Negotiable instrument act 1881

NEGOTIABLE
INSUTRUMENTS ACT
1881

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

 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

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

 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

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

Bill of Exchange
 Writing, signed,
accepted, stamped
 Unconditional
order to pay
 Money only
 Certain party
 Certain sum
 Parties – Drawer,
Drawee & Payee

CHEQUES
 Writing, signed
 Unconditional order
 Issued by specified
banker, certain
payee
 On demand
 Certain amount
 Must bear a date

Definition
A promissory note is an instrument in
writing (not being a bank note or a currency
note) containing an unconditional
undertaking, signed by the maker to pay a
certain sum of money to, or to the order of, a
certain person or to the bearer of the
instrument


PROMISSORY NOTE

A 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 :


ILLUSTRATIONS
Promissory Notes
1. ―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 Notes
1. Mr. B, I.O.U. Rs. 1,000.
2. ―I promise to pay B Rs, 500, and all other sums which
shall be due to him.‖
3. ―I promise to pay B Rs. 500, first deducting thereout
any money which he may owe me,‖
4. ―I promise to pay B Rs. 500, seven days after my
marriage with .―
5. ―I promise to pay B Rs. 500 on D‘s death provided D
leaves me enough to pay that sum‘ Dr. Akansha Jain email:

ESSENTIALS OF A VALID PROMISSORY NOTE

1. It must be in writing.
2. It must contain an undertaking to pay.
3.The undertaking to pay must be
unconditional.
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:

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 FERNANDES

A promissory note cannot be made payable to the maker himself.
Thus, a note in the form, I promise to pay myself is not a promissory
note; 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
to the encorsee or to, if specially endorsed.

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,‖ and
the person thereby directed to pay‘ is called ―the drawee‖. (S. 7) A
bill of exchange is also sometimes called a draft. When it is drawn
by a bank on its own branch, it is called a bank email:
Dr. Akansha Jain draft.

BILL OF EXCHANGE – ESSENTIAL REQUISITIES
The following are the eight essential requirements of
valid 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 be
unconditional.
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:


SPECIMENS OF BILL OF EXCHANGE

Rs. 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.
To
Paul Jacobson, Sd/- RAM GHELACHAND
40, Mahatma Gandhi Road,
Bombay – 400 023. To
Paul Jacobson,
40, Mahatma Gandhi Road,
Bombay – 400 023.

SPECIMENS OF ACCEPTANCE OF A BILL OF EXCHANGE

Rs. 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 Jacobson
To To
Paul Jacobson, Paul Jacobson, Sd/-
40, m. Gandhi Road, 40, m. Gandhi Road, HENRY BROWN
Bombay – 400 023. Accepted : Bombay – 400 023.
S/d- Paul Jacobson Dr. Akansha Jain email:

DIFFERENCE BETWEEN
BILL OF EXCHANGE & PROMISSORY NOTE

BILL OF EXCHANGE PROMISSORY NOTE
1. 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 and
notice of dishonour are required. notice of dishonour are not required.
5. A bill of exchange can’ be accepted 5. A promissory note cannot be made
conditionally. conditional.
6. Drawer ‘of a bill of exchange stands 6. Drawer of a promissory note
in immediate’ relation with the stands in immediate relation with the
acceptor. payee.
‘7. Bills can be drawn in sets. 7. Promissory notes cannot be drawn
8. A bilief exchange can be made is sets.
payable to bearer, provided it is not 8. A promissory note cannot be made
made payable on demand. payable to bearer.
9. Foreign bills must be protested for, 9 Promissory notes need not be
dishonour if so required by the law of protested for dishonour.
the country of their’. origin.

CHEQUE (S.6)

A cheque is a bill of exchange drawn on specified
banker and not expressed to be payable otherwise:
than on demand S. 6.


Cheques can be of two types:-

1. Open Cheque.
2. Crossed Cheque.


 ―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.


 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.


1. General Crossing
2. Special Crossing


 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.‖

1.And Company
2. & Co.,
3. Not Negotiable
4. A/C Payee


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‖


In special crossing following is within the
parallel line

 ICICI Bank ltd
 Not Negotiable With A/c Payee


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 CHEQUE

BODY OF THE CHEQUE BODY OF THE CHEQUE

BODY OF THE CHEQUE BODY OF THE CHEQUE

POINTS OF DIFFERENCE BETWEEN

CHEQUE BILL OF EXCHANGE

CHEQUE BILL OF EXCHANGE
1. The dràwee of a cheque is always a 1. Anyone can be a drawee
bank. in the case of a bill of exchange.
2. Cheque is payable on demand, 2. Bill of exchange is en titled to three days
without 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 for
failure of the holder to present it in due payment in due time, drawer is dis
time. charged.
5. Notice of dishonour is not necessary in 5. Notice of dishonour is necessary in the
the case of V cheques. case of bills of exchange.
6. Cheques need not be protested for 6. It is advisable that bills of exchange be
clishonour. 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 the
protection is available to the drawee or acceptor of a bill of exchange.
draweebanker in connection with 9. No such protection is available in the
payment of cheques. case of bills of exchange.
9. Under certain circumstances, statutory
protect ion is available to the collecting
banker against liability for conversion of
crossed cheques.

PAYEE (Ss. 7)
The person named in the instrument, to whom or to
whose order the money is, by the instrument directed to be
paid, 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 a
reasonable ground for believing that he is not entitled to
receive payment of the amount therein mentioned.

HOLDER (Ss. 8)
―Holder‖ defined (S. 8)
The ―holder‖ of a promissory note, bill of exchange. or
cheque means any person entitled his own name, to the
possession thereof, and to receive or recover the amount due
thereon from the parties thereto. Where the note, bill or cheque
is lost or destroyed, its holder is the person so entitled at the
time loss or destruction.

Holder in due course (S. 9)
―Holder in due course‖ means any person who for
consideration, became the possessor of a promissory note, bill
of exchange, or cheque, if payable to bearer, or the payee or
endorsee thereof, if payble to order, before the amount
mentioned if it became payable, and without having sufficient
cause to believe that any defect existed in the title of the
person from whom he derived his title.

According to Section 14 of the Negotiable
Instrument Act, 1881 when a promissory-
note, bill of exchange or cheque is transferred
to any person so as to constitute that person
the holder thereof, the instrument is said to be
negotiated.


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


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


Notice of Dishonour
When a negotiable instrument is dishonoured by
non-acceptance or non-payment, the holder must
give notice of dishonour to the drawer and all other
parties whom he seeks to make liable. Each party
receiving notice of dishonour must in order to
render any prior party liable to himself give notice
of dishonour to such party within a reason-able
time after he has received it. The notice may be oral
or in writing though for safety it is advisable to give
a written notice.


 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 notary's charges should be metioned.
'Noting' must be made within a reasonable time
after dishonour.


 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.


Negotiable instrument act 1881

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Negotiable instrument act 1881