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NEGOTIABLEINSUTRUMENTS ACT 1881 Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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 The word negotiable means transferable from one person to another, and the term instrument means any written document by which a right is created in favor of some person. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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Pastoral &Agricultur • Barter System al stage Complex Handicrafts • Money as a system, Confusion, &Guild medium of stage slow trade growth • Growth of Domestic Economy & &Factory Commerce stage • GLOBALIZATION .Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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 A Negotiable instrument means promissory note, bill of exchange, or cheque, payable either to order or to bearer Freely Transferable Payee must be a certain Person Absolute Title Signature a must. In Writing Certain Time Unconditional Delivery Essential Certain Sum Stamping is Mandatory. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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Promissory Note  In writing, signed, stamped  Unconditional promise to pay  Money only  Certain party  On demand or certain date  Certain sum  Parties – Drawer, Payee Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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Bill of Exchange  Writing, signed, accepted, stamped  Unconditional order to pay  Money only  Certain party  Certain sum  Parties – Drawer, Drawee & Payee Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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CHEQUES  Writing, signed  Unconditional order  Issued by specified banker, certain payee  On demand  Certain amount  Must bear a date Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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Definition A promissory note is an instrument inwriting (not being a bank note or a currencynote) containing an unconditionalundertaking, signed by the maker to pay acertain sum of money to, or to the order of, acertain person or to the bearer of theinstrument Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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PROMISSORY NOTEA promissory note is-(1) an instrument in writing,(2) not being a banknote or a currency note,(3) containing an unconditional undertaking,.(4) signed by the maker,(5) to pay a certain sum of money only (i) to a certain person, or (ii) to the order of a certain person, or (iii) to the bearer of the instrument : Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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ILLUSTRATIONSPromissory Notes1. ―I promise to pay B or order Rs. 500.‖2. ―I acknowledge myself to be indebted to B in Rs.1,000,to be paid on demand, for value received.Not Promissory Notes1. Mr. B, I.O.U. Rs. 1,000.2. ―I promise to pay B Rs, 500, and all other sums whichshall be due to him.‖3. ―I promise to pay B Rs. 500, first deducting thereoutany money which he may owe me,‖4. ―I promise to pay B Rs. 500, seven days after mymarriage with .―5. ―I promise to pay B Rs. 500 on D‘s death provided Dleaves me enough to pay that sum‘ Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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ESSENTIALS OF A VALID PROMISSORY NOTE1. It must be in writing.2. It must contain an undertaking to pay.3.The undertaking to pay must beunconditional.4. It must be signed by the maker.5. The maker of the note must be certain.6. The sum payable must be certain.7. The promise should be to pay money, and money only.8. The payee must be certain. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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SPECIMENS OF PROMISSORY NOTES Bombay, 10th January, 1998 Bombay, 10th January, 1998 Rs. 5,000/- ON DEMAND I Promiseto pay ON DEMAND I Promise to pay WILLIM JONES THE SUCM OF FIVE MOHAN LALVANI the sum of Rs. THOUSAND RUPEES. 5,000/- (RUPEES FIVE THOUSAND ONLY) FOR VALUE RECEIVED.. Sd/- Henery Brown Sd/- SATISH GANDHI Bombay, 10th January, 1998 ON DEMAND I promise to pay JOSEPH DE SOUZA or order the sum of five thousand rupees with interest on the said sum at 10% (ten percent) per annum till payment. Sd/- PAUL FERNANDESA promissory note cannot be made payable to the maker himself.Thus, a note in the form, I promise to pay myself is not a promissorynote; but such a note becomes valid if its is endorsed by the maker,because then in becomes payable to bearer, if endorsed in blank, or Dr. Akansha Jain email:to the encorsee or to, if specially endorsed. dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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BILLS OF EXCHANGE (S. 5 & Ss. 132-133) A ―Bill of Exchange‖ is – (1) an instrument in writing, (2) containing an unconditional order, (3) signed by the maker, (4) directing a certain person, (5) to pay a certain sum of money only-. (i) to a certain person, or (ii) to the order of a certain person, or (iii) to the bearer of the instrument. The maker of a Bill of Exchange is called the ―drawer,‖ andthe person thereby directed to pay‘ is called ―the drawee‖. (S. 7) Abill of exchange is also sometimes called a draft. When it is drawnby a bank on its own branch, it is called a bank email: Dr. Akansha Jain draft. dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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BILL OF EXCHANGE – ESSENTIAL REQUISITIES The following are the eight essential requirements ofvalid Bill of Exchange : 1. It must be in writing. 2. It must contain an order to pay. 3. The order contained in the bill should beunconditional. 4. It must be signed by the drawer,. 5. The drawee must be certain.a 6. The payee must be certain. 7. The sum payable must be certain. 8. It must contain an order to Dr. Akansha Jain blog – pay money. dr.akanshajain@gmail.com email: http://drakanshajain.blogspot.in

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SPECIMENS OF BILL OF EXCHANGE Bombay, 10th January, 1998 Bombay, 20th January, 1998Rs. 5000/- Rs. 5000/-Sixty Days after date, pay to William Smith, the sum Sixty Days after date pay to John Smith, or order, of five thousand rupees only for value received. the sum of Rupees Five thousand only for value received.ToPaul Jacobson, Sd/- RAM GHELACHAND40, Mahatma Gandhi Road,Bombay – 400 023. To Paul Jacobson, 40, Mahatma Gandhi Road, Bombay – 400 023. SPECIMENS OF ACCEPTANCE OF A BILL OF EXCHANGE Bombay, 20th January, 1988 Bombay, 20th January, 1988Rs. 5000/- Rs. 5000/- ON Demand Pay to William Smith, the sum of On Demand pay to William Smith the sum of five Rupees five thousand only for value received. thousand rupees only for value received Sd/- RAM GHELACHAND Accepted : S/d- Paul JacobsonTo ToPaul Jacobson, Paul Jacobson, Sd/-40, m. Gandhi Road, 40, m. Gandhi Road, HENRY BROWNBombay – 400 023. Accepted : Bombay – 400 023. S/d- Paul Jacobson Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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DIFFERENCE BETWEEN BILL OF EXCHANGE & PROMISSORY NOTEBILL OF EXCHANGE PROMISSORY NOTE1. There are there parties: 1. There are only two parties:drawer, drawee and payee. promissorand promisee.-2. It contains an order to pay. 2. It contains a promise to pay.3. The liability of the drawer is 3. The liability of the maker is’secondary and conditional. primary and absolute.4. Presentment for payment and 4. Presentment for payment andnotice of dishonour are required. notice of dishonour are not required.5. A bill of exchange can’ be accepted 5. A promissory note cannot be madeconditionally. conditional.6. Drawer ‘of a bill of exchange stands 6. Drawer of a promissory notein immediate’ relation with the stands in immediate relation with theacceptor. payee.‘7. Bills can be drawn in sets. 7. Promissory notes cannot be drawn8. A bilief exchange can be made is sets.payable to bearer, provided it is not 8. A promissory note cannot be mademade payable on demand. payable to bearer.9. Foreign bills must be protested for, 9 Promissory notes need not bedishonour if so required by the law of protested for dishonour.the country of their’. origin. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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CHEQUE (S.6) A cheque is a bill of exchange drawn on specifiedbanker and not expressed to be payable otherwise:than on demand S. 6. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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Dr. Akansha Jain email:dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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Cheques can be of two types:-1. Open Cheque.2. Crossed Cheque. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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 ―Crossing‖ a cheque is a way of making even more certain that the money is paid to the correct person and not to someone else. By ―crossing‖ the cheque in the ways that follow, you give the bank extra instructions about how it is to be paid. This is called limiting its negotiability. If you draw a line to cross out the words ―or bearer‖, then you are telling the bank that the money cannot just be paid out to anyone who happens to present the cheque. It must be paid out to the person named on the ―Pay‖ line. It is possible to get around this by ―endorsing‖ the cheque. This means that the person to whom the cheque is made out signs the back thus giving their permission for it to be presented for payment. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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 If you cross out ―to bearer‖ and draw two parallel lines across the front of the cheque (usually the top left corner is sufficient) then you are telling the bank that the money has to be paid into an account and cannot be cashed (exchanged for cash). This means that the person who eventually receives the money can be traced because there will be a record of the deposit. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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1. General Crossing2. Special Crossing Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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 Sec 123 of the Negotiable Instruments Act 1881 defines general crossing as follows:―Where a cheque bears across its face, an addition of the words; ‗and company‘ or any abbreviation thereof. Between two parallel transverse lines or of two parallel transverse lines simply, either with or without the words ‗not negotiable‘, that addition shall be deemed to be a ‗crossing, and the cheque shall be deemed to be crossed generally.‖ Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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1.And Company2. & Co.,3. Not Negotiable4. A/C Payee Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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Sec 124 of the Negotiable Instruments Act of 1881 defines―where a cheque bears across its face, an addition of the name of a banker, with or without the words ‗Not Negotiable‘, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker‖ Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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In special crossing following is within the parallel line ICICI Bank ltd Not Negotiable With A/c Payee Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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SPECIMEN OF CHEQUE BANK OF INDIA A/C No. 1001 BOMBAY 20th January, 1998 No. SB 7007007 Pay to William Smith or Bearer Rupees Five Thousand Only. Rs. 5,000/- Sd/- Henry Brown SPECIMENS OF CROSSED CHEQUEBODY OF THE CHEQUE BODY OF THE CHEQUEBODY OF THE CHEQUE BODY OF THE CHEQUE Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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POINTS OF DIFFERENCE BETWEEN CHEQUE BILL OF EXCHANGE CHEQUE BILL OF EXCHANGE1. The dràwee of a cheque is always a 1. Anyone can be a draweebank. in the case of a bill of exchange.2. Cheque is payable on demand, 2. Bill of exchange is en titled to three dayswithout any days of grace. of grace.3. Cheque requires no acceptance. 3. Bill of exchange requires acceptance.4. Drawer of cheque is not discharged by 4 If bill of exchange is not presented forfailure of the holder to present it in due payment in due time, drawer is distime. charged.5. Notice of dishonour is not necessary in 5. Notice of dishonour is necessary in thethe case of V cheques. case of bills of exchange.6. Cheques need not be protested for 6. It is advisable that bills of exchange beclishonour. protested for dishonour.7. Cheques can be crossed . 7. Bills of exchange cannot be crossed.8. In certain circumstances statutory 8. No such protection is available to theprotection is available to the drawee or acceptor of a bill of exchange.draweebanker in connection with 9. No such protection is available in thepayment of cheques. case of bills of exchange.9. Under certain circumstances, statutoryprotect ion is available to the collectingbanker against liability for conversion ofcrossed cheques. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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PAYEE (Ss. 7) The person named in the instrument, to whom or towhose order the money is, by the instrument directed to bepaid, is called the ―payee‖. PAYMENT IN DUE COURSE (S.. 10) ―Payment in due course‖ means payment— (i) in accordance with the apparent tenor of instrument. (ii) in good faith. and (iii) without negligence, (iv) to any person in possession thereof, (v) under circumstances which do not afford areasonable ground for believing that he is not entitled toreceive payment of the amount therein mentioned. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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HOLDER (Ss. 8) ―Holder‖ defined (S. 8) The ―holder‖ of a promissory note, bill of exchange. orcheque means any person entitled his own name, to thepossession thereof, and to receive or recover the amount duethereon from the parties thereto. Where the note, bill or chequeis lost or destroyed, its holder is the person so entitled at thetime loss or destruction. Holder in due course (S. 9) ―Holder in due course‖ means any person who forconsideration, became the possessor of a promissory note, billof exchange, or cheque, if payable to bearer, or the payee orendorsee thereof, if payble to order, before the amountmentioned if it became payable, and without having sufficientcause to believe that any defect existed in the title of theperson from whom he derived his title. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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According to Section 14 of the NegotiableInstrument Act, 1881 when a promissory-note, bill of exchange or cheque is transferredto any person so as to constitute that personthe holder thereof, the instrument is said to benegotiated. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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Presentment of a negotiable instrument is made for two purposes.1. Presentment for acceptance - It is only bills of exchange that require presentment for acceptance and that too not all but certain kind of bills only. Bill payable on demand or on a fixed date need not be presented for acceptance.2. Presentment for payment - A negotiable instrument must be presented for payment to the maker, acceptor or drawee, thereof, as the case may be, by the holder or his agent Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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1. Dishonour by Non-Acceptance (Section 91)(I) When the drawee does, not accept it within 48 hours from the time of presentment for accep-tance;(2) when presentment for acceptance is excused and it remains unaccepted;(3) when the drawee is a person incompetent to contract;(4) when the drawee could not be found after a reasonable search.(5) where the acceptance is qualified;(6) where one or more of the several drawees refuse to accept the bill.2. Dishonour by Non-Payment Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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Notice of DishonourWhen a negotiable instrument is dishonoured bynon-acceptance or non-payment, the holder mustgive notice of dishonour to the drawer and all otherparties whom he seeks to make liable. Each partyreceiving notice of dishonour must in order torender any prior party liable to himself give noticeof dishonour to such party within a reason-abletime after he has received it. The notice may be oralor in writing though for safety it is advisable to givea written notice. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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 Noting is a convenient method of authenticating the fact of dishonour. Where an instrument is dishonoured, the holder, besides giving the above notice, should get the bill or promissory note noted by the notary public. The notary public presents the instrument, notes down in his register date of its dishonour and the reason, if any, given by the acceptor. If the instrument has been expressly dishonoured, the reason why the holder treats it as dishonoured and the notarys charges should be metioned. Noting must be made within a reasonable time after dishonour. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in

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 The protest is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. After the noting has been made, the formal protest may be drawn up by the notary at his leisure. When the protest is drawn up it relates back to the date of noting. A protest to be valid must contain the following particulars: 1. The instrument itself, or a literal transcript thereof. 2. The names of the parties against whom the instrument is protested. 3. The fact and reason/reasons for dishonour. 4. Place and time of dishonour or refusal to give better security. 5. Signature of the notary public. 5. In the event of an acceptance for honour or of a payment for honour, the name of the person by whom or the person for whom, and the manner in which, such acceptance or payment was of-fered and effected. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in