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11/3/2012
THE ACT KEY TERMS CHARACTERSTICS KINDS OF NEGOTIABLE INSTRUMENTS ENDORSEMENT CROSSING OF CHEQUES DISHONOUR COLLECTING BANKER PAYING BANKER PROTECTION TO COLLECTING BANKER
BOUNCING OF CHEQUE
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Negotiable Instruments
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Negotiable Instruments
Parties to Negotiable Instruments Negotiation of Negotiable Instruments
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NI Act.
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The Act deals with N.I.s; extends to whole of India Has been amended more than a dozen times
Deals with three kinds of negotiable instruments, ie., 1. Promissory Notes (Section 4) 2. Bills of Exchange (Section 5) and 3. Cheques (Section 6)
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Objectives
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Understand the essential characteristicsof NIs Note the instruments recognised as NIs Understand essential requirements of a PN Understand the essential requirements of BEs Know the distinction between PN and BE
Objectives
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Understand the concept of crossing of cheques Be aware of the various types of crossing Know the cases in which a banker must refuse and
may refuse payment of his customers cheques Understand the law relating to bouncing.. Understand the liabilities of a banker
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word instrument means a written document by which a right is created in favour of some person. Thus the term, negotiable instrument literally means a written document transferable by delivery.
13 A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.
Sec
Promissory Note, Cheque, Treasury Bill, Dividend Warrant, Share Warrant, Bearer Debenture, Hundi and Railway Bond, etc.
These instruments involve number of parties like
Payer, Payee, Drawer, Drawee, Endorser, Endorsee, Beneficiary, Holder, Holder in Due Course
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Negotiation of NIs
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features of negotiable instruments, they are frequently transferred from one person to another for making payment and discharging business obligations
The ownership of a negotiable instrument continues
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Negotiable Instrument.
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bears it Is one which is, by legally recognised custom of trade or by law, transferable by delivery or by endorsement and delivery in such circumstances that (a) the holder of it for the time being may sue transferor
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CHARACTERSTICS
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Promissory Note
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being a bank note or a currency note) 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
Essentials of a Promissory Note.. Instrument in Writing An unconditional undertaking Signature by the maker To pay a Certain Sum of Momey To a Certain Person, or to the Bearer of the Instrument
11/3/2012 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 14 11/3/2012
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Bill of Exchange
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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
Essentials of BE, Special Benefits of BE
maker and the payee It contains an unconditional promise by the maker to the payee No acceptance is necessary The liability of the maker or drawer is primary and absolute The maker stands in immediate relationship with the payee No notice of dishonor need to be given.
drawer, the drawee and the payee It contains an unconditional order to the drawee or his agent to pay according to the drawers directions. A bill has to be accepted if it is a bill payable after sight The liability of the drawer secondary i.e. when there is non payment by the drawee. Notice of dishonor to be given by the holder to the drawer The maker and the drawee do not stand in immediate relationship.
Cheque
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specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form
Distinction between a Cheque and BE Bank Draft (Section 85 a)
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ENDORSEMENT
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pay the money to the person directed by him, given on the note.
Way of endorsement It can be either:
o Specific endorsement o Blank endorsement
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CROSSING OF CHEQUES
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Not negotiable
XYZ Bank only .
Prof Chowdari Prasad
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DISHONOURING
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Refusal of payment
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Collecting Banker:
A Banker who collects cheque amount / payment on behalf of his customers from the Drawer of a Cheque by presenting the same
the Drawer of the cheque and is obliged to make payment to the presenter (Payee) or his banker
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Sec 131 of NI Act Should act in good faith and without negligence Any suspicion in the mind of banker must be
inquired Not liable if Customers title turns out to be defective Customer deposits third party cheque, and banker credits the account with the proceeds immediatly, cheque gets dishonored, rightfully debit the account
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Bouncing of Cheques
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non-payment, when the banker defaults in its payment, even when he is required to pay
Can become an offence if given towards settlement
of some liability
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Miscellaneous Provisions
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lending or investment, of deposits of money from the public, repayable on demand or, otherwise, and withdrawable by cheque, draft, order or otherwise.
Customer of a bank is not defined by any law!
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