NEGOTIABLE INSTRUMENTS ACT,1881

IN INDIA THE LAW RELATING TO NEGOTIABLE INSTRUMENTS IS PRIMARILY CONTAINED IN THE NEGOTIABLE INSTRUMENTs ACT,1881. THE WORD NEGOTIABLE MEANS TRANSFERABLE FROM ONE PERSON TO ANOTHER AND THE TERM INSTRUMENT MEANS ANY WRITTEN DOCUMENT BY WHICH A RIGHT IS CREATED IN FAVOUR OF SOME PERSON. NEGOTIABLE INSTRUMENT IS A DOCUMENT BY WHICH RIGHT VESTED IN A PERSON CAN BE TRANSFERRED TO ANOTHER PERSON WITH THE PROVISIONS OF NI ACT,1881.

NEGOTIABLE INSTRUMENT
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DEFINITION A NEGOTIABLE INSTRUMENT MEANS A PROMISORY NOTE, BILL OF EXCHANGE OR CHEQUE PAYABLE TO ORDER OR TO BEARER-(SEC.13 OF NI ACT,1881) NEGOTIABLE INSTRUMENT IS ONE THE PROPERTY IN WHICH IS ACQUIRED BY ANYONE WHO TAKES IT BONAFIDE AND FOR VALUE , NOT WITHSTANDING ANY DEFECT OF TITLE IN THE PERSON FROM WHOM HE TOOK IT-JUSTICE WILLIS

CHARACTERISTICS OF NEGOTIABLE INSTRUMENT

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FREELY TRANSFERABLE TITLE OF HOLDER FREE FROM ALL DEFECTS THE HOLDER IN DUE COURSE CAN SUE IN HIS OWN NAME CAN BE TRANSFERREDINFINITUM ANY NUMBER OF TIMES TILL ITS MATURITY SUBJECT TO CERTAIN PRESUMPTIONS

PRESUMPTIONS(SEC.118&11 9)
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EVERY NI IS PRESUMED TO HAVE BEEN MADE,DRAWN,ACCEPTED,INDORSED,NEGOTIATED OR TRANSFERRED FOR CONSIDERATION EVERY NI BEARING A DATE IS PRESUMED TO HAVE BEEN MADE OR DRAWN ON SUCH DATE. WHEN A BILL OF EXCHANGE HAS BEEN ACCEPTED,IT IS PRESUMED THAT IT WAS ACCEPTED WITHIN A REASONABLE TIME OF ITS DATE AND BEFORE ITS MATURITY. THE ENDORSEMENT APPEARING UPON A NEGOTIABLE INSTRUMENT ARE PRESUMED TO HAVE BEEN IN THE ORDER IN WHICH THEY APPEAR THEREON EVERY HOLDER OF A NI IS PRESUMED TO BE A HOLDER IN DUE COURSE.

TYPES OF NEGOTIABLE INSTRUMENT

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A. NEGOTIABLE BY STATUTE: PROMISORY NOTES,BILL OF EXCHANGE AND CHEQUES. B. NEGOTIABLE BY CUSTOM OR USAGE: GOVT.PROMISORY NOTES,BANKERS DRAFTS AND PAY ORDERS,HUNDIS,DELIVERY ORDERS AND RAILWAY RECEIPTS FOR GOODS.

PROMISSORY NOTE
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A PROMISORY NOTE IS AN INSTRUMENT IN WRITING(not being a bank note or a currency note) CONTAINING AN UNCONDITIONAL UNDERTAKING, SIGNED BY THE MAKER, TO PAY A CERTAIN SUM OF MONEY ONLY TO ,OR TO ORDER OF A CERTAIN PERSON, OR TO THE BEARER OF THE INSTRUMENT.(SEC.4)

SPECIMEN OF A PROMISORY NOTE

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RS.1000 DELHI,10thMAY,2010 Three months after date I promise to pay Shyam or order the sum of one thousand rupees, for value received.
To, STAMP

Mr.Shyam,23-Ashok vihar,New Delhi

sd\- K.RAM

ESSENTIAL ELEMENTS OF A P.NOTE

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1. 2. 3. 4. 5. 6. 7. 8.

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IN WRITING PROMISE TO PAY DEFINITE AND UNCONDITIONAL SIGNED BY THE MAKER PARTIES ARE CERTAIN CERTAIN SUM OF MONEY PROMISE TO PAY MONEY ONLY BANK NOTE OR CURRENCY NOTE IS NOT A PROMISORY NOTE FORMALITIE S LIKE DATE, PLACE,CONSIDERATION, DUELY STAMPED,ETC. IT MAY BE PAYABLE ON DEMAND OR AFTER A DEFINITE PERIOD OF TIME IT CANNOT BE MADE PAYABLE TO BEARER ON DEMAND.

BILL OF EXCHANGE
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A BILL OF EXCHANGE IS AN INSTRUMENT IN WRITING CONTAINING AN UNCONDITIONAL ORDER SIGNED BY THE MAKER,DIRECTING A CERTAIN PERSON TO PAY A CERTAIN SUM OF MONEY ONLY TO ,OR ORDER OF, A CERTAIN PERSON OR TO THE BEARER OF THE INSTRUMENT.(SEC.5)

PARTIES TO A BILL
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DRAWER:-The person who gives the order to pay or who makes the bill. DRAWEE:- The person who is directed to pay is called the drawee. ACCEPTOR:-When the drawee accepts the bill, he is called the acceptor. PAYEE:- The person to whom the payment is to be made is called the payee. HOLDER:-The drawer or the payee who is in possession of the bill is called the holder

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SPECIMEN BILL OF EXCHANGE

Rs.1000 Mumbai,3rd May 2010 Two months after date pay to Ram or order the sum of rupees one thousand for value received. To, LAKSHMAN stamp 321-Rose apts. Accepted Chennai-34 Lakshman sd\-

ELEMENTS OF A BILL OF EXCHANGE

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IT MUST BE IN WRITING IT MUST CONTAIN AN ORDER TO PAY THE ORDER MUST BE UNCONDITIONAL IT REQUIRES THREE PARTIESDRAWER,DRAWEE & PAYEE THE PARTIES MUST BE CERTAIN IT MUST BE SIGNED BY THE DRAWER THE SUM PAYABLE MUST BE CERTAIN IT MUST CONTAIN AN ORDER TO PAY MONEY MUST BE PROPERLY STAMPED ,DATED,ECT.

DISTINCTION BETWEEN A BILL OF EXCHANGE AND A P.NOTE

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NO. OF PARTIES ORDER AND PROMISE THE MAKER OF THE P.NOTE IS THE DEBTOR ; THE MAKER OF THE BILL IS THE CREDITOR THE LIABILITY OF THE MAKER OF A NOTE IS PRIMARY AND ABSOLUTE. THE LIABILITY OF THE DRAWER OF A BILL IS SECONDARY AND CONDITIONAL A P.NOTE NEED NO ACCEPTANCE; A BILL REQUIRES ACCEPTANCE.

CHEQUE
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A CHEQUE IS A BILL OF EXCHANGE DRAWN UPON A SPECIFIED BANKER AND NOT EXPRESSED TO BE PAYABLE OTHERWISE THAN ON DEMAND AND IT INCLUDES THE ELECTRONIC IMAGE OF A TRUNCATED CHEQUE AND A CHEQUE IN THE ELECTRONIC FORM.(SEC.6) A CHEQUE IS A SPECIES OF A BILL OF EXCHANGE;BUT IT HAS THE FOLLOWING TWO ADDITIONAL QUALIFICATIONS(1) IT IS ALWAYS DRAWN ON A SPECIFIED BANKER (2) IT IS ALWAYS PAYABLE ON DEMAND.

MARKING OF CHEQUES
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MARKING OF A CHEQUE IS EQUIVALENT TO AN ACCEPTANCE SO AS TO BIND THE BANKER TO PAY THE CHEQUE AS MARKED. THE EFFECT OF MARKING A CHEQUE IS THAT IT WOULD BE HONOURED WHEN PRESENTED FOR PAYMENT.

TYPES OF CHEQUES
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2.

OPEN CHEQUE:- A cheque which can be presented by the payee for the payment at the counter is called open cheque. CROSSED CHEQUE:-Crossing of a cheque means putting two parallel lines across the face of the cheque with or without the words &Co. not negotiable,etc. Such cheques are called crossed cheques.The payment of such a cheque cannot be obtained at the counter but only through an Account or through a banker.

Types of crossing
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General crossing Special crossing -Restrictive crossing -Not negotiable crossing

SOME IMPORTANT TERMS

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ESCROW: When a bill is delivered conditionally or for a special purpose as a collateral security or for safe custody only, and not for transferring absolute property therein, it is called an escrow. DOCUMENTARY BILL: A documentary bill is one to which document of title like bill of lading,railway receipt,etc. are annexed.When the bill is accepted or paid, the documents of title are handed over BANK DRAFT: It is an order addressed by one bank to to another or by a bank to its branch, directing the latter to pay a specified sum of money to a named person or to his order.

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Maturity of bill and days of grace

A PROMISORY NOTE OR A BILL OF EXCHANGE MAY BE PAYABLE1. ON DEMAND, OR 2. ON A SPECIFIED DAY, OR 3. AFTER A SPECIFIED PERIOD IN THE FIRST CASE THE AMT. IS PAYABLE ON THE INSTRUMENT WHEN THE DEMAND IS MADE. IN THE THIRD CASE DATE OF MATURITY IS TO BE CALCULATED.

MATURITY-Sec.22
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THE MATURITY OF A PROMISORY NOTE OR BILL OF EXCHANGE IS THE DATE ON WHICH IT FALLS DUE. EVERY INSTRUMENT PAYABLE OTHERWISE THAN ON DEMAND IS ENTITLED TO THREE DAYS OF GRACE. (DATE OF THE INSTRUMENT+3 DAYS=MATURITY DATE)

PARTIES TO NEGOTIABLE INSTRUMENT(x)

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PARTIES OF A BILL OF EXCHANGE:Drawer,Drawee,Acceptor,Payee,Holder,indors er,Indorsee PARTIES TO A PROMISORY NOTE:Maker,Payee,Holder,Indorser,Indorsee PARTIES TO A CHEQUE:Maker,Drawee,Payee,Holder,Indorser,Indorse e

HOLDER & HOLDER IN DUE COURSE

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HOLDER MEANS ANY PERSON ENTITLED THE POSSESSION OF THE NEGOTIABLE INSTRUMENT AND TO RECOVER OR RECEIVE THE AMOUNT DUE THEREON . NO PERSON OTHER THAN A HOLDER CAN SUE UPON A NEGOTIABLE INSTRUMENT. HE IS THE ONLY PERSON ENTITLED TO GIVE A VALID DISCHARGE FOR THE BILL.(Sec.8). HOLDER IN DUE COURSE MEANS A HOLDER WHO TAKES THE INSTRUMENT IN GOOD FAITH FOR VALUE BEFORE IT IS OVERDUE AND WITHOUT ANY NOTICE OF DEFECT IN THE TITLE OF THE PERSON FROM WHOM HE TOOK IT.(Sec.9.) Thus it is obvious that every holder is not a holder in due course.A holder must have paid some consideration and took the instrument in good faith to become a holder in due course.

NEGOTIATION
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WHEN A PROMISORY NOTE, BILL OF EXCHANGE OR CHEQUE IS TRANSFERRED BY ONE PARTY TO ANOTHER, SO AS TO CONSTITUTE THE TRANSFEREE THE HOLDER THEREOF, THE INSTRUMENT IS SAID TO BE NEGOTIATED(Sec.14).

THERE ARE TWO METHODS OF TRANSFER BY NEGOTIATION 1.NEGOTIATION BY DELIVERY 2.NEGOTIATION BY INDORSEMENT AND

INDORSEMENT
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INDORSEMENT MEANS THE WRITING OF A PERSONS NAME ON THE FACE OR BACK OF A NEGOTIABLE INSTRUMENT OR ON A SLIP OF PAPER(CALLED ALLONGE) ANNEXED THERETO FOR THE PURPOSE OF NEGOTIATION(S.15) THE PERSON WHO SO SIGNS THE INSTRUMENT IS CALLED THE INDORSER. THE PERSON TO WHOM THE INSTRUMENT IS INDORSED IS CALLED THE INDORSEE.

PRESENTMENT OF A NEGOTIABLE INSTRUMENT

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PRESENTMENT MEANS SHOWING A NEGOTIABLE INSTRUMENT TO THE DRAWEE, ACCEPTOR, OR MAKER FOR 1)ACCEPTANCE,OR 2) SIGHT, OR 3) PAYMENT

DISHONOUR OF A NEGOTIABLE INSTRUMENT

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A BILL MAY BE DISHONOURED BY:- 1)Non acceptance, or by2) non-payment. A PROMISORY NOTE OR CHEQUE CAN BE DISHONOURED ONLY BY NON-PAYMENT.

NOTICE OF DISHONOUR (x)

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WHEN A NEGOTIABLE INSTRUMENT IS DISHONOURD, THE HOLDER MUST GIVE A NOTICE OF DISHONOUR TO ALL THE PARTIES WHOM HE WANTS TO MAKE LIABLE ON THE INSTRUMENT

NOTING & PROTESTING (x)

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NOTING:-Recording of the fact of dishonour by a notary public on a dishonoured bill, or upon a paper attached to it(sec.99). PROTEST:-When a promisory note or bill of exchange has been dishonoured by nonacceptance or non-payment, the holder may within a reasonable time,cause such dishonour to be noted and certified by a Notary Public. Such formal certificate by the Notary public is called protest (sec.100).

HUNDIS
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A HUNDI IS AN INDIGENOUS NEGOTIABLE INSTRUMENT WRITTEN IN A VERNACULAR LANGUAGE AND IS SUBJECT TO LOCAL USAGE AND CUSTOMS. THESE ARE MOSTLY LIKE BILLS OF EXCHANGE IN FORM AND SUBSTANCE.