NEGOTIABLE INSTRUMENTS ACT 1881

4 Promissory Note  An unconditional undertaking

 Signed by the maker
 To pay a certain sum of money only
To or to the order of a specified person
5 Bill of Exchange  Signed by the drawer
 An unconditional order
 Payable at sight or on due date
 Directing a person
 To pay certain sum of money only
 To or to the order of a specified person

6 Cheque  Is a at sight bill of exchange drawn on a banker

8 Holder  Entitled to possession in his own name

 Entitled to obtain payment in his own name
 Entitled to sue in his own name for proceeds

9 Holder-in-due  A holder +
course
 Acquired the instrument in the ordinary course of
business before maturity
 In good faith
 Without negligence
 For consideration

10 Payment-in-due  Payment to the possessor of the instrument

course
 In terms of apparent tenor of the instruments
 In the ordinary course of business
 In good faith & without negligence
 Without any suspicion
13 Negotiable  DP note
Instrument  Bill of exchange
 Cheque / draft
(Note : TCs / ECS, credit / debit cards – are not NIs)
 14 Negotiation Transferring rights (property) in a negotiable
instrument
 Mode of negotiation
15 Endorsement
 By delivery in case of bearer instruments
 By delivery & signature in case of order
instruments

18 Amount in Words  Amount written in words is recognized as the

& Figures mandatory amount of the drawer
 Amount written in words & no figures – the
instruments is to be paid
 Amount written in figures and no words – return
the instrument

20 Inchoate  Incomplete instruments

Instruments
 On completion becomes valid instrument
 Completion does not lead to material alterations
 Completion should not attract more stamp duty

26 Minor  Minor can draw, endorse & negotiate a Bill of

Exchange to bind all other parties except
himself

31 Wrongful  Sufficient balance in the account

Dishonour
 Balance applicable for payment
(Applicable for demand drafts issued on banker)
36 to 45 Rights of Holder-  All prior parties are liable to holder in due
in-due course course even though
 Acceptor is liable
- Though endorsement forged
- Though drawer is fictitious
- Though consideration has failed
 Drawer / endorser liable
- Though Drawee is fictitious
- Though endorsee is fictitious
- Though consideration is unlawful
16/50/51 Endorsements  Endorsement in blank
Types & qualifying  Endorsement in full
endorsements
 Restrictive endorsement – pay X only
 Endorsement sans-recourse – without recourse
 Facultative endorsement – notice of dishonour
waived / Drawee in case of need
Endorsement san-Frias – recourse only for the
amount of the instrument
85 Protection to  Cash Cheques – by complying to payment in due
paying Banker course
 Crossed Cheques – through account or to banker
of the payee
 Specially crossed Cheques – to the banker to
whom the instrument is so crossed
 Endorsement apparently regular
 Not liable for forged endorsements
85 A Protection to  Protection mentioned in sec 85 are applicable for
paying Banker drafts also
87 Material  Banker is protected from the liability
Alteration
89 Protection to  If the forgery was not apparently visible to the
Banker naked eyes at the time of such payment and
If the payment is made in accordance with sec 10
and sec 85
118 Presumptions  NI is a payment against consideration
119 under NIs
 Drawn on the date of instruments
 Endorsement in the order of appearance
 Acceptance made before due date

123 General Crossing  Applicable to cheques & drafts only

 Two transverse parallel lines
 On the face of the instruments
 An indication to the paying banker not to pay cash
across the counter
 Writing between the lines other than a bank’s name
are not recognized under law

124 Special Crossing  General crossing bearing a banks name

 Pay the proceeds through the specified banker only
 If the instrument is crossed to more than one bank
pay it provided the other bank is acting as agent of
the previous bank

130 Not Negotiable  By Including these words across the face of the
Crossing cheque the instrument looses the negotiable rights
 The Transferee can not get a better title than that of
the transferor
 There can not be a holder-in-due course for
instruments crossed not negotiable
 131 Protection to  In the ordinary course of business
Collecting
Banker  For collection of crossed cheques
 If collected for a proper account, duly introduced
 Collected in good faith & without negligence
 For collection of crossed cheque only
138 Bouncing of  Drawer is considered to have committed a criminal
Cheques offence punishable under this act
 Cheques should have been presented within validity
period & returned for reasons
- Refer to drawer / insufficient balance
- Not arranged for / payment stopped
- Account closed
(In case of Corporates – authorised signatories are
punishable)
Procedure to  Issue notice to the drawer within 30 days of receipt
invoke legal of information of dishonour of cheque, intimating
action invoking of legal recourse
 The notice provides 15 days time to the drawer to
make good the payment and avoid legal action
 If the drawer does not respond within 30/60 days
lodge a case in the concerned court
Special  A notice can be sent by couriers
Relaxations &
Exemptions  Non acceptance of notice will constitute notice duly
served
 Cheques include - electronic form (ECS)
 Directors nominated by Govt / Govt undertakings /
financial institutions owned by are exempted from
prosecution
 Delay in filing of suit – admissible on the merits of
the case

142 to Penalties  Notice of dishonour to drawer is essential

147
 Fine up to twice the amount of the cheque and / or
 Imprisonment up to two years