Negotiable Instruments Act Presentation - Unitedworld School of Business

7/28/2019 Negotiable Instruments Act Presentation - Unitedworld School of Business

http://slidepdf.com/reader/full/negotiable-instruments-act-presentation-unitedworld-school-of-business 1/52



INTRODUCTION

„Instrument „ means any written document bywhich a right is created in favour of someperson.

“negotiable” – means whereby rights in aninstrument can be transferred by one personto another



NEGOTIABLE INSTRUMENTS

ORIGIN : In the year 1881.SCOPE : Applicable in entire India except the

State of Jammu & Kashmir.Applicability: Deals with law relating to three

specific instruments, viz. Promissory note, Bill of exchange and cheque.

http://images.google.co.in/imgres?imgurl=http://www.imisonnotaries.com/img/notaries/negotiable.jpg&imgrefurl=http://www.imisonnotaries.com/negotiable.php&usg=__gavUZKEOtBfFM_6-ro-YzOUwLeY=&h=200&w=160&sz=6&hl=en&start=5&tbnid=U4K5pU7nilIvkM:&tbnh=104&tbnw=83&prev=/images?q=Negotiable+instruments&gbv=2&hl=en&sa=G



MEANING

There are certain documents which are freelyused in commercial transactions and monetarydealings. These documents, if they satisfycertain conditions are known as “Negotiable

Instruments.”

A Negotiable instrument is a method of transferring a debt from one person to another.

http://images.google.co.in/imgres?imgurl=http://delhilawyerslive.com/site/MyImages/cheques.jpg&imgrefurl=http://delhilawyerslive.com/site/page002.aspx&usg=__qRJjNbSdrIj0MhtrSRVbo5VkGcA=&h=128&w=190&sz=9&hl=en&start=55&tbnid=TN8kz9TfeWvEpM:&tbnh=69&tbnw=103&prev=/images?q=Negotiable+instruments&gbv=2&ndsp=20&hl=en&sa=N&start=40




S 13

A negotiable instrument means a promissorynote, a bill of exchange or a cheque payableeither to order or to the bearer, whether the

words „order or bearer appear on theinstrument or not



Kinds of negotiable instrument

Negotiable instrument Negotiable instrumentBy STATUTE . By custom or usage1) Promissory note. 1) Bank draft.2) Bill of exchange. 2) Pay orders.3) Cheque. 3) Hundies.

4) Delivery order

Not negotiable instruments: Share certificate, bill of lading, postal order



CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT

1) Freely transferable : The property in a negotiable, instrumentpasses from one person to another by a simple process, i.e., bymere delivery if it is payable to bearer, and by indorsement anddelivery if it is payable to order.

2) Holder s title free from all defects : The holder in due course (onewho acquires the instrument in good faith and for consideration) getsit free from all defects.

http://images.google.co.in/imgres?imgurl=http://www.wtcperformancegroup.com/images/banking300.jpg&imgrefurl=http://www.wtcperformancegroup.com/banking.html&usg=__YDdpzvbxY6nxtDcso2gHqpn1VeQ=&h=200&w=300&sz=53&hl=en&start=101&tbnid=MedmS9EqxmVB4M:&tbnh=77&tbnw=116&prev=/images?q=Negotiable+instruments&gbv=2&ndsp=20&hl=en&sa=N&start=100



CONTD -

Recovery : He can sue upon the instrument in his ownname.

The transferee of the instrument need not give notice

of transfer to the party liable to pay.A negotiable instrument can be transferred infinitum,ie, can be transferred any number of times tillmaturity.

http://images.google.co.in/imgres?imgurl=http://www.buzzle.com/img/articleImages/285652-43713-55.jpg&imgrefurl=http://www.buzzle.com/articles/how-to-become-a-notary.html&usg=__TwejNTeevxPwiDOBvPZz4d346oE=&h=350&w=234&sz=13&hl=en&start=58&tbnid=gt-ltYkx_qNR-M:&tbnh=120&tbnw=80&prev=/images?q=Negotiable+instruments&gbv=2&ndsp=20&hl=en&sa=N&start=40



PRE- SUMPTION OF NEGOTIABLE INSTRUMENT

Until the contrary is proved, the followingpresumptions shall be made. (sec 118 & 119).N.I was made, drawn, accepted, indorsed or

transferred for consideration.NI Bearing a date was made or drawn on that

particular date only.B.O.E was accepted within a reasonable time after its date & before its maturity.

http://images.google.co.in/imgres?imgurl=http://michaelcaldwellco.com/art/gavel.jpg&imgrefurl=http://michaelcaldwellco.com/services.html&usg=__BpAkYe01xIYAHWJ_Q7Y0MyTmeN0=&h=120&w=150&sz=11&hl=en&start=64&tbnid=3JaBZT17LHhN8M:&tbnh=77&tbnw=96&prev=/images?q=Negotiable+instruments&gbv=2&ndsp=20&hl=en&sa=N&start=60



PROMISSORY NOTE

Sec.4 “ A promissory note is an instrument in writing

containing an unconditional undertaking signed bythe 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”.

.



PARTIES

MAKER : The person who makes the promissory noteand promises to pay is called the Maker.

PAYEE : The person to whom the payment is to bemade is called the Payee.

HOLDER : The holder is either the payee or someon eto whom he may have indorsed (transfer) the note isknown as Holder.

ENDORSER : The person who indorses the note toanother is called the Endorser .

ENDORSEE : The person to whose favour the note isendorsed is called the Endorsee

http://images.google.co.in/imgres?imgurl=http://www.esbilingual.com/images/NotarySeal.jpg&imgrefurl=http://www.esbilingual.com/services.html&usg=__E8UFD-_JljhHOR7QJBFpXXY8Ggg=&h=187&w=238&sz=14&hl=en&start=164&tbnid=-SQMrGhkQm7egM:&tbnh=86&tbnw=109&prev=/images?q=Negotiable+instruments&gbv=2&ndsp=20&hl=en&sa=N&start=160





ESSENTIALS OF THE PROMISSORY NOTES

1. It must be in writing .2. It must contain a promise or undertaking to pay a definite

sum of money.3. The promise to pay must be unconditional.4. It must be signed by the maker.5. The payee must be identified & must be certain.6. The sum payable must be certain.7. The amount payable must be in legal tender in money of

India.8. Other formalities – like date, place ,& stamp must be

mentioned.

http://images.google.co.in/imgres?imgurl=http://www.allbusiness.com/asset/image/glossaries/4967131.gif&imgrefurl=http://www.allbusiness.com/glossaries/promissory-note/4946031-1.html&usg=__R0w3qLV4YNqdXyZtetmnXFfPNu0=&h=272&w=470&sz=24&hl=en&start=11&tbnid=HIYg1CjZf-9qZM:&tbnh=75&tbnw=129&prev=/images?q=Negotiable+instruments&gbv=2&ndsp=20&hl=en&sa=N

http://images.google.co.in/imgres?imgurl=http://www.blackbetsy.com/imagefarm/jjcheck2.jpg&imgrefurl=http://www.blackbetsy.com/joepics6.htm&usg=__1d_f3KF4MnKc4ILn_1aqEwv8ek0=&h=353&w=800&sz=98&hl=en&start=7&tbnid=aKHze5nvoL6jiM:&tbnh=63&tbnw=143&prev=/images?q=promissory+notes&gbv=2&hl=en&sa=G

http://images.google.co.in/imgres?imgurl=http://www.allbusiness.com/asset/image/glossaries/4967131.gif&imgrefurl=http://www.allbusiness.com/glossaries/promissory-note/4946031-1.html&usg=__R0w3qLV4YNqdXyZtetmnXFfPNu0=&h=272&w=470&sz=24&hl=en&start=11&tbnid=HIYg1CjZf-9qZM:&tbnh=75&tbnw=129&prev=/images?q=Negotiable+instruments&gbv=2&ndsp=20&hl=en&sa=N



FORMAT OF PROMISSORY NOTE

Rs. 1,000 Delhi, February10,2009

Three months after date I promise to pay Shyam or order the sum of one thousand rupees, for value received.To,

Shyam222, Ashok Vihar Delhi-110052

Stamp

Sd/-Ram



BILL OF EXCHANGE

Sec.5 :“A bill of exchange is an instrument in writing containing an Unconditional order signed by the maker directing a certainperson to pay a certain sum of money only to or to the order of a

certain person or to the bearer of the instrument.”

http://images.google.co.in/imgres?imgurl=http://is.muni.cz/do/1499/el/estud/praf/ps06/bills/materialy/files/obr17b.gif&imgrefurl=http://is.muni.cz/do/1499/el/estud/praf/ps06/bills/materialy/files/016text.html&usg=__IbYdh7Ofem0k1i7NUuGUHk5sLHA=&h=266&w=381&sz=12&hl=en&start=2&tbnid=f1GqqwT1GxnLFM:&tbnh=86&tbnw=123&prev=/images?q=Bill+of+exchange&gbv=2&hl=en&sa=G



PARTIES

DRAWER : The person who makes the bill of exchange is calleddrawer.

DRAWEE : The person who is directed to pay is called drawee.PAYEE : The person to whom the payment is to be made is called

payee.ACCEPTOR : When the drawee accepts the bill is called acceptor.



ESSENTIALS FEATURES OF BILL OF EXCHANGE :

1. It must be in writing.2. It must contain an order to pay a definite sum of money.3. The order to pay must be unconditional.4. It must be signed by the drawer (who draw money).5. The drawer, the drawee &the payee must be identified &

must be certain.6. The sum payable must be certain.7. The bill must contain an order to pay the money in legal

tender in India.8. It must contain the formalities like date, place & stamp

etc.

CHEQUE



CHEQUE

Sec.6 :“ A cheque is a bill of exchange drawn on a specified

banker & not expense to be payable on a specifiedbanker & not expense to be payable otherwise than on

demand & it includes the electronic image of atruncated cheque & a cheque in the electronic form.



FORMAT OF CHEQUE

No.……..Date………..2010

Pay…………………………………………………………or bearer the sum of Rs…………………………………

Rs…………………

A/c No LF No Sd/-PUNJAB NATIONAL BANKSubzi Mandi,Delhi -110007

“5777100” 111013035”



PARTIES

DRAWER: The person who makes a cheque is called Drawer.DRAWEE: The person who is directed to pay is called Drawee.PAYEE : The person to whom the payment is to be made.

ESSENTIAL FEATURES OF CHEQUE



ESSENTIAL FEATURES OF CHEQUE:

1. It is always drawn by a bank & not by any other institutions.2. It always payable on demand.3. A cheque can be bearer, order or crossed.4. The drawee, that is, the banker named must honour the cheque by

making payment to the payee when the cheque is presented for payment to the banker at his office during the usual office hours,provided the cheque is properly and validly drawn and the drawer has sufficient funds to his credit.

5. The signature on the cheque must tally with the specimen

signature of the concerned drawer.6. A cheque must be dated.

http://images.google.co.in/imgres?imgurl=http://www.merinews.com/upload/thumbimage/cheque-15783533.jpg&imgrefurl=http://www.merinews.com/article/misuse-of-cheques-still-continues/15783533.shtml&usg=__Z-RUDkLkVja80Crx1JNrJrTz-sw=&h=107&w=148&sz=2&hl=en&start=270&tbnid=-H_PJ-XBxJsXAM:&tbnh=69&tbnw=95&prev=/images?q=negotiable+instruments&gbv=2&ndsp=20&hl=en&sa=N&start=260

http://images.google.co.in/imgres?imgurl=http://www.villagenotary.net/fpsd.png&imgrefurl=http://villagenotary.net/&usg=__4Sn5gQQCNdWGBvnkegLk11aAeAI=&h=412&w=577&sz=179&hl=en&start=8&tbnid=UH4-G6Nei_5HxM:&tbnh=96&tbnw=134&prev=/images?q=negotiable+instruments&gbv=2&hl=en



CROSSING OF CHEQUES

CHEQUE CROSSED GENERALLY - Where a cheque bears acrossits face an addition of the words “and company” or any abbreviationthereof, between two parallel transverse lines, or of two paralleltransverse lines simply, either with or without the words “notnegotiable”, that addition shall be deemed a crossing, and thecheque shall be deemed to be crossed generally. [section 123]

CHEQUE CROSSED SPECIALLY - Where a cheque bears acrossits face an addition of the name of a banker,either with or without thewords “not negotiable”, that addition shall be deemed a crossing, andthe cheque shall be deemed to be crossed specially, and to becrossed to that banker. [section 124].

http://images.google.co.in/imgres?imgurl=http://www.switchmycellphone.com/imgs/rtn.gif&imgrefurl=http://www.switchmycellphone.com/routing.html&usg=__QgaMPVT6jNqUK7nseSKhGuvZPhE=&h=400&w=500&sz=12&hl=en&start=8&tbnid=1bRK7f0kJFBHLM:&tbnh=104&tbnw=130&prev=/images?q=Negotiable+instruments&gbv=2&hl=en&sa=G



CONTD -

PAYMENT OF CHEQUE CROSSED GENERALLY OR SPECIALLY -Where a cheque is crossed generally, the banker on whom it is drawnshall not pay it otherwise than to a banker. Where a cheque is crossedspecially, the banker on whom it is drawn shall not pay it otherwisethan to the banker to whom it is crossed, or his agent for collection.[section 126].

CHEQUE BEARING “NOT NEGOTIABLE” - A person taking a chequecrossed generally or specially, bearing in either case the words “notnegotiable”, shall not have, and shall not be capable of giving, a better title to the cheque than the person from whom he took it had. [section130].

Thus, mere writing words „Not negotiable does not mean that thecheque is not transferable. It is still transferable, but the transfereecannot get title better than what transferor had.

HOLDER

http://images.google.co.in/imgres?imgurl=http://www.switchmycellphone.com/imgs/rtn.gif&imgrefurl=http://www.switchmycellphone.com/routing.html&usg=__QgaMPVT6jNqUK7nseSKhGuvZPhE=&h=400&w=500&sz=12&hl=en&start=8&tbnid=1bRK7f0kJFBHLM:&tbnh=104&tbnw=130&prev=/images?q=Negotiable+instruments&gbv=2&hl=en&sa=G



HOLDER

Sec.8The Holder of a Promissory note, B.O.E or CHEQUE

means any person entitled in his own name to thepossession thereof, and to receive or recover the

amount due thereon from the parties thereto. Wherethe note, bill or cheque is lost or destroyed, its holder isthe person so entitled at the time of such loss or destruction.




WHEN DOES A PERSON BECOMES A



WHEN DOES A PERSON BECOMES AHOLDER IN DUE COURSE

Before the amount mentioned in the instrument becomes payable.1) Without having sufficient cause to believe that any defect

exists in the title of the person from whom, he derives his title2) He becomes a possessor of a promissory note, b.o.e or cheque

.3) If it is payable to the bearer.4) Consideration has passed from him.

Illustration:- A is a payee for a valuable consideration of a billpayable to order. He gets this instrument from B withoutknowledge of any defect in B s title & its maturity.

In this e g. A is a holder in due course.




CONTD -

A holder of a negotiable instrument will not be a holder in duecourse if:-

a) he has obtained the instrument by gift or by illegal method.b) he has obtained the instrument after its maturity.




PRIVILEGES OF HOLDER IN DUE COURSE

1)Inchoate stamped instrument : A person, who hassigned & delivered to another a stamped but otherwiseinchoate instrument , is precluded from asserting, asagainst a holder in due course, that the instrument hasnot been filled in accordance with the authority given by

him, the stamp being sufficient to cover theamount(sec.20).2) Liability of prior parties: Every prior party to a

negotiable instrument is liable thereon to a holder indue course until the instrument is duly satisfied(sec.36).

http://images.google.co.in/imgres?imgurl=http://farm3.static.flickr.com/2327/2474368767_aecd84278d.jpg&imgrefurl=http://flickr.com/photos/oblivion/2474368767/&usg=__Jzg4lwMpavNkrzuJytXYBVDSs78=&h=333&w=500&sz=127&hl=en&start=230&tbnid=p0MweWlBOtzFtM:&tbnh=87&tbnw=130&prev=/images?q=Negotiable+instruments&gbv=2&ndsp=20&hl=en&sa=N&start=220




CONTD -

3) Fictitious payee : Where a bill is drawn payable to thedrawer s order in fictitious name & is indorsed in the samehand as the drawer s signature, the acceptor is not relievedfrom liability to any other holder in due course, on the pleathat the drawer is fictitious(sec.42).

4) Conditional delivery: If a bill or not is negotiated to aholder in due course, the other parties to the instrumentcannot avoid liability on the ground that the delivery of theinstrument was conditional or for a special purpose only.




CONTD -

5) Instrument cleansed of all defects: Once a negotiable instrumentpasses through the hands of a holder in due course, it getscleansed of its defects provided the holder was himself not a partyto the fraud or illegality which affected the instrument in somestage of its journey. Thus any defect in the title of the transferor

will not affect the rights of the holder in due course even if he hadknowledge of the prior defect provided he himself is not a party tothe fraud.Example: A, by fraud, induces B to make a promissory note in hisfavour. He indorses the note to C, who take it as a holder in due

course. C subsequently indorses the note to A, for value. A cannotsue B on the note as he himself is a party to the fraud .

DIFFERENCE BETWEEN HOLDER AND HOLDER




DIFFERENCE BETWEEN HOLDER AND HOLDERIN DUE COURSE

A holder can obtain aninstrument withoutconsiderationIf an instrument isinchoate, a holder of suchinstrument cannot getgood title in the instrumentA holder need not bother about the defect, if any inthe title of the instrument

Obtains an instrument withconsideration and for value.Holder in due courseacquires a good title even if the instrument is inchoate.Holder in due course whoacquires an instrumentknowingly the defect of thetitle.




NEGOTIATION

Method of transfer An instrument is said to be negotiatedwhen a promissory note,BOE,cheque istransferred to any person so as toconstitute that person the holder of theinstrument

Transfer with an intention to transfer thetitle of the instrument.Negotiation by deliveryNegotiation by endorsement and delivery

http://images.google.co.in/imgres?imgurl=http://michaelcaldwellco.com/art/gavel.jpg&imgrefurl=http://michaelcaldwellco.com/services.html&usg=__BpAkYe01xIYAHWJ_Q7Y0MyTmeN0=&h=120&w=150&sz=11&hl=en&start=67&tbnid=3JaBZT17LHhN8M:&tbnh=77&tbnw=96&prev=/images?q=Negotiable+instruments&gbv=2&ndsp=20&hl=en&sa=N&start=60




CONTD-

Meaning of endorsement – An endorsementmeans signing the negotiable instrument onthe back of ,or face thereof or, or on a slip of

paper annexed thereto



PRESENTMENT

Presentment for Acceptance (requiredonly in case of BOE)Presentment for paymentPresentment made to the drawee.Must be made before the date of maturity




DISHONOUR (S 92)

A negotiable instrument is said to bedishonoured by non-payment when themaker, acceptor or drawee, as the case

maybe makes default in payment upon beingduly required to pay the same.

Dishonour by non payment

Dishonour by non acceptance



NOTING

When a cheque is dishonoured generallythe bank who refuses payment returnsback the cheque gives reasons in writing

for the dishonour of the cheque.Noting

The holder cause such dishonour to be notedby a notary public upon the instrument or upona paper attached thereto or partly upon eachNoting consists in recording the fact of dishonour by notary public




DISCHARGE FROM LIABILITY

By paymentBy cancellationBy releaseBy non-presentment for acceptance of abill of exchange

By material alteration

BANKER AND CUSTOMER




BANKER AND CUSTOMER

No statutory definition of banker NI Act defines a banker as any person actingas a banker

Customer – A person becomes a customer of a bank when the latter agrees to open anaccount with the former. Thus, a customer isa person who has some sort of account withthe banker. The duration of relationship isimmaterial.

OBLIGATIONS OF A BANKER



OBLIGATIONS OF A BANKER

To honour cheques.To keep a proper record of the transactions.To abide by the instructions given by thecustomer To not disclose the state of his customer saccount or affairsTo claim interest on money lent

PROTECTION GRANTED TO BANKER



PROTECTION GRANTED TO BANKER

Protection of paying banker – where a cheque payable to order purports to beindorsed by or on behalf of the payee, the

drawee is discharged by payment in due course.Where a cheque is originally expressed to be

payable to a bearer, the drawee is discharged bypayment in due course to the bearer thereof

CONTD



CONTD-

Protection of collecting banker – A banker who has in good faith received payment for acustomer s crossed cheque ,does not incur

liability , later if it is found that the title isdefective

CAMPUS OVERVIEW



CAMPUS OVERVIEW

907/A Uvarshad,Gandhinagar Highway, Ahmedabad

– 382422.

Ahmedabad Kolkata

Infinity Benchmark,10 th Floor, Plot G1,Block EP & GP,Sector V, Salt-Lake,Kolkata – 700091.

Mumbai

Goldline Business

Centre LinkwayEstate,Next to Chincholi FireBrigade, Malad (West),Mumbai – 400 064.



THANK YOU

Negotiable Instruments Act Presentation - Unitedworld School of Business

Documents

Transcript of Negotiable Instruments Act Presentation - Unitedworld School of Business