These slides contain information regarding the Meaning, Essentials, Parties and Liabilities of the parties to Negotiable Instruments under the Negotiable Instruments Act,1881.

1. NEGOTIABLE INSTRUMENT
ACT,1881
SIMRAN SHAIKH
04/11/2020

2. Negotiable instruments are the type of written contracts that
guarantees the payment of a specified amount either on-
demand or at a particular time to an individual whose name is
on the document.
These instruments have gained a prominent position as the
principal instrument for making payments and discharging
business obligations.
Negotiable instruments are a chunk of paper that entitles an
individual to funds and that is transferable from person to
person by mere delivery or endorsement and delivery. The one
who receives it become entitle to fund also the right to
transfer it further.
Parties to Negotiable Instruments 2
MEANING
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3. a. Instrument in writing:
All negotiable instruments shall be in written form. Either typed, written or printed.
b. Signature:
In accordance to the rules laid down in the sections concerning promissory notes, bill of exchange and cheque, its
implied every negotiable instrument shall bear signature of the parties.
c. Payment in Cash:
The payment made on negotiable instrument shall be settled in terms of ‘Money’. Has to be Indian Currency. In
case, where the instrument is crossed and delivered it is said to be legally transferred.
d. Property:
The property and rights in the instruments can be transferred by crossing or without crossing as per the
circumstances. No other proof is required.
e. Endorsement:
When it is bearer instrument only delivery of the instrument to the transferee is sufficient. In another case, crossing
the instrument and its delivery are sufficient for its legal transfer.
f. Notice:
No notice is required to be served to the payer of the Negotiable instrument. Transferor can claim under his name.
g. Proof:
Any instrument which is not an instrument as per the act is a good proof of not paid.
Eg. X gives in writing to Y: “I am debtor to you for 1000 Rs.” As per law this is not a promissory note. But as per this
writing it is proved that X owes Rs 1000 to Y.
h. Process:
To claim a promissory note or bill of exchange law ensures a particular and fast process.
i. Assumptions:
All negotiable instrument has some presumptions. These presumptions are stipulated under Section 118 and 119
of the Negotiable Instrument Act,1881
Parties to Negotiable Instruments 3
ESSENTIALS

4. Section 7, 15 & 16 of the NI Act defines the parties to the Negotiable Instruments.
Sec. 30 to 32 and 35 to 42, of the Negotiable instrument, Act enumerates the liabilities of the
parties.
Followings are the points of the parties and liability of the parties to the negotiable
instrument:
PARTIES
• Drawer
• Drawee
• Drawee in case of need
• Maker
• Acceptor
• Acceptor for honor
• Payee
• Endorser and Endorsee (Sec. 15&16)
LIABILITIES
4
• Liability of Drawer (Sec. 30)
• Liability of Drawee (Sec. 31)
• Liability of Maker (Sec. 32)
• Liability of Endorser (Sec. 35)
• Liability of prior parties to holder in due course
(Sec. 36)
• Prior party a principal in respect of each
subsequent party (Sec. 38)
• Liability of Acceptor when Endorsement is Forged
(Sec. 41)
• Acceptance of bill drawn in fictitious name
(Sec.42)

5. Parties to Negotiable Instruments…
Section 7, 15 & 16 of the NI Act defines the parties to the
Negotiable Instruments
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6. The one who writes or makes the bill of
exchange, hundi or cheque is termed as
drawer. The one on whom the obligation lies
to pay the amount mentioned in the
negotiable instrument is the drawer.
The person who writes a promissory note
and promises to pay the amount of money
is called ‘Maker’.
Parties to Negotiable Instruments 6
DRAWER/ MAKER

7. The person who is directed to receive
money and on whose name the bill of
exchange or cheque is addressed is
termed as “Drawee”.
The drawee of a bill has signed his
assent upon the bill, he is called the
“Acceptor”.
The person who is named in the
instrument, by whose order the
money is to be paid is termed as
“Payee”.
Parties to Negotiable Instruments 7
DRAWEE/ ACCEPTOR/ PAYEE

8. When in bill of exchange or
any endorsement, the name
of any person is given in
addition to the drawee to be
an alternative in case of
need.
Parties to Negotiable Instruments 8
Drawee in case of Need:

9. Whenever any bill of exchange
is complained for non-
acceptance or for better
security, and any person
accepts the complain for honor
of the drawer or of any the
endorser, such person is called
an “Acceptor for honor”.
Parties to Negotiable Instruments 9
Acceptor for Honor:

10. When the maker or holder of a
negotiable instrument signs the same,
otherwise than as such maker, for the
purpose of negotiation, on the back or
face thereof or on a slip of paper
annexed thereto, or so signs for the
same purpose a stamped paper
intended to be completed as a
negotiable instrument, he is said to
indorse the same, and is called the
“endorser”. (SEC. 15)
A signature of the owner (the holder
of the instrument) would serve the
legal rights to transfer an instrument
to another party. The holder of the
instrument who transfers his right to
another party by endorsement is
called endorserParties to Negotiable Instruments 10
ENDORSER

11. The person in whose favor the
endorsement is made is endorsee.
Which correspondingly means that
the person in whose favor the
negotiable instrument is
transferred through endorsement.
Parties to Negotiable Instruments
11
ENDORSEE

12. LIABILITIES OF
PARTIES
Sec. 30 to 32 and 35 to 42, of the
Negotiable instrument, Act enumerates
the liabilities of the parties.
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13. The drawer is bound to compensate the holder
in case of dishonor of the bill when he
receives the notice of dishonor.
In case of dishonour of cheque or bill of
exchange by the drawee or the acceptor, the
drawer of such cheque or bill of exchange
needs to compensate the holder such
amount. But, the drawer needs to receive
due notice of dishonour.
So, the nature of the drawer’s liability on
drawing a bill is:
(i) On due presentation:- It should be
accepted and paid accordingly.
(ii) In the case of dishonour:- Drawer needs
to compensate the holder such amount,
only when he receives a notice of dishonour
by the drawee.
Liabilities to Negotiable Instruments
13
Liability of Drawer:
(Sec. 30)

14. The person who draws a cheque i.e. drawer having
sufficient funds of the drawer in his hands properly
applicable to the payment of such cheque must pay
the cheque when duly required to do so and, or in
default of such payment, he shall compensate the
drawer for any loss or damage caused by such
default.
The drawee of a cheque will always be a banker. As
a cheque is a bill of exchange, drawn on a specified
banker by the drawer, the banker is bound to pay the
cheque of the drawer, i.e., the customer. For the
following conditions are need to be satisfied:
(i) Sufficient amount of funds to the credit of
customer’s account should be there with the banker.
(ii) Such funds are required to be properly applied
against the payment of such cheque, e.g., the funds
are not under any kind of lien etc.
(iii) The cheque is duly required to be paid, during
banking hours and on or after the date on which it is
made payable.
If the banker unjustifiably refuses to honor the
cheque of its customer, it shall be liable for
damages.LIABILITIES OF PARTIES 14
Liability of Drawee of Cheque:
(Sec. 31)

15. In the absence of a contract to the contrary, the maker of
a promissory note and the acceptor before the maturity of
a bill of exchange are under the liability to pay the
amount thereof at maturity.
They need to pay the amount according to the apparent
tenor of the note or acceptance respectively. The
acceptor of a bill of exchange at or after maturity is liable
to pay the amount thereof to the holder on demand.
The liability of the acceptor of a bill or the maker of a note
is absolute and unconditional but is subject to a contract
to the contrary and may be excluded or modified by a
collateral agreement.
LIABILITIES OF PARTIES
15
Liability of Maker of Note & Acceptor
of Bill
(Sec. 32)

16. An endorser is the one who endorses and delivers a
negotiable instrument before maturity. Every endorser has a
liability to the parties that are subsequent to him.
Also, he is bound thereby to every subsequent holder in case
of dishonour of the instrument by the drawee, acceptor or
maker, to compensate such holder of any loss or damage
caused to him by such dishonour. However, he is to
compensate only after the fulfilment of the following
conditions:
(i) There is no contract to the contrary
(ii) The Endorser has not expressly excluded, limited or made
conditional his own liability
(iii)And, such endorser shall receive due notice of dishonour
LIABILITIES OF PARTIES
16
Liability of Endorser:
(Sec. 35)

17. Until the instrument is duly satisfied, every
prior party to a negotiable instrument has a
liability towards the holder in due course. The
prior parties include the maker or drawer, the
acceptor and all the intervening endorsers.
Also, there liability to a holder in due course is
joint and several. In the case of dishonour, the
holder in due course may declare any or all
prior parties liable for the amount.
LIABILITIES OF PARTIES
17
Liability of prior parties to holder
in due course.
(Sec. 36)

18. As between the parties so liable as sureties, each
prior party is, in the absence of a contract to the
contrary, also liable thereon as a principal debtor in
respect of each subsequent party.
Illustration
A draws a bill payable to his own order on B, who
accepts. A afterwards indorses the bill to C, C to D,
and D to E. As between E and B, B is the principal
debtor, and A, C and D are his sureties. As between
E and A, A is the principal debtor, and C and D are
his sureties. As between E and C, C is the principal
debtor and D is his surety.
LIABILITIES OF PARTIES
18
Prior party a principal in respect of
each subsequent party.
(Sec. 38)

19. An acceptor of a bill of exchange who had
already endorsed the bill is not relieved
from liability even if such endorsement is
forged. This is so even if he knew or had
reason to believe that the endorsement
was forged when he accepted the bill.
LIABILITIES OF PARTIES
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Liability of Acceptor when
Endorsement is Forged
(Sec. 41)

20. An acceptor of a bill of exchange who
draws a bill in a fictitious name, payable
to the drawer’s order will be liable to pay
any holder in due course. He or she will
not be relieved from such liability by
reason that such name is fictitious.
LIABILITIES OF PARTIES
20
Acceptance of bill drawn in
fictitious name.
(Sec.42)

21. THANK YOU!
04/11/2020