INTRODUCTION
• ‘Negotiable’ means transferable by
‘delivery’, and ‘Instrument’ means ‘written document’ which creates a right in
favour of any person.
• Therefore, a
negotiable instrument is a written document which creates a right in favour of
any person and which is a transferable by delivery.
• According to Section13 of the act, “A Negotiable Instrument means Promissory Notes, Bill of Exchange, or payable either to order or to bearer”.
• It is a written
document.
• A negotiable
instrument payable to bearer is transferable merely by delivery, whereas a
negotiable instrument payable to order is transferable by endorsement and
delivery.
• The holder of a
negotiable instrument can sue upon it in his own name.
• The consideration is
not mentioned on the negotiable instrument. It is presumed that the negotiable
instrument has been drawn for a valuable consideration.
• It works in the same
manner as money and like money; it may also be transferred from instrument.
• It is the simplest
and most convenient mode of assignment of debt.
PRESUMPTIONS
AS TO NEGOTIABLE INSTRUMENTS
1. The each negotiable instrument has been drawn,
accepted and transferred for a consideration.
2. The instrument has
been made or drawn on the date mentioned on it.
3. The instrument was
accepted within reasonable time after the date on which it was drawn or made but before the date of its maturity.
4. He negotiable instrument was transferred in
the same order.
5. The holder of a
negotiable instrument is a holder in due course.
TYPES OF NEGOTIABLE
INSTUMENT
1.
PROMISSORY NOTE
•
According to section 4 of the Indian Instrument Act, 1881, “ A promissory note
is 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 to, or to the order of a certain person”.
FEATURES
OF PROMISSORY NOTE
1)
It must be in writing.
2)
It must contain a clear promise to pay. Mere acknowledgment of debt is not a
promise.
3)
The promise to pay must be unconditional. “I promise to pay Rs 5,000 as soon as
I can” is not an unconditional promise.
4)
The promisor or maker must sign the promissory note.
5) The maker must be a certain person.
6)
The payee (the person to whom payment is promised) must also be certain.
7)
The sum payable must be certain and must not be capable of contingent additions
or subtractions. “I promise to pay Rs 5,000 plus all fines” is not certain.
8)
Payment must be in legal tender money only. “I promise to pay B Rs 3,000 and
one quintal of paddy,” is not a promissory note.
Parties
of Promissory Note
I)
The maker: This is basically the
person who makes or executes a promissory note and pays the amount therein.
II)
The payee: The person to whom a
note is payable is the payee.
2)
Bills Of Exchange:
According
to Negotiable Instrument 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.
FEATURES
OF BILL OF EXCHANGE
1) Written:
A bill of exchange always be in writing.
2) Unconditional:
a bill of exchange is unconditional, i.e., there is no condition attached to
it.
3) Order Letter:
A bill of exchange is an order letter. It is drawn by the creditor on the
debtor and it is in the form of an order not a request.
4) Signature of the drawer: a bill of
exchange must be signed by the drawer as well as the drawee.
5) Fixed Amount:
A bill of exchange is drawn in the form of an order to pay a fixed sum of
money.
6) Payment to a
specified person: A bill of exchange is payable to the
person specified therein, or to the order of the specified person or to the
bearer as the case may be.
7) Fixed date of
payment: A bill of exchange is payable either on demand or
after the expiry of the specified duration.
PARTIES
OF BILLS OF EXCHANGE
·
Drawer:
The person who makes the bill, or who gives the order to pay a certain sum of
money, is the drawer of the instrument.
·
Drawee:
The person who accepts the bill of exchange, or who is directed to pay a
certain sum, is called drawee.
·
Payee:
The person receiving payment is called the payee, who can be a designated
person or the drawer himself.
PRECAUTIONS
IN WRITING THE BILL OF EXCHANGE
1) Place:
the place of drawing the bill of exchange is written at the top in the right
hand corner of the bill.
2) Date:
the date is written right below the place of drawing in the right-hand corner
of the bill.
3) Amount:
the amount of the bill of exchange is mentioned both in figures as well as in
words.
4) Stamp:
the stamp is affixed in the left-hand corner of the bill right below the place
where the amount is mentioned in figures.
5) Signature of drawer:
the drawer signs his name on the bottom right-hand corner of the bill.
Kinds of Bills of
Exchange
1. Inland Bills:
Inland bills of exchange are one which is drawn by a business man for
acceptance by another businessman of the same country. Therefore an inland bill
of exchange is one in which both the parties are in the same country.
2. Foreign Bill:
when a businessman from one country draws a bill of exchange on a businessman
belonging to another country, in other words, the drawer and the acceptor live
in different countries, and then such a bill of exchange is known as a foreign
bill of exchange.
3) CHEQUE
• According to
Negotiable Instrument Act1881- A “Cheque” is a bill of exchange drawn on a
specified banker and not expressed to be payable otherwise than on demand.
• A cheque is an
unconditional order in writing drawn by a customer on his bank, requesting the
specifying bank to pay on demand a certain sum of money to a person named in
the cheque or to the bearer or to the order of a stated person”. Cheque must
possess following requirements
1) A cheque must be
drawn upon a specified banker.
2) A cheque must be payable
on demand.
3) A cheque must be
signed by the drawer.
4) A cheque must be an
unconditional order to pay a certain amount of money.
5) A cheque must be
dated.
Crossing of cheque
• Meaning of cheque:
When two angular
parallel line are drawn on the face of the cheque, the cheque is said to have
been crossed.
• These lines are
usually drawn on the upper left hand corner of the cheque. Sometimes some words
are mentioned in between these lines, otherwise they are left blank.
• A crossed cheque is
considered to be much safer from the point of view of payment.
TYPES
CROSSING OF CHEQUE
1) General crossing:
General crossing, the
cheque bears across its face an addition of two parallel transverse lines
and/or the addition of words ‘and Co.’ or ‘not negotiable’ between them.
• In the case of general crossing on the
cheque, the paying banker will pay money to any banker. For the purpose of
general crossing two transverse parallel lines at the corner of the cheque are
necessary.
2) Special crossing
• In special crossing,
the cheque bears across its face an addition of the banker’s name, with or
without the words ‘not negotiable’.
• In this case, the
paying banker will pay the amount of cheque only to the banker whose name
appears in the crossing or to his collecting agent.
• In case of special
crossing the payment can be received only from the bank which is mentioned in
the specified crossing.
• Thus, the paying
banker will honour the cheque only when it is ordered through the bank mentioned
in the crossing or its agent bank.
Bouncing of cheque
• Bouncing cheque is a
criminal offense in India.
• This offense comes
under section 138 of Negotiable Instrument act,1881 and the consequences could
be two years as well as twice the amount of the cheque.
• The cheque has been,
presented to the bank within a period of three months from the date on which is
drawn or within the period of its validity, whichever is earlier.
• 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.
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