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Evolution & Revolution of Negotiable Instruments which have Transformed the Commercial World into a Virtual Single Global Peace
Presented By : (A1 Batch)
Rollno 26 27 29 30 36 37 38 39 40 Names Manisha Maheshwari Mehak Kala Mitesh Pomani Mitesh K Shah Rajiv Desai Ravi Rajpurohit Ruchik Gandhi Saurov Sengupta Shuvro Sen
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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1. 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 peoples and nations. This naturally implies the existence of: 12CERTAIN SURPLUS OF WEALTH 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 consequent 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:
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.
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
4. They settled down at fixed places which came to be known as towns. This class of people became a real intermediary between the producers and consumers. MONEY AS A MEDIUM OF TRADE AND TOWN AS THE CENTRE OF TRADE. Growth of these towns gave great stimulus to commerce. Production began to be undertaken for the markets extended for the whole country. This gave rise to “exchange of goods for goods. ENTERPRENEUR class. Division of labour received further impetus. both increased. Introduction of money began led to the extension of division of labour and specialization. growth of commercial enterprise took place. After the decline of Guild system. metals and ornaments for sale. division of labour was extended to a locality. Thus. Traders from other countries brought luxury articles. a new class of people.Commerce reached into its third stage of growth when money was evolved as medium of exchange to remove the limitations of barter. Thus this is the place from where commerce may be said to have begun. Trade began to assume fixed forms. People began to produce goods for certain local markets. Production was divided into several branches and each branch tended to be localized. The size of the market and the number of commodities exchanged in the market. Further. 3. came into existence. Various economic activities came to be clearly marked off into distinct groups: ABCAGRICULTURE TRADE COMMERCE.wanted to exchange their surplus goods for those goods which they did not possess..e.Commerce continued to grow both in volume and space. i. Barter system. Gradually a separate class of artisans and traders came into existence. Page 4 . ECONOMY AND GROWTH OF COMMERCE.
New forms and methods are being evolved in both socialist and capitalist countries. With time. commodities came to be sold and purchased between traders from different countries in the world. (1) Pastoral stage (2) Agricultural stage (3) Handicrafts stage (4) Guild stage (5) Domestic stage and (6) Factory stage. As a result of the geographical discoveries of the late 15th. he learned to domesticate animals and breed them for food and clothing. But in this stage his work served mainly to support only him with his own needs and left very little surplus available foe exchange on a business basis. WHY WAS IT NECESARRY TO INTRODUCE NEGOTIABLE INSTRUMENTS? Historically business developed by stages. Almost every day new experiments in its mechanism are made. 16th and 17th centuries new trade routes were opened up and commerce grew between nations. Page 5 . Evolution of commerce is a never ending process. Pastoral stage: In primitive society man used things just as they were found in nature.Commerce entered into another stage of its growth when nations of the world were brought into commercial relationships through the invisible thread of trade. in both developed and developing nations. Since he had to find pastures for his animals. he tended to lead a wandering life.WORLD ECONOMY AND THE WORLD MARKET. This gave rise to an international world market and to the international trade. Now. Thus the nations of the world were linked together through the medium of the world market. in addition to the local market and the trade extending over the whole area of a single country.
He took the risk of productions and sale. became the main occupation. spinning. blacksmithing. Agriculture emerged as the basic feature of economic living of man. 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. 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. Handicraft stage: In this stage manufacturing was limited to the human efforts to transform raw materials into finished goods. Growing corns. making of clothes and shoes. grasses etc. He gradually produced more and then started to exchange it with other commodities. he paid for the materials and labour. Page 6 . This was known as barter system. Out of the proceeds of his undertaking. However it was greatly influenced not only by its own processes but also by government under which it operates. weaving. The amount left was his profit Factory stage: In this stage an organized system of production under a single roof came to be identified as a factory.Agricultural stage: In course of time. leather dressing. carpentry etc. Now entrepreneur purchased the raw materials for the purpose of manufacture and sale nut did not do the processing himself. Large scale operations with the use of mechanized production processes resulted in producing good quality products at cheaper rates. It included candle and soap making.
These were the different stages of evolution of business. There were different instruments used to purchase different commodities in different stages. The system of exchange was such that it led to confusion and various complexities. However it was noted that the growth was very slow and the system was very complex. To avoid such confusion and to operate the business activities smoothly negotiable instruments were introduced. Page 7 .
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. To be sure that Prashant will pay the money after three months. EXAMPLE Suppose Pitamber. signed by the maker or drawer. a book publisher has sold books to Prashant for Rs 10. large number of transactions involving huge sums of money takes place every day. Goods are bought and sold for cash as well as on credit. A negotiable instrument is a written document. Therefore. To understand the meaning of negotiable instruments let us take a few examples of day-to-day business transactions. and containing an unconditional promise to pay (or order to pay) a certain sum of money on delivery.10. In modern business. Meaning of Negotiable Instruments The concept of negotiability is one of the most important features of commercial paper.000/. All these transactions require flow of cash either immediately or after a certain time. to the bearer (or to the order). it is a common practice for businessmen to make use of certain documents as means of making payment.to Pitamber Page 8 .2. Pitamber may write an order addressed to Prashant that he is to pay after three months. WHAT ARE NEGOTIABLE INSTRUMENTS? Exchange of goods and services is the basis of every business activity. for value of goods received by him. Rs. or at a definite time.000/on three months credit.
Pitamber can hold the document with him for three months and on the due date can collect the money from Prashant. Chander gets a right to Rs. 5. if required. 5. and sign it. He has to write on the back of the document an instruction to Prashant to pay money to Sunil. if required. He can also use it for meeting different business transactions. This passing on process may continue further till the final payment is made. In the above examples. as discussed above) before the expiry of that three months time period. Now. if required. You must have heard about a cheque. Prashant who has bought books worth Rs. he can borrow money from Sunil for a period of two months and pass on this document to Sunil. If he wants. For example. Such transfers may continue till the payment is finally made to somebody. Now Sunil becomes the owner of this document and he can claim money from Prashant on the due date.000/ . or he can transfer it to Chander to meet any business obligation.000/and he can transfer it to Dayanand. if Akash issues a cheque worth Rs.can also give an undertaking stating that after three month he will pay the amount to Pitamber.000/. Sunil.in favour of Bidhan. 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.000/. then Bidhan can claim Rs. 5. we find that there are certain documents used for payment in business transactions and are Page 9 . he can transfer it in favour of another person. like paying back a loan that he might have taken from Chander. In the above example. 10. This written document has to be signed by Prashant to show his acceptance of the order.from the bank. after a month. Once he does it. 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.or anyone holding the order and presenting it before him (Prashant) for payment. can further pass on the document to Amit after instructing and signing on the back of the document. For instance.
Explanation (i). bill of exchange or cheque. a negotiable instrument means “promissory note. is expressed to be payable to the order of a specified person. To elaborate it further. as mentioned here. we can say negotiable instrument is a transferable document.transferred freely from one person to another. payable either to order or to bearer”. is a document used as a means for making some payment and it is negotiable i. 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. its ownership can be easily transferred. and not to him or his order. the ownership of which can be transferred from one person to another many times before the final payment is made. Thus. it is nevertheless payable to him or his order at his option. or cheque. Page 10 .-A promissory note. an instrument. where negotiable means transferable and instrument means document. negotiable instruments are documents meant for making payments.-A promissory note. Thus. 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.-Where a promissory note. bill of exchange.. Definition of Negotiable Instrument According to section 13 of the Negotiable Instruments Act. and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable. either originally or by endorsement. Such documents are called Negotiable Instruments. (ii).e. 1881. (iii).
or one or -some of several payees. or it may be made payable in the alternative to one of two. Page 11 .A negotiable instrument may be made payable to two or more payees jointly.
like hundis. signed by the maker. This type of a document is called a Promissory Note. duly stamped and handed over to Ramesh. share warrants. bill of exchange and cheque. to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument’. becomes a negotiable 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. Cheques and Hundis (a popular indigenous document prevalent in India). Promissory Note Suppose you take a loan of Rupees Five Thousand from your friend Ramesh. You can make a document stating that you will pay the money to Ramesh or the bearer on demand. However many other documents are also recognized as negotiable instruments on the basis of custom and usage. provided they possess the features of negotiability. promissory note. treasury bills. i. Page 12 . Section 4 of the Negotiable Instruments Act.. we shall study about Promissory Notes (popularly called pronotes). 1881 defines a promissory note as ‘an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking. In the following sections. Types of Negotiable Instruments According to the Negotiable Instruments Act. 1881 there are just three types of negotiable instruments i. This document.. 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.3. once signed by you. etc. Or you can mention in the document that you would like to pay the amount after three months. Bills of Exchange (popularly called bills).e. in detail.
1." (d) I promise to pay B Rs. 500 on D's death. first deducting there out any money which he may owe me." (g) " I promise to pay B Rs. (e). The instruments respectively marked (c). (f). 1. 500.000.000 to be paid on demand. provided D leaves me enough to pay that sum." (f) " I promise to pay B Rs." (h) " I promise to pay B Rs. B." (b) " I acknowledge myself to be indebted to B in Rs. for value received. 500 and all other sums which shall be due to him. 500. (d). 500 and to deliver to him my black horse on 1st January next." (e) I promise to pay B Rs. 500 seven days after my marriage with C." The instruments respectively marked (a) and (b) are promissory notes.Illustration A signs instrument in the following terms (a) "I promise to pay B or order Rs. O U Rs. Page 13 . (g) and (h) are not promissory notes." (c) Mr.
(Rupees Ten Thousand only). The Maker or Drawer – the person who makes the note and promises to pay the amount stated therein. The Endorser – the person who endorses the note in favour of another person. for value received. (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) Page 14 . 2002 On demand. The Payee – the person to whom the amount is payable. b. Sd/ Sanjeev Stamp Parties to a Promissory Note There are primarily two parties involved in a promissory note. In the above specimen if Ramesh endorses it in favour of Ranjan and Ranjan also endorses it in favour of Puneet. then Ramesh and Ranjan both are endorsers. Ramesh Address……. In the above specimen it is Ramesh. I promise to pay Ramesh.. it is Ranjan and then Puneet. They are i. the parties involved may be a. s/o RamLal of Meerut or order a sum of Rs 10. Sanjeev is the maker or drawer.Specimen of a Promissory Note Rs. The Endorsee – the person in whose favour the note is negotiated by endorsement. In the above.000/New Delhi September 25.000/. In course of transfer of a promissory note by payee and others. To . 10. In the above specimen. ii.
v. if someone writes ‘I owe Rs. if it is written ‘I promise to pay Suresh Rs 5. A promissory note may be payable on demand or after a certain date.000/. For example. For example. It means that the sum payable may be in figures or may be such that it can be calculated. It must contain a promise to pay money only. For example. 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. if someone writes ‘I promise to give Suresh a Maruti car’ it is not a promissory note.Features of a promissory note Let us know the features of a promissory note.after my sister’s marriage’. Mere acknowledgement of indebtedness is not enough. it is not a promissory note. 5000/. vii. A promissory note must be in writing. iv. The parties to a promissory note. For example. Page 15 . iii. i. duly signed by its maker and properly stamped as per Indian Stamp Act. is not a promissory note. The promise to pay must not be conditional. The sum payable mentioned must be certain or capable of being made certain. ii.to Satya Prakash’. the maker and the payee must be certain. vi. It must contain an undertaking or promise to pay. i.e.
Page 16 . which Sameer has to return. Gujarat promise to pay Sashikant. 2002 I. on demand. signed by the maker. Rs. In this case.Ramesh Stamp To Sashikant Ahmedabad. 10. 1881 defines a bill of exchange as ‘an instrument in writing containing an unconditional order. s/o Sadanand of Surat. the sum of Rs 10. Sd/. Ramesh . Rajiv also has to give some money to Tarun. for value received. Gujarat ii. s/o Sunil Kumar of Ahmedabad.000/.(Rupees Ten Thousand only) with interest at the rate of 10 percent per annum.(See specimen below). or to the bearer of the instrument’. Now.000/New Delhi November 14. This document is called a Bill of Exchange. directing a certain person to pay a certain sum of money only to or to the order of a certain person. Section 5 of the Negotiable Instruments Act. Gujarat or order. which can be transferred to some other person’s name by Tarun. 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. Bill of Exchange Suppose Rajiv has given a loan of Rupees Ten Thousand to Sameer.
Specimen of a Bill of Exchange Rs. 10,000/New Delhi May 2,2001 Five months after date pay Tarun or (to his) order the sum of Rupees Ten Thousand only for value received. To Sameer Address Parties to a Bill of Exchange There are three parties involved in a bill of exchange. They are i. The Drawer – The person who makes the order for making payment. In the above specimen, Rajiv is the drawer. ii. The Drawee – The person to whom the order to pay is made. He is generally a debtor of the drawer. It is Sameer in this case. iii. The Payee – The person to whom the payment is to be made. In this case it is Tarun. The drawer can also draw a bill in his own name thereby he himself becomes the payee. Here the words in the bill would be Pay to us or order. In a bill where a time period is mentioned, just like the above specimen, is called a Time Bill. But a bill may be made payable on demand also. This is called a Demand Bill. Features of a bill of exchange Let us know the various features of a bill of exchange. i. A bill must be in writing, duly signed by its drawer, accepted by its drawee and properly stamped as per Indian Stamp Act. Accepted Sameer Stamp S/d Rajiv
ii. It must contain an order to pay. Words like ‘please pay Rs 5,000/- on demand and oblige’ are not used. iii. The order must be unconditional. iv. The order must be to pay money and money alone. v. The sum payable mentioned must be certain or capable of being made certain. vi. The parties to a bill must be certain. iii. Cheques Cheque is a very common form of negotiable instrument. If you have a savings bank account or current account in a bank, you can issue a cheque in your own name or in favour of others, thereby directing the bank to pay the specified amount to the person named in the cheque. Therefore, a cheque may be regarded as a bill of exchange; the only difference is that the bank is always the drawee in case of a cheque. The Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Actually, a cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or to the bearer.
Specimen of a Cheque
………......20....... Pay…….............................................................................................................. ……....................................................................................................... or Bearer Rupees……………………………………………… …………………………………………………… STATE BANK OF INDIA Jawaharlal Nehru University, New Delhi – 110067 MSBL 653003 110002056 10
Features of a cheque Let us look into some important features of a cheque. i. A cheque must be in writing and duly signed by the drawer. ii. It contains an unconditional order. iii. It is issued on a specified banker only. iv. The amount specified is always certain and must be clearly mentioned both in figures and words. v. The payee is always certain. vi. It is always payable on demand. vii. The cheque must bear a date otherwise it is invalid and shall not be honoured by the bank. Types of Cheque Broadly speaking, cheques are of four types. a) Open cheque, and b) Crossed cheque. c) Bearer cheque d) Order cheque Let us know details about these cheques.
The payment of such cheque is not made over the counter at the bank. d) Order cheque: An order cheque is one which is payable to a particular person.a) Open cheque: A cheque is called ‘Open’ when it is possible to get cash over the counter at the bank.Cheque in which the drawer mentions the date earlier to the date of presenting if for payment. A cheque can be crossed by drawing two transverse parallel lines across the cheque. This risk can be avoided by issuing other types of cheque called ‘Crossed cheque’. A bearer cheque can be transferred by mere delivery and requires no endorsement. a cheque issued on 20th May 2003 may bear a date 5th May 2003. In such a cheque the word ‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. Find out from your nearest bank about the validity period of a cheque. There is another categorization of cheques which is discussed below: Ante-dated cheques:. b) Crossed cheque: Since open cheque is subject to risk of theft. with or without the writing ‘Account payee’ or ‘Not Negotiable’. ii. Deposit the cheque in his own account iii. For example. Pass it to someone else by signing on the back of a cheque. Stale Cheque:. Page 20 . After expiry of that period. The payee can transfer an order cheque to someone else by signing his or her name on the back of it.A cheque which is issued today must be presented before at bank for payment within a stipulated period. It is only credited to the bank account of the payee. it is dangerous to issue such cheques. c) Bearer cheque: A cheque which is payable to any person who presents it for payment at the bank counter is called ‘Bearer cheque’. Receive its payment over the counter at the bank. The holder of an open cheque can do the following: i. no payment will be made and it is then called ‘stale cheque’.
A hundi is the oldest known instrument used for the purpose of transfer of money without its actual physical movement. The bank will make payment only on or after 25th May 2003. The provisions of the Negotiable Instruments Act shall apply to hundis only when there is no customary rule known to the people.Mutilated Cheque:. such a cheque is called a mutilated cheque. Sometimes it can also be in the form of a promissory note. is called post-dated cheque.Cheque on which drawer mentions a date which is subsequent to the date on which it is presented. if a cheque presented on 8th May 2003 bears a date of 25th May 2003.In case a cheque is torn into two or more pieces and presented for payment. the bank may make payment against such a cheque. Post-dated Cheque:. Hundis A Hundi is a negotiable instrument by usage. Page 21 . iv. it is a post-dated cheque. It is often in the form of a bill of exchange drawn in any local language in accordance with the custom of the place. But if a cheque is torn at the corners and no material fact is erased or cancelled. For example. The bank will not make payment against such a cheque without getting confirmation of the drawer.
Let us discuss some of the most common ones. A shah-jog hundi passes from one hand to another till it reaches a Shah.Types of Hundis There are a variety of hundis used in our country. Page 22 . asking the latter to pay the amount to a Shah. 1. who. Shah is a respectable and responsible person. after reasonable enquiries. Shah-jog Hundi: This is drawn by one merchant on another. a man of worth and known in the bazaar. presents it to the drawee for acceptance of the payment.
Darshani Hundi: This is a hundi payable at sight. Jokhami hundi. 2. 2. Firman-jog hundi. Acceptance is not required.2. It is made by the debtor. Acceptance by the drawee is a Page 23 . etc. This is similar to a time bill. It contains an unconditional order. the drawee & the payee. A. Thus. 3. Bill of Exchange 1. it is similar to a demand bill. 4. There are 3 parties – the drawer. 4. Differences between Bill of Exchange & Promissory Notes Promissory Note 1. Dhani-jog hundi. There are 2 parties – the maker & the payee. It must be presented for payment within a reasonable time after its receipt by the holder. 3. Jawabee hundi. There are few other varieties like Nam-jog hundi. 3. 4. It contains an unconditional promise. It is made by the creditor. Muddati Hundi: A muddati or miadi hundi is payable after a specified period of time.
etc. A negotiable instrument is freely transferable. It cannot be crossed. 4. The ownership is changed by mere delivery (when payable to the bearer) or by valid endorsement and delivery (when payable to order). The liability of the maker/drawer is primary & absolute. when we transfer any property to somebody. such formalities are not required while transferring a negotiable instrument. The amount is always payable on demand. Usually. B. 3. Acceptance is not required. It can be crossed to end its negotiability. 2. while transferring it is also not required to give a notice to the previous holder. 5. But. Page 24 . Bill of Exchange 1. 4. Acceptance is a must.Features of Negotiable Instruments After discussing the various types of negotiable instruments let us sum up their features as under i. It can be drawn on anybody including a banker. Further. The liability of the maker/drawer is secondary & conditional upon nonpayment by the drawee. we are required to make a transfer deed. 5.5. Distinction between a Cheque and a Bill of Exchange Cheque 1. It is drawn only on a banker. 3. 2. pay stamp duty. The amount is payable on demand or after a specified period. must. get it registered.
it is nevertheless a negotiable instrument as death is certain. It was stolen from Sanjay by a person. he will be entitled to receive the amount of the cheque. The term ‘person’ includes individual. vii. For example. If the time is mentioned as ‘when convenient’ it is not a negotiable instrument. body corporate. one cannot make a promissory note on assets. It means that the instrument must be payable at a time which is certain to arrive. Here Girish will be regarded as ‘holder in due course’. v. The payee must be a certain person. A negotiable instrument must be in writing. vi. the title of the receiver will be absolute. This includes handwriting. iv. For example. if the time of payment is linked to the death of a person. However. Such a person is known as holder in due course. trade unions. even secretary. iii. etc. computer printout and engraving. Also the receiver should have no knowledge of the previous holder having any defect in his title. suppose Rajiv issued a bearer cheque payable to Sanjay. In every negotiable instrument there must be an unconditional order or promise for payment. only if he has got the instrument in good faith and for a consideration. If Girish received it in good faith and for value and without knowledge of cheque having been stolen. typing. The payee can also be more than one person. It means that the person in whose favour the instrument is made must be named or described with reasonable certainty. securities. The instrument must involve payment of a certain sum of money only and nothing else. However. It means that a person who receives a negotiable instrument has a clear and undisputable title to the instrument. director or chairman of an institution. The time of payment must be certain. Page 25 . who passed it on to Girish. or goods. though the time thereof is not. Negotiability confers absolute and good title on the transferee.ii.
x. 1899. 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.viii. Delivery of the instrument is essential. The value of stamp depends upon the value of the pronote or bill and the time of their payment. Without the signature of the drawer or the maker. you may issue a cheque in your brother’s name but it is not a negotiable instrument till it is given to your brother. Negotiation of Commercial Paper • Assignment • Negotiation • Endorsements • Four Common Types of Endorsements Page 26 . ix. For example. 6. Stamping of Bills of Exchange and Promissory Notes is mandatory. This is required as per the Indian Stamp Act. A negotiable instrument must bear the signature of its maker.
It can only be transferred by assignment. A holder is a person who is in possession of an instrument issued or indorsed to that person.Assignment Commercial paper that does not meet all of the requirements of negotiability cannot be negotiated. •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. which is governed by the ordinary principles of contract law. or in blank. Endorsements may be written in ink. •Restrictive Endorsements: A restrictive endorsement limits the rights of the endorsee in some manner in order to protect the rights of the endorser. a type of restrictive endorsement. thereby indicating the intent to transfer ownership to another. •Conditional Endorsement: A conditional endorsement. to bearer. to that person's order. Blank Endorsements: A blank endorsement consists of the signature alone written on the instrument. makes the rights of the endorsee subject to the happening of a certain event or condition. •Qualified Endorsements: A qualified endorsement is one in which words have been added to the signature that limit the liability of the endorser. Negotiation Negotiation is the transfer of an instrument in such a form that the transferee becomes a holder. An endorsement is restrictive if it is conditional. Endorsements An instrument is endorsed when the holder signs it. or stamped with a rubber stamp. Page 27 . typewritten.
which are governed by Article 5 of the Code. Bills of Lading and other documents of title. 1. although the law governing obligations with respect to such items may be similar to or derived from the law applicable to negotiable instruments. Page 28 . the following are not negotiable instruments. Letters of Credit. 2. which are governed by Article 7 of the Code.7. Exceptions Under the Code.
E.1934 and amendment Page 29 . Deeds & other documents conveying interests in real estate. K. the Reserve Bank had set up the Committee for Proposing Legislation on Electronic Funds Transfer and other Electronic Payments (Chairperson : Smt. which are governed by Article 8 of the Code. IOUs. such as Stocks & Bonds.Shere). 4.Transfers Electronic Funds Transfer Act In 1995. relating to netting practices and domestic payments and settlement systems. The Shere Committee had recommended a set of EFT Regulations by the Reserve Bank under the Reserve Bank of India Act. Securities. 5.3.S. 8. although a mortgage may secure a promissory note which is governed by Article 3.
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 network.1881 as short term measures and promotion of a few Acts like the Electronic Funds Transfer Act. 1999 and consequential amendments to the Reserve Bank of India Act. 1999 are intended to be general purpose legislation covering mainly issues like secure electronic records and signatures. rights and obligations of the parties involved in electronic funds transfer etc. the Bankers’ Books Evidence Act. there is still a need for a separate Act for Electronic Funds Transfer because certain transactional issues like payments finality. the Computer Misuse and Data Protection Act etc. liability of network service providers. computer crime and data protection. acceptance of digital signatures. duties of certification authority. However. 1934. as long term measures. The EFT Regulations would. required which would be consumer protection oriented and would at the same Page 30 . 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. A separate legislation on the lines of Electronic Funds Transfer Act of USA is.to the Bankers’ Books Evidence Act. moreover. 1881 etc. cannot be covered in general purpose bills like the proposed Information Technology Bill or the proposed Electronic Commerce Bill. therefore. cover only credit transfer related transactions and not Debit Clearing transactions. the INFINET. The proposed Information Technology Bill. 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. The Reserve Bank has already initiated steps for framing of EFT Regulations. However. The Government of India have also initiated steps for promoting Information and Technology Act. 1999 and Electronic Commerce Bill.
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. has endorsed the view that the proposed Electronic Funds Transfer Act should cover all forms of electronic payments. settlement finality. with settlement assistance from the Reserve Bank. The Committee supports the view that the Reserve Bank. 1944 for the purpose. 1881 on the lines of the Customs and Central Excise Laws (Amendment) Act. 1881. In the ongoing debate on the role of central bank in payment systems. etc. considers operating the interbank payment systems through an agency or subsidiary so that its regulatory role is rendered distinct from its supervisory role.time address transactional issues like execution of payment order. after a careful examination of the issue. at an appropriate time. 1988 and Central Excise and Salt Act. the trend is towards distinguishing the central bank role as a regulator from that of service providers which could be commercial banks themselves or the entities under the control of commercial banks. 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. The Committee. This is a welcome Page 31 . The Committee has considered it necessary that the legal framework for payment system takes into account this international trend. 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. It is learnt that Government of India is processing the draft Bill amending the Bankers’ Books Evidence Act. This would help the RBI to focus its efforts only on large value time critical funds transfers to be settled on an RTGS basis.
Legal provisions need to be made if such recognition has to be given. 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. to electronic funds transfer transactions as well. The Committee however felt that. amending the relative provisions of the Direct Tax Laws like Section 40A of the Income-Tax Act. It is worth mentioning that while clauses 9. The first test would arise when paper instruments like cheques are used along with the use of EFT system. Page 32 . suitable technology may have to be developed for treating such transfers as A/c payee transfers. The Committee considered certain provisions of the proposed Electronic Commerce Bill for admitting electronic records / signatures as evidence. 11. it would require either amendments to the Negotiable Instruments Act or a separate legislation to deal with the matter. these provisions will be made applicable. documents etc. Clauses 9. So long as both the systems are in existence at the same time. 10. As and when the Electronic Commerce Bill is passed. A mere recognition to that effect by the CBDT may not be adequate to treat such transfer as A/c payee cheques. 1961. 12 and 14 of this proposed Bill which are relevant in this connection are given in Annexure 16 . for according the funds transfer under the EFT system the same status of payment as one made by an A/c payee cheque. clauses 12 and 14 are based on Singapore Electronic Transactions Act. in electronic form as evidence.development and would meet the legal requirement of acceptance of contracts. 10 and 11 of this Bill are based on the UNCITRAL Model Law. ipso facto. if required.
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. 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. Page 33 . 1881. cheques would have to be presented for payment to drawee / drawer bank. Besides. no cause of action arises against the drawer. This is meant essentially to protect the interest of the drawer. 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. Under the Negotiable Instruments Act. Without such presentment. Therefore. Thus. 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. 1881. 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 default of presentment of a cheque to the drawee for payment. introduction of cheque truncation system may require adoption of a fairly standardized imaging technology and appropriate amendments to the Negotiable Instruments Act. other parties to the cheque are not liable to the holder. in UK. The right of 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.
In the absence of a contract to the contrary. Section 134 to 137 is of an International Law and the said 4 sections read as follows: 134. bill of exchange or cheque is regulated in all essential matters by the law of the place where he made the instrument. the liability of the maker of drawer of a foreign promissory note. acceptor or endorser of foreign instrument. Law governing liability of maker. Page 34 . and the respective liabilities of the acceptor and endorser by the law of the place where the instrument is made payable.9.
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. An action on the bill is brought against B in [India]. but in accordance with the [law of India]. is dishonoured. etc. out of India. but accepted payable in France. Instrument made. Where a promissory note. the law of the place. 136.Illustration A bill of exchange was drawn by A California where the rate of interest is 25 per cent and accepted by B. drawn accepted or endorsed [outside India]. He is liable to pay interest at the rate of 6 per cent. A is liable to pay interest at the rate of 25 per cent. The bill is endorsed in [India]. Law of place of payment governs dishonours. where it is made payable determines what constitutes dishonour and what notice of dishonour is sufficient. bill of exchange or cheque is made payable in a different place from that in which it is made or endorsed. 135. the circumstance that any agreement Page 35 . but in accordance with the law of India If a negotiable instrument is made. Illustration A bill of exchange drawn and endorsed in [India]. The notice is sufficient. and is dishonoured. but if A is charged as drawer. only. payable in Washington where the rate of interest is 6 per cent.
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 Page 36 .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 law of any foreign country [***] regarding promissory note. Presumption as to Foreign Law. 10 Dishonor Of Negotiable Instruments Complaints of cheque : To answer in nutshell. 137. bills of exchange and cheques shall be presumed to be the same as that of [India]. unless and until the contrary is proved. a person desirous to initiate action under section 138 of Negotiable Instruments Act ("Complainant").
the notice need not be received by the accused (i. Hence advisable to give notice only when it is decided to file a complaint Page 37 . 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. though there can be several returns.e. “a/c closed” or “stopped payment” -Complainant should make out a prima facie case.-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". Thereafter. say registered ad letter -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. drawer of the cheque) within 30 days -It is advisable to give demand notice only once by a single mode.
-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. The drawee doesn’t accept the bill within 24 hours of its receipt. Dishonor by non-acceptance b. Dishonor by non-payment Dishonor by non-acceptance: when the drawee refuses to accept the bill. 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 -Complaint runs independent of any other proceeding -Complaint is not maintainable against legal heirs of the Drawer. From the above it is clear that the bill is dishonored on two accounts: a. it stands to be dishonored. 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. Page 38 . 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. may file it on the next working day. The dishonor by-non-acceptance may have the following reasons: 1.
and all the drawees do not sign the bill. The ups and downs in the foreign exchange of every country were making them go through stagnancy. When the drawee is a fake person. different opinions. these matters could not be solved legally and the distance between each country made it even more uncomfortable. In case there are many drawees. problems also started taking up their roles. who are all accountable and liable to the holder. different understanding and different laws in every country. 3. If the bill is to be conditionally accepted 5. A certain kind of negotiation was required at an international level to Page 39 . When trade of goods and services started. They include the drawer. The cases of payment problems were observed among the exporting parties. different culture. When the drawee is not entitled to accept it. 4. Since the laws of different differ from each other. this refusal gives rise to dishonor by nonpayment. all endorse and endorse. 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. When the drawee disappears. The dishonor affects all the parties to the bill. 11.2. Negotiable instruments connects global peace A global world means different people. 6.
Negotiable instrument helped exporters and importers of goods and services to drag their defaulters to court. There was indeed a need for a negotiable instrument which is accepted by every law internationally. 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 with them dually signed by both the parties i. These instruments are internationally accepted. Taking these factors into consideration The Negotiable Instrument Act was passed. It helped many countries who were going through foreign exchange deficit. So it helps the complainant to get its judgment at the earliest.e. The grievances regarding the Page 40 .make the road of trade go smooth. A smooth flow of trade was observed after the introduction of negotiable instruments. These instruments had conditional and unconditional undertakings signed by the maker. Negotiable instrument include promissory notes. Negotiable instrument is always in writing so there is no fear of the drawee backing off the instrument. 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. Whereas stamping of bills of exchange and promissory notes are mandatory. 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. drawer and the drawee which was a strong proof document. The complaints regarding negotiable instruments should be filed as early as possible in there nearby allocated court. Bills of exchange and Cheque. Negotiable instruments play a vital role in the economic development of every country with its significant features.
the 70-day stipulated period for listing the shares had passed.negotiable instruments are taken at the top priority as it directly affects the economy of the country. By the time RBI conditionally cleared the issue after assurances from Sharma. Case studies THE JVG SCANDAL JVG's troubles started in June 1997. 12. A day after the issue had opened. 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. 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. SEBI intervened Page 41 . Because of the time-lapse. 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.
On a complaint filed by the RBI. Sharma refused to refund the money to the investors and appealed against the order to the Finance ministry. which was necessary as per RBI provisions.82 crore which was 756. RBI did not accept the argument and barred the group from accepting any more public deposits. 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. The RBI also filed criminal prosecution petitions in the Metropolitan Magistrates' Courts in New Delhi. JVG Leasing had received deposits worth Rs 19. the Delhi High Court ordered the winding up of the company. Similarly. The RBI complaint also said that the deposit forms issued by the JVG Group did not contain any information regarding premature withdrawals.and ordered the refund of the public's money according to the allotment rules. Company Law Board and criminal courts under the Negotiable Instruments Act upon which legal proceedings were initiated against the group.68% of its net owned fund. consumer courts. post-dated cheques issued for principal as well as interest on JVG's deposits bounced. The government received a large number of complaints on non-repayment of deposits on maturity by the JVG group. RBI alleged that the company had accepted deposits worth Rs 88. In September 1997. Investors then complained to the civil courts. This was much higher than the permissible limit of 25% . The court also appointed an official liquidator and said that the RBI did not consider the revival scheme filed by the company viable.58% of its net owned fund.28 crore which was 147. The companies had not provided any information about the rate of interest to the investors on the receipts issued Page 42 .
and had illegally credited it to the account of JVG Finance Ltd. Page 43 . 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. for doing shopping worth over Rs 4 lakh from a stolen credit card of an NRI. RBI further contended that JVG Securities accepted public deposits through JVG Leasing Ltd. He was missing. The third accused was Sonu. former employee of a telephone company. JVG Securities facilitated collection of further deposits by JVG Finance Ltd. RBI's petition also stated that the company had not maintained liquid assets as required by section 45IB of the RBI Act.to them. Further.. Advocate arrested in credit card fraud case Lawyers. Thus. 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. the companies failed to submit their audited balance sheets for the period ending March 31. The police was claiming that it had arrested advocate Amarjit Singh of Fauji Mohalla here on the basis of evidence along with Vikas. a company which had already accepted public deposits beyond the permissible limit in spite of the warning from RBI not to accept any further deposits. an alleged pickpocket. 1934. a pickpocket and a former employee of a private telephone company. who had stolen the credit card. 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. police on warpath Tribune News Service Ludhiana.
He said the lawyer was tortured in police custody. Mr. The alleged victim. Mr. he was booked in a false case. except a rape or a murder case. DBA. Weekender. The police have denied the allegations. Dr A A Siddiqui. said in a statement that they had got the medical examination of the accused advocate conducted from the Civil Hospital. However. a group of lawyers led by a former president of the District Bar Association. 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. Meanwhile. Tanishq. taking a tough stand against the arrest and the alleged custodial torture of the advocate. Harish Rai Dhanda. was watching the show when his pocket was picked. Rana Harjasdeep Singh. The police narrowed down on the accused after the complainant learnt that the credit card was being misused. However. 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.The credit card was stolen six months ago in November 2004 from GRD Academy here where the Miss World Punjaban contest was being held. Former DBA president K. Nike. openly charged the police with falsely implicating the accused advocate. Dhanda alleged that the lawyer was innocent and had been falsely implicated in the case. Mr. NRI Jaswinder Singh. Sikri condemned the incident and termed it as breach of trust and of an understanding reached between the lawyers and a former DGP. last year that the police would take the DBA into confidence before arresting an advocate in any case. Secretary. A group of lawyers later filed a complaint before a local Judge against police torture and harassment. Page 44 . Titan and Sant Ram Mangat Ram.R. the District Bar Association (DBA) has demanded immediate suspension of the guilty policemen. They also alleged that some policemen had demanded money from the advocate but when he refused to pay.
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. a credit card. for converting its value into cash. an electronic transfer. an account card. 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. FRAUD Within this specification by a negotiable instrument is meant a cheque. with the common element generally being that the negotiable instrument is presented for serving as a payment for goods purchased. a traveler’s cheque. Fraud in relation to the use of negotiable instruments is an international problem. a debit card. a share certificate.13. Many different forms of fraud that can result in the owner of a negotiable instrument suffering a financial loss are known. Page 45 . or for depositing its value into a third party account. a bond.
The person or body to whom a negotiable instrument is presented shall hereinafter be referred to as the presentee who. this may be a legitimate person to whom the instrument has been issued or who owns the instrument. and in relation to other negotiable instruments such as credit cards. and the like. in accordance with the present invention. or an illegitimate person who may be attempting a fraudulent act and/or who is not authorized to present the instrument. the original owner of a negotiable instrument as herein envisaged shall merely be referred to as the owner of the negotiable instrument who. in practice. in relation to cheques. promissory notes. and the like. The presentee also is the party who. generally will be a bank and particularly an employee of a bank. The person presenting a negotiable instrument to the presentee shall hereinafter merely be referred to as the presentor and. whether a natural or a juristic person. It will be appreciated that the various negotiable instruments as herein Page 46 . in relation to certain negotiable instruments such as cheques. generally will be a vendor who accepts the use of a credit card as payment for goods purchased or for services rendered. who can suffer a loss as a result of the unauthorized or fraudulent use of the negotiable instrument of which he is the owner. will be the person issuing such instruments. and in relation to credit cards. will be the person who legally presents such instruments in order to serve their intended purpose. for example.Although the invention as defined and described hereafter is directed mainly at inhibiting fraud in relation to the use of cheques and credit cards. For the sake of convenience and clarity. 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. The owner is thus generally the person. is generally responsible for ensuring that the owner of the negotiable instrument is not prejudiced.
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. via the internet. as well as data processing means and data storage means that permit processing of stored data and of data communicated to it.envisaged can be associated with various different `types` of presenters and presentees. linked Page 47 . 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. Presentees need not necessarily be banks or vendors. 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. including at least identification numbers. including at least identification numbers. 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. for enabling the system of the invention as defined hereafter. such instruments. but may be any third party who generally deals with and/or who is responsible for dealing with. or the like. 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. and the presentees of negotiable instruments communicating with the central communication and processing unit in order to register with the unit by providing information.
by identification via the individual secret code linked with the presentee and providing the authorization code linked with the instrument. the central communication and processing unit may permit communication via the internet and. 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. as such. each presentee then being provided with an individual secret code by the unit. the presentee communicating with the central communication and processing unit in order to verify the negotiable instrument. may include a processing and memory system for receiving and Page 48 . the unit then issuing an authorization code to be linked with the 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. 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.directly with the respective presentees. and which includes. the steps of: the registered owner communicating with the central communication and processing unit in order to authorize the negotiable instrument. as such. in relation to each negotiable instrument to be issued or used by a registered owner. The system of the invention particularly may provide for the central communication and processing unit to permit communication via a direct telephone line and. and upon presentation of the authorized negotiable instrument by a presentor to a presentee. includes an audio text electronic processing system that permits verbal information to be converted into binary code. Alternatively. or in addition.
insofar as the owners are natural persons. the system may provide for the registered owner of a cheque being issued by the owner. the branch code associated with the said relevant bank and the relevant bank account number. to apply the code to the Page 49 . The system of the invention may provide for owners registering with the unit. the amount indicated on the cheque and the name of the payee and. Presentees registering with the unit also will provide the unit with any other information. to provide to the unit bank account details of the payee and an identification number linked with the payee. 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. to provide the unit with the name of each relevant bank. when issued by the unit with an authorization code. the system will provide for such owners to provide the unit with the name of each relevant bank and the card type. the cheque number. upon registering with the unit they will provide at least their names and their official registration numbers. 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. Insofar as owners are juristic persons such as registered businesses. including at least their names. Further according to the invention. may provide at least their names and their official identity numbers. that will subsequently permit the unit to identify a particular presentee that dealt with the verification of a particular negotiable instrument. the number of each relevant card and the name of the card owner that appears on the card.processing information received via the internet and thereby carrying out the functions of the unit. Owners registering with the unit. when authorizing the cheque.
cheque. a card number and a name of a card owner and if this information matches the Page 50 . for the unit to communicate to the presentee account details of a payee. 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. Still further. following verification of the cheque. in response to which the unit provides the presentee a name of a bank that issued a card. an amount and a payee name and if this information matches the information applied to the cheque presented. in order to perform a direct credit card transaction. the system may provide for the presentee. 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. 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. the identification number linked with a payee. and when issued with an authorization code by the unit. to verify the cheque. following the identification of the presentee to the unit and the provision of the authorization code applied to the cheque. a cheque number. the system may provide. the card number and the name of the card owner that appears on the card. when a registered owner of a credit card issued by a bank presents as presentor the card to a vendor as presentee. In relation to an authorized cheque. Still further according to the invention. upon being presented with an authorized cheque and in order to verify the cheque. for the owner to provide the unit with the name of the bank that issued the card and the type of card. The system of the invention may provide still further for the registered owner of a credit card issued by a bank. upon authorizing a telephonic or an online credit card transaction. the transaction code permitting details of verification as stored by the unit to be retrieved from the unit.
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 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. 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. He should be careful and take all necessary precautions while using these negotiable instruments .When making online payments one should Page 51 .By the time the owner realizes the thief gets away by making big purchases. the card is both authorized and verified thereby. 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. Still further.information on the card as presented to the presentee. 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. 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 . the fraud keeps taking place . by applying the same principles to those applied when authorizing and verifying cheques or credit cards. Inspite of all the inventions made to stop fraudulent practices. and the system of the invention as defined must be interpreted as such.
5. Sign your credit cards as soon as you receive them. 2. 3. (For example. if you're told there has been a 'computer problem' and the caller needs you to verify information.and don't ever respond to emails that ask you to go to a website to verify personal (and credit card) information. Be very careful to whom you give your credit card. These are called 'phishing' scams. Keep an eye on your credit card every time you use it. Never respond to emails that request you provide your credit card info via email -. 4. Try not to let your credit card out of your sight whenever possible.make sure later by calling his bank customer care and confirming that only the transaction made by him is showing . and make sure you get it back as quickly as possible. Page 52 .) Legitimate companies don't call you to ask for a credit card number over the phone.In the event of misuse/theft. Never give your credit card info out when you receive a phone call. Never provide your credit card information on a website that is not a secure site. Don't give out your account number over the phone unless you initiate the call and you know the company is reputable. one should immediately report to the concerned authorities for stopping payment from that account PRECAUTIONS TO BE TAKEN TO AVOID FRAUD 1.
11. Keep a list in a secure place with all of your account numbers and expiration dates. Page 53 . 17. Ideally. 10. Shred anything with your credit card number written on it. 12. Never lend a credit card to anyone else. 14. Treat your credit card bill like your checking account -. Open credit card bills promptly and make sure there are no bogus charges. Never sign a blank credit card receipt. Keep this list updated each time you get a new credit card. 13. 15. 7.reconcile it monthly.report these charges promptly (and in writing) to the credit card issuer. Only carry around credit cards that you absolutely need. Never leave your credit cards or receipts lying around. 18. 16. 9. Save your receipts so you can compare them with your monthly bills. Don't carry around extra credit cards that you rarely use.or have it anywhere near your credit card (in the event that your wallet gets stolen). Carbon paper is rarely used these days. Shred all credit card applications you receive.6. Don't write your PIN number on your credit card -. destroy it immediately. it's a good idea to carry your credit cards separately from your wallet -. If you find any charges that you don't have a receipt for -. 8. Shield your credit card number so that others around you can't copy it or capture it on a cell phone or other camera. 19. 20. 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). but if there is a carbon that is used in a credit card transaction. as well as the phone number and address of each bank that has issued you a credit card.or that you don't recognize -.perhaps in a zippered compartment or a small pouch. Always void and destroy incorrect receipts. Carefully draw a line through blank portions of the receipt where additional charges could be fraudulently added.
PRESENT SCENARIO OF NEGOTIABLE INSTRUMENTS 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. Since the Reserve Bank is embarking on large electronic schemes such as the nationwide RTGS. This is specially required to establish the credibility of ECS and EFT schemes based on the electronic message transfer. notify your credit card issuers in advance of your change of address. Department Page 54 . 14. 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. If you move. 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.21.
is only for the specific transaction. 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. incoming and outgoing payments are set off against each other. it is necessary that the provisions are made statutory. In case of failure of a party in meeting the clearing liability. This is more so in the case of large value transactions. the issue gained critical significance while examining the proposal for setting up of a foreign exchange clearing and settlement system in India. But in multilateral netting systems where claims and obligations accumulate over a period of time (called the clearing cycle). 1999 and / or the Electronic Commerce Bill. There is a need to amend Section 58 of the Reserve Bank of India Act. The position gets all the more complicated in the case of cross border netting arrangements. the methodology of identifying the counter-parties / counterparts and determining the exposure level becomes difficult. In fact. In case of funds transfers settled on a gross basis. 1934 with a view to enabling RBI to frame specific regulations Page 55 . 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.of Electronics for promotion of the Information Technology Bill. 1999. the parties involved are only two and principal risk if any. Need for Regulation / Legislation on Netting There is a growing debate on the legality of netting in inter-bank funds transfer transactions.
PASTORAL STAGE where business was limited and survival by breeding of animals was the main motto. The demand increased for Page 56 . people lived a nomadic life.15. We came across the different stages through which trade and commerce went: 1. However man learned quickly to grow food for their own need which can be termed as the AGRICULTURAL STAGE. SUMMARY The project on negotiable instruments starts with the evolution of trade and commerce which in turn leads to the discovery of negotiable instruments. The first stage had to do nothing with money. 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. We as a group working on this topic had curiosity on the need of negotiable instruments in the market.
this was known as the GUILD STAGE. Then came the era in which people started to think about development and thus formed groups to protect their rights. 4. Types of Negotiable Instruments . They started producing specialized products which led to the introduction of HANDICRAFT STAGE. To avoid such confusion and to operate the business activities smoothly negotiable instruments were introduced.Bill of exchange Page 57 . There were different instruments used to purchase different commodities in different stages. Now as we have come across the term negotiable instruments and why it was evolved. 5. 3. lets now have a brief knowledge about negotiable instrument. Negotiable instruments are particular type of documents used for making payment in business transactions. This can be termed as the turning point of trade and commerce. After this man never looked back. The system of exchange was such that it led to confusion and various complexities.other commodities as well and thus BARTER SYSTEM was introduced. 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. this is where the necessity of introducing negotiable instruments were felt.Promissory note . the ownership of which can be freely transferred from one person to another.
Hundi . Stamping of BOE & Promissory notes mandatory Page 58 .Cheque . Unconditional order or promise for payment 5. signed by the maker. Certainty of payment 6. Promissory note .An instrument in writing containing an unconditional undertaking. Bill of exchange . signed by the maker. 4. Absolute & good title 3.It is form of a bill of exchange drawn in any local language in accordance with the custom of the place. Delivery of the instrument 9. Always in written form 4. Cheque . Signature of the maker 8. to or to the order of the person named therein or to the bearer. 3. Payee 7.An instrument in writing containing an unconditional order.It is an order by the account holder of the bank directing his banker to pay on demand the specified amount. 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. Features of negotiable instruments are1. 2.Hundi 1.. Free transferability 2. to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.
damodaran.com Page 59 . IOUs BIBLOGRAPHY 1. Bills of Lading and other documents of title –Article7 3. Negotiation 3.Negotiation of Commercial paper 1. Assignment 2. Endorsements Exceptions 1. Securities –Article8 4. Letters of Credit – Article5 2. Deeds & other documents conveying interests in real estate –Article3 5.
com 4.2. casestudy. google. indialaw. knowlegeworld.com 5.com Page 60 .com 3.
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