Negotiable Instruments Act

I. State whether the following statements are True and False TRUE FALSE

S.No. Statements 1 A negotiable instrument means a written document that confers on its holder a right to receive a certain sum of money and this right is transferable from one person to another. No person other than the Reserve Bank of India or the entral !overnment has the power to draw" accept" make or issue any bill of e#change" hundi" promissory note payable to bearer on demand. A negotiable instrument" under the Negotiable Instruments Act" 1%%1" could only be a promissory note" bill of e#change or che&ue. A banker(s pay order" hundi or railway receipt is not a negotiable instrument. *very negotiable instrument is presumed to have been made" drawn" accepted or negotiated for consideration. *very holder of a negotiable instrument is presumed to be a holder in due course. A -promissory note( is an instrument in writing .including a bank note or currency note/ A promissory note must contain an e#press promise to pay. A promissory note may be payable to a specific person on demand. A bill of e#change 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. A bill of e#change contains an order to pay money. A che&ue is a bill of e#change drawn upon a specified banker and payable on demand. 2hough a che&ue is essentially a bill of e#change" it does not re&uire drawee(s acceptance. 3aking of a che&ue means that the drawee bank would honour it when duly presented for payment. A che&ue marked -good for payment( at the instance of the drawer entitles the banker to earmark sufficient funds out of the drawer(s account to honour the che&ue. A che&ue marked -good for payment( at the instance of the holder thereof means that there are sufficient funds in the drawer(s account at the time of such marking and that the che&ue would be honoured whenever presented thereafter.

$ ' ) + , % 0 11

11 12 1$ 1' 1)

1+

1, 1% 10 21 21 22 2$ 2' 2)

A che&ue can be marked -good for payment( at the instance of a collecting banker. 4hen two parallel transverse lines are drawn on a che&ue" it is known as -crossing of a che&ue(. A crossed che&ue may be encashed at the bank counter by its holder. A che&ue is said to be crossed especially when it bears across its face an addition of the words -and company( between two parallel transverse lines. In a restrictive crossing the words 5A6c 7ayee( are added to the general or special crossing. A -not negotiable( crossing on a che&ue renders it non8transferable. A che&ue may be crossed by its drawer only. 4hen a negotiable instrument is delivered for a special purpose or conditionally" it is called an -escrow(. If the amount undertaken or ordered to be paid is stated differently in figures and in words on a negotiable instrument" the amount stated in words shall be the amount undertaken or ordered to be paid. 4hen a person signs and delivers to another a blank or incomplete stamped paper .called inchoate instrument/" he thereby gives authority to the holder thereof to make or complete upon a negotiable instrument for any amount not e#ceeding the amount covered by the stamp. A negotiable instrument payable otherwise than on demand is at maturity" i.e." due for payment" on the third day after the day on which it is e#pressed to be payable. A bill or promissory note payable on a specified day is not entitled to -days of grace(. 4here a promissory note is made on 9anuary 1) and is payable $ months after date" it becomes payable on April 1). 4here a promissory note is made on 9anuary 1) and payable $ months after date" the day on which it is drawn .i.e." 9anuary 1)/ is e#cluded for calculating the date of maturity. 4hen the day on which a promissory note or bill of e#change is at maturity is a public holiday" the instrument is deemed to be due on the ne#t preceding day. If the month in which the period of payment would terminate has no corresponding day" the period is held to terminate on the last day of the month. 57ayment in due course: means payment n accordance with the apparent tenor of the instrument in good faith the without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive such payment. 4hen no rate of interest is specified in a promissory note or bill of 2

2+

2,

2% 20 $1

$1

$2

$$

$'

e#change" interest is calculated at the rate of 1% per cent per annum. $) $+ $, $% $0 '1 A person competent to contract only can be a party to a negotiable instrument. A minor may draw" indorse" deliver or negotiate a negotiable instrument that binds all parties e#cept himself. 4here a minor makes payment for necessaries supplied to him through a negotiable instrument" it is void even against his estate. A non8trading company cannot be a party to a negotiable instrument without e#press authori;ation by its memorandum of association. An agent can bind his principal on a negotiable instrument only when he signs it e#pressly as an agent and is authori;ed in this regard. An agent would be personally liable if he does not disclose agency even to those who induced him to sign a negotiable instrument upon the belief that his principal only would be liable. In a trading partnership" no partner has an implied authority to make firm liable on a negotiable instrument. A legal representative of a deceased person who signs his name to a negotiable instrument is liable personally thereof unless he e#pressly limits his liability to the e#tent of the assets received by him as such. 4here a person obtains possession of a negotiable instrument by theft" he is a holder of the instrument. <older in due course means any person who for consideration became the possessor of a negotiable instrument" if payable to bearer" or the payee or indorse thereof" if payable to order" before the amount mentioned thereof became payable and without having sufficient cause to believe that any defect e#isted is the title of the person from whom e received his title. *very -holder( may not be a -holder in due course(. A holder in due course can complete an inchoate stamped instrument for an amount covered by the stamp affi#ed on it. *very prior party to a negotiable instrument is liable thereof to a holder in due course until it is duly satisfied. 2he acceptor of a bill cannot set up the defence of other parties being fictitious against a holder in due course. A negotiable instrument made" drawn" accepted" endorsed or transferred without consideration creates no obligation of payment between the parties including a holder in due course. As between parties to a negotiable instrument and a holder in due course" the fact that the instrument was delivered conditionally or for a special purpose rather than for the purpose of transferring absolutely the property therein" is immaterial. A holder of a negotiable instrument who derives his title from a holder in $

'1 '2

'$ ''

') '+ ', '% '0

)1

)1

due course has the rights thereof of the latter unless he himself is a party to any fraud or illegality afflicting that instrument. )2 4hen a negotiable instrument has been lost" or has been obtained from any maker" acceptor or holder thereof by means of an offence" fraud or unlawful consideration" no possessor or indorsee who claims though the person who found or so obtained the instrument is entitled to receive the amount thereon whether as a holder or holder in due course. No maker of a promissory note" and no drawer of a bill of e#change or che&ue or acceptor thereof shall deny the validity of the instrument as originally made or drawn in a suit thereon by a holder in due course. A maker of a promissory note or an acceptor of a bill of e#change payable to order may" in a suit thereon by a holder in due course" deny the payee(s capacity to indorse the same at the date of the note or bill. 2he drawer of a bill of e#change or che&ue is bound" in case of dishonour by the drawee or acceptor thereof" to compensate the holder irrespective of the fact whether due notice of dishonour has been given to the drawer. 2he drawee of a che&ue having sufficient funds of the drawee in his hands" properly applicable to the payment of such che&ue must pay the che&ue when duly re&uired to do so and" and" in default of such payment" must compensate the drawer for any loss or damage caused by such default. In the absence of a contract to the contrary" the maker of a promissory note or che&ue and acceptor of a bill are respectively liable thereon as principal debtors and the other parties thereto liable thereon as sureties for them. In the absence of a contract to the contrary" as between the parties liable on a negotiable instrument as sureties" each prior party is a principal debtor in respect of each subse&uent party. 4here the holder of a negotiable instrument" without the consent of the indorser" destroys" or impairs the endorser(s remedy against a prior party" the indorser is discharged from liability to the holder to the same e#tent as if the instrument had been paid at maturity. An acceptor of a bill of e#change drawn in a fictitious name and payable to the drawer(s order is not" by reason that such name s fictitious" relieved from liability to any holder in due course claiming under an endorsement by the same hand as the drawer(s signature and purporting to be made by the drawer. 4here a promissory note" bill of e#change or che&ue is transferred by one party to another" so as to constitute the transferee the holder thereof" the instrument is said to be assigned. An instrument payable to bearer is negotiated by delivery thereof. An instrument payable to order is negotiable by the holder by endorsement only. An instrument delivered on a condition that it is not to take effect unless a specified event happens" is not negotiable till the event has taken place. '

)$

)'

))

)+

),

)%

)0

+1

+1

+2 +$. +'

+) ++ +,

An instrument delivered on a condition that it is not take effect unless a specified event happens" s not negotiable till the even has taken place. 2here is no difference between -negotiation( and -assignment(. 4hen the maker or holder of a negotiable instrument signs the same .otherwise than as such maker/ for the purpose of negotiation" on the back or face thereof or on a slip of paper anne#ed thereto or a stamped paper" he is said to endorse the same. *very sole maker" drawer" payee or endorsee or any of the several =oint makers" drawers" payees or endorsees of a negotiable instrument may indorse and negotiate it. 4here no space is left on a negotiable instrument to make indorsement" a separate slip is attached to the instrument for the purpose and it is called an -anne#ure(. 4hen the indorser signs his name only on the face or back of the instrument for the purposes of endorsement" it is known as a blank or general endorsement. A blank endorsement converts an instrument -payable to order( into one -payable to bearer(. In a full or special endorsement" the indorser directs the amount of the instrument to be paid to a specified person or that person(s order. Any holder of a negotiable instrument endorsed in blank may convert it into indorsement in full by writing some person(s name above the e#isting endorser(s signature" without his own signature and responsibility. An endorsement which restricts or prohibits the further negotiability of the instrument is void. A writing on a negotiable instrument is valid for the purposes of negotiation of such writing purports to transfer only a part of the amount appearing to be due on the instrument. 2he indorser of a negotiable instrument may" by e#press words in the endorsement" e#clude his own liability thereon by adding the words -sans recours(. A person" who obtains a negotiable instrument by theft" can neither claim its payment nor hold it against its true holder. A negotiable instrument given for a consideration which is illegal" immoral or opposed to public policy is void. An instrument with forged signatures of maker" drawer" indorser or any other party thereto is void e#cept against a holder in due course. A negotiable instrument made" drawn" accepted" endorsed or transferred without consideration creates no obligation of payment between the parties to the transaction. >nce a negotiable instrument made" drawn" accepted" endorsed" etc. )

+%

+0.

,1.

,1 ,2 ,$

,' ,)

,+

,, ,% ,0 %1

%1.

without consideration passes through the hands of a holder in due course" he or every holder subse&uent to him can recover the instrument amount from any prior parties. %2. %$. %'. %). %+. 4here a bill of e#change has been lost before maturity" a duplicate thereof cannot be issued. All types of bill of e#change re&uires acceptance. A bill payable after sight need not be presented for acceptance. A bill payable on demand or a certain number of days after date or on a fi#ed date must be presented for acceptance. 7resentment for acceptance may be made to the drawee of a bill of e#change" or all6some of several drawees" or a drawee inc case of need or their duly authori;ed agent or legal representative. 4here there are several drawee of a bill of e#change who are not partners" each of them can accept it for himself but none of them can accept it for another without his authority. A bill of e#change payable after sight must" if no time or place is specified therein for presentment" be presented to the drawee thereof for acceptance within a reasonable time after it is drawn and in business hours on a business day. 4here a bill is directed to the drawee at a particular place for acceptance" it must be presented at that place and if at the due date of presentment he cannot" after reasonable search" be found there" the bill is dishonored. 4hen a bill of e#change has been noted or protested for non8acceptance or for better security" any person including a party already liable thereon may" with the consent of the holder" accept the same for the honour of any party thereto by writing his acceptance on the bill. 4here an acceptor for honour does not e#press for whose honour the acceptance is made" it shall be deemed to be made for the honour of all the parties generally. An acceptor for honour binds himself to all parties subse&uent to the party for whose honour he accepts to pay the amount of the bill if the drawee does not. 2he party for whose honour the -acceptor for honour( accepts the bill and all prior parties are liable in their respective capacities to compensate him for all costs or damage sustained by him in conse&uence of such acceptance. An acceptor for honour s not liable to the holder of the bill unless it is presented" or .in case the address given by such acceptor on the bill is a place other than the place where the bill is made payable/ forwarded for presentment not later than ,2 hours ne#t after the day of its maturity. An acceptor for honour cannot be charged unless the bill has at its maturity been presented to the drawee for payment" and has been dishonoured by +

%,.

%%.

%0.

01.

01.

02.

0$.

0'.

0).

him" and noted or protested for such dishonour. 0+. A promissory note" payable at a certain period after sight" must be presented to the maker thereof for sight .if he can" after reasonable search" be found/ by a person entitled to demand payment" within a reasonable time after it is made and in business hours on a business day. 2he holder of a bill of e#change" if so re&uired by the drawee thereof for acceptance" must allow the drawee forty8eight hours .inclusive of public holiday6s/ to consider whether he will accept it. *very negotiable instrument must be presented for payment to the maker acceptor or drawee thereof by the holder or his authori;ed representative. 7resentment for payment must be made during the usual hours of business and banking hours in case of a banker. It the maker" drawee or acceptor of a negotiable instrument has no known place of business or fi#ed residence and the instrument does not specify any place for presentment for acceptance or payment" such presentment need not be made. A negotiable instrument payable on demand must be presented for payment within a reasonable time after it is received by the holder. Any delay in presentment for acceptance or payment is not e#cusable under any circumstances. No presentment for payment is necessary" and the instrument is dishonored at the due date for presentment if the maker" drawee or acceptor intentionally prevents the presentment of the instrument. No presentment for payment is necessary" and the instrument is dishonoured at the due date for presentment provided the instrument is not payable at any specified place and the maker" drawee or acceptor cannot be found after due search. A promissory note and a che&ue are dishonoured by non8acceptance or non8 payment. A bill of e#change is dishonoured by non8acceptance when the drawee is a person incompetent to contract. A bill is not deemed to be dishonoured unless it is not accepted by a drawee in case of need also. 4hen a promissory note" bill of e#change or che&ue is dishonoured by non8 acceptance or non8payment" the holder thereof must give notice of dishonour to all other parties whom he seeks to make liable thereon. A notice of dishonour must be given to the maker of the dishonoured promissory note" or the drawee or acceptor of the dishonoured bill of e#change or che&ue. Any party receiving notice of dishonour must" in order to render any prior party liable to himself" given notice of dishonour to such party within a reasonable time" unless such party otherwise receives due notice from the ,

0,.

0%. 00. 111.

111. 112. 11$.

11'.

11). 11+. 11,. 11%.

110.

111.

holder or any other party liable on the instrument. 111. 112. 11$. 4hen the instrument is deposited with an agent for presentment" the agent cannot given notice of dishonour to parties liable thereon directly. No notice of dishonour is necessary when the drawer of a che&ue has countermanded payment. No notice of dishonour is necessary when the party entitled to notice" knowing the facts" promises to pay the amount due sub=ect to certain conditions. If the holder and the party to whom notice of dishonour is given carry on business or live in the same place" such notice is given within a reasonable time if it is dispatched in time to reach its destination on the day ne#t after the day of dishonour. 2he holder of a negotiable instrument" who has ac&uired if after dishonour" with notice thereof" does not ac&uire a better title like a holder in due course but only the rights thereon of this transferor. 4hen a promissory note or bill of e#change has been dishonoured by non8 acceptance or non8payment" the holder may cause such dishonour to be noted upon the instrument or a paper attached thereto with in a reasonable time alongwith date and reason of dishonour" and sign it. 4hen a promissory note or bill of e#change has been dishonoured" the holder may cause such dishonour to be noted and certified by a notary public. ?uch certificate is called a -protest(. A -protest for better security( is applicable only when the acceptor of a bill of e#change has become insolvent" or his credit has been publicly impeached" before the maturity of the bill. A drawer of a dishonoured che&ue is punishable with imprisonment for a term upto one year. A drawer of a dishonoured che&ue is punishable with fine which may e#tend to twice the amount of the che&ue. A drawee of a dishonoured che&ue is punishable only if the che&ue is dishonoured for insufficiency of funds in the account and it was issued as payment in discharge of a legally enforceable debt or liability. A drawee of a dishnoured che&ue is liable only if he fails to make payment within $1 days of a notice by payee or holder demanding payment. 7ayment of the amount due a negotiable instrument must" in order to discharge the maker or acceptor" be made to the holder of the instrument. Any person liable to pay" and called upon by the holder thereof to pay" the amount due on a negotiable instrument is" before payment" entitled to have it shown" and is on payment entitled to have it delivered up" to him or to be indemnified against any further claim thereon against him if the instrument is lost or cannot be produced. A negotiable instrument is discharged by payment only. %

11'.

11).

11+.

11,.

11%.

110. 121. 121.

122. 12$. 12'.

12).

12+.

2he maker" acceptor or indorser of a negotiable instrument is discharged from liability thereon to a holder thereof who cancels such acceptor(s or indorser(s name with intent to discharge him" and to all parties claiming under such holder. 2he maker" acceptor or indorser of a negotiable instrument is discharged from liability thereon to a holder thereof who otherwise discharged such maker" acceptor or indorser" and to all parties deriving title under such holder after notice of such discharge. If a holder of a bill of e#change allows the drawee more than twenty8four hours" e#clusive of public holidays" to consider whether he will accept the same" all previous parties not consenting to such allowance are thereby discharged from liability to such holder. A party to a negotiable instrument" which does not consent to a &ualified acceptance" is discharged thereby. Any material alternation of a negotiable instrument renders the same voidable against any party thereto which does not consent thereto. Fill the blanks in the following sentences A@@@.. @@may be crossed but not a bill of e#change. A@@@@@.company has implied power to be a party to a negotiable instrument. *very holder in due course is a holder but every holder@@@@@@be a holder in due course. A transfer through@@@@@can only be made in writing. A@@@@@@does not re&uire presentment for acceptance. Ailling blanks in an inchoate instrument@@@@@@.a material alternation. A banker@@@@@@..dishonour a customer(s che&ue when it has received notice of his death or insanity. 4here a che&ue is crossed specially" the payee banker is obliged to make its payment only to@@@@@@.. A banker gets a good discharge by payment in the due course of the amount on a@@@@@@ che&ue to its holder. A banker who" in good faith and without negligence" has received payment of a crossed che&ue on behalf of a customer@@@@@@incur any liability if the title of the customer turns out to be defective.

12,.

12%.

120. 1$1.

II. 1$1. 1$2. 1$$. 1$'. 1$). 1$+. 1$,. 1$%. 1$0. 1'1.

III. 1'1.

hoose the correct alternati!e in the following sentences. 4hich one of the following gets a better title than that of his transferor888 a. holder b. payee c. maker d. holder in due course. 4hich one of the following can be crossed88 a. promissory note b. hundi c. bill of e#change d. che&ue 4hich one of the following is always payable on demand 88 a. promissory note b. che&ue c. bill of e#change d. none of the above An -ambiguous instrument( can be interpreted 888 a. either as a promissory note or a bill of e#change b. either as a bill of e#change or a che&ue c. either as a promissory note or a che&ue d. none of the above Belivery of instrument is an important step in 888 a. assignment b. negotiation c. nothing and protesting d. payment A bill of e#change is dishonoured 888 a. if the drawee does not accept t within '% hours form the time of presentment for acceptance. b. If the drawee is incompetent to contract c. If the drawee gives a &ualified acceptance d. In all the above cases A drawee of a che&ue dishonoured due to insufficiency of funds and which was issued to discharge a legally enforceable debt" can be punished with 88 a. b. c. d. A fine which may e#tend to twice the amount of the che&ue Imprisonment which may e#tend to two years. .a/ and .b/ above None of the above

1'2.

1'$.

1''.

1').

1'+.

1',.

1'%.

4hich one of the following is not an instance of a material alternation88 a. ?um payable b. 2ime of payment 11

c. 7lace of payment d. rossing of a che&ue 1'0. A banker may dishonour a che&ue if 888 a. b. c. d. 1)1. 2he che&ue is mutilated 2he che&ue is ambiguous 2he che&ue is not duly presented In all the above

A banker must dishonour a che&ue if 88 a. b. c. d. 2he customer has countermanded payment A court order attaches the customer(s account 2he customer has given a notice of loss of the che&ue to the banker In all the above cases.

11