Negotiable instruments

the negotiable instrument is a document which is legally recognized by custom of trade or law, transferable by delivery or by endorsement and delivery

1. NEGOTIABLE INSTRUMENTS ACT 1881

2. W h a t i s N e g o t i able I nstruments The term negotiable instruments means a written document which entitles a person to a sum of money. A negotiable instruments is transferable by delivery or by endorsement and delivery. The transfer entitles a person to the sum of money mentioned therein. “Thus the negotiable instrument is a document which is legally recognized by custom of trade or law, transferable by delivery or by endorsement and delivery.”

3. Characteristics Of a Negotiable Instrument Freely transferable : The property in a negotiable instrument passes from one person to another by a simple process, i.e., by mere delivery if it is payable to bearer, and by endorsement and delivery if it is payable to order. Holder’s title free from all defects : The holder in due course (one who acquires the instrument in good faith and for consideration) gets it free from all defects. Recovery : One can sue upon the instrument in his own name. Payable to order or bearer : - It must be payable either to order or bearer Presumption as to Holder :- Every holder of negotiable instrument is presumed to be holder in due course. Presumption as to considerations :- Every negotiable instrument is presumed to have been made, drawn, accepted, endorsed , negotiated or transferred for consideration.

4. Types of Negotiable Instruments Promissory note. Bill of exchange. Cheque.

5. Promissory N ote A promissory note is 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.

6. Parties MAKER : The person who makes the promissory note and promises to pay is called the Maker. PAYEE : The person to whom the payment is to be made is called the Payee. HOLDER : The holder is either the payee or someone to whom he may have indorsed (transfer) the note is known as Holder. ENDORSER : The person who approves the note to another is called the Endorser . ENDORSEE : The person to whose favor the note is sanctioned is called the Endorsee

7. It must be in writing. It must contain a promise or undertaking to pay a definite sum of money. The promise to pay must be unconditional. It must be signed by the maker. The payee must be identified & must be certain. The sum payable must be certain. Essentials Of The Promissory Notes

8. Format of Promissory Note Rs. 10,000/- Delhi, February10,2012 Three months after date I promise to pay cyko on order the sum of ten thousand rupees, for value received. To, Cyko 22 2, A s h o k Vi h a r Delhi-110052 Stamp S d / - Ram

9. Bill Of Exchange 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 certain person to the bearer of the instrument.

10. Parties DRAWER : The person who makes the bill of exchange is called drawer. DRAWEE : The person who is directed to pay is called drawee. PAYEE : The person to whom the payment is to be made is called payee. ACCEPTOR : When the drawee accepts the bill is called acceptor.

11. Characteristics of the Bill of Exchange The amount payable must be certain. The payment must be made in money. The bill payable may be either on demand or after a specified period. The bill may be payable either to the bearer or to the order of payee.

12. Format Of Bill Of Exchange Rs. 500 Greater Noida,21 Feb.2009 Three months after the date pay to Ram or order the sum of Five Hundred rupees , for value received. To, Cyko 235,Subhash marg delhi-110006. In case of need with Canara Bank, Delhi A cc e p t ed Cyko S d / - Stamp K r i s hna

13. Cheque A cheque is a bill of exchange drawn on a specified banker and expressed to be payable otherwise than on demand. The maker of a bill of exchange or Cheque is called the “Drawer"; the person thereby directed to pay is called the "Drawee".

14. Pa r t ies DRAWER : The person who makes a cheque is called Drawer. DRAWEE : The person who is directed to pay is called Drawee. PAYEE : The person to whom the payment is to be made.

15. Characteristics of Cheque In writing Express order to pay Definite and unconditional order Signed by drawer Order to pay certain amount Payable on demand

16. F o r m a t O f C h e q u e No.…….. Date………..2010 Pay…………………………………………………………or bearer the sum of Rs………………………………… Sd / - Rs………………… A/c No LF No PUNJAB NATIONAL BANK Subzi Mandi,Delhi -110007 “5777100” 111013035”

17. C r o ss i n g o f C h e q u e A cheque is said to be crossed when it bears across its face two parallel transverse lines which are usually drawn on the left hand top corner of the Cheque. Legally there are two kinds of crossing. General crossing : The drawing up of two parallel lines on the face of the check at the top left hand corner with or without the words & Co not negotiable or Account payee only is known as a General Crossing. Special crossing : A check is deemed to be crossed specially when it bears across its face the name of the banker either with or without the words not negotiable.

18. Negotiation An instrument is said to be negotiated: When a promissory note, BOE, cheque is transferred to any person so as to constitute that person the holder of the instrument Transfer with an intention to transfer the title of the instrument. Negotiation by delivery Negotiation by endorsement and delivery

19. D i sho n or A negotiable instrument is said to be dishonored by non- payment when the maker, acceptor or drawee, as the case maybe makes default in payment upon being duly required to pay the same. Dishonor by non payment Dishonor by non acceptance

20. Dishonor by non acceptance According to sec 91 a bill of exchange is said to be dishonoured by non acceptance in following cases When drawee or one of several drawees (not being partners) does not accept the bill within 48 hrs from the time of presentment for acceptance. When the presentment for acceptance is excused and the bill is not accepted i.e., remains unaccepted. When the drawee is incompetent to contract. Where drawee makes the acceptance qualified. If the drawee is a fictitious person or after a reasonable search cannot be found (Sec.61)

21. DISHONOUR BY NON PAYMENT When the maker of note, acceptor of the bill or drawee of cheques makes default in payment upon being duly required to pay the same (sec.92). A promissory note or bill of exchange is dishonoured by non payment when presentment for payment is excused expressly by the maker of note or acceptor of the bill and the note or bill remains unpaid at or after maturity(sec. 76)

22. EFFECT OF DISHONOUR The holder becomes entitled to sue parties liable to pay thereon. The drawer of cheque , maker of note, acceptor and drawer of bill and all the indorses are liable severally and jointly to a holder in due course

23. NOTING Noting is a convenient method of authenticating the fact of dishonour . Where an instrument is dishonoured , the holder, besides giving the above notice, should get the bill or promissory note 'noted' by the notary public. The notary public presents the instrument, notes down in his register date of its dishonour and the reason, if any, given by the acceptor. If the instrument has been expressly dishonoured , the reason why the holder treats it as dishonoured and the notary's charges should be metioned . 'Noting' must be made within a reasonable time after dishonour . Noting is not compulsory in the case of an inland bill or note, but foreign bills must be protested, if s required by the law of the place where drawn. 

24. PROTESTING The protest is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. After the noting has been made, the formal protest may be drawn up by the notary at his leisure. When the protest is drawn up it relates back to the date of noting. A protest to be valid must contain the following particulars: The instrument itself, or a literal transcript thereof. The names of the parties against whom the instrument is protested. The fact and reason/reasons for dishonour . Place and time of dishonour or refusal to give better security. Signature of the notary public. In the event of an acceptance for honour or of a payment for honour , the name of the person by whom or the person for whom, and the manner in which, such acceptance or payment was offered and effected.

25. Holder and Holder in due course Holder is a person who is entitled in his own name to the possession of the negotiable instrument and to recover the amount thereon . Holder in due course is a person who came into possession of the instrument on payment of consideration and without knowledge of the fact that the former owner had a defective title . The holder in due course has a better title than the holder

26. Privileges of a holder in due course He can sue every prior party to the negotiable instrument if the instrument is not duly satisfied . When the holder endorses such instrument further, the new owner has a good title unless he is party to fraud . The burden of proving his title does not lie upon the holder in due course.

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