Negotiable instruments act

Total sections 147

Introduction • To the whole of India except Jammu and

Kashmir• The act deals with only three

instruments : – Promissory note– Bill of exchange– And chequeThe act does not apply to currency and any local usage documents : such as HundiesIf there is no local custom, it applies even to Hundies

What is negotiable instrument

• A piece of paper which entitles a person a sum of money.. Which can be transferred to person by mere –Delivery or – Endorsement– And delivery

– The person to whom it is transferred will get a better title to it ..

Features of negotiable instrument

A.ConsiderationA. It is presumed that every instrument is

drawn for considerationB. It need not be mentioned in the

instrument

For example when the cheque is issued only the amount is mentioned and name is mentioned

– It need not mention for what purpose it is issued

Features of negotiable instrument

B. transferability: a negotiable instrument can be transferred by.a. Endorsement and delivery b. If It is an instrument payable to order

andc. Mere delivery, if it is a bearer

instrument

Negotiable instrument can be transferred unlimited number of times ….

Features of negotiable instrument

C. title:a. The transferee who takes the

instrument bonafide, for value and consideration gets good title

b. This title is not affected any defect of title of transferor.

c. This is an exception to : “nemo dat quod non habet”

Presumptions- sec: 118

a. As to considerationb.As to datec. As to time of acceptance –before

maturityd.As to time of transfer – before

maturitye. As to the order of endorsementsf. As to the stampg.That the holder is the holder in due

courseh. As to dishonour

Promissory note: sec 4

a. An instrument in writingb. Contains an unconditional

undertakingc. Signed by makerd. To pay certain sum of moneye. Only to the person mentioned f. Or order g. Or to the bearer of the instrumenth. However as per RBI the word

bearer can not be used

Characteristics of PNa. In writingb.Promoise to payc. Unconditionald.Certain sum of moneye. Signed by makerf. Certainty of makerg.Not payable to maker himself

Other important features

a. Can be made jointlyb. The consideration, place and date of

making need not be mentionedc. It may be payable on date or after a

periodd. If undated, the date is the date of

deliverye. It must be duly stampedf. The ante-dated or post dated is

invalidg. It payable in instalments…

Promissory note -format

Rs……. Place……….date………..

……….month/days after date, I promise to pay….or bearer/order the sum of Rs….. For value received with interest @...... P.A with…..rests.

……………..(maker)

Bill of exchange sec; 5

It is an instrument …a. in writingb. containing an unconditional

orderc. signed by the makerd. directing certain person to

pay moneye. or order of a certain person or f. to the bearer of the

instrument.

Bill of exchange sec; 5Amount Rs….. Place:……..

date: …………….month/days after date, pay to …….or bearer/order the sum of Rupees ……..only for value received.

To………………. ……………..

(drawer) (drawee)

Features of Bill of exchange

a. In writingb.Orderc.Unconditional orderd.Money only – certain sume.Acceptancef. Three partiesg.stamping

Cheque: sec:6a cheque is a bill of exchange drawn on

1. a specified banker2. not expressed to be payable

otherwise than on demand3. and it includes the electronic

image of truncated cheque and also

4. cheque in the electronic form

Cheque: sec:6

date………..

Pay…………………………………………………………………….or bearer….Rupees………………..…………………..........Yeshas bankXXXXXXX signature

Amount in figures

Truncated chequeThis means a cheque which is truncated during the course of a clearing cycle..a. Either by the clearing house or b. Bank whether paying or collecting

bankc. This is to substitute further physical

movement of cheque in writing

Ex: cheque deposited at the bank is scanned.

Cheque in electronic form

This means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in secure system ensuring the minimum safety…This contains digital signatureWith or without biometric system

Ex: online payment instructions in net banking

Forms of cheque

Bearer chequeOrder chequeCrossed cheque

Forms of cheque

Bearer cheque: 1. It is expressed to be payable or

the last endorsement is blank…

Order cheque: a. which is expressed to be payable to a particular personb. This does not contain any prohibitory orders for transfer

Forms of cheque

Crossed cheque:A cheque which is collected only through banker

Marked cheque

a. A cheque need not be presented for acceptance…

b. Always the drawee is liable to the person in whose the cheque is drawn

c. When the banker certify the cheque that it is good for payment. That is marking

d. However this is not acceptance

Crossed chequea. When cheque bears across its face two

transverse parallel lines on top left corner of the cheque. It is a crossed cheque

b. Then the cheque is not payable to payee or holder at a bank

c. Payment is to be obtained through bankd. It can not be negotiated as open chequee. This is to control unauthorised people

dealing

Crossed cheque

Types of crossing

General crossing

A cheque contains in addition of lines the words• “and company” between lines• Or two transverse lines simply• Wither with or without words “not negotiable”• This should be paid to a banker

Special crossing : sec: 124The two lines contains name of the bankerEither with or without the words “not negotiable”

…………………………..

Pay……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….or bearerRupees………………………………………………………..…………………………………………………………………..

Yeshas bankXXXXXXXXXXsignature

SBI

Note:

In general crossing name of the bank is not mentioned whereas in special crossing the name of the bank is mentioned and that bank is the collecting banks to whom the payment has to be made…

Not negotiable crossing: sec: 130

a.This is to protect the rights of holder of cheque

b.A person taking this kind of cheque can not transfer a better title to the other person

c.Even holder in due course can not get better title if the cheque is crossed not negotiable

d.However this cheque can be transferred, the only restriction is on title

e.That means nobody can transfer a title better than what he himself has will be applicable

Account payee crossing or restrictive crossing

a.This contains the words “account payee”

b.The amount will be credited to the account of the payee

c.However cheque remains negotiable, but generally it hinders the negotiability of the cheque in practice

Who can cross the cheque: a.By the drawerb.After issue:

a.The holderb.General one as special

onec.Adding the words not

negotiabled.The banker may again

cross to his agent or collecting banker

Payment of a crossed cheque: sec: 126 to 129

a.Banker is not liable if he pays it in due course a cheque:

a.Crossed generally, then to any bank

b.Crossed speciallyOr when the payment made in due course

Payment of a crossed cheque: sec: 126 to 129

b. If the payment is made out of due course, the banks shall be liable to the true owner of cheque for any loss….When the cheque is crossed specially the banker can refuse the payment

Payment in due course:a. According to apparent tenor of

the instrumentb. In good faithc. To any person in possession

without any suspicion..

Bank draft: sec; 85Aa. It is an order drawn by an office

of a bank upon another office of the same bank.

b. It is an order drawn by one person upon himself

c. Sec 131 provisions will apply