Group:- 13

Name Prn
Akash Kumar Sah 19021141009
Anand Kumar Sah 19021141139
Sushmita Paudel 19021141143
Chandan Kumar Gupta 19021141142
Aashik Jayswal 19021141137
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 The Law in India relating to negotiable instruments is

contained in the Negotiable Instruments Act, 1881 which
applies and extends to the whole of India.
 The provisions of this Act are also applicable to Hundis, unless
there is a local usage to the contrary.
 Recent three amendments made in Negotiable Instruments
Act, 1881 were the :-
1.) Negotiable Instruments (Amendment and Miscellaneous
Provisions)Act,2002.
2.) Negotiable Instruments (Amendment) Act,2015.
3.) Negotiable Instruments (Amendment) Act,2018
 Negotiable Instruments is an instrument (the word
instrument means a document) which is freely transferable (by
customs of trade) from one person to another by mere delivery
or by endorsement and delivery. The property in such an
instrument passes to a bonafide transferee for value.
 The Act does not define the term ‘Negotiable Instruments’.
However, Section 13 of the Act provides for only three kinds of
negotiable instruments:-
Promissory Note
Type of Negotiable

Instrument

Bill of Exchange

Cheque
According to section 4 of the Negotiable Instruments
Act, 1881, “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.”
 As per Section 5 of the Negotiable Instruments Act,1881
“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.”

 SPECIMEN OF BILL OF EXCHANGE:-

 Parties of a Bill of Exchange
 There are three parties involved in a bill of exchange:-

 The Drawer :-
The person who makes the order for making payment. In
the above specimen, Rajiv is the drawer.
 The Drawee :-
The person to whom the order to pay is made. He is generally a
debtor of the drawer. It is Sameer in this case.

 Payee :-
The person to whom the payment is to be made. In this case it is
Tarun.
S.N. Basis Promissory Note Bill of Exchange

1. Definition "A Promissory Note" is an A bill of exchange” is

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.
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.

2. Nature of In a promissory note there is a In a bill of exchange

Instrument promise to pay money only. there is an order for
making payment

3. Drawn By Debtor Creditor

 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 and it includes the electronic image of a
truncated cheque and a cheque in the electronic form.

Bill of Specified
exchange banker

Drawn
Payable on
Cheque on
demand
 Differences between “Negotiation” and “Assignment”
S.N. Basis Negotiation Assignment
1. Applicable If a negotiable instrument is
Act transferred by way of
negotiation, Negotiation
Instrument Act,1881 applies.
2. Meaning Negotiation means transfer of a
negotiable instrument to any
other person so as to constitute
that person the holder of such
negotiable instrument.
3. Scope It can be made for transferring
negotiable instrument only.
4. Notice Notice of negotiation is not
required to be given to any
party.
Where any right is
transferred by way of
assignment, The Transfer of
Property Act,1882 applies.
Transfer of a right to
receive the payment of a
debt by one person(viz.,
assignor) to another person
(viz., assignee) by way of a
written document is called
as assignment.
Assignment can be made of
any right.
Notice of assignment must
be given by the assignee to
debtor.
S.N Basis Negotiation Assignment

5. Method or A bearer instrument can be Assignment is valid only if

Manner negotiated merely by delivery, and it is made in writing and is
an order instrument can be signed by the assignor.
negotiated by endorsement and
delivery.
6. Consideration It is presumed that every negotiable There is no such
instrument was negotiated for presumption in case of
consideration. assignment.
7. Burden of The other party has to prove that The assignee has to prove
proof negotiation was without any that there was some
consideration. consideration.
8. Better title The transferee of negotiable The assignee does not
instrument acquires a title better acquire a title better than
than that of the transferor, i.e. he that of the assignor.
can become a holder in due course.
9. Stamp duty Negotiation does not require Assignment require
payment of stamp duty. payment of stamp duty.
 Person who is entitled in his own name to the possession of
the instrument and to receive or recover the amount due
thereon, from the parties thereto[ section 8]
 Agent holding an instrument for his principal is not a holder
According to section 9,

1. Person who for the consideration become the possessor of a

negotiable instrument if payable to bearer
2. The payee or endorsee thereof , if payable to order, before
its maturity, and without having sufficient causes to believe
that any defect existed in the title of the person from whom
the derived his title
 Holder vs Holder-in-due-course
 Entitlement -Own name vs possession with consideration
 Consideration- No consideration vs valuable
consideration
 Maturity- before as well as after maturity vs only before
maturity
 Title- Holder in due course has better title than that of
transferor
 Right to recover amount- preceding party vs any prior
party
Section 138- Dishonour of cheque for insufficiency, etc., of funds in the accounts

Where any cheque drawn by a person on an account maintained by him with a banker for
payment of any amount of money to another person from out of that account for the
discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid,
either because of the amount of money standing to the credit of that account is insufficient to
honour the cheque or that it exceeds the amount arranged to be paid from that account by an
agreement made with that bank, such person shall be deemed to have committed an offence
and shall without prejudice to any other provisions of this Act, be punished with
imprisonment for 2["a term which may extend to two year"], or with fine which may extend
to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless.

1. The cheque has been presented to the bank within a period of six months from the date
on which it is drawn or within the period of its validity, whichever is earlier.
2. The payee or the holder induce course of the cheque, as the case may be, makes a
demand for the payment of the said amount of money by giving a notice, in writing, to the
drawer, of the cheque, 3["within thirty days"] of the receipt of information by him from the
bank regarding the return of the cheques as unpaid, and
3. The drawer of such cheque fails to make the payment of the said amount of money to
the payee or, as the case may be, to the holder in due course of the cheque, within fifteen
days of the receipt of the said notice.
 CASE STUDY : CHEQUE FRAUD - FORGED SIGNATURE
The client was shocked to discover that a cheque for $4,900 has been cleared
through his account the previous month – and he didn’t write it. He informed the
bank immediately, which produced the original cheque . It was obvious that the
signature was a forgery, and the client asked for the money back . However, the bank
refused, saying the client was to blame. He couldn’t remember receiving the
cheques for the account, or where they were stored, and the bank cited the account
agreement which required the account holder to be responsible for safeguarding the
cheques.In our investigation, there was no dispute about the forgery – the signature
wasn’t even close. And the bank admitted that it did not verify the signature before
cashing the cheque, and then allowed it to clear. Nonetheless, the client’s
responsibility was also clear – he should have ensured the blank cheques were
secure.In our interview with the client, he confirmed that he did not remember
receiving the blank cheques. He then suggested several places where they might
have been stored in his home, but he couldn’t be sure. We also considered that on
the specific cheque used in the transaction, the forger had to add the name and
address manually, which was correctly done.

We recommended the bank compensate the client for half the amount, recognizing
the joint responsibility for this unfortunate incident.(2005)
 Bill of Exchange : In Canara Bank vs. Canara Sales Corporation and Others
[(1987)2 Supreme Court Cases 666]

The company has a current account with the bank which was operated by the Company’s
Managing Director. The Company’s account in whose custody the cheque book was, forged the
signature of the Managing Director in 42 Cheques totaling Rs.326047.92 over a period of time.
This was detected by another accountant. The company immediately on detected of the fraud
demanded the amount from the bank. The bank refused payment and therefore the company
files a suit against the bank. The bank lost the suit and took the matter up to the Supreme
Court .

The Supreme Court dismissed the appeal of the bank and held that Since the relationship
between the customer and the bank is that of acreditor and debtor, the bank had no authority
to make payment of a cheque containing a forged signature. The bank would be acted against
the law in debiting the customer with the amount of the forged cheque as there would be no
mandate on the bank to pay. The Supreme Court pointed out that the document in the cheque
form on which the customer’s name as drawer was forged was a mere nullity. The bank would
succeed only when it would establish adoption or estoppels. In dealing the case the Supreme
Court relied on its earlier judgment in Bihta Cooperative Development and Cane Marketing
Union Ltd vs. bank of Bihar (AIR 1967 Supreme Court 389)
THANK YOU