Amity Business School MBA, Semester 1 Legal Aspects of Business Ms. Shinu Vig
Amity Business School Negotiable Instruments Act, 1881‘Instrument’ means any written document by which aright is created in favour of some person.‘Negotiable Instrument’ means a document transferablefrom one person to another.
Amity Business SchoolCharacteristics of a Negotiable Instrument:iii. It must be in writing.iv. It must be signed by the maker/drawer.v. It must involve payment of money only.vi. There must be an unconditional promise or order to pay.vii. They are transferable by delivery or by endorsement and delivery.
Amity Business SchoolKinds of Negotiable Instruments:The Act recognizes the following three types of negotiableinstruments: i. Promissory notes ii. Bills of Exchange iii. Cheques
Amity Business SchoolPromissory Note (section 4):Promissory Note is an instrument in writing (not being abank or a currency note) containing an unconditionalundertaking, signed by the maker to pay a certain sum ofmoney to, or to the order of, a certain parson or to thebearer of the instrument.Parties to a promissory note:v. The Makervi. The Payee
Amity Business SchoolEssentials of a Promissory Note:ii. Must be in writing.iii. Must contain an express undertaking to pay a certain sum of money.iv. Undertaking to pay must be unconditional.v. Maker must sign the note.vi. Payee must be a definite person.vii. Must be properly stamped according to the provisions of the Indian Stamp Act.
Amity Business SchoolBills of Exchange (Section 5):A Bill of Exchange is an instrument in writingcontaining an unconditional order signed by themaker, directing a certain person to pay a certainsum of money only to or to the order of a certainperson or to the bearer of the instrument.Parties to a Bill of Exchange:v. The drawervi. The drawee (also called the acceptor)vii.The payee
Amity Business SchoolEssentials of a Bill of Exchange:ii. Must be in writing.iii. Must be dated.iv. Must contain an unconditional order to the drawee.v. Must be signed by the drawer.vi. The sum payable must be certain.vii. The parties must be certain.viii. It must be accepted by the drawee.Types of Bill of Exchange:in detail• Trade Bill• Accommodation Bill
Amity Business SchoolCheques (Section 6):A cheque is a bill of exchange drawn on a specifiedbanker, and not expressed to be payable otherwise thanon demand.Parties to a cheque:v. The drawervi. The draweevii. The payee
Amity Business SchoolEssentials of a Cheque:ii. Always drawn on a specified banker.iii. Always payable on demand.iv. It does not require acceptance.v. It may be made payable to drawer himself.vi. Must be dated.vii. Valid for 6 months.viii. No acceptance of cheque is requiredix. Cheque is not required to be stamped.
Amity Business SchoolCrossing of Cheques:Crossing is a direction to the paying banker to pay themoney generally to a banker or to a particular banker andnot to pay otherwise.Modes of Crossing:–General crossing - In case of general crossing,the holder or payee cannot get the payment overthe counter of the bank but through a bank only.•Special crossing - In case of special crossing, the payingbanker will pay only to the banker whose name appearsacross the cheque.
Amity Business SchoolNegotiation of Instruments:The transfer of an instrument by one party to another soas to constitute the transferee a holder thereof is callednegotiation.Negotiation of instruments can be effected in followingways:• By mere delivery (in case of instruments payable tobearer)• By endorsement and delivery (in case of instrumentspayable to order)
Amity Business SchoolEndorsement :Endorsement means and involves the writing ofsomething on the back of an instrument for thepurpose of transferring the right, title and interesttherein to some other person.Kinds of Endorsements:• Endorsement in blank• Endorsement in full• Restrictive Endorsement• Conditional Endorsement• Partial Endorsement
Amity Business SchoolDishonour of Instruments:Instruments are dishonoured either by non-acceptance orby non-payment.Notice of Dishonour:When an instrument is dishonoured, the holder or someparty liable thereon must give notice of dishonour to allother parties whom he seeks to make liable.Omission to give notice of dishonour discharges all partiesother than the maker or acceptor.
Amity Business SchoolDishonour of Cheque (Sections 138 to 142):If a cheque is returned by the bank unpaid for the reasonof insufficiency of the amount of money standing to thecredit of the account on which the cheque was drawn, thedrawer of such cheque shall be deemed to havecommitted an offence. The Act provides for criminalpenalties in such case:iv. Imprisonment for term which may extend to 1 year, orv. Fine which may extend to twice the amount of cheque,orvi. Both
Amity Business SchoolIn order to attract the aforementioned penaltiesfollowing conditions must be satisfied:ii. The cheque has been dishonoured due to insufficiencyof funds only.iii. The cheque should have been presented to the payingbanker within 6 months from the date on which it is drawn.iv. The payee of the cheque should have given notice inwriting to the drawer demanding payment, within 15 daysof the receipt of information of dishonour of the chequefrom the bank.v. The drawer is liable only if he fails to make the paymentwithin 15 days of the receipt of such notice.vi. The payee of the cheque dishonoured should havemade a complaint within 1 month of the cause of action.