The Negotiable The Negotiable Instrument Act,1881Instrument Act,1881

INTRODUCTIONINTRODUCTION

Section 13 of the Negotiable Section 13 of the Negotiable Instrument Act 1881: “A negotiable Instrument Act 1881: “A negotiable instrument means a promissory instrument means a promissory note, bill of exchange or cheque note, bill of exchange or cheque payable to bearer.”payable to bearer.”

Promissory NotePromissory Note

Elements of a Promissory Note:Elements of a Promissory Note:

Writing Writing UnconditionalUnconditional SignedSigned Certain personCertain person Specific sum Specific sum Money Money

Specimen of Promissory Specimen of Promissory notenote

Rs.5000.00Rs.5000.00

On demand I promise to pay ABC, On demand I promise to pay ABC, the sum of Rs.5000 (Rupees five the sum of Rs.5000 (Rupees five thousand) only with interest at 9% p.a thousand) only with interest at 9% p.a for the value receivedfor the value received

Signed Signed

Date:30 feb 2006 XYZDate:30 feb 2006 XYZ

Bill of exchangeBill of exchange

Elements of bill of exchange:Elements of bill of exchange:

WritingWriting UnconditionalUnconditional PartiesParties Signed Signed Specific sum Specific sum Money Money

Specimen of bill of Specimen of bill of exchangeexchange

Rs.5000.00 MumbaiRs.5000.00 Mumbai

Date:28 feb 2006Date:28 feb 2006

Sixty days after date pay to ABC the sum of Sixty days after date pay to ABC the sum of five thousand rupees only for value five thousand rupees only for value received.received.

Accepted, Accepted, SignedSigned

PQR XYZPQR XYZ

(here XYZ is the ‘drawer’ PQR is ‘drawee’ ABC is ‘payee’.)(here XYZ is the ‘drawer’ PQR is ‘drawee’ ABC is ‘payee’.)

Parties To A Bill Of Parties To A Bill Of ExchangeExchange

DrawerDrawer DraweeDrawee AcceptorAcceptor PayeePayee HolderHolder IndorserIndorser IndorseeIndorsee Drawee in case of needDrawee in case of need

Parties To A ChequeParties To A Cheque

Maker Maker Drawee Drawee Payee Payee Holder Holder Indorser Indorser Indorsee Indorsee

Parties To A Promissory Parties To A Promissory NoteNote

Maker Maker Payee Payee Holder Holder Indorser Indorser Indorsee Indorsee

Parties Parties

Maker/Drawer:- Maker/Drawer:- The person who makes a The person who makes a

promissory note is called a maker promissory note is called a maker and a person who draws a cheque or and a person who draws a cheque or a bill of exchange is called a drawee.a bill of exchange is called a drawee.

Payee :-Payee :- The person named in the bill, The person named in the bill,

note or cheque, to whom or to whose note or cheque, to whom or to whose order the money is to be paid.order the money is to be paid.

Parties Parties

Drawee/Acceptor:-Drawee/Acceptor:-

The person on whom the bill The person on whom the bill of exchange or cheque is drawn and of exchange or cheque is drawn and who is directed to pay is called the who is directed to pay is called the drawee. In case of a cheque the drawee. In case of a cheque the drawee is always a banker. In case drawee is always a banker. In case of a bill of exchange the drawee of a bill of exchange the drawee becomes the acceptor when he becomes the acceptor when he accepts the bill.accepts the bill.

Parties Parties

Indorser Indorser

The person who indorses the The person who indorses the bill, note or cheque to anotherbill, note or cheque to another

IndorseeIndorsee

The person to whom the bill, The person to whom the bill, note or cheque is indorsed note or cheque is indorsed

PartiesParties

Drawee in case of needDrawee in case of need

When in the bill or in any When in the bill or in any indorsement thereon the name of indorsement thereon the name of any person is given in addition to any person is given in addition to the drawee to be referred to in case the drawee to be referred to in case of need.of need.

Specimen of drawee in case Specimen of drawee in case of needof need

Rs 2000 PUNE

27th Feb 2006

Three months after the date pay to john or order, the sum of rupees two thousand for value received

To

Ram, Chinchwad, Pune In case of need

Hari

Pimpri, Pune

PartiesParties

Holder Holder

Any person entitled in his own nameAny person entitled in his own name

i.i. to the possession there ofto the possession there of

ii.ii. to receive or recover the amount due to receive or recover the amount due from the partiesfrom the parties

When a note, bill or cheque is lost or When a note, bill or cheque is lost or destroyed its holder is the person so destroyed its holder is the person so entitled at the time of such loss or entitled at the time of such loss or destructiondestruction

Parties Parties Holder in due courseHolder in due course Any person is a holder in due Any person is a holder in due

course if he fulfils the following course if he fulfils the following conditionsconditions

a)a) For consideration he became (i) the For consideration he became (i) the possessor of the negotiable instrument. possessor of the negotiable instrument. (ii) the payee or indorsee of the (ii) the payee or indorsee of the instrumentinstrument

b)b) He became the holder of the of the He became the holder of the of the instrument before its maturityinstrument before its maturity

c)c) He became the holder of the instrument He became the holder of the instrument in good faith.in good faith.

Liability Of PartiesLiability Of Parties

Liability of the drawerLiability of the drawer Liability of the drawee of the Liability of the drawee of the

chequecheque Liability of the maker of the note of Liability of the maker of the note of

acceptor of the billacceptor of the bill Liability of the indorserLiability of the indorser