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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The Negotiable Instrument

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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The Negotiable Instrument

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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The Negotiable Instrument

Types of Negotiable
Instruments

Negotiable by Statute

Negotiable by custom or usage

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The Negotiable Instrument

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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The Negotiable 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 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 holders instance
At collecting Bankers 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

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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
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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 acceptanceIt 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

a.

b.

c.

Where
If place for presentment is mentioned in
the bill
If the place of presentment is not
mentioned in the bill
The holder must allow the drawee fortyeight 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 nonacceptance 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.

2.

3.

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.
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
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 customers account

Set off

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When a Banker MAY Refuse

(Dishonour) Payment
1.
2.
3.
4.
5.
6.
7.
8.

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
When the Cheque has become stale
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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 customers
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

1.

2.

Paying banker will not be liable if

holder of a bearer Cheque is not
actual owner of the Cheque [Sec
85(2)].
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 drawers 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