Negotiable instruments & banker

Dr. Nandimath Omprakash V.,

Professor in Law,
National Law School of India University,
Bangalore-560 072
Email ovnandimath@nls.ac.in

Expected outcome of the session

1. Negotiable instruments a reorientation
1. Nature of negotiable instruments
2. The strategy of law regarding negotiable instruments

2. Negotiable instruments & banker

1. Contextualization
2. Popular instruments among bankers
3. Various legal challenges regarding negotiable
instruments

3. Miscellaneous
1. Parked questions
2. Other assorted aspects relating to negotiable
instruments

Presentation content sequence

1. Negotiable instruments nature & basic understanding
2. Negotiable instruments in India an introduction to scheme of
law in India
1. Definitions
2. Holder and Holder-in-due-course
3. Validity of instruments
3. Negotiation & liability arising out of instruments
4. Liability of the parties to an instrument
1. Drawer of the promissory note
2. Acceptor of the Bill of Exchange
3. Drawer of the Cheque
5. Banker & negotiable instruments
1. Protection to the paying banker
2. Protection to the collecting banker
6. Discharge from liability

Understanding the background

Negotiable instruments are one among the basic
instruments for securitization
Meaning they bring greater translatability to economic
activities

They enshrine the convenience of cash sans risk

(i.e., the risk attached with money generally)

Negotiable instruments an introduction

Might have originated from negoce (French word)
meaning business, trade or management of affairs
negotiable is something which is legally capable of
being transferred by endorsement or delivery, and
negotiability is the legal character of being negotiable
Blacks Law Dictionary

Special indicators
It gives certain rights to the person in lawful
possession of such an instrument which no other
instruments can ever give
It represents money to a great extent; and
Does not get tainted by any defect in title at the source
so long as its acquisition is lawful
Ex: if the maker of the instrument commits fraud or
forgery the bona fide payee of the instrument is not
affected
It passes by delivery like cash
Person in lawful possession of it can sue in his own
name

Negotiable instrument Indian definition

A negotiable instrument means a promissory note,

bill of exchange or cheque payable either to order or to
bearer S. 13 of NIAct, 1882

Kinds of negotiable instruments

The Act deals in three kinds of instruments

1. Promissory Note;
2. Bill of Exchange; and
3. Cheque.

Application

Doesn't affect the Paper Currency Act, 1871;

Any local usage relating any instrument in an oriental
language
Hundis;
Rukka

Hundi
The saving clause does not render the act altogether
inapplicable to hundis
local custom overrides the statute provided
It is established by the party relying on it; and
Such local usage is not specifically nullified by the
instrument specifically (indicating the intent of the
parties)

By excluding the applicability of the Act to instruments in

oriental languages, necessary confusion in the state of
law has been established. The law of negotiable
instruments being closely related to the commercial
world should be, by and large, uniform in its
application
Khergamvala on Negotiable Instruments Act
Eleventh Report of the Law Commission of India
(1958)

the Negotiable Instruments Act, 1881 has been framed in

order to assimilate and record the mercantile trade
practices, prevailing as the law merchant in England and
therefore any usage contrary to the provisions of the
said Act may not be upheld by a court. It is presumed
that the Act has taken into account, all the prevailing
mercantile usages and any usage, contrary to the
provisions of the Act cannot be given effect to
- Punjab National Bank v Britannia India Ltd., [(2001)
106 Comp Cas 293 DB]