negotiable instruments and related laws in bangladesh

7/24/2019 Negotiable Instruments and Related Laws in Bangladesh

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NEGOTIABLE INSTRUMENTS AND RELATED LAWS IN

BANGLADESH

A negotiable instrument is a document guaranteeing the payment of a specific amountof money, either on demand, or at a set time. According to the Negotiable Instruments

Act, 1881, there are just three types of negotiable instruments i.e., promissory note, bill

of exchange and cheque.

More specifically, it is a document contemplated by a contract, hich

!1" arrants the payment of money, the promise of or order for con#eyance of hich is

unconditional$

!%" specifies or describes the payee, ho is designated on and memoriali&ed by the

instrument$ and!'" is capable of change through transfer by #alid negotiation of the instrument.

All negotiable instruments are similar in characteristics, although there are some

differences among them. A negotiable instrument must be ritten and signed by the

ma(er, it must be unconditional. )he sum mentioned in it is payable to its bearer or to a

certain person or to his order. It is payable also on demand, or at a fixed or future date.

All negotiable instruments are transferable by mere deli#ery if payable to bearer, and by

endorsement and deli#ery, if payable to order.

Negotiable instruments differ in terms of formalities to be folloed for their

encashment. *ome instruments require to be stamped hile some others do not.

+nli(e cheques, bills of exchange and promissory notes cannot be crossed. Acceptance

is necessary for some but not for all negotiable instruments.

)raditionally, use of these instruments is not idespread in the country. oe#er, ith

the expansion of industriali&ation, trade, and commerce, these instruments are no

more frequently used. +sually, holders of these bills sell them for cash to ban(s, hich

pay the holder face #alue of the bills less collection charges and the interest for the

remaining period of the bills.

Introduction:

All negotiable instruments are similar in characteristics, although there are some

differences among them. A negotiable instrument must be ritten and signed by the

ma(er, it must be unconditional. )he sum mentioned in it is payable to its bearer or to a


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certain person or to his order. It is payable also on demand, or at a fixed or future date.

All negotiable instruments are transferable by mere deli#ery if payable to bearer, and by

endorsement and deli#ery, if payable to order. Negotiable instruments differ in terms of

formalities to be folloed for their encashment. *ome instruments require to be

stamped hile some others do not. +nli(e cheques, bills of exchange and promissorynotes cannot be crossed. Acceptance is necessary for some but not for all negotiable

instruments.

Definition of Negotiabe In!tru"ent:

A negotiable instrument is a document guaranteeing the payment of a specific amount

of money, either on demand, or at a set time. According to the Negotiable Instruments

Act, 1881, there are just three types of negotiable instruments i.e., promissory note, bill

of exchange and cheque.

)he most common and popular form of negotiable instruments used in -angladesh is

the cheque, hich is issued against deposit in ban(s. All offices of the deposit money

ban(s are alloed to issue cheques to account holders against their current and sa#ings

deposits only. No cheque can be issued against term or fixed deposit accounts. )he use

of cheques as means of payment gre considerably ith the expansion of the ban(ing

netor( throughout the country. )he use of promissory notes and bills of exchange are

traditionally limited in -angladesh. romissory notes are issued by the go#ernment and

held by the ban(. -an(s can a#ail of the discount indo facility of the -angladesh

ban( against these instruments.

)here are to (inds of bills of exchange in -angladesh/ foreign bills and internal bills.

)raditionally, use of these instruments is not idespread in the country. oe#er, ith

the expansion of industriali&ation, trade, and commerce, these instruments are no

more frequently used. +sually, holders of these bills sell them for cash to ban(s, hich

pay the holder face #alue of the bills less collection charges and the interest for the

remaining period of the bills.

A negotiabe in!tru"ent i! a1" 0ritten instrument,%" *igned by the ma(er or draer of the instrument,'" )hat contains an unconditional promise or order to pay" A fixed amount of money !ith or ithout interest in a specified

amount or at a *pecific rate.2" 3n demand or at an exact future time4" )o a specific person, or to order, or to its bearer.

T#$e! of negotiabe in!tru"ent


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1. romissory Notes,%. -ills of exchange and'. 5heques

%& '(ro"i!!or# note'A 6promissory note6 is an instrument in riting !not being a ban(7note or a currency7

note" containing an unconditional underta(ing, signed by the ma(er, to pay 1on

demand or at a fixed or determinable future time9 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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ere is a specimen of promissory note gi#en belo/


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)& 'Bi of e*c+ange'

A 6bill of exchange6 is an instrument in riting containing an unconditional order,

signed by the ma(er, directing a certain person to pay% on demand or at a fixed or

determinable future time9 a certain sum of money only to, or to the order of, a certain

person or to the bearer of the instrument.A promise or order to pay is not 6 conditional 6, ithin the meaning of this section

and section , by reason of the time for payment of the amount or any installment

thereof being expressed to be on ,the lapse of a certain period after the occurrence of

a specified e#ent hich, according to the ordinary expectation of man(ind, is retain

to happen, although the time of its happening may be uncertain.

)he sum payable may be 6certain6, ithin the meaning of this section and section

, although it includes future interest or is pay able at an indicated rate of exchange, or

is according to the course of exchange, and although the instrument pro#ides that, on

default of payment of an installment, the balance unpaid shall become due. )heperson to hom it is clear that the direction is gi#en or that payment is to be made may

be a 6certain I person6, ithin the.

A *pecimen is gi#en belo/


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,& '-+e.ue'

A 6cheque6 is a bill of exchange dran on a specified ban(er and not expressed to be

payable otherise than on demand.

A cheque is a bill of exchange dran on a specified ban(er and not expressed to be

payable otherise than on demand. !*. 4 of the Act" )hus, a cheque is a bill ofexchange and hence it is to comply ith all the essential of bill of exchange as

prescribed in section 2 of the Act. -ut a cheque has to distincti#e features, namely/

!i" it is alays dran on a ban(, and

!ii" it is alays payable on demand.

6In addition it is to be noted, a cheque is presented for payment, hereas a bill in the

first instance is presented for acceptance unless it is a bill on demand. A bill is

dishonoured by non7acceptance, this is not so in the case of a cheque. )hese essential

differences !besides others" are sufficient to explain hy in practice cheques are notaccepted. Acceptance is not necessary to create liability to pay as beteen the draer

and the draee ban(. )he liability depends on contractual relationship beteen the

ban( and the draer, its. customer. 3ther things being equal, in particular if the

customer has sufficient funds or credit a#ailable ith the ban(, the ban( is bound either

to pay a cheque or to dishonour it at once .... It is different in case of an ordinary bill$

the draee is under no liability on the instrument until he accepts$ his liability on the

bill depends on the acceptance of it.6

T+ere are certain "atter! to be noted regarding a c+e.ue:

1. A cheque is alays dran on a ban(er

%. A cheque can only be dran payable on demand. A future7dated cheque, being not

payable on demand, may not be regarded as a cheque in the real sense of the ord

unless that date arri#es and it becomes payable on demand.

'. A cheque does not require any acceptance by the draee before payment can be

demanded.

. cheques can be crossed to restrict the payment to the person so named.

)he phrase 6in good faith and for #alue6 has been split up by *ection : into four

elements all of hich must concur to ma(e a holder in due course. )hey are/

!1" )he holder must ha#e ta(en the instrument for #alue. !%" e must ha#e obtained

the instrument before its maturity. !'" )he instrument must be complete and

regular on its face. !" e must ha#e ta(en the instrument in good faith and

ithout notice of any defect either in the instrument or in the title of the person

negotiating it to him.

*pecimen of cheque/


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Di!+onour of c+e.ue:

)he ban( on hich a cheque is dran may not ha#e sufficient fund in the account in

question to ma(e payment accordingly and hence the ban( may choose to refuse the

payment demanded by the holder. Non7payment by the ban( is referred to as

;dishonour of cheque< in hich e#ent the holder becomes entitled to sue the draerfor the money. *ection 1'8 of the Act regards such an act of the draer as an offence

and prescribes the remedies a#ailable by a holder.

-ut to acti#ate this *ection the cheque in question is to be presented to the ban(

ithin a period of six months from the date on hich it is dran or ithin the period of

its #alidity, hiche#er is earlier$

In case of dishonour of a cheque the holder is required to do certain things to get

assistance of la to reco#er the money.

Notice:

)he holder is to gi#e a formal notice to the draer of the cheque communicating him

the e#ent of dishonour ma(ing a demand for the money. -eing so notified if the

draer fails to pay, a regular suit can be filed under *ection 1'8 of the Act.

(uni!+"ent:

)he e#ent of dishonour of cheque subjects the draer to punishment. e may be

punished ith imprisonment for a term hich may extend to one year, or ith fine

hich may extend to thrice the amount of the cheque, or ith both .

SE-TION %,/ O0 NEGOTIABLE INSTRUMENTS A-T

Hi!tor#/

=arlier to 1:88 the dishonour of cheque as only a ci#il liability. -ut the amendment

introduced by Amendment Act No.44>1:88 hich as published in the ga&ette of India

part7II, dated 1:.1%.1:88, introduced *ection 1'8 and 1% of the Negotiable

Instruments Act hich made it a criminal offence. )his amendment as a ne offence

in the commercial filed, it as brought out of necessity in order to bring sanctity to the

common business transactions

W+at a"ount! to an offence u1!&%,/ of Negotiabe In!tru"ent Act:

*ection 1'8 reads as follos


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?@.%,/& Di!+onour of c+e.ue for in!ufficienc#2 etc&2 of fund! in t+e account!

0here any cheque dran by a person on an account maintained by him ith a ban(er

for payment of any amount of money to another person from out of that account for the

discharge, in hole or in part, of any debt or other liability, is returned by the ban(

unpaid, either because of the amount of money standing to the credit of that account isinsufficient to honour the cheque or that it exceeds the amount arranged to be paid

from that account by an agreement made ith that ban(, such person shall be deemed

to ha#e committed an offence and shall ithout prejudice to any other pro#isions of

this Act, be punished ith imprisonment for a term hich may extend to one year, or

ith fine hich may extend to tice the amount of the cheque, or ith both/

3BIC=C that nothing contained in this section shall apply unless7

!a" the cheque has been presented to the ban( ithin a period of six months from thedate on hich it is dran or ithin the period of its #alidity, hiche#er is earlier.

!b" the payee or the holder in due course of the cheque, as the case may be, ma(es a

demand for the payment of the said amount of money by gi#ing a notice, in riting, to

the draer of the cheque, ithin fifteen days of the receipt of information by him from

the ban( regarding the return of the cheque as unpaid, and

!c" the draer of such cheque fails to ma(e the payment of the said amount of money

to the payee or, as the case may be, to the holder in due course of the cheque, ithin

fifteen days of the receipt of the said notice.

=xplanation/ Dor the purpose of this section, 6debt or other liability6 means a legally

enforceable debt or other liability.E

)hus *ection 1'8 of N.I.Act, states that hen a person issues a cheque to be encashed

and the cheque so issued is issued toards payment of a ;debt< or liability and it is

returned unpaid for ant of funds, the person issuing such a cheque shall be deemed

to ha#e committed an offence. *ection 1'8 presupposes three conditions for

prosecution of an offence they are/

a. 5heque shall be presented for payment ithin six months from the date of issue or

before expiry of its #alidity.

b. )he holder shall issue notice demanding payment in riting to the draer ith in

one month of the receipt of information of the bounced cheque, and

c. )he draer inspite of the demand notice fails to ma(e payment ithin one month of

the receipt of the notice.


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If the abo#e three conditions are satisfied the holder in due course gets the cause of

action to launch prosecution against the draer of the bounced cheque.

Ho3 !+oud t+e co"$aint for di!+onour of c+e.ue be odged for t+e offence

$uni!+abe u1!&%,/ of t+e Negotiabe In!tru"ent Act4

*ec.1% of the Act en#isages the method of lodging the complaint for the offence

punishable u>s.1'8 of the Negotiable Instrument Act.

-ogni5ance of offence!:

As per this *ection notithstanding anything contained in the 5ode of 5riminal

rocedure/

a. no court shall ta(e cogni&ance of any offence punishable u>s.1'8 except upon a

complaint, in riting, made by the payee or, as the case may be, the holder in due

course of the cheque,

b. such complaint is made ithin one month of the date on hich the cause of action

arises under clause !c" of the pro#iso to *ec.1'8,

ro#ided that the cogni&ance of the complaint may be ta(en by the court after the

prescribed period, if the complainant satisfies the court that he had sufficient cause for

not ma(ing a complaint ithin such period9

c. no court inferior to that of a Metropolitan Magistrate or a Fudicial Magistrate of the

Dirst 5lass shall try any offence punishable u>s.1'8.

)he cases filed under sec.1'8 of the Negotiable Instrument Act are tried summarily.

)hus for an offence to be made out and to set the criminal la in motion for the offence

punishable u>s.1'8 of the Negotiable Instrument Act 3ne should lodge a complaint in

riting made ithin 'G days from the date of cause of action by the payee or holder in

due course has to file a complaint before the Furisdictional court u>s.%GG of 5r..5..

0hen the complaint is presented for the said offence the court has to follo the

procedure prescribed u>s.%GG of 5r..5i9. 0hich reads as follos/

If the complaint so filed is made ithin limitation !time" and preconditions prescribed

u>s.1'8 are complied ith, court has to ta(e cogni&ance of the offence and record

sorn statement, then process shall be issued to the accused. )he Magistrate shall not

refer the complaint to the police for in#estigation u>s.124!'" of 5r..5. as the offence

u>s.1'8 of the Negotiable Instrument Act is non7cogni&able offenceii9.
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(re!u"$tion regarding t+e offence u1!&%,/ of Negotiabe In!tru"ent Act in

fa6our of +oder:

0hen a complaint is file under *ection 1'8 the court presumes that unless contrary is

pro#ed, the holder of cheque recei#ed the notice and failed to ma(e necessary paymentas referred to in *ec.1'8 for the discharge in hole or in part any ega# 6aid7debt8 or

7iabiit#8. *o, there is presumption that

negotiable instruments and related laws in bangladesh

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