NEGOTIABLE INSUTRUMENTS ACT 1881

1. DEFINITION OF A NEGOTIABLE INSTRUMENT [SECTION 13]

The word 'negotiable' means transferable from one person to another, and the term 'instrment'
means 'an! written do"ment b! whi"h a right is "reated in fa#or of some person$' Ths, the
negotiable instrment is a do"ment b! whi"h rights #ested in a person "an be transferred to
another person in a""ordan"e with the pro#isions of the Negotiable Instrments %"t, 1&&1$
The term 'negotiable instrment' has been defined as ' % 'negotiable instrment' means a
promissor! note, bill of e("hange or "he)e pa!able either to order or to bearer$*
MAIN FEATURES OF A NEGOTIABLE INSTRUMENT
%n instrment ma! be negotiable either b!
+1, Statte ' -romissor! notes, bills of e("hange and "he)es are negotiable instrments nder the
Negotiable Instrments %"t, 1&&1. or
+/, 0! sage ' 0an1 notes, ban1 drafts, share warrants, bearer debentres, di#idend warrants,
s"ripts and treasr! bills
%n instrment is to be "alled 'negotiable' if it possesses the following "hara"teristi" featres2
1, 3reel! transferable ' Transferabilit! ma! be b!
+a, deli#er!, or
+b, b! endorsement and deli#er!$
/, 4older's title free from defe"ts2 The holder +of the negotiable instrment, in de "orse
a")ires a good title not withstanding an! defe"t in a pre#ios holder's title$ % holder in de
"orse is one who re"ei#es the instrment for #ale and withot an! noti"e as to the defe"t in
title of the transferor$
3, The 4older "an se in his own Name ' %nother "hara"teristi" featre of a negotiable instrment,
is that its holder in de "orse, "an se on the instrment in his own name$
5, % negotiable instrment "an be transferred infinitm, i$e$, "an be transferred an! nmber of
times till its matrit!$
6, % negotiable instrment is sb7e"t to "ertain presmptions$
-resmptions as to negotiable instrments [Se"tions 11&'118]
1, %s to Consideration ' E#er! negotiable instrment is deemed to ha#e been made, drawn, and
a""epted endorsed, negotiated or transferred for "onsideration$
/, %s to date' E#er! negotiable instrment bear the date on whi"h it is made or drawn$
3, %s to %""eptan"e' E#er! bill of e("hange was a""epted within a reasonable time after the date
mentioned therein and before the date of its matrit!$
5, %s to Transfer' E#er! transfer of a negotiable instrment was made before the date of its
matrit! in "ase of an instrment pa!able otherwise than on demand$
6, %s to the order of Endorsements ' The endorsements appearing on it were made in the order in
whi"h the! appear thereon$
9, %s to lost Instrments ' :here an instrment has been lost or destro!ed, that it was dl!
stamped and the stamp was dl! "an"elled$
;, %s to holder'in'de "orse ' The holder of the instrment is a holder in de "orse$
&, %s to dishonor ' If a sit is filed pon an instrment, whi"h has been dishonored, the Cort
shall, on proof of the protest, presme the fa"t of dishonor nless it is dispro#ed$
2. PROMISSORY NOTE [Se"tion 5]
<efinition
% promissor! note is an instrment in writing +not being a ban1 note or a "rren"! note,
"ontaining an n"onditional nderta1ing, signed b! the ma1er to pa! a "ertain sm of mone!
to, or to the order of, a "ertain person or to the bearer of the instrment
E(amples of -romissor! Notes
=%> signs instrments in the following terms2
*I a"1nowledge m!self to be indebted to '0' in ?s$ 1@@@, to be paid on demand, for #ale re'
"ei#ed$*
3ollowings are Not -romissor! Notes$
+i, *Ar$ 0, I$O$B$ +I owe !o, ?s$ 1@@@$*
+ii, *I promise to pa! 0 ?s$ 16@@ on <'s death, pro#ided he lea#es me enogh to pa! that
sm,*
+iii, *I promise to pa! 0 ?s$ 6@@ se#en da!s after m! marriage with C$*
Essentials or Chara"teristi"s of a -romissor! Note
3rom the definition, it is "lear that a promissor! note mst ha#e the following essential
elements$
+1, In writing - % promissor! note mst be in writing$ :riting in"ldes print and t!pewriting$
+/, Promi! to "#$ - It mst "ontain an nderta1ing or promise to pa!$ Thus, a mere
a"1nowledgement of indebtedness is not sffi"ient$
Noti"e that the se of the word Cpromise' is not essential to "onstitte an instrment as
promissor! note$
+3, Un%on&ition#' - The promise to pa! mst not be "onditional$ Ths, instrments pa!able on
performan"e or non'performan"e of a parti"lar a"t or on the happening or non'happening of
an e#ent are not promissor! notes$
+5, Sign!& ($ t)! M#*!r The promissor! note mst be signed b! the ma1er, otherwise it is of
no effe"t$
+6, C!rt#in P#rti! - The instrment mst point ot with "ertaint! the ma1er and the pa!ee of the
promissor! note$
+9, C!rt#in +m o, mon!$ - The sm pa!able mst be "ertain or "apable of being made "ertain$
+;, Promi! to "#$ mon!$ on'$ - If the instrment "ontains a promise to pa! something in
addition mone!, it "annot be a promissor! note$
+&, N+m(!r- "'#%!- &#t! !t% - These are sall! fond in a promissor! note bt are not essential
in law$ If a promissor! note does not bear a date, it is deemed to ha#e been made when it was
deli#ered$
+8, It m#$ (! "#$#('! in int#''m!nt
+1@, It m#$ (! "#$#('! on &!m#n& or #,t!r # &!,init! "!rio& - -a!able 'on demand' means
pa!able immediatel! or an! time till it be"omes time'barred$ % demand promissor! note
be"omes time barred on e(pir! of 3 !ears from the date it bears$
+11, It %#nnot (! m#&! "#$#('! to (!#r!r on &!m#n& or !.!n "#$#('! to (!#r!r #,t!r #
%!rt#in "!rio&
+1/, It m+t (! &+'$ t#m"!& +n&!r t)! In&i#n St#m" A%t - It means that the stamps of the
re)isite amont mst ha#e been affi(ed on the instrment and dl! "an"elled either before or
at the time of its e(e"tion$ % promissor! note, whi"h is not so stamped, is a nllit!$
/. BILL OF E0C1ANGE 2Se"tion 6]
% 'bill of e("hange' is defined b! as an instrment in writing, "ontaining an n"onditional
order, signed b! the ma1er, dire"ting a "ertain person to pa! a "ertain sm of mone! onl! to or
to the order of, a "ertain person, or to the bearer of the instrment$
Characteristic Features of a Bill of Exchange
1$ It mst be in writing$
/$ It mst %ont#in #n or&!r to "#$ and not a promise or re)est$
3$ The order mst be +n%on&ition#'$
5$ There mst be t)r!! "#rti!, #iD$, drawer, drawee and pa!ee$
6$ The "#rti! m+t (! %!rt#in$
9$ It mst be ign!& ($ t)! &r#w!r$
;$ The +m "#$#('! m+t (! %!rt#in or "apable of being made "ertain$
&$ The or&!r m+t (! to "#$ mon!$ and mone! alone$
8$ It mst be &+'$ t#m"!& as per the Indian Stamp %"t$
1@$ Nmber, date and pla"e are not essential$
3. C1E4UE [Se"tion 9]
% "he)e is defined as 'a bill of e("hange drawn on a spe"ified ban1er and not e(pressed to be
pa!able otherwise than on demandE$
Ths, a "he)e is a bill of e("hange with two added featres, #iD$2
+i, it is alwa!s drawn on a spe"ified ban1er. and
+ii, it is alwa!s pa!able on demand and not otherwise$
Bill of Exchange and Cheque distinguished
C)!5+! Bi'' o, E6%)#ng!
1, It mst be drawn onl! on a ban1er$
/, The amont is alwa!s pa!able on
demand$
1, It "an be drawn on an! person in"lding
a ban1er$
/, The amont ma! be pa!able on demand
or after a$ spe"ified time$
3, The "he)e is not entitled to da!s of
gra"e$
5, %""eptan"e is not needed$
6, % "he)e "an be "rossed
9, Noti"e of dishonor is not ne"essar!$
The parties thereon remain liable, e#en if no
noti"e of dishonor is gi#en$
;, % "he)e is not to be noted or protested
in "ase of dishonor$
&, The prote"tion gi#en to the pa!ing
ban1er in respe"t of "rossed "he)es is
pe"liar to this instrment$
3, % san"e +time, bill is entitled to three
da!s of gra"e$
5, % bill pa!able after sight mst be
a""epted$
6, Crossing of a bill of e("hange is not
possible$
9, Noti"e of dishonor is ne"essar! to hold
the parties liable thereon$ % part! who does
not re"ei#e a noti"e of dishonor "an
generall! es"ape its liabilit! thereon$
;, % bill is noted or protested to establish
dishonor$
&, No s"h prote"tion is a#ailable in the
"ase of bills$
Promissory Note and Bill of Exchange distinguished
Promior$ Not! Bi'' o, E6%)#ng!
1, There are onl! two parties F the ma1er
+debtor, and the pa!ee +"reditor,$
/, % note "ontains an n"onditional
promise b! the ma1er to pa! the pa!ee$
3, No prior a""eptan"e is needed$
5, The liabilit! of the ma1er or drawer is
primar! and absolte$
6, No noti"e of dishonor need be gi#en$
1, There are three parties F the drawer, the
drawee and the pa!ee' althogh an! two of
these "apa"ities ma! be filled b! one and the
same person$
/, It "ontains an n"onditional order to the
drawee to pa! a""ording to the drawerCs
dire"tors$
3, % bill pa!able Cafter sightC mst be
a""epted b! the drawee or his agent before it
is presented for pa!ment$
5, The liabilit! of the drawer is se"ondar!
and "onditional pon non'pa!ment b! the
drawee$
6, Noti"e of dishonor mst be gi#en b!
the holder to the drawer and the intermediate
endorsers to hold them liable thereon$
9, The ma1er of the note stands in
immediate relation with the pa!ee$
9, The ma1er or drawer does not stand in
immediate relation with the a""eptor drawee$
7. 1OLDER AND 1OLDER8IN8DUE8COURSE [Se"tion & G 8]
Holder of negotiale instrument
% holder of a negotiable instrment is a person entitled in his own name to the possession of
that negotiable instrment #n& to re"ei#e or re"o#er the amont de thereon from the parties
thereto$
! "holder in-due-course"
% 'holder in'doe'"orse'- on the other hand, is a person who for "onsideration be"ame the pos'
sessor of a negotiable instrment before the de date of pa!ment of that instrment #n&
withot ha#ing sffi"ient "ase to belie#e that an! defe"t e(isted in the title of the person from
whom he deri#ed his title$
Ths, where a person re"ei#es a negotiable instrment withot "onsideration, he ma! be a
holder bt will not be "alled as a holder in de "orse$
9. CERTAIN IMPORTANT CONCEPTS AND E0PLANATIONS
Am(ig+o+ Intr+m!nt #$ection %&' - the holder ma! at his ele"tion treat it as either and the
instrment shall be then"eforward treated a""ordingl!$
:)!r! Amo+nt i t#t!& &i,,!r!nt'$ in Fig+r! #n& :or& ;S!%tion 18< 8 the amont stated in
words shall be the amont nderta1en or ordered to be paid$
In%)o#t! Intr+m!nt ;S!%tion 2=< 8 It means an instrument that is incom(lete in certain res(ects$
:here one person signs and deli#ers to another person a dl! stamped negotiable instrments
#n& howe#er, that negotiable instrment is either wholl! blan1 or ha#ing written thereon$
S"h an instrment is ths in"omplete +in"hoate,$
The ma1er of the instrment has thereb! (rima facie athorises the holder thereof to ma1e or
"omplete, for an! amont therein ut not exceeding the amont "o#ered b! the stamp$
Lot or Sto'!n Intr+m!nt ;S!%. 78< 8 In s"h instan"es, the possessor or endorsee who has
fond or had obtained the instrment b! frad shall not be entitled to re"ei#e the amont de
thereon from s"h ma1er of the lost instrment$ +Exce(tion F when the later +finder, person is
holder in de "orse,$
Forg!& Intr+m!nt ' %s a general rle, a forged signatre does not "onfer a good title$ E#en a
holder in de "orse "annot "laim pa!ment on a forged instrment$
>. C1E4UE [Se"tion 9]
)eaning of a Cheque
% Che)e, in essen"e, is an order b! the "stomer of the ban1 dire"ting his ban1er to pa! on
demand, the spe"ified amont, to or to the order of the person named therein or to the bearer$ It
has been defined as a bill of e("hange drawn on a spe"ified ban1er and not e(pressed to be
pa!able otherwise than on demand$
% "Cheque in the electronic form" means a Che)e, whi"h "ontains the e(a"t mirror image of a
paper Che)e, and is generated, written and signed in a se"re s!stem ensring the minimm
safet! standards with the se of digital signatre +with or withot biometri"s signatre, and
as!mmetri" "r!pto s!stem$
% *truncated Cheque* means a Che)e whi"h is trn"ated dring the "orse of a "learing
"!"le, either b! the "learing hose or b! the 0an1 whether pa!ing or re"ei#ing pa!ment,
immediatel! on generation of an ele"troni" image for transmission, sbstitting the frther
ph!si"al mo#ement of the "he)e in writing$
Features of a Cheque
% Che)e is a bill of e("hange with following featres, #iD$,
+i, mst be in writing.
+ii, "ontain an n"onditional order to pa!
+iii, drawn on a spe"ified ban1er.
+i#, for a "ertain sm of mone!.
+#, the pa!ee mst be a definite person.
+#i, amont mst be written both in figres and words.
+#ii, it mst be dated$
+#iii, it is alwa!s drawn on a spe"ified ban1er. and
+i(, it is alwa!s pa!able on demand and not otherwise$
Cheques in electronic form
In #iew of the ban1ing transforming from traditional ban1ing to e'ban1ing, the ele"troni" form
or ele"troni" image of a Che)e as a #alid Che)e has also now been re"ogniDed [Negotiable
Instrments +%mendment, %"t, /@@/]$
+ating of cheques
The drawer of a Che)e is e(pe"ted to date it before it lea#es his hands$ % "he)e withot a
date is "onsidered in"omplete and is retrned npaid b! the ban1s$
% post'dated "he)e is as m"h negotiable as a "he)e for whi"h pa!ment is de, i$e$, the
transferee of a post'dated "he)e, li1e that of the "he)e on whi"h pa!ment is de, a")ires a
better title than its transferor, if he is a holder in de "orse$
Crossing of cheques
Crossing is a ni)e featre asso"iated with a "he)e affe"ting to a "ertain e(tent the
obligation of the pa!ing ban1er and also its negotiable "hara"ter$ It is a pe"liar method of
modif!ing the instrment to the ban1er for pa!ment of the "he)e$
Crossing on a cheque is a direction to the (aying an,er y the dra-er that (ayment should
not e made across the counter. The pa!ment on a "rossed "he)e "an be "olle"ted onl!
throgh a ban1er$
Crossing of a "he)e is effe"ted b! drawing two parallel trans#erse lines with or withot the
words 'and "ompan!' or an! abbre#iation thereof$ % "he)e that is not "rossed is "alled an
Copen "he)eC$
$ignificance of crossing
%s pa!ment "annot be "laimed a"ross the "onter on a "rossed "he)e, "rossing of "he)es
ser#es as a measre of safet! against theft or loss of "he)es in transit$
Ty(es of crossing
Crossing ma! be either
+1, /eneral ' to mean as where a "he)e bears a"ross its fa"e an addition of the words 'and
"ompan!' or an! abbre#iation thereof, between two parallel trans#erse lines or of two
parallel trans#erse lines simpl!, either with or withot the words 'not negotiable', that
addition shall be deemed a "rossing and the "he)e shall be deemed to be "rossed generall!
+/, $(ecial ' implies the spe"ifi"ation of the name of the ban1er on the fa"e of the "he)e
The ob7e"t of spe"ial "rossing is to dire"t the drawee ban1er to pa! the "he)e onl! if it is
presented throgh the parti"lar ban1 mentioned therein$ Ths, it ma1es the "he)e s!stem still
safer$
Not Negotiale Crossing
% person who ta1es s"h a "he)e shall not ha#e and shall not be "apable of gi#ing a better
title to the "he)e than that whi"h the person, from whom he too1 it in the first instan"e, had$
Ths, b! in"lding the words 'not negotiable', the "he)e is depri#ed of its spe"ial featre of
negotiabilit!$ % ban1, therefore, shold be e(tra "arefl in pa!ing s"h "he)es$
!ccount Payee Crossing #!0c Payee Crossing'
%n %H" pa!ee "rossing signifies that the drawer intends the pa!ment to be "redited onl! to the
pa!eeEs a""ont and in none else$ The addition of '%H" pa!ee' to a "rossing has no legal san"tit!
and the pa!ing ban1er ma! ignore s"h a dire"tion withot being liable for an! damages$
Not Negotiale, !0c Payee Crossing
The instrment is rendered not negotiable +ma1ing the 'pa!ing ban1er' responsible to see that
pa!ment is made to the person who is entitled to re"ei#e it, pls %H" pa!ee "rossing dire"ts the
"olle"ting ban1er to "olle"t it for the pa!ee onl!$
1ho can cross a cheque
% "he)e ma! be "rossed b! an! of the following2
1$ The drawer of a "he)e$
/$ The holder of a "he)e$
3$ The 0an1er, in whose fa#or the "he)e has been "rossed spe"iall!$
)ar,ing of cheques
Aar1ing or "ertifi"ation is a method adopted when the pa!ing ban1er #erifies the "stomer's
a""ont and indi"ates thereon that there are enogh fnds in his a""ont torn that "he)e$ [Sit#
R#m .. Bom(#$ B+''ion Ao%i#tion +1896,]$ Aar1ing onl! "ertifies the genineness of the
drawer's signatre and the sffi"ien"! of fnds$
)aterial alterations
%n alteration is material if it alters materiall! or sbstantiall! the operation of the instrment
and thereb! the rights and liabilities of the parties$
In A'&on .. Cornw#'', a material alteration was defined as *an alteration, whi"h alters the
bsiness effe"t of the instrment if sed for an! bsiness prpose$
E6'
+i, <ate.
+ii, The time of pa!ment.
+iii, The pla"e of pa!ment.
+i#,The sm pa!able.
+#, The nmber of parties.
+#i,The relationship between parties.
+#ii, Iegal "hara"ter of the instrment.
+#iii, Opening a "rossed "he)e.
+i(, Con#erting an order "he)e into a bearer "he)e$
It is immaterial as to who ma1es the alteration$ %n alteration made b! an otsider or stranger to
the instrment will be "onsidered as an alteration made b! the holder himself as it is the dt! of
the holder to preser#e the instrment, free from s"h forgeries$
Effect of )aterial !lteration
%n! material alteration of a negotiable instrment, whi"h has not been, "onsented to b! either
the drawee or the pa!ee is #oid as against them$
!lterations -hich are not material
+i, 3illing blan1s of the instrment.
+ii, Con#ersion of blan1 endorsement into endorsement in fll.
+ii, Crossing of "he)es.
+iii, %ltering a general "rossing into a spe"ial "rossing. addition of the words 'a""ont pa!ee'
negotiable' to a "rossing. and where a "he)e is "rossed spe"iall!, the ban1er to whom
"rossed, "rossing it spe"iall! to another ban1er, his agent for "olle"tion.
+i#, Can"eling the word bearer and ma1ing the "he)e pa!able to order. and
+#, %lteration made with the "onsent of the parties$
8. T1E PAYING BAN?ER
The 'pa!ing ban1er' is a term sed to denote the position and dties of the drawee'ban1s in
pa!ing "he)es of their "stomers$ Ths, 'pa!ing ban1er' is a ban1er pon whom a "he)e is
drawn$
<BTIES %N< ?ES-ONSI0IIITIES O3 % '-%JINK'0%NLE?'
The drawee of a "he)e ha#ing sffi"ient fnds of the drawer in his hands mst pa! the "he)e
when dl! re)ired so to do$ In defalt of s"h pa!ment, the pa!ing ban1 mst "ompensate the
drawer for an! loss or damage "ased b! s"h defalt
E6
In Ro'in .. St!w#r& it was held that e#en thogh the defalt arose throgh inad#erten"e, and
in fa"t the "he)e was sbse)entl! paid, the Cort will not award merel! nominal damages,
be"ase "redit of the "stomer was seriosl! affe"ted$ This wold be the "ase e#en if the
"stomer's a""ont was o#erdrawn bt the ban1er had agreed to pa! his "he)es on an
o#erdraft within "ertain limits$ [F'!ming .. B#n* o, N!w @!#'#n&]$
Protection in case of crossed cheques
% ban1er pa!ing the "he)es "rossed generall! to a ban1er or to the spe"ified ban1er, is
prote"ted e#en if it trns ot to be a pa!ment to a wrong pa!ee$
Payment in due course [Se"tion 1@]
-a!ment in de "orse means pa!ment in a""ordan"e with the apparent tenor of the instrment
made in good faith and withot negligen"e$ The! are as follows2 '
%. Payment must e in accordance -ith the a((arent tenor of the instrument
2. Payment must e made in good faith and -ithout negligence
3. Payment must e made to the (erson in (ossession of the instrument
4. Payment must e made to the (erson entitled to recei5e.
6. Payment must e made in money only$
1hen an,er must refuse (ayment
% pa!ing ban1er mst refse pa!ment on "he)es if an! of the following "ir"mstan"es e(ist2
1. :here the "stomer "ontermands the pa!ment +stopped b! the drawer,
/$ On re"eipt of a noti"e of "stomer's death
3$ On "stomer's be"oming insol#ent
5$ On re"eipt of a noti"e of the "stomer's insanit!
6$ On re"eipt of Karnishee order
6$ On assignment of Credit balan"e
;$ On sspi"ios misse b! trstee
1hen an,er may refuse (ayment
1$ :here the "he)e is post'dated$
/$ :here the fnds of the "stomer are insffi"ient$
3$ :here a "he)e is not dl! presented$
5$ Not properl! signed 7oint holders
6$ Aaterial alteration or irreglarit!
6$ -resented after #alidit! period
A. DIS1ONOUR OF A C1E4UE ON GROUNDS OF INSUFFICIENCY OF FUNDS
[Se"tions 13& to 15/]
Se"tion 13& to 15/ of the Negotiable Instrments %"t pro#ide for "riminal penalties in the
e#ent of dishonor of "he)es for insffi"ien"! of fnds$ The drawer, nder Se"$ 13&, ma! be
pnished with imprisonment pto / !ears +earlier I !ear, or with a fine p to twi"e the amont
of the "he)e or with both$ The enhan"ement in the penal pro#isions was made b! Negotiable
Instrments +%mendment, %"t /@@/ w$e$f$ 6$/$/@@3$
In order to attra"t the aforesaid penalties, following "onditions mst be satisfied2
#%'. 7nsufficiency of funds
The Corts ha#e held the following amonting to dishonor for insffi"ien"! of fnds2
+i, Stop'pa!ment instr"tions to the pa!ee'ban1 [ET B TD Cor"n. Lt&. .. I&
T!%)no'ogi! B Engro P. Lt&. +1889,]$
+ii, ?e)est to the pa!ee not to present the "he)e till frther information [Mo&i C!m!nt
Lt&. .. ?+%)i' ?+m#r N#n&i +188&,]$
+iii, Che)e re"ei#ed ba"1 from the pa!ee'ban1 with the remar1s '%""ont Closed' [G.M.
Mitt#' St#in'! St!!' .. N#g#rC+n# In.!tm!nt +188;, and N.E.P. C. Mi%on Lt&.
.. M#gn# L!#ing Lt&$ +1888,]$
#2'.Payment against an enforceale det
#3'. Cheque should e (resented to the (aying an, -ithin the 5alidity (eriod +generall! 9 months
from the date on whi"h it is drawn,
#4'. Payee to ser5e +efault Notice, demanding (ayment -ithin 38 days
#6'. +ra-er liale u(on failure to (ay -ithin 38 days9
:(on failure Com(laint in -riting; <ffence triale y %
st
)agistrate
The pa!ee ha#ing failed to re"ei#e the pa!ment within 3@ da!sC of noti"e of dishonor of the
"he)e, shall ha#e to ma1e a poli"e "omplaint in this regard$ This is a "ogniDable offen"e and
shall be tried b! a Aetropolitan Aagistrate or a Mdi"ial Aagistrate of the 3irst Class$
<ffences y com(anies
% dire"tor, manager, se"retar! or other offi"er of the "ompan! shall be liable to be pro"eeded
against and pnished a""ordingl! in "ase the offen"e has been "ommitted with the "onsent or
"onni#an"e, or is attribtable to an! negle"t on his part in this regard$ ' R#Cn!!) Agg#rw#' ..
Ani' B)#''# +/@@1,$
4owe#er, a (erson -ill not e liale in a "ase$
+i, where s"h person pro#es that the offen"e was "ommitted withot his 1nowledge, or
+ii, where he had e(er"ised all de diligen"e to pre#ent the "ommission of s"h offen"e.
+iii, where he is nominated as a <ire"tor of a "ompan! b! the Central Ko#ernment or
State Ko#ernment or finan"ial instittions$
-O:E? O3 COB?T TO T?J C%SES SBAA%?IIJ [SECTION 153]
This is a non-ostante "lase$ It o#errides the pro#isions "ontained in the Code of Criminal
-ro"edre, 18;3$ It has been now pro#ided that offen"es for dishonor of "he)es shall be tried
b! a Mdi"ial magistrate of the first "lass or b! a Aetropolitan Aagistrate$
In the "ase of smmar! trial, the ma(imm senten"e that ma! be passed b! the Aagistrate shall
be imprisonment for a term not e("eeding one !ear and an amont of fine not e("eeding fi#e
thosand rpees$
The trial shall, so far as pra"ti"able, "onsistent with the interests of 7sti"e, be "ontined from
da! to da!$
3rther, e#er! trial shall be "ond"ted as e(peditiosl! as possible and an endea#or shall be
made to conclude the trial -ithin six months from the date of filing of the "omplaint$
E#er! offen"e pnishable nder Negotiable Instrments %"t shall be "ompondable +Se"tion
15;,
1=. T1E COLLECTING BAN?ER
One of the prin"ipal fn"tions of a ban1er is to re"ei#e instrments from his "stomer in order
to "olle"t the pro"eeds and "redit them to his "stomer's a""ont$ :hen a"ting in this "apa"it!
he is "alled a *"olle"ting ban1er*$
:hile "olle"ting his "stomer's "he)es, a ban1er a"ts either2
#i' Ban,er as Holder for 5alue ' :hen, to oblige a "stomer, a ban1 pa!s the pro"eeds of a
"he)e drawn pon another ban1er, before "olle"tion, he is treated as a holder for #ale$
Similarl!, where, a "stomer pa!s in a "he)e and the ban1er e(pressl! or impliedl!
permits him to draw against it before it is "leared, the ban1er will be regarded as a holder
for #ale$
#ii' Ban,er as !gent ' % "olle"ting ban1er a"ts, as an agent of the "stomer if he "redits the
"stomer's a""ont with the amont of the "he)e after it is a"tall! realised$
+uties and res(onsiilities of a collecting an,er
<e Care and <iligen"e in Colle"tion of Che)es
-resentation for pa!ment b! the ne(t wor1ing da! after the re"eipt of the "he)es$
Noti"e of <ishonor
11. BIILS OF E0C1ANGE AND PROMISSORY NOTE
=inds of ills
0ills are of different 1inds$ Some of these are2
%. 7nland Bill
%n inland bill2
+a, mst be drawn and made pa!able in India, or
+b, mst be drawn in India pon a person resident in India althogh it ma! be pa!able otside
India$
E6'
N of 0omba! draws a bill on J of <elhi pa!able at Jor1shire +B$L$,$
2. Foreign Bills
% foreign bill of e("hange is
+a, drawn in India pon a person resident otside India and made pa!able otside India, or
+b, drawn otside India and pa!able in India$
E6'
N of 0omba! draws a bill of e("hange on J of Iondon pa!able at Iondon$
3. Trade and !ccommodation Bills
% trade bill is a bill of e("hange issed in respe"t of a genine trade transa"tion$
S"h bills are drawn b! the seller on the b!er in respe"t of pa!ment of the pri"e of the
goods sold and pr"hased$
Sin"e an a""ommodation bill is drawn and a""epted withot an! "onsideration, it
"reates no obligation of pa!ment between the parties to the transa"tion$
0t, howe#er, all ills are not genuine ills i$e., the! do not represent a trade
transa"tion bt are drawn as a "on#enient mode of a""ommodating a friend$
E6 ' Ths, N ma! be in need of mone! and approa"hes his friend J who instead of
lending mone! dire"tl!, draws and a""epts a bill of e("hange, sa!, for ?s$ 6,@@@$ If the
"redit of J is good it lends a "rren"! to the bill and it "an be dis"onted with the ban1ers
or an! other person$
On matrit!, N remits the amont with J who in trn pa!s it in honoring the bill of
e("hange on presentment$
Ths, it pro#ides an a""ommodation to the part! and is, therefore, "alled an
'%""ommodation 0ill'$ The langage and form of an a""ommodation bill is, howe#er,
similar to a genine trade bill$
4. Time Bills #:sance Bills'
Time bills, also "alled as san"e bills, are bills pa!able at a fi(ed period after date or sight
of the bills$ Ths, a bill of e("hange drawn pa!able at 3 months after the date it is drawn is
a time or san"e bill$
$imilarly, a bill drawn pa!able at 8@ da!s after sight is again a time or san"e bill$ % time
bill ma! also be made pa!able at a fi(ed period after an e#ent whi"h is "ertain to happen$
4en"e, a bill pa!able at 8@ da!s after the death of the drawer will be a #alid time bill$
6. +emands Bills
% bill of e("hange or a promissor! note is pa!able on demand when
+i, It is made pa!able 'on demand' or 'at sight' or 'on presentationE$
+ii, No time for pa!ment is mentioned therein +Se"tion 18,$
>. Clean and +ocumentary Bill
It is a "ommon pra"ti"e in home as well as foreign trade to deli#er to the ban1er
along with the bills of e("hange, the do"ments of title to the goods$ #E6- Iorr! ?e"eipt,
?ailwa! ?e"eipt or 0ill or Iading,$
:here the ban1er is instr"ted to deli#er to the drawee of the bill the do"ments of
title against a""eptan"e of the bill, the bill is "alled as <o"ments against %""eptan"e of
0ill +<H% 0ill, and where the do"ments are to be released onl! against pa!ment, it is
"alled as <o"ments against -a!ment ad 0ill +<I- 0ill,$
Parties to a Bill of Exchange
1$ The +ra-er ' the person who draws or ma1es the bill$
/$ The +ra-ee ' the person on whom the bill is drawn$
3$ The Payee ' the person to whom the amont of the bill is pa!able$
5$ The Holder ' is the original pa!ee bt where the bill has been endorsed, the endorsee$
6$ The endorser ' is the person who endorses a bill$
9$ The endorsee ' is the person to whom the bill is negotiated b! endorsement$
!cce(tor for Honour
%n a""eptor for honor is a person who, on the refsal b! the original drawee to a""ept the bill
or to frnish better se"rit! when demanded b! the notar!, a""epts the bill in order to safegard
the honor of the drawer or an! endorser$
%""eptor for honor mst spe"if! as to whose honor he is a""epting the bill of e("hange $
:here the a""eptor does not e(press for whose honor it is made, it shall be
Parties to ! Promissory Note
1$ The )a,er ' the person who ma1es the note promising 'to pa! the amont stated therein$
2. The Payee ' the person to whom the amont of the note is pa!able$
3. The Holder ' is either the original pa!ee or an! other person in whose fa#or the note been
endorsed$
4. The Endorser ' the person who indorses the note in fa#or of another person$
6. The Endorsee ' the person in whose fa#or the note is negotiated b! indorsement$
ACCEPTANCE
The a""eptan"e of a bill is the indi"ation b! the drawee of his assent to the order of the drawer$
It has been defined as the signatre of the drawee of a bill who has signed his assent pon bill
and deli#ered it or gi#en noti"e of s"h signing to the holder to some person on his behalf$
%n a""eptan"e to be #alid mst be
#a' in writing,
#' signed b! the drawee or his agent,
#c' on bill of e("hange, and
#d' "ompleted b! deli#er! to the holder or b! noti"e of a""eptan"e to him or some person on
his behalf [D#gCi.#n M#+Ci Eit)'#ni .. MF R#n%)#)o&# M!g)#Ci- 1856]
%n a""eptan"e of a bill ma! be general or )alified$
#a' /eneral !cce(tance
#' ?ualified !cce(tance
1ho may !cce(t
% bill of e("hange ma! be a""epted b! the following persons
+1, The drawee of the bill
+/, :here there are more than one drawees, b! all or some of them$
+3, % drawee in "ase of need$
+5, %n agent of an! of the person mentioned abo#e$
+6, %n a""eptor for honor$
+9, %n agent of the a""eptor for honor$
+;, In "ase no drawee is mentioned in the bill and a person a""epts it, he be"omes an acce(tor
y esto((el.
!cce(tance for Honour
:hen a bill of e("hange has been noted or protested for non'a""eptan"e or for better se"rit!
and an! person a""epts it spra protest for honor of the drawer or of an!one of the endorsers,
s"h person is "alled an a""eptor for honor$
%fter a""eptan"e of the bill b! the a""eptor for honor, the pa!ee, at the de date, has to
present the bill first to the drawee for pa!ment and if it is also dishonored for pa!ment b! the
drawee and noted or protested as the "ase ma! be it shold then be presented to the a""eptor
for honor for pa!ment$
PRESENTMENT
-resentment of a negotiable instrment is made for two prposes$
%. Presentment for acce(tance ' It is onl! bills of e("hange that re)ire presentment for
a""eptan"e and that too not all bt "ertain 1ind of bills onl!$ 0ill pa!able on demand or on a
fi(ed date need not be presented for a""eptan"e$
2. Presentment for (ayment ' % negotiable instrment mst be presented for pa!ment to the
ma1er, a""eptor or drawee, thereof, as the "ase ma! be, b! the holder or his agent$
DIS1ONOUR
%. +ishonour y Non-!cce(tance #Se"tion 81,
+I, :hen the drawee does, not a""ept it within 5& hors from the time of presentment for
a""eptan"e.
+/, when presentment for a""eptan"e is e("sed and it remains na""epted.
+3, when the drawee is a person in"ompetent to "ontra"t.
+5, when the drawee "old not be fond after a reasonable sear"h$
+6, where the a""eptan"e is )alified.
+9, where one or more of the se#eral drawees refse to a""ept the bill$
2. +ishonour y Non-Payment
Notice of +ishonour
:hen a negotiable instrment is dishonored b! non'a""eptan"e or non'pa!ment, the holder
mst gi#e noti"e of dishonor to the drawer and all other parties whom he see1s to ma1e liable$
Ea"h part! re"ei#ing noti"e of dishonor mst in order to render an! prior part! liable to
himself gi#e noti"e of dishonor to s"h part! within a reasonable time after he has re"ei#ed it$
The noti"e ma! be oral or in writing thogh for safet! it is ad#isable to gi#e a written noti"e$
Notice of dishonour unnecessary
+1, :hen it is &i"!n!& wit) ($ t)! "#rt$ entitled thereto$
+/, :hen the "#$m!nt )# (!!n %o+nt!rm#n&!& b! the drawer or endorser$
+3, :hen the "#rt$ %)#rg!& %o+'& not +,,!r &#m#g! ,or w#nt o, noti%!$
+5, :hen the "#rt$ !ntit'!& to noti%! %#nnot #,t!r r!#on#('! !#r%) (! ,o+n&$
+6, :here the "#rt$ 'i#('! to gi.! noti%! i +n#('!, withot an! falt of its own, to gi#e it,
e$g$ death or serios illness of the holder or his agent or an! other a""ident$
+9, :here the "romior$ not! i not n!goti#('!$
+;, In "ase the &r#w!r )im!', i #%%!"tor, no noti"e is ne"essar! to "harge the drawer$
+&, :hen the "#rt$ !ntit'!& to noti%!- *nowing t)! ,#%t- "romi! +n%on&ition#''$ to "#$
the amont de on the instrment$
NOTINK
Noting is a "on#enient method of athenti"ating the fa"t of dishonor$ :here an instrment is
dishonored, the holder, besides gi#ing the abo#e noti"e, shold get the bill or promissor! note
'noted' b! the notar! pbli"$
The notar! pbli" presents the instrment, notes down in his register date of its dishonor and
the reason, if an!, gi#en b! the a""eptor$ If the instrment has been e(pressl! dishonored, the
reason wh! the holder treats it as dishonored and the notar!'s "harges shold be metioned$
'Noting' mst be made within a reasonable time after dishonor$
Noting is not com(ulsory in the "ase of an inland bill or note, bt foreign bills mst be
protested, if s re)ired b! the law of the pla"e where drawn$
PROTESTING
The protest is the formal notarial "ertifi"ate attesting the dishonor of the bill and based pon
the noting$ %fter the noting has been made, the formal protest ma! be drawn p b! the notar!
at his leisre$ :hen the protest is drawn p it relates ba"1 to the date of noting$
% protest to be #alid mst "ontain the following parti"lars2
1$ The instrment itself, or a literal trans"ript thereof$
/$ The names of the parties against whom the instrment is protested$
3$ The fa"t and reasonHreasons for dishonor$
5$ -la"e and time of dishonor or refsal to gi#e better se"rit!$
6$ Signatre of the notar! pbli"$
6$ In the e#ent of an a""eptan"e for honor or of a pa!ment for honor, the name of the person
b! whom or the person for whom, and the manner in whi"h, s"h a""eptan"e or pa!ment
was offered and effe"ted$
COMPENSATION
Com(ensation to holder
The holder is entitled to the amont de pon the instrment with interest pls the e(penses
properl! in"rred in noting and protesting it$
Com(ensation to Endorser
If an endorser of a bill has paid the amont de thereon, he is entitled to the amont so paid
pls e(penses with interest O 9 per "ent per annm from the date of his pa!ing to the date of
his re"ei#ing ba"1 amont$
Com(ensation against an,er
Compensation that ma! be "laimed in"lde damages to "redit and reptation of the drawer, and
the Cort wold normall! award e(emplar! or #indi"ti#e damages$
12. 1UNDIS
4ndis are instrments written in an oriental langage$ The word 'hndi' appears to ha#e been
deri#ed, from the Sans1rit wor1 'hnd' whi"h means 'to "olle"t'$ These hndis were, therefore,
originall! sed for the "olle"tion of debts$ 4ndis ha#e been in "ir"lation in India from #er!
earl! times, long before the Negotiable Instrment %"t, 1&&1$
It is to be noted that The Negotiable Instrments %"t does not a((ly to hundis, bt where, b!
an! words in the instrment itself, the sages regarding s"h instrments are e("lded, or
where it is e(pressl! indi"ated that the legal relations of the parties thereto shall be go#erned
b! the Negotiable Instrments %"t 1&&1, the %"t be"omes appli"able$ In the absen"e of an! of
the abo#e indi"ations, hndis shall be go#erned b! lo"al sages appl!ing to s"h do"ments
[?#n)$#'#' .. R#m*+m#r, 1869]$
=inds of hundis
$hah-@og Hundi ' % Shah'7og hndi is drawn b! one mer"hant on another as1ing the latter to
pa! the said hndi to a 'Shah'$ 'Shah' is a respe"table and responsible person, a man of worth
and 1nown in the baDar$
+arshni Hundi +pa!able at sight, ' % darshni hndi mst be presented for pa!ment within a
reasonable time after its re"eipt b! the holder$
)uddati Hundi or )iadi Hundi F 4ndi pa!able agter a spe"ified period of time$
Nam @og Hundi - % hndi pa!able to the spe"ified person is "alled Nam'7og hndi.
Nishan.@og Hundi This hndi is pa!able onl! to the persons who presents it$
+hani.@og Hundi- % dhani'7og hndi is pa!able to a dhani, owner$
Firman-@og and +e,hanhar Hundis F There are pa!able to order.