Nandinirg (1)

1
NEGOTIABLE INSTRUMENT

• -NRG
• Dept. of commerce and management

2
Introduction

• Exchange of goods and services is the basis of
  every business activity. Goods are bought and
  sold for cash and as well as on credit.
• All these transactions require flow of cash
  either immediately or after a certain time.
• It is quite inconvenient as well as risky for
  either party to make and receive payments in
  cash.
• Therefore, it is a common practice for
  businessmen to make use of certain documents as
  means of making payment. Some of these documents
  are called negotiable instruments.
• The law relating to Negotiable Instrument is
  contained in the NEGOTIABLE INSTRUMENT ACT 1881,
  It is came into force on 1st march 1882.

3
Meaning Definition

• The word negotiable means transferable and
  the word instrument means written document
  thus the term negotiable instrument means
  written document transferable by delivery.
• Definition
• According to Section 13 (a) of the NI act,
  negotiable instrument means a promissory note,
  bill of exchange or Cheque payable either to
  order to bearer , whether the word order or
  bearer appear on the instrument or not.
• In the words of Justice, wills, A negotiable
  instrument is one, that property in which is
  acquired by anyone who takes it bonafied and for
  value not with standing any defects of the title
  in the person from whom he took it.

4
Features of negotiable instrument

• It must be in writing, which includes typing,
  printing.
• The instrument must be signed by the maker
• There must be an unconditional promise or order
  to pay (if the promise or order is conditional ,
  the instrument is non-negotiable)
• The instrument must call for payment of a certain
  sum of money only and nothing else.
• The instrument must be payable at a time which is
  certain to arrive.
• In case of a bill or Cheque, the drawee must be
  named or described with reasonable certainty
• The instrument must be such or in such a state
  that it can be transferred like cash by simple
  delivery.
• The transferee who receives it in good faith and
  for value has the right to recover the amount
  mentioned in the instrument in his own name. such
  a person is known as a holder in due course.

5
Hence, A Negotiable Instrument is a

• Written instrument
• Signed by the maker or drawer of the instrument
• That contains an unconditional promise or order
  to pay
• An exact sum of money( with or without interest
  in a specified rate)
• On demand or at an exact future time
• To a specific person, or to order, or to its
  bearer

6
Presumption about Negotiable Instrument(u/s 118
119 of NI act)

• 1.Consideration Every NI has been made or drawn
  for the consideration
• 2. Date It has been made or drawn on the date of
  appears on it
• 3. Time of Acceptance It has been accepted
  within a reasonable time after being made and
  before its maturity
• 4. Time of Transfer Every transfer of the NI had
  been made before the maturity
• 5. Order of endorsement The endorsement appeared
  on NI have been made in the same order in which
  they appear on the instrument
• 6. Stamp It is presumed that it was duly stamped
• 7. Holder in due course
• 8. Proof of protest In a suit upon an
  instrument, which has been dishonoured, the court
  on proof of the protest

7
Kinds/types of Negotiable Instrument

• Negotiable by statute

8
(b)Negotiable by custom or usage
9

• Hundies Its a legal financial instrument , an
  unconditional order in writing made by a person
  directing another to pay a certain sum of money
  to a person named in order
• Share warrant It is like a option given by the
  company that gives the holder the right to buy
  stock from the company at a specified price
  within a certain designated time period
• Dividend warrant It is an instrument by which a
  company pays dividend in the form of cash back to
  its shareholders from the profit it has made out
  of its business operations
• Bankers draft where the funds are withdrawn
  directly from a banks funds, not from an
  individuals account
• Circular Notes It is a written request by a bank
  to its foreign correspondents to pay a special
  sum of money to a named persons
• Bearer Debenture Which are payable to the bearer
  and whose name do not appear in the register of
  debenture holder are known as Bearer Debenture

10

• Debenture of Bombay port trust it is special
  debenture issued by Mumbai Port Trust. The
  debenture are having the same features of
  general classes of debenture.
• Railway Receipts It means the receipt issued
  under sec 65 of the railways act, 1989. these are
  also a type of NI issued with monetary Values.
• Delivery Orders It is a document from shipper or
  owner of freight ordering the release of freight
  to another party.

11
PROMISSORY NOTE
MEANINGA promissory note is a legal instrument
in which one party (maker) promises in writing to
pay a determinate sum of money to the other
(payee) either at a fixed or determinable future
time or on demand of the payee, under specific
term
Definition Sec 4 of NI Act defines promissory
Note as, It is an instrument in writing
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 he
bearer of the instrument.
12
SPECIMEN OF PROMISSORY NOTE
13
Parties to a Promissory Note

• Maker it is a person who makes the promissory
  note and promises to pay the money stated therein
  
• Payee it is a person to whom the amount of
  promissory note is payable i.e., to whom the
  promise to pay is made.

14
(No Transcript)
15
Essential elements (features) of a promissory
note

• It must be in writing
• It must contain an express promise or clear
  undertaking to pay
• The promise to pay must be unconditional
• The maker must sign the promissory note
• The maker must be a certain person
• The payee must be certain
• The sum (i.e., money) payable must be certain
• Payable must be in legal money of the country
• A bank note or currency note is not a promissory
  note
• Other formalities

16
Bill of exchange

• Meaning
• It is a written order signed by one person
  (drawer) requiring a second person (drawee) to
  pay on demand or at a stated date an amount of
  money to, or to the order of, a specified person
  or the bearer (payee)
• 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 or the
  instrument Sec. 5, negotiable instrument act
  1881.

17
Parties to bill of exchange

• Drawer the maker of a bill of exchange and
  responsible for the contents written in the bill
• Drawee the person who is directed to pay
• Payee the person to whom the payment is made by
  the drawee as per the direction of drawer
• Along with these, the holder and acceptor also
  play role in bills of exchange.
• Holder the drawer or the payee who is in
  possession of the bill is called as holder
• Acceptor the person who accepts the bill is
  termed as Acceptor. He is none other than the
  Drawee.
• https//blog.apruve.com/what-are-the-various-types
  -of-bills-of-exchange

18
Essential Features of Bill of Exchange

• It should be in writing
• It should be an order to pay to a certain person
• It should contain an unconditional order
• The drawer, drawee and payee must be certain
• It should be signed by the drawer
• The sum payable must be certain
• The bill must contain an order to pay money only
• It should be in the form of an order to the
  drawee
• It should be properly stamped
• There are certain other formalities, such as
  number, date, consideration etc. which are
  usually found in the bill. But they are not
  essential in law.

19
Types of bill of exchange

•  
• On the basis of period
• Demand bill these bills have no fixed date for
  the payment. They become payable at any time
• Term bill these bills are payable after
  specified period of time. The period after which
  these bills become due for payment is called
  tenor
• On the basis of Object
• Trade bills these bills are drawn and accepted
  against the sale and purchase of goods on credit.
  These are drawn by the seller (creditor) and
  accepted by the buyer (debtor)
• Accommodation Bills these bills do not involve
  in sale and purchase of goods, rather they are
  drawn without any consideration. The intension is
  to help one party or both the parties financially
• Other classification of bills
• Inland bills these are the bills drawn in a
  country upon person living in the same country or
  made payable in the same country. Both drawer and
  the drawee reside in the same country
• Foreign bill are the bills drawn in one country
  and accepted, payable in another country e.g. a
  bills drawn in England and accepted and payable
  in India
•  

20
Specimen of bills of exchange
21
CHEQUE

• Introduction
• Cheque is an important negotiable instrument
  which can be transferred by mere hand delivery.
  Cheque is used to make safe and convenient
  payment. It is less risky and the danger of loss
  is minimized.
• Definition
• A Cheque is a bill of exchange drawn on a
  specified banker, and not expressed to be payable
  otherwise than on demand . sec.6, negotiable
  instrument act, 1881
• In simple language, a Cheque is a bill of
  exchange drawn on a bank payable on demand. Thus
  a Cheque is a bill of exchange with two
  additional qualifications, namely,
• It is always drawn on a bank and
• It is always payable on demand
• All Cheque are bills of exchange, but all bills
  are not Cheque

22

• Meaning/ Definition
• "Cheque is an instrument in writing containing an
  unconditional order, addressed to a banker, sign
  by the person who has deposited money with the
  banker, requiring him to pay on demand a certain
  sum of money only to or to the order of certain
  person or to the bearer of instrument."

23
Different Kinds / Types of Cheques
Types of Cheques
24

• 1. Bearer Cheque-When the words "or bearer"
  appearing on the face of the Cheque are not
  cancelled, the Cheque is called a bearer Cheque.
• -The bearer Cheque is payable to the person
  specified therein or to any other else who
  presents it to the bank for payment.
• - However, such Cheques are risky, this is
  because if such Cheques are lost, the finder of
  the Cheque can collect payment from the bank.

25

• 2. Order Cheque
• When the word "bearer" appearing on the face of a
  cheque is cancelled and when in its place the
  word "or order" is written on the face of the
  cheque, the cheque is called an order cheque.
• Such a cheque is payable to the person specified
  therein as the payee, or to any one else to whom
  it is endorsed (transferred).

26
Order cheque
27

• 3. Uncrossed / Open ChequeWhen a cheque is not
  crossed, it is known as an "Open Cheque" or an
  "Uncrossed Cheque".
• The payment of such a cheque can be obtained at
  the counter of the bank.
• An open cheque may be a bearer cheque or an order
  one

28

• 4. Crossed Cheque
• Crossing of cheque means drawing two parallel
  lines on the face of the cheque with or without
  additional words like " CO." or "Account Payee"
  or "Not Negotiable".
• A crossed cheque cannot be encashed at the cash
  counter of a bank but it can only be credited to
  the payee's account.

29

• 5. Anti-Dated ChequeIf a cheque bears a date
  earlier than the date on which it is presented to
  the bank, it is called as "anti-dated cheque".
• Such a cheque is valid up to three months from
  the date of the cheque
• For example - On 10 January 2019, Ram issued a
  cheque to Sham. Date written on the cheque is 10
  December 2018.

30

• 6. Post-Dated Cheque
• If a cheque bears a date which is yet to come
  (future date) then it is known as post-dated
  cheque.
• A post dated cheque cannot be honored earlier
  than the date on the cheque.
• For example - On 10 January 2019, Ram issued a
  cheque to Sham. Date written on the cheque is 10
  February 2019.

31

• 7. Stale ChequeIf a cheque is presented for
  payment after three months from the date of the
  cheque it is called stale cheque.
• A stale cheque is not honored by the bank.
• For example - On 10 January 2019, If the cheque
  is presented to the bank on 10 April 2019, the
  chque will be returned by bank stating that
  cheque is stale.

32
What is Crossing of Cheque ?

• A cheque is a negotiable instrument.
• During the process of circulation, a cheque may
  be lost, stolen or the signature of payee may be
  done by some other person for endorsing it. Under
  these circumstances the cheque may go into wrong
  hands.
• Crossing is a popular device for protecting the
  drawer and payee of a cheque. Both bearer and
  order cheques can be crossed.
• Crossing prevents fraud and wrong payments.
• Crossing of a cheque means "Drawing Two Parallel
  Lines" across the face of the cheque. Thus,
  crossing is necessary in order to have safety.
• Crossed cheques must de presented through the
  bank only because they are not paid at the
  counter.

33
Different Types of Crossing 

• 1. General Crossing -
• Generally, Cheques are crossed when There are two
  transverse parallel lines, marked across its face
  or
• The cheque bears an abbreviation " Co. "between
  the two parallel lines or
• The cheque bears the words "Not Negotiable"
  between the two parallel lines or
• The cheque bears the words "A/c. Payee" between
  the two parallel lines.
• A crossed cheque can be made bearer cheque by
  cancelling the crossing and writing that the
  crossing is cancelled and affixing the full
  signature of drawer.

34

• Specimen of General Crossing ?

35

• 2. Special or Restrictive Crossing -When a
  particular bank's name is written in between the
  two parallel lines the cheque is said to be
  specially crossed.
• Specimen of Special or Restrictive Crossing

36

• 3. Double crossing
• Sec 127 of NI Act 1881 states that if a paying
  banker receives a cheque crossed specially to the
  two bankers he must not pay it , however
• When a cheque bears two special crossing, is
  called Double Crossing. In this second bank act
  as agent of the first collecting banker. It is
  made when the banker in whose favour the cheque
  is crossed does not have branch where the cheque
  is paid.
• In simple words, if the banker, to whom the
  cheque is specially crossed, doesn't have a
  branch at the place of the payee banker, or if
  he, otherwise, feel the necessity, he may cross
  the cheque specially to another banker who acts
  as an agent for the purpose of collection of the
  cheque.

37

• 4. Restrictive crossing
• Restrictive or special crossings. Where some
  customary instruction is written between the two
  parallel transverse lines (constituting crossing o
  fcheque) that may result in imposing certain
  restrictions on the collecting or paying banker,
  it is called restrictive crossing. The example is
  "State Bank of India".

38

• CROSSING of a cheque means drawing two parallel
  transverse lines with or without the words, And
  Company or not Negotiable between the parallel
  transverse lines, across the face of a
  cheque. (See Section 123 of the NI Act, 1881).
• Who can Cross a Cheque?
• The Drawer of the Cheque can cross the cheque
  generally or specially.
• If it is an open cheque, (with no crossing on the
  cheque), then the holder can cross the cheque
  generally or specially.
• If the cheque is crossed generally,
  the holder can cross it specially.
• If an uncrossed cheque is tendered for
  collection, then the Collecting Banker can cross
  it to avail the protection under Section 131 AND
  131A of the NI Act, 1881.

39
INDORSEMENT(ENDORSEMENT)

• Meaning
• An endorsement consist of the signature of the
  holder usually made on the back of the NI with
  the object of transferring the instrument.
• The person making the indorsement is called an
  indorser and the person to whom the instrument
  is indorsed is called as indorsee.
• Definition
• According to sec .15 of NI Act 1881,where the
  maker or holder of a negotiable instrument signs
  the same, otherwise than 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 indorse the same and
  is called the indorser.

40
Essentials of a valid Indorsement

• It should be on the instrument. If there is no
  space on it ,it may be on a separate slip paper
  annexed to the instrument called allonge.
• The endorser should sign the endorsement in the
  same style and with the same spellings as written
  in the instrument.
• Signature should be in ink and not by pencil or
  rubber stamp.
• It should be signed by the maker or holder. It
  cannot endorsed by a stranger.
• The delivery of the instrument with the intention
  of passing the property in it to the indorsee is
  important.
• An endorsement may be made in blank or full. It
  may also be restrictive

41
Conti.

• The name of a married woman should be
  accomplished by the name of her husband.
• Mere signature of the holder, without any words,
  also constitutes endorsement. Any number of
  endorsement may be made on the instrument
• No particulars form of words is necessary to
  create a contractual relationship between
  endorser and the endorsee.
• An endorsement become complete only when
• The holder sign on the face or back of the
  instrument
• The instrument is delivered to the endorsee
• It is signed and delivered with the intention of
  vesting the endorsee with the rights of the
  holder

42
Effect of endorsement

• The endorsement of a negotiable instrument
  followed by delivery transfers to the endorsee
  the property therein with the right of further
  negotiation, but the endorsement may by express
  words, restrict or exclude such right.
• (a) "pay the contents to C only".
• (b) "pay C for my use".
• (c) "pay C on order for the account to B".
• (d) "the within must be credited to C".
• These endorsements exclude the right of further
  negotiation by C.
• (e) "pay C".
• (f) "pay C value in account with the Oriental
  Bank".
• (g) "pay the contents to C, bring part of the
  consideration in a certain deed of assignment
  executed by C to endorser and others".
• These endorsements do not exclude the right of
  further negotiation by C.

43
Kinds of indorsement
Types of Endorsement
44
(No Transcript)
45

• Blank or General Endorsement
• When endorser sign his name only on the face or
  back of the instrument it is known as Blank or
  General Endorsement.
• It specifies no specific endorsee , it can
  payable to bearer even though originally it was
  payable to order.

46

• Full or Special Endorsement
• If the indorser, in addition to his signature
  also adds a direction to pay the amount mentioned
  in the instrument to, or to the order of a
  specified person
• Ex pay A or order, pay to Z

47

• Partial Endorsement
• It purports to transfer to the endorsee only a
  part of the amount payable on the instrument,
  such an endorsement does not operate as a
  negotiation of the instrument and is invalid.

48

• Restrictive endorsement
• It is when the endorser express words, restricts
  the right of further negotiation of the
  instrument or entitle the endorsee of the
  instrument to receive the contents of the
  instrument for a specific purpose

49

• Conditional/ Qualified Endorsement
• Endorsement where the endorser attaches one or
  more conditions to his or her liability on a
  negotiable instrument, such as "To be paid upon
  the completion of the contract."Read more
  http//www.businessdictionary.com/definition/condi
  tional-endorsement.html

http//www.shareyouressays.com/essays/seven-import
ant-kinds-of-endorsements/92277
50

• Restrictive indorsement prohibits further
  negotiability of the instrument
• But Conditional endorsement does not prohibit the
  negotiability it simply limits or exclude the
  liability of the endorser