NEGOTIABLE INSTRUMENTS ACT 1881
Object of the Act
The main object
to legalise the system by which instruments could pass from hand to hand by negotiation like any other goods.
Rules of law relating to the negotiable instruments
provide special procedure in case the obligation under the instrument was not discharged.
Preamble: Applicable extends to whole over india
Ø It was originally drafted in 1866 by the law commission of india
it is a written document which creates a rights in the favour of somebody and is freely transferable by delivery
Free transferability or easily negotiability
Title of holder is free from all defects
Transferee can sue in his own name with out giving notice to the debtor
Types of NI
Recognished by status(bills of exchange,cheque)
Recognished by customs or usage(banknotes)
Section 4. “Promissory Note”
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 only to, or to the order of, a certain person, or to the bearer of the instrument.
Kinds of Promissory Notes
Sec.4 recognizes three kinds of promissory notes :
A promise to pay a certain sum of money to a certain person,
A promise to pay a certain sum of money to the order of a certain person, and
A promise to pay the bearer:
Section 5 : “Bill of Exchange”
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.
A bill of exchange has the following features:
A bill of exchange is an instrument in writing.
It must be signed by the maker or drawer. Unsigned document will not be legally valid.
It contains an unconditional order. There is no condition attached to it.
The order must be to pay money and money only.
The sum payable must be specific.
Ø The money must be payable to a definite person or to his order or to the bearer.
Following are Bills of Exchange
A banker‘s draft
A demand draft even if it drawn upon another office of the same bank
Ø An order issued by a District Board EngineeronGovernment Treasury for payment to or order of a certain person.
Section 6 : “Cheque”
A ―cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.
Section 6 : “Cheque”
Explanation I – For the purpose of this section, the expression
― a cheque in the electronic form‖ means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system ;
― a truncated cheque‖ means a cheque is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.
cheque is an instrument in writing,
containing an unconditional order,
signed by the maker, directing a specified banker to pay, on demand, a certain sum of money only to,to the order of, a certain person or to the bearer of the instrument..
a cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or to the bearer
Types of cheque
Ø Bearer cheque(or bearer )–appear on face of the cheque)
Order cheque ( or order)
Uncrossed/open cheque(cheque is not crossed)
(drawing two parellel line to theface of the cheque with or without additional words like a/c payee, not negotiable etc.
cheque bears a date earlier than the date on which it is presented to the bank.
Post dated cheque
cheque bears a date which is yet to come(future date)
cheque is presented for payment after three months from the date of cheque is called
Section 7 “Drawer” “Drawee”
The maker of a bill of exchange or cheque is called the ―drawer‖, the person thereby directed to pay is called the ―drawee‖
Drawee in case of need
Acceptor for Honour
Holder in due course (Sec 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 the bearer,
Section 10 – Payment in Due Course
―Payment in due course‖ means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford reasonable ground for believing that he is not entitled to receive payment of the amount mentioned therein.
Negotiation (Sec 14 )
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.
Endorsement (Sec 15 )
A cheque or bill is endorsed when the transferer puts his signature on the back or on an along with a cheque anda bills as a part of negotiation.
As a date
As time to acceptance
As to transfer
As to time of endorsement
As to dishonour
Modes of negotiation
Negotiation by delivery(sec47)
Negotiation by endorsement &delivery(sec 48)
Classess of endorsement
blank or endorsement(sec16&54) endoser signs but does not give the name to whom wish he transfer.
Special or full endorsement(sec 16) endoser signs and specifys the person name to whom wish he transfer.
Partial endorsement(sec56) endoser signs and specifys the part of the amount payable.
Restrictive endorsement(sec50) restrictions
Sans endorsement(does not liable for expenses incurred by endorsee)
Instrument without consideration(sec 43-45)
Notice to dishonour(sec 93)
Notice by whom(sec 95)
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