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Negotiable Instruments Act ,1881 - Legal Environment of Business


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Legal Environment of Business - Negotiable Instruments

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Negotiable Instruments Act ,1881 - Legal Environment of Business

  1. 1. Business law
  2. 2. Negotiable Instruments Act , 1881 ‘Negotiable' means transferable from one person to another. ‘Instrument’ means any written document by which a right is created in favour of some person. ‘Negotiable Instrument’ means a document transferable from one person to another.
  3. 3. An instrument may be negotiable either by, (1) Statute - Promissory notes, bills of exchange and cheques are negotiable instruments under the Negotiable Instruments Act, 1881 (2) By usage - Bank notes, bank drafts, share warrants, bearer debentures, dividend warrants, scripts and treasury bills
  4. 4. Characteristics of a Negotiable Instrument: Freely transferable by delivery or by endorsement and delivery. Holder's title free from defects The Holder can sue in his own Name A negotiable instrument can be transferred infinitum A negotiable instrument is subject to certain presumptions
  5. 5. Kinds of Negotiable Instruments; The Act recognizes the following three types of negotiable instruments:  Promissory notes  Bills of Exchange  Cheques
  6. 6. PROMISSORY NOTE Promissory Note is an instrument in writing (not being a bank or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money to, or to the order of, a certain parson or to the bearer of the instrument. Parties to a promissory note: i. The Maker ii. The Payee
  7. 7. Essentials of a Promissory Note: • In writing • Promise to pay • Unconditional • Signed by the Maker • Certain Parties • Certain sum of money • Promise to pay money only • Number, place, date etc • It may be payable in installments • may be payable on demand or after a definite period • It cannot be made payable to bearer on demand or even payable to bearer after a certain period • It must be duly stamped under the Indian Stamp Act
  8. 8. BILL OF EXCHANGE A Bill of Exchange 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. Parties to a Bill of Exchange: i. The drawer ii. The drawee (also called the acceptor) iii.The payee Types of Bill of Exchange: Trade Bill Accommodation Bill
  9. 9. Essentials of a Bill of Exchange: 1 It must be in writing. 2. It must contain an order to pay and not a promise or request. 3. The order must be unconditional. 4. There must be three parties, viz., drawer, drawee and payee. 5. The parties must be certain. 6. It must be signed by the drawer. 7. The sum payable must be certain or capable of being made certain. 8. The order must be to pay money and money alone. 9. It must be duly stamped as per the Indian Stamp Act. 10. Number, date and place are not essential.
  10. 10. CHEQUE A cheque is a bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand. Parties to a cheque: i. The drawer ii. The drawee iii. The payee
  11. 11. Essentials of a Cheque: i. Always drawn on a specified banker. ii. Always payable on demand. iii. It does not require acceptance. iv. It may be made payable to drawer himself. v. Must be dated. vi. Valid for 6 months. vii. No acceptance of cheque is required viii. Cheque is not required to be stamped.
  12. 12. Bill of Exchange and Cheque distinguished Cheque Bill of Exchange It must be drawn only on a banker. It can be drawn on any person including a banker. The amount is always payable on demand The amount may be payable on demand or af- ter a. specified time The cheque is not entitled to days of grace. A usance bill is entitled to three days of grace. Acceptance is not needed. A bill payable after sight must be accepted. A cheque can be crossed Crossing of a bill of exchange is not possible. Notice of dishonour is not necessary. Notice of dishonour is necessary to hold the parties liable thereon.. . A cheque is not to be noted or protested in case of dishonour. A bill is noted or protested to establish dishon- our The protection given to the paying banker in respect of crossed cheques is peculiar to this No such protection is available in the case of bills.
  13. 13. Promissory Note and Bill of Exchange distinguished Promissory Note Bill of Exchange There are only two parties – the maker (debtor) and the payee (creditor). There are three parties – the drawer, the drawee and the payee- although any two of these capacities may be filled by one and the same person. A note contains an unconditional promise by the maker to pay the payee. It contains an unconditional order to the drawee to pay according to the drawer`s directors. No prior acceptance is needed. A bill payable `after sight` must be accepted by the drawee or his agent before it is presented for payment. . The liability of the maker or drawer is primary and absolute. The liability of the drawer is secondary and conditional upon non-payment by the drawee No notice of dishonour need be given. Notice of dishonour must be given by the holder to the drawer and the intermediate endorsers to hold them liable thereon.
  14. 14. THANK YOU