NEGOTIABLE INSTRUMENTS ACT 1881

Came into Force on 1st March 1882; Total Sections: 147. Total Amendments: 23- last one in 2002. Imp. Sec. Related to Banking: 56 3 to 18,20,22 to 25,26,31,45(A),63,83,85,85(A),87,91,92,99 to 101,118,119,123 to 131, 131(A),138 to 147 WISH YOU ALL A VERY HAPPY LEARNING From: B.J.VED
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Sec.3: Banker Not Defined

Banker includes any person acting as a banker and any post office savings bank.

Sec. 5 (b) of BRA 1949 defines Banking & Sec .5 (c ) defines Banking Company
5(b) Banking :- Accepting for the purpose of lending or investment, of deposits of money from public, repayable on demand or otherwise and withdrawable by cheque , draft, order or otherwise. 5 (c ) Banking Company:- Means any Company which transacts the business of Banking in India.

Sec.13(1): Negotiable Instrument : means Promissory Notes, Bill of Exchange and Cheque payable either to order or to bearer .
Sec.13(2): N.I. may be made payable to two or more payees jointly', or one of two or one or some of several payees. Sec.14: Negotiation : When P/N,B/E or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated.

ESSENTIAL FEATURES OF NEGOTIABILITY 1. OWNERSHIP PASSES BEARER BY DELIVERY ONLY & ORDER BY ENDORSEMENT AND DELIVERY. 2. TRANSFEREE OF N.I., FULFILLING CONDITIONS OF BEING HOLDER IN DUE COURSE(SEC.9 OF N.I. ACT) GETS BETTER TITLE THAN TRANSFEROR. 3. HOLDER IN DUE COURSE CAN SUE UPON N.I. IN HIS OWN NAME.
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Sec.4: Promissory Note: (a) In writing (b) signed by maker ( c) not being bank note or currency note (d) containing unconditional undertaking (e) to pay a certain sum of money only (i) to a certain person (ii) to the order of certain person (iii) to the bearer of the instrument (RBI Act Sec.31 Restricts any person except RBI or Central Govt.) (A) Two Parties Promisor & Promisee (B) Does not require acceptance. ( C) Demand P/N or usance P/N. (D) Cannot be Crossed. (E) Usance P/N Entitled for Days of Grace.

Sec.5: Bill of Exchange (a)In writing (b) signed by maker (c ) unconditional order (d) directing a certain person (e)To pay a certain sum of money only (i) to a certain person or his order (ii) to the bearer (refer Sec.31 of RBI Act) (A)Three Parties Drawer, Drawee and Payee (B)Usance Bill requires acceptance and entitled for days of grace. (C) Cannot be crossed (D)Can be drawn in sets
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Three Explanations (Sec.4 P/N & Sec.5 B/E) (A)Promise not conditional on occurrence of specified event which is certain to happen though the time may not be certain e.g. death. (B) Sum is certain which includes interest and when on default of installment, balance unpaid shall become due. ( C) Certain Person Although he is mis-named or designated by description only.

Sec.6: Cheque If a B/E drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes (i) The electronic image of a truncated cheque and (ii) A cheque in the electronic form (A)Three Parties drawer, specified banker and payee (B)Unconditional order to a specified banker (C)Cannot be drawn in sets (D)Can be crossed (E)Does not require acceptance (F)Not entitled to the days of grace (G)No stamp duty required

Sec.7 : Six Definitions: Drawer, Drawee, Payee, Acceptor, Drawee In Case of Need & Acceptor For Honour Drawee in case of Need When n the bill or in any endorsement there on, the name of any person is given in addition to the drawee to be resorted in case of need. Acceptor for Honour When a B/E has been noted or protested for non-acceptance or for better security and any person accepts it supra protest for honour of drawer or any endorser

Sec.8: Holder (P/N,B/E or Cheque) Any person entitled in his own name to the possession there of and to receive and recover amount due there in from the parties thereto. When the note, bill or cheque is lost or destroyed,its holder is the person so entitled.
Sec.9: Holder In Due Course Holder+ for consideration+ before maturity + without having doubt about defect in title of the person from whom the title is received.
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Sec.10 : Payment in Due course

1.Payment in accordance with apparent tenor of the instrument. 2.In good faith. 3.Without negligence. 4.Without doubt in the title of the presenter to receive payment.

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Sec.11: 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 India, Shall be deemed to be an inland instrument. Sec.12: Foreign Instrument Not so drawn made or made payable shall be deemed be an inland instrument.
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Sec.15: Indorsement (P/N, B /E & Cheque) Maker or Holder-signs-purpose of negotiation on back or face or slip of paper annexed Thereto (allonge) or a stamped document said to indorse & called indorser

Sec.16: Indorsement in Blank & Indorsement in Full Indorsee Other Types of Indorsements (a)Restrictive Indorsement (b)Sans Recourse (Without Recourse) Indorsement (c)Conditional Indorsement (d)Facultative Indorsement
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Sec.17: Ambiguous Instrument: Instrument construed either as a P/N or B/E, the holder may at his election treat it as either & the instrument shall be thence forward treated accordingly. Sec.18: Amount in Words & Figure Differ: Amount in words undertaken or ordered to be paid. Sec.20: Inchoate Stamped Instrument: One person signs & delivers-N.I. duly stamped wholly blank or incomplete-gives prima facie authority to holder to complete drawer liable to any holder in due course.
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Sec.22 to 25: Calculation of Maturity Period of P/N & B/E.

Sec.22: Maturity - Falls due for payment uance P/N or B/E 3days of grace unless expressly prohibited. Sec.23: Period in Months - Corresponding day in corresponding month. If no corresponding date then last day of the month. Sec.24: Period in Days Day of date or presentation for acceptance or sight shall be excluded.

Sec.25: When day of maturity is holiday (State Govt.) Next preceding business day.

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Sec.26: A minor may draw, indorse, deliver and negotiate such instrument so as to bind all parties except himself.
A minor can be a drawer or indorser of the negotiable instrument. The instrument is valid and can be negotiated binding all the parties under the instrument except the minor.
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Sec.31: Liability of Drawee of Cheque (Bank) Drawee having sufficient funds of drawer- properly applicable must pay In default compensate the drawer. Sec.45(A): Holders Right to duplicate of lost bill Lost before overdue on security or indemnity by holder entitled to duplicate bill. Sec.63: Drawees time for deliberation before acceptance -48-hours excluding public holidays Sec.83:Allowing Drawee more than -48-hours Holder allowing - previous parties not consenting get discharged.
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Sec.85 & Sec.85(A): Protection To Paying Banker In Respect of Cheques (Open or Crossed) & Demand Draft 85(1): Where a cheque payable to order purports to be indorsed by or on behalf of the payee, the drawee is discharged by payment in due course.

85(2): Where a cheque is originally expressed to payable to bearer, the drawee is discharged by payment in due course to the bearer thereof irrespective of Indorsements. (For payment in due course for 85(1) &(2) refer Sec.10 N.I.Act) Regular indorsement correct indorsement. 85(A): Protection in respect of Demand Draft (Always Order)
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Sec.87 : Material Alteration & Effect Not defined in Act. Any alteration if material which would alter the business effect of the instrument, if used for any such business purpose e.g. Alteration in date , amount, payee's name, place or time of payment, order to bearer, cancelling crossing etc,if not authenticated properly, renders instrument void. Material Alterations Authorized Do not require authentication (1)Crossing an open cheque /Gen.Cross.to Sp.Cross. (2)Converting bearer into order (3)Completing an Inchoate Instrument(Sec.20) (4)Converting blank endorsement into full endorsement.

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Sec.91 & Sec.92: Dishonour by nonacceptance & by non-payment. When the drawee or one of the several drawees (not partners) makes default in acceptance where drawee is incompetent to contract or acceptance is qualified -Bill may be treated as dishonoured for -non-acceptance. When maker of the note, acceptor of bill or drawee of cheque makes default in payment dishonoured for non-payment.
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Sec.99, 100 & 101: Noting, Protest & Protest for better security. When P/N or B/E is dishonoured by non-acceptance or non-payment - holder notary public upon instrument (Noting) or certificate by notary public (Protest). When acceptor of B/E has become insolvent or his credit is publicly impeached before maturity of bill notary to issue certificate called protest for better security. Bills dishonoured by non-acceptance & payable at some other place than the residence of drawee, be protested for non-payment further presentment not necessary. Inland Bills (Sec.11) may be got noted. Foreign Bills (Sec.12) require protest.
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Sec.118: Presumption as to Negotiable Instruments: Until contrary is proved

(a)Of consideration made or drawn for consideration. (b)As of date made or drawn on such date. (c)As to time of acceptance accepted within a reasonable time after its date & before maturity. (d) As to time of transfer made before maturity. (e) As to order of indorsement order in which they appear thereon. (f) As to stamp (lost instrument) duly stamped. (g) That holder is a holder in due course.
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Sec.123 to Sec127: Of Crossed Cheques

(A)General Crossing: Cheque bearing two parallel transverse lines across its face with or without words and company and not negotiable. (B) Special Crossing: Cheque bears across the face name of a banker with or without words not negotiable - crossed to that banker. Banker on whom cheque drawn crossed generally shall not pay it otherwise than to a banker and specially to that banker or his agent for collection. Holder may cross uncrossed cheque generally or specially. Banker to refuse payment of cheque crossed specially to more than one banker.

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Sec. 128 & Sec.129 : Payment In & Out of Du Course of Crossed Cheques: Drawee bank making payment of cheque drawn generally to any banker & drawn specially to specified banker or its agent, bank & drawer are absolved of liability. Payment otherwise, drawee bank liable to true owner of any loss.

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Sec.130: Cheque bearing not negotiable

A person taking a cheque crossed generally or specially bearing in either case the words not negotiable shall not have & shall not be capable of giving better title to the cheque than that which from whom he took it has. A/c Payee Crossing: Not defined by Banking Practice Notice to collecting banker to collect for named payee. Otherwise liable for conversion.
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Sec.131 & Sec.131(A): Protection to Collecting Banker: Non-liability of banker receiving payment of cheque & draft A banker collecting (1) Crossed cheque (2) For a customer -person having duly introduced deposit account (3) in good faith (4 ) without negligence shall not incur any liability to true owner even if title to the cheque proves defective. Expl.1: Collecting bank may credit payment before receiving it. Expl.2: Collecting bank duty bound to verify prima facie genuineness of electronic mage of truncated cheque held with him. Fraud, forgery or tampering to be Verified with due diligence & ordinary care.

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Sec.138 to 147: Liability of drawer of cheque returned for insufficiency of funds or exceeding arrangement

Conditions: (1) For consideration or payment of debt or liability. (2) Presented within validity period. (3) Notice of dishonour to drawer within 30 days. (4) Payment not received within 15 days after receipt of notice. (5) Written complaint in Metropolitan Magistrate Court or Judicial Magistrate Court of first class within one month of cause of action arising.
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Sec. 138 to 147: Penalties & other provisions

(1)Two years of imprisonment or twice the amt. of chq. or both. (2)Partner & responsible person in Co. liable for offence. (3)Central Govt./ State Govt./F.I. nominee not liable for prosecution. (4)Summons by speed post or approved courier by court. (5)Refusal to accept summons presumed having been served. (6)Bankers slip or memo presumed fact of dishonour unless disproved. (7)Every offence punishable under this act shall be compoundable.

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Rights of Holder In Due Course ( Sec.9) under N. I. Act: (Sec.20,42,53,58,121 & 122 + Sec.118,36 & 46)
1. Inchoate stamped instruments (Sec.20). 2. Acceptance of Bill drawn in fictious name (Sec.42) : Acceptor fictious not relieved from liability to any holder in due course. 3. Holder deriving title from holder in due course (Sec.53). 4. Prior defects (Sec.58) : Party liable to pay cannot raise objection against holder in due course that he had lost or obtained through fraud or unlawful consideration. 5. Estoppels for denying original validity of instrument (Sec.120): Maker of note, drawer of B/E or chq. & acceptor for honour suit filed by holder in due course - cannot deny validity of original instrument. 6. Estoppels against denying capacity of payee to indorse (Sec.121). 7. Sec.118: Presumption that the holder of N.I. is a holder in due course. 8. Sec.36: Defense of accommodation acceptance cannot be set up against holder in due course. 9. Sec.46: Other parties to the bill cannot avoid liability to holder in due course on the ground that instrument was conditional or for special purpose.

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When holder is not holder in due course.

1. Chq. Crossed Not Negotiable (Sec.30). 2. Forgery of drawers signature. 3. When instrument after noted for non payment negotiated holder cannot claim to be holder in course. When Banker can refuse payment even though having sufficient money in the account a. Post dated or stale chq. b. Payment counter manded. c. Signature defers d. Customer has died / notice regarding insolvency/ unsound mind received. e. Garnishee order is served.
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Who can cross a cheque ? 1.Drawer before issue. 2.Holder, Holder may convert general crossing into special crossing. 3. Cheque crossed specially, the banker to whom crossed can to other bank as his agent for collection. When bill may be treated as dishonoured for non acceptance? 1.Drawee is fictious 2.Drawee cannot be found 3.Acceptance refused 4.Drawee dead / insolvent / insane. 5.Drawee does not accept bill within 48 hrs.
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A/C PAYEE CROSSING

Not defined in N.I. Act. Direction by drawer to collecting banker to collect it for the named payee only. If collected for any person other than named payee, banker may be held liable for CONVERSION a wrong in Law Of Torts.

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A BIG THANK YOU TO ALL

B.J. VED

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