Negotiable Instruments Act 1881, concept.pptx

Negotiale Instrument Act 1881

1. Negotiable Instruments Act 1881 The word of Negotiable means, transferable from one person to another. The word instruments means, any written documents by which a right is created in favour of some persons. It is an instruments which is transferable (by custom of trade by delivery, like cash and is also capable of being sued upon by the persons holding it for the time being. Section 13 of NI act, 1881, does not define a negotiable instruments As per section 13 of the act . A negotiable instruments means a promissory note, bill of exchange & cheque either to order or bearer

2. DEFINITION According to Section 13 of the Act, "Negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer, whether the word "order" or " bearer" appear on the instrument or not." In the words of Justice, Willis, "A negotiable instrument is one, the property in which is acquired by anyone who takes it bona fide and for value notwithstanding any defects of the title in the person from whom he took it". Thus, the term, negotiable instrument means a written document which creates a right in favour of some person and which is freely transferable. Although the Act mentions only these three instruments (such as a promissory note, a bill of exchange and cheque ), it does not exclude the possibility of adding any other instrument which satisfies the following two conditions of negotiability:

3.   CHARACTERISTICS OF A NEGOTIABLE INSTRUMENTS Easy transferability Prompt payment Transferee’s title free from all defects Transferee Notice of transfer not necessary: Presumptions 1. Consideration: 2. Time of acceptance: 3. Time of transfer 4. Order of endorsement: 5. Stamp : 6. Every holder is a holder in due course 7. Proof of protest: 8. Date  

4. TYPES OF NEGOTIABLE INSTRUMENT A . Negotiable instruments recognized B Negotiable instruments recognised by usage or by statute (By the Negotiable Instruments Act) custom are: 1. Promissory notes Hundi 2. Bills of exchange 3. Cheque Shar e warrants Dividend warrants Bankers draft Circular notes Bearer debentures Debentures of Bombay Port Trust Railway receipts Delivery orders

5. PROMISSORY NOTE Section 4 of the Act defines, "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 to or to the order of a certain person, or to the bearer of the instruments." Parties to a Promissory Note: Maker – The person who makes the note and promises to pay. Payee- The person to whom the amount is payable .

6. Essential elements An instrument to be a promissory note must possess the following elements: It must be in writing: A mere verbal promise to pay is not a promissory note. It must contain an express promise to pay: There must be an express undertaking to pay. A mere acknowledgment of debt is not enough. Promise to pay must be unconditional: A conditional undertaking destroys the negotiable character of an otherwise negotiable instrument. It should be signed by the maker: The person who promise to pay must sign the instrument even though it might have been written by the promisor himself. The maker must be certain: The note itself must show clearly who is the person agreeing to undertake the liability to pay the amount. 

7. The payee must be certain: The instrument must point out with certainty the person to whom the promise has been made. The promise should be to pay money and money only: Money means legal tender money and not old and rare coins. The amount should be certain: the amount payable must be certain. Other formalities: The other formalities regarding number, place, date, consideration etc. though usually found given in the promissory notes but are not essential in law.

9. BILLS OF EXCHANGE Section 5 of the Act defines, "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". Parties to Bill of Exchange Drawer : The maker of a bill of exchange Drawee : The person directed to pay the money by the drawer * Acceptor : After a drawee of a bill has signed his assent upon the bill, he is called the acceptor. Payee : The person to whom the money is to be paid.

10. Essential conditions of a bill 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 an express order to pay money and money alone. The order must be unconditional.  

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12. CHEQUE Section 6 of the Act defines "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 bill of exchange with two more qualifications, namely, it is always drawn on a specified banker, and it is always payable on demand. Consequently, all cheque are bill of exchange, but all bills are not cheque . Parties to a Cheque Drawer. the person who draws the cheque . Drawee . It is the drawer's banker on whom the cheque has been drawn. Payee. He is the person who is entitled to receive the payment of the cheque .  

13. Types of Cheques Types of Cheques Open Cheque – When the cheque is payable at the counter of the bank on whom it is drawn, it is called an open cheque . It may be of two types . o Bearer Cheque - When a cheque is payable to the bearer i.e. to the person who presents the cheque to the bank for encashment, is called bearer cheque . It can be transferred by mere delivery. Hence there is a great risk. Eg . Pay ‘A’ or bearer. Order Cheque - When a cheque is payable to person named in the cheque or to his order, is called Order Cheque . It can be transferred only by endorsement and delivery. Eg . Pay ‘A’ or order.

14. Crossed Cheque – To reduce the risk involved in open cheque , a cheque may be crossed. It is the cheque on which two parallel transverse lines are drawn across the top left , with or without the word : ' & Co.' Not Negotiable A/c Payee It can not be encashed at the counter of the bank , can be received through a collecting banker . MODES OF CROSSING (1) General Crossing – In general crossing, simply two parallel transverse lines at the left hand side of its top corner with or without words such as 'and company' or 'not negotiable' may be drawn. Effect - Payment can be made through bank account only, and not at the counter.

15. 2. Special Crossing - When a cheque bears the name of the bank in between the two parallel lines, with or without the words 'not negotiable' is called Special Crossing . Effect - The bank will pay to the banker whose name is written in between the crossed lines .

16. (3) Restrictive Crossing - In this, crossing of cheques is done by writing Account Payee or Account Payee only in between the crossing lines. Effect - Payment will be credited to the account of payee named in the cheque . (4) Not negotiable Crossing - A person taking a cheque crossed generally or specially, bearing in either case the words 'not negotiable' shall not be able to give a better title to the holder than that of the transferor. Effect - The cheque can be transferred but the transferee will not acquire a better title to the cheque . Thus a cheque is deprived of its essential feature of negotiability.