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NEGOTIABLE INSTRUMENT ACT,
1881
Kunal Upadhyay
OUTLINE OF CHAPTER OUTLINE OF CHAPTER Definition and types Notes, Bills and Cheques- Classification Parties to a Negotiable Instrument- Capacity,
Holder and Liability Negotiation – Transfer and Forged instrument Presentation of Negotiable Instrument – Modes and
When Dishonour of a Negotiable Instrument Discharge of a Negotiable Instrument Rules of Evidence, Estoppels and International Law
DEFINITION OF NEGOTIABLE DEFINITION OF NEGOTIABLE INSTRUMENTINSTRUMENT
As per sec 13, A negotiable instrument means promissory note, bill of exchange or cheque payable either to order or to bearer
A negotiable instrument is a method of transferring a debt from one person to another
TYPES OF NEGOTIABLE TYPES OF NEGOTIABLE INSTRUMENTSINSTRUMENTS
Instruments negotiable by statuteInstruments negotiable by statute Promissory notes Bill of exchange cheques
Instruments negotiable by custom or Instruments negotiable by custom or usage usage Government promissory notes Banker’s drafts and pay orders Hundis Delivery orders Railway receipts of goods
PROMISSORY NOTESPROMISSORY NOTES
An instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by maker, to pay sum of money only to, or order of , a certain person, or to bearer of the instruments (Sec.4)
The person who makes the promissory note to pay is called THE MAKER
The person to whom the payment is to be made is called THE PAYEE
Rs. 1,000 Bhuj, Jan 02,2013
Three months after date I promise to pay John Sunder or order the sum of one thousand rupee, for value received.
To,John Sunder99, Ashok Vihar,Bhuj-370001
Stamp
ESSENTIAL ELEMENTS ESSENTIAL ELEMENTS Writing Promise to pay Specific and unconditional Signed by the maker Certain parties Certain sum of money Promise to pay money only Bank note or currency note is not a promissory
note Formalities like number, date, place Payable after demand period of time Cannot payable to bearer on demand
BILL OF EXCHANGEBILL OF EXCHANGE An instrument in writing containing an
unconditional order, signed by the maker, directing a certain person to pay a certain sum or money only to, or to the order of , a certain person or to the bearer of the instrument.
The person who gives the order to pay or who makes the bill is called THE DRAWER
The person who is directed to pay is called THE DRAWEE
When the drawee accepts the bill, he called THE ACCEPTOR
The person to whom the payment is to be made is called THE PAYEE
Rs. 1,000 Bhuj, Jan 02,2013
Three months after date I promise to pay John Sunder or order the sum of one thousand rupee, for value received.
To,John Sunder99, Ashok Vihar,Bhuj-370001
in case of need with acceptedCanara Bank, Bhuj
Stamp
ESSENTIAL ELEMENTSESSENTIAL ELEMENTS It must be n writing It must contain an order to pay The order must be unconditional It requires three parties, The drawer, The drawee
and The Payee The parties must be in certain It must be signed by the drawer The sum payable must be certain It must contain an order t pay money Formalities like number, date, place
CHEQUE CHEQUE A cheque is a bill of exchange drawn upon a
specified banker and payable on demand and it includes the electronic image
A cheque which is truncated during the course of a clearing cycle either by the clearing house or by the bank
A cheque is species of a bill of exchange Its always drawn on a specified banker Its always payable on demand
TYPES OF CHEQUE
CLASSIFICATION CLASSIFICATION Inland Instrument
A promissory note, bill of exchange or cheque drawn or made in [India] and made payable in, or drawn upon any person resident in, [Indian] shall be deemed to be an inland instrument.
Foreign Instrument Any such instrument not so drawn, made or made
payable shall be deemed to be a foreign instrument
Instrument payable on demand A cheque is always payable on demand
CONT... Time instruments
After fix period After sight On specific day On the happening event
Accommodation bill A genuine trade bill
A bill drawn and accepted for a genuine trade transaction is termed as “trade bill”
An accommodation bill A bill drawn and accepted not for a genuine trade
transaction but only to provide financial help to some party is termed as an “accommodation bill”
CONT... Documentary bill
When documents of title to the goods and other documents
Escrow A negotiable instrument is delivered
conditionally or for a special purpose as a collateral security of for safe custody
Ambiguous Instrument An instrument paid to its faulty drafting may be
interpreted either as promissory note or bill of exchange
Fictitious bill When the name of the drawer or the payee or both
is fictitious in a bill
Inchoate Instrument Its an incomplete instrument in some respect. When
a person signs and delivers to another a blank or incomplete stamp paper
Undated Bill and notes Its not invalid by reason that it is undated, if the
instrument fulfils the legal requirement
PARTIES TO A NEGOTIABLE PARTIES TO A NEGOTIABLE INSTRUMENT- CAPACITY, HOLDER INSTRUMENT- CAPACITY, HOLDER
AND LIABILITYAND LIABILITYCapacity of parties
MinorsPersons of unsound mindCorporationAgentsPartnersHindu Joint FamilyLegal representatives
PARTIES TO NEGOTIABLE INSTRUMENTS
Maker Person who makes a promissory note called the maker
Drawer The person who makes a bill of exchange or cheque is
called drawer Drawee
The person on whom the bill of exchange is drawn and who directed pay is called drawee
Acceptor When drawee accept bill called acceptor
Payee The person named in the bill, cheque and promissory
note called payee
CONT.. Indorsers
The person who indorses the bill, note or cheque is called indorser
Indorsee The person to whom the bill, note or cheque is
indorsed called indorsee
HOLDER IN DUE COURSEHOLDER IN DUE COURSE
He must be entitled to the possession of the instrument in his own name.
He must be entitled to receive or recover the amount due thereon from the parties liable thereto.
He obtained the instrument for valuable consideration i.e. lawful consideration
He became holder of the instrument before its maturity, i.e. before the amount mentioned in it became payable
PRIVILEGES OF A HOLDER IN DUE PRIVILEGES OF A HOLDER IN DUE COURSECOURSE
Inchoate stamped instruments Liability of prior parties Fictitious payee Negotiable officials without consideration Conditional delivery Every holder is a holder in due course Estoppel against denying original validity of
instruments
CONT...Liability of Parties
Liability of drawerLiability of drawee of cheque (Bankers)Liability of Maker of note and acceptor
of billLiability of indorserLiability of prior parties
PRESENTATION OF NEGOTIABLE PRESENTATION OF NEGOTIABLE INSTRUMENT – MODES & WHENINSTRUMENT – MODES & WHEN
ModesModes General acceptance Qualified acceptance
Conditional PartialQualified as to placeQualified as to timeAcceptance by some of the drawee, but not all
WhenWhen It must be presented within that time and before its
maturity If party for acceptance is not obligatory, it may be
presented before its maturity
DISHONOUR OF A NEGOTIABLE DISHONOUR OF A NEGOTIABLE INSTRUMENTINSTRUMENT
Dishonour by non-acceptance (Sec.91) If the drawee does not accept the bill within forty-
eight hours from the time of payment If there are several drawees (who are not partners)
and all of them do not accept When presentment for acceptance is excused, When the drawee is incompetent to contract When the drawee gives a qualified acceptance When the drawee is fictitious person
Dishonour by non-payment (Sec.92) When acceptor of the bill or drawee of the cheque
make default in payment upon being duly required to pay the same
NOTICE OF DISHONOURNOTICE OF DISHONOUR Notice by whomNotice by whom
Notice by holder or any prior party (Sec.93)Chain method of giving notice of dishonour (Sec.95)
Notice by the principal or agent (Sec.96) Notice to whomNotice to whom
Notice to all parties whom the holder seeks to make liable
Notice to party or his agent or to legal representatives (Sec.94)
DISCHARGE OF A NEGOTIABLE DISCHARGE OF A NEGOTIABLE INSTRUMENTINSTRUMENT
By payment in due course
By party primarily liable becoming holder
By express waiver
By cancellation
By discharge as a simple contract
DISCHARGE OF A PARTY DISCHARGE OF A PARTY OROR PARTIES PARTIES
By payment By cancellation By release By allowing drawee more than forty-eight hours By non-presentment of cheque Cheque payable to order Draft drawn by one branch on another Parties not consenting discharged by qualified acceptance By operation of law By material alteration Discharge by payment of altered instrument
RULES OF EVIDENCE, ESTOPPELS RULES OF EVIDENCE, ESTOPPELS AND INTERNATIONAL LAWAND INTERNATIONAL LAW
EstoppelEstoppel Estoppel against denying original validity of
instrument (sec.120) Estoppel against denying capacity of payee to indorse
(Sec.121) Estoppel not permitted to deny the capacity of prior
parties (Sec.122) International LawInternational Law
Liability (Sec.134) Dishonour (Sec.135) Instruments made out of Indian according to
provisions of Indian law (Sec.136) Presumptions as to foreign law (Sec.137)