Negotiable instrument1-act-1881


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Negotiable instrument1-act-1881

  1. 1. Negotiable instrument Act 1881 Priya Abraham Faculty, Dept of Management Studies VCMCS
  2. 2. Introduction Definition “Negotiable instrument” Negotiable means transferable Instrument means a written document A negotiable instrument is a document which entitles a person to a sum of money and which is transferable from one person to another by mere delivery or by indorsement and delivery. It is a method of transferring a debt from one person to another.
  3. 3. Characteristics Freely transferable Title of holder free from all defects A person who is holding negotiated instrument he is free from a defect in the title of the transferor Ex: S sells certain goods to B. B gives a promissory note to S for the price. He refuses to pay the promissory note, claiming that the goods are not according to order. If S sues B on the note, B’s defence is good. But if he negotiates the note to H, a holder in due course, B’s defence will be of no avail. Recovery A holder of the negotiable instrument can sue for recovery of the amount. Presumptions  Negotiable instrument is for consideration  Dated  Reasonable Time of acceptance  Before the maturity it should transferred  Stamp when there is a dishonour
  4. 4. Types of negotiable instrument Negotiable by statue - Promissory note -Bill of exchange -Cheque Negotiable by custom or usage -Share warrants -Dividend warrants -Share certificates
  5. 5. Promissory note It is an instrument in writing containing an unconditional undertaking, signed by the maker,to pay a certain sum of money only to, or to order of, a certain person, or to the bearer of the instrument. The person who makes the promissory note and promises to pay is called maker The person to whom the payment is to be made is called the payee. Essential elements -Writing -Promise to pay -Definite and unconditional -Signed by the maker -Point out the Certain parties -Payment of certain sum of money -Promise to pay money only -Formalities like date, number, place, consideration everything should be there -it may be payable on demand or after a definite period of time
  6. 6. Bill of Exchange It is 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. The person who makes the bill is called drawer The person who is directed to pay is called drawee The person to whom the payment is made is called payee Essential element -Must be in writing -Must contain an order to pay -The order must be unconditional -It requires three persons involvement -The parties must be certain -Signed by the drawer -Sum payable must be certain -It should be an order to pay -All the formalities like date, time, place etc., should be there
  7. 7. Distinction between a Note and the Bill of exchange Note – two parties involved BOE-Three parties involves Note-Unconditional promise to pay BOE-Unconditional order to pay Note-Maker is a debtor BOE-maker is a creditor Note-Maker is the acceptor BOE-Maker is not a acceptor Note-Liability of the maker is Primary BOE-Liability of the drawee is secondary Note-Requires no acceptance BOE-Requires acceptance of the drawee Note-Cannot drawn as payable to bearer BOE-Drawn as payable to the bearer Note-Dishonor may not informed to all BOE-Dishonour informed to all
  8. 8. Cheque A cheque is a bill of exchange drawn upon a specified banker and payable on demand. It is the electronic form means it contains the exact mirror image of the proper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system . Types -Open cheque A cheque which is payable in cash across the counter of a bank -Crossed cheque It is the one on which two parallel transverse lines with or without the words &Co are drawn.
  9. 9. Types of crossing General crossing A cheque is said to crossed generally where it bears across its face an addition of the words “&Co”or any abbreviation between two parallel transverse lines either with or without the not negotiable. Special crossing Where a cheque bears across its face an addition of the name of a banker,either with or without the words not negotiable the cheque is deemed to be crossed specially. Restrictive crossing A cheque which additionally contains the words ‘A/C Payee’ in the general or special crossing cheque with or with out the words not negotiable
  10. 10. Distinction between BOE and cheque BOE-Drawn on any person Ch-drawn only on banker BOE-Accepted by drawee Ch-No acceptance require BOE-Not crossed Ch-Can be crossed BOE-Require stamp Ch-Not require stamp BOE-Cannot be countermanded Ch-Can be countermanded
  11. 11. Classification of Negotiable instrument Bearer and order instruments  A negotiable instrument is payable to bearer  A negotiable instrument is payable to order• Inland and foreign instrument -Both made and payable in India -not an inland• Instrument payable on demand -a cheque always payable on demand• Time instrument -which is payable after a period• Accommodation bill -a bill drawn,accepted or indorsed for consideration• Fictitious bill -when the name of the drawer or the payee or both is fictitious in a bill, the bill is called a fictitious bill• Escrow -when a negotiable instrument is delivered conditionally or for a special purpose• Ambiguous instrument -faulty draft instrument• Inchoate instrument -incomplete instrument
  12. 12. Bills in sets A bill of exchange is sometimes drawn in parts, especially when it has to be sent from one country to another. This is known as drawing a bill ‘in a set’. Each bill must be numbered Entire bill is extinguished when the payment is made The drawer must signed in each part of the bill
  13. 13. Parties to a negotiable instrument Capacity of parties Minor Unsound mind person Corporations-upto the limit of MOA Agent Joint family system Partners
  14. 14. PARTIES Parties to a BOE -Drawer,Drawee,Acceptor,Payee,Holder, Indorser,Indorsee,Drawee in case of need, Acceptor for honour Parties to Promissory note -Maker,Payee,Holder,Indorser,Indorsee Parties to a cheque -Maker,Drawee,Payee,Holder,Indorser, Indorsee
  15. 15.  Maker-The person who makes a Promissory note is maker. Drawer-The person who makes or draws a bill of exchange or cheque is drawer. Drawee-The person on whom the BOE or cheque is drawn and who is directed to pay is called the drawee. Acceptor-In case of a BOE, the drawee becomes the acceptor. Payee-The person named in the Bill, note or cheque, to whom or to whose order the money is to be paid. Indorser-the person who indorses the bill, note or cheque to another is called the indorser. Indorsee-The person to whom the bill, note or cheque is indorsed is called the indorsee. Drawee in case of need-when in the bill or in any indorement thereon the name of any person is given in addition to the drawee to be referred to in case of need, such person is called a drawee in need. Acceptor for honour- It a bill is dishonoured by non- acceptance, the holder may nevertheless allow any other person to accept it for the honour of the drawer . The person so accepting the bill is acceptor for honour
  16. 16. Holder and holder in due course Holder(sec.8) any person entitled in his own name to the possession thereof and receive the amount from the parties Holder in due course(sec.9) any person who fulfils the following conditions -he possess the instrument if payable to bearer, or payable to order -he hold that instrument before the maturity -he hold that instrument in good faith.
  17. 17. Privileges of a holder in due course Inchoate(unclear) stamped instrument It is prohibited from claim as against holder in due course. Liability of prior parties Every prior party is liable in payment. Fictitious payee The acceptor of a bill cannot say as against the holder in due course, that the other parties to the bill were fictitious Conditional delivery If a bill or note negotiated to a holder in due course, the other parties to the instrument cannot avoid liability. Instrument free from all defects Estoppel against denying the original validity Estoppel against denying the capacity of payee to indorse
  18. 18. Liability of parties Liability of drawer Liable in case of dishonour by the drawee Liability of drawee must pay the bill or cheque when required Liability of the maker and acceptor Liable to pay to the holder Liability of indorser Liable to all subsequent holders for dishonour before the maturity Liability of prior parties
  19. 19. Presentment of a negotiable instrument Presentment means showing theinstrument to the drawee, acceptor ormaker for acceptance. Three kinds of presentment -Presentment of BOE foracceptance -Presentment of Note for sight -Presentment of instrument for payment
  20. 20. Presentment for acceptanceEssentials of a valid acceptance It must be in written on the bill It must be signed by the drawee personally or by an agent The accepted bill must be deliver to the holderModes of acceptance General acceptance accept the bill without any condition Qualified acceptance Accept with some qualified conditions -Conditional, Partial, Place, Time, Accepted by some of the parties
  21. 21.  Presentment for acceptance submitted to the drawee, drawee in case of need, duly authorised agents, legal representatives, official receiver It should be submitted before the date of maturity or with in the mention date It should be submitted in the specified place. Excuses -when the drawee cannot be found -where the drawee is dead or insolvent -when the drawee is a fictitious person -already the acceptance is refused Acceptor for honour(conditions) -the bill must have been protested for non- acceptance -made with the consent of the holder -written in the bill -signed by the honour
  22. 22. Presentment for paymentRules Hours-Business hours Presentment of instrument after date or sight-must be presented for payment at maturity Presentment of promissory note payable by installments-presented for payment on third day after the date fixed for payment of each installment Place of presentment-specified or at the drawee place Present of cheque- presented at the bank Presented the instrument payable on demand-with in the reasonable time Delay in presentment-accepted when the circumstances are beyond the control Presentment excused Liability of banker
  23. 23. Dishonor of Negotiable instrument Bill may be dishonored by non-acceptance or by non-payment but a cheque and Note are dishonored by non-payment only Dishonour by non-acceptance(sec.91) BOE is dishonoured by non-acceptance in any of the following ways. -If the drawee does not accept the bill within 48hours from the time of presentment though it is presented for the acceptance -when the presentment is excused and the bill is not accepted. -When the drawee incompetent to contract -When the drawee gives qualified acceptance -When the drawee is a fictitious person or he can not be found Dishonour by non-payment(sec.92) when the maker or the drawee makes default in payment
  24. 24. Notice of dishonour When the negotiable instrument is dishonoured the holder must give a notice to all the prior parties whom he wants to make liable on the instrument Object of the notice inform the party about their liability which accrues as a result of dishonour. Notice by whom -Notice by holder or any prior party -chain method of giving notice -Notice by principal or agent Notice to whom -Notice to all parties whom the holder seeks to make liable -Notice to party or his agent or legal representative or assignee Form of notice -The notice may be in oral or in written -It must be given within a reasonable time at the place of business Exceptions for notice(sec.98) -When it is dispensed with by the party entitled thereto -When the drawer countermanded the payment -when the party could not suffer by dishonour -When the party can not be found -in case of promissory note -When the entitled to the notice know the fact
  25. 25. Duties of holder upon dishonour Notice of dishonor Noting and protesting Noting means the recording of the fact of dishonor by a Notary public upon the instrument within a reasonable time after dishonor(sec.99) The certificate of noting is called protest(sec.100). It is a formal notarial certificate attesting the dishonor of instrument Suit for money Contents of Noting -The fact of dishonour -The date of dishonour -The reasons -The notary charges Contents of protest -The instrument -The name of the person against whom it is protested -The reasons of dishoour -The place and time of dishonour -The signature of the notary public
  26. 26.  Rules as to compensation(sec.117) The liable party should compensate all the charges like noting and protesting etc., -Compensation to holder of the instrument -Re-exchange in case foreign holder of instrument -Compensation to indorser(with 18%interest) -Re-draft Penalties for dishonored cheques by insufficiency of funds(sec.138) -imprisonment which may extend to 2 years or fine twice the amount or both
  27. 27. Discharge of Negotiable instrument An instrument is said to be discharged when all rights of action under it are completely extinguished and when it ceases to be negotiable. Modes of discharge  By payment in due course  By party primarily liable becoming holder when the maker or the acceptor becomes the holder of the instrument.  By express waiver  By cancellation  By discharge as a simple contract
  28. 28.  Discharge of party or parties  By payment  By cancellation  By release  By allowing drawee more than 48 hours  By non-presentment of cheque  Cheque payable to order  Draft drawn by one branch on another  Parties not consenting discharged by qualified acceptance  By operation of law  By material alteration  Discharged by the payment of altered instrument
  29. 29. THANK YOU