Endorsements

Endorsements

Section 15 of the Negotiable instruments Act 1881 defines endorsement as follows:

“When the maker or holder of a negotiable instrument signs the name, otherwise that as such maker for the purpose of negotiation, on the back or face thereof, or on a slip of paper annexed thereto or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to endorse the same and is called the endorsee”.

In other words, when the person signs on the back of (or face of) the instrument with a view to transferring his interest therein, he is said to be endorsing it. Though endorsement can be made on the face of the instrument also, it is usually make on its back. If the space on the back is insufficient, a piece of paper can be attached to the instrument for this purpose. This piece of paper is called Allonge.

Requisites of a Valid Endorsement

If an endorsement is to be valid, it must possess the following requisites:

1. Endorsement is to be made on the face of the instrument or on its back. It is usually made on the back of a negotiable instrument.

2. When there is no space for making further endorsements a piece of paper can be attached to the negotiable instrument for this purpose. This piece of paper is called ‘Allonge’

3. If the endorsee’s name is wrongly spelt, the endorsee should sign the same as spelt in the instrument and write the correct spelling within brackets after his endorsement.

4. Endorsement for only a part of the amount of the instrument is invalid. It can be made only for the entire amount.

5. Where, however, the instrument has been partly paid, a note to that effect can be given on the instrument and endorsement made for the balance amount.

6. Endorsement is complete only when delivery of the instrument is made. On the death of the endorse who has endorsed an instrument but has not delivered it to the endorsee, the endorsement becomes invalid.

7. It is presumed that the endorsements appearing on a negotiable instrument were made in the order in which they appear thereon.

8. Signing in block letters does not constitute regular endorsement.

9. The prefixes or suffixes added to the names of the payees or endorsees must be omitted in the endorsement.

10. Endorsement must be in link

11. If the payee is an illiterate person, he can endorse it by affixing his thumb impression on the instrument. But it must be duly attested by somebody who should give his full address thereon.

12. A person duly authorised to endorse a cheque or a bill must indicate that he is signing in it on behalf of his principal by using such words as “for”, “on behalf of” or “per pro”.

Kinds of Endorsements

Key Words

Negotiability Instrument Crossing AssignabilityBill of exchange Endorsement Promissory noteDishonour Cheque Bearer

Why emergency holidays are declared under Negotiable Instruments Act?

Where the maturity date of the negotiable instrument falls on notified public holiday, it is to be paid on the preceeding working day. When emergency holidays are declared for reasons like death of a leader in power, natural calamities, strike, election day and so on, day should be made a public holiday. So that negotiable instruments maturing on the day can be paid on the next working day. In other words, it implies that negotiable instruments maturing on the date of emergency holiday should be paid on the next day.

The Reserve Bank of India Act 1934

The Negotiable Instruments Act does not affect the provisions of Sec. 31 and 32 of Reserve Bank of IndiaAct 1934. The object of section 31 is to prevent private persons from violating the monopoly of the government in note issue (paper currency in India). According to the provisions of sec, 31, no person (other than the Reserve Bank of India or the Central Government) can draw, accept make or issue any bill of exchange, hundi or promissory note payable to bearer on demand.

No person can make or issue any promissory note payable to bearer of instrument. This renders the words “or to bearer” in the definition of promissory note in sec. 4 of the Negotiable Instruments Act in operative. However, a bill or a promissory note endorsed in blank can be made payable to bearer on demand. A cheque is also payable to bearer on demand. These are exceptions to rule contained in section 31. In short, anybody issues a bill or a note originally payable to bearer on demand is punishable with fine according to sec. 31 of RBI Act.

MICR – Magnetic Ink Character Recognition

MICR code is a character - recognition technology used mainly by the banking industry to ease processing and clearance of cheques and other documents. It is found at the bottom of the cheque. It includes bank code, bank account number, cheque number, cheque amount and a control indicator. The MICR code helps the banker to ensure the legitimacy or originality of paper documents. The special ink used in the MICR code is sensitive to magnetic fields. It prevents the crime of printing counterfeit cheques or documents using technology. The magnetic ink will help discover fake documents.

IFSC – Indian Financial System Code

IFSC code is an alphanumeric code which facilitates electronic fund transfer in India. This code uniquelyidentifies each bank branch participating in the two main Payment and Settlement systems in India. The Real Time Gross Settlement(RTGS) and the National Electronic Fund Transfer (NEFT) systems. IFSC is a 11 character code. The first 4 alphabetic characters represent the bank name and the last 6 characters (usually numeric) represent the branch. The fifth character is 0 and reserved for future use. This code routes the messages to the destination banks or branch. The format of IFSC code is given below:

For own Thinking

I. Find out the type of instrument and the reason?

(a) A bill is drawn payable to X or bearer

(b) Bill drawn in London upon a merchant in Chennai and accepted and payable in Bangalore

(c) Bill drawn in Delhi upon a merchant in London and accepted and payable in London

(d) Bill drawn in London on a merchant in Agra and endorsed in Delhi

(e) A Bill drawn by Bajaj Auto Agent on Bajaj Auto Ltd.

(f) Bill drawn by A on Y (an imaginary person not in existence) and endorsed to B

(g) X gives a blank cheque to Y or gives undated cheque to Y

(h) X signs stamped and blank promissory note and keep it locked in his drawer

II. Find out which of the following is a promissory note?

(i) X promises to pay a sum of Rs. 500 on telephone.

(ii) Mr. Y, I owe you Rs. 500

(iii) I promise to pay Y Rs. 500 + some other charge

(iv) I promise to pay Y Rs. 500 on Z’s death

(v) I promise to pay Y (myself) Rs. 500

(vi) I promise to pay Y Rs. 500 and to deliver to him my black horse on first January next.

Clues: Answer should be given after reading the characteristics of Promissory note

III. Classify the following endorsement with reasons

(i) No other words except B’s signature

(ii) Pay C

(iii) Pay C or order

(iv) Pay C only

(v) Pay C or order for the account of B

(vi) Pay C or order being the unpaid residue of the bill

(vii) Pay C or order on safe receipt of goods

(viii) Pay C Sans Recourse

(ix) Pay C, notice of dishonour dispensed with

For own Thinking

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