Negotiable Instrument

SECTION 13(1):
“A negotiable instrument means a
promissory note, bill of exchange or
cheque payable either to order or
bearer”

Justice Willis:
“A negotiable instrument is one, the
property in which is acquired by
anyone who takes it bonafide, and for
value not withstanding any defect of
title in the person from whom he took
it”
 Promissory Note
 Section (4) defines a promissory
note as an “instrument in writing
containing unconditional
undertaking, signed by the maker to
pay a certain sum of money only to
or to order of a certain person, or to
the order of a certain person or to
the bearer of the instrument.”
 There are basically two parties-
Maker & Payee.
 Bills of Exchange
 According to section “5”, “ 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.” Sec. (1)(4)(a) of IT
act is not applicable to Bills of
exchange, so Bills of exchange
 Parties to a Bill of
Exchange
 Drawer
 Drawee
 Acceptor
 Payee
 Holder
 Endorser
 Endorsee
 Cheque
 A “ cheque” is a bill of exchange
drawn on a specified banker and not
expressed to be payable otherwise
than on demand. ‘Cheque’ includes
electronic image of a truncated
cheque and a cheque in a electronic
form (sec 6). It is addressed to the
Bank and payable on demand. It
cannot be pay after the expiry date.
 Types of Cheque
 Open cheque.

 Crossed cheque.

 Bearer cheque.

 Order cheque
 Features of a Negotiable
Instrument
 Freely transferable

 Better title

 Right to sue

 Presumptions
 PRESUMPTIONS
{as per sections 118 and
119}
 Consideration [Sec
118(a)]
 Date [Sec 118(b)]
 Time of acceptance [Sec 118( c
)]
 Time of transfer [Sec 118 (d)]
 Order of endorsement [ Sec 118
(e)]
 Stamp [Sec 118 (f)]
 Kinds of Negotiable
Instruments
 Negotiable by
Statute  Promissory Note

 Bill of Exchange
 (statute means
law,this was  Cheque
already xplained
by… so we will go
ahead ) u/s 13
 Kinds of Negotiable
Instruments
 II Demand Draft
Negotiable by  Made w en sum1
Custom appr oac he s t he bank
It is a D emand to pay a
Customs in our country ce rtain a mou nt to a
have created 3types ce rtain p erson .
such as It is Pa yab le on
pr esent atio n t o t he
 I Govt rig htfu l ow ner as
state d.
Promissory
Notes
 III Hundis
Earliest known N.i,19th
It has been customary century,in india,types
for the govt to issue such as time bill,demand
prom. Notes on which bill etc. of
a certain amount of xchange,payment was
conditional on safe
intrest will be paid to
 Kinds of Negotiable
Instruments
A negotiable
instrument
 Bearer Instrument
becomes a bearer
->
instrument when,
“ the payment of
which , can be
 -> Explanation taken by a person
 ( need not have the who has the
name of the possession of the
receiver of the N.i instrument.”
 Transferred By Explanation (ii) of
mere delivery & Sec13(1)
 Kinds of Negotiable
Instruments
Acc to {Sec 11}


 Inland and Foreign  An instrument which is made

or drawn in India upon any
Instrument person resident in India ,
even though it is made
payable in a foreign country
 -> eg, bearer  is called a inland N.
cheque… instrument.
 (this type of N. I  Acc to Sec 12}
instruments are  An instrument that is made,
mainly used for drawn or payable outside
receipts & India or made in India and
payable outside India on a
payments in the person resident outside India
import and export  Is called a Foreign N.
instrument
 Kinds of Negotiable
Instruments
 An instrument that
is vague and cannot
 Ambiguous be understood
Instrument whether it is a bill
 Inchoate of exchange or
Instrument promissory note is
an ambiguous
instrument.
{Sec 17 & 18}
 An incomplete or
blank instrument
that is properly
stamped and signed
is termed as an
 Dishonour of cheque
 Liability of drawee on dishonour
 No direct contract b/w banker and payee.
 On basis of original debt
 On basis of dishonoured cheque
 Loses cheque
 Liability of drawer on dishonour
 Drawer is not responsible for the wrongful dishonour by the
bank
 Drawing a cheque when knowing that sufficient balance is
not present in the A/C is Criminal offence
 The punishment for the above is 2 years and/Or a Fine of
double the original amount stated in the cheque
Revolution of negotiable
instrument
 Credit card

 Debit card

 Mobile banking

 Online banking
 Advantages
 Easy availibility

 Low interest cards

 Trends in mobile banking

 Disadvantages
 Credit card fraud

 Charging fees

 Interoperability