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Evolution and Revolution of Negotiable Instruments as Trade Facilitator and 10 years ahead

Evolution & Revolution of Negotiable Instruments as

Trade facilitator and ten years taking forward

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Creditors

S.No Name Roll.No

1. Babita Jain 27

2. Bhawin Saraiya 29

3. Devendra Kant Sahu 31

4. Dhaval Desai 33

5. Dhriti Sachdev 35

6. Deepali Parekh 37

7. Falak Kothari 39

8. Gaurav Modak 41

9. Hardik Mehta 43

10. Harminder Singh Jabal 45

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INDEX

S.No Topic Page No.

1. History 4

2. Negotiable Instruments - Introduction 8

3. Characteristics of Negotiable Instruments 10

4. Classification of Negotiable Instruments 16

5. Presentment, Discharge and Dishonor of

negotiable Instruments

28

6. Revolution of Negotiable Instruments 35

7. Future Ahead for Negotiable Instruments 42

8. Case Studies 43

9. Bibliography 45

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1. History The history of negotiable instruments is very old.

Common prototypes of bills of exchanges and promissory notes originated in China.

Here, in the 8th century during the reign of the Tang Dynasty, they used special

instruments called feitsyan for the safe transfer of money over long distances.

Later such document for money transfer used by Arab merchants, who had used the

prototypes of bills of exchange – suftadja and hawala in 10–13th centuries, then such

prototypes had used by Italian merchants in the 12th century.

In Italy in 13–15th centuries bill of exchange and promissory note obtain their main

features and further phases of its development have been associated with France (16–18th

centuries, where the endorsement had appeared) and Germany (19th century,

formalization of Exchange Law).

The earliest payment instruments used in India

were coins, which were either punch marked

or cast in silver and copper. (Source: RBI) Source: RBI

In ancient India, loan deed forms were also used. They were called rnapatra or rnalekhya

. They contained details such as the name of the debtor and the creditor, the amount of

loan, the rate of interest, the condition of repayment and the time of repayment. The deed

was witnessed by a person of respectable means and endorsed by the loan-deed writer.

In the Mughal period, the deeds were called dastawez and were of two types: dastawez-e-

indultalab which was payable on demand and dastawez-e-miadi which was payable after

a stipulated time. In the this period, foreign travellers used the bills of exchange in the

then great shopping centres. The Indian bankers also issued bills of exchange on foreign

countries, mainly for financing sea-borne trade. Another instrument used was the Pay

order. It was called Barattes and was similar to the present day drafts or cheques

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In the twelth Century, the Hundis was introduced.

Hundis were used

o to transfer funds from one place to another

o to borrow money

o as bills of exchange

In 18th century, the princely states of India had their own distinct coins. An example of

this was the Arcot Rupee coin struck by the Nawab of Arcot in the Madras Presidency.

By 1740, the Europeans had secured the privilege of coining this rupee, and the coins

came to be known as English, Frenchand Dutch arcots.

In 1835, the East India Company introduced the Company's Rupee to bring about

uniformity of coinage over British India.

Paper money, in the modern sense, has its origin in the late 18th century with the note

issues of private banks as well as semi-government banks. Amongst the earliest issues

were those by the Bank of Hindoostan, the General Bank in Bengal and Behar, and the

Bengal Bank.

Later, with the establishment of three Presidency Banks, the job of issuing notes was

taken over by them. Each Presidency Bank had the right to issue notes within certain

limits.

The private banks and the Presidency Banks introduced other payment instruments in the

Indian money market. Cheques were introduced by the Bank of Hindustan, the first joint

stock bank established in 1770.

Post Bills were introduced by the British in 1827. These were Inland Promissory notes

issued by the bank on a distant place, the holder of which would be paid on acceptance

after a specified number of days (seven days' sight or thirty days' sight) and were similar

to muddati hundis. These bills had a much smaller currency than bank notes, mainly

because the government refused to authorise their receipt in payment of public dues.

They were mainly used by European businessmen for purposes of internal remittances.

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Source: RBI


Cash credit accounts were added to the Bank of Bengal's array of credit instruments. The

bank used to grant loans against the security of Company's paper, bullion, plate, jewels or

goods of non-perishable nature or goods not liable to great alteration in their value up to a

limit of 1 lakh sicca rupees.

Buying and selling bills of exchange became one of the items of business to be conducted

by the Bank of Bengal from 1839.

In 1881, the Negotiable Instruments Act (NI Act) was enacted, formalising the usage and

characteristics of instruments like the cheque, the bill of exchange and promissory note.

The NI Act provided a legal framework for non-cash paper payment instruments in India.

With the development of the banking system and higher turnover in the volume of

cheques, the need for an organized cheque clearing process emerged amongst the banks.

Clearing associations were formed by the banks in the Presidency towns and the final

settlement between member banks was effected by means of cheques drawn upon the

Presidency Banks. With the setting up of the Imperial Bank in 1921, settlement was done

through cheques drawn on that bank.

The Calcutta Clearing Banks' Association, which was the largest bankers' association at

that time, adopted clearing house rules in 1938. The association had twenty-five large

banks as its members and eight sub-members. There were two ordinary clearings on each

business day, except on Saturday when there was one clearing.

However, the association did not cover many banks functioning in Calcutta. The cheques,

drafts etc. of such non-clearing banks were collected by the clearing banks only on

payment of charges. This affected their business prospects adversely, as the public was

not likely to maintain accounts with banks whose cheques suffered a serious handicap of

market acceptability.

To overcome this problem, these banks formed themselves into a group called the

Metropolitan Banking Association with fifty members, which conducted the Metropolitan

Clearing House, in 1939. This association arrived at an understanding with the Calcutta

Clearing House in 1940. In addition, two other clearings were conducted in Calcutta - the

Pioneer clearing and the Walks Clearing.

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The Bombay Clearing House was the only association to conduct clearings in Bombay. It

had no parallel systems/institutions comparable to the Metropolitan Clearing House of

Calcutta.

The uniform procedures and charges for collection of non-clearing banks' cheques, drafts,

dividend warrants etc. were adopted by the Bombay Clearing House in 1941-42. After

the setting up of Reserve Bank of India under the RBI Act 1935, the Clearing Houses in

the Presidency towns were taken over by Reserve Bank of India.

…

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2. Negotiable Instruments – An Introduction

Exchange of goods and services is the basis of every business activity. Goods are bought

and sold for cash as well as on credit. All these transactions require flow of cash either

immediately or after a certain time. In modern business, large number of transactions involving

huge sums of money takes place every day. It is quite inconvenient as well as risky for either

party to make and receive payments in cash. Therefore, it is a common practice for businessmen

to make use of certain documents as means of making payment. Some of these documents are

called negotiable instruments.

A negotiable instrument is a written contract for the payment of money. It is intended as

a substitute for money and passes from one person, called the maker or drawer, to

another, called the payee or drawee or acceptor, as money. (Source: M.C.Kucchal)

+

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NEGOTIABLEmeans

transferable by delivery

NEGOTIABLEmeans

transferable by delivery

INSTRUMENTmeans

a written document

INSTRUMENTmeans

a written document

NEGOTIABLE INSTRUMENTA written document transferable by

delivery

NEGOTIABLE INSTRUMENTA written document transferable by

delivery


According to Justice Willis - “ A negotiable instrument is one, property(title) in which is

acquired by any one who takes it bonafide and for value, notwithstanding any defect of

title in the person from whom he took it.”

According to Elvyn Thomas – A Negotiable instrument is one which is by a largely

recognized custom or tradeor by law, transferable by delivery or by endorsement and

delivery in such circumstances that

o The holder of it for time being is made to sue upon it, in his own name

o The property in it passes free from equitiesand free from any defect in the title of

the person from whom he obtained (Source: Moshal)

According to the Section 13 of the Negotiable Instruments Act, 1881 in India, a

negotiable instrument means a promissory note, bill of exchange or cheque payable either

to order or to bearer.

There are just three types of negotiable instruments such as

o Promissory note

o Bill of exchange

o Cheque. ( Cheque also includes Demand Draft [Section 85A].)

ALSO considered as Negotiable Instruments NOT considered as Negotiable Instruments

Treasury Bill Government Promissory Note Dividend Warrant Share Warrant Bearer Debuntures Hundis Port Trust Bonds ImprovementTrust debentures/bonds Bearer railway Bonds

Money Order

Postal Order

Deposite Receipt

Share Certificate

Bill of Lading

Railway Receipt

Wharfinger’s certificate

Letter of Credit

3. Characteristics of a Negotiable Instrument

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Some of the Prominent characteristics of a negotiable instruments are as follows :

Free Transferability : ( Source: Bhulchandani)

A negotiable instrument may be transferred by delivery if it is a bearer instrument or by

endorsement and delivery if it is an instrument payable to order.

Thus, a Fixed Deposit Receipt, which is marked as ‘not transferable’is not a negotiable

instrument. On the other hand all instruments which are transferable are not negotiable

instruments e.g. share certificate. An instrument to be negotiable must possess other features

also.

Further, a negotiable instrument may be transferred any number of times till it is discharged.

Title of holder free from all defects :

The transferee, who takes the instrument bona fide and for valuable consideration, obtains a

good title despite any defects in the title of the transferor. To this extent, it constitutes an

exception to the general rule that no one can give a better title then he himself has.

Eg. S sells certain goods to B , B gives a promissory note to S for the price. He refuses to pay the

promissory note, claiming that the goods are not according to order. If S sues Bon the note, B’s

defence is good. But if he negotiates the note to H, a holder in due course, B’s defence will be of

no avail

The holder in due course is also not affected by certain defences which might be available

against previous holders, for example, Fraud, provided he himself is not a party to it.

Recovery : The holder in due course can sue upon a negotiable instrument in his own name for

the recovery of the amount, further he need not give notice of transfer to the party liable on the

instrument to pay. Thus the holder in due course can recover the full amount of the instrument.

Presumptions : Certain presumptions to all negotiable instruments, unless contrary is proved.

These presumptions are dealt with in Secs.118 and 119 are as follows:

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1. Consideration : That every negotiable instrument is made or drawn, accepted, endorsed,

negotiated or transferred, for consideration. Thus, this need not necessarily be mentioned. This

would help a holder to get a decree from a Court without any difficulty.

2. Date : That the negotiable instrument was drawn on the date shown on the face of it.

3. Time of acceptance : When a bill of exchange has been accepted, it is presumed that it was

accepted within a reasonable time of its date before its maturity.

4.Time of transfer: Every transfer of a negotiable instrument is presumed to have been before

its maturity.

5. Order of Endorsements : That the Endorsements appearing upon a negotiable instrument

were made in the order in which they appear.

6. Stamping of the instrument : That an instrument which has been lost was properly stamped.

7. Holder is Holder in due course : That the holder of a negotiable instrument is the ‘holder in

due course’, except where the instrument has been obtained from its lawful owner or its lawful

custodian by means of offence or fraud.

Example: Suppose Raju borrows 10,000 from Manju using promissory note.Then Manju is

called holder of the promissory note. Suppose Manju borrows 10,000 from Vivek for some

purpose, again using a promissory note. Now Vivek becomes holder of his promissory note.

Now, Manju can give the first promissory note (taken from Raju) to Vivek, so that the amount to

be returned by Manju to Vivek is returned by Raju to Vivek. Hence, Vivek is called HOLDER

IN DUE COURSE.

When he is Holder in Due Course When he is NOT holder in due course

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(a) He must be a holder in due course (a) he obtains the negotiable instrument

after its maturity

(b) He must be a holder of valuable

consideration

(b) he obtains it by way of a gift; or

(c) He must become a holder of the

negotiable instrument before the date of

maturity

(c) he obtains it for any unlawful

consideration

(d) He must become a holder of the

negotiable instrument in good faith

(d) he obtains it by some illegal method, or

(e) he does not obtain it bonafide

8. Proof of dishonor : If a suit is filed upon an instrument which has been dishonored, the Court

shall, on proof of the protest, presume the fact of dishonor unless it is disproved.

The above presumptions are rebuttable by evidence. If anyone challenges any of these

presumptions, he has to prove his allegation. Again, these presumptions would not arise where

an instrument has been obtained by any offence, fraud or unlawful consideration.

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SECTION 119SECTION 119


Negotiation:

When a promissory note, a bill of exchange or a cheque is transferred to any person, so as to

constitute that person the holder thereof, the instrument is said to be negotiated.

By negotiation the third party is put in the possession of the instrument and is also made a

holder thereof to entitle him to receive the amount due thereon. We have seen above

negotiation means transfer. Negotiation gives special rights to the holder in due course.

Transfer of a negotiable instrument is affected in any one of the following two ways:

Transfer by negotiation:

Transfer by negotiation is governed by the Negotiable Instruments Act, transfer by assignments is governed by the Transfer of Property Act.

When is an instrument negotiated?

An instrument is negotiated when transferee is constituted the holder of it. Delivery is the

important aspect of negotiability. It constitutes an essential characteristic of negotiable

instrument. The making acceptance or endorsement of a promissory note, bill of exchange or

a cheque is completed by delivery actual or constructive. Delivery therefore to an agent or

any person with an intention to pay and pass the property in he instrument would be

sufficient to transfer the property in the instrument to the payee and constitute the payee

holder thereof.

A promissory note, bill of exchange or cheque payable to bearer is negotiable by delivery

thereof. Therefore, bearer instruments are transferable by mere delivery without

endorsement. The transferee becomes the holder thereof. The effect of such a transfer is that

as transferor does not put his signature on the instrument, he is not liable either to an

immediate party or subsequent holder in case of the instrument being dishonored. The

transferee therefore cannot recover any amount from the transferor.

A promissory note, bill of exchange or cheque delivered on condition that it is not to take

effect except in a certain event, is not negotiable (except in the hands of a holder for value

without the notice of the condition) unless such event happens. Therefore, an instrument is

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not negotiable when delivered with a condition that it is to take effect on happening of a

certain event. This exception however, does not apply to a holder in due course who has

taken the instrument for value without notice of such a condition

.Illustrations:

1) A the holder of a negotiable instrument payable to bearer it to B’s agent to keep for B. The

instrument has been negotiated.

2) ‘A’ the holder of a negotiable instrument payable to bearer which is in the hand of A’s

banker, who is at the time the banker of B, directs the banker to transfer the instrument to B’s

credit in the bearer’s account with B. The banker does so and accordingly now possesses the

instrument as B’s agent. The instrument has been negotiated and B has become the holder of

it.

Negotiation by endorsement and delivery of order instruments

A promissory note, bill of exchange or cheque payable to order is negotiable by the holder by

endorsement and delivery thereof. Where instrument payable to order is transferred merely

be delivery it is deemed to be assigned and not negotiated. It should be noted that both

negotiation of bearer and order instruments by delivery or by delivery and endorsement are

effective when the instruments is not obtained by unlawful considerations

Transfer by assignment:

When a person transfers his right to receive the payment of a debt, ‘assignment of the debt’

takes place. Thus where the holder of an instrument transfers it to another so as to confer a

right on the transferee to receive the payment of the instrument, transfer by assignment takes

place.

The Negotiable Instruments Act does not deal with transfer of negotiable instruments by

assignment.

Some of the differences in Transfer by Negotiation and Transfer by Assignment are as follows:

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Transfer by Negotiation Transfer by Assignment

1. Consideration is presumed. 1. Consideration must be proved.

2. The title of the transferee (i.e., the holder

in due course) is better than that of the

transferor.

2.The title of the assignee is subject to the

defects and equities in the title of the

assignor.

3. Notice of transfer to the debtor by the

transferee is not necessary. The acceptor of a

bill and the maker of a note are liable on

maturity to the holder in due course of the

instrument.

3.An assignment does not bind the debtor

until notice of the assignment had been

given by the assignee to the debtor, and

the debtor has, expressly or impliedly,

assented to it.

4.Instruments payable to bearer are

negotiated by mere delivery and instruments

payable to order are negotiated by

endorsement and delivery.

4.An assignment can only be made in

writing-either on the instrument or in a

separate document transferring to the

assignee the transferor’s rights in the

instrument.

…

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4. Classification of Negotiable InstrumentsInstruments negotiable by statute: The Negotiable Instruments act mentions only 3 kinds of

negotiable instruments (Sec13) these are Promissory Notes (popularly called pronotes), Bills of

Exchange (popularly called bills) and Cheques. These instruments are negotiable by statute.

Promissory Note

Promissory note is defined as ‘an instrument in writing (not being 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’.

Suppose you take a loan of Rupees Five Thousand from your friend Sagar. You can make a

document stating that you will pay the money to Sagar or the bearer on demand. Or you can

mention in the document that you would like to pay the amount after three months. This

document, once signed by you, duly stamped and handed over to Sagar, becomes a negotiable

instrument. Now Sagar can personally present it before you for payment or give this document to

some other person to collect money on his behalf. He can endorse it in somebody else’s name

who in turn can endorse it further till the final payment is made by you to whosoever presents it

before you. This type of a document is called a Promissory Note.

Specimen of a Promissory Note

Rs. 10,000/- New Delhi

September 25, 2002

On demand, I promise to pay Sagar, s/o RamLal of Meerut or order a sum of Rs

10,000/- (Rupees Ten Thousand only), for value received.

To , Sagar Sd/ Sanjay

Address…….. Stamp

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Parties to a Promissory Note

There are primarily two parties involved in a promissory note. They are

1. The Maker or Drawer – the person who makes the note and promises to pay the amount

stated therein. In the above specimen, Sanjay is the maker or drawer.

2. The Payee – the person to whom the amount is payable. In the above specimen it is Sagar. In

course of transfer of a promissory note by payee and others, the parties involved may be -

a. The Endorser – the person who endorses the note in favor of another person. In the above

specimen if Sagar endorses it in favor of Raj and Raj also endorses it in favor of Puneet, then

Sagar and Raj both are endorsers.

b. The Endorsee – the person in whose favor the note is negotiated by endorsement. In the

above, it is Raj and then Puneet.

(Endorsement means transfer of any document or instrument to another person by signing on its

back or face or on a slip of paper attached to it)

Features of a promissory note

Let us know the features of a promissory note.

i. A promissory note must be in writing, duly signed by its maker and properly stamped as per

Indian Stamp Act.

ii. It must contain an undertaking or promise to pay. Mere acknowledgement of indebtedness is

not enough. For example, if someone writes ‘I owe Rs. 5000/- to Jai Prakash’, it is not a

promissory note.

iii. The promise to pay must not be conditional. For example, if it is written ‘I promise to pay

Suresh Rs 5,000/- after my sister’s marriage’, is not a promissory note.

iv. It must contain a promise to pay money only. For example, if someone writes ‘I promise to

give Harsh a Tata car’ it is not a promissory note.

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v. The parties to a promissory note, i.e. the maker and the payee must be certain.

vi. A promissory note may be payable on demand or after a certain date. For example, if it is

written ‘three months after date I promise to pay Satya or order a sum of rupees Five Thousand

only’ it is a promissory note.

vii. The sum payable mentioned must be certain or capable of being made certain. It means that

the sum payable may be in figures or may be such that it can be calculated.

Bill of Exchange

Suppose Prem has given a loan of Rupees Ten Thousand to Alok, which Alok has to

return. Now, Prem also has to give some money to Tarun. In this case, Prem can make a

document directing Alok to make payment up to Rupees Ten Thousand to Tarun on demand or

after expiry of a specified period. This document is called a bill of exchange, which can be

transferred to some other person’s name by Tarun.

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’.

Specimen of a Bill of Exchange

Rs. 10,000/- New Delhi

May 2,2001

Five months after date pay Tarun or (to his) order the sum of Rupees Ten

Thousand only for value received.

To Accepted Stamp

Alok Alok S/d

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Address Prem

Parties to a Bill of Exchange

There are three parties involved in a bill of exchange. They are

I. The Drawer – The person who makes the order for making payment. In the above

specimen, Prem is the drawer.

ii. The Drawee – The person to whom the order to pay is made. He is generally a debtor

of the drawer. It is Alok in this case.

iii. The Payee – The person to whom the payment is to be made. In this case it is Tarun.

The drawer can also draw a bill in his own name thereby he himself becomes the payee. Here the

words in the bill would be Pay to us or order. In a bill where a time period is mentioned, just like

the above specimen, is called a Time Bill. But a bill may be made payable on demand also. This

is called a Demand Bill.

Features of a bill of exchange

Let us know the various features of a bill of exchange.

I. A bill must be in writing, duly signed by its drawer, accepted by its drawee and properly

stamped as per Indian Stamp Act.

ii. It must contain an order to pay. Words like ‘please pay Rs 5,000/- on demand and oblige’ are

not used.

iii. The order must be unconditional.

iv. The order must be to pay money and money alone.

v. The sum payable mentioned must be certain or capable of being made certain.

vi. The parties to a bill must be certain.

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Cheques

Cheque is a very common form of negotiable instrument. If you have a savings bank

account or current account in a bank, you can issue a cheque in your own name or in favor of

others, thereby directing the bank to pay the specified amount to the person named in the cheque.

Therefore, a cheque may be regarded as a bill of exchange; the only difference is that the bank is

always the drawee in case of a cheque.

The Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange drawn on a

specified banker and not expressed to be payable otherwise than on demand. Actually, a cheque

is an order by the account holder of the bank directing his banker to pay on demand, the

specified amount, to or to the order of the person named therein or to the bearer.

Specimen of a Cheque

………......20.......

Pay……..............................................................................................................

……....................................................................................................... or Bearer

Rupees………………………………………………

……………………………………………………

STATE BANK OF INDIA

Jawaharlal Nehru University, New Delhi – 110067

MSBL 6 5 3 0 0 3 1 1 0 0 0 2 0 5 6 1 0

Features of a cheque

Let us look into some important features of a cheque.

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I. A cheque must be in writing and duly signed by the drawer.

ii. It contains an unconditional order.

iii. It is issued on a specified banker only.

iv. The amount specified is always certain and must be clearly mentioned both in figures and

words.

v. The payee is always certain.

vi. It is always payable on demand.

vii. The cheque must bear a date otherwise it is invalid and shall not be honored by the bank.

Types of Cheque

Cheque

Classification 1

Open Cheque

Crossed Cheque

Bearer Cheque

Order Cheque

Classification 2

Ante-dated cheque

Stale Cheque

Mutilated Cheque

Post-dated Cheque

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Let us know details about these cheques.

a) Open cheque: A cheque is called ‘Open’ when it is possible to get cash over the counter at

the bank. The holder of an open cheque can do the following:

I. Receive its payment over the counter at the bank,

ii. Deposit the cheque in his own account

iii. Pass it to someone else by signing on the back of a cheque.

b) Crossed cheque: Since open cheque is subject to risk of theft, it is dangerous to issue such

cheques. This risk can be avoided by issuing other types of cheque called ‘Crossed cheque’. The

payment of such cheque is not made over the counter at the bank. It is only credited to the bank

account of the payee. A cheque can be crossed by drawing two transverse parallel lines across

the cheque, with or without the writing ‘Account payee’ or ‘Not Negotiable’.

c) Bearer cheque: A cheque which is payable to any person who presents it for payment at the

bank counter is called ‘Bearer cheque’. A bearer cheque can be transferred by mere delivery and

requires no endorsement.

d) Order cheque: An order cheque is one which is payable to a particular person. In such a

cheque the word ‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. The

payee can transfer an order cheque to someone else by signing his or her name on the back of it.

There is another categorization of cheques which is discussed below:

Ante-dated cheques:- Cheque in which the drawer mentions the date earlier to the date of

presenting if for payment. For example, a cheque issued on 20th May 2003 may bear a date 5th

May 2003.

Stale Cheque:- A cheque which is issued today must be presented before at bank for payment

within a stipulated period. After expiry of that period, no payment will be made and it is then

called ‘stale cheque’. Find out from your nearest bank about the validity period of a cheque.

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Mutilated Cheque:- In case a cheque is torn into two or more pieces and presented for payment,

such a cheque is called a mutilated cheque. The bank will not make payment against such a

cheque without getting confirmation of the drawer. But if a cheque is torn at the corners and no

material fact is erased or cancelled, the bank may make payment against such a cheque.

Post-dated Cheque:- Cheque on which drawer mentions a date which is subsequent to the date

on which it is presented, is called post-dated cheque. For example, if a cheque presented on 8th

May 2003 bears a date of 25th May 2003, it is a post-dated cheque. The bank will make payment

only on or after 25th May 2003.

Negotiable by custom or usage

There are certain other instruments which have acquired the character of negotiability by the

usage or customer trade. For example in England the following instruments have been held to be

negotiable by custom namely Exchequer bills , bank notes , share warrants , circular note , barer

debentures , dividend warrants , share certificates with blank transfer deeds etc. The list of

negotiable instruments does appear to be flexible and inclusive. The court in india usually

follows the practice of English Courts in according the character of negotiability to other

instruments.

Section (137) of the transfer of property act also recognizes the negotiability of instruments by

law or custom. Thus in India Government promissory notes , banks draft and pay orders , Hundis

(a popular indigenous document prevalent in India) , delivery orders and railway receipts for

goods have been held to be negotiable by usage or custom.

Bank draft

A bank draft is an order issued by one bank on another bank or on its own branch (usually drawn on its own branch) instructing the latter to pay a specified sum of money to a specified person or his order. It is a negotiable instrument and is very much like a cheque , with the following distinctions:

a. It can be drawn only by a bank on another bank or on its branch and not by an individual as in case of a cheque.

b. It cannot so easily be countermanded as a cheque.e-MBA | Div-A | 2011-13 | Page 23


c. It cannot be payable to bearer.

Hundis

A Hundi is a negotiable instrument by usage. It is often in the form of a bill of exchange drawn

in any local language in accordance with the custom of the place. Sometimes it can also be in the

form of a promissory note. A hundi is the oldest known instrument used for the purpose of

transfer of money without its actual physical movement. The provisions of the Negotiable

Instruments Act shall apply to hundis only when there is no customary rule known to the people.

Types of Hundis

There are a variety of hundis used in our country. Let us discuss some of the most common ones.

1. Shah-jog Hundi: This is drawn by one merchant on another, asking the latter to pay the

amount to a Shah. Shah is a respectable and responsible person, a man of worth and known in the

bazaar. A shah-jog hundi passes from one hand to another till it reaches a Shah, who, after

reasonable enquiries, presents it to the drawee for acceptance of the payment.

2. Darshani Hundi: This is a hundi payable at sight. It must be presented for payment within a

reasonable time after its receipt by the holder. Thus, it is similar to a demand bill.

3. Muddati Hundi: A muddati or miadi hundi is payable after a specified period of time. This is

similar to a time bill.

There are few other varieties like Nam-jog hundi, Dhani-jog hundi, Jawabee hundi, Jokhami

hundi, Firman-jog hundi, etc.

Other classifications:

Accommodation bill:

An accommodation bill is one which has been signed by a person, as a drawer, against acceptor

or endorser without any consideration which fails with a view to oblige some other person to

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provide him with funds. It is done to accommodate friends who are not in an immediate position

to pay consideration. the person who signs, accepts, or indorses a bill without receiving any

consideration is said to have lent his name to an Accommodation Bill.

Suppose you are in need of ` 10,000 and you approach your friend Samir to borrow the money.

Samir suggests that you may draw a bill on him which he would accept. You may now get the

bill discounted with the banker and realize the amount to meet his immediate requirement of

money. On the due date, you would pay ` 10,000 to Samir, who would then honour the bill,

when presented to him for payment on due date. Samir has accommodated you. This is an

Accommodation Bill.

Fictitious Bill:

A bill is fictitious when both the parties the drawer and payee are fictitious persons. Where the

drawer is also the payee on the bill, without any intention that payment shall be made in

conformity with the instrument, the instrument is fictitious. Also when payee is non exsisting the

instrument is fictitious.

A fictitious bill in the hands of a holder in due course becomes a good bill. The acceptor is liable

to a holder in due course, if the holder in due course can show that the signature of the supposed

drawer and that of the first endorser or the payee are under the same hand. The liability of the

holder in case of the fictitious bill is only towards the holder in due course.

Escrow:

A bill delivered conditionally is called an escrow. Where a bill or a note delivered id delivered

conditionally, the liability of the party delivering does not commence till the happening of the

event or the fulfillment of the condition. The rights of the holder in due course are not affected.

Such a bill may also be delivered for a special purpose as a collateral security.

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For example: A makes a note in favor of his servant and hands it to his solicitor telling to retain

the note till his death and then to hand it over to the servant if he should still continue in service.

If these conditions are compiled with and solicitors hands over the instrument to the servant, the

servant can claim the amount of the note from the administrators of his masters estate.

Inchoate Stamped Instruments Sec (20):

It is an incomplete instrument. When one person signs and delivers to another a paper stamp in

accordance with the law relating to the negotiable instrument, than in force in India and either

holy blank or having written there on, he here by gives “prima facie” authority to the holder

thereof to make a complete as the case maybe, upon it a negotiable instrument , for any amount

specified there in , and not exceeding the amount covered by the stamp. The person so signing

shall be liable upon such instrument, in the capacity in which he signed the same to any holder in

due course for such amount. However no person other than a holder, in due course, shall recover

from the delivering the instrument anything in excess of the amount intended by him to be paid

their under.

The person signs a stamped paper either wholly blank, or leaves it incomplete. The person giving

blank instrument gives authority to the holder to complete it with appropriate amount up to the

same value of the instrument. The holder is authorized to complete the instrument. If the first

holder does not fill it up, any subsequent holder may do so. The holder cannot recover the

amount in excess of the amount intended to be paid by such signatory. The holder in due course

can, however, recover any amount on such instrument. The principle is one of Estoppel. The

person who so signs a blank or incomplete instrument gives the other authority to fill it up, for

which the persons so signing is liable.

Instrument may be incomplete as regards date, amount, drawer, payee, etc. The holder may fill

any of the particulars to make it a negotiable instrument. As long as the instrument is blank or

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incomplete, it is not a valid negotiable instrument. The liability of the person signing a blank

instrument, therefore, arises only when the instrument is complete.

In order to make the signatory of inchoate instrument liable to the holder, falling conditions must

be fulfilled:

1. The inchoate instrument must be signed and delivered to another person by the signor.

2. Such an instrument must be adequately stamped in accordance with law in force, at the

time of delivering the same.

3. Instrument must be filled in before the signatory could be held liable.

4. The amount to be filled in by the holder must not exceed the stamp value on the

instrument, or what was intended to or agreed upon by the signatory to be paid. This

however , does not apply to a holder in due course , who is entitled to recover any amount

filled in by him on the instrument , even though it exceeds what was u=intended to or

agreed upon by the signatory of inchoate instrument.

…

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5. Presentment, Discharge and Dishonor of Negotiable Instruments

Presentment

Presentment is a process of presenting or placing the instrument before the party who is suppose to accept the liability on it or pay out it on the date of maturity. It is presented by the holder or payee of an instrument.

Presentment of negotiable instrument may be made

1) For acceptance, in case of bill of exchange.

2) For sight, in case of promissory note.

3) For payment in case of a bill, note and a cheque.

Presentment for Acceptance

An acceptance implies expression of intention to have accepted the direction given by the drawer for making payment. It is done by writing a word or “Accepted” and sign the name below it.

Following types of bill need not be presented for acceptance.

A bill payable on demand. A bill payable certain number of days after date. A bill payable on certain days.

However, presentment for acceptance is necessary in the following cases:

1) Where the bill is payable at a given time after acceptance or “After sight”. Such bills must be presented to the drawee for his sight or acceptance as to determine maturity if the bill.

2) Where the bill contains express stipulation that it shall be presented for acceptance. Such bills must be presented for acceptance before it is presented for payment.

Presentment of Promissory Note for Sight

According to section 62 of this act,” a promissory note payable at a certain period after sight, must be presented to the maker thereof, for sight (if he can, after search be found) by a person entitled to demand payment, within a reasonable time after it is made and during business, hours on a business day”.

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In other words, the payment cannot be demanded till the note has been exhibited to the maker. When a promissory note is not made payable at a certain period after sight, it must be presented for sight in order to fix the maturity of that note.

If default is made in such presentment, all the antecedent parties are discharged from liability to the person making such default. No presentment is required for promissory notes payable” at

Sight”, “on demand” or “on a fixed day”, or “on the expiry of a fixed period”.

Presentment for payment

Like acceptance, the negotiable instrument must be duly presented for payment to the party liable to pay.

According to section 64 of this act, “Promissory notes, the bill of exchange and cheque must be presented for payment to the maker, acceptor or drawee thereof respectively by or on behalf of the holder.”

In default of such presentment, the other parties thereto are not liable thereon to such holder.

Discharge of Negotiable Instrument

A negotiable instrument is said to be discharged when the rights and obligation created by it come to an end. It ceases to be a negotiable instrument and no action can be taken even by the holder in due course upon it.

In other words, negotiable instrument gets discharged when the party who is primarily liable to pay on the instrument is discharged from his liability.

A negotiable instrument is said to be discharged under the following situation:

1) Payment of instrument: When the party primarily liable on the instrument i.e. the maker of the note or acceptor of a bill of exchange or the drawee bank in case of a cheque makes the payment in due course, at or after maturity to the holder.

2) Negotiation Back: When a bill of exchange, during the course of negotiation is negotiated back to the acceptor of the bill and he becomes the holder at or after maturity, the bill is said to be discharged.

3) Release of debtor: When the holder of an instrument releases the debtor who is primarily liable to pay, all other parties will automatically be released and an instrument gets discharged.

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SECTION 82(c) & 78SECTION 82(c) & 78

SECTION 82(a)SECTION 82(a)


4) Cancellation of Instrument: When the holder of an instrument gets the instrument cancelled and consequently the party primarily liable to pay is released, that instrument will be discharged.

5) Non presentment of a Bill for Acceptance:

Where the presentment of a bill for acceptance is necessary, the holder makes default with regard to such presentment, it will be discharged.

6) Mutual agreement: A negotiable instrument creates rights and obligations between or amongst the parties. In case all parties to an instrument agree to discharge it will be discharged by mutual agreement.

Dishonour of a Negotiable Instrument A negotiable instrument is said to be dishonoured, if the party liable to accept or pay, refuse to do so on proper presentation (for acceptance) or at or after maturity as the case may be(for payment). A bill of exchange may be dishonoured either by non-acceptance or by non-payment. But promissory note and cheque may be dishonoured only by non-payment.

A) Dishonour by non-acceptance

According to section 91 of this act, “a bill of exchange whether payable ‘after date’ or ‘after sight’ will be treated as dishonoured by non-acceptance under the following situation.”

1) Where the bill is presented properly to the drawee for acceptance, he refuses to accept it or does not give his acceptance within 48 hours.

2) Where the presentment for acceptance was excused and the drawee does not accept the bill.

3) Where the drawee is incompetent to contract.4) Where the drawee gives qualified acceptance.5) Where the drawee is fictitious person or after a reasonable search cannot be found.

However, it is to be noted that in a bill, if the “drawee in case of need” is named, it will not be treated as dishonoured unless such drawee refuses to accept the bill.

B) Dishonour by non-payment

According to section 92 of this act, “a promissory note, bill of exchange or cheque is said to be dishonoured by a non-payment, when the maker, of the note, acceptor of a bill and drawee of a cheque makes default in payment upon being duly required to pay the same.”

According to section 76 of this act, “an instrument is also taken as dishonoured by non-payment, when the presentment for payment is excused an instrument when overdue remains unpaid.”

By and to whom notice should be given

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SECTION 82(a)SECTION 82(a)



When a promissory note, bill of exchange or cheque is dishonoured by non-acceptance or nonpayment,the holder thereof, or some party thereto who remains liable thereon, must give notice that the instrument has been so dishonoured to all other parties whom the holder seeks to make severally liable thereon, and to some one of several parties whom he seeks to make jointly liable thereon.

Nothing in this section renders it necessary to give notice to the maker of the dishonoured promissory note or the drawee or acceptor of the dishonoured bill of exchange or cheque.

Mode in which notice may be give:

Notice of dishonour may be given to a duly authorized agent of the person to whom it is required to be given, or, where he has died, to his legal representative, or, where he has been declared an insolvent, to his assignee; may be oral or written; may, if written, be sent by post; and may be in any form; but it must inform the party to whom it is given, either in express terms or by reasonable intendment, that the instrument has been dishonoured, and in what way, and that he Will be held liable thereon; and it must be given within a reasonable time after dishonour, at the place of business or (in case such party has no place of business) at the residence of the party for whom it is intended.If the notice is duly directed and sent by post and miscarries, such miscarriage does not render the notice invalid.

Party receiving must transmit notice of dishonor Party receiving must transmit notice of dishonour. Any party receiving notice of dishonour must, in order to render any prior party liable to himself, give notice of dishonour to such party within a reasonable time, unless such party otherwise receives due notice as provided by section 93.

Agent for presentment When the instrument is deposited with an agent for presentment, the agent is entitled to the same time to give notice to his principal as if he were the holder giving notice of dishonour, and the principal is entitled to a further like period to give notice of dishonour.

When notice of dishonor is unnecessary No notice of dishonor is necessary-

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when it is dispensed with by the party entitled thereto;

in order to charge the drawer when he has countermanded payment;

when the party charged could not suffer damage for want of notice;

when the party entitled to notice cannot after due search be found ; or the party bound to give notice is, for any other reason, unable without any fault of his own to give it;

to charge the drawers, when the acceptor is also a drawer;

in the case of a promissory note which is not negotiable;

when the party entitled to notice, knowing the facts, promises unconditionally to pay the amount due on the instrument.

Dishonour of cheque for insufficiency, etc., Where any cheque drawn by a person on an account maintained by him with a banker for

payment of any amount of money to another person from out of that account for the discharge, in

whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of

the amount of money standing to the credit of that account is insufficient to honour the cheque or

that it exceeds the amount arranged to be paid from that account by an agreement made with that

bank, such person shall be deemed to have committed an offence and shall without prejudice to

any other provisions of this Act, be punished with imprisonment for 2["a term which may extend

to two year"], or with fine which may extend to twice the amount of the cheque, or with both

Dishonor of Bill of Exchange (Source: http://www.accountingexplanation.com )

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http://www.accountingexplanation.com/


A bill of exchange is said to be dishonored when its acceptor refuses to pay the amount of the

bill to the holder of the bill on its maturity. The bill then becomes useless and the party from

whom it has been received will be liable to pay for the amount. It is very important to know that,

when a bill is dishonored, in whose possession it was? Because when a bill is dishonored, all the

parties involved are effected and books of accounts of all the parties have to be adjusted. For

example, A draws a bill of `5,000 on B and B accepts it and returns it to A. A retains the bill in

his possession till the due date. On the due date the bill is not honored by the acceptor. We can

see, there are two parties involved whose books are to be adjusted. If suppose, A has discounted

or endorsed the bill, then there are three parties involved and books of accounts of all the parties

are effected.

Noting Charges:

When a bill is dishonored, the holder of the bill, (drawer, banker, endorsee or any other party) in

order to make a strong ground for drawing legal proceeding against the acceptor may get the

official recognition that the bill has been dishonored. He goes to an official called notary public,

and gives the bill to him. The notary public will present the bill for payment again to the acceptor

and if the money is received he will hand over the money to the original party. But if the bill is

again dishonored, the notary public will note the fact of dishonor and the reasons of the dishonor

on the bill and will give the bill back to the holder of the bill. It is now a strong evidence against

the acceptor, in case, if the case is filed in the court.

For this service, the notary public will charge a small fee obviously from the holder of the bill.

This fee is known as "noting charges" and is always recoverable from the party responsible for

dishonor (the acceptor).

It must be remembered that noting charges are not the expenses of any party involved. They are

always expenses of the acceptor in whose books they will be debited.

Who Pays Noting Charges:

1. If the bill is retained by the drawer, the drawer will pay the noting charges.

2. If the bill has been discounted the bank will pay.

3. If the bill has been endorsed to the endorsee, the endorsee will pay.

4. If the endorsee has endorsed the bill to his creditor (a new endorsee), the new endorsee will

pay.

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But the new endorsee will recover the noting charges from first endorsee, the first endorsee from

the drawer and ultimately the drawer from the acceptor (being an expense of acceptor).

Example:

On 1st Jan. 2005. the X sold goods to Y. for `10,000 on credit basis. On the same date X drew a

bill for `10,000 on Y. at two months. Y accepted the bill and returned it to X. On the due date Y

could not honor acceptance.

When the goods were sold to Y, he became a debtor for `10,000. Then he paid his debts by

giving acceptance (B/R) to X. But when he did not honor his acceptance on the due date, he

again became a debtor of X. (Amount is still due from him).

In the above example, the drawer (X) has not got the bill noted by the notary public and so no

noting charges were paid by him.

Suppose if he also paid `40 as noting charges, then a further entry will have to be made both in

the books of X as well as in the books of Y.

…

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6. Revolution of Negotiable Instruments

Plastic Money Plastic money is a term that is used predominantly in reference to the hard plastic cards we use

every day in place of actual bank notes. With advent of technology, use of plastic money is

increasingly becoming popular. They can come in many different forms such as cash cards,

credit cards, debit cards, pre-paid cash cards and store cards.

Cash Cards - A card that will allow you to withdraw money directly from your bank via

an Authorised Teller Machine (ATM) but it will not allow the holder to purchase

anything directly with it.

Credit Cards - Again this card will permit the card holder to withdraw cash from an

ATM, and a credit card will allow the user to purchase goods and services directly, but

unlike a Cash Card the money is basically a high interest loan to the card holder, although

the card holder can avoid any interest charges by paying the balance off in full each

month.

Debit Cards - This type of card will directly debit money from your bank account, and

can directly be used to purchase goods and services. While there is no official credit

facility with debit cards per se, as it is linked to the bank account the limit is the limit of

what is in the account, for instance if an overdraft facility is available then the limit will

be the extent of the overdraft.

Pre-paid Cash Cards - As the name suggests the user will add credit to the card

themselves, and will not exceed that amount. These are usually re-useable in that they can

be 'topped up' however some cards, usually marketed as Gift Cards are not re-useable and

once the credit has been spent they are disposed of.

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Store Cards - These are similar in concept to the Credit Card model, in that the idea is to

purchase something in store and be billed for it at the end of the month. These cards can

be charged at a very high interest rate and can are limited in the places they can be used,

sometimes as far as only the store brand that issued it.

Electronic Money

Electronic money or e-money is money or scrip that is only exchanged electronically.

Typically, this involves the use of computer networks, the internet and digital stored

value systems

Other names for such type of money are e-currency, e-money, electronic cash, electronic

currency, digital money, digital cash, digital currency, cyber currency.

Electronic Fund Transfers (EFT), direct deposit, digital gold currency and virtual currency are all examples of electronic money. Also, it is a collective term for financial

cryptography and technologies enabling it.

Electronic Funds Transfer (EFT)

It is the electronic exchange or transfer of money from one account to another, either

within a single financial institution or across multiple institutions, through computer-

based systems. National Electronic Funds Transfer (NEFT) is a nation-wide payment

system facilitating one-to-one funds transfer. Under this Scheme, individuals, firms

and corporates can electronically transfer funds from any bank branch to any

individual, firm or corporate having an account with any other bank branch in the

country participating in the Scheme

The RBI recently clarified that the same set of rules against dishonour of cheque,

according to Section 138 of the Negotiable Instruments Act, will apply to

dishonour of electronic fund transfer instruction. (ET, 30 Oct, 2011)

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Real Time Gross Settlement (RTGS)

It is continuous (real-time) settlement of funds transfers individually on an order by

order basis (without netting). 'Real Time' means the processing of instructions at the

time they are received rather than at some later time.'Gross Settlement' means the

settlement of funds transfer instructions occurs individually (on an instruction by

instruction basis). Considering that the funds settlement takes place in the books of

the Reserve Bank of India, the payments are final and irrevocable

Electronic Clearing Service (ECS)

It is a mode of electronic funds transfer from one bank account to another bank account using the

services of a Clearing House. This is normally for bulk transfers from one account to many

accounts or vice-versa. This can be used both for making payments like distribution of dividend,

interest, salary, pension, etc. by institutions or for collection of amounts for purposes such as

payments to utility companies like telephone, electricity, or charges such as house tax, water tax,

etc or for loan installments of financial institutions/banks or regular investments of persons

Internet Banking

It is a system allowing individuals to perform banking activities at home, via the internet.

Online banking through traditional banks enable customers to perform all routine

transactions, such as account transfers, balance inquiries, bill payments, and stop-payment

requests, and some even offer online loan and credit card applications.

Account information can be accessed anytime, day or night, and can be done from anywhere.

A few online banks update information in real-time, while others do it daily.

All e-banking services are secured by PIN/TAN system where the PIN represents a

password, used for the login and TANs representing one-time passwords to authenticate

transactions

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Mobile Banking

Mobile Banking refers to provision and availment of banking- and financial services with the

help of mobile telecommunication devices. The scope of offered services may include

facilities to conduct bank and stock market transactions, to administer accounts and to access

customized information."

They can be leveraged for performing balance checks, account transactions, payments, credit

applications and other banking transactions through a mobile device such as a mobile phone

or Personal Digital Assistant (PDA)

The earliest mobile banking services were offered over SMS. With the introduction of the

first primitive smart phones with WAP support enabling the use of the mobile web I banks

started to offer mobile banking on this platform to their customers

Electronic Cheques

With amendments in the Sections 6 and 1(4), coupled with the introduction of 81 A to the

Negotiable Instruments Act, 1881, e-cheque system was legalized in 2006

Electronic cheques are another form of Electronic tokens. They are designed to accommodate

the many individuals and entities that might prefer to pay on credit or through some

mechanism other than cash. Once registered, a buyer can then contact sellers of goods and

services.

To complete a transaction, the buyer sends a check to the seller for a certain amount of

money. These checks may be sent using Email or other Transport methods. When deposited,

the cheque authorises the transfer of account balances from the account against which the

cheque was drawn to the account to which the cheque was deposited.

Biometrics

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Biometric payment is a point of sale (POS) technology that uses biometric authentication to

identify the user and authorize the deduction of funds from a bank account. Fingerprint

payment, based on finger scanning, is the most common biometric payment method. Often,

the system uses two-factor authentication, in which the finger scan takes the place of the card

swipe and the user types in a PIN (personal ID number) as usual.

Here's an example of how one fingerprint payment system works:

i. The shopper registers for a biometric program at a store kiosk by presenting valid

identification and bank account information.

ii. The shopper scans his index finger using the kiosk’s finger scanner reader.

iii. The store's finger scan reader encrypts multiple point-to-point measurements of the

fingerprint and stores the customer's biometric data and banking information in a centralized

database.

iv. The shopper now has the option of selecting biometric payment at the point of sale

register. If he chooses biometric payment, he scans his finger at the checkout register with

the store's electronic reader and enters his personal identification number.

v. The electronic reader compares the data from the new scan to the encrypted data in the

database and either approves or declines the transaction. If approved, the funds are

electronically transferred from the shopper's account to the merchant.

In the United States, biometric payment has gained popularity in grocery stores, gas stations

and convenience stores. In March 2006, Pay by Touch, the leading biometric payment

provider, reported that more than two million customers had enrolled in their biometric

services and that Pay by Touch had authenticated approximately $8 billion in transactions.

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Cited advantages of biometric payment include:

Enhanced security for the end user.

Speedy transactions.

No need for the end user to carry cash, checks or credit cards.

Lower cost per transaction for the merchant, compared to standard debit or charge card fees.

Biometric payment is controversial. Traditionally, fingerprints have been associated with law

enforcement. Critics of biometric payment fear that fingerprints could be made available to

government agencies or law enforcement officials. Biometric payment service providers are

quick to point out that they don't keep the customer's actual fingerprint in their databases --

they keep an encrypted number derived from the finger's point-to-point measurements. (It is

that number which is used to verify a customer's identity, not the actual fingerprint.) In the

final analysis, a biometric payment system -- like any system that accesses sensitive

information -- is only as secure as the associated databases and transactions.

Cheque Trunctation Solution (CTS)

Cheque truncation is the conversion of physical cheque into electronic form for transmission

to the paying bank. Cheque truncation eliminates cumbersome physical presentation of the

cheque and saves time and processing costs.

Cheque Truncation Solution is a big milestone in the Indian banking industry. It enables

cheque clearing on the same day, reducing floating time available for funds.

Instead of manually moving the cheque from one bank to another for payment, we would

now use images. This will bring down the time required for processing.

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Earlier, it would take two to three days. Cheques would now be cleared on the same day or

the next day, thereby bringing efficiency into the entire banking system.

From the banks' prospective, it will bring efficiency to their system. You can reduce frauds,

though not eliminate them completely, with the help of truncation.

It will also reduce the work time and manpower required at a service branch or a branch

manning these activities through human interface. Automation will bring down the operating

costs.

India is doing something very unique because it has a very large cheque volume. It processes

about 1.2 billion instruments annually. The National Capital Region alone processes 6,00,000

cheques in a day. Countries such as Singapore have 4,00,000 instruments daily.

Large corporates and government agencies, which transact in a large number of cheques,

could have tie-ups with their banks. Instead of sending the physical cheques, they can send

them scan images to the branch concerned, which would then forward it to RBI for

settlement.

The truncation can also be done at ATMs. You could send the image of the cheque by

inserting it in the machine. The captured image will be sent to the service branch for

settlement and clearing. Customers would get a receipt.

Banks can do a huge amount of analyis using the cheque images. The customer's payment

pattern would become known to the banks, who can then undertake cross selling, should they

want.

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7. Future Ahead for Negotiable Instruments

Several financial analysts and experts are predicting a great future for M-banking not only in

the Asia-Pacific but across the globe. Juniper Research is one such institution that predicted

that mobile phone banking would revolutionize the banking and financial services in a

similar manner that ATMs revolutionized the sector several years ago. The analyst firm

predicted that by 2011, US $587 billion worth of financial instructions would be generated

by over 612 million mobile phone subscribers worldwide.

A similar forecast was given by Berg Insight, indicating that mobile phone banking users will

grow to 85 million in the United States and 115 million in Europe by the year 2015, while

total worldwide usage will grow to 913 million by the year 2012 with a CAGR of 89%. Asia-

Pacific will account for up to 65% of total users and will be the most important market.

According to KPMG, M-banking will have the biggest opportunities in China, India,

Indonesia and the Philippines, while strong adoption rates will also occur in Thailand,

Malaysia and Vietnam.

These figures indicate that mobile phones and devices will be a primary digital mobile

channel for banking and financial services and will usher in the next generation of the

modern financial system, a trend that is fast becoming a reality in the Asia-Pacific region

…

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8. Case Studies

Promissory Note

Case A.N.Kamalamma vs K.R.Vijayan Pillai

Judgement Date 17 March, 2010

Court HIGH COURT OF KERALA, ERNAKULAM

Judge HARUN-UL-RASHID

Synopsis: A woman named Mayadevi availed a loan of Rs.40,000/- from the plaintiff agreeing to repay it within a short time. Deceased Mayadevi executed a promissory note on 19.7.1992 agreeing to repay the amount as and when demanded. Mayadevi expired on 29.12.1992. Plaintiff alleged that since Mayadevi expired within a short period she demanded money from the legal heirs of deceased Mayadevi. Legal heirs did not repay the amount. Therefore a lawyer notice was issued on 24.2.1992 demanding the sum. Since the amount was not paid even after lawyer notice, the suit was filed.

Judgement: The Plaintiff won the case. He was allowed to realise a sum of Rs.42,500/- with an interest at the rate of 9% from the date of suit till the date of decree and future interest at the rate of 6% from the date of decree till realisation.

Dishonour of cheque

Case Anita Malhotra vs Apparel Export Promotion Council

Judgement Date 08 Nov 2011

Court [SUPREME COURT OF INDIA, New Delhi

Judge P. Sathasivam

Synopsis: Appellant Anita Malhotra, non-executive Director of the accused Company, resigned from Directorship on 31-8-1998 and filed statutory Form 32 with the

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Registrar of Companies on 20-11-1998. 1st respondent company (Apparel Export Promotion Council) issued legal notice to appellant regarding dishonour of cheques under section 138 of the Act. Appellant replied that she had resigned from the Directorship of the accused Company long back in 1998. 1st respondent filed criminal complaint against appellant in Magistrate Court. Appellant filed petition before the HC for quashing the criminal complaint. HC dismissed appellant's petition.Whether the appellant had made out a case for quashing the criminal complaint filed by the respondents under section 138 of the Act. Held, certified copy of the annual return of the accused Company was a public document, more particularly, in view of the provisions of the Companies Act, 1956 r/w s. 74(2) of the Indian Evidence Act, 1872, which showed that the appellant had validly resigned from the Directorship of the Company even in the year 1998 and thus, she should not be held responsible for the dishonour of the cheques issued in the year 2004. Further, in para 4 of the complaint, except the mere bald and cursory statement with regard to the appellant, the complainant had not specified her role in the day to day affairs of the accused Company .

Judgement: It was clear that Appellant established that she had resigned from the accused Company as a Director in 1998, well before the relevant date, namely, in the year 2004, when the cheques were issued, the HC, in the light of the acceptable materials such as certified copy of annual return and Form 32 ought to have exercised its jurisdiction under section 482 of CrPC and quashed the criminal proceedings. Appellant had made out a case for quashing the criminal proceedings, hence, impugned criminal complaint was quashed . Appeal allowed. Anita Malhotra Won the case

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9. Bibliography

Books :

Business Law – M.C.Kucchal, 5th Edition

Modern Business Law – B.S. Moshal

Business Law – K.R. Bhulchandani, 9th Edition

Elements of Merchantile Law – N.D. Kapoor

Websites :

http://www.indiankanoon.org

http://www.vakilno1.com

http://www.netlawman.co.in

http://www.accountingexplanation.com/dishonor_of_bill_of_exchange.htm

http://www.uncitral.org

http://money.blurtit.com/q216104.html

http://www.legalserviceindia.com/article/l325-E-Cheque-System-in-India.html

http://economictimes.indiatimes.com

http://www.legalera.in

http://www.banking.indlaw.com/updates/judgments.aspx

http://www.rediff.com/money/2008/feb/21inter.htm

http://www.kgsepg.com/project-id/3413-negotiable-instrument-act

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