NEGOTIABLE INSTUMENT ACT,

1881

NEGOTIABLE INSTRUMENTS, KINDS,

DISHONOR OF CHEQUE (LEGAL
REMIDIES), ONLINE TRANSACTION

PRESENTED BY:-
Adeeb Ahmed (01)
Nilanjana Dey (09)
Subarna Dey (10)
Dipanjana saha (29)
Dinesh Nikware (25)
Tushar Sonparote (36)
 Contents:-

Negotiable instruments (definition

& its features)

Kinds of Negotiable instruments

o Promissory note
o Bills of exchange
o Cheques

Dishonor of Cheque

Legal remedies for dishonor of Cheque

Online Transactions
 Negotiable instrument : Definition

A negotiable instrument is essentially an instrument of credit readily

convertible into money and easily deliverable from one hand to another

The word Negotiable means passable by delivery, Instrument means a

return document which creates a right in favor of some person.

It is transferable with a simple procedure requiring a signature and delivery

( in case of order instrument) or just delivery (in case of bearer instrument)

Negotiable instrument are of three kinds i.e Promissory note, Bill of

exchange and cheque
Features of Negotiable instrument

Freely transferable
Defect free title to the Transferee
Recovery
Ceiling
Payable to order
Payable to Bearer
Payment
Presumptions of Negotiable Instruments

Consideration
Date
Time of acceptance
Time of Transfer
Order of endorsement
Stamp
Holder-in-due-course
Proof of protest
 Promissory Note
According to section 4 of the Act, A promissory note is an
instrument(not being a bank note or currency note)
containing an unconditional undertaking, signed by the
maker to pay a certain sum of money only to, or the order of
a certain person, or only to bearer of the instrument.

The person making the promise to pay is called the maker

and the person who is to receive the money stated in the
instrument is called the payee.
Essentials of a Valid Promissory Note
It must be in writing.
It must contain an express undertaking to pay.
The promise or undertaking to pay must be
unconditional
The promise must be for paying certain sum of
money
It must be signed by the maker
The maker must be a certain person
The payee must be certain
It must be properly stamped
It must contain number, place and date of
signature
 Bill of Exchange

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
Elements of a Bill of Exchange
1. Writing
2. Parties
3. Order to pay
4. Unconditional
5. Signed
6. Person directed
7. Money
8. Payee must be certain
9. Certain sum
10.Stamping
Promissory Note v/s Bill of Exchange

1. Parties
2. Nature of payment
3. Acceptance
4. Liability
5. Notice
6. Maker as payee
7. Protest
8. Payable to bearer
9. Exemption
CHEQUE
A cheque is a bill of exchange drawn on a specified banker and
not expressed to be payable otherwise than on demand.

A cheque being called a bill of exchange satisfies al the

requirements of a bill except that it does not have any
acceptance and bears no stamp.
 The definition of a cheque is modified by an
amendment to the Negotiable Instruments Act in
2002, according to which,
a cheque includes electronic image of a truncated
cheque and a cheque in electronic form.

This makes provision for electronic submission and

clearance of the cheque.
ESSENTIALS OF A CHEQUE
It must be in writing.
It should be drawn on a banker.
It contains an unconditional order to pay a certain
sum.
It should be signed and dated by the drawer.
It is payable on demand.
It has a validity.
It may be payable to the drawer himself.
The banker is liable only to the drawer.
It does not require an acceptance and stamp.
 TYPES OF CHEQUES:
1. Bearer Or Open Cheques:
Bearer or open cheques are payable over
the counter of a bank on presentment.

2. Crossed Cheques:
A crossed cheque cannot be cashed across
the counter but must be collected through a
banker. A crossing acts as a direction to the
drawee to pay the money to a specified
banker as desired by the payee.
 CROSSING OF CHEQUES
Crossing of cheques is of three different types:

1. General Crossing:
2. Special Crossing.
3. Account payees crossing.
 GENERAL CROSSING

When a cheque bears across its face an addition of the

words and company or any abbreviation thereof,
between two parallel transverse lines, or of two parallel
transverse lines only, either with or without the words not
negotiable the cheque is deemed to be crossed generally.

Specimens of General
crossing
 SPECIAL CROSSING
When the name of a banker is written across the face of a
cheque with or without the word
not negotiable, It is a special crossing.
Thus, in special crossing the paying banker will pay only to the
banker whose name appears across the cheque, or to his
collecting agent.

Specimens Of Special
Crossing
 ACCOUNT PAYEES CROSSING

It is the most prevalent crossing that restricts the

negotiability of a cheque. It may be made both under
general crossing or special crossing. Such crossing warns
the collecting banker that the proceeds are to be credited
only to the account of the payee.

Specimens Of Account
Payees Crossing
LY E
Y EE N
O BL
A
P LY EE IA
C N AY OT
/
A O P EG
/C N
A T
O
N
DISHONOURING OF A CHEQUE

On presenting a cheque, the bank should

pay the stated amount from drawers
account to the payee. If the bank pays the
specific amount to the payee, the cheque is
honoured. But if the bank refuses to pay the
amount mentioned on the cheque to the
payee, it is called asdishonour of a cheque.
INSTANCES OF DISHONOURING OF A CHEQUE

1. Insufficient Funds 9. Notice of

death/insanity of customer
2. Irregular Signature 10. Insolvency
3. Alterations 11. Court order
4. Post-dated Cheque
5. Stale Cheque
6. When Payment Is Stopped
7. Frozen Account
8. Request by drawer
 Wrongful dishonour of Cheque by Bank

If cheque is duly presented for payment and the banker

dishonours it, despite of sufficient funds of the
customer, banker is liable for loss or damage

Customer can recover special damages on grounds of

loss of credit from the bank
 PRIOR CONDITIONS TO TAKE LEGAL
ACTION UNDER THE ACT (SECTION 138):
In order to initiate a legal action against the person committed the offence of
dishonor of cheque under the Negotiable Instruments Act, the following
conditions shall have to fulfill:

The cheque has to be presented to the drawee Bank within 6 months from
the date on which it is drawn or within the period of its validity, whichever is
earlier;

Demand has to be made for the payment of the said amount of money by
giving a 30 days written notice to the drawer of the cheque within 30 days from
the date of dishonor;

Failure to make the payment by the drawer within 30 days of the receipt of
the said notice (Clause c of the provision to Section 138). After the expiry of this
THE PROCEDURE FOR THE RECOVERY OF MONEY IN CASE
OF A DISHONOURED CHEQUE UNDER SEC 138 OF NI ACT
1881

When the cheque is dishonoured, drawee bank issues Cheque Return Memo
to the payee bank mentioning reasons for non-payment

The holder or payee can resubmit the cheque if he feels it will get honoured
for second time within 3 months of the date mentioned on the cheque

If failed again the payee has the right to prosecute the drawer of the cheque

The payee can prosecute only if the cheque drawn was to repay a debt of the
defaulter towards payee.(cheque drawn as gifts, loan, unlawful purpose
cannot be considered for prosecution)
PUNISHMENT FOR DISHONOUR OF
CHEQUE (SECTION 138):

Any person committed the offence of dishonor of cheque shall be

liable to be punished with imprisonment up to two year, or with
fine up to twice the amount of the cheque, or with both.
 Online contract

The e-retailers add terms in the contract in order to avoid

disputes.
It is important to determine who makes the offer & who accepts
the offer in business relationship.
Product displayed- invitation to offer.
Customers order to purchase- offer made.
Offer made will be subject to T&C -> e-retailer has the right to
accept or reject the offer.
E-retailer will be the acceptor & retain the last call whether to
accept/reject the offer.
 CASE STUDY
QUESTION-Tech ltd. Is selling laser printer online for 3880 pound,
instead it mentioned the price as 38.80 pound. John order 400
sets and Mary ordered I printer. Tech ltd. refused to honor the
order.

ANSWER-Since the company did not mention the condition so as

to reserve the rights to accept/dishonor the order. Court held that
it must accept the offer of Mary(order of 1 printer), but the court
rejected Johns claim on the ground of mala fide intentions.