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Negotiable Instrument
• According to section 14 of the negotiable instrument Act has been define as, “When promissory note, bill of exchange or cheque is transferred to any person, as to constitute that person the holder therefore the instrument is said to be negotiable”.
• Negotiable means transferable from one person to another.• Negotiable instrument are those documents which are
transferable from one person to another by simple delivery according to act 1881.
• Negotiable instrument is a credit instrument …• credit instrument : means promise to pay in future • Written evidence of debt containing a promise or an order to pay
a certain sum of money
Types of negotiable instrument
Promissory notes
Bill of exchange cheque
The negotiable instrument act 1881 only deal with
Promissory Notes• “It is an unconditional written promise of (maker) debtor or
buyer of good to pay certain sum of money to be (payee) creditor or seller of good or some other person demand or on a certain date in future”.
• Maker (he is a debtor / buyer of good)• Payee (he is a creditor /seller of good)
Parties to a promissory notes
Essential Feature
Written
Promise
Unconditional
Certain amount
Certain maker
Signature
Certain payee
Payment after delivery
Revenue stumps
parties
Kind of promissory notes
On the base of place:* Inland promissory notes* Foreign promissory notes
On the base of maker:* Individual promissory notes* Joint promissory notes
On the base of time :* Demand promissory notes* Time promissory notes
Advantage of promissory notes
• Evidence of debt• No need of acceptance• Promotes trade• Easy borrowing• Promotes business
Bill of exchange
• Section 5 of the negotiable instrument act 1881 : “BOE is an unconditional written order drawn by a creditor / seller of good upon a debtor /buyer of good to make payment of a certain sum of money on demand or at a fixed future date to creditor or third party”
• Drawer (usually a creditor)• Drawee (usually a debtor)• Payee (Bank)
Parties of BOE
Features Of BOE
WrittenAn Order
UnconditionalDrawee is a certain personPayee is a certain person
Certain SumSignature by maker (drawer)
AcceptanceRevenue stamps
PaymentCopies
Certain parties
Kinds of BOE
On the base of place : * Inland bill * Foreign bill
On the base of time : * Demand bill * Time bill
On the base of objectives: * Trade bill * Accommodation bill
On the base documents: * Clean bill * Document bill
Advantage of BOE
Transfer of money
Expansion of trade
Facilities to buyer
Fixed date of payment
Proof of credit
Increase in income of
govt.
Economic development
Cheque
Cheque is an unconditional written order draw by drawer ,on bank to pay specific sum of money to a specific
person on a certain date.
Reasons for Dishonor of a cheque
Cheque not signed
Signature differs
Insufficient balance
Irregular endorsement
Defect in title
Mutilated cheque
Stale/outdated cheque
Undated cheque
Material alteration
Death of a customer
Order of court
After banking hours
Closed account
Name of payee
Difference in word & figure
Different branch of bank
Customer’s insolvency
Customer’s insanity