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8/9/2019 18269848 the Negotiable Instruments Act 1881
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The Negotiable InstrumentsThe Negotiable Instruments
Act ,1881Act ,1881
-
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HistoryHistory
A law relating to negotiable instruments
Deals with promissory notes, bills of
exchange & chequesAct extends to whole of India
The Act came into existence on 1st March,1882
The latest amendment to the act wasmade in 1988
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Object of the ActObject of the Act
TheThe mainmain objectobject ofof thethe NegotiableNegotiable InstrumentsInstruments ActAct isis toto
legaliselegalise thethe systemsystem byby whichwhich instrumentsinstruments contemplatedcontemplated byby itit
couldcould passpass fromfrom handhand toto handhand byby negotiationnegotiation likelike anyany otherother
goodsgoods.. TheThe purposepurpose ofof thethe ActAct waswas toto presentpresent anan orderlyorderly andand
authoritativeauthoritative statementstatement ofof leadingleading rulesrules ofof lawlaw relatingrelating toto thethe
negotiablenegotiable instrumentsinstruments..
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IntroductionIntroduction
What is a negotiable Instrument?
A negotiable instrument is the one whichtransfers a debt from one person toanother.
Special class of contracts.
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CharacteristicsCharacteristics
Freely transferable
Title of holder free from all defects
Recovery Presumptions: Consideration, date, time,
time of acceptance & transfer, order ofindorsements , stamp, holder is a holder indue course, proof of protest
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Notes Bills & ChequesNotes Bills & Cheques
Promissory Note :Promissory Note : --
A promissory note is an instrument in writing (not aA promissory note is an instrument in writing (not a
bankbank--note or a currencynote or a currency--note) containing annote) containing anunconditional undertaking, signed by the maker, to payunconditional undertaking, signed by the maker, to paya certain sum of money only to, or to the order of, aa certain sum of money only to, or to the order of, acertain person, or to the bearer of the instrument.certain person, or to the bearer of the instrument.
Parties Involved:Parties Involved: -- MakerMaker
PayeePayee
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Essentials of Promissory noteEssentials of Promissory note
Must be in writingMust be in writing
Promise to payPromise to pay
Definite & unconditionalDefinite & unconditional
Signed by the makerSigned by the maker
Certain partiesCertain parties
Certain sum of moneyCertain sum of money
Promise to pay only moneyPromise to pay only money No bank note or currency noteNo bank note or currency note
Other formalitiesOther formalities
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Bill ofExchangeBill ofExchange
A bill of exchange is an instrument in writingA bill of exchange is an instrument in writingcontaining an unconditional order, signed by thecontaining an unconditional order, signed by the
maker, directing a certain person to pay amaker, directing a certain person to pay acertain sum of money only to, or to the order of,certain sum of money only to, or to the order of,
a certain person or to the bearer of thea certain person or to the bearer of theinstrument.instrument.
Parties Involved:Parties Involved: --
DrawerDrawer DraweeDrawee PayeePayee
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Essential elements of BOEEssential elements of BOE
In writingIn writing
Order to payOrder to pay
UnconditionalUnconditional Requires 3 parties & certainRequires 3 parties & certain
SignedSigned
Sum to be certainSum to be certain
Order to pay moneyOrder to pay money
Other formalitiesOther formalities
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DifferenceDifference
Bill Of ExchangeBill Of Exchange
Three partiesThree parties--drawer,drawer,drawee, payeedrawee, payee
Unconditional orderUnconditional order DrawerDrawer--creditorcreditor
Liability is secondaryLiability is secondary
Can be drawn payable toCan be drawn payable tobearerbearer
Drawer stands inDrawer stands inimmediate relation withimmediate relation withacceptor and not payee.acceptor and not payee.
Promissory NotePromissory Note
Two partiesTwo parties--maker,maker,payeepayee
Unconditional promiseUnconditional promise MakerMaker--debtordebtor
Liability is primaryLiability is primary
Cannot be drawn payableCannot be drawn payableto bearerto bearer
Maker stands inMaker stands inimmediate relation withimmediate relation withthe payeethe payee
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"Cheque"
A"cheque" is a bill of exchange drawnon a specified banker (b) payable
otherwise than on demand.
Thus all the cheques are bill of exchangein the sense thatthese have all the
essential elements of a bill of exchange.But all bill of exchange are notCheques.
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Type of ChequeType of Cheque
Open ChequeOpen Cheque
Crossed ChequeCrossed Cheque
Bearer ChequeBearer Cheque Order ChequeOrder Cheque
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Parties to a ChequeParties to a Cheque
Drawer :Drawer :-- The Person Who draws theThe Person Who draws thecheque is called the drawer.cheque is called the drawer.
Banker :Banker :-- The bank on which the chequeThe bank on which the chequeis drawn is called the draweeis drawn is called the drawee
Payee :Payee :-- The person in whose favour theThe person in whose favour thecheque is drawn is called the payee. Thecheque is drawn is called the payee. Thepayee may be a third party or the drawerpayee may be a third party or the drawerhimself.himself.
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Essential of ChequeEssential of Cheque
In writingIn writing
Express order to payExpress order to pay
Definite and unconditional orderDefinite and unconditional order
Signed by the DrawerSigned by the Drawer
Order to pay certain sumOrder to pay certain sum
Order to pay money onlyOrder to pay money only
Certain three partiesCertain three parties-- drawer, drawee & payeedrawer, drawee & payee Drawn upon a specified bankerDrawn upon a specified banker
Payable on demandPayable on demand
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Difference between Cheque andDifference between Cheque and
BoE
BoE
Bai of di tinction Cheque Bi of exchane
1Drawer t i awa drawnonaban
t canbedrawnuonanindi idua
a we a aban
2 Paabeonde and t i awa aabeonde andt neednot awa be aabeonde and
3 Sta t doe not requirea ta t require a ta
4 Cro in t canbeCro ed t cannot becro ed
5 ccetance t doe not requireanaccetance
t require anaccetanceof the
drawee
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Capacity Of Partners:Capacity Of Partners:
Every person capable of contracting, according to the law to whichEvery person capable of contracting, according to the law to whichhe is subject, may bind himself and be bound by the making,he is subject, may bind himself and be bound by the making,drawing, acceptance, endorsement, delivery and negotiation of adrawing, acceptance, endorsement, delivery and negotiation of apromissory note, bill of exchange orpromissory note, bill of exchange or chequecheque..
MinorsMinors
CorporationsCorporations
AgencyAgency
Legal RepresentativesLegal Representatives
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Parties to NegotiableParties to Negotiable
InstrumentsInstruments1) Parties to Bill of Exchange:1) Parties to Bill of Exchange: --
DrawerDrawer
DraweeDrawee AcceptorAcceptor
PayeePayee
HolderHolder
EndorserEndorser EndorseeEndorsee
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Parties to NegotiableParties to Negotiable
InstrumentsInstruments 2) Parties to a Promissory Note:2) Parties to a Promissory Note: --
Maker, Payee, Holder,Maker, Payee, Holder,
3)3)Parties to aParties to a chequecheque:: --
Maker,Maker, DraweeDrawee, Payee, Holder,, Payee, Holder,Endorser,Endorser, IndorseeIndorsee
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Holder:Holder: The holderofa promissorynote, billofexchange orThe holderofapromissorynote, billofexchange or
chequecheque meansanypersonentitledinhisownname tomeansanypersonentitledinhisownname tothe possessionthereofandtoreceive orrecoverthethe possessionthereofandtoreceive orrecovertheamountdue thereonfromthe partiesthereto.amountdue thereonfromthe partiesthereto.
Where the note, billorWhere the note, billorchequecheque islostordestroyed,itsislostordestroyed,itsholderisthe personsoentitledatthe time ofsuchlossholderisthe personsoentitledatthe time ofsuchlossordestruction.ordestruction.
EgEg-- A isthe realholderofpromissorynote hadA isthe realholderofpromissorynote haddisappearedbutwascivillyalive . OnmaturityhissonBdisappearedbutwascivillyalive . OnmaturityhissonBsuedforthe amount, butthe courtdismissedhisactionsuedforthe amount, butthe courtdismissedhisactiononthe groundthathe wasnotentitledinhisownonthe groundthathe wasnotentitledinhisownnametothe possessionofthe instrumentasathiefornametothe possessionofthe instrumentasathieforfinderwouldhave beenfinderwouldhave been
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HOLDER IN DUECOURSEHOLDER IN DUECOURSE::
Holderindue coursemeansanypersonwhoforHolderindue coursemeansanypersonwhoforconsiderationbecame the possessorofaconsiderationbecame the possessorofa
promissorynote, billofexchange orpromissorynote, billofexchange orchequecheque ifif
payable tobearer,orthe payee orpayable tobearer,orthe payee orindorseeindorseethereof,ifpayable toorder.thereof,ifpayable toorder.
A person who takes an instrument inA person who takes an instrument in
good faith and for value become the truegood faith and for value become the trueowner of the instrument as is known as aowner of the instrument as is known as aholder in due course.holder in due course.
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Liability OfParties:Liability OfParties:
1) Liability of drawer1) Liability of drawer
2) Liability of2) Liability of draweedrawee ofof chequecheque
3) Liability of maker of note and acceptor of3) Liability of maker of note and acceptor ofbillbill
4) Liability of endorser4) Liability of endorser
5) Liability of prior parties to a holder in due5) Liability of prior parties to a holder in duecoursecourse
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NegotiationNegotiation
When a promissory note, bill of exchange or cheque isWhen a promissory note, bill of exchange or cheque istransferred to any person, so as to constitute thetransferred to any person, so as to constitute thetransferee the holder thereof, the instrument is said totransferee the holder thereof, the instrument is said tobe negotiated.be negotiated.
This Transfer may take place either:This Transfer may take place either:
1)By Negotiation1)By Negotiation Negotiation by deliveryNegotiation by delivery Negotiation by indorsement & deliveryNegotiation by indorsement & delivery
2)By Assignment2)By Assignment
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Endorsement:Endorsement:
When the maker or holder of a negotiable instrument signs theWhen the maker or holder of a negotiable instrument signs thesame for the purpose of negotiation, on the back or face thereof orsame for the purpose of negotiation, on the back or face thereof oron a slip of paper annexed thereto, or so signs for the sameon a slip of paper annexed thereto, or so signs for the samepurpose a stamped paper intended to be completed as a negotiablepurpose a stamped paper intended to be completed as a negotiableinstrument, he is said to indorse the same, and is called theinstrument, he is said to indorse the same, and is called the
EnndorserEnndorser
Essentials of Valid Endorsement:Essentials of Valid Endorsement: --
It must be on the instrument itselfIt must be on the instrument itself It must be signed by theIt must be signed by the indorserindorser
It must be completed by the delivery of the instrumentIt must be completed by the delivery of the instrument
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Kinds ofEndorsement:Kinds ofEndorsement:
Blank or general IndorsementBlank or general Indorsement
Full or special IndorsementFull or special Indorsement Restrictive IndorsementRestrictive Indorsement
Partial IndorsementPartial Indorsement
Conditional IndorsementConditional Indorsement
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Instruments obtained byInstruments obtained by
unlawful meansunlawful means Stolen instrumentsStolen instruments
Coercion or FraudCoercion or Fraud
Unlawful considerationUnlawful consideration
Forged instrumentsForged instruments Forged indorsementForged indorsement
Without ConsiderationWithout Consideration
Lost negotiable instrumentsLost negotiable instruments
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Presentment of a negotiablePresentment of a negotiable
instrument.instrument. Presentment means showing a negotiablePresentment means showing a negotiableinstrument to the drawee, acceptor orinstrument to the drawee, acceptor ormaker for acceptance, sight or payment.maker for acceptance, sight or payment.
Types:Types: Presentment of bill of exchange forPresentment of bill of exchange for
acceptance.acceptance. Presentment of promissory note for sight.Presentment of promissory note for sight.
Presentment of negotiable instruments forPresentment of negotiable instruments forpayment.payment...
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Presentment for acceptance.Presentment for acceptance.
It is only bills of exchange of certain type thatIt is only bills of exchange of certain type thatrequire acceptance. A bill is said to be acceptedrequire acceptance. A bill is said to be acceptedwhen the drawee put his signature on it.when the drawee put his signature on it.
Essentials of a valid acceptanceEssentials of a valid acceptance--
It must be written on bill.It must be written on bill.
It must be signed by the drawee personally orIt must be signed by the drawee personally or
through a authorised agent.through a authorised agent. The accepted bill must be delivered to theThe accepted bill must be delivered to the
holder.holder.
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Modes of acceptance.Modes of acceptance.
General acceptance.General acceptance.
Qualified acceptance.Qualified acceptance.
An acceptance is qualified when it isAn acceptance is qualified when it is
ConditionalConditional
PartialPartial
Qualified as to place andQualified as to place and
Qualified as to timeQualified as to time
Acceptance by some of drawees but not all.Acceptance by some of drawees but not all.
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Presentment of acceptance toPresentment of acceptance to
whom?whom? The draweeThe drawee All or some of several draweesAll or some of several drawees Drawee in case of needDrawee in case of need
All the drawees in case of severalAll the drawees in case of severaldraweesdrawees
Duly authorized agent of the draweeDuly authorized agent of the drawee Legal representative in case of death ofLegal representative in case of death of
the draweethe drawee Official Receiver or Assignee in case ofOfficial Receiver or Assignee in case of
insolvency of the draweeinsolvency of the drawee
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Presentment for acceptancePresentment for acceptance --
when and wherewhen and where When:When:
a. If a time for presentment fora. If a time for presentment foracceptance is specified in the bill.acceptance is specified in the bill.
b. If time is not specified in the bill.b. If time is not specified in the bill.
c. In case of a bill payable after sight.c. In case of a bill payable after sight.
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Presentment for acceptancePresentment for acceptance --
when and wherewhen and where WhereWherea.a. If place for presentment is mentioned inIf place for presentment is mentioned in
the billthe bill
b.b. If the place of presentment is notIf the place of presentment is notmentioned in the billmentioned in the bill
c.c. The holder must allow the drawee fortyThe holder must allow the drawee forty--
eight hours to consider whether toeight hours to consider whether toaccept the billaccept the bill
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Effect of nonEffect of non--presentmentpresentment
When presentment for acceptance is excused:When presentment for acceptance is excused:
a. drawee after reasonable search cannota. drawee after reasonable search cannot
be foundbe found
b. drawee is dead or insolventb. drawee is dead or insolvent
c. drawee is a fictitious person or one incapable ofc. drawee is a fictitious person or one incapable of
contractingcontracting
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Acceptance for honourAcceptance for honour
When the bill is dishonoured by nonWhen the bill is dishonoured by non--acceptance holder may allow any otheracceptance holder may allow any otherperson to accept it for the honour ofperson to accept it for the honour of
drawer or any one of the indorsers.drawer or any one of the indorsers.
Conditions for valid acceptance forConditions for valid acceptance for
honour:honour: The bill must have been noted orThe bill must have been noted or
protested.protested.
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ContdContd....
The acceptance for honour must be made withThe acceptance for honour must be made withthe consent of the holder.the consent of the holder.
It must be written on the bill indicating that it isIt must be written on the bill indicating that it isan acceptance for honour of the party liable onan acceptance for honour of the party liable onthe bill.the bill.
It must be signed by the acceptor who must notIt must be signed by the acceptor who must notbe already liable on the bill .be already liable on the bill .
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Obligations and rights ofObligations and rights of
acceptance for honouracceptance for honour Obligation of the acceptor for honour is notObligation of the acceptor for honour is notabsolute.absolute.
The following conditions has to be fulfilled:The following conditions has to be fulfilled:
The bill should once more be presented to theThe bill should once more be presented to thedrawee for payment at maturity.drawee for payment at maturity.
If the drawee still refuses to pay, the bill shouldIf the drawee still refuses to pay, the bill shouldbe noted or protested for payment.be noted or protested for payment.
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Dishonour of a negotiableDishonour of a negotiable
instrumentinstrument A bill of exchange may be dishonoured by nonA bill of exchange may be dishonoured by non--
acceptance or nonacceptance or non--payment.payment.
A promissory note and a cheque may beA promissory note and a cheque may bedishonoured by nondishonoured by non--payment only.payment only.
Notice of dishonour must be given to all theNotice of dishonour must be given to all theprior parties in order to make them liable on theprior parties in order to make them liable on theinstrument.instrument.
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ContdContd....
Notice of dishonour by whom?Notice of dishonour by whom?
Notice of dishonour to whom?Notice of dishonour to whom?
Form of notice.Form of notice.
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NotingNoting
Noting means the recording of the fact ofNoting means the recording of the fact ofdishonour by a notary public upon thedishonour by a notary public upon theinstrument or upon a paper attached there to orinstrument or upon a paper attached there to or
partly upon each.partly upon each.
Noting must contain following particulars:Noting must contain following particulars:
The fact of dishonour.The fact of dishonour.
Date of dishonour.Date of dishonour. Reasons, if any assigned.Reasons, if any assigned.
The notary charges.The notary charges.
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ProtestProtest
Fact of dishonour of bill of exchange or promissory noteFact of dishonour of bill of exchange or promissory note
is noted and certified by Notary Public. Such certificate isis noted and certified by Notary Public. Such certificate iscalled protest.called protest.
Contents of protest:Contents of protest:
The instrument or literal transcript of the instrument.The instrument or literal transcript of the instrument.
The name of the person for whom and against whom theThe name of the person for whom and against whom theinstrument has been protested.instrument has been protested.
The reason for dishonour.The reason for dishonour. The place and time of dishonour.The place and time of dishonour.
The signature of the Notary PublicThe signature of the Notary Public
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Discharge of an InstrumentDischarge of an Instrument
By payment in due courseBy payment in due course
Payment of interest (Sec 80)Payment of interest (Sec 80) By express waiverBy express waiver
By cancellationBy cancellation
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Discharge of a Party or PartiesDischarge of a Party or Parties
By payment [Sec 82(c)]By payment [Sec 82(c)]
By cancellation [Sec 82(a)]By cancellation [Sec 82(a)] By release [Sec 82(b)]By release [Sec 82(b)]
By operation of lawBy operation of law
By material alteration (Sec 87)By material alteration (Sec 87)
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MaterialMaterial AlterationAlteration
Instances of material AlterationInstances of material Alteration
The dateThe date
Sum PayableSum Payable
Time of paymentTime of payment
Place of payment & addition of place ofPlace of payment & addition of place ofpaymentpayment
Rate of interestRate of interest
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ESTOPPELESTOPPEL
When a person by his conduct or wordsWhen a person by his conduct or wordsspoken or written leads another person tospoken or written leads another person tobelieve that a certain state of affairsbelieve that a certain state of affairsexists, he is estopped from denying theexists, he is estopped from denying thefacts of that statement later.facts of that statement later.
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Rules ofEstoppelRules ofEstoppel
Estoppel against denying original validityEstoppel against denying original validityof instrument (sec 120)of instrument (sec 120)
Estoppel against denying capacity ofEstoppel against denying capacity ofpayee to indorse (sec 121)payee to indorse (sec 121)
Indorse not permitted to deny theIndorse not permitted to deny thecapacity of prior parties (sec 122)capacity of prior parties (sec 122)
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International LawInternational Law
1.1. Liability: The liability of the maker or drawer of foreignLiability: The liability of the maker or drawer of foreignpromissory note is determined by the law of placepromissory note is determined by the law of placewhere the instrument has been made .The liability ofwhere the instrument has been made .The liability ofthe acceptor is determined by the law of place wherethe acceptor is determined by the law of place wherethe instrument is payable.the instrument is payable.
2.2. Dishonour: A promissory note,bill of exchange is madeDishonour: A promissory note,bill of exchange is madepayable in different place from that in which it is madepayable in different place from that in which it is madeor indorsed,the law of place determines whator indorsed,the law of place determines whatconstitute dishonourconstitute dishonour
3.3. Instruments made out of India according to theInstruments made out of India according to theprovisions of Indian lawprovisions of Indian law
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HUNDISHUNDIS
Unconditional order in writing made by a personUnconditional order in writing made by a persondirecting another to pay a certain sum of moneydirecting another to pay a certain sum of moneyto a person named in the order.to a person named in the order.
Expressed in vernacular language also.Expressed in vernacular language also.
Being a part of the informal system have noBeing a part of the informal system have nolegal status and are not covered under thelegal status and are not covered under theNegotiable Instruments Act, 1881.Negotiable Instruments Act, 1881.
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Banker & CustomerBanker & Customer
Banking is defined as an activity ofBanking is defined as an activity ofaccepting deposits from the public,accepting deposits from the public,repayable on demand or otherwise andrepayable on demand or otherwise andwithdrawal by cheque, draft or otherwisewithdrawal by cheque, draft or otherwiseand such acceptance of money is for theand such acceptance of money is for thepurpose of lending or investments.purpose of lending or investments.
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Rights & Obligations ofRights & Obligations of
Bankers towards CustomersBankers towards Customers
Honourthe chequeHonourthe cheque
Maintain records of all the transactionsMaintain records of all the transactions
Abide bythe instructions of the customerAbide bythe instructions of the customer
Notto disclose the state of his customersNotto disclose the state of his customersaccountaccount
SetoffSetoff
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When a BankerMAY RefuseWhen a BankerMAY Refuse
(Dishonour) Payment(Dishonour) Payment
1.1. When a Cheque is postWhen a Cheque is post--dated and presenteddated and presentedfor payment before that datefor payment before that date
2.2. Lack of sufficient fundsLack of sufficient funds3.3. The funds are not available for the purposeThe funds are not available for the purpose4.4. Cheque is of doubtful legalityCheque is of doubtful legality5.5. When the Cheque is not duly presentedWhen the Cheque is not duly presented
6.6. Signature doesn't matchSignature doesn't match7.7. Cheque presented at a branch where theCheque presented at a branch where the
customer has no accountcustomer has no account8.8. When the Cheque has become staleWhen the Cheque has become stale
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When a BankerMUST RefuseWhen a BankerMUST Refuse
(Dishonour) Payment(Dishonour) Payment
The customer countermands paymentThe customer countermands payment
A customer dies and the bank has notice ofA customer dies and the bank has notice of
the dea
th
the dea
th
Customer has been adjudged insolventCustomer has been adjudged insolvent
Bankerreceives notice of customers insanityBankerreceives notice of customers insanity
When payment is prohibited by an orderof aWhen payment is prohibited by an orderof acourtcourt
Customer gives notice to his bankerto closeCustomer gives notice to his bankerto closehis accountshis accounts
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Protection of the Paying Banker:Protection of the Paying Banker:--
Sec 85Sec 85
1.1. Paying banker will not be liable if holder ofPaying banker will not be liable if holder of
a bearer Cheque is not actual owner of thea bearer Cheque is not actual owner of theCheque [Sec 85(2)].Cheque [Sec 85(2)].
2.2. If a Cheque is crossed generallyIf a Cheque is crossed generally
(Sec 126 Para 1)(Sec 126 Para 1)
If a cheque is crossed speciallyIf a cheque is crossed specially(Sec 126 Para 2)(Sec 126 Para 2)
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Contd.Contd.
Paying banker will not be protected ifPaying banker will not be protected ifthe drawers signature is forged and thethe drawers signature is forged and thebanker makes the payment on thebanker makes the payment on thechequecheque
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Presented byPresented by
Akanksha Kedia(FPB0709/007)Akanksha Kedia(FPB0709/007)
Anindita Kundu(FPB0709/015)Anindita Kundu(FPB0709/015)
Anupama(FPB0709/020)Anupama(FPB0709/020)Isha Mehta(FPB0709/056)Isha Mehta(FPB0709/056)
Yageshwari Trivedi(FPB0709/158)Yageshwari Trivedi(FPB0709/158)
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Thank YouThank You