NEGOTIABLE INSTRUMENT

It means a written document which creates a right infavour of some persons and which is freely transferable. According to sec.13 of the negotiable instrument act , a negotiable instrument means a promissory note, a bill of exchange or cheque, payable either in order to bearer whether the words order or bearer appears on the instrument or not.

CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT

Negotiability Title Recovery Presumption

PRESUMPTIONS AS TO A NEGOTIABLE INSTRUMENT

That every N.I was drawn, accepted & endorsed, made or transferred for consideration That the date it bears is the date on which it was made That it was accepted within a reasonable time after being made & before maturity That every transaction was made before maturity The endorsement were made in the same order in which they appear That the lost instrument was duly signed & stamped Every holder of a N.I is a holder in due course unless it is proved that the holder has taken it from the true owner either without his free consent or without consideration

PROMISSORY NOTE
Section 4 of the Act defines a promissory note as an instrument in writing (not being a bank note or currency note) containing an unconditional undertaking, signed by the maker , to pay a certain sum of money only to or to the order of, certain person, or to the bearer instrument.

Essential characteristics of promissory note

It is an instrument in writing. It is a promise to pay. The undertaking to pay is unconditional. It should signed by the maker. The maker must be certain. The payee must be certain. The promise should be to pay money and money only. Amount should be certain. Other formalities.

Specimen of a promissory note

When promise is made to pay the money on demand

Rs 5,000 Bangalore march 15, 2011 On demand, I promise to pay shri suresh or order a sum of Rupees five thousand, value received. To Shri Suresh B-20 green park Bangalore.

stamp Sd/-Ramesh

When promise is made to pay after the expiry of a fixed time.

Rs 5000, Bangalore 15, 2011 March

Three months after date, I promise to pay Shri Suresh or order a sum of Rupees Five thousand, value received. To Shri Suresh B-20 Green park Bangalore.

stamp Sd/Ramesh

BILLS OF EXCHANGE
Section 5 of the Negotiable instrument Act defines a Bills of Exchange 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. A bill of exchange, therefore is a written acknowledgement of debt, written by the creditor and accepted by the debtor.

Essential characteristics of Bills of Exchange

It must be in writing. It must be signed by the drawer. The drawer, drawee and payee must be certain. The sum payable must also be certain. It should be properly stamped. It must contain and express order to pay money and money alone. The order must be uncoditional.

Examples of promissory note

1. I promise to pay B or order Rs. 500 2. I Acknowledge myself to be indebted to B in Rs. 1,000 to be paid on demand, for value received. Examples of Bills of Exchange 1. Please pay Rs. 500 to the order of A. 2. Mr. A will oblige Mr.C by paying to the order of P.

Specimen of bill of exchange

A bill where payment its to be made on demand.

Rs. 1,000 Bangalore 15, 2011 On demand pay to Sri Hari mohan or order a sum of Rupees One thousand only, Value received: To Sri Krishna A-31Model Town Bangalore-10. March

Stamp Sd/Vishnu

A bill where payment is to be made on the expiry of a specified period of time.

Rs. 1,000

Bangalore March 15, 2011. Three months after date pay shri Harimohan or order a sum of Rupees one thousand only,Value received.
To Sri Krishna A-31 Model town Bangalore-9.

Stamp Sd/Vishnu

DIFFERENCE BETWEEN BILLS OF EXCHANGE AND A PROMISSSORY NOTE

1.Number of parties: There are 3 parties in case of a BOE drawer, drawee and payee. in case of PN there are only two parties- maker and payee. 2.Promise and order: PN contains a promise and an undertaking and not an order to pay. A BOE must at imply that the drawe has a right to ask the drawee to pay, though however polietely it may be worded.

3. Acceptance: Bill payable after sight requires acceptance of the drawee before it is presented for payment while a PN does not. 4. Maker Position: In a PN maker stands in an immediate relationship with a payee, whereas in a BOE the maker (drawer) stands in immediate relationship with the acceptor and not the payee. 5. Formalities in the case of Dishonour: Notice to prior parties: In the case of dishonour of a bill either by non-acceptance or non payment, notice of dishonour must be given by the holder to all prior parties. while in case of a dishonour of PN no notice is necessary to the maker. Protest: Foreign bills must be protested for dishonour if such protest is necessary according to the law of the palce where they are drawn. No protest is necessary in the case of PN whether inland or foreign. 6. Copies: Foreign bills are drawn in sets, normally 3 copies are prepared, while only one copy of a foreign PN is prepared.

Classification of Bills
Inland Bills and foreign bills Time and Demand Bill Trade and Accomodation Bill Inland Bill. A bill is termed as inland bill if It is drawn in India on a person residing whether payable in or outside India Or It is drawn in India on a person residing outside India but payable in India.

1.

2.
3.

Foreign Bill

A bill which is not an inland bill is a foreign bill. A bill drawn in India and made payable in India. A bill drawn outside India and made payable in India. A bill drawn outside India on any person residing outside India. A bill drawn outside India on a person residing in India. A bill drawn outside India and made payable outside India.