Are Negotiable

Instruments a Myth?

Yogesh Bhandari - 9
Jay Bhansali - 11
Samidha Bhase - 12
Deep Gala - 19
Jigar Gala - 20
Ripple Gupta - 24
Medha Mahajan - 33
Prashant Menon - 36

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 Agenda

§Definition of Negotiable Instruments

§Type of Negotiable instruments
§Characteristics of Negotiable Instruments
§Presumptions of Negotiable Instruments
§Essentials of Promissory Note, Bill of Exchange and Cheque
§Parties to Promissory Note, Bill of Exchange and Cheque
§Distinction between Promissory Note and Bill of Exchange and Cheque
§Types of crossing of Cheque
§Types of Hundis
§Dishonour of Negotiable Instruments and Actions taken on dishonour
§Compensation
§
§

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Definition

‘Negotiable’ means ‘transferable’ by delivery, and ‘Instrument’ means

a ‘written document by which a right is created in favour of some
person’.

According to the section 13(1) of the Negotiable Instruments act of

1881,
A Negotiable instrument means a promissory note, Bill of exchange
or cheque payable either to order or to the bearer.

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Types of Negotiable Instruments

§Promissory Note: A promissory note is an instrument in writing

containing an unconditional undertaking signed by the maker to pay a
certain sum of money only to a certain person or the bearer of the
instrument

§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 another person a certain sum of money

§Cheque: A cheque is a bill of exchange on a specified banker and

not expressed to be payable otherwise than on demand

§Hundis: Negotiable instruments written in any vernacular language

according to the Indian Mercantile common law are called as Hundis

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Specimen of Negotiable Instruments

Promissory Note

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Specimen of Negotiable Instruments

Bill of Exchange

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Specimen of Negotiable Instruments

Cheque

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Characteristics of Negotiable Instruments

ØFreely transferable

ØTitle of holder free from defects

ØRecovery

•Holder can sue in his own name

•Can be transferred infinitum

ØSubject to presumptions
§

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Presumptions of Negotiable Instruments

ØAs to consideration
ØAs to date

ØAs to acceptance

ØAs to transfer
ØAs to the order of endorsements

ØAs to lost instruments

ØAs to holder-in-due course

ØAs to dishonour
§

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Essentials of Promissory Note

ØIn writing
ØPromise to pay
ØUnconditional
ØSigned by the maker
ØCertain parties
ØCertain sum of money
ØPromise to pay money only
ØNumber, place, date etc.
ØMaybe payable in installments
ØMaybe payable on demand or after a definite period
ØMust be duly stamped

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Essentials of Bill of Exchange

ØMust be in writing
ØMust contain an order to pay and not a promise or a request
ØUnconditional
Ø3 parties: Drawer, Drawee and Payee
ØParties must be certain
ØSigned by drawer
ØSum payable must be certain
ØOrder must be to pay money
ØMust be duly stamped
ØNumber, date and place not essential

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Essentials of Cheque

ØWritten instrument
ØUnconditional order
ØOn a specified banker only
ØA certain sum of money
ØPayee to be certain
ØPayable on demand
ØAmount of the cheque
ØDating of cheque

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Parties to Negotiable Instruments - I

ØPromissory Note ØBill of Exchange

•Maker •Drawer
•Payee •Drawee
•Holder •Acceptor
•Endorser •Payee
•Endorsee •Holder
• •Endorser
•Endorsee
•Drawee
•Acceptor of
Honour
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Parties to Negotiable Instruments - II

ØCheque
•Drawer
•Drawee
•Payee
•Holder
•Endorser
•Endorsee
•

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 Distinction - I

Promissory Note Bill of Exchange

Promise Nature Order
Maker & Payee Payee Drawer & Payee
Not Required Acceptance Required
Maker Liable Drawer
Not Necessary Notice Given to all Prior Parties
Bearer Payable to… Bearer on Demand
Cannot be Drawn Sets Can be Drawn

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 Distinction - II

Bill of Exchange Cheque

Anyone Drawee Only Banker
Needs Acceptance Not Required
Demand - Time Payment Demand
Never Crossed Crossing May be Crossed
Properly Stamp Stamp
Needed Noting - Protesting Not Needed
Not Possible Countermandate Possible
Necessary Notice of Dishonour Necessary
3 Days Grace Days 0 Days

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Types of Crossing of Cheques

There are two types of cheques

1). Open cheques.
2). Crossed cheques.

A cheque is payable in cash across the counter of a bank is called an

open cheque.
A crossed cheque is one on which has two parallel lines or without the
words ‘& co.

Types of crossing:-
1). General crossing
2). Special crossing.

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Hundi

Hundies are the negotiable instrument written in vernacular language.

some times these are even like promissory notes. The word hundi is
derived from the Sanskrit word ‘hund’ which means to collect.

Types of hundies:
1.Darshani hundi
2.Muddati hundi
3.Shah jog hundi
4.Nam jog hundi
5.Dhani jog hundi
6.Firman jog hundi
7.Jawabee hundi
8.Jokhami hundi
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Dishonour of Negotiable Instruments

ØDishonour by Non Acceptance

§Bill of Exchange
Ø
ØDishonour by Non Payment
§Promissory Note

§Bill of Exchange

§Cheque

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Dishonour by Non Acceptance

ØWhen a Drawee / Drawees (not being partners) make default in

Acceptance
ØThe Presentment for Acceptance is excused and the Bill remains
unaccepted
ØDrawee is incompetent
ØDrawee makes the Acceptance qualified
ØDrawee is fictitious person or absconding

IMP: In case of the note where ‘drawee in case of need’ is named in a

bill of exchange,the bill is not dishonoured until it has been
dishonoured by such drawee (Sec 115)

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Dishonour by Non Acceptance

Ø A promissory note, bill of exchange or cheque is said to be dishonoured by

non payment when the maker of the note, acceptor of the bill or the frawee
of the cheque makes default in payment upon being duly required to pay
the same(Sec 92)
Ø
Ø A promissory note, bill of exchange or cheque is said to be dishonoured by
non payment when payment is excused by the maker of the note or the
acceptor of the bill and the note remains unpaid at or after

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Effects of Dishonour

ØAs soon as the negotiable instrument is dishonoured, the holder

becomes entitled to sue the parties to pay thereon
Ø
ØThe drawer of the cheque, the maker of the note, acceptor and drawer of the
bill and all the endorsers are liable jointly to a holder in due course
Ø
ØThe holder must give ‘NOTICE OF DISHONOUR’ to all the parties against
whom he intends to proceed
Ø
ØHe may also have the instrument ‘NOTED AND PROTESTED’ before a
notary
Ø
Ø
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Notice of Dishonour
NOTICE BY WHOM: NOTICE TO WHOM:
§Holder of the instrument who §All the parties whom the holder
remains liable(Sec 93) seeks to make liable, such as
§ drawers or endorsers
§To be passed to all the other §
recipient parties(Sec 95) §In case the person concerned is
• deceased, it may be given to his
• official assignee(Sec 94)
MODE OF GIVING NOTICE:

According to Sec 94,notice can be

oral or written(by post) and sent to
the business

•
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Compensation

ØCompensation to holder
a) Amount due upon instrument
b) Interest on principal sum
c) Expenses incurred in presenting, noting and protesting the
instrument.
d) Occurs when the person charged resides at a place different
from that at which the instrument was payable.
ØCompensation to Endorser
Endorser is entitled to receive compensation in case of dishonor
of bill
ØRe-draft

The party dishonouring the bill can give another bill (including the
interest amount) as compensation.
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Are Negotiable Instruments a Myth?

ØNegotiable Instruments are not a myth.

ØAll business do not carry on cash transactions.
ØNegotiable Instruments are credit devices that are most widely used
in trade transactions.
ØIf business were to carry only on cash currency, then there would be
less trade. This in result would lead to low job creation, low demand,
low consumption of goods and services and low growth of the
economy of the country.
ØHence Negotiable instruments like Bill of Exchange, Promissory
Notes and Cheques are reality and need of the hour.

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• Questions

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