Banking Law & Practice

Syeda Mustajab Zahra

Topic

Negotiable Instrument according to act 1881

Negotiable Instrument

• According to section 14 of the negotiable instrument Act has been define as, “When promissory note, bill of exchange or cheque is transferred to any person, as to constitute that person the holder therefore the instrument is said to be negotiable”.

• Negotiable means transferable from one person to another.• Negotiable instrument are those documents which are

transferable from one person to another by simple delivery according to act 1881.

• Negotiable instrument is a credit instrument …• credit instrument : means promise to pay in future • Written evidence of debt containing a promise or an order to pay

a certain sum of money

Types of negotiable instrument

Promissory notes

Bill of exchange cheque

The negotiable instrument act 1881 only deal with

Promissory Notes• “It is an unconditional written promise of (maker) debtor or

buyer of good to pay certain sum of money to be (payee) creditor or seller of good or some other person demand or on a certain date in future”.

• Maker (he is a debtor / buyer of good)• Payee (he is a creditor /seller of good)

Parties to a promissory notes

Essential Feature

Written

Promise

Unconditional

Certain amount

Certain maker

Signature

Certain payee

Payment after delivery

Revenue stumps

parties

Kind of promissory notes

On the base of place:* Inland promissory notes* Foreign promissory notes

On the base of maker:* Individual promissory notes* Joint promissory notes

On the base of time :* Demand promissory notes* Time promissory notes

Advantage of promissory notes

• Evidence of debt• No need of acceptance• Promotes trade• Easy borrowing• Promotes business

Bill of exchange

• Section 5 of the negotiable instrument act 1881 : “BOE is an unconditional written order drawn by a creditor / seller of good upon a debtor /buyer of good to make payment of a certain sum of money on demand or at a fixed future date to creditor or third party”

• Drawer (usually a creditor)• Drawee (usually a debtor)• Payee (Bank)

Parties of BOE

Other Parties of BOE

Acceptor Endorser Endorsee holder

Features Of BOE

WrittenAn Order

UnconditionalDrawee is a certain personPayee is a certain person

Certain SumSignature by maker (drawer)

AcceptanceRevenue stamps

PaymentCopies

Certain parties

Kinds of BOE

On the base of place : * Inland bill * Foreign bill

On the base of time : * Demand bill * Time bill

On the base of objectives: * Trade bill * Accommodation bill

On the base documents: * Clean bill * Document bill

Advantage of BOE

Transfer of money

Expansion of trade

Facilities to buyer

Fixed date of payment

Proof of credit

Increase in income of

govt.

Economic development

Cheque

Cheque is an unconditional written order draw by drawer ,on bank to pay specific sum of money to a specific

person on a certain date.

Reasons for Dishonor of a cheque

Cheque not signed

Signature differs

Insufficient balance

Irregular endorsement

Defect in title

Mutilated cheque

Stale/outdated cheque

Undated cheque

Material alteration

Death of a customer

Order of court

After banking hours

Closed account

Name of payee

Difference in word & figure

Different branch of bank

Customer’s insolvency

Customer’s insanity

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