This document provides information about a team called TEAM-05 and its members AASHISH.J.N, AMOGH.R, ANIRUDDHA.C, DARSHAN.S, and DARSHAN KUMAR.G. It then discusses negotiable instruments under Indian law, including their definition, essential elements of promissory notes, bills of exchange, and cheques. Key points covered include what makes an instrument negotiable, specimens and examples of different types of negotiable instruments, and parties involved like makers, drawers, drawees, payees, holders and holders in due course.

1. TEAM-05
AASHISH.J.N
AMOGH.R
ANIRUDDHA.C
DARSHAN.S
DARSHAN KUMAR.G

2. In India only three kinds of instruments are
recognized as negotiable instruments
viz.,
• promissory notes,
• bills of exchange,
And
• cheques.

3. Negotiable Instruments
• Documents of a certain type, used in commercial
transactions and monetary dealings, are called
Negotiable instruments.
• “Negotiable” means transferable by delivery and
“instrument” means a written document by
which a right is created in favour of some person.
• Thus, negotiable instrument means “ a document
transferable by delivery”

4. Negotiable Instruments
Definition:
Negotiable Instruments Act , 1881 states that,
“ A negotiable instrument means a promissory
note, bill of exchange or cheque payable
either to order or to bearer”.
---Sec. 13(1)

5. Promissory Note
Definition:
“ A promissory note is an instrument in writing
containing an unconditional undertaking signed by
the maker, to pay a sum of money only to a certain
person, or to order of a certain person, or to the bearer
of the instrument.”
-------Sec. 4
The person who makes the promise to pay is called the
Maker. He is the debtor and must sign the instrument.
The person who will get the money (the creditor) is
called Payee.

6. Essential Elements of a Promissory
Note
1. The instrument must be in writing.
2. It must be signed by the maker of it. The signature or mark
may be placed anywhere on the instrument, not necessarily
at the bottoms. It may be at the top or at the back of the
instrument.
3. It must contain a promise to pay. It must be expressed not
implied or inferred.
e.g. “Mr. Sen I.O.U. Rs. 1000”. Here I.O.U. stands for “ I owe you.”
This is only an admission of indebtedness and not a promise
to pay. So it’s not a promissory note.

7. Continued…
4. The promise to pay must be unconditional. If it is coupled with a
condition , it is not a promissory note.
e.g. “ I promise to pay B Rs.300 on D’s death provided D leaves me
enough to pay this sum.”
Promise to pay at a specified time or at a specified place or
after the occurrence of an event which is certain to occur or
payment after calculating interest at a certain rate
---------are not regarded as conditions.
5. The maker must be certain and definite.
6. It must be stamped according to the Indian Stamp Act.
7. The sum of money to be paid must be certain.
e.g. “ I promise to pay some money on the occasion of her
marriage”

8. Continued…
8. The money must be payable to a definite
person or according to his order i.e. payee is
indicated by his official designation.
9. It must be payable on demand or after a
certain definite period of time.

9. Specimens of Promissory Notes
• “ One year after date I promise to pay B or order Rs. 500.”
---- Sd/X.Y.
Date…………
• “ On demand I promise to pay A.B of No.37, College Street
or order Rs1000(Rupees one thousand only) with interest
at 8 percent per annum, for value received in cash.”
Sd/X.Y
Date…………………
Address……………….
• “ I acknowledge myself to be indebted to B in Rs. 1000 to
be paid on demand, for value received.”
Sd/X.Y

10. Specimen of a Promissory Note
Rs 1,000 Karnataka, 12 Sept’12
One month after date I promise to pay to
Mr.Anthony or order the sum of rupees one
thousand only, for value received.

11. Bill of Exchange
Definition:
“ 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.”
----Sec. 5
e.g. To A.B.
“ Six months after date pay P.Q. or order Rs. 1000”
Sd/X.Y.
Date………………..
Stamp…………………

12. Bill of Exchange
• The maker of a bill of exchange is called the
Drawer. The person who is directed to pay is
called the Drawee. The person who will receive
the money is called the Payee.
• When the payee has custody of the bill, he is
called the Holder. It is the holder’s duty to
present the bill to the drawee for acceptance. The
drawee becomes the Acceptor after signing on
the bill.
• Sometimes the name of another person is
mentioned as the person who will accept the bill
if the original drawee does not accept it. Such a
person is called the Drawee in case of Need.

13. Essential Elements of a Bill of Exchange
A Bill of Exchange to be valid must fulfill the following
requirements:
1. The instrument must be in writing.
2. It must be signed by the drawer.
3. It must contain an order to pay, which is express and
unconditional.
4. The drawer, drawee and the payee must be certain
and definite individuals.
5. The amount of money to be paid must be certain.
6. The payment must be in the legal tender money of
India.
7. The money must be payable to a definite person or
according to his order.
8. It must be properly stamped.

14. Continued..
9. The bill may be payable on demand or after a definite
period of time. But no one except the Reserve Bank
and the Government of India can draw a bill payable on
demand to the bearer of the bill.
If any of the requirements mentioned above is not
fulfilled, the document is not a bill of exchange.
e.g. “ Please let the bearer have Rs. 1000 and oblige.”
“ We hereby authorize you to pay on our account to
the order of X, Rs 6000.”

15. Specimen of a Bill of Exchange
Rs 1,000 New Delhi, 25 Aug’11
One month after date pay to Mr. A.K.Jha or order
the sum of rupees one thousand only, for value
received.
To
Satyender
12 miles REVENUE
MIM, Ranchi Sd/Ritesh. STAMP

16. Cheque
Definition:
“ A cheque is a bill of exchange drawn upon a specified
banker and payable on demand.”
----Sec. 6
Specimen of a cheque
Cheques are usually printed in the form shown below.
e.g.
Date……………
Pay A.B. or order (or bearer) the sum of Rupees Five
Hundred only Rs. 500/-
To
X.Y. Bank Sd/C.D.

17. Essential Features of Cheque
• In writing
• Express order to pay
• Definite and unconditional order
• Signed by drawer
• Order to pay certain amount
• Order to pay money only
• Drawn upon a specified banker
• Payable on demand

18. Types of Cheques
Two Types:
1. Open Cheques: An open cheque is one which is
payable in cash across the counter of the bank
2. Crossed Cheques: A crossed cheque is one which has
two short parallel lines marked across its face. It can be
paid only to another banker.
• The advantage of crossing is that it reduces the danger
of unauthorised persons getting possession of a
cheque and cashing it.
• A crossed cheque can only be cashed through a bank of
which the payee of the cheque is a customer.

19. Modes of Crossing a Cheque
1. General Crossing: The simplest mode of crossing is to put two
parallel lines across the face of the cheque.This is called General
Crossing.
A cheque crossed generally will be paid to any bank through
which it is presented.
2. Special Crossing: When the name of bank is written in between
the parallel lines, it is called Special Crossing.
A cheque crossed specially will be paid only when it is presented
for collection by the bank named between the parallel lines.
In addition to general or special crossing, a cheque may maintain
various remarks written on it to restrict payment in certain ways.
The usual remarks are “ Account Payee Only” and “ Not
Negotiable”

20. Rajinikanth says, “Cheques can be paid only when demand for payment
is made.”
So don’t sit at home holding your cheque hoping cash would appear.
[Source: Section 6, The Negotiable Instruments Act, 1881]

21. Dishonor of Cheque
• On dishonor of Cheque the drawer is
punishable with imprisonment for a term not
exceeding 1 year or with fine not exceeding
twice the amount of cheque or with both.

22. Inchoate Stamped Instrument(Sec 20)
• An inchoate stamped instrument is a paper
signed and stamped in accordance with the law
relating to negotiable instruments and either
wholly blank or containing an incomplete
negotiable instrument.
• The person signing the instrument is liable on it
to any holder in due course.
e.g. Vikas signs his name on a blank but stamped
instrument and gives the paper to Jitender with authority
to fill it up as a promissory note for Rs 500 only. But
Jitender fraudulently fills the paper for Rs.1000, the
stamp put on it being sufficient to cover this amount. He
then hands it to Ritesh for Rs 1000 who takes it in good
faith for value. Can Ritesh recover the whole amount?

23. Parties to Negotiable Instruments
Holder:
The holder of a negotiable instrument means any
person entitled in his own name to the possession
thereof and to receive or recover the amount due
thereon from the parties there to.----Sec.8
In order to be called as a ‘holder’ a person must
satisfy the following two conditions:
• He must be entitled to the possession of the
instrument in his own name.
• He must be entitled to receive or recover the amount
due thereon from the parties liable thereto.

24. Continued…
Holder in due course
The holder of a negotiable instrument is called the holder in
due course if he satisfies the following conditions.----Sec 9.
1. He must be a holder.
2. He obtained the instrument for valuable consideration i.e.
lawful consideration
3. He became holder of the instrument before its
maturity, i.e. before the amount mentioned in it became
payable.
4. He had no cause to believe that any defect existed in the
title of the person from whom he derived his title
e.g. A post dated cheque does not indicate any defective title
and therefore the transferee of such a cheque may be a
holder in due course if the other conditions are satisfied.

25. Capacities of Parties
• “ Every person capable of contracting
, according to the law to which he is
subject, may bind himself and be bound by
making, drawing, acceptance, endorsement, d
elivery and negotiation of a promissory
note, bill of exchange or cheque”------------Sec.
26

26. Different Cases of Incapacity
Minor: Sec 26 declares that a minor may draw, indorse, deliver and
negotiate a negotiable instrument so as to bind all parties except
himself. He does not incur any liability but other adults parties do
remain liable. He can be a endorsee or payee.
Insolvent: He is not competent to draw, make, accept or indorse
Corporation: A company cannot incur liability under negotiable
instrument unless expressly or impliedly permitted by the
Memorandum of Association or Article of Association. But can be a
payee or endorsee.
Agent: Every person capable of binding himself or being bound, by a
negotiable instrument, may so bind himself or be bound by a duly
authorised agent acting in his name.-----Sec 27
Legal Representative (Sec.29): He can deal with the negotiable
instruments belonging to the deceased to the same extent as the
deceased could have done. If he signs , he must use words to indicate
that he is not personally responsible.
Joint Hindu Family: The Karta can bind the joint family by executing
negotiable instrument provided its for the benefit of family, other
members are not liable personally.

27. Liability of the Parties
• Maker and Acceptor: The maker of the promissory note
and the acceptor of a bill of exchange are primarily
responsible for the payment due. ---------Sec 32
• Drawer: The drawer of a bill of exchange or cheque , case
of dishonor by the drawee or acceptor thereof, to
compensate the holder, provided due notice of dishonor
has been given to, or received by the drawer.----------Sec.30
• Drawee of a Cheque: The drawee of a cheque 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, in default of such
payment, must compensate the drawer for any loss or
damaged caused by such default.----- Sec. 31
• Endorser: He is liable to all subsequent parties in case of
dishonor of the instrument provided due notice of dishonor
has been given to him.-----------Sec. 35

28. Nature of liability of Various prior
parties.
• A bill drawn by P on Q in favour of R is made
payable three months after date. It is indorsed by
R in favour of X, by X in favour of Y, and by Y in
favour of Z. The bill has been accepted by Q, and
Z presents it on maturity for payment to Q who
duly pays the amount and indorses the fact of
payment of the bill. On payment by Q the bill is
duly satisfied. But if payment had not been
made, Z could sue P, Q, R, X, Y – all or any of
them; Y could sue P,Q,R,X; and so on…

29. Negotiation
Definition:
Negotiation of an instrument is the process by
which the ownership of the instrument is
transferred from one person to another.
When a promissory note, bill of exchange or
cheque is transferred to any person, so as to
constitute the person the holder thereof, the
instrument is said to be negotiated.
----------Sec. 14

30. Contd..
• Delivery (Sec. 46)
The making acceptance or endorsement of a
promissory note, bill of exchange or cheque is
completed by delivery.
Delivery may be actual or constructive.
• Actual delivery means giving actual possession.
• Constructive delivery happens when a negotiable
instrument is delivered to an agent, clerk, or
servant on his behalf.

31. Contd…
• Negotiation by Delivery (Sec 47)
Subject to the provisions of Section 58, a promissory note, bill of
exchange or cheque payable to bearer is negotiable by delivery
thereof. [Sec. 58 deals with instrument obtained by unlawful
means or for unlawful consideration].
• Negotiation By endorsement (Sec. 48)
Subject to the provisions of Section 58, a promissory note, bill of
exchange or cheque payable to order, is negotiable by the holder by
endorsement and delivery thereof.
• Who may negotiate?
The sole maker, drawer, payee or endorsee and all of them jointly
can negotiate an instrument, provided its negotiability has not been
restricted or excluded by a term used in the instrument.------Sec. 51
• Duration of Negotiability (Sec. 60)
Instrument is negotiable till payment or satisfaction by the maker,
drawee or acceptor at or after maturity, but not after such payment
or satisfaction.

32. Dishonor of negotiable instruments
Notice of dishonor-
• Bearer shall inform the previous parties:
within 3 days from receipt of certificate of
•
dishonor or rejection of acceptance.
on receipt ext immediate predecessor within 3 days.
• Notice: contain major written items of the instrument and
• explanation for rejection

33. Protection of lost-instrument holders
• If lost before payment is due, lost-instrument
holder may notify drawee to suspend payment.
• Within 3 days of giving the notice for suspension
of payment or after the loss of the
instrument, lost-instrument holder may apply to
court for publication of public notice for assertion
of claims
• Holder other than the lost-instrument holder
comes forward to claim the rights during the
foregoing withholding period, the litigation
method shall be utilized