negotiable instruments act presentation - unitedworld school of business
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7/28/2019 Negotiable Instruments Act Presentation - Unitedworld School of Business
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INTRODUCTION
„Instrument „ means any written document bywhich a right is created in favour of someperson.
“negotiable” – means whereby rights in aninstrument can be transferred by one personto another
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NEGOTIABLE INSTRUMENTS
ORIGIN : In the year 1881.SCOPE : Applicable in entire India except the
State of Jammu & Kashmir.Applicability: Deals with law relating to three
specific instruments, viz. Promissory note, Bill of exchange and cheque.
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MEANING
There are certain documents which are freelyused in commercial transactions and monetarydealings. These documents, if they satisfycertain conditions are known as “Negotiable
Instruments.”
A Negotiable instrument is a method of transferring a debt from one person to another.
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S 13
A negotiable instrument means a promissorynote, a bill of exchange or a cheque payableeither to order or to the bearer, whether the
words „order or bearer appear on theinstrument or not
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Kinds of negotiable instrument
Negotiable instrument Negotiable instrumentBy STATUTE . By custom or usage1) Promissory note. 1) Bank draft.2) Bill of exchange. 2) Pay orders.3) Cheque. 3) Hundies.
4) Delivery order
Not negotiable instruments: Share certificate, bill of lading, postal order
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CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT
1) Freely transferable : The property in a negotiable, instrumentpasses from one person to another by a simple process, i.e., bymere delivery if it is payable to bearer, and by indorsement anddelivery if it is payable to order.
2) Holder s title free from all defects : The holder in due course (onewho acquires the instrument in good faith and for consideration) getsit free from all defects.
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CONTD -
Recovery : He can sue upon the instrument in his ownname.
The transferee of the instrument need not give notice
of transfer to the party liable to pay.A negotiable instrument can be transferred infinitum,ie, can be transferred any number of times tillmaturity.
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PRE- SUMPTION OF NEGOTIABLE INSTRUMENT
Until the contrary is proved, the followingpresumptions shall be made. (sec 118 & 119).N.I was made, drawn, accepted, indorsed or
transferred for consideration.NI Bearing a date was made or drawn on that
particular date only.B.O.E was accepted within a reasonable time after its date & before its maturity.
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PROMISSORY NOTE
Sec.4 “ A promissory note is an instrument in writing
containing an unconditional undertaking signed bythe maker to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument”.
.
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PARTIES
MAKER : The person who makes the promissory noteand promises to pay is called the Maker.
PAYEE : The person to whom the payment is to bemade is called the Payee.
HOLDER : The holder is either the payee or someon eto whom he may have indorsed (transfer) the note isknown as Holder.
ENDORSER : The person who indorses the note toanother is called the Endorser .
ENDORSEE : The person to whose favour the note isendorsed is called the Endorsee
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ESSENTIALS OF THE PROMISSORY NOTES
1. It must be in writing .2. It must contain a promise or undertaking to pay a definite
sum of money.3. The promise to pay must be unconditional.4. It must be signed by the maker.5. The payee must be identified & must be certain.6. The sum payable must be certain.7. The amount payable must be in legal tender in money of
India.8. Other formalities – like date, place ,& stamp must be
mentioned.
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FORMAT OF PROMISSORY NOTE
Rs. 1,000 Delhi, February10,2009
Three months after date I promise to pay Shyam or order the sum of one thousand rupees, for value received.To,
Shyam222, Ashok Vihar Delhi-110052
Stamp
Sd/-Ram
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BILL OF EXCHANGE
Sec.5 :“A bill of exchange is an instrument in writing containing an Unconditional order signed by the maker directing a certainperson to pay a certain sum of money only to or to the order of a
certain person or to the bearer of the instrument.”
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PARTIES
DRAWER : The person who makes the bill of exchange is calleddrawer.
DRAWEE : The person who is directed to pay is called drawee.PAYEE : The person to whom the payment is to be made is called
payee.ACCEPTOR : When the drawee accepts the bill is called acceptor.
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ESSENTIALS FEATURES OF BILL OF EXCHANGE :
1. It must be in writing.2. It must contain an order to pay a definite sum of money.3. The order to pay must be unconditional.4. It must be signed by the drawer (who draw money).5. The drawer, the drawee &the payee must be identified &
must be certain.6. The sum payable must be certain.7. The bill must contain an order to pay the money in legal
tender in India.8. It must contain the formalities like date, place & stamp
etc.
CHEQUE
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CHEQUE
Sec.6 :“ A cheque is a bill of exchange drawn on a specified
banker & not expense to be payable on a specifiedbanker & not expense to be payable otherwise than on
demand & it includes the electronic image of atruncated cheque & a cheque in the electronic form.
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FORMAT OF CHEQUE
No.……..Date………..2010
Pay…………………………………………………………or bearer the sum of Rs…………………………………
Rs…………………
A/c No LF No Sd/-PUNJAB NATIONAL BANKSubzi Mandi,Delhi -110007
“5777100” 111013035”
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PARTIES
DRAWER: The person who makes a cheque is called Drawer.DRAWEE: The person who is directed to pay is called Drawee.PAYEE : The person to whom the payment is to be made.
ESSENTIAL FEATURES OF CHEQUE
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ESSENTIAL FEATURES OF CHEQUE:
1. It is always drawn by a bank & not by any other institutions.2. It always payable on demand.3. A cheque can be bearer, order or crossed.4. The drawee, that is, the banker named must honour the cheque by
making payment to the payee when the cheque is presented for payment to the banker at his office during the usual office hours,provided the cheque is properly and validly drawn and the drawer has sufficient funds to his credit.
5. The signature on the cheque must tally with the specimen
signature of the concerned drawer.6. A cheque must be dated.
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CROSSING OF CHEQUES
CHEQUE CROSSED GENERALLY - Where a cheque bears acrossits face an addition of the words “and company” or any abbreviationthereof, between two parallel transverse lines, or of two paralleltransverse lines simply, either with or without the words “notnegotiable”, that addition shall be deemed a crossing, and thecheque shall be deemed to be crossed generally. [section 123]
CHEQUE CROSSED SPECIALLY - Where a cheque bears acrossits face an addition of the name of a banker,either with or without thewords “not negotiable”, that addition shall be deemed a crossing, andthe cheque shall be deemed to be crossed specially, and to becrossed to that banker. [section 124].
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CONTD -
PAYMENT OF CHEQUE CROSSED GENERALLY OR SPECIALLY -Where a cheque is crossed generally, the banker on whom it is drawnshall not pay it otherwise than to a banker. Where a cheque is crossedspecially, the banker on whom it is drawn shall not pay it otherwisethan to the banker to whom it is crossed, or his agent for collection.[section 126].
CHEQUE BEARING “NOT NEGOTIABLE” - A person taking a chequecrossed generally or specially, bearing in either case the words “notnegotiable”, shall not have, and shall not be capable of giving, a better title to the cheque than the person from whom he took it had. [section130].
Thus, mere writing words „Not negotiable does not mean that thecheque is not transferable. It is still transferable, but the transfereecannot get title better than what transferor had.
HOLDER
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HOLDER
Sec.8The Holder of a Promissory note, B.O.E or CHEQUE
means any person entitled in his own name to thepossession thereof, and to receive or recover the
amount due thereon from the parties thereto. Wherethe note, bill or cheque is lost or destroyed, its holder isthe person so entitled at the time of such loss or destruction.
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WHEN DOES A PERSON BECOMES A
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WHEN DOES A PERSON BECOMES AHOLDER IN DUE COURSE
Before the amount mentioned in the instrument becomes payable.1) Without having sufficient cause to believe that any defect
exists in the title of the person from whom, he derives his title2) He becomes a possessor of a promissory note, b.o.e or cheque
.3) If it is payable to the bearer.4) Consideration has passed from him.
Illustration:- A is a payee for a valuable consideration of a billpayable to order. He gets this instrument from B withoutknowledge of any defect in B s title & its maturity.
In this e g. A is a holder in due course.
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CONTD -
A holder of a negotiable instrument will not be a holder in duecourse if:-
a) he has obtained the instrument by gift or by illegal method.b) he has obtained the instrument after its maturity.
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PRIVILEGES OF HOLDER IN DUE COURSE
1)Inchoate stamped instrument : A person, who hassigned & delivered to another a stamped but otherwiseinchoate instrument , is precluded from asserting, asagainst a holder in due course, that the instrument hasnot been filled in accordance with the authority given by
him, the stamp being sufficient to cover theamount(sec.20).2) Liability of prior parties: Every prior party to a
negotiable instrument is liable thereon to a holder indue course until the instrument is duly satisfied(sec.36).
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CONTD -
3) Fictitious payee : Where a bill is drawn payable to thedrawer s order in fictitious name & is indorsed in the samehand as the drawer s signature, the acceptor is not relievedfrom liability to any other holder in due course, on the pleathat the drawer is fictitious(sec.42).
4) Conditional delivery: If a bill or not is negotiated to aholder in due course, the other parties to the instrumentcannot avoid liability on the ground that the delivery of theinstrument was conditional or for a special purpose only.
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CONTD -
5) Instrument cleansed of all defects: Once a negotiable instrumentpasses through the hands of a holder in due course, it getscleansed of its defects provided the holder was himself not a partyto the fraud or illegality which affected the instrument in somestage of its journey. Thus any defect in the title of the transferor
will not affect the rights of the holder in due course even if he hadknowledge of the prior defect provided he himself is not a party tothe fraud.Example: A, by fraud, induces B to make a promissory note in hisfavour. He indorses the note to C, who take it as a holder in due
course. C subsequently indorses the note to A, for value. A cannotsue B on the note as he himself is a party to the fraud .
DIFFERENCE BETWEEN HOLDER AND HOLDER
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DIFFERENCE BETWEEN HOLDER AND HOLDERIN DUE COURSE
A holder can obtain aninstrument withoutconsiderationIf an instrument isinchoate, a holder of suchinstrument cannot getgood title in the instrumentA holder need not bother about the defect, if any inthe title of the instrument
Obtains an instrument withconsideration and for value.Holder in due courseacquires a good title even if the instrument is inchoate.Holder in due course whoacquires an instrumentknowingly the defect of thetitle.
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NEGOTIATION
Method of transfer An instrument is said to be negotiatedwhen a promissory note,BOE,cheque istransferred to any person so as toconstitute that person the holder of theinstrument
Transfer with an intention to transfer thetitle of the instrument.Negotiation by deliveryNegotiation by endorsement and delivery
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CONTD-
Meaning of endorsement – An endorsementmeans signing the negotiable instrument onthe back of ,or face thereof or, or on a slip of
paper annexed thereto
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PRESENTMENT
Presentment for Acceptance (requiredonly in case of BOE)Presentment for paymentPresentment made to the drawee.Must be made before the date of maturity
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DISHONOUR (S 92)
A negotiable instrument is said to bedishonoured by non-payment when themaker, acceptor or drawee, as the case
maybe makes default in payment upon beingduly required to pay the same.
Dishonour by non payment
Dishonour by non acceptance
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NOTING
When a cheque is dishonoured generallythe bank who refuses payment returnsback the cheque gives reasons in writing
for the dishonour of the cheque.Noting
The holder cause such dishonour to be notedby a notary public upon the instrument or upona paper attached thereto or partly upon eachNoting consists in recording the fact of dishonour by notary public
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DISCHARGE FROM LIABILITY
By paymentBy cancellationBy releaseBy non-presentment for acceptance of abill of exchange
By material alteration
BANKER AND CUSTOMER
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BANKER AND CUSTOMER
No statutory definition of banker NI Act defines a banker as any person actingas a banker
Customer – A person becomes a customer of a bank when the latter agrees to open anaccount with the former. Thus, a customer isa person who has some sort of account withthe banker. The duration of relationship isimmaterial.
OBLIGATIONS OF A BANKER
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OBLIGATIONS OF A BANKER
To honour cheques.To keep a proper record of the transactions.To abide by the instructions given by thecustomer To not disclose the state of his customer saccount or affairsTo claim interest on money lent
PROTECTION GRANTED TO BANKER
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PROTECTION GRANTED TO BANKER
Protection of paying banker – where a cheque payable to order purports to beindorsed by or on behalf of the payee, the
drawee is discharged by payment in due course.Where a cheque is originally expressed to be
payable to a bearer, the drawee is discharged bypayment in due course to the bearer thereof
CONTD
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CONTD-
Protection of collecting banker – A banker who has in good faith received payment for acustomer s crossed cheque ,does not incur
liability , later if it is found that the title isdefective
CAMPUS OVERVIEW
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CAMPUS OVERVIEW
907/A Uvarshad,Gandhinagar Highway, Ahmedabad
– 382422.
Ahmedabad Kolkata
Infinity Benchmark,10 th Floor, Plot G1,Block EP & GP,Sector V, Salt-Lake,Kolkata – 700091.
Mumbai
Goldline Business
Centre LinkwayEstate,Next to Chincholi FireBrigade, Malad (West),Mumbai – 400 064.
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THANK YOU
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