sale of goods, patnership

7/31/2019 Sale of Goods, Patnership

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Sale of Goods Act, 1930

Partnership Act 1932

Negotiable Instrument Act 1881



Sale of Goods Act, 1930

A contract of sale of goods is a contractwhereby the seller transfers or agrees to

transfer the property in goods to thebuyer for a price. Sec.4(1)

There may be a contract of sale betweenone part owner and another.

A contract of sale may be absolute orconditional.



Essentials of contract of sale

1. A contract (all essentials of valid contractapplicable)

2. Between two parties3. To transfer or agree to transfer the property

4. In goods (Subject Matter)

5. For a price, i.e. the consideration is money.



Transfer of property

Transfer of property means transfer of ownership. Mere transfer of possessioncan not be termed as a sale.

Sec.2(11) „Property means generalproperty in goods and not merely a specialproperty.‟

General property means all ownershiprights and special property means limitedrights.



Goods

Sec.2(7). „Goods means every kind of movable property other than actionableclaims and money, and includes stock and

shares, growing crops, grass, and thingsattached to or forming part of the landwhich are agreed to be severed beforesale or under contract of sale.‟



Kind of goods

1. Existing goods- Sec.6(1) these are the goods whichare in existence and are physically present in thesellers possession. They are further classified as

Specific goods- 2(14) – these are the goods identifiedand agreed upon at the time the contract is made.

Ascertained goods- these are identified after theformation of the contract.

Unascertained goods- these are the goods which are

not specifically identified or agreed upon at the time of the contract of sale.

2. Future goods -sec.2(6)

3. Contingent goods 6(2)



Subject matter of contract of sale-

Goods.

Goods may be classified as :-

1. Existing Goods- a) specific goods, b)ascertained goods, c) unascertained goods.

2. Future goods- which do not exist with the sellerat the time of sale. the contract thus is anagreement to sell.

3. Contingent goods – a type of future goods, theacquisition of which depends upon acontingency which may or may not happen.



Price consideration

The consideration for the contract of salemust be money. If goods are exchangedagainst goods the transaction is barter and

not covered by the act. Howeverconsideration may be partly in money andpartly in goods.

NO SPECIAL FORMALITIES ARE REQUIRED

FOR CONTRACT OF SALE. IT MAY BE INWRITING OR ORAL OR IMPLIED.



Sale and agreement to sale

When property is transferred from sellerto buyer at the time of formation of contract, an absolute sale occurs.

When property in the goods is to betransferred at some future date and not atthe time of contract, the contract of sale istermed as an agreement to sell.



SALE AND AGREEMENT TO

SELL

Sale1. Ownership is with the buyer

2. Executed contract

3. Sue for price, in case of breach

4. Goods lost by accident thenloss falls on the buyer.

Agreement to sell1. Ownership is with the seller

2. Executory contract

3. Sue for damages only, in case

of breach4. Goods lost by accident then

loss falls on the Seller.



Perishing of goods

The possible causes of perishing of goods:-

1. Physical destruction of goods.

2. Damage of goods in such a manner thatthey loose their commercial value.

3. Loss of goods by theft.

4. Lawful acquisition of goods bygovernment.



Effect of perishing of goods…

Effect of perishing of future goods.:- Sec.8applies in this case also which says „wherethere is an agreement to sell specificgoods, and subsequently the goodswithout any fault on the part of the selleror buyer perish or become so damaged asno longer to answer to their description inthe agreement before the risk passes to

the buyer, the agreement is therebyavoided.‟



Price

Sec.2(10) defines the price as „the moneyconsideration for the sale of goods.‟

Price has to be in terms of money.

All monitory payments do not amount toprice.



Fixing the price

Price is mentioned in the contract.

The manner of fixing the price ismentioned in the contract.

It is determined by the course of dealingsof the parties. when price is not fixed byany of the above modes a „reasonableprice‟ is considered as the price of thecontract.



Time

When time is stipulated regarding the payment of price :- Time of payment is not considered theessence of the contract unless a different intentionappears from the terms of the contract. Thus if

payment is not made in time the seller can not avoidthe contract but can claim damages.

When time is stipulated regarding delivery of goods:-time of delivery of goods is normally considered

essence of the contract. Thus non performance atstipulated time will render the contract voidable at theoption of the buyer.



Conditions

And

warranties



Condition

[sec12(2)]

A condition is a term (oral or written)which goes directly 'to the root of thecontract', or is so essential to its very

nature that if it is broken the innocentparty can treat the contract asdischarged. That party will not thereforebe bound to do anything further under

that contract.



Warranty [sec12(3)]

A warranty is a term of the contract whichis collateral or subsidiary to the main

purpose of the contract. It is therefore notso vital as to affect a discharge of thecontract. A breach of warranty onlyentitles the innocent party to an action fordamages; he cannot treat the contract asdischarged.



Types of conditions and warranties

1) Express – which are expressly providedin the contract.

2) Implied- which the law implies into thecontract unless the parties stipulate to thecontrary.



Implied conditions

1. Condition as to title [sec.14(a)] - seller has the right to

sell.

2. Sale by description (sec.15)- goods shall correspond withthe description.

3. Condition as to quality or fitness [sec16(1)]

4. Condition as to merchantability [sec.16(2)]

5. Condition implied by custom- fitness for a particular

purpose may be annexed by the usage of trade [sec.16(3)]

6. Sale by sample (sec.17)

7. Condition as to wholesomeness



In a contract of sale, unless the situation of thecontract are such as to show a different intention,there is an implied condition on part of the seller

that—

In sale, he has right to sell goods.

In agreement to sell, he will have a right to sell at

the time when property is to pass.



SALE BY DESCRIPTION In sale by description there is an implied condition

that the goods shall correspond with description.

This means “if you contract to sell peas, you cannot

oblige the party to take beans.”

Hence if the description of the article tendered isdifferent then the buyer may not buy the goods.



SALE BY SAMPLE A contract of sale is a contract for sale by sample

where there is a term in the contract, express orimplied, to that effect.

1. That bulk shall correspond with the sample in quality,

2. That the buyer shall have a reasonable opportunity ofcomparing the bulk with the sample.

3. That the goods shall be free from any defects,rendering them unmerchantable.



If the sale is by sample as well as by description, it is notsufficient that the bulk of goods corresponds with thesample, if the goods do not also correspond with the

description.

This means goods must match with the description andsample.



Normally, in a contract of sale there is no impliedcondition as to quality or fitness for particular purpose.

The buyer must test the goods before he buys them inorder to satisfy him self that the goods shall be suitablefor him.

CONDITION OF



CONDITION OF

MERCHANTABILITY

Where goods are bought by description from a sellerwho deals in goods of that description there is animplied condition that the goods are of merchantablequality.

This means goods should be such that they arecommercially saleable, as per the description by whichthey are known in the market at their full value.



An implied condition as to quality or fitness for aparticular purpose may be annexed by the usage oftrade.

This means that the goods which are required may beascertained from the acts and from the nature ofdescription of that article.



In the case of eatables and provisions, inaddition to the implied condition as to

merchantability, there is another impliedcondition that the goods shall be wholesome.



Implied warranties

1. Warranty of quiet possession [sec.14(b)]

2. Warranty of freedom from encumbrances[sec.14(c)]

3. Warranty as to quality or fitness by usageof trade [sec16(4)]

4. Warranty to disclose dangerous nature of goods

WARRANTY OF QUIET



WARRANTY OF QUIET

POSSESSION

In a contract of sale, unless there is a contrary intention,there is an implied warranty that the buyer shall haveand enjoy quite possession of the goods.

If the buyer is in any way disturbed in the enjoyment ofthe goods in consequence of the seller’s defective title tosell, he can claim damages from the seller.



WARRANTY OF FREEDOM FROM

ENCUMBRANCES

In addition to the previous warranty, the buyer isentitled to a further warranty that the goods are notsubject to any charge or right in favor of a third party.

If the possession is in any way disturbed by reason of theexistence of any charge or encumbrances on the goods infavor of any third party, he shall have a right to claim

damages for breach of this warranty.



WARRANTY AS TO QUALITY OR

FITNESS BY USAGE OF TRADE

An implied warranty as to quality or

fitness for a particular purpose may be annexed by the usage of trade.



WARRANTY TO DISCLOSE

DANGEROUS NATURE OF GOODS.

When a person sells goods knowing that thegoods are inherently dangerous or they are

likely to be dangerous to the buyer and that the buyer is ignorant of the danger, he must warnthe buyer of the probable danger, other wise hewill be liable in damages.



CAVEAT EMPTOR

In a contract of sale of goods the seller isunder no duty to reveal unflattering truthsabout the goods sold. Therefore, when a

person buys some goods, he mustexamine them thoroughly. If the goodsturn out to be defective or do not suit hispurpose, he cannot blame anybody

excepting himself.



Rights of buyer

Receive delivery of goods

To repudiate contract of seller commitsBOC

Examine the goods Sue the seller for damages

To recover unpaid amount

To sue the seller for breach of specificperformance



Duties of a buyer

To pay for the goods

Take delivery of the goods

To apply for delivery of goods

To compensate the seller for any losscaused to him



Rights of a seller

To receive price of goods

To receive compensation

To relieve care and charge of his products

If unpaid seller, right to exercise his lein

To sue for damages

T recover interest from the buyer on a

future date



Duties of a seller

To deliver the goods

To compensate the buyer if there is BOC

To refund excess amount to the buyer To compensate buyer in case of wrong

delivery



WHO IS AN UNPAID SELLER

A seller of goods is deemed to be an unpaidseller:-

When the whole of the price has not been paidor tendered

When any negotiable instrument is dishonoured

Rights of unpaid seller



Rights of unpaid seller Against

the goods Against

the seller personally

Lien

Stoppagein transit

Re sale

Withholdingdelivery

Stoppagein transit

Suit for priceRepudiationof contract

Suit for

damages

Suit for

interest



RULES OF DELIVERY Mode of delivery

Delivery and paymentcon current condition

Effects of part delivery

Buyer to apply fordelivery

Place of delivery

Time of delivery

Goods in possession of athird party

Cost of delivery

Delivery of wrongquantity

Installment deliveries



Indian Partnership Act,1932



Definition of Partnership

“relation between persons who have agreed toshare the profits of a business carried on byall or by any of them acting for all”.

- Persons who have entered in to partnershipwith one another are called individually „partners‟ and collectively „a firm‟ and the

name under which their business iscarried on is called the „firm name‟.



Characteristics

Association of two or more persons

Result of an agreement

Carry on some business

Sharing of profits Mutual agency - carried on by all or any of

them acting for all.

Oth L l Ch t i ti f



Other Legal Characteristics of

Partnership Form of Organisation

Unlimited liability

No separate legal entity

Utmost good faith

Restriction on transfer of interest

Unanimity of consent



Formation of Partnership

Based on agreement – oral/written/implied

All essential elements of a valid contract

must be present Free and genuine consent of parties

competent to contract

Object – lawful and all legal formalities tobe complied with.



Two points to be noted

1) Minor partner – minor may be admittedto the benefits of partnership withconsent of all partners.

2) Consideration – No consideration isrequired to create partnership which isan extension of the law of agency.

P hi D d



Partnership Deed

Interest of parties: agreement be in writing and such document is called „partnershipdeed‟ – must be duly stamped as required bythe Indian Stamp Act, 1889.

Contents: provisions relating to – nature, principal place of business, firmname, names and addresses of partners,duration of firm, profit-sharing ratio, interest

on capital & drawings, valuation of goodwill,management, accounts, etc.



ILLEGAL PARTNERSHIP

A partnership may be illegal in either of two ways:

1. By being formed to carry on an illegal business.

e.g., to carry on a business of illicit liquor.

2. Where the number of partners exceeds the maximum

limit (i.e. banking business: more than 10 and other

businesses: more than 20) or comes down to oneperson.



Partnership for a fixed term

The partners may, at the time when theyenter in to partnership agreement, fix theduration of the partnership.

Partnership is entered into for a fixedperiod of time and when this period isover, it comes to an end.



Partnership at will

A Partnership is called a partnership-at-will,1) When the partnership is not for a fixed period

of time and,

2) When no provision is made as to when and

how the partnership will come to an end.

A partnership-at-will can be dissolvedat any time by any of the partners notifyinghis willingness to do so.



Particular partnership

When a person becomes a partneranother person or persons in a particularadventure or undertaking.

It comes to an end as soon as thatadventure is completed.

T AT T



REGISTRATION OF THE FIRMS

Directly – not compulsory

Indirectly – by certain disabilities sufferedby unregistered firm.

Does not create partnership: Only areliable evidence of the existence of partnership.



Procedure for Registration (Section 58-59)

Section 58 - partnership firm may be registered at anytime by sending by post, or delivering to the registrar of

the firms of the area in which any place of business of

the firm is situated or proposed to be situated, a

statement in the prescribed form and accompanied by theprescribed fee stating:

N f th fi



Name of the firm,

The place or principal place of business of thefirm,

The names of any other places where the firmcarries on business.

The date when each partner joined the firm

The names in full and addresses of thepartners, and

The duration of the firm

- Signed by all the partners/agents and verified

in prescribed manner.

(Section 69)



1) A partner cannot file a suit against the firm or any partner, so

as to enforce a right

a) arising from contract, or

b) conferred by the Partnership Act.

Thus, if a partner of an unregistered firm is not paid his share of profits, he cannot claim it through a suit in the court of law.

2) An unregistered firm cannot sue a third party to enforce a

right arising from a contract.



3) An unregistered firm or any of its partners cannot

Claim a set-off in a proceeding instituted against the

firm.

- Is not affected if the claim of set-off deos not exceedRs. 100 in value.

MINOR AS A PARTNER (S 30)



MINOR AS A PARTNER (Sec. 30)

Agreement with or by a minor: Void ab-initio.

Sec. 30: Rights and Liabilities of minor partners

Right to share of the property as agreed

Total access

Minor‟s share in property and profits of the firm is liable

for acts of the firm, minor is not personally liable. Cannot file a suit against the other partners for accounts

or for payment of his share.

Can do so for severing his connection with the firm.

Minor attaining majority.



RIGHTS OF A PARTNER

1. Right to take part in the conduct of business.2. Right to express his opinion on any matter.

3. Right to have access to and inspect and copy any of

the books of the firm.

4. Right to share in the profits (equally in the absence of

an agreement to the contrary) of the firm.

5. Right to interest on capital.

6 A t i j i t f fi ’ t



6. A partner is a joint owner of firm’s property.

7. Right to interest on advances.

8. In an emergency, a partner has authority to do all suchacts as are reasonably necessary to protect the firm

from loss.

9. He has a right to be indemnified for liabilities incurred

by him during the ordinary course of business.

10. Agent of the firm for the purposes of the businesses of

the firm.

11 N li bilit f t f th fi d b f



11. No liability for any act of the firm done before one

becomes a partner.

12. Not to be expelled.

13. Right to resist the introduction of a new partner.

14. Right to retire.

15. Right to carry on competing business after ceasing to

be a partner.

16. Right of outgoing partner to share subsequent profits

in certain cases.



6. Not to claim remuneration.



7. To share losses

8. To indemnify the firm for any loss caused by hiswillful neglect.

9. To hold and use property of the firm exclusively forthe firm.

10. To account for personal profits.

11 To account for profits in competing business



11. To account for profits in competing business.

12. To act within authority

13. To be liable jointly and severally

14. Not to assign his rights.

15. Unless otherwise agreed, to contribute equally to the

losses of the firm.

LIABILITIES OF A PARTNER.



Acc. To Sec. 9, a partner shall be liable;

i. For not carrying on the business of the firm to the

greatest common advantage;

ii. For not being just and faithful to other partners and

iii. For failure to render true accounts and information

of all things affecting the firm to any partner or his

legal representative.

DISSOLUTION OF PARTNERSHIP



(Sec. 39-44)

Dissolution of partnership firm: The discontinuanceof the judicial relation between all the partners of thefirm. It amounts to the break-up of the relation of partnership between all the partners.

Dissolution of firm: Complete breakdown of therelationship of partnership between all the partners of a firm.

Dissolution of partnership: Involves only a change inthe relation of the partners.



C l Di l i



Compulsory Dissolution

By the adjudication of all partners or allthe partners but one as insolvent.

By the happening of any event which

makes it unlawful for the business of thefirm to be carried on, or for the partnersto carry it on in partnership.

Dissolution on the happening of certain



Dissolution on the happening of certain

contingencies

The expiry of the term for which the firmwas constituted.

The completion of the particular adventure/s

The death of a partner The adjudication of a partner as an insolvent

Dissolution by notice of partnership-at-



Dissolution by notice of partnership at

will

The firm may be dissolved by any partnergiving notice in writing to all the otherpartners of his intention to dissolve thefirm.

Di l ti b C t



Dissolution by Court

Court may, at the suit of a partner, dissolve afirm on the following grounds:

1) Insanity

2) Permanent incapacity

3) Misconduct

4) Persistent breach of agreement



5) Transfer of interest

6) Business working at a loss

7) Any other ground which renders it justand equitable that the firm should bedissolved.



3) P, Q and R enter into a partnershipagreement to ply motor buses on certainroutes for a period of twenty years. Thebusiness was run for four years and it was

found that business incurred losses ineach of the four years. P however, insistson the business being continued for theremaining period. Can P so insist? If he

can, state the course; if any, open to Q & R who are not anxious to run thebusiness.



Negotiable Instruments Act1881

Law relating to promissory notes, bills of exchange, Cheque and other negotiableinstruments is codified in India under theNegotiable Instruments Act, 1881



Negotiable Instrument

A written document transferable bydelivery

Negotiable instruments originated as a

form of bill of exchange. A Negotiable instrument is a document

made by a person instructing anotherperson to make payment to a third person

or the bearer of the document.



Characteristics

In writing

Signed by Drawer

Promise order must be unconditional

Promise to pay Payment at the time of certain arrive

Drawee must b certain



Types of Negotiable Instrument

1. Promissory Note

2. Bill of Exchange

3. Cheque

PROMISSORY NOTE



PROMISSORY NOTE

(S.4)

A promissory note is-

(1) an instrument in writing,

(2) not being a banknote or a currency note,

(3) containing an unconditional undertaking,.

(4) signed by the maker,

(5) to pay a certain sum of money only

(i) to a certain person, or

(ii) to the order of a certain person, or (iii) to the bearer

of the instrument :



ESSENTIALS OF A VALID PROMISSORY NOTE



1. It must be in writing.2. It must contain an undertaking to pay.

3. The undertaking to pay must be unconditional.

4. It must be signed by the maker.5. The maker of the note must be certain.

6. The sum payable must be certain.

7. The promise should be to pay money, and moneyonly.

8. The payee must be certain.

SPECIMENS OF PROMISSORY NOTES



Bombay, 10th January, 1998Rs. 5,000/-ON DEMAND I Promiseto pay WILLIM

JONES THE SUCM OF FIVETHOUSAND RUPEES.

Sd/- Henery Brown

Bombay, 10th

January, 1998

ON DEMAND I Promise to payMOHAN LALVANI the sum of Rs.

5,000/- (RUPEES FIVE THOUSANDONLY) FOR VALUE RECEIVED..

Sd/- SATISH GANDHI

Bombay, 10th January, 1998

ON DEMAND I promise to pay JOSEPH

DE SOUZA or order the sum of fivethousand rupees with interest on the saidsum at 10% (ten percent) per annum till

payment.

Sd/- PAUL FERNANDES

BILLS OF EXCHANGE



BILLS OF EXCHANGE

(S. 5 & Ss. 132-133)

A “Bill of Exchange” is –

(1) an instrument in writing,

(2) containing an unconditional order,

(3) signed by the maker,

(4) directing a certain person,

(5) to pay a certain sum of money only-.(i) to a certain person, or

(ii) to the order of a certain person, or

(iii) to the bearer of the instrument.

The maker of a Bill of Exchange is called the ―drawer,‖ and the

person thereby directed to pay‘ is called ―the drawee‖. (S. 7) A bill of

exchange is also sometimes called a draft. When it is drawn by a bank on

its own branch, it is called a bank draft.



SPECIMENS OF BILL OF EXCHANGE




Rs. 5000/-

Sixty Days after date, pay to William Smith, the sum offive thousand rupees only for value received.

ToPaul Jacobson,40, Mahatma Gandhi Road,Bombay – 400 023.


Rs. 5000/-

Sixty Days after date pay to John Smith, or order, the

sum of Rupees Five thousand only for value received.

Sd/- RAM GHELACHAND

ToPaul Jacobson,40, Mahatma Gandhi Road,Bombay – 400 023.

SPECIMENS OF ACCEPTANCE OF A BILL OF EXCHANGE


Rs. 5000/-

ON Demand Pay to William Smith, the sum of Rupeesfive thousand only for value received.

Sd/- RAM GHELACHAND

ToPaul Jacobson,40, m. Gandhi Road,Bombay – 400 023.

Accepted :S/d- Paul Jacobson


Rs. 5000/-

On Demand pay to William Smith the sum of five

thousand rupees only for value received

ToPaul Jacobson, Sd/-40, m. Gandhi Road, HENRY BROWNBombay – 400 023.

Accepted :S/d- Paul Jacobson



CROSSED CHEQUES (Ss. 123-130)

1.where a cheque bears across its face2.an addition of the words ‗and company‘, (or any

abbreviation thereof)

3.between two parallel transverse lines, or of two parallel

transverse lines simply (either with or without the words

―not negotiable‖,

4.that addition is deemed to be a ―crossing‖), and

5.the cheque is deemed to be crossed ‗generally‘ : S.123. When a cheque is not crossed, it is called an open

cheque.



Forms of General Crossing



g

1.And Company2. & Co.,

3. Not Negotiable

4. Payee‟s A/C

5. Under Rupees Fifty



Forms of Special crossing



p g

a. ICICI Bank ltd

b. With the parallel linec. ICICI Bank ltd

Not Negotiable

d. With Payee‟s A/c

e. With Not Negotiable a/c payee.

PAYEE (Ss. 7)

The person named in the instrument to whom or to



The person named in the instrument, to whom or to

whose order the money is, by the instrument directed to

be paid, is called the ―payee‖.

PAYMENT IN DUE COURSE (S.. 10)

―Payment in due course‖ means payment—

(i) in accordance with the apparent tenor ofinstrument.

(ii) in good faith. and

(iii) without negligence,

(iv) to any person in possession thereof,

(v) under circumstances which do not afford a

reasonable ground for believing that he is not entitled to

receive payment of the amount therein mentioned.



REQUISITES FOR HOLDER IN DUE COURSE

1. He must show that he has paid valuable consideration. Any



consideration which would support an ordinary contract would be

sufficient to constitute the transferee a holder in due course,

2 .But the donee of a pro-note, who takes it by way of a gift, is not a

holder in due course.

2. He must show that, on payment of such consideration, he

became—

(i) the possessor of the negotiable instrument, if the instrument

is pay the bearer thereof; or

(ii) the payee or endorsee thereof, if the instrument is payable to

the m,&-1

3. He must prove that he became the possessor thereof before the

amount due under the instrument became actually payable.

4. He must also show that he became the possessor thereof without

having sufficient cause to believe that any defect existed in the title of

the transferee from whom he derived his title.

NEGOTIABLE INSTRUMENTS



A „negotiable instrument‟ means a promissory note,‟ bill of

exchange or cheque payable either to order or to bearer : S. 13(1).

Explanation 1.-A promissory note, bill of exchange or cheque ispayable to order—which is expressed to be so payable, or which is

expressed - to be payable to a particular person and does not contain

words prohibiting transfer or indicating an intention that it shall not be

transferable.

Explanation 11,-A promissory note, bill of exchange or cheque ispayable to bearer—which is expressed to be so payable, or on which the

only or last endorsement is an endorement in blank.

Explanation III. Where a promissory note, bill of exchange or cheque

(either originally, or by endorsement), is expressed to be payable to the

order of a specified person, and not to him or the order, it is nevertheless

payable to. him or his order at his option : S. 13.

A negotiable instrument may be made payable to two or more payees

jointly, or it may be made payable in the alternative to àne of two, ‗or one

or some of several payees.

ESSENTIAL FEATURES OF NEGOTIABILITY

1. The property in a , negotiable instrument, i.e., the complete right



p p y , g , , p g

of

ownership, and not merely the possession, that is, the right to

retain it as against anyone except the true owner, passes, in the case ofbearer instruments, by mere delivery, and in case of order instruments,

by indôrsement and delivery..

2. The holder in due course is not in any way, affected by the defect

of the title of his transferor or of any prior party.

3. The holder in due course can upon a negotiable instrument in hisown name.

4. The holder in due course is not affected by certain defences

which might be available against previous holders, e.g., fraud, to which

he is not a party.

NEGOTIATION

When a promissory note, bill or cheque is transferred to any person,

so as to constitute him the holder of it, the instrument is said to be

negotiated: (S. 14).

Bouncing of Cheque A Criminal Offence



Bouncing of Cheque – A Criminal Offence

(Sections 138 to 142)

Section 138 provides punishment forbouncing of cheques, i.e., dishonour

for insufficiency of funds. Punishment provided is

imprisonment up to 2 years or fineup to double the amount of the

cheque or both.

Bouncing of Cheques



Bouncing of Cheques

Conditions to be satisfied:

1. Insufficiency of funds.

The expression insufficiency of

funds includes: stop-payment

closure of account

directing the payee not to present

Bouncing of Cheques –




2. Legally enforceable debt or liability . Thus,where a person proposes to make an FDR orinvest in shares and later changes his mind andstop payment of the cheque, he will not be

guilty of an offence under Section 138.3. Presentment within 6 months from the date

on which it is drawn or within the period of validity, whichever is earlier .

- Post-dated cheques?

Bouncing of Cheques –




4. Payee/holder should have given noticedemanding payment from the Drawerwithin 30 days of receipt of information

of dishonour of cheque from bank.5. The drawer must have failed to pay

within 15 days of such period of notice.

6. Complaint before MetropolitanMagistrate/ First Class JudicialMagistrate should be made within onemonth of expiry of aforesaid period of

15 days.

DIFFERENCE BETWEEN

BILL OF EXCHANGE & PROMISSORY NOTE



BILL OF EXCHANGE & PROMISSORY NOTE

BILL OF EXCHANGE PROMISSORY NOTE

1. There are there parties: drawer, drawee and payee. -2. It contains an order to pay. 3. The liability of the drawer is secondaryand conditional. 4. Presentment for payment and notice ofdishonour are required. 5. A bill of exchange can’ be accepted

conditionally. 6. Drawer ‘of a bill of exchange stands inimmediate’ relation with the acceptor. ‘7. Bills can be drawn in sets. 8. A bilief exchange can be made payable tobearer, provided it is not made payable ondemand. 9. Foreign bills must be protested for,dishonour if so required by the law of thecountry of their’. origin.

1. There are only two parties:promissorand promisee. 2. It contains a promise to pay. 3. The liability of the maker is’ primaryand absolute. 4. Presentment for payment and notice ofdishonour are not required. 5. A promissory note cannot be made

conditional. 6. Drawer of a promissory note stands inimmediate relation with the payee. 7. Promissory notes cannot be drawn issets. 8. A promissory note cannot be madepayable to bearer. 9 Promissory notes need not be protestedfor dishonour.

POINTS OF DIFFERENCE BETWEEN



CHEQUE BILL OF EXCHANGE

CHEQUE BILL OF EXCHANGE

1. The dràwee of a cheque is always a bank. 2. Cheque is payable on demand, without anydays of grace. 3. Cheque requires no acceptance. 4. Drawer of cheque is not discharged by failureof the holder to present it in due time. 5. Notice of dishonour is not necessary in thecase of V cheques.

6. Cheques need not be protested forclishonour. 7. Cheques can be crossed . 8. In certain circumstances statutory protectionis available to the draweebanker in connectionwith payment of cheques. 9. Under certain circumstances, statutoryprotect ion is available to the collecting bankeragainst liability for conversion of crossed

cheques.

1. Anyone can be a drawee

in the case of a bill of exchange. 2. Bill of exchange is en titled to three days ofgrace. 3. Bill of exchange requires acceptance. 4 If bill of exchange is not presented for paymentin due time, drawer is dis charged. 5. Notice of dishonour is necessary in the case of

bills of exchange. 6. It is advisable that bills of exchange beprotested for dishonour. 7. Bills of exchange cannot be crossed. 8. No such protection is available to the drawee oracceptor of a bill of exchange. 9. No such protection is available in the case ofbills of exchange.

sale of goods, patnership

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