Negotiation

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NEGOTIATION process, OTHER NEGOTIATION STYLES, APPROACHES TO NEGOTIATION, PRINCIPLES OF NEGOTIATION, SKILLS REQUIRED FOR NEGOTIATION, Role of Emotions in Negotiation, NEGOTIABLE INSTRUMENT and NON NEGOTIABLE INSTRUMENT

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Negotiation

  1. 1. NEGOTIATION It is a process by which the involved parties or group resolve matters of dispute by holding discussions and coming to an agreement which can be mutually agreed by them. It also refers to coming to closing a business deal or bargaining on some product. The term negotiation may be defined as the transfer of a negotiable instrument by one person to another so as to constitute the transferee the holder of the instrument. This term is defined in Section 14 of the Negotiable instrument Act which read as, “When A PROMISSORY NOTE, BILL OF EXCHANGE OR CHEQUE IS TRANSFERRED TO ANY PERSON SO AS TO CONSTITUTE THAT PERSON THE HOLDER THEREFORE, THE INSTRUMENT IS SAID TO BE NEGOTIATED.” The analysis of this section reveals that the negotiation takes place when the following two conditions are satisfied: 1 The negotiable instrument is transferred from one person to another. 2 The transfer is made in such a manner so as to make the transferee the holder of the negotiable instrument. Thus the essence of the negotiation is that it must be made with the intention of transferring a title of the instrument to the transferee. Thus when negotiable instrument is transferred by a negotiation, the title or ownership of the instrument is conveyed from the holder to the transferee. And on negotiation the transferee becomes the holder of an instrument, who can possess the instrument on the date of maturity from the party liable to pay. Negotiable instrument which is payable to bearer can be transferred only by giving delivery of it to the party. And if it is payable to order, it can be transferred by endorsement & delivery.
  2. 2. OTHER NEGOTIATION STYLES Shell identified five styles/responses to negotiation.[3] Individuals can often have strong dispositions towards numerous styles; the style used during a negotiation depends on the context and the interests of the other party, among other factors. In addition, styles can change over time. 1. Accommodating: Individuals who enjoy solving the other party’s problems and preserving personal relationships. Accommodators are sensitive to the emotional states, body language, and verbal signals of the other parties. They can, however, feel taken advantage of in situations when the other party places little emphasis on the relationship. 2. Avoiding: Individuals who do not like to negotiate and don’t do it unless warranted. When negotiating, avoiders tend to defer and dodge the confrontational aspects of negotiating; however, they may be perceived as tactful and diplomatic. 3. Collaborating: Individuals who enjoy negotiations that involve solving tough problems in creative ways. Collaborators are good at using negotiations to understand the concerns and interests of the other parties. They can, however, create problems by transforming simple situations into more complex ones. 4. Competing: Individuals who enjoy negotiations because they present an opportunity to win something. Competitive negotiators have strong instincts for all aspects of negotiating and are often strategic. Because their style can dominate the bargaining process, competitive negotiators often neglect the importance of relationships.
  3. 3. 5. Compromising: Individuals who are eager to close the deal by doing what is fair and equal for all parties involved in the negotiation. Compromisers can be useful when there is limited time to complete the deal; however, compromisers often unnecessarily rush the negotiation process and make concessions too quickly. APPROACHES TO NEGOTIATION Negotiation typically manifests itself with trained negotiator acting on behalf of a particular organization or position. It can be compared to mediation where a neutral third party listens to each side's arguments and attempts to help craft an agreement between the parties. It is also related to arbitration which, as with a legal proceeding, both sides make an argument as to the merits of their "case" and then the arbitrator decides the outcome for both parties. There are two opposite types of negotiation: Integrative and Distributive. Types of negotiation: There are two basic types of negotiation. Distributive and integrative 1. Integrative Negotiation: Integrative negotiation, also known as principled negotiation, cooperative bargaining or win-win negotiation is a type or style of negotiation in which the parties cooperate to achieve a satisfactory result for both. Integrative negotiation the parties adopt an attitude aimed at solving the problem and seek a favorable outcome for both. Hence the goal of integrative negotiation is to create as much value as possible for oneself and for the other party, for example, through the stock exchange where each party makes
  4. 4. concessions, makes or gives up some that values therefore little or no return for something he values greatly. Integrative negotiation usually occurs in negotiations where there are several things to negotiate, for example, in creating a society in which each partner can bring different resources, but complementary to those of other partners. Integrative negotiation strategies The integrative negotiation strategies are aimed at creating the most value for both parties, so the distributive negotiation strategies basically consist of: Disclose proprietary information, identify own needs, preferences, interests, concerns, capacities, resources, etc. Learn from the other party to get information about their motivations, needs, preferences, interests and concerns, for instance, during formal and informal questions, or trying to understand their motivations. Integrative bargaining tactics The tactics of integrative bargaining, unlike the strategies are specific actions, but has the same goal which is to create as much value as possible for both parties. Another negotiation tactic is bad guy/good guy. Bad guy/good guy tactic is when one negotiator acts as a bad guy by using anger and threats. The other negotiator acts as a good guy by being considerate and understanding. The good guy blames the bad guy for all the difficulties while trying to get concessions and agreement from the opponent. 2. Distributive Negotiation: The term distributive means; there is a giving out; or the scattering of things. By its mere nature, there is a limit or finite amount in the thing being distributed or divided amongst the people involved. Hence, this type of negotiation is often referred to as 'The Fixed Pie'.. A distributive negotiation usually involves people who have never had a previous interactive relationship, nor are they likely to do so again in the near future. Simple everyday examples would be buying a car or a house. Distributive Bargaining Distributive bargaining, also known as positional bargaining, zero-sum negotiation, competitive negotiation or negotiation win-lose, is a type or style of negotiation in which parties compete for the distribution of a fixed amount of value. At the end of a purely distributive bargaining, which a party has won the other has lost. The final points keep adding zero as has been previously created value, unlike what happens in an integrative negotiation.
  5. 5. Distributive bargaining usually occurs in negotiations based on the sale of products where all that matters is price, for example in the sale of an automobile or real estate. Distributive bargaining strategies The distributive bargaining strategies are aimed at shaping the perception of the counterpart on the limits of the zone of possible agreement, looking to the other party change its point of reservation to do so back, and think that ours is closer than their own it really is. Therefore, the distributive bargaining strategies basically consist of: Do not reveal proprietary information, not reveal, conceal or distort information as one’s own motivations, needs and interests, your own BATNA and reservation point, etc. For this purpose, information is distorted, half-truths are told, , it answers questions with other questions or incomplete responses, it diverts attention to other issues, not shown much interest in something, dissimilar emotions or reactions, etc.. Counterparty information: get as much information counterpart, their true motivations, needs and interests, their alternatives, their BATNA and reservation point, , their way of trading (if it is aggressive or passive ), their strengths and weaknesses, etc.. For this purpose, are formal and informal questions, read between the lines, analyze their actions, interpreting nonverbal language, you get information from other sources, etc. Distributive bargaining tactics The tactics of distributive bargaining, unlike the strategies are specific actions, but have the same goal, which is to reach an agreement as close as possible to the point of booking the other hand, basically pre-shaping their perception of boundaries of the zone of possible agreement. PRINCIPLES OF NEGOTIATION There are seven basic principles common to all forms of negotiation. • There are minimum two parties involved in the negotiation process. There exists some common interest, either in the subject matter of the negotiation or in the negotiating context that puts or keeps the parties in contact. • Though the parties have the same degree of interest, they initially start with different opinions and objectives which hinder the outcome in general. • In the beginning, parties consider that negotiation is a better way of trying to solve their differences.
  6. 6. • Each party is under an impression that there is a possibility of persuading the other party to modify their original position, as initially parties feel that they shall maintain their opening position and persuade the other to change. • During the process, the ideal outcome proves unattainable but parties retain their hope of an acceptable final agreement. • Each party has some influence or power – real or assumed – over the other’s ability to act. • The process of negotiation is that of interaction between people – usually this is direct and verbal interchange. SKILLS REQUIRED FOR NEGOTIATION Negotiation is a skill that anyone can learn and practice. The necessary skills required for successful negotiations can be listed as: • The ability to define a range of objectives yet is flexible about some of them. • The ability to explore the possibilities of a wide range of options. • The ability to be well prepared. • The ability to listen to and question other parties. • The ability to set priorities. TEAM NEGOTIATION Due to globalization and growing business trends, negotiation in the form of teams is becoming widely adopted. Teams can effectively collaborate to break down a complex negotiation. There is more knowledge and wisdom dispersed in a team than in a single mind. Writing, listening, and talking, are specific roles team members must satisfy. The capacity base of a team reduces the amount of blunder, and increases familiarity in a negotiation.
  7. 7. Role of Emotions in Negotiation Emotions play an important part in the negotiation process, although it is only in recent years that their effect is being studied. Emotions have the potential to play either a positive or negative role in negotiation. During negotiations, the decision as to whether or not to settle rests in part on emotional factors Emotion in negotiation is a very common thing. Yet, many negotiation authorities suggest that being emotional is a sign of a weakness or is the behavior of an unsophisticated negotiator; some say that emotions must be repressed. While it is possible to manage your emotions, it can be nearly impossible to hide from them. Positive Emotions: Both positive and negative emotions are found in negotiation. Positive emotions include joy, exhilaration, or relief. Yet, these positive emotions can derail your thinking. It is possible to be "too happy" in a negotiation. For example, you finally resolve a contract dispute that has taken weeks of meetings and heated talks. In your exhilaration, you leave the client's office giving "high fives" to your partners. Then it dawns on you: you left the meeting without getting the contract signed. Whoops, the deal is not done. Your emotions got the better of you. Positive affect in negotiation Even before the negotiation process starts, people in a positive mood have more confidence, and higher tendencies to plan to use a cooperative strategy. During the negotiation, negotiators who are in a positive mood tend to enjoy the interaction more, show less contentious behavior, use less aggressive tactics and more cooperative strategies. Those favorable outcomes are due to better decision making processes, such as flexible thinking, creative problem solving, respect for others' perspectives, willingness to take risks and higher confidence. It increases satisfaction with achieved outcome and influences one's desire for future interactions. PA also has its drawbacks: it distorts perception of self performance, such that performance is judged to be relatively better than it actually is. Thus, studies involving self reports on achieved outcomes might be biased. For example, you finally resolve a contract dispute that has taken weeks of meetings and heated talks. In your exhilaration, you leave the client's office giving "high fives" to your partners. Then it dawns on you: you left the meeting without getting the contract signed. Whoops, the deal is not done. Your emotions got the better of you.
  8. 8. Negative Emotions: Maybe more common are the negative emotions such as anger, jealousy, fear, remorse, and guilt. Negative emotions can cloud your thinking. The expression "seeing red" describes a physical reaction to anger which includes increased blood pressure and flushed cheeks. Anger and other negative emotions can be barriers to an agreement; some of these barriers can seem insurmountable. Being in conflict can take away your energy, attention, and productivity. Emotions are real and must be dealt with or things will quickly come to a screeching halt. Normally, anger expressed in a negotiation is not personal, but it may feel that way Negative effect in negotiation Negative affect has detrimental effects on various stages in the negotiation process. Although various negative emotions affect negotiation outcomes, by far the most researched is anger. During negotiations, anger disrupts the process by reducing the level of trust, clouding parties' judgment, narrowing parties' focus of attention and changing their central goal from reaching agreement to retaliating against the other side. Angry negotiators pay less attention to opponent’s interests and are less accurate in judging their interests. Moreover, negative emotions leads to acceptance of settlements that are not in the positive utility function but rather have a negative utility. However, expression of negative emotions during negotiation can sometimes be beneficial: legitimately expressed anger can be an effective way to show one's commitment, sincerity, and needs. Moreover, although NA reduces gains in integrative tasks, it is a better strategy than PA in distributive tasks (such as zero-sum). Negotiation may be negatively affected, in turn, by submerged hostility toward an ethnic or gender group.
  9. 9. NEGOTIABLE INSTRUMENT DEFINITION: A transferable, signed document that promises to pay the bearer a sum of money at a future date or on demand. Examples include checks, bills of exchange, and promissory notes. According to section 13 of the Negotiable Instruments Act, 1881, a negotiable instrument means “promissory note, bill of exchange, or cheque, payable either to order or to bearer”. 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. In this lesson let us learn about these documents Examples of negotiable instruments (a) Negotiable instruments recognized by statute: i) Bills of exchange ii) Promissory notes. iii) Cheques. (b) Negotiable instruments recognized by usage or custom: i) Hundis. ii) Share warrants. iii) Dividend warrants. iv) Banker’s drafts. v) Circular notes. vi) Bearer debentures. vii) Debentures of Bombay port trust. viii) Railway receipts. ix) Delivery orders. The list of negotiable instruments is not a closed chapter. With the growth of commerce, new kinds of securities may claim recognition as negotiable instruments.
  10. 10. NON NEGOTIABLE INSTRUMENT Document of title (such as an air waybill) or a financial instrument (such as a crossed check) that may not be transferred from the holder or named party to another. Nonnegotiable instrument is an instrument that is not negotiable. It is not payable to order or bearer. Any instrument which does not meet the requirements laid down to qualify an instrument as negotiable is a nonnegotiable Instrument. Similarly, an instrument which in its inception was negotiable but has lost its quality of negotiability is a nonnegotiable Instrument Example of Non-negotiable instruments i) Money orders. iii) Share certificates ii) Deposit receipts. iv) Dock warrants. v) Postal orders. CHARACTERISTICS OF NEGOTIABLE INSTRUMENT: A negotiable instrument has the following characteristics. 1. Property The possessor of the negotiable instrument is presumed to be the owner of the property contained therein. A negotiable instrument does not merely give possession of the instrument but right to property also. The property in a negotiable instrument can be transferred without any formality. In the case of a bearer instrument, the property passed by mere delivery to the transferee. In the case of an order instrument, endorsement and delivery are required for the transfer of property. 2. Title The transferee of a negotiable instrument is known as holder in due course.’ A bonafide transferee for value is not affected by any defect of title on the part of the transferor or of any of the previous holders of the instrument. This is the main distinction between a negotiable instrument and other subjects of ordinary transfer. The general rule of nemo dat quod non habet does not apply to negotiable instruments. 3. Rights The transferee of the negotiable instrument can sue in his own name, in case of dishonor. A negotiable instrument can be transferred any number of times till it is at maturity. The holder of the instrument need not give notice of transfer to the party liable on the instrument to pay.
  11. 11. 4. Presumptions Certain presumptions apply to all negotiable instruments e.g. a presumption that consideration has been paid under it. 5. Prompt Payment A negotiable instrument enables the holder to expect prompt payment because a dishonor means the ruin of the credit of all persons who are parties to the instrument. TYPES OF NEGOTIABLE INSTRUMENT According to the Negotiable Instruments Act, 1881 there are just three types of negotiable instruments i.e., promissory note, bill of exchange and cheque. However many other documents are also recognized as negotiable instruments on the basis of custom and usage, like hundis, treasury bills, share warrants, etc., provided they possess the features of negotiability. In the following sections, we shall study about Promissory Notes (popularly called pronotes), Bills of Exchange (popularly called bills), Cheques and Hundis (a popular indigenous document prevalent in India), in detail. i. Promissory Note Suppose you take a loan of Rupees Five Thousand from your friend Ramesh. You can make a document stating that you will pay the money to Ramesh 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 Ramesh, becomes a negotiable instrument. Now Ramesh 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. Section 4 of the Negotiable Instruments Act, 1881 defines a promissory note 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’. An example would be a person wishes to sell their car and will provide financing for the buyer. The seller and buyer signs a promissory note for the amount plus interest, the time frame the note is to be paid by, and the monthly payments.
  12. 12. Specimen of a Promissory Note Rs. 10,000/Delhi New September 25, 2002 On demand, I promise to pay Ramesh, s/o RamLal of Meerut or order a sum of Rs 10,000/- (Rupees Ten Thousand only), for value received. To , Ramesh Sanjeev Address…….. Sd/ Stamp Parties to a Promissory Note There are primarily two parties involved in a promissory note. They are i.The Maker or Drawer – the person who makes the note and promises to pay the amount stated therein. In the above specimen, Sanjeev is the maker or drawer. ii. The Payee – the person to whom the amount is payable. In the above specimen it is Ramesh. 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 Ramesh endorses it in favor of Ranjan and Ranjan also endorses it in favor of Puneet, then Ramesh and Ranjan both are endorsers. b. The Endorsee – the person in whose favor the note is negotiated by endorsement. In the Above, it is Ranjan and then Puneet. Features of a promissory note Let us know the features of a promissory note. A promissory note must be in writing, duly signed by its maker and properly stamped as per Indian Stamp Act. 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 Satya Prakash’, it is not a promissory note. 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. It must contain a promise to pay money only. For example, if someone writes ‘I promise to give Suresh a Maruti car’ it is not a promissory note. The parties to a promissory note, i.e. the maker and the payee must be certain.
  13. 13. 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 Satinder or order a sum of rupees Five Thousand only’ it is a promissory note. 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. (See specimen below). ii. Bill of Exchange Suppose Rajiv has given a loan of Rupees Ten Thousand to Sameer, which Sameer has to return? Now, Rajiv also has to give some money to Tarun. In this case, Rajiv can make a document directing Sameer 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. Section 5 of the Negotiable Instruments Act, 1881 defines a bill of exchange as ‘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’. An example of the bill of exchange would be someone has given a loan of say $10,000 to someone who has to return it by a specified amount of time. The person loaning the money can transfer this bill of exchange to another individual and the person that borrowed the money would have to pay the current holder of the Bill of Exchange. The last is the cheque which of course reflects purchasing a good or service and writing a check to pay for it. Specimen of a Bill of Exchange Rs. 10,000/Delhi New May 2, 2001 Five months after date pay Tarun or (to his) order the sum of Rupees Ten Thousand only for value received. To Stamp Sameer S/d Address Rajiv Accepted Sameer 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, Rajiv is the drawer.
  14. 14. ii. The Drawee – The person to whom the order to pay is made.He is generally a debtor of the drawer. It is Sameer 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. A bill must be in writing, duly signed by its drawer, accepted by its drawee and properly stamped as per Indian Stamp Act. It must contain an order to pay. Words like ‘please pay Rs 5,000/- on demand and oblige’ are not used. The order must be unconditional. The order must be to pay money and money alone. The sum payable mentioned must be certain or capable of being made certain. The parties to a bill must be certain. iii. 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 favour 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
  15. 15. ………......20....... Pay…….............................................................................................................. ……....................................................................................................... or Bearer Rupees…………………………………………… … RS.__________________ …………………………………………………… STATE BANK OF INDIA Jawaharlal Nehru University, New Delhi – 110067 MSBL/97 653003 110002056 10 Features of a cheque Let us look into some important features of a cheque. A cheque must be in writing and duly signed by the drawer. It contains an unconditional order. It is issued on a specified banker only. The amount specified is always certain and must be clearly mentioned both in figures and words. The payee is always certain. It is always payable on demand. The cheque must bear a date otherwise it is invalid and shall not be honored by the bank. Types of Cheque Broadly speaking, cheques are of four types. a) Open cheque, and b) Crossed cheque. c) Bearer cheque d) Order cheque 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.
  16. 16. 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. iv. 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. 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. 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. 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.
  17. 17. FEATURES OF NEGOTIABLE INSTRUMENT After discussing the various types of negotiable instruments let us sum up their features as under A negotiable instrument is freely transferable. Usually, when we transfer any property to somebody, we are required to make a transfer deed, get it registered, pay stamp duty, etc. But, such formalities are not required while transferring a negotiable instrument. The ownership is changed by mere delivery (when payable to the bearer) or by valid endorsement and delivery (when payable to order). Further, while transferring it is also not required to give a notice to the previous holder. Negotiability confers absolute and good title on the transferee. It means that a person who receives a negotiable instrument has a clear and undisputable title to the instrument. However, the title of the receiver will be absolute, only if he has got the instrument in good faith and for a consideration. Also the receiver should have no knowledge of the previous holder having any defect in his title. Such a person is known as holder in due course. For example suppose Rajiv issued a bearer cheque payable to Sanjay. It was stolen from Sanjay by a person, who passed it on to Girish. If Girish received it in good faith and for value and without knowledge of cheque having been stolen, he will be entitled to receive the amount of the cheque. Here Girish will be regarded as ‘holder in due course’. A negotiable instrument must be in writing. This includes handwriting, typing, computer printout and engraving, etc. In every negotiable instrument there must be an unconditional order or promise for payment. The instrument must involve payment of a certain sum of money only and nothing else. For example, one cannot make a promissory note on assets, securities, or goods. The time of payment must be certain. It means that the instrument must be payable at a time which is certain to arrive. If the time is mentioned as ‘when convenient’ it is not a negotiable instrument. However, if the time of payment is linked to the death of a person, it is nevertheless a negotiable instrument as death is certain, though the time thereof is not. The payee must be a certain person. It means that the person in whose favour the instrument is made must be named or described with reasonable certainty. The term ‘person’ includes individual, body corporate, trade unions, even secretary, director or chairman of an institution. The payee can also be more than one person. A negotiable instrument must bear the signature of its maker. Without the signature of the drawer or the maker, the instrument shall not be a valid one. Delivery of the instrument is essential. Any negotiable instrument like a cheque or a promissory note is not complete till it is delivered to its payee. For example, you may issue a cheque in your brother’s name but it is not a negotiable instrument till it is given to your brother. Stamping of Bills of Exchange and Promissory Notes is mandatory. This is required as per the Indian Stamp Act, 1899. The value of stamp depends upon the value of the pronote or bill and the time of their payment.

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