ppt on negotiable instruments

7/24/2019 PPT on Negotiable Instruments

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NEGOTIABLE INSTRUMENT

ACT, 1881BY

PROF. ATUL H. SHUKLA


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NEGOTIABLEINSTRUMENTS

Negotiable means onewhich can be negotiated. Inother words, anything which istransferable from one person toanother for a consideration.

Inst!"ent means a written

document by which a right iscreated in favour of a person.

Negotiable Inst!"ents A#t,

1881 is the law governing all


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NEGOTIA!E IN"T#$%ENT"

There is no speci&c de&nition under the actbut "ec. '( says ) A negotiable instrumentmeans a $o"isso% note &'N(, bill o)

e*#+ange&BE( or #+e!e payable either toorder or to bearer*.

+haracteristics of a valid N. I.

1- .eel% tans)eable property or right in

the NI passes from one to another either ondelivery -payable to bearer or endorsementand delivery -payable on order.


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/. Title of the holder is )ee )o" all /e)e#ts

Any person receiving the NI for valueand in bonafde manner, is called holder in due course.

0e gets the NI free of all defects in the title of NI.0e is not a1ected by defect of transferor or earlier

party.

(. Re#o0e% The holder in due course has right of

recovery and he can sue the party for payment.2. 'es!"$tions +ertain presumptions apply toall NI -unless contrary to ma3e it a validinstrument.


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GENERAL 'RESUM'TIONS .OR ALI2 NI-

'. +onsideration

/. 4ate

(. Time of Acceptance

2. Time of Transfer

5. Time of Endorsement

6. "tamping7. 0older is holder in due course.


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8resumptions can be challenged in a court.

The above presumptions can bechallenged by evidence only.

8erson has to prove the allegations.

8resumptions will not apply in case ofany fraud, unlawful consideration or

other o1ence.There can be more speci&ed presumption

added in certain NI by the parties.


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4I99E#ENT T:8E" O9 NI

NI can be divided into / main categories1- Inst!"ents negotiable b% #!sto" o

!sage

Government promissory notes, ban3ers; draft,

hundis, railway receipts etc were considered NIby customary practice.

3- Inst!"ents negotiable b% Stat!te & La4( 5

"ection '( de&nes only ( 3ind of NI

a. 8romissory Notes

b. ills of E


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8#O%I""O#: NOTE"

'N is de&ned u>s 2 as )an instrument inwriting -not being a currency or ban3 notecontaining unconditional undertaking, signed

by the ma3er, topaycertain sum of moneyonly to, or orderof a certainpersonor thebearerof the instrument.*

Ma6e &'a%e( one who prepares and signs

the 8N is called %A?E# - same as 8A:E# 'a%ee the person whom the payment is to

be made is called 8A:EE.


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E""ENTIA! E!E%ENT" O98N

'. %ust be in 7iting +an not be verbal.

/. 8romise to 'a% It must contain an e


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5. Cetaint%of the 'aties the 8Nmust be clear as to who is the %a3erand who is the 8ayee.

6. 7. 8romise to pay onl% Mone% Thepromise to pay must be in legaltender money of India.

7. Cetaint%of Mone% &A"o!nt(The 8N must specify the e*a#t s!"of money payable and should not

have some #ontingen#%capable of


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@. Sta"$ing5 8N must contain re=uiredstamps under Indian "tamp Act, '@.

. It must be payable ON 2EMAN2 or after

a de&nite period of TI%E &ON 2ATE(. 0ereon demand means payable immediately.

'B. 8N CANNOTbe $a%ableon demand toBEARER of 8N #I Act, '(2 prohibits

issue of any 8N payable on demand tobearer of 8N e


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BILLS O. E:C;ANGE

Se#


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E""ENTIA! E!E%ENT" O9 E

'. Instrument in writing and signed bydrawer

/. $nconditional Order to 8ay

(. Essential to have ( parties

2. All parties must be certain

5. "um must be certain6. 8ayment in %oney only

7. "tamping is must.


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4I99E#EN+E ETCEEN 8N DE

'. In E there are ( parties in 8N only /.

/. 8N ispromise to pay, E is orderto pay.

(. %a3er of 8N is debtor, obliged to pay. %a3er

of E is creditor, who orders some one else-his debtor to pay the third party -payee.

2. !iability , in 8N it is primary and absolute, inE it is secondary and conditional.

5. No acceptance re=uired in 8N, in Eacceptance by the drawee is must.


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4I99E#EN+E ETCEEN 8N DE

There is direct relations between ma3er andpayee in 8N while in E there is directrelation between drawer and drawee

-acceptor. A 8N can not be payable to ma3er but in E,

the drawer and payee can be same party.

8N can not be drawn payable to bearer but

in some circumstances, E can be payableto bearer. ut both can not be payable tobearer on demand.


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+0EF$E

A +0EF$E -+0 is a E drawn on aspeci&ed ban3er in speci&ed formonly.

/ features are must in +0.

a. Always on speci&ed ban3er.

b. Always payable on demand.

All CH are BE but allBE are not CH.

C0:


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4I99E#EN+E" ETCEEN E D +0

'. E can be drawn on any person while +0can be drawn only on a AN?.

/. E must be accepted by the drawee but no

acceptance re=uired in +0.(. E can be payable after a period -with (

days of grace, +0 is always payable ondemand.

2. A +0 can be crossed but not a E.

5. E re=uires stamping while in +0, nostamping is re=uired.


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+#O""ING O9 +0EF$E"

A +0 can be payable to the 8A:EE withoutacceptance by the AN? -4rawee.

The mode of payment depends on

whether +0 is crossed or not and ifcrossed the manner of crossing.

There are mainly ( types of crossing

'. General/. "pecial

(. #estrictive


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+#O""ING O9 +0EF$E"

General crossing is one where / paralleltransverse lines are drawn, with or withoutwords ) not negotiable*.

Chen +0 is crossed generally, the draweeban3er will pay only if presented by any ban3er.

"pecial crossing is one where name of aspeci&ed ban3 - called collecting ban3er iswritten with or without words ) not negotiable*.

Chen it is crossed speci&cally, it will be payableonly thru ban3er whose name is mentioned onit.


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+#O""ING O9 +0EF$E"

In restrictive crossing, words A>c 8ayee onlyare written with or without name of thecollecting ban3er.

This is the most safe way of crossing for thedrawer of the +0 because the drawee ban3 isprima facie responsible if proceeds of the +0is credited to any account other than payee.

As per section '/6, A che=ue can be crossedby drawer or holder - generally payee orban3er has right to cross the +0.


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+!A""I9I+ATION O9 N.I.

There are many di1erent varieties ofNegotiable Instruments.

1-Beae and O/eInstruments.

A NI is a bearer instrument if

-aIt is e


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8ayable to bearer is 3nown as holder in due courseand he can enforce the payment due on the N.I.

A E or 8N can not be made payable to bearer ondemand. The #I Act , '(2 prohibits issue of 8Npayable to bearer.

An O#4E# instrument is one , which is notEA#E#. It should contain words li3e ) payable to%r. H or Order*.

oth earer and Order Instruments areTransferable by either delivery or delivery plusendorsement.


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Inlan/ an/ .oeign Bills =Se#tion 11an/ 13>

Inlan/ Bill5

It is drawn in India on a person

residing in India and payable inIndia or

4rawn on a resident of India D

payable in India is an Inland bill evenif drawn outside India.

.oeign Bill5

A bill drawn in India on a person

residing outside India and made


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Ti"e an/ 2e"an/ Bills5

Ti"e Bill5 A bill payable after lapse of time is termedas a time bill. A bill payable )after an date* is alsotime bill.

2e"an/ Bill5 A bill payable at sight or on demand istermed as a demand bill.

Ta/e an/ A##o""o/ation Bills5

Ta/e Bill5 A bill drawn and accepted for a genuinetrade transaction is termed as )trade bill*.

A##o""o/ation Bill5 A bill drawn and accepted notfor a genuine trade transaction but only to provide&nancial help to some party is termed as an)accommodation bill*.


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NEGOTIATION

A##o/ing to se#tion 19 o) t+e A#t, when apromissory note, bill of e


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MO2ES O. NEGOTIATION Negotiation b% /eli0e% &Se#- 9?(5

Chere a promissory note or a bill of e


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EN2ORSEMENT

"omething written, especially a comment withsignature, written on the bac3 of a documentto ma3e it payable in a manner speci&ed, toapprove it, or to comment on it.

The word endorsement; in its literal sensemeans, writing on the bac3 of an instrument.ut under the Negotiable Instruments Act it

means, the writing of one;s name on the bac3of the instrument or any paper attached to itwith the intention of transferring the rightstherein.


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EN2ORSEMENT

Thus, endorsement is signing a negotiable instrumentfor the purpose of negotiation. The person who e1ectsan endorsement is called an endorser;, and theperson to whom negotiable instrument is transferredby endorsement is called the endorsee;.

7+o "a% En/ose @ Negotiate =Se#- 5

Every ma3er, drawer, payee or endorsee, or all ofseveral Joint ma3ers, drawers, payees or endorsees of

a negotiable instrument may endorse and negotiatethe same if the negotiability of such instrument hasnot been restricted or e


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EN2ORSEMENTEssentials o) a ali/ En/ose"ent5

It must be on the bac3 or face of instrument or ona slip of paper anne


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'RESENTMENT O. A N-I-8resentment under the act means physicalshowing of the NI to the drawee, acceptoror ma3er for either acceptance or payment.

%ainly / types of presentment are done

'. 8resentment of only E for acceptance./. 8resentment of 8N,E or +0 for payment.

-in case of 8N presentment for sight isre=uired before payment in some cases.

(. 8resentment must be done in prescribedmanner, during business hours, on thedate and at the place mentioned in theinstrument.

2ISC;ARGE UN2ER N I


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2ISC;ARGE UN2ER N-I-ACT

$nder N.I. Act, discharge has two conte


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2ISC;ARGE O. 'ARTY

'. y payment./. y cancellation when name of any

party is duly cancelled with

intention to discharge(. y e


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2IS;ONOUR O. N-I- Chat is dishonourin case of N.I.

$nder N.I. Act, dishonour is the act on the part ofone or more party resulting in failure to ful&ll thecommitment as re=uired by the law. It must bean e


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2IS;ONOUR BY NONACCE'TANCE

4ishonour by non-acceptance can be aresult of any of the following

'.The drawee does not accept the billwithin! hoursof presentment.

/. If there are more than ' drawee and a"" ofthem have not accepted the bill.

(. Chen drawee gives #ua"i$edacceptance.

2. Chen drawee is incompetentto contract.5. Chen drawee is a $ctitious person and

can not be traced after reasonable search.


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2IS;ONOUR BY NON'AYMENT

4ishonour by nonKpayment is said tohave happened when ma3er of 8N ,acceptor of E or drawee ban3 of +0

ma3es default in payment at thetime when the instrument ispresented for payment in due course.

9or steps against dishonour to bee1ective, the payment must be dueand the holder of the instrument

must be holder in due course.


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NOTICE O. 2IS;ONOUR

Notice of dishonour must be given to inform thedefaulting party about the liability arising as aresult of dishonour of the instrument.

Cho can give notice

'. 0older or any prior party./. 8rincipal or agent or any authorised person.

. Notice to Chom

'. All parties, whom the holder see3 to ma3e liable.

/.To the party or agent or legal rep. or assignee.(. Not compulsory to give notice to ma3er of 8N,

acceptor of E or drawee of the che=ue. They areprimarily liable for honouring the instrument.


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REUIREMENTS .OR COM'ENSATION

4uties of the holder

'. Notice of dishonour to all parties.

/. Noting D 8rotesting by a Notary 8ublic.

(. "uit for recovery of money.

. #ules for +ompensation

'. +ompensation to the holder for amountand e


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'ENALTIES .OR 2IS;ONOURO. C;EUE .OR

INSU..ICIENCY O. .UN2S New chapter HII has been inserted in the act

comprising of "ec '(@ to '2/ -in '@@ D/BB/.

"ec '(@ In case of dishonour of a che=uedue to insuciency of funds, the drawer ofthe +0 shall be punished with imprisonmentup to / years or with a &ne which may e


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Con/itions )o A#tion !@s 1D8-

'. The +0 must be returned -dishonoured by the

drawee ban3 due to insuciency of funds inthe drawer;s account and no other reason.

/. The payment must be in discharge of legallyenforceable debt or liability.

(. The +0 must be presented by payee withinperiod of validity, i.e. within ( months of date.

2. 8ayee or holder must give notice demandingpayment from holder within (B days of

receiving info from ban3 for dishonour.

5. The drawer is liable for action u>s '(@ only ifhe fails to ma3e payment within '5 days ofsuch notice period.


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THA%K &OU

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