Negotiable instrument means a transferable document. It is a document used as a means for making some payment and it is negotiable i.e.

, its ownership can be easily transferred from one person to another many times before the final payment is made.

Definition of Negotiable Instrument According to section 13 of the Negotiable Instruments Act, 1881, a negotiable instrument means promissory note, bill of exchange, or cheque, payable either to order or to bearer.

Explanation (i).-A promissory note, bill of exchange or cheque is payable 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. (ii).-A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank. (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 his order, it is nevertheless payable to him or his order at his option. A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or -some of several payees.

1.

Types of Negotiable Instruments

According to the Negotiable Instruments Act, 1881 there are just three types of negotiable instruments i.e., promissory note, bill of exchange and cheque. However many other documents are also recognized as negotiable instruments on the basis of custom and usage, like hundis, treasury bills, share warrants, etc., provided they possess the features of negotiability.

Section 138 to 147 were incorporated in Negotiable Instruments Act, 1881(NI Act) with a view to promote the efficacy of the banking operations and to enhance the credibility of the cheques in business transactions. The NI Act makes the drawer of cheque liable for penalties in case of dishonour of cheques due to insufficiency of funds or for the reason that it exceeds the arrangements made by the drawer. The NI Act also contains sufficient safe guards to protect the drawer of cheques by giving him an opportunity to make good the payment of dishonoured Cheque when a demand is made by the payee. This Article analysiss the effectiveness or lack of effectiveness of the cheque bouncing provisions.

Scheme of NI Act with regard to cheque bouncing

An offence under the NI Act shall be deemed to have been committed, if the following conditions are satisfied (Section 138):

Cheque must have been drawn by a person(the drawer) in favour of a payee on his bank account for making payment

Such payment must be either in whole or partial discharge of a legally enforceable debt

Cheque must have been returned by the Banker to the payee or holder in due course

due to insufficient balance

in the account of the drawer or it exceeds the

arrangement he had with the bank, Proviso requires fulfillment following additional conditions Cheque must be presented within a period of 6 months from the date of cheque or its validity period which ever is earlier. (Cheque validity period is now reduced to 3 months)

The payee or holder in due course must demand payment of the cheque amount by written notice within 15 days of receipt of notice

Such notice must be issued within 30 days from the date of receipt of intimation of dishonour from bank and

The drawer of cheque fails to pay demanded sum within 15 days from the date of receipt of the notice Presumption in favour of holder:

There is a presumption in favour of the holder of cheque that he received the cheque in discharge of a legally enforceable whole debt or part of the debt, Unless contrary is proved, (Section 139). When cause of action arises for filing a complaint?

Once the drawer fails to make payment within 15 days from the date of receipt of notice from the payee, the cause of action arises for filing a complaint on expiry of notice period period. The complaint has to be filed within 30 days from the date of cause of action and in the relevant court of Metropolitan Magistrate or Judicial Magistrate having jurisdiction. Recently the Supreme court in the case of MSR Leathers V S

planniappan & Anr, reversed its earlier judgment in Sadanandan Bhadran v. Madhavan Sunil Kumara and held that a payee or holder of a cheque can now issue a statutory notice to the drawer each time the cheque is dishonoured and institute proceedings on the basis of a second or successive statutory notice as well.

Section 142 of Act mandates that no court shall take cognizance of the offence unless a complaint in writing is given by the payee or holder in due course as the case may be and such complaint has to be made within one month from the date of cause of action.

Amendments to NI Act

http://www.icai.org/resource_file/19699ipcc_blec_law_vol1_chapter2.pdf