The Negotiable

Instruments Act ,1881

-Group 10
Section -A
 History
 A law relating to negotiable
instruments
 Deals with promissory notes, bills of
exchange & cheques
 Act extends to whole of India
 The Act came into existence on 1st
March, 1882
 The latest amendment to the act was
made in 1988
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 Introduction
 What is a negotiable Instrument?

 A negotiable instrument is the one

which transfers a debt from one
person to another.

 Special class of contracts.

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 Characteristics
 Freely transferable
 Title of holder free from all defects
 Recovery
 Presumptions: Consideration, date,
time, time of acceptance & transfer,
order of indorsements , stamp,
holder is a holder in due course,
proof of protest

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 Types of Negotiable
Instruments

 Negotiable by Statute

 Negotiable by custom or usage

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 Notes Bills & Cheques
Promissory Note : -

A “promissory note” is an instrument in writing (not

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.

Parties Involved: -
 Maker

 Payee

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Essentials of Promissory note
 Must be in writing
 Promise to pay
 Definite & unconditional
 Signed by the maker
 Certain parties
 Certain sum of money
 Promise to pay only money
 No bank note or currency note
 Other formalities

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 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 a certain sum of money only
to, or to the order of, a certain person or to
the bearer of the instrument.
Parties Involved: -
 Drawer
 Drawee
 Payee

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 Essential elements of BOE
 In writing
 Order to pay
 Unconditional
 Requires 3 parties & certain
 Signed
 Sum to be certain
 Order to pay money
 Other formalities

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 Cheque

“a bill of exchange drawn on a



specified banker and not expressed

to be payable otherwise than on
demand
 it includes the electronic image of a
truncated cheque and a cheque in
the electronic form.”

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 Cheque
Marking of Cheques

 At drawer's instance
 At holder’s instance
 At collecting Banker’s instance

Crossing of Cheques

 General crossing
 Special crossing

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 Difference
 Bill Of Exchange
 Three parties-drawer,
drawee, payee
 Unconditional order
 Drawer-creditor
 Liability is secondary
 Can be drawn payable
to bearer
 Drawer stands in
immediate relation
with acceptor and not
payee.
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 Promissory Note
 Two parties-maker,
payee
 Unconditional promise
 Maker-debtor
 Liability is primary
 Cannot be drawn
payable to bearer
 Maker stands in
immediate relation
with the payee
12
 Distinguishing Features
 Bill of Exchange
 Drawn on any person
 Bill must be accepted
before drawee can be
called for payment
 Entitled to 3 days of
grace
 Not crossed
 Requires stamp
 May be protested for
dishonour
 Cheque
 Drawn on a banker
 Cheque requires no
acceptance
 Not entitled to any
days of grace
 May be crossed
 Does not require
stamp
 Not protested for
dishonour

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 Classification of Negotiable
Instruments
 Bearer or order instruments
 Inland & Foreign instruments
 Instruments payable on demand
 Time instruments
 Accommodation Bill
 Fictitious bill
 Documentary or clean bill
 Escrow
 Ambiguous Instrument
 Inchoate Instrument

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 Notes Bills & Cheques

 Bill in sets
 Maturity & days of grace
 Payment in due course
 Interest on bills & notes

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 Capacity Of Partners:
Every person capable of contracting, according to the law to
which he is subject, may bind himself and be bound by the
making, drawing, acceptance, endorsement, delivery and
negotiation of a promissory note, bill of exchange or
cheque.

 Minors
 Persons of unsound mind
 Corporations
 Agents
 Partners
 Hindu Joint Family
 Legal Representatives
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 Parties to Negotiable
Instruments
1) Parties to Bill of Exchange: -

 Drawer
 Drawee
 Acceptor
 Payee
 Holder
 Indorser
 Indorsee
 Drawee in case of need
 Acceptor of honour

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 Parties to Negotiable
Instruments
 2) Parties to a Promissory Note: -
Maker, Payee, Holder, Indorser,
Indorsee

 3)Parties to a cheque: -
Maker, Drawee, Payee,
Holder, Indorser, Indorsee
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 Holder:
 The “holder” of a promissory note, bill of exchange or cheque
means any person entitled in his own name to the possession
thereof and to receive or recover the amount due thereon from
the parties thereto.

 Where the note, bill or cheque is lost or destroyed, its holder is the
person so entitled at the time of such loss or destruction.

HOLDER IN DUE COURSE:

“Holder in due course” means any person who for
consideration became the possessor of a promissory note,
bill of exchange or cheque if payable to bearer, or the
payee or indorsee thereof, if payable to order.
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 Liability Of Parties:
1) Liability of drawer
2) Liability of drawee of cheque
3) Liability of maker of note and
acceptor of bill
4) Liability of indorser
5) Liability of prior parties to a holder
in due course

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 Negotiation
 When a promissory note, bill of exchange or
cheque is transferred to any person, so as to
constitute the transferee the holder thereof, the
instrument is said to be negotiated.

 This Transfer may take place either:

1)By Negotiation
 Negotiation by delivery
 Negotiation by indorsement & delivery

2)By Assignment

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 Indorsement:
 When the maker or holder of a negotiable instrument signs
the same for the purpose of negotiation, on the back or
face thereof or on a slip of paper annexed thereto, or so
signs for the same purpose a stamped paper intended to be
completed as a negotiable instrument, he is said to indorse
the same, and is called the inndorser

Essentials of Valid Indorsement: -

 It must be on the instrument itself

 It must be signed by the indorser
 It must be completed by the delivery of the
instrument
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 Kinds of Indorsement:

 Blank or general Indorsement

 Full or special Indorsement
 Restrictive Indorsement
 Partial Indorsement
 Conditional Indorsement

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 Instruments obtained by
unlawful means
 Stolen instruments
 Coercion or Fraud
 Unlawful consideration
 Forged instruments
 Forged indorsement
 Without Consideration
 Lost negotiable instruments

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 Presentment of a negotiable
instrument.
 Presentment means showing a
negotiable instrument to the drawee,
acceptor or maker for acceptance,
sight or payment.
 Types:
 Presentment of bill of exchange for
acceptance.
 Presentment of promissory note for
sight.
 Presentment of negotiable instruments
for payment..

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 Presentment for acceptance.
 It is only bills of exchange of certain type
that require acceptance. A bill is said to be
accepted when the drawee put his
signature on it.
 Essentials of a valid acceptance-
 It must be written on bill.
 It must be signed by the drawee
personally or through a authorised agent.
 The accepted bill must be delivered to the
holder.
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 Modes of acceptance.
 General acceptance.
 Qualified acceptance.
 An acceptance is qualified when it is
 Conditional
 Partial
 Qualified as to place and
 Qualified as to time
 Acceptance by some of drawees but not
all.
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Presentment of acceptance to
whom?
 The drawee
 All or some of several drawees
 Drawee in case of need
 All the drawees in case of several
drawees
 Duly authorized agent of the drawee
 Legal representative in case of death of
the drawee
 Official Receiver or Assignee in case of
insolvency of the drawee

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 Presentment for acceptance -
when and where
 When:

a. If a time for presentment for

acceptance is specified in the bill.
b. If time is not specified in the bill.
c. In case of a bill payable after
sight.

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 Presentment for acceptance -
when and where
 Where
b. If place for presentment is mentioned in
the bill
d. If the place of presentment is not
mentioned in the bill
f. The holder must allow the drawee forty-
eight hours to consider whether to
accept the bill

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 Effect of non-presentment

When presentment for acceptance is

excused:
a. drawee after reasonable search cannot
be found
b. drawee is dead or insolvent
c. drawee is a fictitious person or one
incapable of
contracting
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 Acceptance for honour
 When the bill is dishonoured by non-
acceptance holder may allow any
other person to accept it for the
honour of drawer or any one of the
indorsers.

Conditions for valid acceptance for

honour:
 The bill must have been noted or
protested.
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 Contd…..
 The acceptance for honour must be made
with the consent of the holder.

 It must be written on the bill indicating

that it is an acceptance for honour of the
party liable on the bill.

 It must be signed by the acceptor who

must not be already liable on the bill .

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 Obligations and rights of
acceptance for honour
 Obligation of the acceptor for honour is
not absolute.

The following conditions has to be

fulfilled:

• The bill should once more be presented to

the drawee for payment at maturity.

• If the drawee still refuses to pay, the bill

should be noted or protested for
payment.
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 Other forms of presentment

 Presentment for sight.

 Presentment for payment.

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 Dishonour of a negotiable
instrument
 A bill of exchange may be dishonoured by
non-acceptance or non-payment.

 A promissory note and a cheque may be

dishonoured by non-payment only.

 Notice of dishonour must be given to all

the prior parties in order to make them
liable on the instrument.

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 Contd…..

 Notice of dishonour by whom?

 Notice of dishonour to whom?

 Form of notice.

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 Noting
 Noting means the recording of the fact of
dishonour by a notary public upon the
instrument or upon a paper attached there
to or partly upon each.

 Noting must contain following particulars:

 The fact of dishonour.
 Date of dishonour.
 Reasons, if any assigned.
 The notary charges.

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 Protest
Fact of dishonour of bill of exchange or
promissory note
is noted and certified by Notary Public. Such
certificate is called protest.

Contents of protest:
 The instrument or literal transcript of the instrument.
 The name of the person for whom and against whom the
instrument has been protested.
 The reason for dishonour.
 The place and time of dishonour.
 The signature of the Notary Public

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 Discharge of an Instrument

 By payment in due course

 Payment of interest (Sec 80)
 By express waiver
 By cancellation

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 Discharge of a Party or Parties

 By payment [Sec 82(c)]

 By cancellation [Sec 82(a)]
 By release [Sec 82(b)]
 By operation of law
 By material alteration (Sec 87)

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 Material Alteration
Instances of material Alteration

 The date
 Sum Payable
 Time of payment
 Place of payment & addition of place
of payment
 Rate of interest

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 ESTOPPEL
When a person by his conduct or
words spoken or written leads
another person to believe that a
certain state of affairs exists, he is
estopped from denying the facts of
that statement later.

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 Rules of Estoppel
 Estoppel against denying original
validity of instrument (sec 120)

 Estoppel against denying capacity of

payee to indorse (sec 121)

 Indorse not permitted to deny the

capacity of prior parties (sec 122)
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 International Law
1. Liability: The liability of the maker or drawer of
foreign promissory note is determined by the
law of place where the instrument has been
made .The liability of the acceptor is
determined by the law of place where the
instrument is payable.

3. Dishonour: A promissory note,bill of exchange is

made payable in different place from that in
which it is made or indorsed,the law of place
determines what constitute dishonour

5. Instruments made out of India according to the

provisions of Indian law

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 HUNDIS
 Unconditional order in writing made by a
person directing another to pay a certain
sum of money to a person named in the
order.

 Expressed in vernacular language also.

 Being a part of the informal system have

no legal status and are not covered under
the Negotiable Instruments Act, 1881.
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 Banker & Customer
Banking is defined as an activity of
accepting deposits from the public,
repayable on demand or otherwise
and withdrawal by cheque, draft or
otherwise and such acceptance of
money is for the purpose of lending
or investments.

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 Rights & Obligations of
Bankers towards Customers
 Honour the cheque

 Maintain records of all the transactions

 Abide by the instructions of the customer

 Not to disclose the state of his customer’s

account

 Set off
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 When a Banker MAY Refuse
(Dishonour) Payment
• When a Cheque is post-dated and
presented for payment before that date
• Lack of sufficient funds
• The funds are not available for the
purpose
• Cheque is of doubtful legality
• When the Cheque is not duly presented
• Signature doesn't match
• Cheque presented at a branch where the
customer has no account
•
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When theTheCheque has become stale 50
Negotiable Instruments Act,1881
 When a Banker MUST Refuse
(Dishonour) Payment
 The customer countermands payment
 A customer dies and the bank has notice
of the death
 Customer has been adjudged insolvent
 Banker receives notice of customer’s
insanity
 When payment is prohibited by an order
of a court
 Customer gives notice to his banker to
close his accounts

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Protection of the Paying Banker:-
Sec 85

3. Paying banker will not be liable if

holder of a bearer Cheque is not
actual owner of the Cheque [Sec
85(2)].
4. If a Cheque is crossed generally
(Sec 126 Para 1)
If a cheque is crossed specially
(Sec 126 Para 2)

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 Contd….
Paying banker will not be protected
if the drawer’s signature is forged
and the banker makes the payment
on the cheque

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 Presented by
Akanksha Kedia(FPB0709/007)
Anindita Kundu(FPB0709/015)
Anupama(FPB0709/020)
Isha Mehta(FPB0709/056)
Yageshwari Trivedi(FPB0709/158)

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Thank You