NEGOTIABLE Instrument

Represented By :
Ashutosh Mishra
Ashish Gupta
Ayushi
Ayush
Garvit
 NEGOTIABLE INSTRUMENT
 According to Sec 13, “A negotiable instrument means a
promissory notes, bill of exchange or cheque payable either to
order or to bearer”.

 Characteristics of Negotiable Instrument::

 It must be in writing.
 It must be signed by its maker.
 It must contain an unconditional promise or order to pay some
money.
 It must contain a certain amount of money only.
 It must be freely transferable.
PRESUMPTIONS ABOUT NEGOTIABLE
INSTRUMENTS
 Consideration
 Date

 Time of acceptance.

 Time of transfer.

 Order of endorsement.

 Stamp

 Fact of dishonour.
KINDS OF NEGOTIABLE
INSTRUMENTS

 Promissory notes

 Bill of exchange

 Cheque
PROMISSORY NOTES
 A promissory note is an instrument in writing containing an
unconditional undertaking signed by the maker to pay a certain sum
of money only to, or to the order of a certain person, or to the bearer
of the instrument.

 Example:
a) I promise to pay B or order Rs. 500
But following is not:
a) I promise to pay B Rs. 500, and all other sums which shall be
due to him.

 Parties to A Promissory Notes ::

a) Maker: It is a person who makes the promissory notes and
promises to pay the money stated therein.
b) Payee: It is a person to whom the amount of promissory note is
payable i.e. to whom the promise to pay is made.
BILL OF EXCHANGE
 A bill of exchange is an instrument in writing containing an
unconditional order, signed by the maker, 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.

 Example::
A wrote and signed an instrument ordering B to pay Rs. 500
to C. This is a bill of exchange. In this instrument, B has been
ordered to pay Rs. 500 to C.

 Parties to a Bill of Exchange::

a) Drawer : It is a person who makes a bill of exchange.
b) Drawee : It is a person who is ordered (i.e. directed) to pay the
amount of bill of exchange i.e. on whom the bill of exchange is
drawn. When the drawee accepts the bill of exchange he is called
the ‘acceptor’.
c) Payee: It is a person to whom the amount of bill of exchange is
payable.
CHEQUE
 A cheque is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand.

 The analysis of this section shows that, a cheque is a bill of

exchange with the following two additional requirements::
a) A cheque is always drawn on a specified band and
b) A cheque is always payable on demand

 Parties to a Cheque::
a) Drawer : It is a person who makes the cheque.
b) Drawee : It is a person who is directed to pay the amount of
cheque i.e. on whom the cheque is drawn. It may be noted that in case
of a cheque, the drawee is always a banker.
c) Payee: It is a person to whom the amount of cheque is payable.
(In some cases, the drawer and the payee may be the payee may be
the same person e.g. where a person draws a cheque ‘payable to
self ’.)
PARTIES TO A NEGOTIABLE
INSTRUMENT AND THEIR CAPACITY

 Parties to a Promissory Note::

• Maker :: Who makes the P. Note and Promises to pay the amount
stated therein.
• Payee :: To whom the amount of P. Note is payable.
• Holder :: A person who is either the payee or the indorsee of the P
Note.
• Indorser :: It is a person who transfer the negotiable instrument to
another person
• Indorsee :: To whom the negotiable instrument is indosed.
 Parties To A Bill Of Exchange ::
• Drawer ::who draws the BOE
• Drawee :: who is directed(ordered) to pay the amount of BOE
• Acceptor :: who accepts the BOE.
• Payee :: To whom the amount of BOE is payable.
• Holder :: Either payee or the indorsee.
• Indorser :: Who transfers the BOE.
• Indorsee :: To whom the BOE is transferred.

 Parties of Cheque ::
• Drawer :: Who makes the cheque.
• Drawee :: The banker.
 CAPACITY OF PARTIES
 Minors ::
Minor is incompetent to contract, therefore he cannot bind himself by becoming A
party to any NI. However, A minor may draw, indorse, deliver & negotiate A NI so as
to bind all others parties except himself. Thus minor is not liable to NI.
 Example ::
A, B and C executed a P Note in favor of D. C is the minor. In this case C is not liable
under P note. But A and B shall remain liable to pay the money to D.

 Person Of Unsound Mind ::

The person of unsound mind are not competent to contract and thus are not liable
under the NI.
 Example::
A, a lunatic, drew a P note in favor of B and promised to pay Rs. 1000 to him . This P
note was drawn by him when he was of sound mind. In this case , A is liable to pay
the amount of the P note.
 Insolvents::
an insolvent cannot draw, make, accept , or indorse a NI. The insolvent cannot
sue on a NI.
 Corporation or companies ::
a corporation or a company has a separate legal entity and therefore it can
become party to a NI.
 Agents ::
the NI can b drawn or accepted by duly authorized agents on behalf of their
principles. But th authority of an agent to draw accept or indorse NI must be
expressed in clear terms.
 Partners ::
every partner is the agent of the firm and therefore they are liable under NI if a
partner signs the instrument in the name of the firm and on the behalf of the firm.
 PROMISSORY NOTE & BILL OF
EXCHANGE
PN
 There are two parties
 Contains an unconditional
promise
 Liability of maker or drawer
is primary and absolute.
 No notice of dishonour is
required
BOE
 Three parties
 Contains an unconditional
order
 Liability is secondary of the
drawer and conditional.
 Notice must be given.
CHEQUE & BOE
Cheque
 Must be drawn only on a
banker
 The amount is always
payable on demand
 The cheque is not entitled
to days of grace
BOE
 Can be drawn on any person
including a banker
 The amount may be paid on
demand or after a specified
time
 A time Bill is entitled to 3
days grace
 Cheque does not require
stamp
 Cheque can be
countermanded by the
drawer
 Acceptance is not needed
 Can be crossed
 Requires stamp
 Can not be
countermanded
 A bill payable after sight
must be accepted.
 Not possible
Discharge from Liability

Discharge from liability means that the party’s liability, on instrument comes
to an end. The term discharge in relation to negotiable instrument has two
meanings, namely:

1. Discharge of the negotiable instrument.

2. Discharge of one to more parties from their liability on the negotiable
instrument.
DISCHARGE OF THE NEGOTIABLE
INSTRUMENT
The negotiable instrument is said to be discharged when all the rights
of the person involved in it are over.
A negotiable instrument may be discharged in any one of the
following ways:
1. By payment in due course.
2. By the primarily liable party becoming the holder of the
instrument.
3. By renunciation of the rights by the holder.
4. By cancellation of the negotiable instrument.
5. By discharge as a simple contract.
BY PAYMENT IN DUE COURSE
The payment in due course is defined in section 10 of the
Negotiable Instrument Act, which states that, payment in due
course is the payment which is made in good faith and in
accordance with the apparent tenor of the instrument.
For Example:-
A, the maker of a demand promissory note, paid the amount
due on it to the payee. But A failed to obtain back and cancel the
promissory note . Subsequently, the payee transferred the same
promissory note to B, a holder in due course. And B claimed
from A the amount due on the promissory note. On the refusal to
pay, B filed a suit against A for recovery the amount due on the
promissory note. It was held that A was liable to pay the amount
to B. In this case the instrument was not discharged as it was
not cancelled.
BY THE PRIMARILY LIABLE PARTY
BECOMING THE HOLDER OF THE
INSTRUMENT

Sometime, the acceptor of a bill of exchange becomes its holder in his

own right at or after its maturity. In such cases, the bill of exchange
is discharged according to section 90.If this happens at or after
maturity, the bill of exchange is discharged, and no party is liable to
on such a BOE. However, the following two conditions must be
satisfied:
1. The acceptor must have taken the bill of exchange at or after
maturity.
2. The acceptor must have take the bill of exchange in his own rights
and not in any other capacity such as administrator etc.
 BY RENUNCIATION OF THE RIGHTS
BY THE HOLDER
Sometimes the holder of a negotiable instrument renounces or gives up
his rights against all the parties. In such cases, the instrument is
discharged.

By Cancellation Of The Negotiable Instrument

Sometimes, the holder of a negotiable instrument intentionally cancel it. In Such cases
the instrument is discharged.

BY DISCHARGE AS A SIMPLE PARTY

A negotiable instrument may also be discharged in the same way as a
simple contract for payment of money. Thus, like a simple contract,
a negotiable instrument may be discharged by an agreement of the
parties.
Thank You