Negotiable instrument act 1881

NEGOTIABLE INSTRUMENT ACT 1881

INTRODUCTION: For a commercial transactions, it is always not possible for a businessman to carry huge cash. Businessman, therefore adopt a new method of exchanging documents as Bills of Exchange, Cheques etc, in place of money. These documents, which are used as a substitution for money are known as negotiable instruments. It came into force on 08-03-1882. it extends to whole of India.

What is Negotiable Instrument

The term negotiable Instrument consist of two words Negotiable and Instrument. The word negotiable means transferable by delivery and the word instrument means a written document by which a right is created in favour of some person. Thus the term negotiable instrument means a written document transferable by delivery. According to act a negotiable instrument means a : A promissory Note, Bill of exchange, Cheques payable either to order or to bearer. Judge will defines a negotiable instrument as :

Cond.

One, the property in which is acquired by anyone who takes it bonafide for value not withstanding any defect of title in the person from whom he took it. Characteristics of Negotiable Instrument: In writing, Signed by the maker, Promise or order to pay, Promise/order should be unconditionale, Payment in terms of money, Payable at certain time,

1. 2. 3. 4. 5. 6.

Kinds of Negotiable Instruments

Negotiable instrument are of two kinds: a. Negotiable by statute: Promissory Note Bill of Exchange Cheques b. Negotiable by custom or usage: Hundis Treasury bills Draft Share warrants Bearer warrants Bearer debentures

Presumptions as to Negotiable Instrument

1. 2. 3. 4. 5. 6. 7. 8.

Consideration Date Time of acceptance Transfer Order of endorsement Stamping Holder in due course (holder of NI is a holder in due course) Proof

Promissory Note
According to the act a promissory note is An instrument in writing. Signed by the maker to pay certain sum of money only to a person or to the bearer of the person. Bank notes and currency motes are not treated as promissory notes. The words or to the bearer of the instrument are inoperative in view of the provisions of RBI which prohibits the issue of PN payable to bearer by anybody other than RBI and the Central Govt of India.

Essentials of Promissory Note

1) 2) 3) 4) 5) 6) 7) 8)

It must be in writing. It must contain a promise or undertaking to pay. The promise to pay is unconditional. It must be signed by the maker. The maker must be a certain person. The payee must be certain. The amount payable must be legal. Other formalities like proper stamping must be there.

Specimen of PN
Alok Singh R-2/55, Raj Nagar, Meerut 250001 Rs 10,000/ only

Three months after due date I promise to Pay Arun Kumar (Payee) or to his order the sum of rupees Ten Thousand for value received.
To Arun Kumar 120 Surya Nagar, Meerut

Alok Singh ( Maker)

Bill Of Exchange
Definition: According to the Act 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. Parties to Bill of Exchange: i. Drawer: The person who draws bills of exchange. ii. Drawee: The person on whom BOE is drawn also called acceptor. iii. Payee: The person named in the instrument to whom or to whose order the money is directed.

Specimen of BOE
March 17, 2011 Rs 10,000/- only Three months after the date pay to Alok Singh (Payee) or order the sum of rupees Ten Thousand for value received.
Accepted s/d Alok Singh (Drawee/Acceptor

To Alok Singh R-2/55, Raj Nagar, Meerut

Arun Kumar (Drawer)

HOLDER Sec 8
According to Act the holder of a negotiable instrument means any person entitled to the possession of the instrument in his own name and to receive or recover the amount due there on from the parties thereto.

Holder in due course: Section 9

A person is called a holder in due course if he satisfies the following conditions: He must be a holder. He must be the possessor of the instrument.

1. 2.

Cond.
3. 4.

He must have obtained the instrument in good faith. He must receive the instrument complete and regular on the face of it means complete name.

Negotiation: Section 14
According to the Act: When PN, BOE or Cheque is transferred to any person, so as to constitute that person the holder of the instrument. Thus the essence of the negotiation is that it must be made with the intention of transferring a title of the instrument to the transferee.

Presentment Section 61-63

Presentment means placing negitiable instrument before a drawee for acceptance.

Provisions Relating to Presentment:

a.

When presentment is necessary: Where bill is payable after sight, Where a bill expressly stipulates that it shall be presented for acceptance. By Whom: Presentment for acceptance must be made by the person entitled to demand acceptance.

Cond.
3

To Whom: Presentment must be made to the Drawee of a bill of exchange. Hours and Day for Presentment: Presentment for acceptance must be made during business hours on a business day. Time for Presentment: The bill must be presented for acceptance within a specified time. Place of presentment: The bill must be presented at a specified place.

Cond.
7 Drawee time for deliberation Section 63 The holder must, if so required by the drawee of a BOE presented to him allow the Drawee 48 hrs. to consider whether he will accept it When presentment is excused: if the drawee cannot found even after a reasonable search. If the drawee is a fictitious person. If the drawee is incompetent person. Effect of Non Presentment: Where the presentment is essential and not made, all parties liable on the instrument are discharged from the liability on the instrument to the person making such default. Mode of service of presentment:

8 9.

10

NOTING Section 99-104A

Noting is a mode of authenticating the fact that a bill or note has been dishonored. Who does Noting: Noting is done by a person officially designated for this purpose and such person is known as Notary Public. Noting public is appointed by the Central or State govt. The profession of the Notaries is regulated by the Notaries Act 1952.

Procedure and contents of Noting Section 99

A dishonored bill is handed over a notary public who presents it again for acceptance and if the drawee or acceptor refuses to accept or pay the bill the notary public records:

The date of dishonor. The Fact of dishonor. The reason Notary charges.

PROTEST
Protest is a formal certificate issued by the Notary Public about the dishonor of a bill. Contents of Protest: Sec 100 The instrument shall have everything is in written. The name of person for whom the instrument has been protested. A statement whether accepted or not. The time place of dishonor. The subscription of the Notary Public. The manner of acceptance.