negotiable instruments ppt
TRANSCRIPT
Negotiable Instruments
Definition
• According to the section 13(1) of the Negotiable Instruments act of 1881-
A Negotiable instrument means a promissory note, Bill of exchange or
cheque payable either to order or to the bearer.
• Typically Negotiable instruments are written orders or unconditional promises to pay a fixed sum of money on demand or at a certain point of time. .
Types of Negotiable Instruments
Promissory Note:
A promissory note is an instrument in writing containing an unconditional
undertaking signed by the maker to pay a certain sum of money only to a certain
person or the bearer of the instrument.
Bill of Exchange:
A bill of exchange is an instrument in writing containing an unconditional order,
signed by the maker, directing a certain person to pay another person a certain
sum of money.
Cheque:
A cheque is a bill of exchange on a specified banker and not expressed to be payable
otherwise than on demand.
Hundi
• Hundies are the negotiable instrument written in vernacular language ,some
times these are even like promissory notes.
• It covers all indigenous negotiable instruments whether they be in the form of
notes or bills.
• The word hundi is derived from the Sanskrit word ‘hund’ which means to
collect.
Basically Hundis refer to financial instruments evolved on the Indian sub-continent used in trade and credit transactions.
They were used -• as remittance instruments (to transfer
funds from one place to another), • as credit instruments (to borrow money
[IOUs]), • for trade transactions (as bills of exchange).
Though normally regarded as bills of exchange, they were more often used as equivalents of cheques issued by indigenous bankers.
Parties to Negotiable Instruments Promissory Note• Maker• Payee• Holder• Endorser• Endorsee
Bill of Exchange• Drawer• Drawee• Acceptor• Payee• Holder• Endorser• Endorsee• Acceptor of Honour
Cheque• Drawer• Drawee• Payee• Holder• Endorser/Endorsee
Distinction - I
Promissory Note Bill of Exchange
NaturePromise Order
PayeeMaker & Payee Drawer & Payee
Not Required Required
LiableMaker Drawer
NoticeNot Necessary Given to all Prior Parties
Payable to…Bearer Bearer on Demand
Distinction - II
10
Bill of Exchange Cheque
DraweeAnyone Only Banker
AcceptanceNeeds Not Required
PaymentDemand - Time Demand
CrossingNever Crossed May be Crossed
StampProperly Stamp
Noting - ProtestingNeeded Not Needed
CountermandateNot Possible Possible
Notice of DishonourNecessary Necessary
Grace Days3 Days 0 Days
Types of Cheques
There are two types of cheques
1). Open cheques-
A cheque is payable in cash across the counter of a bank is called an open cheque.
2). Crossed cheques-
A crossed cheque is one on which has two parallel lines or without the words ‘& co.
1). General crossing
• Two transverse parallel lines are marked across its face
• It bears the words “not negotiable” between these parallel lines
2). Special crossing.
• Cheques crossed by two parallel lines with the Banker’s name written in
between.
• The banker to whom it is drawn shall pay only to the banker to whom it is
crossed or his agent.
3). Crossed “A/c Payee”
• It is also called restrictive crossing
• When the words “a/c payee” are written between the transverse parallel
lines , it means that the proceeds of the cheque are to be credited to the
account of the payee only.
Types of crossing