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Anu Kumari B.Com I-A, 4245
The law relating to negotiable instruments is contained in the Negotiable Instruments Act. 1881 which applies and extends to the whole of India.
Definition of Negotiable Instrument
According to section 13 of the Negotiable Instruments Act, 1881, a negotiable instrument means “promissory note, bill of exchange, or cheque, payable either to order or to bearer”.
Bills of Exchange (popularly called bills). we shall study about Promissory Notes (popularly called pronotes).. share warrants. provided they possess the features of negotiability. like hundis. Cheques and Hundis (a popular indigenous document prevalent in India). However many other documents are also recognized as negotiable instruments on the basis of custom and usage. treasury bills.e.17. promissory note.3 Types of Negotiable Instruments According to the Negotiable Instruments Act. etc. bill of exchange and cheque. in detail. 1881 there are just three types of negotiable instruments i. In the following sections. ..
signed by the maker. . Section 4 of the Negotiable Instruments Act. 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. This type of a document is called a Promissory Note. to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument’. Promissory Note Suppose you take a loan of Rupeess Five Thousand from your friend Ramesh. This document. Now Ramesh can personally present it before you for payment or give this document to some other person to collect money on his behalf. You can make a document stating that you will pay the money to Ramesh or the bearer on demand.i. duly stamped and handed over to Ramesh. 1881 defines a promissory note as ‘an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking. Or you can mention in the document that you would like to pay the amount after three months. once signed by you. becomes a negotiable instrument.
New Delhi September 25. 2002 On demand.000/. 10. To . Ramesh Sd/ Sanjeev Address……. for value received.000/. I promise to pay Ramesh. s/o RamLal of Meerut or order a sum of Rs 10..(Rupees Ten Thousand only). Stamp .Specimen of a Promissory Note Rs.
In the above specimen if Ramesh endorses it in favour of Ranjan and Ranjan also endorses it in favour of Puneet. the parties involved may be a. then Ramesh and Ranjan both are endorsers. The Maker or Drawer – the person who makes the note and promises to pay the amount stated therein. They arei. Sanjeev is the maker or drawer. . The Endorsee – the person in whose favour the note is negotiated by endorsement. In course of transfer of a promissory note by payee and others. In the above. The Endorser – the person who endorses the note in favour of another person.Parties to a Promissory Note There are primarily two parties involved in a promissory note. In the above specimen. The Payee – the person to whom the amount is payable. ii. b. it is Ranjan and then Puneet. In the above specimen it is Ramesh.
which Sameer has to return. 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. Now. 1881 defines a bill of exchange as ‘an instrument in writing containing an unconditional order. or to the bearer of the instrument’. In this case. This document is called a Bill of Exchange. . Rajiv also has to give some money to 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. which can be transferred to some other person’s name by Tarun. Bill of Exchange Suppose Rajiv has given a loan of Rupees Ten Thousand to Sameer. Section 5 of the Negotiable Instruments Act.ii.
000/. To Accepted Stamp Sameer Sameer S/d Address Rajiv .New Delhi May 2.Specimen of a Bill of Exchange Rs. 10. 2001 Five months after date pay Tarun or (to his) order the sum of Rupees Ten Thousand only for value received.
Here the words in the bill would be Pay to us or order. The Drawer – The person who makes the order for making payment. Business Studies 32 ii. They arei. This is called a Demand Bill . In the above specimen. It is Sameer in this case. The Payee – The person to whom the payment is to be made.He is generally a debtor of the drawer. In this case it is Tarun.Parties to a Bill of Exchange There are three parties involved in a bill of exchange. In a bill where a time period is mentioned. Rajiv is the drawer. is called a Time Bill. The Drawee – The person to whom the order to pay is made. iii. But a bill may be made payable on demand also. just like the above specimen. The drawer can also draw a bill in his own name thereby he himself becomes the payee.
the specified amount. Actually. thereby directing the bank to pay the specified amount to the person named in the cheque. a cheque is an order by the account holder of the bank directing his banker to pay on demand. The Negotiable Instruments Act. If you have a savings bank account or current account in a bank. to or to the order of the person named therein or to the bearer . Cheques Cheque is a very common form of negotiable instrument. Negotiable Instruments 33 Therefore. the only difference is that the bank is always the drawee in case of a cheque. 1881 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.iii. a cheque may be regarded as a bill of exchange. you can issue a cheque in your own name or in favour of others.
..................................... ..................................................................... …….................... or Bearer Rupees……………………………………………… …………………………………………………… STATE BANK OF INDIA Jawaharlal Nehru University......................20....Specimen of a Cheque ………............................... New Delhi – 110067 MSBL/97 6 5 3 0 0 3 1 1 0 0 0 2 0 5 6 1 0 ............ ..................... Pay……............
Some times it can also be in the form of a promissory note. Dhani-jog hundi. Shah-jog Hundi: This is drawn by one merchant on another. Jokhami hundi. etc. Let us discuss some of the most common ones. asking the latter to pay the amount to a Shah. a man of worth and known in the bazaar. Firman-jog hundi. This is similar to a time bill. presents it to the drawee for acceptance of the payment. There are few other varieties like Nam-jog hundi. Hundis A Hundi is a negotiable instrument by usage. it is similar to a demand bill. Thus. Darshani Hundi: This is a hundi payable at sight. The provisions of the Negotiable Instruments Act shall apply to hundis only when there is no customary rule known to the people. Muddati Hundi: A muddati or miadi hundi is payable after a specified period of time. A hundi is the oldest known instrument used for the purpose of transfer of money without its actual physical movement. after reasonable enquiries. who. It must be presented for payment within a reasonable time after its receipt by the holder. Jawabee hundi. A shah-jog hundi passes from one hand to another till it reaches a Shah. Shah is a respectable and responsible person.iv. Types of Hundis There are a variety of hundis used in our country. It is often in the form of a bill of exchange drawn in any local language in accordance with the custom of the place. .
Special Crossing: like . General Crossing: like 2. Modes of Crossing of Cheque 1.e abl dia oti In Neg k of Not Ban t Sta e abl oti Neg Not e aye a t P ndi oun f I Acc ank o B te Sta e abl oti . Neg Co Not & f ko Ban te dia Sta In & co.
Parties to Negotiable Instruments Bill of Exchange:Promissory Note:The Maker The Payee The Holder The Endorser The Endorsee The Drawer The Drawee The Acceptor The Payee The Endorser The Endorsee The Holder Drawee in case of need Acceptor for honour 1. Cheque:The Drawer The Drawee The Payee The Holder The Endorser The Endorsee .
before the amount mentioned in it becomes payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title (section 9) . if payable to order.Holder & Holder in due course Holder :. . or the payee or endorsee thereof. Holder in due course:. a bill of exchange or a cheque if payable to bearer.According to section (8) of the Act holder of a negotiable instrument means any person (a) who is entitled in his own name to the possession of the negotiable instrument and (b) who has also the right to receive or recover the amount due thereon from the parties thereto.means any person who for the consideration becomes the possessor of a promissory note.
is valid if it subsequently comes into the hands of a holder in due course. Every prior party is liable to a holder in due course until the instrument is duly satisfied. The accepter cannot plead against a holder in due course that the bill is drawn in a fictitious name.Privileges of a holder in due course ü ü ü ü ü ü ü ü Every holder is a holder in due course. Estoppel against denying capacity of instrument. Instrument obtained by unlawful means or unlawful consideration. Estoppel against denying capacity of the payee to endorsee. if properly stamped. An Inchoate instrument. No effect of conditional delivery. .
If an instrument is inchoate. in the title. A holder of an instrument may acquire the instrument if it becomes payable. But the person is not treated as a holder in due course if he acquires an instrument when it becomes payable. if any.Points of Difference b/w Holder & Holder in due course 1. A holder need not bother about the defect. 4. While holder in due course acquires a good title even if the instrument is inchoate. A holder can obtain an instrument without consideration while a person cannot be a holder in due course unless he obtains an instrument with consideration and for value. 2. But no holder is considered a holder in due course who acquires an instrument knowingly the defect of the title. . 3. a holder of such instrument cannot get good title in the instrument.
Presentment Placing of a negotiable instrument before a drawee is called presentment. . c) Presentment for payment. Presentment may be for any of the following three purposes: a) Presentment for acceptance. b) Presentment for sight.
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. right.Negotiation According to section 14. “It is a process of transferring the ownership.” .
-X hands over a chequeto Mr.Continued… Negotiation does not mean a simple transfer.g. Mr. Y here Mr. But if he hands over a cheque to Mr. Y . the cheque is not negotiated to Mr. E. Y asking him to keep the same in his safe. Y. Simple transfer may not necessarily involve the transfer of property in the negotiable instrument but negotiation implies the transfer of property or ownership. X has negotiates the instrument.
the transferee must become the holder of the instrument.Essentials of negotiation üThere must be transfer of a negotiable instrument to another person. üAs a result of such transfer. ü .
qNegotiation by endorsement and delivery – The negotiable Instrument payable to order is negotiable by the holder by . actual or constructive. actual possession of the instrument is not passed.” It is physical act of delivering the instrument or handing over the delivery.Modes of negotiation qNegotiation by delivery – The negotiable Instrument is transferred by delivery.
.The person who signs on the back or on the face of the instrument or on the slip is an endorser.Endorsement “Literal meaning of the term endorsement is writing on an instrument.The person to whom the instrument is endorsed is called the endorsee.” Endorser . Endorsee .
e. ü Partial endorsement – It is made for remaining balance of payment.It specifies the name of the person to whom or to whose order the payment must be made.The endorsee become the holder of the instrument i. ü Conditional endorsement – The liability of the endorser is limited or negative.Various types of Endorsement ü General or blank endorsement . ü Full or special endorsement .Endorser signs his name either on the back or face of the instrument. ü Restrictive endorsement. . he gets the right to receive the payment when due & he can sue the parties.
Discharge of Parties from Liability Discharge Discharge Discharge Discharge Discharge of time by by by by by cancellation release payment in due course express waiver material alteration or lapse .
and to some one of several parties whom he seeks to make jointly liable . promissory notes and cheques may be dishonoured by non payment only while bills of exchange may be dishonoured by non payment or by non-acceptance as they require acceptance from drawees. Of these negotiable instruments. must give notice that the instrument has been so honored to all other parties whom the holder seeks to make severally liable thereon.Dishonour of a Negotiable Instrument Promissory notes. or some party thereto who remains liable thereon. cheques and bills of exchange are covered by this Act. Section 93 of the Act states that “when a promissory note or a bill of exchange or cheque is dishonoured by nonacceptance or non-payment the holder thereof.
by the said amendment the DISHONOURED CHEQUE is being TREATED as an CRIMINAL OFFENCE DRAWER BEWARE .1988 Amendment Because.
. d) If the instrument has not been expressly dishonoured. nothing is not compulsory neither it affects the rights of the holder thereon. b) The reason or reasons if any. Noting means nothing but the recording of the fact of dishonor of the instrument by a notary public within a reasonable time after dishonour. NOTING AND PROTESTING Noting contains the following particulars:a) The fact and the date of dishonour of the instrument. the reason as to why the holder wants to treat the same as dishonoured. assigned for such dishonour. c) The notary charges incurred. Of course.
Such certificate is called a protest. cause such dishonour to be noted and certified by a notary public. when a promissory note or a bill of exchange has been dishonoured b nonacceptance or non-payment. . Protest: According to section 100 of this Act. within a reasonable time. the holder may..Continued….
or a statement that he gave no answer. ü The signature of the notary public. ü A statement that payment or acceptance. ü In the event of an acceptance for honour or of a payment for honour. has been demanded of such person by the notary public. and the manner in which.Contents of Protesting ü Either the instrument itself. the name of the person by whom. If any. the terms of his answer. such acceptance or payment was offered and effected. ü . ü The name of the person for whom and against whom the instrument has been protested. as the case may be. of the person for whom. or better security. and when better security has been refused. the place and time of refusal. ü When the note or bill has been dishonoured. or that he could not be found. the place and time of dishonour. ü The subscription of the notary public making the protest. or a literal transcript of the instrument and of every thing written or printed thereupon.
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