Institute of Chartered Accountants of Bangladesh(ICAB)

Business Law-Certificate Level

Negotiable Instrument Act, 1881

 Promissory Note

A promissory note is an instrument writing, 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. e.g “I promise to pay ‘B’Or order Tk.
1,000.
Promissory note is not a bank note or currency.
 Parties of Promissory Notes

There are two parties in the promissory note-

▪ The maker of promissory note e.g; promissor

▪ The payee or any other person who is entitled to receive the
amount stated in the instrument.
 Essential Requisites of Promissory Notes:

The promissory note-

✔ Must be in writing.
✔ Must contain an undertaking to pay.
✔ To pay should be unconditional.
✔ Must be signed by maker.
✔ The maker must be certain.
✔ Must contain to promise to pay money and money only.
✔ The payee must be certain.
 Examples of Promissory Notes
Valid Promissory Notes:
1. “ I promise to pay B or order Taka 500”
2. “I promise to pay B Rs. 500 on demand at bomby.”
3. I acknowledge myself to be indebted to B in taka 1,000.00 to be
paid on demand to value received.
 Examples of Non Promissory Notes
Not Promissory Notes:
1. “Mr. Sen I.O.U. Rs. 1000” Here I.O.U stands for I owe you
(This is only an admission of indebtedness).
2. “ I promise to pay B Rs.300 first deducting there out any money
which he may owe me.
3. “ I promise to pay B Rs. 500 seven days after D’s death.
(Theses are not valid promissory notes because the promissory notes
must be unconditional but there are conditions exist.)
4. “ I promise to pay B Rs. 500 and all other sum which shall be due
to him.”
(This is not promissory note because sum of money to be paid is not
certain.)
Specimen of Promissory Note
 Cheque

U/s 6 of Negotiable Instrument Act a Cheque is a bill of exchange

drawn upon a specified banker and not expressed to be payable
otherwise than on demand.

A cheque must be Printed, signed by maker and must contained an

unconditional order of specified person or to the bearer of the
instrument.
 The Essential Features of Cheque:

A Cheque must be-

✔ Written.
✔ Signed maker.
✔ Payable to bearer, order or on demand.
✔ Tally of signature with specimen signature.
✔ Dated.
✔ Time of presentation .
✔ Validity (six months).
✔ Unconditional order.
✔ Certain amount of money.
✔ Printed .
 Post-dated cheque

A cheque which bears a future date i.e. subsequent to the date of

presentation is called post-dated cheque. e.g., a cheque dated 15.01.09
presented on 12.01.09. A bankers should refuse to pay a cheque.
Risks in making payment of a post dated cheque;

Following risks of post-dated cheque may arise:

⚫ The Cheque may be countermanded by the drawer.

⚫ Drawer‟s A/c may run short of fund for honoring valid cheques
⚫ The drawer may die or become insolvent or insane.
⚫ The banker loses statutory protection, as the payment is not
according to the apparent tenor of the instrument.
⚫ The Bank acts against the intention of the Customer.
⚫ A Garnishee order of the court may not be executed on actual
balance.
 Stale Cheque; When a Cheque will be stale?

A cheque which bears a date earlier to the date on which the cheque is
drawn/ presented is called an ante- dated cheque. Example, a cheque
drawn / presented on 8th January 2015 but baring the date 1st January
2015 is an ante-dated cheque. The banker can pay such cheques, but
should be presented for payment within a reasonable time. If the same
is not presented within a reasonable time depends on bankers’ usage in
the locality, is said to be stale.
 Different Types of Cheque

There are two types of cheque-

a) Open Cheque-which is payable in cash across the counter of the
bank.
B) Cross Cheque-which has short two parallel lines made across the
face and paid it only to another bank.
i. General Crossing Cheque-the simplest mode of crossing is
to put two parallel lines across the face of the cheque.
ii. Special Crossing-Name of the bank and branch is writen in
the two parallel lines-This is institutional cheque.
iii. Account Payee-is a general crossing and the payee or
holder may endorsed to another.
iv. Not negotiable-General Crossing and no transfer.
 Payment of an Account Payee Cheque:

Payment of Account Payee Cheques NI Act 1881, Section 123A:

(1) 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”.

(2) When a cheque is crossed “account payee”: it shall be the duty of

the banker collecting the payment of the cheque to credit the
proceeds thereof only to the account of the payee named inthe
cheque.
When the Bank must refuse payment of the cheques/ draft:
✔ When customer countermands payment.
✔ When customer has become insolvent.
✔ On receipt of notice of customer‟s death.
✔ On receipt of notice of customer‟s insanity.
✔ On receipt of Garnishee order.
✔ Word and figures of cheque differs.
✔ Drawer‟s signature differs.
✔ Drawer‟s signature incomplete.
✔ Cheque is post- dated.
✔ Cheque is out of date
✔ Materially altered cheque without authentication by the drawer/
maker.