1. Negotiable instrument act of 1881
The actis called negotiable instrument of 1881. It came in to force on 1'
March,1882.
The provision of the act are based on English common law and customs & usage's
relating to the negotiable instrument in which were applied to negotiable
instruments prior to 1881.
The act governs only three kinds of negotiable instruments viz. promissory note, bill of
exchange and cheque.
The other documents like bill of lading, railway receipt etc., are not recognized by -the act
as negotiable instruments and therefore such documents are not governed by
negotiable instrument act.
Definition and Meaning :-
'The negotiable instrument act of 1881 defines negotiable instrument as "A negotiable
instrument means a promissory note not a bill of exchange or a cheque payable to order
or to the bearer of the instrument. Thus the act recognizes three kinds, of negotiable
instruments stated in the definition, however the definition given by the act is silent as
to the meaning of N.I. this term cart be defined by saying that itconsist of two words
viz.negotiable & instrument The word negotiable means a transferable &instrument
means a document by which a right is created in favor of some persons.
Thus NI means transferable documents which creates right in favor of a certain person.
Ln other words a N.I means a piece of paper which entitles a person a certain sum of
money mentioned there in and which can be transferred from one person to another by
delivery or by endorsement of delivery. The person to whom it is so transferred
becomes entitled to the amt. mentioned in the document and a right to further transfer it.
In addition to this right he also has a right to file a suit on the basis of the document in
his own name in the event of his failure to receive the amount, mentioned in the

2. document.
Thus a bonafied transfer for value becomes entitled to all the above rights on the
instrument.
Definition and meaning of promissory note:- (SECTION 4)
N.I. act of 1881 defines promissory note. as "A promissory note is an instrument in
writing (not being a bank note or a currency note ) containing an unconditional under
taking, signed by the maker to pay a certain. sum of money only, to or to the order of
certain person or to the bearer of the instrument." • - The person who makes
promissory note is called maker and person who is entitle to receive payment or to
whose order payment is to made is called payee.
Essential requirement of promissory note :-
I) It must be in writing:-:-It must be in writing. In other words, an oral promise does
not make a promissory note since-it is not an instrument.. An oral promise to pay
cannot be called a promissory.note. The act has not prescribed any particular form for a
promissory note. It merely says that promissory must be in writing. The writing can be
in any form. It need not be on a stamp paper. However the writing in order to be a
promissory note must fulfill all essential requirements prescribed by the definition.
21 A promissory note must contain an undertaking promises:-A valid promissory note
must contains promise to pay a mere implied undertaking by use of words like debts or
dues, in an instrument is not sufficient. In other words acknowledgment of liability
or receipt of the amount cannot be called a promissory note. However, it is not
necessary that the Word promise or an undertaking must be used to have a valid
promissory note. It is sufficient that the words used in a document clearly indicates
the intention of the maker to pay •amount of the promissory note.
3)APromise contain in a promissory note must be unconditional promise A Promise
to pay should not be dependent upon the happening or. non-happening of an events,

3. which is uncertain when it is dependent upon an uncertain event it is called a
conditional undertaking .And such an undertaking cannot create a valid promissory
note. But if the undertaking or promise is dependent upon an event which is certain to
happen it is riot a conditional undertaking and it can create a valid promissory note.
Similarly just because it contains sortie conditions in respect of time or place of
payment it is not a conditional undertaking.It can create a promissory note.
4.) A Promissory note must be signed by the person who makes it :- In other words the
maker should have put his signature at his own free will without any coercion , undue
influence etc. having been used.
5) The amount promised to be paid must be certain sum of money :-The amt. must be
clearly specified in a promissory note. It must be a fixed sum of money, if the amt. is
left uncertain the document cannot be called a promissory note. However, just
because the promise is made to pay the interest on the fixed amount ,Thearnount
cannot be called an uncertain amt.
6) A promise must be to say in monetary terms only :- A promissory note must
contain a promise to pay the liability in monetary terms only. A promise to pay
the entire amt. or part of the amt. in kind or in any other terms other than
monetary terms cannot create a promissory note.
7) Maker & The payee must be a certain person :-A promissory note must be clearly
mentioned as to who is liable on the promissory note at the same time. When the
promissory note is an order the promissory note must state with certainty as to
who is the person entitled to receive the amt. mentioned in the document. In other
words payee must be capable of being identified at the time of making payments.
8)If a promissory note is a bearer, promissory note it cannot be made payable
on demand simultaneously.
9)A promissory note must be stamped according to the Bombay stamp act.

4. I 0)The maker & the payee of a promissory note cannot be one & the same person
when the promissory note is paid.
11) A promissory note can be made payable to bearer but when it is a bearer
promissory note it cannot be made payable on demand.
BILL OF EXCHANGE:-(Section 5)
The negotiable instrument act, 1881 defines BOE as " A BOE is an inst. in
writing, containing an unconditional order signed by the maker, directing certain
person ,to pay a certain sum of money only to or to the order of certain person or
to the bearer of the instrument. " .
A BOE involves 'three parties viz, drawer, drawee and payee A drawer is. a
person who makes or draws a BOE. He is the person who gives an order to a
certain person to pay a certain sum of money only either to himself or to a third
person named in a BOE.
Drawee is a person who is directed by the drawer to pay a certain sum of money
only to the drawer or to the third person mentioned in the BOE. When the drawee
signs the BOE i.e. when he accepts the order of the drawer he is called the
acceptor.
A payee is the person to whom, or to whose order payment is to be made i.e. he
is the person entitled to receive the payment on the BOE.. All these three parties
must be clearly named & must be indicated with certainty in BOE. Sometimes
drawer & payee may be one & the same person e.g. Mi. A draws a BOE on Mr.
B & directs MY. B to make payment to himself. In this e.g. Mr. A is a drawer as
well as payee.
However, drawer & a drawer of a.BOE cannot be one and the same person.
Similarly drawee& payee cannot be one and the same person, at the time when the
bill is made or drawn. However, drawee may become payee as and by way of

5. negotiation back in ehich event the document stands duly discharged in the
hands of the drawee.
ESSENTIAL REQUTREIYLNT OF A BOB
I)In Writing. An oral order tO pay cannot be called a BOE. The act has not
prescribed any particular form for a BOE. It merely says that BOE must be in
writing. The writing can be in any form. It need not be on a stamp paper.
However the writing in order to be a BOE must all essential requirements
prescribed by the definition.
?)It must contain an order, a BOE must contain an order of drawer directing the
drawee to pay a certain sum of money only. Mere request in an inst. is not
sufficient to call the inst. a BOE.
3)An order contained in a BOE must be unconditional order :-An order to pay
should not be dependent upon the. happening or non-happening of an events,
which is uncertain when it is dependent upon an uncertain event it is called a
conditional order . And such an order cannot create a valid BOE . But if the
Undertaking or order is dependent upon an event which is certain to happen it is
not a conditional undertaking and it can create a valid BOE.
Similarly just because it contains some conditions in respect of time or place
of payment it is not a conditional undertaking. And it can create a BOE.
4) A BOE must be signed by the person who makes it, In other words the maker
should have put his Signature at his own free will without any coercion , undue
influence etc. having been used.
5) The amount ordered to be paid must be certain sum of money. The amt. must
be clearly specified in a BOE. It must be a fixed sum of money, if the amt. is left
uncertain the -document cannot be called a BOE. However, just because the order
is made to pay the interest on the fixed amount .The amount cannot be called an
uncertain amt.

6. 6)An order must be to pay in monetary terms only :- A BOE must contain an order
to pay the liability in monetary terms only An order to pay the entire amt. or part
of the amt. in kind or in any other terms other than monetary terms cannot create
a BOE.
7) Maker & The payee must be a certain person. A BOE must be clearly mentioned
as to who is liable on the BOE note at the same time. When the DOE is an order. It
must state with certainty as to who is the person entitled to receive the amt
mentioned in the document.
In other words payee must be capable of being identified at the time of makin g.
payments.
If a BOB is a bearer, BOB it cannot be made payable on demand simultaneously.
8)A BOB can be made payable to the bearer. But when it is bearer BOB it cannot be
made payable on demand.
9)An order to pay must be unconditional , order of bill of exchan ge must be signed
by the drawer.
10) The order to pay rntiAbe in monetary terms only.
11)Amt. payable must be a certain sum.
12) drawer, drawee, & payee must be a certain person.
13) aBOE must be duly stamped as per the stamp act.
14) aBOB can be made payable to bearer at the same time payable on demand.
Distinguish between a premisscry note &a 130E:-

7. POints Bill of exchange Promissory note
.._
1) No. of parties There are three parties- There are two parties- maker
drawer, drawee and payee. And payee.
-2)- Protnise/order It contains an unconditional It contains an unconditional
order. Promise given by a debtor to a
• creditor.
3) Nature of liability The liability of the drawer is .
The liability of the maker is
secondary and conditional. Primary and absolute.
4) Acceptance It requires acceptance to It does-not require any
become a valuable acceptance since it is a
insUnment. , valuable ins-mat-pent right
.. from the beginning. •
5) Same identity of
payor and payee. The drawer and payee may The maker and payee cannot
be the same person. be the same person.
• 6)-Payable to
It can be pa_yable_to bearer.. It cannot be payable .to
bearer.
It caw-let be drawn-as
Payable-to--bearer v u I 1 - bearer.
demand.
7) Protest for _It requires the protesting........- It does not require any ---- .
dishonour. . fordishonour. protesting.
.._ _
. .8) Notice of Notice of dishonour must such notice is not required
dishonour. be given to all persons to be given to the maker.
_ (including drawer) liable
to pay.
MEANING & DEFINATION:-(SECTION —6)
The negotiable instrument act of 1881 defines cheque as "cheque is a bill of
exchange drawn on a specified banker and not expressed to be payable otherwise
than on demand."
A cheque is always drawn on a bank and therefore in a chequedrawee is always
a bank. it can only be drawn on the specified bank with whom the drawer has an
account like BOE, a cheque also contains an unconditional order to pay !& it
involves three parties viz., drawocIdrawee(bank) & Payee.
However, unlike a BOE a cheque does not require any acceptance on the bank

8. on whom it is drawn , because drawing of a cheque simply amounts to giving a
direction to the bank who is the custodian of the money of the drawer td pay the
amt. of the cheque to the payees out of the funds of the drawer. The bank on
which it is drawn i.e. the drawee bank cannot be liable if the cheque is
dishonoured.Thuscheque is the special kind of BOE and though it is similar to
BOE in many asyects it does differ from DOE but all BOE are not cheques.
A cheque is always payable on demand & it cannot be made payable after a fixed
period of time. A cheque is valid for a period of 6months from the date on which
it is drawn, if the payee fails to present the cheque within the period of 6mo4s
as stated above he cannot there after receive the a.mt. of the cheque from the
bank.
A cheque can be crossed .generally or specifically or it may be a bearer cheque.
A cheque may bear past, present or future date. A cheque with a past
cheque,with a past date is known as anti datedcheque. A cheque with a fixture
date is known as post datedcheque.
ESSENTIAL features of a cheque:-
1)Acheque is a Bill if exchange.
2)lt contains an unconditional order to pay a certain sum of money only.
3)Adrawee in case of a cheque is
always a bank
4)It must be signed by the drawer.
5)The order must be to pay money only.
6)Acheque involves a three parties viz., drawer, drawee& payee.
7)Acheque is always payable on demand & it cannot be made payable after
a fixed period of time. 8)Acceptance of the cheque by the bank is not
required.
Distinguish between cheaue& bill of exchange:-

9. Points BOE
1. Drawer.
It can be drawn upon an
individual .is well as a bank.
It need not always be payable
2_ Payable on demand It is always payable to bearer on demand.
• on
demand_ It require an acceptance of the
3. Acceptance it does not require an acceptance. drze.‘ee.
a It requires a stamp.
4: Stamp it does not require a stamp.
• A bill; unless payable On
5. Grace of days It is not entitled to three days of demand is entitled to three
grace. days of grace_
It can be crossed. „ _. .. It cannot be crossed, ._ ..._
.
Crossin Notice of dishonour is not required. Notice of dishonour is usually
g7. Notice of , required.
dishonour
Its fixed form is honoured by a bank. There is no fixed form. -
8. Form
Types of cheques:-
Cheques can be broadly classified into two categories i.e. a)crossedcheque iv.
b)bearercheque. _A cheque may be crossed either specially or generally. A
cheque may bear past, present or future date. A blieqtle with a past date is known
as antidatedcheque. A cheque with a future date is called a post datedcheque.
Bearer cheque:-
A bearer cheque is a cheque which is not crossed. It may or may not bear the name
of payee. A bearer cheque is thus payable to the bearer of the cheque& it can be
encashed at the cash counter of the drawee bank.
In other words a person who is in possession of such a chequecanencash it by
presenting it at the cash counter of the bank on which it is drawn. A bearer cheque

10. carries a risk in as much as in the event of it being misplaced or stolen any person
who gets possession of this kind of cheque can recover the amt. mentioned in it by
merely presenting it at the cash counter of the drawee bank. Thus an order to
reduce the risk involved in hearer cheque another type of cheque which is
commonly used in crossed cheque.
Crossed cheque:-
A crossed cheque is a cheque which bears two parallel lines on the face of it. The
advantage of a crossed cheque is that the bank does not make the payment at the
cash counter. The payee of such a chequecan recover the ar»t. only by presentin g
the cheque throu gh his bank to drawee bank for which he has to deposit his
cheque into his account.
On such presentation if the drawer bank is satisfied about the validity of the
cheque and if the chequefulfills all the requirements'.if-there is sufficient
credit balance in the a/c of the drawer it may honour the cheque. On the
cheque being honoured by the drawee bank the amt. of cheque gets credited
in the payees a/c in his bank.
Thus the risk involved in a crossed cheque is 'much less than the risk involved
in the bearer cheque. Crossed cheque can be classified into three categories:-
1)Acheque crossed generally.
2)Achequecrossed specially.
3)Acheque crossed a/c payee.
1)Acheque crossed generally:-
A cheque is said to be crossed generally when it is one of the following types:-
(a) when it bears two parallel lineson the face of it.
(b) when it bears abbreviation & company between two parallel lines.
(c) when the word not negotiable is written between the two parallel lines.-
All crossed cheques are basically generally crossed. The important features of this

11. type of crossing is that cannot he encash at the cash counter of the drawee bank.
When a cheque is crossed not negotiable it doesn't meant that it cannot be
transferred but the tranferee.will not get better title than what the transfer has.
2)Acheque crossed specially:-
It is a cheque in which in between the two parallel lines the name of the bank
through which the payment is to be made is mentioned with or without the word
not negotiable or account payee.This kind of crossing gives the direction to the
drawee bank to pay the amt. of the cheque only when it is presented through the
bank whose name is mentioned in between the two parallel lines .
In other words , the payee must present the cheque through the bank whose name
is mentioned in between the two parallel
3)Acheque crossed account payee:-
When in..between The two Orallef lines the word a/o payee Or a/c payee. only is
Mentioned it is called an ale payee crossing. In addition to the features of generally
crossing an a/c payee crossing has one more feature tlhat is the drawee bank cannot
make the payment to any other person but to the person whose name is nnentioned
in the cheque& it is because of this features of this type of crossing that it is called
restrictive crossing..
LAW IN RESPECT OF DISHONOUR:--.
Cheque or insufficiency of finds in the afc of the drawee (section 138 read with
section 142 h of the negotiable instrument act 1881 as amended in 1988) or
bouncing of a cheque.
As per negotiable instrument act of. 1881 as amended in 1988 when any person
draws a cheque for payment of any amt. to pay off either whole or part of his debts
or liability is dishonoured by bank either because the amt, of money sending to the
credit of the a/c of drawee is insufficient to honoured the cheque or that it exceeds
the amt. to be paid from the a/c of the drawer as per the agreement made with the

12. bank
(overdraft facility saanted by the bank) The person is drawer shall,be deemed to have
committed an offense and shall be punished with imprisonment for a term which can be
intended to lyTs Or with fine which may be twice the amt. of cheque or with both.
however drawer of dishonouredcheque can be made liable in above circumstances
for the said offense only when the payee compiles with the folio .:-ng
requirements:-
1) He should have presented the cheque within the validity period of six months
from the date on which it is drawn.
2)He must give notice of dishonour by registered post to the drawer within a
period of fifteen days from the date of his receiving intimation from bank that the
cheque is dishonoured.
3)If drawer of such a cheque fails to make payment of amt. ofcheque within
fifteen days of receipt of such notice of dishonourthe payee must institute the
criminal proceedings within a period of lmonth after expire of next 15days within
which the drawer was required to make the payment as stated above.
A drawer cannot be made criminally liable as per this new provision if the above
requirements are not strictly compiled within by payee than the only remedy left to
payee is to file a civil suit similarly if drawer makes payment within 15days from
the date of notice by him he cannot be made criminally liable similarly a drawee
cannot be made criminally liable if the cheque is not given for payment of debts or
liability.
Bearer & ordered docoment:-
A negotiable instrument in which no name of the person to whom the payment is to
be paid-is mentioned is called a bearer instrument. In a bearer instrument name of
the payee is left blank & therefore it is payable to the bearer of the instrument i.e.
to any person who is in possession of such a bearer instrument A bearer

13. instrument can be negotiated or transferred by mere delivery of the instrument to
the transferee.
A negotiable instrument which clearly specifies the name of the payee i.e. the
person to whom the payment is to be made is called an ordered instrument.
An ordered instrument is payable only to the person whose name is mentioned in
the instrument or to the person in whose favor the instrument is validly transferred.
Anordered instrument can be transferred as negotiated by endorsement & delivery
i.e. to negotiate the order instrument, it must be first endorsed & than delivered to
the transferee.
DEMAND INSTRUMENT:-
Negotiable instrument payable on demand & not after a specified period of
time are called demand documentsIt may be one of the following type
(I)Cheque is always payable on demand therefore,cheque is called a demand
document.
(2) A HOE or a promissory note which is payable at sight or on presentment or
specifically made payable on demand is called a demand document.
(3) A BCE or a promissory note in which no time is mentioned is
called a demand document. ACCOMODATION OF BILL OF
EXCHANGE:-
Accommodation of bill of exchange is drawn & accepted without
consideration i.e. withont any transaction or existence of liability. It is
generally drawn & accepted to accommodate the drawer or to accommodate
both the drawer & the drawee in their financial difficulty. A person who accept a
HOE is ca-lied -a accommodation party. And the drawer from whom each bill is
accepted is called Accommodated party. -
• When an accommodation HOE is drawn & accepted the drawer of such a bill
is bound, liable to provide the accommodation party i.e. the acceptor with

14. sufficient funds as agreed upon in or before the due .deta to enable the acceptor to
honour the bill of exchange on the due date.
The rights & privileges of a holder in due course are in no way affected by an
accommodation of BOE & he is entitled to recover the amt. of the BCE fram the
accommodation party, the acceptor who may ultirratelyrecover from the
accommodation party i.e. the drawer. In other words an accommodation BOB
can be enclosed or negotiated first like an ordinary BCE.
Inchoate stain edinstrunrent-incornlete stain ed instrument)
Inchoate stamped instrument means an Incomplete stamped N.I. When a person
signs a stamp paper ova paper duly stamped in accordance with the provisions of
law relating to NJ. act and a stamp act & leaves it wholly or partly blank and
delivers the same to another person, he thereby gives prima facie authority to that
another person to complete the document.
An inchoate stamped instrument may be Incomplete either in respect of-date, amt.,
rime of payment or in- respect of name of the payee etc. The holder of the inchoate
stamped instrument is entitled to fill up the blank and complete document_
However, if the inchoate stamped instrument is incomplete in respect of amt. , the
holder of the instrument cannot fill up the amt. which cannoirJe covered by the
value of stamps affixed thereon.
In order to make the signatory liable on the document following conditions must be
fulfilled:-
I) An inchoate instrument should have been signed by the maker and
delivered to another person.
II) Such an instrument have been adequately stamped in accordance withlaw
in force at the time ofdelivery of such document

15. 2) Before taking any action on the basis of such a document should be completed
by the holder.
3) The amt. to be filled in by the holder should not exceed the amt. which would
be covered by the value of stamps affixed on such document.
INLAND &FOREIGN INSTRUMENT:-
A promissory note, BOE, or cheque drawn or made in India and payable in India is
an inland instrument. Similarly, a negotiable instrument drawn or made in India
though payable outside India is an inland instrument provided a person who is an
Indian resident
Noting & protesting of an inland instrument when dishonoured is not compulsory
A RN, BOE, or a cheque drawn or made outside India & payable outside India is a
foreign instrument SiMilarly, a negotiable instrument drawn or made in India and
payable outside India on a person who is not an Indian resident is a foreign
instrument.
In absence of any contract to contrary the liability of the maker of foreign bill of
exchange, P.N. or a cheque is governed & regulated by law of the country where it
was made and liability of the acceptor and the endorser is governed by the law of
the place where it is made payable.
HOLDER
The holder of a promissory note or 130E or a cheque means any person who is
entitled in his own name to the possession:thereof& to receive & recover the amt.
due thereon from the parties liable on the instrument In other words, to call a
person holder of negotiable-instruments following 2 conditions must be fulfilled :-
1) He should be entitled to the possession of N.I. in his own name. -
2) He should have a right to receive & recover the aint if the instrument is in his
own name.
Thus, the holder need not have actual possession of instrument, It is sufficient if

16. he his entitled to have possession of instrument in his own name
for e.g.:- The legal heirs of the deceased holder of a bill of exchange c.ti claim the
instrument as the holder of the B4O.E. by operation of the law.
A holder of instrument should not only be entitled to have possession of that
instrument but his possession must be lawful possession. However it is not
necessary that he must pay consideration to get the possession of
the instrument i.e. even if a person gets possession of the instrument as & by way
of gift he can be called holder of the negotiable instrument.
V.V.Ilvil) HOLDER. IN DUE COURSE
It means any person who for consideration becomes the possessor of a P.N.. BCE,
or a cheque if payable to !-bearer or a payee or a endorsee thereof is payable to
order, before the amt. mentioned in it becomes due for& without having sufficient
cost to believe that there exists defect in the title of the transferor from -whom
Thus , to cal/ a person holder in due course, it is necessaty- that the following
conditions are fulfilled. -
1) He should be a holder for consideration i.e. on payment of consideration either
he should become a possessor of a bearer instrument or endorser or payee of an
order instrument
2) The instnurient should have been transfer to him before-the date of maturity i.e.
before the amt. mentioned therein becomes due for payment
3) He Should be a transferee in good faith & he should have obtain the document
without any notice of defecttitleof the transferor. In other words, he must exercise
reasonable diligence to satisfy that the transferor has a valid 'tightto transfer the
document.
Thus, a holder in due course means a possessor of a bearer instrument or an
endorsee or a payee of an ,order installment who comes into possession of the

17. instrument for consideration before the date of maturity ofinstrument in good faith
and after having taken reasonable precaution to satisfy himself that it is free from
any defects in title of the transferor
-
Thus a person who comes into possession of the instruments without
consideration or after the date of maturity or with the full knowledge of the defect
of the transferor is merely a holder of the N.I. and be cannot be called a holder in
due course.
RIGHTS &PRIVELEDGES OF HOLDER IN DUE COURSE :-
1) Holder in due course is protected against all defects in title of the
person from whom he derived his title In other words holder in due
course gets a better title to the instrument even if the title of the
transferor is defective_ a
2) A holder in due course is entitle to receive & recover the amt.
mentioned in the instruments is also entitled to tile a suit against all the
parties liable on the instrument.
3) The capacity of an acceptor of a DOE or a maker of a P.N. rrra
cannot be denied as against the holder in due course nor can they deny the
validity
of the instrument as originally made as against a holder in due course.
4) A N.I. which is made, drawn or endorsed without consideration, if
comes in the hands of holder in due course. Absence of consideration
cannot be preceded as against the holder in due course for e.z.
accommodation DOE.
DRAWEE IN CASE OF NEED ,11S

18. Drawee in case of need is the person whose name is mentioned in the BOE in
addition to the name of the drawee and he is to be dissorted to only in case of
need i.e. when the BOE is dishonoured either for non acceptance or for non
payment by the original drawee of the BOE . Thus, the position of the drawee in
case of need is like that of a guarantor or a surity i.e. he is not actually liable on the
BOE, but he gives the guarantee that the original draweewill honour the BCE &
further undertakes that if the BOE is dishnoured by the original drawee he will
honour the BOE , when the name of the drawee in case of need is mentioned in
.
the BOE, it is obligatory on the part of the holder of the DOE to give notice of
dishonour to the drawee in case of need to make him aware of the fact of
dishonour. If the holder fails to gives such a notice of dishonour, to the drawee in
case of need within a reasonable period, he shall be deemed to have discharged the
drawee in case of peed from the liability on the BOB.
ENDORSEMEIVT:-(Section 15)
The NI. act of 1881 defines endorsement as " when the maker or the holder of
the N.I.signs the same otherwise that as maker for the purpose of negotiation on
the back or on the face thereof or on a slip of paper annexed there to or so sign for
the same purpose a stamp paper intended to be completed as an negotiable
instrument, he is saidio have eT;dorsed the same & he is called a endorser ".
A person who endorses a negotiable instrument is endorser. A person in
wthose favour endorsement is made is called endorsee. & the act of signing a
negotiable instrument for the purpose of negotiation is called endorsement.
Following are condition for valid endcrsernent:-
1) A endorsement can only made by maker or holder of a negotiable
instrument. They include following parties to the instrument. Drawer of
BOB. , payee or endorsee of NJ. , holdenin due course.
When the there are more than one drawer or holder who are not partner,

19. all of them are required to sip the document jointly .However, when a
partnership firm is the holder of a negotiable instrument any partnei who is
duly authorized can endorsed a negotiable ientrument
2) It must be signed by the maker, as holder otherwise than as maker i.e.
otherWise then in the capacity of a maker.
3) An endorsement should be made on the back or on the face of
instrument or on a slip of paper annexed there to which is called
allonge or on a stamp paper which is intended to be completed as a
negotiable instrument.
4) 11 should be made with an intention to transfer not only the document
in favour of endorsee but also to transfer all rights to the document in
favourf endorsee including the rights to recover the amt. mentioned in
the document.
5) Endorsement is complete only on delivery of instrument to endorsee.
6) the NI. act has not prescribed any particular form of writing for an
endorsement. The only requiremtat in that the words used for it must
clearly indicate intentions of endorser to transfer the instrument in favor
of endorsee together with all rights of instrument.
On the endorsement, being duly completed by delivery of instrument, it not
only transfers instrument in
favor of transferee but also confesses upon transferee all rights of instrument and
also the right to further transfer the instrument
However, the endorser may by specific words restricts or exclude some of the rights of
endorsee. KINDS OF ENDORSEMENT :-
1) GENERAL OR BLANK ENDORSEMENT :-

20. An endorsement is said to be blank or General when the
endorser signs the document for the purpose of negotiation without writing
the name of endorsee (transferee).
A NJ.endorsed in blank is like a bearer instrument & any person who is
in possession of such an instrument is entitled to receive the amount
mentioned in the document.
In other words a N.J. endorsed in blank, is payable to the bearer of the
instrument even if it was originally an order instrument.
FOR E.G.:- A B.O.E. which is payable to ' B' can be endorsed by 'B', by
making a blank endorsement as under i.e. without writing the name of the
transferee which Will have the effect of converting an order doc. in to a bearer
doe.
TRANSFER TO Mr.
SD (B)
A NI.which is endorsed in blank can be converted into full or special
endorsement by the endorsee without making any fresh endorsement &
without signing the instrurnent just by adding the name of the transferee in the
blank space above the signature of the endorser who has made blank
endorsement.
Thus, in the above e.g. if Mr. C is in the possession of the DOE with the blank
endorsement made by Mr. B, he can transfer the same to Mr. D without
making a fresh endorsement just by adding the name of Mr. D above the
signature of Mr. B.
TRANSFER TO Mr.
SD!- '( B )
2) FULL OR SPECIAL ENDORSEMENT :-

21. When a maker or a holder of a N.j .signs the N.I. for the purpose of
negotiation & also gives a specific direction to pay the amt. mentioned in the
instrument to a specified person or his order, it is called a full or special
endorsement
In other words, full or special endorsement is one in which the maker or
the holder in addition to his signature & the writings also specifies the name of
the person in whose favour the instrument is endorsed i.e. the name of the
endorsee for e.g, a BOB which is payable to Mr. B can be endorsed by Mr. B
by makingfall endorsement i.e. by writing the name of the transferee.
For e.g. Mr. C
Transfer to Mr. C
SD /- ( B)
When a negotiable instrument is endorsed in full, the amt. of the
instrument cannot be claimed by any person except by the person in whose
favor it is validly transfer by the endorsee.
Thus, a N.J. which is a bearer instrument can be converted into an order
instrument by making full or special endorsement.
------- A N.I. , which endcnsed in blank can be converted in full or special
endorsement by the endorsee without making any fresh endorsement and
without signing the same just by adding the name of the transferee in the blank
space above the signature of the endorser who has made the blank
endorsement.
3) PARIZ4L ENDORSEMENT :-
No form of writing in the nature of endorsement is valid if it only transfer
a right to receive part of the amt. mentioned in the instrument. However, the
instrument is partly paid and the fact of such payment is recorded on the

22. instrument it can be endorsed for the balance amt. of the instrument which
remains unpaid.
4) RESTRICTIVE ENDORSEMENT - ( R. E. )
R.E. is one which prohibits farther negotiation of the inst-
ument.Thus, an endorsement is RE. whenit by expressed words restricts the
negotiability of the instrument. The effect of R.E. is that it puts
- an end to the negotiability of the instrument and the person in whose favour it is
endorsed can only recover the amt. of the instrument.
For e.g. :- Transfer to Mr. A only.
5).CaND1770NAL OR QUALIFIED ENDORSEMENT
An endorsement is said to be conditional Or qualified when it is subject to
certain conditions.
The most common type of conditional or qualified endorsement is called "
SAN RECOURSE ENDORSEMENT
San recourse means without recourse. By writing such words the
endorser makes it very clear to the endorsee that he will be not be held liable
in the event the instrument is dishonoured.
Thus, when the instrument is endorsed with San recourse endorsement,
& it is dishonour the holder of such instrument cannot make the endorser
who had made San recourse endorsement liable on the instrument. Thus
by making a San recourse endorsement the endorser excludes his
liability on the instrument
6) FACULTATIVE ENDORSEMENT (F .E .)
When an endorser expressly gives up some of its rights on the
negotiable instrument, by making endorsement ,the endorsement is called
facultative endorsement.

23. For e.g. :- When an endorser by an endorsement gives up his right to
receive the notice of dishonour it called as F.E. Because under NJ act he has right
to receive the notice of dishonour when the instrument is dishonoun But by making
such an endorsement, the endorser gives up some of his rights to receive the notice
of dishonour a thereby relieves, the endorsee from his duty to give notice of
dishonour. In. other words, endorser increases his J iabilon the endorsement.
Therefore it is called FE.
NOTICE OF DISHONOUR(Section 93 to 98)
Notice of dishonour means a formal communication of the facts of
dishonour. The object of giving notice dishonour is not to demand payment but to
inform parties to the instrument that the instrument is dishonoured. Thwhen a NJ
.isdishonoured either for non acceptance or for non payment the holder must give
notice of dishonourall the parties liable on the instument.
Such notice of dishonour must clearly state the following facts :-
I) The fact that the instrument is dishonoured.
2) Whether the instrument is dishonoured for non payment.
3). The person to whom the notice is sent will be held liable of the
instrument.
If the holder fails to give such a notice of dishonour to the previous
transferor, the transferor's star discharged from their liabilities. The notice
Ofdishonour can be given only by the parties to the instrument. Notice of
dishonouris not necessary in following cases :-
1) It is not necessary to the maker of the promissor:, note to the acceptor of BOE or
to a drawer of a che-que, as they the person primarily reliable to the instrument:
Aowever, the notice of dishonour must be given to the drawer of cheque if he is
to be made criminally liable as per the new provisions.

24. 2) It is not necessary when it is dispensed by the person entitled to receive the
notice.
3)/t is not necessary when the parry entitled to receive the notice cannot be
found after the diligent search (Research ).
4) It is not necessary for the drawer of the cheque who has instructed the bank to
stop payment of the cheque.
5) It is not necessary for the endorser who has made San Recourse Endorsement.
6) It is also not necessary where the endorser has endorsed the instrument by
making Facultative Endorsement i.e. when he has expressly given up his right
to receive notice of dishonour at the time of endorseuient
. . .
IVCTING AND PROTESTING :-(Section 99 to 104A)
NOTING :-When a promissory note or a BOE is dishonoured the
holder may after giving notice of dishonour may file a suit against the party
liable on the instrument. But before doing so he may get the facts of
dishonour authenticated by a notary public.In other words; he may
request a notary public to male a demand on his behalf from the person
ultimately liable on the instrument. If the person so liable refuses to accept
or make payment dispite of it being presented by the notary public, the
notary public will note tile fact of dishonour on the instrument or on a
piece of paper next to the instrument. This act of the notary public of
recording the facts of dishonour on the negotiable instrument is called the
noting of the NJ. Such noting should be made within the reasonable period
of time after the instrument is dishonoured.Noting must specify the date, the
reason of dishonour if any and the noting charges,
Noting is not necessary in case of promissory note or an inland

25. BOB. however, it is compulsory in case of foreign BOB.
Noting is an important piece of evidence to prove that the document is
actually dishonoured.
PROTEST :-
When an N.I. is dishonoured and is noted by the notary public he may
issue a separate certificate to that effect, such a certificate is called a
protest Thus, protest is a notorial formal certificate attesting the fact of
dishonour& is based on the noting made by the notary public.lt must bear
sufficient notorial stamps, seals & the sign of the notary public.
PAYMENT IN THE DUE COUR.SE :-
When the payment is made by person who has to honour the
instrument, in accordance with oceurance tenure of the instrument in
good faith & without negligence to any person in possession of the
instrument, the payment is said to be made in due course & the payment
in due course will discharge the party from his liability on
thecinsuument.
In other words, a party is discharged from his liability only
when he makes the payment in due course only when the foil,
conditions are satisfied :-
1) Payment should be in accordance with the occurance tenure of the instrument.
2) Payment of the instrument should be made by on behalf of the drawee, on the
acceptor or the maker.
3) Payment must be made in money only unless the parties have agreed to receive
the payment by ether N.I.
4) The person to whom the payment is made should be entitled to receive the payment
on the document &should be able to give valid discharge from the liability on the

26. instrument.
5) Payment should be in good faith & without any negligence to the person in
possession of the instrument -without any doubt about his right to receive the
amount mentioned in the instrument.