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Prof.

Mayur Malviya

NEGOTIABLE INSTRUMENTS ACT


The word 'negotiable' means transferable from one person to another. The term 'instrument' means 'any written document by which a right is created in favor of some person. Thus, the negotiable instrument is a document by which rights vested in a person can be transferred to another person in accordance with the provisions of the Negotiable Instruments Act, 1881.
Prof. Mayur Malviya

Negotiable instruments
The term 'negotiable instrument' has been defined as - A 'negotiable instrument' means a promissory note, bill of exchange or cheque payable either to order or to bearer." Negotiable instruments, such as bills of exchange, promissory notes or cheques are pieces of paper representing the ownership of debts and obligations and are used to settle the debt by an exchange or transfer of credit without the need for cash.
Prof. Mayur Malviya

PROMISSORY NOTE [Section 4]

Definition A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money to, or to the order of, a certain person or to the bearer of the instrument Examples of Promissory Notes A signs instruments in the following terms: "I acknowledge myself to be indebted to 'B' in Rs. 1000, to be paid on demand, for value received."
Prof. Mayur Malviya

SPECIMENS OF PROMISSORY NOTES


Bombay, 10th January, 1998 Rs. 5,000/ON DEMAND I Promise to pay WILLIM JONES THE SUCM OF FIVE THOUSAND RUPEES. Sd/- Henry Brown Bombay, 10th January, 1998 ON DEMAND I Promise to pay MOHAN LALVANI the sum of Rs. 5,000/- (RUPEES FIVE THOUSAND ONLY) FOR VALUE RECEIVED.. Sd/- SATISH GANDHI Bombay, 10th January, 1998 ON DEMAND I promise to pay JOSEPH DE SOUZA or order the sum of five thousand rupees with interest on the said sum at 10% (ten percent) per annum till payment. Sd/- PAUL FERNANDES

A promissory note cannot be made payable to the maker himself. Thus, a note in the form, I promise to pay myself is not a promissory note; but such a note becomes valid if it is endorsed by the maker, because then it becomes payable to bearer, if endorsed in blank, or to the endorsee or to, if specially endorsed.

Prof. Mayur Malviya

CHARACTERISTICS OF PROMISSORY NOTE


In writing - A promissory note must be in writing. Writing includes print and typewriting. Promise to pay - It must contain an undertaking or promise to pay. Thus, a mere acknowledgement of indebtedness is not sufficient. Notice that the use of the word `promise' is not essential to constitute an instrument as promissory note. Unconditional - The promise to pay must not be conditional. Thus, instruments payable on perfor-mance or non-performance of a particular act or on the happening or non-happening of an event are not promissory notes. Signed by the Maker The promissory note must be signed by the maker, otherwise it is of no effect. Certain Parties - The instrument must point out with certainty the maker and the payee of the promissory note. Certain sum of money - The sum payable must be certain or capable of being made certain.

Prof. Mayur Malviya

CHARACTERISTICS OF PROMISSORY NOTE


Promise to pay money only - If the instrument contains a promise to pay something in addition money, it cannot be a promissory note. Number, place, date etc - These are usually found in a promissory note but are not essential in law. If a promissory note does not bear a date, it is deemed to have been made when it was delivered. It may be payable in installments It may be payable on demand or after a definite period - Payable 'on demand' means payable immediately or any time till it becomes time-barred. A demand promissory note becomes time barred on expiry of 3 years from the date it bears. It cannot be made payable to bearer on demand or even payable to bearer after a certain period It must be duly stamped under the Indian Stamp Act - It means that the stamps of the requisite amount must have been affixed on the instrument and duly cancelled either before or at the time of its execution.

Prof. Mayur Malviya

BILL OF EXCHANGE

A 'bill of exchange' is defined by as an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of, a certain person, or to the bearer of the instrument.
Prof. Mayur Malviya

CHARACTERISTIC FEATURES OF A BILL OF EXCHANGE

1. It must be in writing. 2. It must contain an order to pay and not a promise or request. 3. The order must be unconditional. 4. There must be three parties, viz., drawer, drawee and payee. 5. The parties must be certain. 6. It must be signed by the drawer. 7. The sum payable must be certain or capable of being made certain. 8. The order must be to pay money and money alone. 9. It must be duly stamped as per the Indian Stamp Act. 10. Number, date and place are not essential.

Prof. Mayur Malviya

SPECIMENS OF BILL OF EXCHANGE


Bombay, 20th January, 1998 Bombay, 10th January, 1998 Rs. 5000/Sixty Days after date, pay to William Smith, the sum of five thousand rupees only for value received. To Paul Jacobson, 40, Mahatma Gandhi Road, Bombay 400 023. Rs. 5000/Sixty Days after date pay to John Smith, or order, the sum of Rupees Five thousand only for value received. Sd/- RAM GHELACHAND To Paul Jacobson, 40, Mahatma Gandhi Road, Bombay 400 023.

SPECIMENS OF ACCEPTANCE OF A BILL OF EXCHANGE


Bombay, 20th January, 1988 Bombay, Rs. 5000/ON Demand Pay to William Smith, the sum of Rupees five thousand only for value received. Sd/- RAM GHELACHAND To Paul Jacobson, 40, m. Gandhi Road, Bombay 400 023. On Demand pay to William Smith the sum of five thousand rupees only for value received Accepted : S/d- Paul Jacobson To Paul Jacobson, Sd/40, m. Gandhi Road, Bombay 400 023. Prof. Mayur Malviya 20th January, 1988 Rs. 5000/-

Accepted : S/d- Paul Jacobson

HENRY BROWN

CHEQUE
A cheque is defined as 'a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Thus, a cheque is a bill of exchange with two added features: (i) it is always drawn on a specified banker; and (ii)it is always payable on demand and not other-wise.
Prof. Mayur Malviya

SPECIMEN OF CHEQUE
BANK OF INDIA A/C No. 1001 BOMBAY 20th January, 1998 No. SB 7007007 Pay to William Smith or Bearer Rupees Five Thousand Only.

Rs. 5,000/Sd/- Henry Brown 123456

SPECIMENS OF CROSSED CHEQUE

BODY OF THE CHEQUE

BODY OF THE CHEQUE

BODY OF THE CHEQUE Prof. Mayur Malviya

BODY OF THE CHEQUE

DIFFERENCE BETWEEN CHEQUE AND BILL OF EXCHANGE


Cheque Bill of Exchange

1. It must be drawn only on a banker. 2. The amount is always payable on demand. 3. The cheque is not entitled to days of grace. 4. Acceptance is not needed. 5. A cheque can be crossed 6. Notice of dishonour is not necessary. The parties thereon remain liable, even if no notice of dishonor is given. 7. A cheque is not to be noted or protested in case of dishonor. 8. The protection given to the paying banker in respect of crossed cheques is peculiar to this instrument.

1) It can be drawn on any person including a banker. 2) The amount may be payable on demand or after a. specified time. 3) A usance (time) bill is entitled to three days of grace. 4) A bill payable after sight must be accepted. 5) Crossing of a bill of exchange is not possible. 6) Notice of dishonor is necessary to hold the parties liable thereon. A party who does not receive a notice of dishonor can generally escape its liability thereon. 7) A bill is noted or protested to establish dishonor. 8) No such protection is available in the case of bills.

Prof. Mayur Malviya

DIFFERENCE BETWEEN PROMISSORY NOTE AND BILL OF EXCHANGE


Promissory Note Bill of Exchange

There are only two parties the maker (debtor) and the payee (creditor). A note contains an unconditional promise by the maker to pay the payee. No prior acceptance is needed. The liability of the maker or drawer is primary and absolute. No notice of dishonour need be given. The maker of the note stands in immediate relation with the payee.

There are three parties the drawer, the drawee and the payee- although any two of these capacities may be filled by one and the same person. It contains an unconditional order to the drawee to pay according to the drawer`s directors. A bill payable `after sight` must be accepted by the drawee or his agent before it is presented for payment. The liability of the drawer is secondary and conditional upon non-payment by the drawee. Notice of dishonour must be given by the holder to the drawer and the intermediate endorsers to hold them liable thereon. The maker or drawer does not stand in immediate relation with the payee.

Prof. Mayur Malviya

A Promissory note when endorsed becomes a bill of exchange. A cheque is a on demand instrument. There is no grace period given to cheque. Maturity of an instrument is the date on which it falls due. Instrument marked at sight or on presentment means on demand.
Prof. Mayur Malviya

Dishonour of bill
Dishonour by Non acceptance Dishonour by Non payment

Prof. Mayur Malviya

Dishonor by Non-Acceptance (Section 91)


When the drawee does, not accept it within 48 hours from the time of presentment for acceptance; when presentment for acceptance is excused and it remains unaccepted; when the drawee is a person incompetent to contract; when the drawee could not be found after a reasonable search. where the acceptance is qualified; where one or more of the several drawees refuse to accept the bill.
Prof. Mayur Malviya

Dishonour by non- payment


When Maker of the note, Acceptor of the bill Drawee of the cheque makes default in payment upon being duly required to pay the same on maturity or on demand.

Prof. Mayur Malviya

Important terms and definitions of the act


Holder (sec.8) Holder in due course (Sec.9) Drawer and drawee in case of need. (sec.7) Payee Acceptor Acceptance for honour (sec.7) Payment for Honour (Sec.113) Indorsement Presentment Presentment for acceptance Presentment for payment. Notice of dishonour (Sec.91-98)

Prof. Mayur Malviya

Dishonor of cheques
Section 138 to 142 of the Negotiable Instruments Act provide for criminal penalties in the event of dishonor of cheques for insufficiency of funds. The drawer, under Sec. 138, may be punished with imprisonment upto 2 years (earlier 1 year) or with a fine up to twice the amount of the cheque or with both In order to attract the aforesaid penalties, following conditions must be satisfied: (1) Insufficiency of funds (2) Payment against an enforceable debt (3) Cheque should be presented to the paying bank within the validity period (generally 6 months from the date on which it is drawn) (4) Payee to serve Default Notice, demanding payment within 30 days (5) Drawer liable upon failure to pay within 30 days
Prof. Mayur Malviya

NOTING
Noting is a convenient method of authenticating the fact of dishonor. Where an instrument is dishonored, the holder, besides giving the above notice, should get the bill or promissory note 'noted' by the notary public. The notary public presents the instrument, notes down in his register date of its dishonor and the reason, if any, given by the acceptor. If the instrument has been expressly dishonored, the reason why the holder treats it as dishonored and the notary's charges should be mentioned. 'Noting' must be made within a reasonable time after dishonor. Noting is not compulsory in the case of an inland bill or note, but foreign bills must be protested, if it is required by the law of the place where drawn.
Prof. Mayur Malviya

PROTESTING
The protest is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. After the noting has been made, the formal protest may be drawn up by the notary at his leisure. When the protest is drawn up it relates back to the date of noting. A protest to be valid must contain the following particulars: 1. The instrument itself, or a literal transcript thereof. 2. The names of the parties against whom the instrument is protested. 3. The fact and reason/reasons for dishonour. 4. Place and time of dishonour or refusal to give better security. 5. Signature of the notary public. 6. In the event of an acceptance for honour or of a payment for honour, the name of the person by whom or the person for whom, and the manner in which, such acceptance or payment was offered and effected.

Prof. Mayur Malviya

Types of bill
Accomodation bill Fictitious bill Escrow Foreign bills

Prof. Mayur Malviya

Discharge of Parties from liabilities in NIA


By Payment Cancellation Waiver Qualified acceptance Delay in presentment Material alteration Operation of law Insolvency, court verdict.
Prof. Mayur Malviya

Best of luck for your exams!!


Prof. Mayur Malviya