Presented By Group – 07
Ankita Raj – 03
Manu Singh Baghel – 25
Megha Sharma - 90
Introduction of Negotiable
• 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
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
• 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.
• As such, documents like share warrants
payable to bearer, debentures payable to
bearer and dividend warrants are negotiable
• But the money orders and postal orders,
deposit receipts, share certificates, dock
warrant, etc. are not negotiable instruments
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
•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.
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
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
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’.
Order to pay
The three parties must be certain
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
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
Distinguish between Promissory Note & Bills of
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 &
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
6) Drawer (Maker) & Payee can be the same
7) It has no Grace Days.
7) It has 3 Grace Days.
Distinguish Between Bills of Exchange and Cheque:
Bills of Exchange
1) Drawer can be any Person including
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
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.
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
•When there are insufficient or no funds in the account of
•When the customer counter countermands payment of
• 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.
Procedure of Dishonour of a cheque:
•Filing a criminal case
•Submission of surety and bail of accused
•Document submission by both the parties
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
• Giving notice in writing to the drawer of the
cheque demanding payment of the cheque
• Failure of the drawer to make payment within 15
days of the receipt of the notice
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
• 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.
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
• The cheque should be returned by the bank as
dishonoured for insufficient funds.
• 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.
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.
It is held by the supreme court that while the cheque can be
presented any no. of times there shall be only one notice.
• 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
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.
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
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.
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
• Where the cheque was returned unpsid by
• 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.
5. SC case- Bhaskaran vs Sanskaran
• 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