COMPILED B:- JYOTI SINGH

BBA 3rd

IMC

NEGOTIABLE INSTRUMENTS ACT

According to section 13(a) of this Act, “ ‘Negotiable instrument’ means, a promissory note, bill of exchange or cheque payable either to order or to bearer.”

Definition includes only three documents in negotiable instruments. But in practice, many other documents which meet the basic requirements of a negotiable instruments.

The following instrument are characterized as negotiable instrument either by law or custom and tradition of a trade:-

1) treasury bill 2) government promissory note 3) dividend warrant 4) share warrant 5) bearer debentures 6) hundies 7) port trust bonds 8) improvement trust debentures/bonds 9) bearer railway bonds

TransferabilityGood title to transferee Right of holderEvidence of debtLegal presumptions

BASIC FEATURES OF NEGOTIABLE INSTRUMENTS:-

According to section 13 if this Act negotiable instrument includes following three documents:-

a) Promissory note b) Bill if exchange c) Cheque

According to section 4 of this Act, “Promissory note is an instrument, in writing(not being bank note or currency note) containing an unconditional undertaking signed by the maker, to pay certain sum of money only to or to the order of certain person or to bearer of the instrument”.

PROMISSORY NOTE:-

It must be in writingIt must contain unconditional promise to

payThe promise to pay must be unconditionalIt must be signed by the makerIt maker must be a certain personThe payee must be a certain personThe sum payable must be certainPromise to pay money onlyOther formalities

CHARACTERSTICS OF A PROMISSORY NOTE:-

According to section 5 of this Act, “A bill of exchange is an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay certain sum of money, only to or to the order of certain or to the bearer of the instrument”.

BILLS OF EXCHANGE:-

It must be in writingIt contains an order to payThe order to pay must be unconditionalIt must be signed by the makerThe drawee must be certainThe payee must be certainThe sum payable must be certainOther formalities

CHARACTERSTICS OF BILL OF EXCHANGE:-

According to section 6 of this Act, “a cheque is a bill of exchange drawn on a specified banker and not expresses to be payable, otherwise than on demand and it includes the electronic image of truncated cheque and a cheque in electronic form”.

CHEQUES:-

Cheque is always drawn on a specific banker.

Cheque is always payable on demand.

Cheque is a bill of exchange, nevertheless it does not require acceptance.

Cheque is valid for a period of six months.

CHARACTERSTICS OF CHEQUE:-

Bearer and order instruments.Demand and time instrument.Inland and foreign instruments.

CLASSIFICATION OF NEGOTIABLE INSTRUMENT:-

Parties to promissory note: Maker,Payee,Holder,Indorser and Indorsee.

Parties to a bill of exchange: Drawer,Drawee,Payee,Holder,Drawee in case of need and Acceptor for honour.

Parties to a cheque: Drawer,Drawee(bank) Payee,Holder,Indorser and Indorsee

PARTIES TO A NEGOTIABLE INSTRUMENT:-

According to section 8 of this Act, “the holder of a negotiable instrument means any person, entitled in his own name to the possession thereof and to receive or recover, the amount due thereon from the party liable thereto.”.

HOLDER:-

The holder has a right to possess the instrument in his own name.

He is entitled to receive or recover the payment of the instrument.

He has a right to give valid discharge of the instrument.

He can further negotiate instrument in favour to another party.

He is entitled to complete inchoate instrument with an amount as intended by the drawer.

RIGHTS OF A HOLDER:-

According to section 9 of this Act, “holder in due course means any person who for the possessor of a negotiable instrument if payable to bearer or payee or indorsee thereof if payable to order before the amount mentioned in it became payable and without sufficient cause to believe that any defect existed in the title of a person from whom derived his title”.

HOLDER IN DUE COURSE:-

He must be a ‘holder’He must be a ‘holder for

consideration’He must acquire the instrument

before maturityInstrument should be complete and

regularHolder must take the instrument in

good faith.

There are some conditions which one needs to satisfy for being a holder in a due course:-

HOLDERInstrument get possessed

on the name of the holder and recover from the party liable to pay

Consideration is not necessary

Can acquire an instrument after the date of maturity.

Get same title as the transferor.

Drawer,drawee and transferor are liable to pay

Gets an instrument before the period of maturity in good faith and for valuable consideration.

Consideration is necessary.

Have to acquire before the date of maturity.

Gets a title better than that of transferor.

All parties prior to him are liable to pay.

HOLDER IN DUE COURSE

Liability of drawerLiability of drawee of chequeLiability of maker of promissory note

and acceptor of billLiability of indorserLiabilities of prior parties to a holder

in due course.

LIABILITY OF PARTIES:-

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