4 4 09negotiable instrument act,1881

8/11/2019 4 4 09Negotiable Instrument Act,1881

1/30

Negotiable instrumentact,1881

Unit 3rd


2/30

Definition of negotiable

instrument

The word negotiable means transferableby delivery

Instrument means a written document by

which a right is created in favour of someperson.

Negotiable instrument means a writtendocument transferable by delivery

Acc. To sec. 13 of NI Act, a NI means apromissory note, bill of exchange orcheque payable either to order or tobearer.


3/30

Characteristics of NI

1. Easy negotiability2. Transferee can sue in his own name without

giving notice to the debtor

3. A bona fide transferee for value (called holderin due course) gets the instrument free from

all defects4. Presumptions:

That every NI was made, drawn, acceptedfor consideration

That every NI bearing a date was made ordrawn on such date

That every transfer of a NI was madebefore its maturity

That the holder of a NI is a holder in duecourse


4/30

Specimen of Promissory note

Rs.1,000 Mathura, 25 March, 2009

Sixty days after date I promise to pay to Mr.B or order theSum of rs. One thousand for value received.

Revenue stamp

A


5/30

PROMISSORY NOTE(SEC.4)

It must be in writing it must contain a promise or undertaking to pay

The promise to pay must be unconditional

It must be signed by the maker

The maker must be a certain person The payee must be certain

The sum payable must be certain

The amount payable must be in legal tender

money of India No person in India except the reserve bank can

make a P.N payable to bearer


6/30

BILL OF EXCHANGE(SEC.5)

It must be in writing It must contain an order to pay

Must be unconditional

Must be signed by the drawer

The drawer, drawee and payee must be certain The sum payable must be certain

The bill must contain an order to pay money only

It must comply with the formalities as regards

date, consideration ,stamps. A bill of exchange may be originally drawn

payable to bearer but it must be payableotherwise than on demand ( i.e in future)


7/30


8/30

HOLDER (SEC. 8)

Holder is a person :

1. who is entitled to the

possession of the instrument in his

name

2. he must be entitled to receive

or recover the amount from the

parties liable thereto.


9/30

HOLDERIN DUE COURSE (S.9)

He must be a holder He must be a holder for valuable

consideration

He must have become the holder ofthe NI before its maturity

He must take the NI complete and

regular on the face of it He must have become holder in

good faith without having sufficient

cause to believe that any defectexisted

P i il f h ld i d


10/30

Privileges of holder in due

course

He gets a better title than that ofthe transferor

Privilege in case of inchoate

stamped instruments

Liability of prior parties

Privilege when an insrument

delivered conditionally isnegotiated

Estoppel against denying original

validity of instrument


11/30

NEGOTIATION (SEC.14)

When a promissory note, bill ofexchange or cheque is transferred

to any person, so as to constitute

that person the holder thereof, theinstrument is said to be negotiated.


12/30

MODES OF NEGOTIATION

Negotiation by mere delivery-- abearer instrument may be

negotiated by delivery only. It does

not require signature of thetransferor ( indorsement )

Negotiation by indorsement and

deliveryNI payable to order isnegotiable by the holder by

indorsement and delivery.

I t f d li i


13/30

Importance of delivery in

negotiation

Delivery made voluntarily with theintention of transferring the

ownership of the instrument to the

transferee is essential. If a person delivers a NI to his

servant for safe custody, the

delivery does not amount tonegotiation.

I d t ( 15)


14/30

Indorsement (sec.15)

when the maker or holder of a NI signs thesame, for the purpose of negotiation, on the

back or face of it or on a slip of paper

annexed thereto, or so signs for the same

purpose a stamped paper, he is said toindorse the same, and is called the indorser

The slip attached to it is called ALLONGE

and becomes part of the instrument.

An instrument to be valid it should be made

in ink. And indorsement in pencil or by

rubber stamp is not valid.


15/30

Kinds of indorsement

Blank or general indorsement

Indorsement in full or special

indorsement

Partial indorsement

Restrictive indorsement

Conditional indorsement

Sans recourse indorsement

Facultative indorsement

Negotiation back

N ti ti b th i d


16/30

Negotiation by unauthorised

parties

In case of lost instruments

In case of stolen instruments

Instruments obtained by fraud

Instruments obtained for unlawful

consideration

Forged instruments


17/30

LOST INSTRUMENTS

A finder does not acquire any title and hecannot recover any payment from any party to

the instrument

If the instrument is payable to bearer and the

finder indorses it to a holder in due course, the

holder will get a good title to it.

In case the person liable on the instrument i.e.

the maker or acceptor makes payment of the

lost instrument to the finder he is discharged.

However the true owner can recover the

amount of the instrument from the finder of the


18/30

o ers r g o geduplicate copy of lost bill

where a bill of exchange has beenlost, before maturity, the person who

was the holder of it may apply to the

drawer to give him another bill of

same tenor.

The drawer may require the holder to

give security to indemnify him against

all persons in case the bill lost shallbe found again


19/30

Stolen instruments

The position is almost same as thatof lost instrument with the

difference that on being traced the

thief is open to criminal prosecutionwhile a finder is not


20/30

Dishonour of NI

Dishonour by non- acceptance

Dishonour by non-payment

Di h b


21/30

Dishonour by non-

acceptance

When the bill is duly presented and thedrawee does not accept the bill within 48 hrs.

of presentment

Where there are several drawees who arenot partners, and any of them does not

accept the bill within 48 hrs. of presentment

When the drawee is incompetent to contract When the acceptance is qualified

when the drawee is a fictitious person

When drawee after reasonable search


22/30

Dishonour by non-payment

A promissory note, bill of exchange orcheque is said to be dishonoured by

non-payment when the maker of the

note, acceptor of the bill, does not pay

the amount upon being duly requiredto pay the same


23/30

NOTING

NOTING : It is the authentic and official

proof of presentment and dishonour of a NI.In case of dishonour of a cheque there is

no noting as bank while returning the

cheque give reasons in writing for the

dishonour.

In case of dishonour of promissory note or a

bill of exchange, the holder may cause such

dishonour to be noted by a notary publicupon the instrument, or upon a paper

attached thereto

t t


24/30

protest Protest is a formal certificate of

dishonour issued by the notary public to

the holder of the bill or note.

Contents of protest ----

1. the name of the person against whomthe instrument has been protested

2. the fact and reasons for dishonour

3. time and place for dishonour4. signature of notary public


25/30

Discharge of NI

Discharge of the instrument

Discharge of one or more parties


26/30

Discharge of instrument

1. By payment in due course:a) should be made by the party

primary liable

b) payment should be made at orafter maturity

2. Discharge by cancellation

3. By acceptor of a bill becoming itsholder

4. by release

Di h f ti


27/30

Discharge of one or more parties

to an instrument

Discharge by cancellation Discharge by release

Discharge by payment

Discharge by delay in presentingcheques

Discharge by qualified acceptance

Discharge by material alteration

Discharge by payment of instrument

on which alteration is not apparent


28/30

CROSSING OF CHEQUES

Uncrossed cheques or opencheques

Crossed cheques


29/30

CROSSING OF CHEQUES

1. General crossing2. Special crossing

3. Restrictive crossing

4. Not negotiable crossing


30/30

Who may cross a cheque

Where a cheque is uncrossed, theholder may cross it generally or

specially

Where a cheque is crossedgenerally, the holder may cross it

specially

Where a cheque is crossedgenerally or specially, the holder

may add the words not negotiable

4 4 09negotiable instrument act,1881

Documents