Negotiable Instrument
Presented By Group – 07
Ankita Raj – 03
Manu Singh Baghel – 25
Megha Sharma - 90
Introduction of Negotiable
Instruments Act
• The Negotiable Instruments Act was enacted, in
India, in 1881. The act based ...
Meaning of Negotiable Instrument
• Negotiable means “Transferable” and
Instrument means “Document”
• The term, negotiable ...
Continued..
• As such, documents like share warrants
payable to bearer, debentures payable to
bearer and dividend warrants...
Characteristics of a Negotiable Instrument
•In Writing: A negotiable instrument must be in writing.
•Signed by its maker: ...
Presumptions -
PROMISSORY NOTE :
It is an instrument in writing (not being a bank note or
currency note) containing an unconditional unde...
PARTIES
The Maker
The Payee
ESSENTIAL ELEMENTS OF PROMISSORY NOTE
It has 2 parties payer and payee
It must be in writing
It must contain an underta...
BILL OF EXCHANGE
Section 5 of the Negotiable Instruments Act, 1881 defines a
bill of exchange as ‘an instrument in writing...
PARTIES

 The Drawer
 The Drawee
 The Payee
ESSENTIAL ELEMENTS
Writing
Parties
Order to pay
Unconditional
Signed
Money
The three parties must be certain
Certa...
CHEQUE
The Negotiable Instruments Act, 1881 defines a
cheque as a bill of exchange drawn on a specified
banker and not exp...
TYPES
Open cheque: A cheque is called ‘Open’ when it is possible to
get cash over the counter at the bank.
Crossed cheque:...
Distinguish between Promissory Note & Bills of
exchange :
Promissory Note

Bills of Exchange

1) It is a promise to pay Bi...
Distinguish Between Bills of Exchange and Cheque:
Bills of Exchange

Cheque

1) Drawer can be any Person including
Banker....
Dishonouring of a Cheque
A Dishonoured Cheque is a Cheque that is not credited by
the Bank for numerous reasons including:...
Contd….
• When the holder (payee) informs the bank of
the loss of cheque.
• When the cheque is not presented within the
us...
Procedure of Dishonour of a cheque:
•Legal notice
•Filing a criminal case
•Submission of surety and bail of accused
•Docum...
WHEN DISHONOUR
OF CHEQUE IS AN OFFENCE
Ingredients of the offence
• Drawing of the cheque
• Presentation of the cheque to ...
Procedure for legal action Against Dishonouring of a Cheque :

Dishonour (bouncing) of Cheque:
• These section were added ...
The condition to be fulfilled are:
• The cheque should be issued by the drawer himself
(account holder) or his dually appo...
• The holder i.e. payee should demand the money in
writing from the date of dishonour of cheque. He
should also give the d...
Recent Judgments
1.MSR Leather vs. S Palaniappan 2012
Issue – “whether the payee or holder of cheque
can initiate proceedi...
 It is held by the supreme court that while the cheque can be
presented any no. of times there shall be only one notice.
...
.

Whether payee or holder of cheque can initiate proceeding of
prosecution under Section 138 of Negotiable Instrument Act...
2. )M/S Laxmi vs State of Gujrat & Ors. Nov 2012
Dishonour of cheque on the ground tat the signatures of the
cheque do not...
4.Dishonour of cheque- complaint can
be filed at any of the place.
Bhaskaran vs Sanskaran Vaidhyan balan

• Where the cheq...
5. SC case- Bhaskaran vs Sanskaran
Vaidhyan balan
• Penalty is restricted to Rs 5000/-, besides
imprisonment, but a magist...
Negotiable instrument
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Negotiable instrument

  1. 1. Negotiable Instrument Presented By Group – 07 Ankita Raj – 03 Manu Singh Baghel – 25 Megha Sharma - 90
  2. 2. Introduction of Negotiable Instruments Act • The Negotiable Instruments Act was enacted, in India, in 1881. The act based upon the English common law relating to promissory notes, bill of exchange and cheques. • The act came force on 1 march 1882 this act was enacted with an object to define the modify the law relating to promissory notes, bill of exchange and cheques.
  3. 3. Meaning of Negotiable Instrument • Negotiable means “Transferable” and Instrument means “Document” • The term, negotiable instrument means a written document which creates a right in favour of some person and which is freely transferable. • According to Section 13 of the Act, Negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer, whether the word order or bearer appear on the instrument or not.
  4. 4. Continued.. • As such, documents like share warrants payable to bearer, debentures payable to bearer and dividend warrants are negotiable instruments. • But the money orders and postal orders, deposit receipts, share certificates, dock warrant, etc. are not negotiable instruments
  5. 5. Characteristics of a Negotiable Instrument •In Writing: A negotiable instrument must be in writing. •Signed by its maker: A negotiable instrument must be signed by its maker. •Unconditional promise to pay: A negotiable instrument must contain an unconditional promise to pay. •Certain amount of money: A negotiable instrument must contain a certain amount of money. •Freely transferable: A negotiable instrument must be freely transferable from one person to another. •Defects in title: During the course of transfer of negotiable instrument, any defect in title will not effect right of recovery of money to holder in due course.
  6. 6. Presumptions -
  7. 7. PROMISSORY NOTE : It is an instrument in writing (not being a bank note or 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.
  8. 8. PARTIES The Maker The Payee
  9. 9. ESSENTIAL ELEMENTS OF PROMISSORY NOTE It has 2 parties payer and payee It must be in writing It must contain an undertaking to pay The undertaking must be unconditional It must be signed Parties must be certain Certain sum Money only Stamping
  10. 10. BILL OF EXCHANGE 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’.
  11. 11. PARTIES  The Drawer  The Drawee  The Payee
  12. 12. ESSENTIAL ELEMENTS Writing Parties Order to pay Unconditional Signed Money The three parties must be certain Certain sum Stamping
  13. 13. 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.
  14. 14. TYPES Open cheque: A cheque is called ‘Open’ when it is possible to get cash over the counter at the bank. 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’. Bearer cheque: A cheque which is payable to any person who presents it for payment at the bank counter is called ‘Bearer cheque’.
  15. 15. Distinguish between Promissory Note & Bills of exchange : Promissory Note Bills of Exchange 1) It is a promise to pay Bill of exchange 1) It is an order to pay 2) There are 2 parties Maker & Payee 2) There are 3 parties Drawer, Drawee & payee. 3) Acceptance is not required 3) Acceptance is required 4) The Maker is primarily liable to payee 4) Drawee is primarily liable & Drawer is secondarily liable to pay the Payee. 5) Notice of dishonour is not required 5) Notice of dishonour is Compulsory. 6) Maker & Payee cannot be one & the same person. 6) Drawer (Maker) & Payee can be the same person. 7) It has no Grace Days. 7) It has 3 Grace Days.
  16. 16. Distinguish Between Bills of Exchange and Cheque: Bills of Exchange Cheque 1) Drawer can be any Person including Banker. 1) Drawer is always a Banker. 2) Acceptance is required 2) Acceptance is not Required 3) It has 3 grace days. 3) It has no grace days. 4) Non presentment discharges the drawer 4) Non presentment does not discharges the Drawer. 5) Notice of Dishonour is compulsory 5) Notice of dishonour is not Required. 6) It cannot be Crossed 6) It may be crossed 7) Bills have to be Stamped 7) It need not be stamped 8) Bills cannot be countermanded 8) Cheques can be countermanding( to directly stop the payment on any particular cheque or cheques) 9) Noting and Protesting is required. 9) It is not required 10) There is debtor-creditor relation between 10) There is no such relation between drawer drawer and drawee. and drawee bank.
  17. 17. Dishonouring of a Cheque A Dishonoured Cheque is a Cheque that is not credited by the Bank for numerous reasons including: •If cheque is presented after six months validity is over. •When the signature of drawer does not tally with the specimen signature. •When there are insufficient or no funds in the account of the drawer. •When the customer counter countermands payment of the cheque.
  18. 18. Contd…. • When the holder (payee) informs the bank of the loss of cheque. • When the cheque is not presented within the usual business hours. • The dishonouring of a cheque u/s 138 is considered as a criminal offence.
  19. 19. Procedure of Dishonour of a cheque: •Legal notice •Filing a criminal case •Submission of surety and bail of accused •Document submission by both the parties
  20. 20. WHEN DISHONOUR OF CHEQUE IS AN OFFENCE Ingredients of the offence • Drawing of the cheque • Presentation of the cheque to the bank • Returning the cheque unpaid by the drawee bank • Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount • Failure of the drawer to make payment within 15 days of the receipt of the notice
  21. 21. Procedure for legal action Against Dishonouring of a Cheque : Dishonour (bouncing) of Cheque: • These section were added to this act by an amendment Dated 1/04/1989 section-138 now makes bouncing/ dishonour of cheques a criminal offence. • According to section 138, any person who has issued a cheque which ultimately is dishonoured by the bank of reason of insufficient funds in the account is liable for dishonour of that cheque.
  22. 22. The condition to be fulfilled are: • The cheque should be issued by the drawer himself (account holder) or his dually appointed agent. • The payment should have been to discharge any commercial debt or liability i.e. the cheque should not have been given by the way of gift. • The debt or liability must be legally enforceable. The cheque should be presented within the of 3 month validity period. • The cheque should be returned by the bank as dishonoured for insufficient funds.
  23. 23. • The holder i.e. payee should demand the money in writing from the date of dishonour of cheque. He should also give the drawer a time of 15 Days to make payment in any other mode. If within 15 days; the drawer makes the payment; he is not guilty of any offence under this section. But if he fails to make payment then; at the end of the 15th day he is deemed to have committed an offence under Section 138. • The holder can within a period of 1month from the end of the 15th day can file a complaint before the Judicial Magistrate First Class[JMFC] or Metro Politian Magistrate. The maximum punishment is of 1year imprisonment or fine of twice the amount of cheque dishonoured or both.
  24. 24. Recent Judgments 1.MSR Leather vs. S Palaniappan 2012 Issue – “whether the payee or holder of cheque can initiate proceedings of prosecution for the second time if he has not initiated any action on earlier cause of action ?” Setting the law, S.C. in the latest case stated that prosecution based on the second or successive dishonour of the cheque is also permissible.
  25. 25.  It is held by the supreme court that while the cheque can be presented any no. of times there shall be only one notice. Sadanandan vs Madhavan sunil kumar. 1998 • On each presentation of cheque and its dishonour a fresh right and not cause of action- accrues in his favour. Section 142 of the Negotiable Instruments Act governs taking of cognizance of the offence and starts with a non-obstante clause. It provides that no court shall take cognizance of any offence punishable under Section 138 except upon a complaint, in writing, made by the payee or, as the case may be, by the holder in due course and such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to Section 138. In terms of sub-section (c) to Section 142, no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class is competent to try any offence punishable under Section 138.
  26. 26. . Whether payee or holder of cheque can initiate proceeding of prosecution under Section 138 of Negotiable Instrument Act, 1881 for the second time if he has not initiated any action on earlier cause of action? • No action taken on first notice – cheque presented again- second notice sento on failure case filed against him on the cases of second notice. • For a dishonour to culminate into the commission of an offence of which a court may take cognizance, there are two other requirements, namely, (a) service of a notice upon the drawer of the cheque to make payment of the amount covered by the cheque and (b) failure of the drawer to make any such payment within the stipulated period of 15 days of the receipt of such a notice. It is only when the said two conditions are superadded to the dishonour of the cheque that the holder/payee of the cheque acquires the right to institute proceedings for prosecution under Section 138 of the Act, which right remains legally enforceable for a period of 30 days counted from the date on which the cause of action accrued to him. • That necessarily means that for similar failure after service of fresh notice on subsequent dishonour, the drawer cannot be liable for any offence nor can the first offence be treated as non est so as to give the payee a right to file a complaint treating the second offence as the first one.
  27. 27. 2. )M/S Laxmi vs State of Gujrat & Ors. Nov 2012 Dishonour of cheque on the ground tat the signatures of the cheque do not match the specimen signature available with the bank. HC has taken view that such dishonor would not attract the penal provisions of Sec 138. Sec 138 are attracted only in cases where a cheque is dishonor either because the amount of money standings the credit to the a/c maintained by the drawer is insufficient, or The cheque amount exceeds the amount arranged to be paid from a/c maintained by the drawer by an agreement made with the bank. A case is made out to exercise powers u/s 482of the code of Criminal Procedure, 1973 in the favor of petitioner.
  28. 28. 4.Dishonour of cheque- complaint can be filed at any of the place. Bhaskaran vs Sanskaran Vaidhyan balan • Where the cheque was drawn • Where the cheque was presented for encashment. • Where the cheque was returned unpsid by drawee bank. • Where notice in writing was given to drawer of cheque demanding payment. • Where drawer of cheque failed to make payment within 15 days of receipt of notice.
  29. 29. 5. SC case- Bhaskaran vs Sanskaran Vaidhyan balan • Penalty is restricted to Rs 5000/-, besides imprisonment, but a magistrate can award any sum as compensation to alleviate the grievances of complainant. • Of course while fixing such quantum, Magistrate has to consider what would be the reasonable amount of compensation to be payable.

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