This document discusses negotiable instruments under Indian law. It defines key terms like negotiable instruments, promissory notes, bills of exchange, cheques and holders in due course. It explains the criteria for someone to be considered a holder in due course and the privileges this status provides. It also covers special rules for cheques, including types of crossings and endorsements. Finally, it outlines various ways in which a negotiable instrument can be discharged, such as through payment, cancellation, release or material alteration.

1. NEGOTIABLE INSTRUMENTS

2. NEGOTIABLE INSTRUMENT ACT-1881
“A Negotiable Instrument means a promissory note
,bill of exchange or cheque payable either to order or
bearer”
A promissory note, bill of exchange or cheque is
payable to order which is expressed to be so payable
to particular person and doesn't contain words
prohibiting transfer or indicating an intention that shall
not be transferable.
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3. Holder in due course
Section 9 of Negotiable Instrument
ACT- 1881 defines a holder in due course as “ any
person who for consideration , become the possessor
of the instrument before the amount mentioned in it
becomes payable and with out having sufficient
cause to that any defect existed in the title of the
person from who derives his title”
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4. Criteria
 He must be holder.
 He obtained the instrument for a valuable
consideration.
 He must have become the holder of the instrument
before maturity.
 He must have obtained the instrument in good faith.
 He must take the instrument complete and regular
on the face of it.
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5. Privileges of a holder in due course
 right in case of inchoate instrument
 Liability of a prior parties to holder in due course.
 Acceptors liability to the holder in due course when
endorsement forged.
 Acceptor bound, although bill drawn in fictitious
name.
 No effect of conditional delivery.
 Instrument made with out consideration.
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6.  Good title deriving from holder in due couse
 Better title than that of the transferor.
 Every holder is a holder in due course.
 Estoppel against denying original validity of
instrument.
 Estoppel denying capacity of payee to endorse.
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7. SPECIAL RULES FOR CHEQUE
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8. Cheque
 According to sec 6, “a cheque is a bill of exchange drawn on a
specified banker & not express to be payable otherwise than on
demand”
 A cheque has three parties ; drawer, drawee, payee.
 Only banker can be a drawee.
 Acceptance is not required.
 The amount is always payable on demand.
 A cheque may be crossed.
 It requires no stamp.
 A cheque is not to be noted or protested in case of dishonour.
 The payment of a cheque may be countermanded by the
drawer.
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9. TYPES OF CROSSING
 General crossing.
 Special crossing.
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10. General crossing:
 A cheque is said to contain a general
crossing when two parellel lines are drawn
across the face of the cheque.
 According to sec 123 “Where a cheque
bears across its face an addition of the
words “and company” or any abbreviation
there of 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 a crossing, and the cheque shall
be deemed to be crossed generally.” 10

11. Specimen of general crossing
1)
& Co
2)
Not Negotiable
3)
& Co. Not Negotiable
4) 11

12. Special crossing
Sec 124 of the act defines special
crossing as “ Where cheque bears
across its face an addition of the name
of the banker , either with or without the
words “ not negotiable” that addition
shall be deemed a crossing and cheque
shall be deemed to be crossed specially
and to be crossed to that banker.”
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13. Specimens of special
crossings
 In the case of special crossing the paying banker is
to honour the cheque only when it is presented
through the bank mentioned in the crossing or an
agent of such bank.
 Further, sec.127 states, “Where a cheque is crossed
specially to more than one banker, expect when
crossed to an agent for the purpose of collection, the
banker on whom it is drawn shall refuse payment
thereof.”
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14. Ca
n ara
Crossing
ba
nk
Ca
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ra
ba
nk
No
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eg
oti
a ble
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Specimens of Special
an
ara
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nk
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15.  Account payee (restrictive crossing):
Although the act is silent with regard to
this form of crossing, it has been recognized by
custom amongst businessmen and banker.
 Not Negotiable crossing:
The words ‘Not Negotiable’ may
also be written in both types of crossing-general and
special and a crossing with these words is said to be
‘Not Negotiable’ crossing.
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16. Who may cross a cheque?
 Crossing of an uncrossed cheque does not amount to a material
alteration so as to affect the validity of the instrument.
1. (Sec.125) “Where a cheque is uncrossed, the holder may cross it
generally or specially.
2. Where a cheque is crossed generally, the holder may cross it
specially.
3. Where a cheque is crossed generally, or specially, the holder
may add the word ‘’Not Negotiable’’.
4. Where a cheque is crossed specially, the banker to whom it is
crossed may again cross it specially, to another banker, his
agent, for collection.’’
 Where a cheque is crossed ‘account payee’ and the holder alters it
into a general crossing by striking out the words ‘account payee’, the
alteration is irregular and discharges the instrument.
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17. 17

18. ENDORSEMENT
 According to sec 15,endorsement is
“the signing by the maker or holder of
his name on a negotiable instrument for
the purpose of its negotiation to another
person”.
 The person signing the instrument is
called an ENDROSER.
 The person to whom the instrument is
transferred is called the ENDROSEE. 18

19. WHO CAN ENDORSE ? (sec 51)
 Payee: Rightful person to make the first
endorsement.
 Endorsee: Person who has become the
holder of the negotiable instrument, may
endorse the same.
 Maker or drawer: The maker of a promote or
the drawer of a bill cannot endorse. But if any
one of them has become the holder in his
own right, he can endorse.
 Stranger: A person who is not a party to the
instrument cannot endorse it. 19

20. KINDS OF ENDORSEMENT
1. Blank or General Endorsement [Section 16(1)]
2. Special or full Endorsement [section 16(1)]
Conversion of blank endorsement into special
endorsement
Effect of full endorsement following a blank endorsement.
3. Restrictive Endorsement
4. Partial Endorsement
5. Conditional Endorsement
Sans recourse endorsement
Facultative endorsement
Sana frais endorsement
Contingent endorsement
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21. EFFECT OF ENDORSEMENT [sec.30
 The ownership of the instrument is transferred
from the endorser to the endorsee.
 The endorsee gets the right of further
negotiation,
 The endorsee can bring an action for recovery
against all the parties whose names appear on
the instrument.
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22. 22

23. DISCHARGE OF NEGOTIABLE
INSTRUMENTS
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24. Meaning of discharge of an
instrument
An instrument is said to be
discharged only when the party who is
ultimately liable thereon is discharged
from liability. All rights of action under
the instrument are completely
extinguished and the instrument ceases
to be negotiable.
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25. Sec . 119. how. - A negotiable instrument
is discharged:
 By payment in due course by or on behalf of the
principal debtor;
 By payment in due course by the party
accommodated, where the instrument is made or accepted for
his accommodation;
 By the intentional cancellation thereof by the holder;
 By any other act which will discharge a simple contract
for the payment of money;
 When the principal debtor becomes the holder of
the instrument at or after maturity in his own right.
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26. Modes of discharge of a party
a) By Payment [Section 82(c) ]
b) By Cancellation [Section 82(a) ]
c) By Release [Section 82(b) ]
d) By Allowing drawee more than 48 hours to
accept [ Section 83 ]
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27. e) By Non-presentment of Cheque within a
Reasonable Time [Section 84]
f) By Payment of a Cheque payable to order
or bearer by the drawee banker [ Section
85]
g) By Qualified Acceptance [Section 86]
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h) By Material Alteration [Section 87]

28. i) By Payment of an Instrument on which
Alteration is not Apparent [Section 89]
j) By acceptor becoming holder of a bill at or
after maturity
[Section 90]
k) By operation of law:-
1) law of Limitation Act
2) law of Insolvency 28