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Mayur Malviya
Negotiable instruments
The term 'negotiable instrument' has been defined as - A 'negotiable instrument' means a promissory note, bill of exchange or cheque payable either to order or to bearer." Negotiable instruments, such as bills of exchange, promissory notes or cheques are pieces of paper representing the ownership of debts and obligations and are used to settle the debt by an exchange or transfer of credit without the need for cash.
Prof. Mayur Malviya
Definition 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 instrument Examples of Promissory Notes A signs instruments in the following terms: "I acknowledge myself to be indebted to 'B' in Rs. 1000, to be paid on demand, for value received."
Prof. Mayur Malviya
A promissory note cannot be made payable to the maker himself. Thus, a note in the form, I promise to pay myself is not a promissory note; but such a note becomes valid if it is endorsed by the maker, because then it becomes payable to bearer, if endorsed in blank, or to the endorsee or to, if specially endorsed.
BILL OF EXCHANGE
A 'bill of exchange' is defined by as 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.
Prof. Mayur Malviya
1. It must be in writing. 2. It must contain an order to pay and not a promise or request. 3. The order must be unconditional. 4. There must be three parties, viz., drawer, drawee and payee. 5. The parties must be certain. 6. It must be signed by the drawer. 7. The sum payable must be certain or capable of being made certain. 8. The order must be to pay money and money alone. 9. It must be duly stamped as per the Indian Stamp Act. 10. Number, date and place are not essential.
HENRY BROWN
CHEQUE
A cheque is defined as 'a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Thus, a cheque is a bill of exchange with two added features: (i) it is always drawn on a specified banker; and (ii)it is always payable on demand and not other-wise.
Prof. Mayur Malviya
SPECIMEN OF CHEQUE
BANK OF INDIA A/C No. 1001 BOMBAY 20th January, 1998 No. SB 7007007 Pay to William Smith or Bearer Rupees Five Thousand Only.
1. It must be drawn only on a banker. 2. The amount is always payable on demand. 3. The cheque is not entitled to days of grace. 4. Acceptance is not needed. 5. A cheque can be crossed 6. Notice of dishonour is not necessary. The parties thereon remain liable, even if no notice of dishonor is given. 7. A cheque is not to be noted or protested in case of dishonor. 8. The protection given to the paying banker in respect of crossed cheques is peculiar to this instrument.
1) It can be drawn on any person including a banker. 2) The amount may be payable on demand or after a. specified time. 3) A usance (time) bill is entitled to three days of grace. 4) A bill payable after sight must be accepted. 5) Crossing of a bill of exchange is not possible. 6) Notice of dishonor is necessary to hold the parties liable thereon. A party who does not receive a notice of dishonor can generally escape its liability thereon. 7) A bill is noted or protested to establish dishonor. 8) No such protection is available in the case of bills.
There are only two parties the maker (debtor) and the payee (creditor). A note contains an unconditional promise by the maker to pay the payee. No prior acceptance is needed. The liability of the maker or drawer is primary and absolute. No notice of dishonour need be given. The maker of the note stands in immediate relation with the payee.
There are three parties the drawer, the drawee and the payee- although any two of these capacities may be filled by one and the same person. It contains an unconditional order to the drawee to pay according to the drawer`s directors. A bill payable `after sight` must be accepted by the drawee or his agent before it is presented for payment. The liability of the drawer is secondary and conditional upon non-payment by the drawee. Notice of dishonour must be given by the holder to the drawer and the intermediate endorsers to hold them liable thereon. The maker or drawer does not stand in immediate relation with the payee.
A Promissory note when endorsed becomes a bill of exchange. A cheque is a on demand instrument. There is no grace period given to cheque. Maturity of an instrument is the date on which it falls due. Instrument marked at sight or on presentment means on demand.
Prof. Mayur Malviya
Dishonour of bill
Dishonour by Non acceptance Dishonour by Non payment
Dishonor of cheques
Section 138 to 142 of the Negotiable Instruments Act provide for criminal penalties in the event of dishonor of cheques for insufficiency of funds. The drawer, under Sec. 138, may be punished with imprisonment upto 2 years (earlier 1 year) or with a fine up to twice the amount of the cheque or with both In order to attract the aforesaid penalties, following conditions must be satisfied: (1) Insufficiency of funds (2) Payment against an enforceable debt (3) Cheque should be presented to the paying bank within the validity period (generally 6 months from the date on which it is drawn) (4) Payee to serve Default Notice, demanding payment within 30 days (5) Drawer liable upon failure to pay within 30 days
Prof. Mayur Malviya
NOTING
Noting is a convenient method of authenticating the fact of dishonor. Where an instrument is dishonored, 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 dishonor and the reason, if any, given by the acceptor. If the instrument has been expressly dishonored, the reason why the holder treats it as dishonored and the notary's charges should be mentioned. 'Noting' must be made within a reasonable time after dishonor. Noting is not compulsory in the case of an inland bill or note, but foreign bills must be protested, if it is required by the law of the place where drawn.
Prof. Mayur Malviya
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: 1. The instrument itself, or a literal transcript thereof. 2. The names of the parties against whom the instrument is protested. 3. The fact and reason/reasons for dishonour. 4. Place and time of dishonour or refusal to give better security. 5. Signature of the notary public. 6. 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.
Types of bill
Accomodation bill Fictitious bill Escrow Foreign bills