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)