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Negotiable instrument act

1881

28 December 2017 1
• CHARACTERS OF Negotiable Instrument-
1-Tranferbility.
2-Negotiability
3-Holder can recover &/ sue the parties
there of.

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Sec. 4 an unconditional undertaking signed by the maker
Promissory to Pay a certain sum of amount ,to certain person on
note certain date is called as Promissory note

Promissory note

I Pyare lal s/o Sh. Ram Lal promise to


Beneficiary
pay a sum of Rs.1000/-to Raj Kumar
or order on 16.02.2010. Certain sum

Certain Date

Dated:16.09.2009 Pyare Lal Maker

Place: Lucknow
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BANK OF BARODA
Sec.5 “Bill of Exchange” is an instrument in writing containing an unconditional
Bill of order by the maker directing a certain person to pay a certain sum of amount
Exchange only to or to the order of, a certain person or to the bearer of the instrument

M / S Raj Kumar & CO. Drawee

Payee
Pay M/S Pyare lal & company or Order
Certain amount
Rs.10000/- in words Rs. Ten thousand only on
16.12.2009 Certain Date
Place: Lucknow
Date:16.09.2009 Rajeev Brothers
Propritor Drawer
Proprietor
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BANK OF BARODA
A “Cheque” is a bill of exchange drawn on a specific banker and not
Cheque expressed to be payable otherwise on demand
Sec.6 it includes the electronic image of a truncated cheque and a cheque in
electronic form.

Drawee bank Payee

Date 16.11.2009
Pay Raj Kumar or bearer

Rupees One lac only


Rs.100,000=00
Rs.100,000/-
For ABC Brothers
Drawer
PQR Bank
Proprietor
Xyz branch ,Lucknow

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BANK OF BARODA
HOLDER
Holder means any person entitled in his own name to the
possession thereof and to receive or recover the amount due
Sec.08
thereon from the parties there to. Where the NI is lost or destroyed,
its holder is the person so entitled at the time of such loss or
destruction

HOLDER
• HOLDER
Date 16.11.2009
Pay Raj Kumar or Bearer

Rupees One lac only


Rs.1,00,000/-

ABC Bank Ltd For


Lucknow ABC & Co.
Director
Raj Kumar
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BANK OF BARODA
Some points to note
• Sec-31 of RBI act prohibits in issuing
Promissory notes on demand except by
RBI for Currency notes .

• Cheques are always payable on demand .


• If no time is mentioned then it is payable
on demand.
• If nothing is mentioned Instrument is
payable to order .

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Holder in due course
A person who for consideration becomes the possessor of the NI if payable
Sec 9 to bearer, or payee or endorsee, if payable to order, before amount mentioned
in it becomes payable, and without having sufficient cause to believe that any
defect exists in the title of the person from whom he derived his title.

Holder in due course


Please have this
cheque for the
furniture I have
bought from you Thank
you
Very
Dated 16.11.09 much
Pay Raj Kumar or bearer
Sir jee
Rs. Ten thousand only Rs.10000/-
PQR Bank

Sanjeev Kumar Lucknow Sanjeev Kumar

Raj Kumar
28 December 2017 8
Sec.10
Payment in due course
• 1.Payment in accordance with the apparent
tenor of instrument ( esa lagta hai)
Date:16.11.2009

Pay Raj Kumar or Order


Rupees Ten thousand only

Rs.10000/-
XYZ Bank ABC & Co.
Lucknow
Director

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2
2.In good faith & without negligence to any person in
possession thereof

Are you Mr.


Raj Kumar

Yaah

Banker Bearer / Payee or endorsee


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under circumstances which do not afford a reasonable ground for
believing that he is not entitled to receive payment of amount

yyyaa
1.Are you
Mr. Raj Kumar?
Aaa no
no yes
yes 2. I say,
Are you
Mr. Raj Kumar

Presenter Banker
28 December 2017 11
Section 13
Negotiable instrument means
Promissory Note, Bill of Exchange, or Cheque

• Sec.14:-when Negotiable instruments is


TRANSFERRED to any person so as to
constitute him as HOLDER thereof the
instrument , said to be negotiated.

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When a promissory note, Bill of Exchange or cheque is transferred to any
Sec.14
person, so as to constitute the person the HOLDER thereof, the instrument
Negotiation
is said to be Negotiated. This process is called as Negotiation

Please Thank you, Sir


take this
cheque

Dated 16.11.09
Pay Raj Kumar or bearer
Rs. Ten thousand only
Rs.10000/-
PQR Bank
Sanjeev Kumar
Lucknow
Sanjeev Kumar
Raj Kumar

28 December 2017 13
Negotiation
Sec.46 by Delivery Thank you
sir

• DELIVERY
Dated 16.09.09
Pay Raj Kumar or bearer
Rs. Ten thousand only
Rs.10000/-
PQR Bank. Sanjeev Kumar

Lucknow
Have this cheque
shyaam
Shyaam
Shyam
Raj Kumar
28 December 2017 14
Section 15
Sec.15- Endorsement
ENDORSEMENT
Date 16.02.2009 When the maker or the
holder of a NI signs
Pay Raj Kumar or bearer the same, other wise
than such a maker ,for
Rupees One lac only the purpose of the
Rs.100,000/- negotiation on the
back or the face
PQR Bank Sanjeev Kumar thereof or on a slip of
paper annexed
Xyz branch ,Lucknow thereto, he is said to
Endorsed the same
and is called the
Endorser
Raj Kumar

Sec.16

Blank
Endorsement

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Sec.16SeSE SEC.16- FULL ENDORSEMENT

Date 16.02.2009
Pay Raj Kumar or bearer
Rupees One lac only
Rs.100,000/-

For ABC Brothers


PQR Bank
Proprietor
Xyz branch ,Lucknow

Pay to Shyam Kumar Full


Pay to Sushil Endorsement
Ramesh
Raj Kumar

ENDORSEE
Pay to Ramesh
Endorser
Shyam Kumar
28 December 2017 16
Sec.48
Negotiation by Endorsement

• 1 Endorsement
• 2 Delivery
ENDORSEMENT

Delivery

28 December 2017 17
Sec.49
Conversion of Blank endorsement
in to full endorsement

RAJKUMAR Blank
endorsement

Blank
Pay to Sushil
Endorsement
Converted
into
RAJKUMAR
Full endorsement
28 December 2017 18
Sec.50- Endorsement can be restricted by payee or any endorsee
Date 16.11.2009

Pay Raj Kumar or bearer


F
Rupees One lac only Rs.100,000/-
A
C
For ABC Brothers
PQR Bank
E Proprietor
Xyz branch ,Lucknow

B
A Pay to Shyam only Restricted

C Endorsement

K Raj Kumar

Endorsement can be restricted by payee or any endorsee19


28 December 2017
Effect of endorsement-
Sec.50
1- Transfer the property therein to the
endorsee,

2- Endorsee can further negotiate the


instrument unless it is restrictive
endorsement.

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Sec-18-
• Sec-18- Where the Amount in words &
figure differs- the amount in words shall be
the amount undertaken / ordered to be
paid .
• If- amount in words is there ,but not in
figures-
• If amount in figures is there, but not in
words-

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Sec-87-

Sec 87 effect of material alternation

Any material alternation (that adversely


affect the interest of the parties can be
called material alternation ) renders void
as against any one who is party there to .

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Protection to Paying Banker
• Sec.30 – Liability of Drawee Bank,
• Sec.10- payment in due course
• Sec.85 i -Cheque payable to order,
• Sec.85 ii -Cheque payable to bearer,
• Sec.85 A- payment of Demand Draft,
• Sec.89 – Payment of instrument on which
material alteration is not apparent,
• Sec.128-Payment of crossed cheque in
due course.
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Protection to Collecting Banker

• Sec.131-Non-liability of banker receiving


payment of cheque:-
– A banker who has in good faith and without
negligence received payment for a customer
of a cheque crossed generally or specially to
himself shall not, in case the title of the
cheque proves defective, incur any liability to
true owner of the cheque by reason only of
having received such payment.

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Sec.123 Crossing of cheque
• Where a cheque bears across its face an addition of the word “ and
company” or “any abbreviation thereof, between two parallel
transverse lines or of two parallel lines simply, either with or without
the word “ not negotiable” , that addition shall be deemed as a
“crossing” and the cheque shall be deemed to be crossed cheque.

/-

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Sec.124 Special Crossing
• Where a cheque bears across its face an addition of the name of a
banker , either with or without the words “ not negotiable”” , that
addition shall be deemed as a “crossing” and the cheque shall be
deemed to be crossed specially and to crossed to that banker.

/-

28 December 2017 26
Sec.125 Crossing after issue

Where a cheque is uncrossed


The holder may cross it generally of specially

Where a cheque is crossed generally

Where a cheque is crossed generally or specially


The holder may add the words” not negotiable
Where a cheque is crossed specially
The banker to whom it is crossed may again cross it
specially to another banker , his agent for collection.
28 December 2017 27
Sec.126
Payment of cheque
Crossed Specially.
• Where a cheque crossed specially , the banker on whom it is drawn
shall not pay it other wise than to the banker on whom it is
crossed, or his agent for collection

/-
Bank of
India

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Sec.126
Payment of cheque
Crossed generally

/
-
Sorry ,
Please this
make cheque
payment cannot be
paid over
counter

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Sec.127
Payment of cheque
Crossed Special more than once
• Where a cheque crossed specially , to more than one banker, except
when crossed to an agent for the purpose of collection ,the banker
on whom it is drawn shall refuse payment thereof.

/-
Bank of
India

28 December 2017 30
Sec.126
Payment of cheque
Crossed generally

/
-
Sorry ,
Please this
make cheque
payment cannot be
paid over
counter

28 December 2017 31
Sec.128
Payment in due course of
crossed cheque
• Where the banker on whom a crossed cheque is drawn has paid the
same in due course, the banker paying the cheque, and the drawer
thereof, shall respectively be entitled to the same rights, and be
placed in the same position in all respect, as they would be
respectively entitled to and place in if the amount of cheque had
been paid to and received by the true owner of cheque.

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Sec.129
Payment out of due course of
crossed cheque
• Any banker paying a cheque crossed generally other wise than to a
banker, or a cheque crossed specially otherwise than to the banker
to whom the same is crossed, or his agent for collection, being a
banker , shall be liable to the true owner of the cheque for any
loss he may sustain owing to the cheque having been so paid.

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Sec Payment of crossed cheque bearing
130 “not negotiable” crossing
A person taking a cheque crossed generally of specially,
bearing in either case the words ”not negotiable”, shall
not have and shall not be capable of giving , a better
title to the cheque than that which the person from
whom he took .it had

not negotiable

Rs.10000.00
Xyz bank
Lucknow Vijay Kumar
28 December 2017 34
Sec.131

• ►Collection of a cheque for a Customer,


• Here customer means duly introduced /
KYC compliant customer.
• ► It should be crossed before coming in
the hands of the banker,
• ► When electronic image of the cheque is
being sent for collection, then verify the
prima facie genuineness of the cheque
to be truncated
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Dishonor of cheque for
Sec.138
insufficiency of fund in account

• Cheque is issued for the discharge of any


debt or other liability,
• Amount of the cheque is more than the
– Amount held in the account on which the
cheque is drawn,
– Arrangement made by the drawer in the
account maintained with the bank.

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• Primary duty of drawer of cheque is to make payment to
the payee .
• Sec142( b)- Legislative opportunity- notice of dishonour
of cheque with demand to pay exact cheque amount (
not more / interest etc ) to be brought to the drawer,
within one month from return of cheque .. If he makes no
attempts to repay within 15 days , a case may be filed in
court of law ( not below first class magistrate ) , within 1
month period .
• Court may pardon one month limitation.
• Sec-139- It is presumed that ch. Is issued for payment of
debt .

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•A notice refused to be accepted presumed to have served .

Starting point of limitation under Sec 138


of NI act will begin to run on the day
next to the day on which notice has been
effected ( receipt of information ).
• The limitation to file complaint under
sec142(b) is one month (calendar month )
starts from 16th day after receipt of notice
of dishonour.

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Sec.139 Effect of dishonor of cheque

• It is a criminal offence,
• Drawer of the cheque can be punished WITH
1-)with imprisonment
OR for a term which may be
extended to two years
2-FINE which may extend to twice of the amount of
• OR endeavor
the cheque

BOTH


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• Sec-142-
• 1-Court will take cognizance of offence
punishable under sec-138 if complaint is
made in writing , by payee / holder in due
course .
• 2- Within 1 month of the date on which
cause of action arises.
• 3- Summary trial
• 4-“Stop payment “Complaint is maintainable.

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• Sec-144- Summons issued to at the place
ordinarily resides or carries business by
post ,courier is valid summon served .
• Sec-145- Evidence on affidavit.
• Sec-146- Bank’s return memo (slip )is the
prima facie evidence of certain facts .
• Sec-147- Under CPC ( code of criminal
procedure-1973) every offence punishable
under this act is compoundable .

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THANKS

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