Negotiable Instrument and its

Crossing & Endorsement

NEGOTIABLE INSTRUMENTS

NI Act. 1881 came into force on 1st March 1882. After

liberation it was adapted through Bangladesh Bank Order
– 1972 (P.O.127). Originally there were 141 sections. As
the section 2 & 139 have been repealed through
Amendment, present number of section of the Act is 139.

Definition of Negotiable Instruments: Section 13 states as

under:

A “Negotiable Instrument” means a promissory note, Bill

of Exchange, or cheque payable either to order or bearer.
Specimen copy of Promissory Note
Specimen copy of Bill of Exchange
Specimen copy of Cheque
Promissory Note:

Section 4 states as under:

A " promissory note" is an instrument in writing (not

being a bank-note or a currency-note) 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.
Characteristics:
 It must be written undertaking.
 The maker must sign.
 The amount payable must be specific(certain).
 Payee of the note must be specific.
 Unconditional promise.
 It should be stamped.
 It must be an undertaking to pay money and only money.

Parties involved:

Maker and payee.

Bill of Exchange:

Section 5 states as under:

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 of the
instrument.
Characteristics:

 A bill must be in writing, duly signed by its

drawer, accepted by its drawee and properly
stamped as per Stamp Act.
 It must contain an order to pay. Words like
‘please pay Rs 5,000/- on demand and oblige’ are
not used.
 The order must be unconditional.
 The order must be to pay money and money
alone.
 The sum payable mentioned must be certain or
capable of being made certain.
 The parties to a bill must be certain.

Parties involved:
Drawer, Drawee, Acceptor, Payee (Endorser &
Endorsee)
Cheque:
Section 6 states as under:

A "cheque" is a bill of exchange drawn on a specified banker and

not expressed to be payable otherwise than on demand.

Characteristics:

 A cheque must be in writing and duly signed by the drawer.

 It contains an unconditional order.
 It is issued on a specified banker only.
 The amount specified is always certain and must be clearly
mentioned both in figures and words.
 The payee is always certain.
 It is always payable on demand.
 The cheque must bear a date otherwise it is invalid and shall
not be honoured by the bank.

Parties involved:

Drawer, Drawee, Payee (Endorser & Endorsee)

 Types of Cheque:
i. Bearer Cheque
ii. Order Cheque

The cheque which contains the word “bearer” after the

payee’s name is a “bearer cheque”.

Specimen copy of bearer Cheque

As regards bearer cheque section-85(2) of NI. Act. states as under:

Where a cheque is originally expressed to be payable to bearer, the -

drawee is discharged by payment in due course to the bearer thereof,
notwithstanding any endorsement whether in full or in blank appearing
thereon, and notwithstanding that any such endorsement purports to
restrict or exclude further negotiation.

According to the subject “section” a bearer cheque is as good as cash. It

can be transferred to anybody by mere hand to hand delivery i.e.
without written endorsement on the cheque. Even if a stolen bearer
cheque is paid, over the counter, drawee bank cannot be made liable for
effecting payment if it is made in due course. A cheque originally
expressed as bearer cheque and if it is subsequently made restricted for
negotiation by endorsement, drawee bank shall not be made liable for
payment. It may be kept in mind that “once a cheque is issued as
bearer it is always bearer”.

As per section-50 legally a bearer cheque can be charged to order

cheque by a restrictive endorsement. Since intension of the transferor is
to get the payment by a specific person it is advisable that the paying
bank to find out the bonafide person before making payment to avoid
dispute or litigation through law does not require it.
Order cheque

The cheque in which the words “or bearer” are strike out
and order is given by the drawer to a specific person for
payment, is an order cheque.

Specimen copy of order Cheque

Section85(i) states as under:

Where a cheque payable to order purports to be

endorsed by or on behalf of the payee, the drawee is
discharged by payment in due course.

The order cheque may be paid over the counter but the
drawee bank shall have the responsibility to verify the
identification of the named person.

As per section 47 & 48 an order cheque is negotiable

by endorsement and delivery thereof.
 Crossed Cheque

 If a cheque bears two parallel lines on its

face it is to be called crossed cheque.
Usually a cheque is crossed on the top of
its left corner.
A crossed cheque is never paid at the
counter of any bank.
 Types of crossing:
 q General crossing
 q Special crossing
Characteristics of General crossing:

Except “A/C payee” any cheque with general crossing can

be transferred from one person to another but with
endorsement. In case of bearer cheque it can be
transferred from one person to another by mere hand to
hand delivery without any endorsement.

According to section 123A of NI. Act. “A/C payee” cheque

q Shall not be negotiable (transferable).

q It shall be the duty of the banker collecting payment
of the cheque to credit the proceeds thereof only to the
account of the payee named in the cheque.
Cheque with “Not negotiable” crossing relates to
“section 130 of NI. Act. which refers to the fact that the
person who is taking the cheque shall not have and
shall not be capable of giving a better title than that
he took.
Special crossing:

According to section 124 of NI. Act “ a cheque shall be

treated as specially crossed cheques if it bears across its
face the name of a banker either with or without the
words “negotiable”

Example:
Crossing or change of crossing after issue:

Section 125 of NI. Act.

i. When the cheque is uncrossed, the holder may cross it

generally or specially.

Stage-I:
Stage-II: Mr. Karim as holder may cross it as under.
i. When a cheque is crossed generally the holder may cross it
specially.

Example:

Stage-I:
Stage-II:
iii. Where a chque is crossed generally or specially the holder
may add the word “Not negotiable”.

Example:

Stage-I:
Stage-II:
iv. Where a cheque is crossed specially, the banker to whom it
is crossed, may again cross it specially to another Banker his
agent for collection.

Stage-I:
Stage-II:
v. When an uncrossed cheque or a cheque crossed generally is sent to a
banker for collection it may cross the same specially to itself.

Example:

Stage-I:
Stage-II:

No one is authorized to change/alter the crossing except the above cases

covered by NI. Act.
Endorsement:

Section 15 of NI.Act states as under:

When 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 therof 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 endorse the same, and is called the “Endorser”.

Example:

Stage-I:

order
Stage-II:
Overleaf of the cheque

Please pay to Mr. Rahim or order

Karim

Here:
Mr. Karim is Endorser
Mr. Rahim is endorsee
Mercantile Bank Ltd. is the drawee bank.
Blank Endorsement – Full Endorsement

According to section 16 of NI. Act. if the endorser signs his name

only, it is said to be Blank.

Example:

Blank Endorsement
Stage-I:

order
Stage-II:
Overleaf of the cheque

………………………………………………

Karim

Mr. Karim has made a blank endorsement.

Full Endorsed

If the endorser signs and accords a directive for the amount

mentioned in instrument as to pay to a specified person or to his
order. It is said to be endorsed in full.

Example:

Stage-I:

order
Stage-II:
Overleaf of the cheque

Please pay to Mr. Rahim or order

Karim Endorsed in full

Mr. Karim has made a full endorsement mentioning a specified

person Mr. Rahim.
Partial endorsement:

Partial endorsement refers to transfer of partial amount of the amount mentioned in

the cheque. It is considered as invalid endorsement.

order

Overleaf of the cheque

Please pay Tk.2,000/- to Mr. Rahim or order

Karim Invalid

It is a partial endorsement and it is invalid.

Restrictive Endorsement:

In this regard section 50 NI. Act. states as under:

q Excludes the right to further negotiate.

q Endorsee becomes the agent of the endorser to endorse the
instrument or to receive money for the endorser or for some
other specified person.

Example:

Stage-I:

order
 Stage-II:
Overleaf of the cheque

Pay to Mr. Jashim or order for the A/C of Mr. Karim

Karim

Mr. Rahim has nominated Mr. Jashim as agent and restricted the
endorsement by mentioning “for the A/C of Mr. Karim”.
Conditional Endorsement:

i. Without recourse : Where endorser excludes his liability for the

endorsement made.

Example:

Stage-I:

order
 Stage-II:
Overleaf of the cheque

Pay to Mr. Jashim or order without recourse to the endorser

Karim

Without recourse indicates that if the cheque is dishonoured or

paid it otherwise Mr. Jashim Shall have no right to claim on the
instrument.
Facultative Endorsement: In case of dishonour of cheque the
Endorsee requires to give notice of dishonour to the endorser. It
is an endorsement whereby, endorser waives some of his rights
on the instrument. Under facultative endorsement endorser shall
endorse the cheque in the following manner.

Example:

Stage-I:

order
 Stage-II:
Overleaf of the cheque

Pay to Mr. Jashim or order, notice of dishonour waived

Karim

Here endorser shall remain liable to the endorsee even

notice of dishonour is not served.
Reasons of Dishonour of Cheques:

Banks may dishonour a cheque if it is found to be not

in order without incurring any liability
thereagainst:

q Cheque may be post-dated or undated.

q Insufficient balance.
q cheque is presented after business hour.
q Signature of Drawer differs with the recorded
specimen signature.
q Cheque is stale i.e. presented after 6 months of
its issuance.
q Amount in words and figures differs.
q Cheque is mutilated.
q A/C is seized by the regulatory authority.
Wrongful dishonour

Bank must not dishonour a cheque without justification. According

to section 31 of NI Act Bank is liable to compensate the drawer for
the loss or damage due to wrongful dishonour.

Punishment against dishonoured cheque.

As per section 138 of NI Act if cheque is issued by the drawer and

subsequently it is dishonoured, drawer may be punished with
01(one) year imprisonment or more with fine twice the amount
of cheque or with both.

Before going to the court payee shall have to fulfill the following
conditions.
a. The cheque should be presented within a period of six months
from the date of its issuance or within its validity.
b. The payee must serve notice of dishonour within 15 days of
dishonour.
c. Failure of the drawer in paying the amount of cheque within 15
days of the receipt of the notice by the payee.
Holder:

The “holder” of a promissory note, bill of exchange or cheque

means the payee or endorsee who is in possession of it or the
bearer thereof but does not include a beneficiary owner claiming
through a benamidar.

Holder in due course:

“Holder in due course” means any person who for consideration

becomes the possessor of a promissory note, bill of exchange or
cheque if payable to bearer, or the payee or endorse thereof, if
payable to order, before it became overdue, without notice that the
title of the person from whom he derived his own title was
defective.

Payment in due course:

“Payment in due course” means payment in accordance with the

apparent tenor of the instrument in good faith and without
negligence to any person in possession thereof under
circumstances which do not afford a reasonable ground for
believing that he is not entitled to receive payment of the amount
therein mentioned.