32 of the Reserve Bank of India Act, 1934. The object of Sec. 31 is to prevent private persons from infringing the monopoly of the Government in note issue (paper currency) in India. The provisions of Sec. 31 are as follows : 1. No person (other than the Reserve Bank or the Central Government) can draw, accept, make, or issue any bill of exchange, hundi, or promissory note payable to bearer on demand. 2. No person (other than the Reserve Bank or the Central Government) can make or issue any promissory note payable to the bearer of the instrument. This renders the words 'or to bearer' in the Q efinition of a 'promissory note' in Sec. 4 of the Negotiable Instruments Act inoperative. But a bill or a note, on being indorsed in blank, can become payable to bearer on demand. A cheque is also payable to bearer °n demand. These are exceptions to the rules as contained in Sec. 31. Sec. 32 of the Reserve Bank of India Act provides that if anybody 'ssues a bill or note payable to bearer on demand, or a note payable to bearer, he shall be punishable with fine. DEFINITION OF NEGOTIABLE INSTRUMENT A negotiable instrument is a method of transferring a debt from one Person to another. The term 'negotiable instrument' as such is notdefined in the Negotiable Instruments Act. Sec. 13, however, says that :'a' negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer." The definition, as it is, says that a negotiable instrument 'means' and not 'means and iiicludes'. Therefore, any other instrument which satisfies the conditions of negotiability can be added to the list of negotiable instruments. Justice Willis defines a negotiable' instrument as "one the property in which is acquired by anyone ^who tah^s it bona fide and for value ' notwithstanding any defect of )title in the person from whom he took it." [The Law-pf Negotiable Securities, 5th ed., p. 5J, According to Thomas, a negotiable instrument is one which is, by a legally recognised custom of trade or by law, (a) transferable by delivery or by indorsement and delivery. (b) without notice t<\ the party liable, in such a way that the holder of it for the time being-may sue upon \t in his own name, and (c) the property in it passes to a bona fide transferee for value free from equities and free from any defect in the title of the person from whom he obtained it [Commerce, Its Theory and 'Practice by Thomas, 8th ed.,p.629].
for example. presumes the fact c dishonour. A person taking an instrument jbona fide and for value. Title of holder free from all defects. by evidence. Negotiable by Statute. unless contrary is proved. the. on proof of the protest. Example. He is not in any way affected by any defect in the title of the transferor or of any prior party. all defects in the title of the transferor. and (2) for value. (h) Proof of protest. Every negotiable instrument is presumed to hav been made. these presumptions would not arise where an instrument has beei obtained by any offence.( . S sells certain goods to B. known as a holder in due course.bearer. dawn. Further he| need not give notice of transfer to the party liable on the instrument to 1 pay. it is presumed that 1 was duly stamped. The-holder in due course can sue upon a negotiable! Instrument in hip own name for the recovery of the amount. the Court.it) presumed that it was accepted within a reasonable time of its date an< before its maturity. if the instrument is payable to . | NEGOTIABLE INSTRUMENTS 3J. 119). When an 'instrument has been lost. If anyon* challenges any of these presumptions. negotiable instrument is presumed to be a holder in due course (Sec. claiming that | the goods are not according to order. -The property in a negotiable instrument passes from one person to another by delivery. known as a holder in due course.This means that a person taking an instrument (1) bona fide. These presumptions are dealt j with in Sees. . If S sues B on the note. a holder in due course. B's'/ defence is good. . A rough and ready test of negotiability" in case of bearer instruments is : Can a good title be Required through a thief ? If yes. 118 and 119 and are as follows :'. "TYPES OF NEGOTIABLE INSTRUMENTS Negotiable instruments may be : 1.' . s • • (d) Time of transfer. Negotiable by custom or usage. Negoitable instruments are a special class of contracts. (a) (ionstderatton. B gives a promissory note to . gets a good title even though the title of the transferor may be defective. Every negotiable instrument bearing a date is presumed tc have been made or drawn on such date. 2. accepted. B's defence will be of no avail. He refuses to pay the promissory note. 118). instrument is negotiable. Whenabillofexchangehasbeenaccepted. (b) Date. or 2. i 3. (c) Time of acceptance. pertain presumptions apply to all negotiable'' iristrume. negotiated or transferred. S for the price. he has to prove his allegation Again. Every transfer of a negotiable instrument Ji presumed to have been made before its. Every holder of.'.ts. indorsed. The indorsements appearing upon £ negotiable instrument are presumed to have been made in the order ii which they appear thereon.maturity. fraud. The above presumptions are rebuttable. Recovery. This would help a holder 'to get a decree from a cdur without any difficulty. Characteristics of a negotiable instrument The characteristics of a negotiable instrument are as follows : 1.' (g) Holder presumed to be a holder in due course. . until such fact is disproved (Sec. and by indorsement and delivery if it is payable to orcjfer.] 4. The holder in due course is also not affected by certain defences which | might be available against previous holders. But if he negotiates the note to 'H. provided^ he himself is not a party to it. Ptesumpttons. ft consideration. fraud or unlawful consideration. Freely transferable. gets the ' instrument free from. (e) Order of indorsements. (fl Stamp. In a suit upon an instrument which has been dishonoured.
U. Ashok Vihar Delhi-110052 Bential elements For an instrument to become a promissory note." (c) (a) (e) "I promise to pay B Rs. 2. 1. delivery orders and railwi receipts for goods. J Examples. called the maker. share certificates with blank transfer deeds» etc. Shyam Sunder 222. Writing. banker's drafts and pay orders. The specimen of a promissory note is given below : Specimen of a promissory note Rs. The instrument must be in writing. B. Notes. I.O. 1. circular notes. In England." (a) "I promise to pay B or order Rs.. sum of one thousand rupees. Instruments negotiable by Statute. 500. to pay a certain sum of money only to. for example. Government promlssoi* notes. There are certain other instruments which have acquired the character of negotiability by the usage or custom of trade. signed by the maker. is not sufficient and it does not cms titute 'a promissory note. 500 and to deliver to him my black horse on 1st January next. 100". Instruments negotiable by custom or usage. 500. B. Mere verbal hgagement to pay is not enough. Sec. 500 seven days after my marriage with C." "Mr. txcheque bills. 13). a certain person. share warrants. Bills and Cheques ! PROMISSORY NOTE A 'promissory note' is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking." [g] "I promise to pay B Rs. bank notes." f (b) "I acknowledge myself to be indebted to B in Rs. 100" or "Mr. the followin' instruments have been held to be negotiable by custom. These are promissory notes. hundts.2000 Three months after date I promise to pay Shyam Sunder or order ." "I promise to pay B Rs. These instruments an negotiable by Statute.U. The instrument must contain an express promise o pay.c instruments 'by law or custom'. bill of exchange and cheques.1.000 to be paid on demand.000 Delhi. February 10. 500 on D's death. bearer debentures dividend warrants. A signs an instrument in the following terms : ." (fl "I promise to pay B'Rs. for value received. 4). B. have been held to be negotiable by usage or custom. A mere acknowledgment of indebtedness or implied undertaking >y the use of the word 'debt' or 'pronote'. . Thus in India." Of these only (1) and (2) are promissory notes. The person to whom the payment is to be made is called the payee. first deducting thereout any money which he may owe me. Promise to 'pay." (h) "I promise to pay B Rs. provided D leaves me enough to pay that sum.O. The Negotiable Instruments Ac mentions only three kinds of negotiable instruments (Sec. Rs. 500. or to the bearer of the instrument (Sec. or to order of. The person who makes the promissory note and promises to pay is . I owe you Rs. 500 and all other sums which shall be due to him. for value received. TH list of negotiable instruments thus appears to be flexible and Inclusive The Courts in India usually follow the practice of English Courtst i'i according the character of negotiability to other instruments. The following instruments signed by A are not promissory notes : (a) "Mr. Rs. 2. To. it must have the lowing essential elements : 1. viz. I. Writing includes print and typewriting ' ihd may also be in pencil or ink. 137 c '-the Transfer of Property Act also recognises the negotiability.
in a sum of Rs." Signed by A. (1741) 93 E. 1.I. if it does not contain express promise to pay. first deducting thereout any money .• "I am bound to pay the sum of Rs. The following instruments signed by A are not promissory notes (as the sum payable is not certain): W "I promise to pay B Rs..l. We have received . This is not a conditional promise for it is certain that C die. 500. 5. "We have received the sum of Rs.R. 1. Chettiar. The sum payable must be certain and must not be capable of contingent additions or subtractions. Example. provided D leaves enough to pay that sum. (b) "I promise to pay B Rs. this is a promissory note [Surjit Singh v. Barret. The instrument must point out with certainty" as to who the maker is and who the payee.and be of use when needed. at the same time. 286]. ' A promissory note cannot be made payable to the maker (promisor) himself. is not a promissory note. Thus the following instruments signed by A are not promissory! totes : (a) "I promise to pay B a sum of Rs. 9.C." "I promise to pay B Rs. ^00 bearing interest at the rate of 50 paise per cent per mensem. But if It is indorsed by the maker to some other person or indorsed in blank. If it is uncertain or conditional." Signed by A.P." '( A receipt for money. 500 to be paid by instalments. is. 30 days after his with C. tot a promissory note. therefore. ' ! An agent of a trading firm can sign a promissory note on its behalf [Meenofcshiv. (1970) P. This is not a promissory note as it is pi that Bmay not marry C [Beardsley v. It is.R 1994J.000 to B.000 from Shri R. his signature must be thene^ Signature means the writing of a person's name in order to authenticate and give effect to the contract contained in the instrument. 6. Certain parties. A. Where the maker and the payee cannot be identified with certainty from the instrument itself." "I promise to pay B Rs. Example. "I of my own free will and accord approached B and borrowed from him the sum of Rs. (1848) 17 L." (9 "I promise to pay B Rs. 3. it is a promissory iote." (d "I promise to pay B Rs. (1975) Gau. However*' the promise to \pay may be subject to a condition wh: ccording to the ordinary experience of mankind Is bound to hap] 'hus a promise (or order. Peake. Examples. even if it contains an unconditional promise to pay.R (1957) Mad.A. executed these few presents by way of a promissory note so that it may serve as'evidence . when convenient or able".-Sharma. (d . But if the receipt is coupled with a promise to pay. Lan^oZ. & H. Baldwin. 1. it becomes a valid promissory note [Coy v. the instrument. 4. The instrument must be signed by the maker." [Robert v.T. the instrument is not a promissory note as it does not contain an express undertaking to pay the airiount mentioned in it [Bal Mukand v. 500 which I received from you. 8]. the note is valid if the payee can be ascertained by evidence [Willts v. (d) (d) NOTES.. I have. 500 on D's death.(b) "I am liable to B.R 333). Held.R. 500 when he delivers the goods. Signed by the maker. Munna Lal Ramjl Lal A. essential that the mind of the signer must accompany the signature. 516]. ^RamRatan. 500 by instalments with a proviso that payment shall be made after my death. the instrument ii nvalid.^ The payee may sometimes be misnamed or designated by description only. Such a note is a nullity.I. Even if it Is written by the maker himself and his name appears in the Body of the instrument. BILLS AND CHEQUES 3^9 (2) >the promise is to pay at a particular place or after a specified time." . Certain sum qfmoney. otherwise it is incomplete and of no effect. i^.000 and all the other sums due to him. (b) "Iv promise to pay Rs. Held.' 500 after the of C. this amount in cash". (1816) 2 Stark 29]. 500. In such a case.R. In case of a bill of exchange) to pay is :onditional' if— (1) It depends upon an event which is certain to happen though ime of Its happening may be uncertain. 15]. This amount will be repaid on demand.000 and the fine according to the rules. (a) A promises to pay B a sum of Rs. Definite and unconditional The promise to pay must be definite nd unconditional. As such a promissory note payable 'to the manager ofla certain bank' is payable to a certain person. (1757) 97 E.
But if the rate of interest is not stated in the instrument. The person to whom the payment is to be made is called the payee. note or cheque is indorsed Is called the indorsee.i such person is called a drawee in case of need (Sec. * sighed by the maker. The person who gives the order to fay or who makes the bill is called the drawer. Krishan buys goods from Ram of Delh» for Rs. The omission of the words 'for value received'. place. % BI£L OF EXCHANGE A bill of exchange Is an instrument in writing containing an unconditional order. (3) When it is payable by Instalments. 7. The. The date of a promissory note is also not necessary unless the amount is payable at a Certain time after date. etc. The payment to be made under the instrument must be in the legal tender money of India.R. 42]. with a provision that on default being made in payment. person to whom the bill. 9. BILLS AND CHEQUES . It may. 5. Formalities like number. . Thus the following Instruments signed by A are not promissory notes: W "I promise to pay B Rs. The person who is directed to pay is called the drawee. he is called the acceptor." x (fcj "I promise to pay B in 20 shares and 10 bonds of XVLtd. The expression 'on demand' means payable immediately or forthwith. it cannot be a promissory note. consideration. Lack of any of the requirements mentioned in Sec. It cannot be made payable to bearer on demand. (1977) AP. 1934 prohibits issue of such promissory notes' except by the Reserve Bank of India itself or the Central Government. or to the order of. 11. There are three parties to a bill of exchange. \ 901. If the instrument contains a promise to pay something other than money or something in addition to money. Promise to pay money only." The sum payable is certain— (1) When it is payable with /interest. When in the bill or in any indorsement thereon the name of anjNf person is given in addition to the drawee to be referred to in case of need. the drawer and the drawee may be one and the same person. The drawer or the payee who is in possession of the bill' is called the holder.. a certain person or to the bearer of the instrument (Sec. Chaparala Baburao. the place where the instrument is made or where it is payable or date (if the date of execution of the Instrument can* be Independently proved) do not invalidate the instrument. Attenborough. para 3). Parties to a bill. Specimen of a bill of exchange Sham of Delhi buys goods on credit from Krishan qf Bombay for 500 to be paid 3 months after date. document a promissory note [Bapanna Krlshnayya V. This order will be a bill of exchange. para 2). A.I. or when a principal draws on his agent." W "I promise to deliver to B 100 bap« of wheat" 8. When the drawee accepts the bill. the bill is treated as/payable to bearer [Clhtton v. note or cheque. the drawer* the drawee and the payee. the balance unpaid shall become due (Sec. When the holder indorses the bill. The name ofj the drawee in case of need may be given in the bill by the drawer at tbj time when it is drawn or by some subsequent indorser. 7. NOTES. (2) When it is payable at an indicated rate of exchange. 5). In some cases.which he may owe me. These are usually found in an instrument although they are not essential in law. be payable on demand or after a definite period of time. The Reserve Bank of Indi^ Act. he is called the indorser. directing a certain person to pay a certain sum of money only to. Bank note or currency note is not a promissory note. date. But it must bear the necessary stamp under the Indian Stamp Act. The resort is to be} had to the 'drawee in case of need' only when the bill is dishonoured non-acceptance or non-payment.. 1899. 500 on similar terms. This is because a bank note or a currency note Is money itself. The holder must present the bill to the drawee for his acceptance. 200 and deliver one quintal of paddy. Where the payee named in a bill is a fictitious or non-existing person. 500 to Ram.C. it is not a promissory note. Now Krishan may order Sham to pay the f sum of Rs. the drawer and the payee. (1897) A. viz. 10. 4 will not make a .
The maker of a note stands in immediate relation with the payee. 7. though usually found in bills.' 9. 2. the drawee and the payee. Little. are not essential in law. Sham 235. 2000 Three months after date pay to Ram or order the sum of five hundred rupees. Slackford. It must be in writing. No such protest is required in the case of a note. date. Example. The maker of a note corresponds in general to the acceptor of a °>11. Foreign bills must be protested for dishonour when such protest is required by the law of the place where they are drawn (Sec. A note cannot be drawn payable to bearer." Signed by A . A bill can be so drawn. Distinction between a bill of exchange and a promissory note 1. "Mr. 8. 5. 10. This is not a bill of exchange as it contains a request and not an order [Littlev. The maker of a note is the debtor and he himself undertakes to Pay. 3. A note requires no acceptance as it is signed by the person who is liable to pay. Subhash Marg. 8. whereas in a the drawer and the payee may be one and the same person. reas the liability of the drawer of a bill is secondary and conditional. But the maker of the note cannot undertake to pay conditionally jvhereas the acceptor may accept the bill conditionally because he is not the originator of the bill. 93). 1 1 . 6. 3. 171). i. 132) apply to bills but not to notes. & W. In a bill there are three parties—the drawer. 4. A bill payable after sight or after a certain period must be accepted by the drawee before it is presented for payment. 2. the drawer. for value received. But a bill must be affixed with the necessary stamp. To. The order must be unconditional. It must be signed by the drawer. The formalities relating to number. CHEQUE A cheque is a bill of exchange drawn upon a specified banker and payable on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. A note cannot be mad^ "payable to the maker himself. Delhi-110006. Jan. The drawer of a bill is the creditor who directs the drawee (his debtor) to pay. It must contain an order to pay. In a note there are two parties—the maker and the payee.e. The drawer of a bill stands in immediate relation with the acceptor and not the payee. . (c) acceptance for honour (Sec. But in no case can a note or bill be drawn 'payable to bearer on demand. place and consideration. the drawee and the payee. 4. A bill as originally drawn cannot be made payable to bearer on demand. 6. In case of dishonour of a bill either by non-acceptance or by nonpayment.. It requires three parties. But in the case of dishonour of a note no such notice is required to be given to the maker (Sec. It must contain an order to pay money. and (d) bill! in sets (Sec. The parties must be certain. 500 Mumbai. Please let the bearer have & 7 and oblige. 7. Certain provisions like (a) presentment for acceptance (Sec. due notice of dishonour must be given to all the persons who are to be made liable to pay. 104).Rs. This includes the drawer and the prior indorsers. The sum payable must be certain . Delhi Accepted Sham Sd/Stamp Krishan Essential elements 1. A bill contains an unconditional order to pay.! (b) acceptance (Sec. 5. 61). 108). A note contains an unconditional promise to pay. 10. The liability of the maker of a note is primary and absolute. (1828) M. 9. 75). In case of need with CanaraBank. 12.
2000 PUNJAB NATIONAL BANK Subzi Mandi. A cheque is not entitled to any days of grace. A cheque may be crossed but not a bill. 8. including a banker. 6.or bearer the sumofRs. 3. 9. A truncated cheque means a cheque which is truncated during the. except in certain cases. The payment of a cheque may be countermanded by the drawer but the payment of a bill cannot be countermanded. immediately on generation of an electronic image for transmission.. A cheque must have all the essential requisites of a bill exchange. . It must be signed by the drawer.. but all bills of exchange are n< cheques. but a cheque is always drawn on a banker. A cheque is always payable on demand. Date . A bill may be payable on demand or after the expiry of a certain period after date or sight. "® "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 [Sec.. 6 as substituted by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act. A cheque requires no acceptance. BILLS AND CHEQUES The usual form of bank cheque is as follows : 323 No. and is generated. A cheque does not require any stamp whereas a bill. Rs. 2. A bill must be duly presented for payment to the acceptor or else the drawer of the bill will be discharged from liability.. Sd/Distinction between a bill of exchange and a cheque 1.A cheque in the electronic form means "cheque which contains the exact mirror image of a proper cheque. substituting the further physical' movement of the cheque in writing.. viz. 7.. course of a clearing cycle. rflv All cheques are bills of exchange. It must contain unconditional order on a specified banker to pay a certain sum of mon1 to or to the order of a specified person or the bearer of the cheque. Delhi-110007 . 2002] ''s'/ A cheque is a species of a bill of exchange two additional qualifications. 4... 5. Thus all bills are not cheques whereas all cheques are necessarily bills. A bill may be noted or protested for dishonour. A bill which is not expressed to be payable on demand is entitled to three days of grace. A bill of exchange may be drawn on any person. He is discharged only to the extent of the damage. The drawer of a cheque is not necessarily discharged from his liability by delay of the holder in presenting it for payment. Pay.. A bill must be accepted before the drawee can be called upon to make payment upon it. either by the clearing house or by the bank whether paying or receiving payment. The custom among bankers to mark cheques as 'good for payment' does not amount to an . and (2) It is always payable on demand. Marking of cheques A cheque does not require acceptance in ordinary course of business as it is intended for immediate payment. if any. A cheque is not required to be noted or protested for dishonour. must be stamped. but it has the foil owing(1) It is always drawn on a specified banker. it does not require acceptance as it is intended for immediate payment NOTES. written and signed in a secure system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system. suffered by him.
the banker has sufficient funds of the drawer in his hands. (1) Marking at drawer's instance. (I) general crossing. Thus crossing is a direction to the drawee banker to pay the amount of money on a crossed cheque generally to a banker or a particular banker so that the party who obtains the payment of the cheque can be easily traced. (3) Marking at collecting banker's instance. The banker may refuse to honour the cheque when it is subsequently presented for payment if in due course the drawer has withdrawn funds or stopped payment of the cheque. In India. Types of crossing. he may. present such cheque for marking by the drawee banker. open cheques and crossed cheques. and (2) special crossing. General crossing. (2) Marking'at holder's instance. a great risk. The effect of marking a cheque as good by the drawee banker is that it cannot be countermanded by the drawer subsequently and the payee is certain of getting the money. When a cheque is marked good at the holder's instance. There are two types of crossing. Punjab National Bank. Where a cheque is received by a collecting banker too late for inclusion in the clearing. or (2) the holder. viz. A crossed cheque is one on which two parallel transverse lines with or without the words '& Co.. A cheque which is payable in cash across the counter of a bank is called. 176). the marking is treated as 'constructive payment' because the banking custom is that such cheque shall be honoured when it is presented through the next clearing. When such a cheque is in circulation. The crossing compels the holder to present the cheque through a "quarter of known^ respectability and credit" and affords security and protection to the1: owner of the cheque.' are drawn. If its holder loses it. as the cheque is payable only through a banker. no such practice of marking of cheques has been established either by judicial decisions or by Statutes [Bank of Borodav. Marking is the writing on a cheque by the drawee banker that it would be honoured when it is duly presented for payment. When a cheque is marked at the collecting banker's instance. an open cheque. The drawer cannot afterwards countermand payment of such cheque' The banker is entitled to dishonour other cheques if their encashment would leave the banker with insufficient funds to meet the cheque marked good. The payment of such a cheque can be obtained only through a banker. or (3) the collecting banker. Another type of crossing known as 'restrictive crossing' has developed out of business usage. When a cheque is marked good at the instance of the drawer. (1944) A.acceptance.C. it is an intimation to the holder that at the time of marking. to safeguard the interest of the customer. A cheque is said to be crossed generally where it bears across its face an addition of— . attends it. Cheques may be marked as good by the drawee banker at the instance of (1) the drawer. the drawee banker earmarks sufficient funds in the account to meet the cheque when it will be presented for payment. Crossing of cheques There are two types of cheques. its finder may go to the bank and get payment unless its payment has already been stopped. 1. It was to prevent the losses incurred by open cheques getting into the hands of wrong persons that the custom of crossing was introduced.
The object of crossing a cheque 'not negotiable' is to afford protection to the drawer or holder of the cheque against miscarriage or dishonesty in the course of transit by making it difficult to get the cheque so crossed cashed. Special crossing. The addition of the words 'not negotiable' does not restrict the further transferability of the cheque. 126. (2) The holder. Transverse lines are not necessary in case of a special crossing. He may cross the cheque generally or specially. NOTES. 126.(0 the words 'and company' or any abbreviation thereof. words 'Not Negotiable'. Who may cross a checque (Sec. •• f. 2. para 2) 3. Where a cheque bears across its face an addition of the name of a banker. either with or without the words 'not negotiable' . 124). he is prima facie guilty of negligence and will be liable to the true owner for the amount of the cheque. (1946) K. Pikering. Held. In this type of crossing the words 'A/c Payee' are added to the general or special crossing. Almal Bros QR CWN 2851. or his agent for collection (Sec. and thereforeW^ was not liable [Wilson & Meeson v. he may add the. BILLS AND CHEQUES Specimens of general crossing : Where a cheque is crossed generally. between two parallel transverse lines. if any.. 422].B. the drawee banker shall not pay it unless it is presented by a banker (Sec. Specimens of special crossing : Where a cheque is crossed specially the banker on whom it is drawn shall pay it only to the banker on whom it is crossed. . It should however be noted that 'A/c Payee' cheques are negotiable [British Bank of Middle East v. 126). the holder may cross! it generally or specially. W drew a cheque crossed 'not negotiable' in blank and. In addition to the two statutory types of crossing discussed above. The effect of the words 'not negotiable' on a crossed cheque is that the title of the transferee of such a cheque cannot be better than that of its transferor. until it reaches its destination. which Is that a holder with a defective title can give a good title to a subsequent holder in due course. ] The clerk inserted a sum in excess of her authority and delivered the cheque to P in payment of a debt of her own. Restrictive crossing. Where it is crossed generally or specially. either with or without the words 'not negotiable' (Sec. A cheque may be crossed by. the cheque is deemed to be crossed specially (Sec. It only takes away the main feature of negotiability. handed it to his clerk to fill in the amount and the name of the payei. Anyone who takes a cheque marked 'not negotiable' takes it at his own risk. he may cross It specially. Specimens of restrictive crossing : The words 'A/c Payee' on a cheque are a direction to the collecting banker that the amount collected on the cheque is to be credited to the account of the payee. the clerk had nO title to the cheque and as such Phad no better title.. (1) The drawer. para 1). there is another type which has been adopted by commercial and banking usage. 130). Not negotiable crossing (Sec. If he credits the proceeds to a different account. Example. or (ill two parallel transverse lines simply. 123). Where it is crossed generally. The payment of a specially crossed cheque can be obtained only through the particular banker whose name appears across the face of the cheque or between the transverse lines. either with or without the words 'not negotiable'. Where the cheque is uncrossed.
' [Explanation (i) to Sec. (a) A bill is drawn in Delhi on a merchant in Bombay and accepted payable in Calcutta or London. A promissory note cannot be payable to bearer due restrictions imposed by the Reserve Bank of India Act. which is not an inland instrument..g . CLASSIFICATION OF NEGOTIABLE INSTRUMENTS The negotiable instruments may be classified as : Bearer and order instruments " if | Bearer instruments. Foreign instruments. Instruments payable on demand A cheque is always payable on demand and it cannot be expressed to be payable otherwise than on demand (Sec. 13] Inland and foreign instruments Inland instruments. (b) A bill is drawn^in Delhi on a merchant in London and accepted payable in Calcutta.g. the banker to j whom it is crossed may again cross it specially to another banker agent) for collection. A promissory note or bill of exchange is payable on demand— (a) when no time for payment is specified in it (Sec. e. the words 'at sight' are in a bill of exchange. 12). and does not contain words prohibiting or restricting its transfer. BILLS AND CHEQUES 327 order' or 'Pay to the order of A. A promissory note and a bill of exchange cannot be made payable 1 bearer on demand. An instrument. (c) The above bills are indorsed in New York. the bill is payable to A or his order at his option. A promissory note.. A bill of exchange drawn upon a resident in India is an inland bill irrespective of the place where it was drawn. [Explanation (ii) to Sec. or 'at sight' or 'on presentment'. A negotiable instrument is payable to order— (1) when it is expressed to be payable to order. 13] Any person who is in lawful possession of an instrument payabtej bearer. (2) when it is expressed to be payable to a particular person. or (2) drawn upon any person resident in India. Order instruments. Usance is the time fixed for the payment of bills drawn in one country and payable in another. is deemed to be a foreign instrument (Sec. Where a cheque is crossed specially. It is fixed by the custom of the countries and the length of the usance varies in different countries. bill of exchange or cheque which is (1) both drawn or made in India and made payable in India. as a holder. 6). The words 'on demand' are usually in a promissory note.. (1) when it is expressed to be so payable. 'Pay A one hundred rupees.. A negotiable instrument is payable to bearer— . 104). . 19) .(3) The banker. 'Pay to NOTES. is entitled to enforce payment due on it. or (b) when it is expressed to be payable 'on demand'. But protest in case of inland bills is optional (Sec. 11). 1934. or (2) when the only or last indorsement on the instrument Is indorsement in blank. He ~ when he receives money. is deemed to be an inland instrument (Sec. Usance. Examples of inland bill. In both these cases. Foreign bills must be protested for dishonour if such protest is required by the law of the place where they are drawn. e. be required to acknowledge receipt of money < the instrument by signing on it.
When a bill is drawn. Time instruments A bill or note which is payable (a) after a fixed period. the death of a certain person. Likewise an order to pay on or before a specified date is not a bill IWilliamsonv. or (d) on the happening of an event which is certain to happen. If the event is such as is bound to happen. called a 'genuine trade bill'. 59). or 'accommodation! party'. He approaches his friend for borrowing the amount. Example. he knew such party to be anl accommodating party or not. for example. after he has paid the amount| the bill. On the due date. But if the event is probable but not certain to happen. is known as a time instrument. failure to give no of dishonour does not discharge the prior parties from the liability. The bill is dishonoured pays the amount of the bill. The expression 'after sight' in a promissory note means after resentment for sight. or (2) an accommodation bill. He is liable on the bill'to the holder. In this case. payment does not discharge the drawer. B is the 'accommodating party'. or (c) on a specified day. acceptor. A bill is drawn and accepted for the accommodation < B. An accommodation bill can even be negotiated after provided the person to whom it is negotiated takes it in good faith for consideration (Sec. Example. or indorser withe receiving value therefor and for the purpose of lending his name to so other person. Fictitious bill . This means that payment cannot be demanded on * note till it has been shown to the maker. the instrument does not become valid if the event happens. there is a valid bill or note. 43). recover the amount from any person who became a party to i bill for his accommodation (Exception 1 to Sec. but j| suggests that A might draw a bill on him which he would acceptij the credit of A is good. and A is the 'accommodated party'. B cannot sue the drawer or the acce to recover the amount. and it is immat __ whether. When it is drawn.000. 2.B. 21).In a promissory note or bill of exchange. This bill is an accommodation bill. or (b) after sight. accepted. Rider. even though the actual time of its happening is uncertain as. A would pay Rs. the payee. The accommodated party cannot. Accommodation bill A bill may be— (1) a genuine trade bill. it is called an 'accommodation bill'. or indorsed for consideration. the expressions 'at sight ' and 'on presentation' mean 'on demand' (Sec. B is not in a position to lend. The expression 'after sight' in Dill of exchange means after acceptance. r Protest for non-acceptance (Sec. (1963) 1 Q. 1. 89]. A is in need of Rs. accepted or inde without any consideration. 1. or noting for non-acceptance. When an accommodation bill is dishonoured. The rules regarding accommodation bills are as follows : 1. he would get the bill discounted w] banker. Non-presentment of an accommodation bill to the acceptor . B indorses the bill to C. 4. 21). The accommodating pai' signs the 'accommodation bill' as drawer. 3.000 to Bwho meet the bill. when such holder took the bill.
or the purpose for which the instrument was delivered is not satisfied. etc. This. The person so signing is liable upon such instrument. In the margin. Where both the drawer and payee of a bill are fictitious persons. When a person signs and delivers to another a blank or incomplete stamped paper. (a) A bill is drawn by A. When no documents to the goods represented by the bill are attached to it. the amount stated is Rs. acting within the scope of his authority upon his principal. If the amount undertaken or ordered to be paid is stated differently in figures and in words. and he acquires a good title to the bill. however. As between immediate parties. treat it as a note or bill because the drawer (A) and the drawee (f. and not for the purpose of transferring absolutely properly therein. does not affect the rights of a holder in due course and the defence that the instrument was delivered conditionally as between immediate parties cannot be set up against a holder in due course (Sec. Documentary bill and clean bill When documents of title to the goods and other documents^ invoice.When the name of the drawer or the payee or both is fictitious : bill. Its holder has to elect once for all whether he wants to treat it as a promissory note or a bill of exchange (Sec. A. when an instrument is delivered conditionally. This is a bill for Rs. 1.. indorses it to 'B or order' for the express purpose that B irtay get it discounted. are the same person. he authorises the other person to make or complete upon it a negotiable instrument for any amount not exceeding the amount covered by the stamp. Once he does so. Example. Such documents are delivered to the only on acceptance or payment of the bill. P. The holder may. If. 18). the b'll is called a fictitious bill. (b) A draws a bill on B and negotiates it himself. 100. are annexed to a bill. Ambiguous instrument When an instrument owing to its faulty drafting may be interpreted either as a promissory note or a bill of exchange. Examples. 20) An inchoate instrument is an incomplete instrument in some respect. the amount stated in words is the amount undertaken or ordered to be paid (Sec. it is called an ambiguous instrument. B negotiates the bill to C who takes it bonafide and for value. Example. 42). to any "older in due course for such amount. an agent. 46. the called a documentary bUl. para 3). The liability to pay in case of an escrow does not arise if the conditions agreed upon are not fulfilled. however. it is called a clean bill Escrow When a negotiable instrument is delivered conditionally or for a special purpose as a collateral security or for safe custody only. A bill is drawn "Pay A or order the sum of one thousand rupees". Inchoate instrument (Sec. if the holder in due course can show that the signat the supposed drawer and that of the first indorser (payee) are same handwriting (Sec. the holder knows or has : to believe that the drawer or the payee is a fictitious person. The holder may treat the bill as a note made by A. at his option. there is no liability to pay unless the conditions agreed upon are fulfilled. 17). the holder of a bill. he is : holder in due course as he is not getting the bill in good faith such cannot claim the money. in the capacity in which he signed the same. he must abide by his election. . B is a fictitious drawee. C is a holder in due course. marine insurance policy.000. the acceptor is liable to a holtf due course. it is called ah escrow.
Any holdei in due course may write his own name as payee in the blank and sue upon the instrument. Examples. He gives B a blank acceptance on a bill which is sufficiently stamped to co 'er any amount upto Rs.. (b) A owes B Rs.000.But a person other than a holder n due course cannot recover from the person delivering the instrument ^ything in excess of the amount intended by him to be paid thereunder. 2 O(XV . 1. or order".. (a) A bill is drawn "payable to.