NEGOTIABLE INSTRUMENTS

Definition of Negotiable Instrument

According to Sec 13 of the Negotiable

Instruments Act 1881 , a negotiable
instrument means “ promissory note, bill of
exchange, or cheque, payable either to order
or to bearer”.
Types of Negotiable Instruments

1.Promissory note

2. Bill of Exchange

3. Cheque
Promissory notes( pronotes)

Sec 4- Pronotes is an instrument in writing(not

being a bank note or a currency note)
containing an unconditional undertaking ,
signed by the maker, to pay a certain a sum of
money only to the order of a certain person or
to the bearer of the instrument
Rs. 10000 New Delhi
September25, 2002
On demand, I promise to pay Ramesh , s/o
Ramlal of Meerut or order a sum of Rs.
10000/-( Rupees 10000 only ), for value
received.
To, Ramesh Sd/Sanjeev
Address……. Stamp
Parties to a Promissory note

1. The Maker or the Drawer

2. The Payee
3. Endorser
4. Endorsee
Essentials of Promissory note
1. It must be in writing
2. Express promise to pay
Mr. B I owe you Rs. 500
I am liable to pay you Rs. 500
I have taken from you Rs. 100, when you ask
for it, I will pay.
I promise to pay B/ order Rs. 500
3. Unconditional promise to pay
4. It has to be signed by the maker
5. Certainty of the parties
6. The promise should be to pay money only
7. Payable on demand or after certain period of
time.
8. Sum payable should be certain.
Bill of Exchange( Bills)
Sec 5- 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 certain
person, or to the bea.rer of the instrument
Rs. 10000 New Delhi
May 2, 2001
Five months after Tarun or order the sum of
Rupees Ten Thousand only for value received.

To
Sameer Accepted Stamp
Address…. Sameer S/d
Rajiv
Parties to a Bill of Exchange

1. The Drawer

2. The Drawee, Acceptor

3. The Payee
Features of Bills

1. Writing
2. Signed by the maker
3. It must be an order to pay
4. Unconditional
5. Pay money only
6. Money certain
7. Parties must be certain
Cheques
Cheque is a bill of exchange drawn on a specified
banker and payable only on demand.
……..20……
Pay…………………………………………………………………..
………………………………………………………..or Bearer
Rupees………………………………
STATE BANK OF INDIA Rs…………………….
JN University, New Delhi-110067

653003 110002056 10
Features of a Cheque
1. Writing
2. Signed by the drawer
3. Unconditional order
4. Specified Banker
5. Certain sum of money mentioned both in
figures and words
6. Payable on demand only
7. Date
Types of Cheque
1. Open cheque
2. Crossed cheque

1. Ante- dated cheques

2. Stale cheques
3. Mutilated cheque
4. Post- dated cheque
Differences-Pro notes & Bills

1. Parties
2. Unconditional promise and order
3. Maker is the debtor, Maker is the creditor
4. Liability of the maker is direct and absolute
Liability of the maker is secondary and
conditional.
5. Acceptance
Cheque and Bills
1. Drawee always banker
Drawee may be bank or person
2. Acceptance
3.Grace period
4. Payable on demand only
Payable on demand or after the expiry of
certain period
5. Crossed
6. Stamping
Features of Negotiable Instruments
1. Freely transferable
2. Good faith
3. Writing
4. Unconditional order or promise to pay
5. Certain sum of money
6. Parties certain
7. Time of payment should be certain
8. Signature
9. Delivery
10.Stamping
Modes of negotiation
1. Negotiation by delivery
2. Negotiation by delivery and endorsement

Endorsement- writing on the back of

instrument
Essentials of a valid Endorsements
1. It must be on the instrument
2. It can be made by the payee or the holder
3.Signed by the endorser
4. Delivery
5. Endorsement should be of the entire bill.
Classes of endorsement
1. Blank or general endorsements
2. Special or full endorsements
Conversion of blank endorsements into full.
3. Partial endorsement
4. Restrictive Endorsement
1. Lost Instruments
 0wner can recover it from finder
 In case of instruments transferable by mere
delivery a holder obtaining in good faith from
the finder and for value consideration is
entitled to it.
 Notice
2. Stolen instruments
3. Forged instruments
Dishonour of negotiable Instrument
1. Dishonour by non-acceptance
 Drawee has to accept the bill within 48 hrs
from the time of presentment of acceptance
 Drawee is fictitious person / cant be traced
 Drawee is incompetent to contract
 Drawee is insolvent or dead
2.Dishonour by non-payment

Effect of dishonor- the other parties can be

charged with liability

Notice of Dishonour
 Notice of refusal to immediately made to parties
to whom the holder wishes to make liable
 Failure to give notice will discharge all the
parties other than the maker and the acceptor.
Mode of notice
 Oral or written
 Any form
Duties of holder upon dishonour

1. Notice of dishonour

1. Noting and protesting

Dishonour of Cheque
Sec 138
1. The cheque has to be towards payment of
an amount of money for the discharge in
whole or part of the debt or other liability
2. The cheque is returned by the bank unpaid
3. The reason for the non- payment is
insufficiency of funds or the amt. of cheque
exceeding the amount arranged to be paid
from the account.
 But before this offence can be made out the
section requires that-
1. The cheque has to be presented to the bank
within 3 months from the date of issue
2. The payee or the holder in due course of the
cheque makes a demand for the payment of
the money under the cheque by giving a
notice. The notice has to given within 30 days
of receiving information from the bank
regarding dishonor.
3. The drawer of the cheque fails to make
payment of the amount within 15 days of the
date of receipt of said notice.
Complaint has to be filed within 1 month of
the date of cause of action.

Reasons for return of cheque-

1. Refer to the Drawer
2. Stop Payment
3. Account closed
Thank you