Negotiable instrument 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 favour of some person. Thus the negotiable instrument is a document by which the right vested in a person can be transferred to another person in accordance with the Negotiable Instruments Act 1881 The term Negotiable Instrument has been defined as Negotiable Instrument means a promissory note, bill of exchange, or cheque payable either to order or to the bearer Characteristics 1. Freely transferable 2. Title of holder free from all defects A person who is holding negotiated instrument he is free from a defect in the title of the transferor Ex: S sells certain goods to B. B gives a promissory note to S for the price. He refuses to pay the promissory note, claiming that the goods are not according to order. If S sues B on the note, Bs defence is good. But if he negotiates the note to H, a holder in due course, Bs defence will be of no avail. 3. Recovery A holder of the negotiable instrument can sue for recovery of the amount. 4. Presumptions Negotiable instrument is for consideration Dated Reasonable Time of acceptance Before the maturity it should transferred Stamp when there is a dishonor ENDORSEMENT: Endorsement means writing of ones signature on the face or back of a bill for the purpose of transferring the title of the bill to another person. The person who endorses is called the Endorser. The person to whom a bill is endorsed is called the Endorsee. The endorsee is entitled to collect the money. Types of endorsement:

MEANING OF BILL OF EXCHANGE According to the Negotiable Instruments Act 1881, a bill of exchange is defined as 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. The following features of a bill of exchange emerge out of this definition. A bill of exchange must be in writing. It is an order to make payment. The order to make payment is unconditional. The maker of the bill of exchange must sign it. The payment to be made must be certain. The date on which payment is made must also be certain. The bill of exchange must be payable to a certain person.

The amount mentioned in the bill of exchange is payable either on demand or on the expiry of a fixed period of time. It must be stamped as per the requirement of law.

Parties of a bill of exchange 1. Drawer- Drawer is the creditor who draws the bill. For him bill is the Bill Receivable. 2. Drawee- Drawee is the debtor who accepts to pay the bill. For him bill is the bill payable. 3. Endorser- Endorser is one who endorses the bill to settle his account with his creditor. 4. Endorsee- Endorsee is one who receives the bill from the endorser. 5. Payor- Payor is the drawee who pays the bill. 6. Payee- Payee is one who receives the payment from the drawee. One who holds the bill at the time of maturity, receives the payment. PROMISSORY NOTE This definition suggests that when a person gives a promise in writing to pay a certain sum of money unconditionally to a certain person or according to his order the document is called is a promissory note. Following features of a promissory note emerge out of the above definition: It must be in writing It must contain an unconditional promise to pay. The sum payable must be certain. It must be signed by the maker. The maker must sign it. It must be payable to a certain person. It should be properly stamped. A promissory note does not require any acceptance because the maker of the promissory note himself promises to make the payment

Distinguish between Bill of Exchange and Promissory Note Both a bill of exchange and a promissory note are instruments of credit and are similar in many ways. However, there are certain basic differences between the two. Basis Bill of Exchange Promissory Note Drawer It is drawn by the creditor It is drawn by the debtor Order or It contains an order to make It contains a promise to make Promise payment. There can be three payment. There are only two and Parties parties to it, viz. the drawer, the parties to it, viz. the drawer and drawee and the payee. the payee. Acceptance It requires acceptance by the It does not require any drawee or someone else on his acceptance. behalf. Payee Drawer and payee can be the Drawer cannot be the payee of it. same party. Notice In case of its dishonour due No notice needs to be given in notice of dishonour is to be case of its dishonour. given by the holder to the drawer

CHEQUE A cheque is a bill of exchange drawn upon a specified banker and payable on demand. . It is the electronic form means it contains the exact mirror image of the proper 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. Types Open cheque A cheque which is payable in cash across the counter of a bank Crossed cheque It is the one on which two parallel transverse lines with or without the words &Co are drawn. Types of crossing 1. General crossing A cheque is said to crossed generally where it bears across its face an addition of the words &Co or any abbreviation between two parallel transverse lines either with or without the not negotiable. 2. Special crossing Where a cheque bears across its face an addition of the name of a banker, either with or without the words not negotiable the cheque is deemed to be crossed specially. 3. Restrictive crossing A cheque which additionally contains the words A/C Payee in the general or special crossing cheque with or with out the words not negotiable CLASSIFICATION OF NEGOTIABLE INSTRUMENT 1. Bearer and order instruments A negotiable instrument is payable to bearer A negotiable instrument is payable to order 2. Inland and foreign instrument o Drawn in Indian and payable in India o Drawn outside India & made payable in outside or inside India is foreign instrument 3. Instrument payable on demanda cheque always payable on demand 4. Time instrument -which is payable after a period 5. Accommodation bill -a bill drawn,accepted or indorsed for without consideration 6. Fictitious bill -when the name of the drawer or the payee or both is fictitious in a bill, the bill is called a fictitious bill 7. Escrow -when a negotiable instrument is delivered conditionally or for a special purpose 8. Ambiguous instrument -faulty draft instrument which cannot be identified as bill of exchange or promissory note. 9. Inchoate instrument -incomplete instrument LIABILITY OF PARTIES

1. 2. 3. 4.

Liability of drawer-Liable in case of dishonour by the drawee Liability of drawee -must pay the bill or cheque when required Liability of the maker and acceptor-Liable to pay to the holder Liability of indorser -Liable to all subsequent holders for dishonour before the maturity

DISHONOR OF NEGOTIABLE INSTRUMENT Bill may be dishonored by non-acceptance or by non-payment but a cheque and Note are dishonored by non-payment only 1. Dishonor by non-acceptance(sec.91) BOE is dishonoured by non-acceptance in any of the following ways. If the drawee does not accept the bill within 48hours from the time of presentment though it is presented for the acceptance When the presentment is excused and the bill is not accepted. When the drawee incompetent to contract When the drawee gives qualified acceptance or conditional acceptance When the drawee is a fictitious person or he cannot be found 2. Dishonor by non-payment(sec.92)-when the maker or the drawee makes default in payment NOTICE OF DISHONOR When the negotiable instrument is dishonoured the holder must give a notice to all the prior parties whom he wants to make liable on the instrument Object of the notice-inform the party about their liability which accrues as a result of dishonour. 1. Notice by whom o Notice by holder or any prior party o chain method of giving notice o Notice by principal or agent 2. Notice to whom o Notice to all parties whom the holder seeks to make liable o Notice to party or his agent or legal representative or assignee 3. Form of notice o The notice may be in oral or in written o It must be given within a reasonable time at the place of business 4.Exceptions for notice (sec.98) Notice of dishonor is not necessaryo When it is dispensed with or waived by the party entitled thereto o When the drawer himself has stopped the payment o When the party cannot be found after a reasonable search o When the promissory note is not negotiable o When the concerned party is already knowing the fact of dishonourment and has promised to make the payment. NOTING AND PROTESTING Noting means the recording of the fact of dishonor by a Notary public upon the instrument within a reasonable time after dishonor(sec.99)

The certificate of noting is called protest(sec.100). It is a formal notarial certificate attesting the dishonor of instrument Contents of Noting o -The fact of dishonour o -The date of dishonour o -The reasons o -The notary charges Contents of protest o -The instrument o -The name of the person against whom it is protested o -The reasons of dishoour o -The place and time of dishonour o -The signature of the notary public