LPB Module 3 NI Act

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Mentor
MD. MIZANUR RAHMAN
ACMA, DAIBB, DIB, CDCS
Cell: 01870478713
E-mail: mizancdcs@gmail.com
Banking Professional Exam Preparation Course : JAIBB

1
Md. Mizanur Rahman, Cell: 01870478713
JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.
Previous Questions
How will you open a Minor’s Account as per Negotiable Instrument Act 1881?
A pays into his bank a cheque drawn on another banker payable to B and crossed “Not Negotiable” . Shoud A’s Bank take
such a cheque notwithstanding such a crossing? Give reasons.
Distinguish between: Holder in due course and holder for value, Crossed Cheque and bearer cheque,
Short Notes: Material alteration, Payment in Due Course
What is Hundi? Can Hundi regarded as Negotiable Insturment?

To check Hundi Bangladesh Bank was issued some guidelines. What are the guidelines?
What is a cheque? Discuss the main characters of cheque.
Define the crossing of a cheque and explain its significance. What are the different types of crossing and their special feature?
A cheque for Tk. 5, 000 which had been crossed originally carries below the crossing the Words "crossing cancelled" and signed by the
drawer and is presented for cash payment on the counter. How would you deal with the situation?
Define Negotiable instuments as per the Negotiable Instruments Act, 1881.
What are the instruments that fall under the parview of the Act?
What do you mean by Endorsement? What are the different types of endorsement?
2
1
THE NEGOTIABLE INSTRUMENTS ACT (ACT NO. XXVI OF 1881)

Articles: 141, Effect from : March 01, 1882
Chapter Contents Articles
01 Preliminary 01 – 03
02 Notes, Bills and Cheques 04 – 25
03 Parties to Notes, Bills and Cheques 26 – 45A
04 Negotiation 46 – 60
05 Presentment 61 – 77
06 Payment and Interest 78 – 81
07 Discharge from Liability on Notes, Bills and Cheques 82 – 90
08 Notice of Dishonour 91 – 98
09 Noting and Protest 99 – 104A
10 Reasonable Time 105 – 107
11 Acceptance and payment for honour and reference in case of need 108 – 116
12 Compensation 117
13 Special rules of evidence 118 – 122
14 Special provisions relating to cheques 122A – 131C
15 Special provisions relating to bills of exchange 131D – 133
16 law governing liability of parties to a foreign instrument 134 – 137
17 On penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts 138 - 141
3
NEGOTIABLE INSTRUMENTS
NEGOTIABLE a document transferable by delivery INSTRUMENT

means means
any written
transferable a written document which creates a
document by
from one right in favor of somebody and is which a right
person to freely transferable by delivery is created in
another favor of some
person
As per article 13 of NI Act , 1881, “ A
negotiable instrument means a promissory
note, bill of exchange or cheque payable
either to order or to bearer”
4
2
Freely transferable
Negotiability confers absolute and good title on the transferee
Must be in writing
Must be an unconditional order or promise for payment
Must involve payment of a certain sum of money only and nothing else
The time of payment must be certain
The payee must be a certain person
Must bear the signature of its maker.
Delivery of the instrument is essential
Stamping as required by Stamp Act, 1899
5
1 PROMISSORY NOTE
2 BILL OF EXCHANGE
3 CHEQUE
6
3
PROMISSORY NOTE
DEFINITION Essentials Parties Involved
Article 04
A “promissory note” is an instrument in writing (not being a bank-note or a

currency-note) containing an unconditional undertaking, signed by the
maker, to pay on demand or at a fixed or determinable future time a certain
sum of money only to, or to the order of, a certain person, or to the bearer of
the instrument.
7
PROMISSORY NOTE
DEFINITION ESSENTIALS Parties Involved
Must be in writing
Must contain a promise or undertaking to pay
The promise to pay must be unconditional
Must be signed by the maker:
The maker must be a certain person
The payee must be certain
The sum payable must be certain
8
4
PROMISSORY NOTE
DEFINITION ESSENTIALS PARTIES INVOLVED
The person who makes the note and PRIMARILY TWO PARTIES
promises to pay the amount stated therein
(i) The Maker or Drawer
(ii) The Payee
The person to whom the amount is payable
IN CASE OF TRANSFER BY PAYEE

The person who endorses in favour of
another person
(a) The Endorser
(b) The Endorsee
The person in whose favour the note is
negotiated by endorsement
9
BILL OF EXCHANGE
Article 05
A “bill of exchange” is an instrument in writing containing an unconditional

order, signed by the maker, directing a certain person to pay on demand or
at fixed or determinable future time a certain sum of money only to, or to the
order of, a certain person or to the bearer of the instrument.
10
5
BILL OF EXCHANGE
DEFINITION ESSENTIALS Parties Involved
Must be in writing
Must contain an order to pay
The order to pay must be unconditional
Must be signed by the Drawer
The drawer, Drawee and Payee must be a
certain
The sum payable must be certain
11
BILL OF EXCHANGE
The person who makes the order for

making payment
The person to whom the order to pay is (ii) The Drawee
made
(iii) The Payee
The person to whom the payment is to be
made
12
6
CHEQUE
Article 06
A “cheque” is a bill of exchange drawn on a specified banker and not

expressed to be payable otherwise than on demand.
13
CHEQUE
Negotiable instrument
Bill of Exchange
Always drawn on a specified Banker
Always payable on demand
No acceptance required
14
7
CHEQUE
The person who makes the order for

making payment
(ii) The Drawee
Specified Bank
(iii) The Payee
The person to whom the payment is to be
made
15
CHEQUE
16
8
CHEQUE
Material alteration in relation to a promissory note, bill of exchange or cheque
MATERIAL Article includes any alteration of the date, the sum payable, the time of payment, the
ALTERATION 3 place of payment, and, where any such instrument has been accepted
generally, the addition of a place of payment without the acceptor's assent.
Material alteration refers to change introduced on a cheque, which affects its fundamental characters.
Affects the fundamental character of the instruments

MATERIAL
ALTERATIONS Substantially change the rights and liabilities of the parties to the instrument
Change the legal character of the document
Speak a different language from what it spoke originally
Have taken place without the knowledge of the drawer
Have taken place after the cheque has been issued
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MATERIAL
ALTERATION
Renders the cheque invalid. So the paying banker should not honour it
The banker should return the cheque to the drawer with remarks like “alteration requires
drawer’s confirmation”.
The drawer should confirm the alteration by means of his full signature.
EFFECT OF
MATERIAL In case the cheque is drawn by two or more persons jointly, material alteration requires the
ALTERATIONS signature of all the drawers.
In case of registered companies or corporate bodies, material alteration must be confirmed by
those persons who are authorized to operate account
A banker honouring a materially altered cheque is not eligible for any legal protection, because, he
is said to be negligent in his duty.
If a banker honours a materially altered cheque, he has no authority to debit the drawer’s account
so, he should bear the loss.
Any material alteration of a negotiable instrument renders the same void as against any one who is a
Article
party thereto at the time of making such alteration and does not consent thereto, unless it was made in
87
order to carry out the common intention of the original parties.
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9
DATE
AMOUNT
PAYEE To fill up the blanks of the instrument
MATERIAL SIGNATURE
ALTERATIONS To convert a blank endorsement to full
ALTERATION AUTHORIZED BY endorsement
APPEARANCE ACTS
To accept a bill subject to certain
conditions
Any holder can cross the cheque
EXAMPLES OF
MATERIAL
ALTERATIONS
Conversion of a bearer cheque into an order cheque

IMMATERIAL Alterations made with the consent of parties
ALTERATIONS
Alteration made to carry out the common intention of the original party
Where the word “Taka” has been mentioned twice, and then, one is cancelled.
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When a promissory note, bill of exchange or cheque is

transferred to any person, so as to constitute that person
NEGOTIATION Article
14 the holder thereof, the instrument is said to be
negotiated.
It is a process of transferring the ownership, right, title, interest of a person in a

negotiable instrument to another person so as to give a good title to the transferee and
make a transferee a holder of such instrument.
NEGOTIATION BY DELIVERY: The negotiable Instrument payable to bearer is

1 negotiable by the holder through mere delivery thereof
Modes of
Negotiation
2 NEGOTIATION BY ENDORSEMENT AND DELIVERY: The negotiable Instrument payable
to order is negotiable by the holder by endorsement and delivery thereof
20
10
ENDORSEMENT
derived from the Latin
termor“in dorsum” which
INDORSEMENT
means “on the back
Endorsement means signing one’s name on the back of a negotiable

instrument, with a view to transferring the interest, right, property or title in
the instrument to anther person.
When the maker or holder of a negotiable instrument signs the same, otherwise
than as such maker, for the purpose of negotiation, on the back or face thereof or
Endorsement Article on a slip of paper annexed thereto, or so signs for the same purpose a stamped
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paper intended to be completed as a negotiable instrument, he is said to indorse
the same, and is called the “indorser”.
21
ENDORSEMENT or INDORSEMENT
a) The payee of the instrument.(the first endorsement of an instrument is made by the payee.)
Who Can b) The holder of a negotiable instrument.
Endorse
c) The endorsee of the instrument.
22
11
ENDORSEMENT
or
INDORSEMENT
transfers his right, interest, property or title in the instrument to the
endorsee
certifies the genuineness of the instrument
Through also certifies that all prior endorsement are genuine
Endorsement,
Endorser guarantees to the endorsee that he had good title to the
instrument
Endorsement conveys to the endorsee the right of further
negotiation
undertakes to compensate every subsequent holder of the
instrument in case of dishonour or non payment of the instrument
which is presented strictly in accordance with its tenor
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KINDS of ENDORSEMENT
. ……………………
BLANK OR GENERAL ENDORSEMENT
Signature)
Pay Mr. A or order
ENDORSEMENT IN FULL OR SPECIAL
ENDORSEMENT
(Signature)
Pay Mr. A only
RESTRICTIVE ENDORSEMENT
(Signature)
Pay Mr. A or order on arrival of
CONDITIONAL ENDORSEMENT Mr. S at Dhaka within 10.03.2021
Pay X or order sans (Signature)

recourse” or “Pay X SANS RECOURSE ENDORSEMENT
without recourse to me”
(Signature) Pay Mr. A, Notice of
FACULTATIVE ENDORSEMENT Dishonour Waived
Pay X or order, Sans Frais

SANS FRAIS ENDORSEMENT
24
12
The payee or indorsee who is in possession of it or the bearer thereof but

HOLDER
does not include a beneficial owner claiming through a benamidar.
any person who for consideration becomes the possessor of negotiable instruments if
HOLDER IN payable to bearer, or the payee or indorsee thereof, if payable to order, before it became
DUE COURSE overdue, without notice that the title of the person from whom he derived his own title was
defective.
MAKER Negotiable Instruments HOLDER
Consideration
Good Faith
Within the maturity
HOLDER IN
DUE COURSE
25
HOLDER BASIS HOLDER IN DUE COURSE
A person who legally obtains the negotiable A person who acquires the negotiable instrument
instrument, with his name entitled on it, to receive the Meaning bonafide for some consideration, whose payment is
payment from the parties liable. still due.
Not necessary Consideration Necessary
Right to
cannot sue all prior parties sue can sue all prior parties
The instrument may or may not be obtained Good The instrument must be obtained in good
in good faith Faith faith
Comparatively less Privileges More
A person can become holder, before or after the A person can become holder in due course, only
Maturity
maturity of the negotiable instrument before the maturity of negotiable instrument
Defect in
Does not get better title Get better title
title 26
13
payment in accordance with the apparent tenor of the instrument in good

Payment in Article faith and without negligence to any person in possession thereof under
due coarse 10 circumstances which do not afford a reasonable ground for believing that
he is not entitled to receive payment of the amount therein mentioned.
Where one person signs and delivers to another a paper stamped in accordance
with the law relating to stamp duty chargeable on negotiable instruments, either
Inchoate wholly blank or having written thereon an incomplete negotiable instrument, in
stamped Article order that it may be made, or completed into a negotiable instrument he thereby
instruments 20 gives prima facie authority to the person who receives that paper to make or
complete it, as the case may be, into a negotiable instrument for the amount, if
any, specified therein, or, where no amount is specified for any amount, not
exceeding, in either case, the amount covered by the stamp
27
LIABILITIES DRAWEE
DRAWER
ARTICLE 30 ARTICLE 31
on due presentment Bill of Exchange shall The drawee of a cheque having sufficient
be accepted and paid according to its tenor, funds of the drawer in his hands properly
and that if it be dishonoured, he will applicable to the payment of such cheque
compensate the holder or any indorser who must pay the cheque when duly required so to
is compelled to pay it do, and, in default of such payment, must
in the case of dishonour of cheque by the compensate the drawer for any loss or
drawee he will compensate the holder: damage caused by such default.
Provided that due notice of dishonour of the
bill or cheque has been given to or received
by the drawer as hereinafter provided.
The drawee of a bill of exchange is not liable
thereon until acceptance in the manner
provided by this Act.
28
14
CROSSING OF CHEQUE
Crossing means drawing of two parallel

transverselines across the cheque with or without the
words in between those lines.
The crossing of cheque gives a direction to the drawee

bank to not pay the mentioned amount at the counter,
instead the payment should be done through a bank.
This guards payment against forgery by any
unscrupulous persons because a crossed cheque can
only be deposited directly into a bank account and
cannot be cashed immediately.
29
TYPES OF CROSSING
General Crossing A/C Payee Crossing Not Negotiable

Special Crossing Crossing
Where a cheque bears across its face an addition of the words “and company” or any
abbreviation thereof, between two parallel transverse lines, or of two paralled transverse
lines simply, either with or without the words “not negotiable”, that addition shall be
deemed a crossing and the cheque shall be deemed to be crossed generally.
CHEQUE CHEQUE CHEQUE

X √
CHEQUE CHEQUE
30
15
TYPES OF CROSSING

Where a cheque crossed generally bears across its face
an addition of the words “account payee” between the
two parallel transverse lines constituting the general
crossing, the cheque, besides being crossed generally, is
said to be crossed “account payee”.
it shall cease to be negotiable

it shall be the duty of the banker collecting payment of
the cheque to credit the proceeds thereof only to the
account of the payee named in the cheque
31
TYPES OF CROSSING

Where a cheque bears across its face an addition of the

name of a banker, either with or without the words “not
negotiable”, that addition shall be deemed a crossing, and
the cheque shall be deemed to be crossed specially, and to be
crossed to that banker.
32
16
TYPES OF CROSSING

A person taking a cheque crossed generally or

specially, bearing in either case the words “not
negotiable,” shall not have, and shall not be
capable of giving, a better title to the cheque
than that which the person from whom he took
it had.
33
CROSSING OF CHEQUE
the drawer can cross the cheque
When issuing
WHO CAN
CROSS THE If Uncrossed, the holder may cross generally or specially
CHEQUE If Crossed Generally, the holder may cross specially.
After issue
If Crossed generally or specially, the holder may add the words "not
negotiable".
If Crossed specially, the banker to whom it is crossed may again cross it
specially to another banker, his agent, for collection.
When an uncrossed cheque, or a cheque crossed generally, is sent to a
banker for collection, he may cross it specially to himself.
34
17
1) Insufficient fund
16) Advice not received
2) Amount in figure and word differs
17) Duplicate Item-Previously Paid
3) Stale Cheque
18) Incorrect Payee(Mismatch with advice)
4) Post Dated Cheque/Undated Cheque
19) High value item presented to an ineligible branch
5) Drawers signature differs/Missing
20) Cheque not Activated/Intimation not received
6) Payment stopped by Drawer
21) Cheque and Advice Data Mismatch
7) Item represented too often/More than 03 times
22) 07 (seven) Days Notice Required
8) Incomplete or missing endorsement
23) Test key required/differs
9) Forged endorsement
24) Not Arranged for/Credit Limit Exceed
10) Material alteration-Payee name/Amount/Date/Account
25) Revenue Stamp Required/Not Sufficient
Number
26) Signature and Seal Required on the Stamp
11) Forged or unauthorized signature
12) Missing Corporate Stamp 27) Budget Required/ Refer to the Issuer
28) Item Required Re-validation
13) Incorrect Amount/Cheque Number/ Account Number
29) MICR Data and Image Mismatch
14) Item sent to the wrong bank/branch
15) Account Closed/Dormant/Blocked
35
Article 128: Payment in due course of crossed cheque

Where the banker on whom a crossed cheque is drawn in good faith and without negligence
pays it, if crossed generally, to a banker, and if crossed specially, to the banker to whom it is
crossed or his agent for collection, being a banker, the banker paying the cheque, and (in case
such cheque has come to the hands of the payee) the drawer thereof, shall respectively be
entitled to the same rights, and be placed in the same position in all respects, as they would
respectively be entitled to and placed in if the amount of the cheque had been paid to and
received by the true owner thereof.
Article 129: Payment of crossed cheque out of due course

Any banker paying a cheque crossed generally otherwise than to a banker, or a cheque crossed specially otherwise than
to the banker to whom the same is crossed, or his agent for collection, being a banker, shall be liable to the true owner of
the cheque for any loss he may sustain owing to the cheque having been so paid:
Provided that where a cheque is presented for payment which does not at the time of presentment appear to be crossed,
or to have had a crossing which has been obliterated, added to or altered otherwise than as authorised by this Act, the
banker paying the cheque in good faith and without negligence shall not be responsible or incur any liability nor shall the
payment be questioned, by reason of the cheque having been crossed, or of the crossing having been obliterated or
having been added to or altered otherwise than as authorised by this Act, and of payment having been made otherwise
than to a banker or to the banker to whom the cheque is or was crossed, or to his agent for collection, being a banker, as
the case may be.
36
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Article 138: Dishonour of cheque for insufficiency, etc, of funds in the account
(1) Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to
another person from out of that account is returned by the bank unpaid, either because of the amount of money standing to the
credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by
an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to
any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may
extend to thrice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless-
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the
period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said
amount of money by giving a notice, in writing, to the drawer of the cheque, within thirty days of the receipt of information by him
from the bank regarding the return of the cheque as unpaid, and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the
holder in due course of the cheque, within thirty days of the receipt of the said notice.
(1A) The notice required to be served under clasue (b) of sub-section (1) shall be served in the following manner-
(a) by delivering it to the person on whom it is to be served; or
(b) by sending it by registered post with acknowledgement due to that person at his usual or last known place of abode or
business in Bangladesh; or
(c) by publication in a daily Bangla national newspaper having wide circulation.
(2) Where any fine is realized under sub-section (1), any amount upto the face value of the cheque as far as is covered by the fine
realized shall be paid to the holder.
(3) Notwithstanding anything contained in sub- section (1) and (2), the holder of the cheque shall retain his right to establish his
claim through civil Court if whole or any part of the value of the cheque remains unrealized.
37
a person who has signed a negotiable instrument as a maker,

ACCOMMODATION Article
PARTY 3 drawer, acceptor or indorser without receiving the value thereof
and for the purpose of lending his name to some other person
38
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39
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Banking Professional Exam Preparation Course : JAIBB

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

What is Hundi? Can Hundi regarded as Negotiable Insturment?

THE NEGOTIABLE INSTRUMENTS ACT (ACT NO. XXVI OF 1881)

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

NEGOTIABLE a document transferable by delivery INSTRUMENT

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

DEFINITION Essentials Parties Involved

A “promissory note” is an instrument in writing (not being a bank-note or a

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

DEFINITION ESSENTIALS Parties Involved

DEFINITION ESSENTIALS PARTIES INVOLVED

IN CASE OF TRANSFER BY PAYEE

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

DEFINITION ESSENTIALS PARTIES INVOLVED

A “bill of exchange” is an instrument in writing containing an unconditional

DEFINITION ESSENTIALS Parties Involved

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

DEFINITION ESSENTIALS PARTIES INVOLVED

The person who makes the order for

DEFINITION ESSENTIALS PARTIES INVOLVED

A “cheque” is a bill of exchange drawn on a specified banker and not

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

DEFINITION ESSENTIALS PARTIES INVOLVED

DEFINITION ESSENTIALS PARTIES INVOLVED

The person who makes the order for

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

Affects the fundamental character of the instruments

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

Conversion of a bearer cheque into an order cheque

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

When a promissory note, bill of exchange or cheque is

It is a process of transferring the ownership, right, title, interest of a person in a

NEGOTIATION BY DELIVERY: The negotiable Instrument payable to bearer is

Endorsement means signing one’s name on the back of a negotiable

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

Pay X or order sans (Signature)

Pay X or order, Sans Frais

The payee or indorsee who is in possession of it or the bearer thereof but

MAKER Negotiable Instruments HOLDER

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

HOLDER BASIS HOLDER IN DUE COURSE

Not necessary Consideration Necessary

Comparatively less Privileges More

payment in accordance with the apparent tenor of the instrument in good

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

Crossing means drawing of two parallel

The crossing of cheque gives a direction to the drawee

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

General Crossing A/C Payee Crossing Not Negotiable

CHEQUE CHEQUE CHEQUE

General Crossing A/C Payee Crossing Not Negotiable

it shall cease to be negotiable

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

General Crossing A/C Payee Crossing Not Negotiable

Where a cheque bears across its face an addition of the

General Crossing A/C Payee Crossing Not Negotiable

A person taking a cheque crossed generally or

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.

JAIBB Negotiable Instrument Act Covering Cheque, Endorsement etc.