Negotiable Instruments Negotiable Instruments

Dr. S. C. Bihari
Dr. S. C. Bihari
2
PROMISSORY NOTE PROMISSORY NOTE
PROMISSORY NOTE (Section 4)
- 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 the
bearer of the instrument
Dr. S. C. Bihari
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Bills of Bills of Exchange Exchange
BILL OF EXCHANGE (Section 5)
- 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
Dr. S. C. Bihari
4
CHEQUE (Section 6) CHEQUE (Section 6)
- A cheque is a Bill of Exchange
- drawn on a specified banker, and
- not expressed to be payable otherwise than
on demand
- it includes the Electronic Image of a
truncated cheque and a cheque in electronic
form
Dr. S. C. Bihari
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NEGOTIATION NEGOTIATION
Transfer with title is called
negotiation.
- Transferee gets absolute title even
though the transferor has defective
title provided the transferee is
holder in due course.
Dr. S. C. Bihari
Negotiability Negotiability
Negotiability is the special quality possessed by a
negotiable instrument, namely:
A negotiable instrument may be transferred from
one holder to another without the drawer being
advised about each new holder;
An assignee of a negotiable instrument may
sometimes acquire a better right to sue on the
instrument than its predecessor had; and
A holder may sue in its own name any other party
liable on the instrument.
Dr. S. C. Bihari
Methods of Negotiation Methods of Negotiation
Negotiable instruments may be negotiated in two
ways:
By endorsement and delivery; or
By delivery only.
There are various types of endorsement:
Special endorsement;
Conditional endorsement;
Qualified endorsement; and
Anomalous endorsement.
Dr. S. C. Bihari
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HOLDER (Section 8) HOLDER (Section 8)
A person becomes holder subject to the
following conditions:
The instrument is in his name
- He is in the possession of the instrument
- He is entitled to receive/collect the amount
from the parties on whom the instrument is
drawn
Dr. S. C. Bihari
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HOLDER IN DUE COURSE HOLDER IN DUE COURSE
(Section 9) (Section 9)
A person becomes holder in due course
subject to the following conditions:
- He has received the instrument for
consideration
- He Should have received the instrument
before the due date
-contd. In next slide
Dr. S. C. Bihari
HOLDER IN DUE HOLDER IN DUE COURSE COURSE
contd. contd.
He did not have any doubt about the title of the
transferor at the time of taking the instrument
- There is no not negotiable crossing on the face
of the cheque
- There is no forgery of endorsement (already
existing on the back of the cheque by way of
endorsement)
- The transferee acted with good faith & without
negligence
Dr. S. C. Bihari
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INCHOATE (INCOMPLETE) INCHOATE (INCOMPLETE)
INSTRUMENTS (Section 20) INSTRUMENTS (Section 20)
The holder of an inchoate instrument can
recover the amount that is filled in the
inchoate instrument
Provided such holder acts in good faith &
without negligence and he is a holder in due
course.
Dr. S. C. Bihari
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CROSSING CROSSING
Drawing two transverse parallel lines across the
face of cheque is called crossing
- All crossings are instruction to Paying Banker
not to pay a cheque across the counter
- A/c Payee crossing is an instruction not only to
Paying Banker but also to Collecting Banker.
- Crossings are 2 types i.e. General Crossing &
Special Crossing
.
Dr. S. C. Bihari
General Crossing (Section General Crossing (Section
123) 123)
If some words are there in between two parallel
transverse lines, and
If such words have some meaning, and if such
meaning is a relevant for the payment of the
cheque treat such words as instructions to
banker, otherwise ignore such words. Two
parallel transverse lines are compulsory for
general crossing.
Dr. S. C. Bihari
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Special Crossing In this type of
crossing the name of a bank is
inserted in between the two
transverse parallel lines.
However these two parallel
transverse lines are not compulsory
for special crossing.
A clearing stamp, collection stamp
put on a cheque BY THE BANK also
amounts to special crossing
Dr. S. C. Bihari
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ENDORSEMENT (Section 15)
- Endorsement is an instruction by the payee/holder to the
paying bank, as to whom the
payment of the cheque/draft should be made
- Normally endorsement is done on the back side of a
cheque/ draft. But as per section 15
of the act, it t can also be done on the face of the instrument;
- Endorser/Drawer will have the same rights
- If the drawers signature forged, it is not a cheque at all,.
Similarly if an endorsement is forged the parties
subsequent to the forged endorsement cannot get better title.
Dr. S. C. Bihari
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PAYMENT IN DUE COURSE (Section 10)
- Payment of the instrument as per its tenor (appearing on the
face of cheques)
- Payment to the presenter
- payment in good faith & without negligence ( Honesty &
Diligence)
- While making the payment of the instrument, the paying
banker should not get a doubt about the title of
the presenter to receive the payment ( If a person of ordinary
prudence is there in the place of the paying
banker he too should not get a doubt about the bonafides of the
presenter.)
Dr. S. C. Bihari
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PROTECTION TO COLLECTING BANKER
- Protection is available to the collecting u/s 131 of NI Act(Sec.131 A
for drafts) subject against the risk of
Conversion (Conversion =Collecting a cheque for a party other than
the turn owner) subject to the
following conditions:
(a) The cheque should have been collected for an account holder, who
is properly introduced (KYC
Norms)
(b) The cheque is crossed before it comes to bankers hands
(c) The relationship between Banker & Customer should be that of
Agent & Principal
(d) Banker should act in good faith & without negligence
- Thus Protection u/s 131 is only available for crossed cheques only.
There is no protection for (a)open
cheques. And (b) cheques purchased by Banks.
Dr. S. C. Bihari
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BOUNCING OF CHEQUES CRIMINAL
LIABILITY (Section 138 142)
- The cheque should have been issued for
consideration
- The cheque is presented on the banker within its
validity period
- The cheque is bounced for one of the following
reasons
(a) Insufficient funds
(b) Exceeds arrangements
(c) Account closed
(d) Payment stopped by the drawer (without keeping
sufficient balance in the account)
Dr. S. C. Bihari
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Punishment imprisonment up to 2 years or
penalty up to double the amount of the cheque or
both.
Note: It differs in case of summary of suits)
- Section 139 The cheque in question is deemed
to have been received for consideration. The onus
of
proof for lack of consideration lies on the drawer.
- Section 140 The defence of the drawer in the
Court of Law stating that he had no intention at
any point
of time to bounce the cheques would not be
considered by the Court
Dr. S. C. Bihari
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- Section 141 When a cheques issued by a Company
is bounced, all the persons responsible for
conducting the business of the Company are liable on the
bounced cheques (i.eall the directors
excepting the nominee directors are liable.)
- Section 142 Cognizance of offences Normally
Courts take cognizance of a criminal offence only
when it is routed through police. Cheque bouncing case
as per Section 138 is a criminal offence .But it
need not be routed through police
Thanks for your attention Thanks for your attention
Dr. S. C. Bihari
Tell:08417-236660 to 65(Extn: 6214)
Mail:scbihari@gmail.com