The Negotiable Instruments Act, 1881

IPCC Paper-2: Business Laws, Ethics &Communications Chapter 2

CA. Chiranjiv Sodhi

1
Learning Objectives

1 • What is a Negotiable Instrument?

2 • Promissory Note
3 • Bills of Exchange
4 • Cheques
5 • Types of Instruments
6 • Liabilities of Parties
7 • Accommodation Bills
8 • Negotiation & Assignment
9 • Discharge of Parties

2
Abbreviations Used

NI • Negotiable Instrument

PN • Promissory Note

BE • Bill of Exchange

HDC • Holder in Due Course

3
What is a Negotiable Instrument?

It is an instrument- which is transferable by delivery, like cash, and

is also capable of being sued upon by the person holding for the
time being.

Section 13 of NI Act 1881 mentions only three kinds of NI viz: Bills,

Notes & Cheques.

4
Characteristics of Negotiable Instrument

Easy Negotiability ,

Transferee can sue in his own name without giving notice to debtor

Better title to a transferee for value,

Written & Signed

5
Presumption as to NI

Consideration

Date

Acceptance within reasonable time

Transfer before maturity

Sequence/order of endorsements

A lost NI was duly stamped

Holder of NI

6
In nutshell

A Negotiable Instrument is

a written & signed document

entitling a person to a sum of money

specified in it -and-

which is transferable from one person to another

either by delivery or by an endorsement & delivery.

7
As per Section 31 of Reserve Bank of India Act:

No person India
No person in India other than the RBI or
other than the RBI or the Central Govt. can
A cheque payable to
the Central Govt. can draw or accept a bill
bearer on demand
make or issue a of exchange and a
can be drawn.
promissory note promissory note
payable to bearer. payable to bearer on
demand.

8
An Intro.

Promissory Note

9
Promissory Note - Section 4
A promissory 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 the order

of

a certain person or to the bearer of the instrument.

10
Essentials of a Promissory Note

1 • It must be in writing
2 • Promise to pay
3 • Unconditional Promise
4 • It must be signed
5 • Certainty about maker & amount
6 • Payee must be certain.

11
Points to be noted

Consideration need not to be mentioned.

Place and date of making it need not to be

mentioned.

An undated instrument will be treated as

having been made on the date of its delivery.

An antedated or post dated instrument is not

invalid.

12
An Intro.

Bills of Exchange

13
Bills of Exchange

First of all, we must know how a bill of exchange ordinarily comes into existence.

Suppose “A” sells goods worth Rs 1000/ to “B” on credit and allows him three months
time to pay the price.

“A” will draw a bill on “B”.

After signing the bill A will present it to B for acceptance.

Now A is the drawer and B is the drawee.

After acceptance…… A is the drawer and B is the acceptor.

14
Bills of Exchange

Bill is an unconditional written order

signed by the drawer,

directing a certain person to pay

a certain sum of money

to the specified person or to his order or to the bearer of the bill.

15
Essentials of a Bill of Exchange

In writing

Order to pay

Unconditional

Duly signed

Certainty regarding parties

Certainty regarding amount

Money only

16
Promissory Note Vs. Bill of Exchange

Number of parties

Promise & Order

It should be noted
Acceptance
that neither a PN
nor a BE can be
Nature of liability
made payable to
Maker’s position bearer on demand

Payable to bearer

Notice of dishonour

17
An Intro.

Cheque

18
Cheque - Section 6

A cheque is a bill of exchange

drawn on a specified banker and
not expressed to be payable All cheques are biils of exchange,
otherwise than on demand and it but all bills of exchange are not
includes the electronic image of a cheque.
truncate cheque and a cheque in
the electronic form.

19
Similarities Between Bill & Cheque

1 • Regarding Nature
2 • Regarding Parties
3 • Drawer & Payee
4 • Written & Signed
5 • Unconditional Order
6 • Endorsement

20
Cheque Vs. Bill Of Exchange
Differences
A Cheque is always drawn on a banker- while a bill may be drawn on any person including
a banker.

A cheque can only be drawn payable on demand- whereas a bill may be drawn
payable on demand or on the expiry of certain period.

A cheque drawn payable to bearer is valid- but a bill drawn payable to bearer is
absolutely void

A cheque does not require any acceptance- whereas a bill requires acceptance.

A cheque does not require any stamp- whereas a bill of exchange must be properly
stamped.

Three days of grace are allowed while calculating the maturity date in case of time bills-
Since a cheque is always payable on demand, there is no any days of grace.

21
Cheque Vs Bill of Exchange - 2

Unlike cheque, bills can not be crossed.

Unlike bills, there is no system of noting or protest in case of a

cheque.

The drawer of a bill is discharge from liability if it is not presented, but

the drawer of cheque will not be discharge by delay of the holder in
presenting it for payment unless failure of the bank.

22
Crossing of Cheques

Not
General Special
Negotiable
Crossing Crossing
Crossing
(Sec 123) (Sec 124)
(Sec 130)

23
Crossing of Cheques - 2

Not
Account
Negotiable Opening Of
Payee
A/C Payee Crossing
Crossing
Crossing

24
Holder

25
Holder (Section 8)

The holder of a N.I. means any person entitle to the

possession of the instrument in his own name and to receive
the amount due thereon from the parties liable thereto.

26
Holder In Value

Holder in value means as regards all parties

prior to himself, a holder of an instrument for
which value has at any time been given.

27
Holder In Due Course (Section 9)

A Holder in Due Course means a holder- who takes the

instrument bona fide- for value -before it is overdue, and
without any notice of defects in the title of the person, who
transferred it to him.

28
Privileges of a Holder in Due Course

Privilege in case of
He gets a better title
inchoate stamped Liability of prior
than that of the
instruments parties
transferor
(Sec. 20)

Privilege when an Estoppel against

Privilege in case of
instrument delivered denying original
Fictitious bills
conditionally is validity of instrument
(Sec. 42),
negotiated (Sec. 120)

Estoppel against
denying capacity of
payee to indorse

29
Example of Inchoate Stamped Instrument

Here C is entiled to
recover full
A signs his name amount of the
on a blank but But B fills it for Rs instrument
stamped 5000 and then because he is
instrument and transfers it to C for HDC. But B, being
gives to B with an a consideration of a holder, can not
authority to fill up Rs 5000 who takes recover the
as a note for a sum it in good faith. amount because
of Rs 4000 only. he filled in the
amount in excess
of his authority

30
Example of Conditional Instrument

If I give a cheque to a anybody encashing

shopkeeper with the the cheque prior to
condition that he fulfilling the condition
should not encash the is liable to return the
cheque till he supplies money except the
me the goods, holder in due course.

31
Example of better title to HDC

If P obtains an instrument payable to bearer by theft or fraud, or

for an unlawful consideration, he cannot sue on it.

But if P transfers the instrument (being a bearer one) to R under

circumstances (for value in good faith) which make R a holder
in due course, R can sue on the instrument.

The party liable to pay can take, as against P, the defence of

theft or fraud, but as against R he will not be allowed to take
such a defence.

32
An Intro.

Types of Instruments

33
Time Instruments

An instrument payable after a fixed time or on

specified date is termed as time instrument.

An instrument payable after happening of a

certain event is also called as time instrument.

34
Demand (at sight) Instruments

When it is expressed to
When no time of payment
be payable on demand or
is specified, it is payable
at a sight or presentation,
on demand.
it is demand instrument

35
Bearer Instruments

An NI is said to be a bearer instrument if it is

expressed to be so payable; or

When the only or last endorsement is in blank.

36
Order Instrument

When it is expressed to
be payable to a particular
When it is expressed to
person and does not
be payable to the order;
contain the words
or
prohibiting or restricting
its transfer.

37
Ambiguous Instrument - Sec 17

Ambiguous instrument means an instrument which may

be treated as a bill or as a promissory note

In such a case the holder may either treat it as a bill or a

promissory note. But once he has made his choice the
instrument shall henceforth be treated accordingly

38
Ambiguous Instrument - 2

In the following cases, instrument is an ambiguous

instrument:

when the drawer and drawee of a bill are the same person

where the drawee of a bill is a fictitious person

where the drawee of a bill is a person not having capacity to contract.

39
Inchoate Instrument

It is an instrument that is signed and duly stamped but

otherwise wholly or partially blank.

Where one person sign and deliver properly stamped

by wholly or partly blanked instrument, such
incomplete instrument is called inchoate instrument

40
ESCROW
When a NI is endorsed and
delivered conditionally or as
collateral security, it is called
escrow.
In this case, property in the
instrument does not passes to
the endorsee, he is merely a
bailee with limited title and power
of negotiating it. However, it does
not affect the rights of a HDC.
41
Forged Instruments

The holder of a Even a holder in

forged The true owner due course can
instrument can compel not claim
cannot enforce debtor to pay it payment on
payment again to him. forged
therefore. instrument.

42
An Intro.

Accommodation Bill

43
Accommodation Bill

X draws a bill (payable to himself) on Y, Y accepts the bill without

consideration just to accommodate X to enable X to raise money from
market by negotiating the bill in the market. This is accommodation bill.

Though Y accepts the bill, X is primary liable to the bill. He can not
demand amount from Y.

However If X transfer the bill, after maturity to Z for good consideration,

and Z becomes the holder in good faith- Z is entitle to recover the amount.

44
Accommodation Bill - 2

No consideration

No creditor-debtor relation

No obligation for payment

Liability for subsequent holder for value

All benefits of holder in due course

No presentation for payment does not discharge the drawer

45
An Intro.

Maturity of Negotiable Instruments

46
Maturity of Negotiable Instruments:

Rules for calculating maturity:-

Payable after a stated number of months, 3 days after the

corresponding date of the month of payment.

If the month has no corresponding date, on the last day of such

month.

Exclude the day on which instrument is presented for

acceptance or sight or on which the event happens.

47
Rules for calculating Maturity …..

If maturity day is a public holiday/ Sunday, immediate

preceding business day shall be deemed as maturity day.

If it is an emergency holiday, then on subsequent date..

If instrument is payable on installments, 3 days grace will be

allowed on each installment

48
An Intro.

Negotiating

49
Negotiating of Negotiable Instruments

• Negotiation means transfer of a NI by one

NEGOTIATION person to another in order to make the
transferee the holder of the instrument.

• Assignment of a NI means transfer of

ASSIGNMENT ownership of the instrument from one
person to another (assignor to assignee).

50
Negotiation Vs. Assignment

1 • Consideration
2 • Title
3 • Notice of transfer
4 • Mode

51
Negotiable Back

An instrument is said to have been negotiable back, when

a person who has been a party to NI takes it again.

52
Example

A B

D B B C

C D

Here B is the person who is the prior party to the instrument .

53
Example – Cont.

Every subsequent party may sue every prior party. Hence

B can sue D, D can sue C and C can sue B.

• To prevent this, section 52 of NI enacts an exception to the general rule
to provide that HDC may sue all the prior parties thereto.
Hence B can not sue C or D, he can sue A.

54
An Intro.

Liabilities

55
Liability of Legal Representative -
Section 29

The Legal Representative of a deceased person, who signs his own

name on the instrument, is personally liable to the entire amount.

But he can expressly limit his liability to the extent of the assets
received by him as Legal Representative .

56
Liability of a Drawer (Section 30)

The drawer’s liability is conditional and secondary. It arises

only in the event of dishonour by drawee or acceptor.

It may be noted that the drawer may, by an expressed

stipulation in the instrument, limit or exclude his liability.

57
Liability of Drawee of Cheque
(Section 31)

It is the duty of the banker to pay If the banker refuses payment

The drawee of
the cheque provided he has without any sufficient cause
a cheque is
sufficient funds of drawer in his being shown, he must
always a
hands and the funds are properly compensate the drawer any loss
banker.
applicable to such payment. caused by such improper refusal

58
A Banker is Justified to Dishonour
the Cheque in following cases:

If the cheque is undated;

If it is stale, that is if it has been not presented within prescribed time;

If it is inchoate and not free from reasonable doubt;

If the cheque is post dated and it is presented before that date;

If the drawer’s funds are not properly applicable to the payment of cheque;

59
A Banker is Justified to Dishonour the
cheque in following cases…………

If the banker receives the notice of customer’s insolvency or lunacy;

If there is any order by court for attachment of the account;

If the banker has received the notice of death of the drawer;

If notice of closure of account has been served by either parties;

If it contains material alternations, irregular signature or irregular endorsement.

60
Liability of Maker of Note and
Acceptor of Bill (Sec 32)

Under section 32 of
The maker of a
the Act, the liability
note is bound to
of an acceptor
pay the amount on
arises only when
maturity
he accepts the bill.

61
Liability of an Endorser (Sec.35)

Every endorser who And his liability arises

endorsed an instrument only if there is a default
before its maturity is by the party who is
liable to the parties that primary liable to pay the
are subsequent to him. instrument on maturity.

62
Liability of Parties to Holder in Due
Course (Sec 36)

Every prior party to an instrument is liable to a

holder in due course until the instrument is satisfied

63
Effect of Forged Endorsement on
Acceptor’s Liability (Sec 41):

The acceptor can not be relieved from the liability

knowing that the endorsement is forged

64
Liability of Acceptor of a Bill Drawn
in a Fictitious Name (Sec 42)

Suppose: X uses a fictitious name in drawing a bill upon

Z. Then he endorses the bill in the same fictitious name
to Y, who presents the bill to Z for acceptance.

Now if Z accepts the bill, he will be liable for payment in

spite of fact that the name of drawer is fictitious.

65
Liability on an Instrument Drawn,
etc. without Consideration: Sec 43:

Example: If a PN is delivered
Such an instrument creates
by the maker to the payee as
no obligation of payment
a gift, it can not be endorsed
between the parties to the
against the maker by the
transaction.
payee.

66
Bouncing of Cheque

The drawer, u/s 138, will be

Dishonour of cheque due to punishable with an
insufficient funds is an imprisonment up to 2 years
offence. or with a fine twice the
cheque amount or with both

67
However, in order to attract the penalties,
following conditions must be satisfied

Dishonour due to Insufficient funds;

Payment should be for discharge of liability;

Cheque must be present within validity period;

Notice- demanding payment within 15 days;

Complaint within 1 month

68
Question

Once a cheque is issued by the

A drawer of a cheque after
issuing the cheque, informs the
drawee not to present cheque as
well as informs bank to stop
payment. Does it constitute an
offence under the Act?
drawer, a presumption u/s 139
follows. Merely because the
drawer issues a notice thereafter
to drawee or to the bank for
stoppage of payment does not
discharge the drawer from his
liability.

Hence he shall be deemed to

have committed an offence.

69
An Intro.

Rights & Obligations

70
Rights & Obligations - Finder of Lost Instrument

Finder will not get good title;

True owner can recover the amount;

Holder in due course can recover the amount;

Endorsee of HDC can also recover the amount.

71
Rights & Obligations of Person who had
obtained the instrument by Unlawful Means

The possessor will not Holder in due course can

get good title get good title

X steels a bill from

If X endorses the bill to Y
acceptor; X does not get
against value and If Y is
any good title of it. – If X
HDC, Y can recover the
collected the proceeds of
money from X but no
bill, the acceptor can
from other party
recover it from X–

72
Forged Instruments

73
Forged Instruments

As a general rule, a forged signature is worthless, having no legal impact.

The holder of a forged instrument cannot enforce payment therefore.

The true owner can compel debtor to pay it again to him.

Even a HDC can not claim payment on forged instrument

74
Forged Instruments – Imp. Points

The holder of instrument,

Person who forges an
who has acquired it after
instrument, gets no title
dishonour, has as against
on the instruments, even
the other parties, only
holder in due course can
rights thereon of his
not claim.
transferor

75
Forged Instruments…….

If the instrument is acquired after maturity, the

holder of an overdue instrument is affected by
the defect in the title of his transferor .

76
Example

P is a drawer and Q The bill, not having Now P endorses the But if R was a bona
is the drawee and been paid on bill (after maturity) to fide endorsee before
acceptor. Q deposits maturity, P sells the R. R having rights of maturity, then he
some goods with P goods and retained P can not recover could realize money
as collateral security. the money. money from Q. from Q

77
Forged Instruments…….

In an accommodation bill or note, a defect in

the title of the transferor does not affect the
title of the holder acquiring after maturity.

78
Hundi

Miadi hundi
Darshani Shah Jog
or Muddati
hundi hundi
hundi

Nam Jog Jokhmi Dhani Jog

hundi hundi Hundi

79
Presentation of Instruments

80
Presentation of Instruments

Presentation means showing a NI to

the drawee, acceptor or maker for:
acceptance,
sight, or
payment

81
Presentation for Acceptance

A bill payable on demand or at a sight, or on certain fixed date

need not to be presented for acceptance unless it is specifically
agreed that such a bill is to be presented for acceptance.

But presentation of acceptance is obligatory in case of a bill

payable some period after sight or after presentation or when
there is an express stipulation in the bill that it shall be
presented for acceptance.

82
Modes of acceptance:

• When the drawee, while accepting the bill,

General does not attach any condition or
qualification to it, it is called general
Acceptance: acceptance.

Qualified • The acceptance is qualified when it is given

subject to some conditions or qualifications
Acceptance :

83
Presentation for Acceptance to Whom

The drawee or his duly authorized agent;

His legal representative, if the drawee has died;

His assignee, if the drawee has been declared insolvent;

- All the drawees, if there are several drawees unless they are
partners or agents of one another.

84
Presentation for Acceptance Excused

The drawee is a fictitious or incompetent person;

He cannot be found after reasonable search

Although the presentation has been irregular,

acceptance has been refused on some other ground.

85
Acceptance for Honour

Acceptance for honour means the acceptance given by some stranger when the
original drawee refuses to accept or to give better security when demanded by a
notary. The stranger may accept the bill of the honour of any party already liable
thereto. Such stranger is called an acceptor for honour or acceptor supra protest

86
Conditions - Valid Acceptance for
Honour

That the bill has been noted or protested for non acceptance or better security,

Acceptance has been made with the consent of holder,

The acceptor for honour is not already liable on the bill,

that the acceptance is for the honour of any party already liable on the bill, and

that the acceptance is by writing on the bill.

87
Presentation for Sight

A Promissory Note payable after

It should be present during office
sight- must be presented to the maker
hours, and on a business day.
for sight- to determine the maturity.

88
Presentment for Payment

PN, BE and Cheques must If default is made, the

be presented for payment to parties other than parties
the maker, acceptor or primarily liable are
drawee thereof respectively, discharged of their liability
by or on behalf of the holder. (Sec 64)

89
Presentation for payment-
When & Where?

Presentation for payment must be made

during usual business hours. It must be
made :
at the place of if no place is in any other case,
payment specified, at a wherever the
specified in the place of business party liable to pay
instrument; or residence; can found.

90
Presentation for Payment to Whom?

To the drawee, maker or acceptor, as the

case may be or to their duly authorized agent;

To legal representative, if drawee, maker or

acceptor has died;

To the assignee, where drawee, maker or

acceptor was declared insolvent.

91
Presentation for Payment is not
necessary in the following cases:

Where it is intentionally prevented by the maker, drawee or

acceptor; or

Where the business of the maker, drawee or acceptor is

closed or he can not be found after a reasonable search,
or there is no person at the place of payment; or

Where there is a promise to pay, notwithstanding non

presentation; or

92
Presentation for Payment is not
necessary in the following cases: - 2

Where payment is expressly or impliedly waived; or

Where the bill is dishonoured by non acceptance; or

Where the drawee is a fictitious person; or

Where the presentation becomes impossible.

93
Payment for Honour

Just as a bill may be accepted for the honour of a party

to bill, it may also be paid for the honour of a party
liable to pay the bill.

After payments he can recover from that person or any

party prior to him.

94
Dis-honour by Non-Acceptance(Sec
91)

Not accepted by drawee within 48 hours of presentation;

Default in acceptance;

Qualified acceptance;

Presentment is excused and the bill remains unaccepted;

Drawee is incompetent to contract.

95
Dis-honour by Non Payment (Sec 92)

When the party primarily liable makes default in payment.

When presentment for payment excused and the instrument

when overdue, remains unpaid, under section 76 of the Act.

96
Distinction between dishonour by
non acceptance and non payment:

If a bill is dishonoured for non acceptance, there is no right of action

against the drawee as he is not a party to the bill. The holder of bill
can proceed only against the drawer or endorser, if any.

On dishonoured by non payment, the drawee can be sued.

97
Effects of Dis-honour:

As soon as a NI is dishonoured, the holder

becomes entitle to sue the parties liable to pay
thereon.

The drawer of cheque, maker of note, acceptor &

drawer of bills and all the endorsers are liable
severally and jointly to a holder in due course.

98
Notice of Dishonour

By the holder to any of the parties to

the instrument (Sec 93)

Any party receiving notice must also

transmit the same to all prior parties.

He can not sue any prior party, if notice

has not transmitted.

99
Notice to Whom

To all parties (other than the maker of a note, acceptor of

a bill, or drawee of a cheque) to whom the holder seeks
to make liable or to their duly authorized agents

Where there are two or more persons jointly liable as

drawer or endorsers, notice to any one of them is
sufficient.

To legal representative, in case of death of person, and

to official assignee in case of insolvency (Sec 97).

100
What is Reasonable Time?

If business and living place are same- to be receive on day

of dishonour or day after dishonour.

If business and living places are different, it is to be

dispatched by the next post or on the day next after the
day of dishonour.

101
When Notice of Dishonour Is
Unnecessary?

Dispensed with by an express waiver,

Party charged would not suffer damage

Party not found after due search,

When drawer is accepter,

Accidental omission,

In the case of a PN which is not negotiable,

Party promises to pay unconditionally.

102
Noting:

Noting is the process of recording the fact and

reasons of dishonour of a NI by the notary public.

Noting must be made within reasonable time after

dishonour

103
PROTESTING:

Protest is a formal certificate of dishonour issued by the

notary public to the holder of a bill or note on his demand.
Sec 100.

Important difference between Noting & Protesting is that

noting consists of recording the fact and reasons of dishonor
of NI upon the instrument; whereas Protest is the certificate
as to the fact that instrument has been dishonoured.

104
Discharge of An Instrument:

When it becomes completely useless,

When the party makes the payment in due course at or after maturity (u/s78)
,

When the party becomes insolvent ,

When the holder cancels the instrument with intention to release the party.

105
Discharge of One Or More Parties

By cancellation

By release

By allowing drawee more than 48 hours to accept (Sec 83)

By taking qualified acceptance (Sec 86)

By not giving notice of dishonour

106
Discharge of One Or More Parties - 2

By not presentment for acceptance of bill (Sec 61)

By delay in presenting cheque (Sec 84)

By negotiating back of a bill

107
Multiple Choice Questions:

Read the questions carefully….

Answer the questions honestly……

Do your Self Assessment…..

All the best !!!

108
#1: The undertaking contained in a promissory
note, to pay a certain sum of money is----

(a) Conditional

(b) Unconditional

(c) May be conditional or unconditional depending upon the

circumstances

(d) None of the above.

Answer : (b) Unconditional

109
# 2: Which of these is not a negotiable
Instrument as per the Negotiable Instrument
Act,1881

(a) Bill of exchange

(b) Delivery note

(c) Bearer Cheque

(d) Share certificate

Answer: (d) Share Certificate

110
# 3: Which of the following is not a payment in
due course under NI Act 1881?

a) Payment should be made in accordance with the apparent tenor of the

instrument

b) A payment is made on instrument before the date of maturity

c) Payment is made to the possessor of the instrument

d) Payment made in good faith & without negligence

Answer: b) A payment is made on instrument before the date of maturity

111
#4 : X drew a bill on Y and sent it to Y for
acceptance. In which of the following
instances, it is a valid acceptance?

a) Y signs on bill and keeps it with him

b) He writes “accepted” on the back of bill but does not put his signature on bill

c) He puts his signature on face of bill and returns it to X

d) He write ‘accepted on the face of bill but does not put his signature

Answer: c) He puts his signature on face of bill and returns it to X

112
# 5: In which of the following situations could a
bill of exchange not be negotiated?

a) The time to pay is not determinable.

b) The promise to pay is conditional.

c) The amount to be paid is “the amount owing on account."

d) All of the above.

Answer: d) All of the above

113
#6: X made a note payable to the order of his son Y as a birthday gift
payable after one month. Y presented the note after 3 months and X
refused to pay. Can Y sue for payment?

a) Yes, because a note, unlike a cheque, cannot become stale dated

b) Yes, because the note is a negotiable instrument that is required to pay

c) No, because a note, like a cheque, can become stale dated.

d) No, because the note was gratuitous so it is not binding for a lack of consideration.

Answer: d) No, because the note was gratuitous so it is not binding for a lack of consideration

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# 7: Which of the following is NOT a part of the
criteria for a holder in due course?

a) The instrument is held by a party immediate to the promisor.

b) The instrument is taken by someone, or through someone, who

has given consideration for it.

c) The instrument is taken complete and regular on its face.

d) The instrument is taken before it is overdue and without notice of

any dishonour.

Answer: a) The instrument is held by a party immediate to the promisor.

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# 8: B issued a cheque for Rs 10,000/ in favour of S. B had sufficient
funds in his account. The cheque was not presented within
reasonable time. In the meantime, bank became insolvent.

a) S can recover money from B

b) B is discharged from his liability.

c) S can recover from official assignee of the bank

d) S can sue B and Bank jointly

Answer: b) B is discharged from his liability

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#9: P draws a bill of Rs 10,000 on Q. Q accepts it. On maturity, the
bill was dishonoured. P filed a suit against Q. Q proved that the bill
was accepted for value of Rs 7000/ and balance Rs 3000/ as an
accommodation bill.

a) P can recover Rs 10,000/ from Q.

b) P can recover Rs 7,000/ from Q.

c) P can not recover anything because bill is confusing.

d) Bill is void ab initio

Answer: b) P can recover Rs 7000/ from Q

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Lesson Summary

Negotiable Instrument

Types of Negotiable Instruments

Dishonour of Negotiable Instruments

Different parties of Negotiable Instruments & their Liabilities

Discharge of Negotiable Instruments and Discharge of Parties

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 Thank you very much.

Wishing you best of luck !

CA. Chiranjiv Sodhi

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