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NEGOTIABLE INSTRUMENT ACT-1881 written documents promissory note sec.4 bills of exchange sec.5 Transferable cheque sec.6 by separate contract assignment immovable Without separate property contact By delivery bearer instrument by delivery + endorsement order instrument

Meaning of negotiable instrument act-1881:

Meaning of negotiable instrument act-1881 The negotiable instrument is a document which entitles a person to a sum of money and which is transferable from one person to another by mere delivery or by endorsement and delivery . negotiable instrument are regulated by instrument act 1881. The act came into force on first day of march, 1882. The latest amendment to the act was made in 1988.

Definition of negotiable instrument act-1881:

Definition of negotiable instrument act-1881 A negotiable instrument is method of transferring a debt from one person to another. The term “negotiable instrument” as such is note defined in the negotiable instrument act. Sec.13,however, says that “a negotiable instrument means a promissory note, a bill of exchange or cheque payable either to order or bearer”.

Transfer of instruments:

Transfer of instruments By negotiation negotiation by delivery negotiation by endorsement and delivery kinds of delivery actual constructive conditional By assignment

Characteristics of a negotiable instrument :

Characteristics of a negotiable instrument Freely transferable Title to holder free from all defects Recovery Presumption Consideration Date Time of acceptance


Cont.... (d) Time of transfer (e) Order of endorsements (f) Stamp (g) Holder presumed to be a holder in due course (h) Proof of protest

Types of negotiable instrument:

Types of negotiable instrument Negotiable by statute promissory note Bills of exchange Cheque Negotiable by custom or usage bank notes, share warrants circular notes, dividend warrants, share certificate with blank transfer deeds, etc.

Promissory note [sec-4]:

Promissory note [sec-4] It is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money to certain person or to order or to bearer of the instrument. A person who makes the promissory not and promises to pay is called the maker. The person to whom the payment is to be made is called the payee.

Example of promissory note:

Example of promissory note Mr. Ram I promise to pay rs.10,000 to you or to order or bearer on jan.10, 2011 Jan.1,2011 Sign Shyam

Essential element of promissory note:

Essential element of promissory note Writing Promise to pay Definite and unconditional signed by the maker Certain payee Certain sum of money Promise to pay money only Bank note or currency note is note a promissory note


Cont.... Bank note or currency note is note a promissory note Formalities like number, date, place, consideration, etc. It may be payable on demand or after a definite period of time It can not made payable to bearer on demand.

Bills of exchange [sec.5]:

Bills of exchange [sec.5] It is an instrument in writing containing an unconditional order, signed by maker, directing a certain person to pay a certain sum of money to a certain person or to order or to bearer of the instrument.

Essential element of bills of exchange:

Essential element of bills of exchange It is instrument in writing. It is signed by maker. It contain the unconditional order. There is certain person who will pay money. Instrument is order or bearer. There is certain sum of money.

Example of bills of exchange:

Example of bills of exchange Mr. Ram pay to X rs . 10,000 on jan.10, 2011 or to order or to bearer. Jan.1, 2011 Sign Shyam

Cheque [sec.6]:

Cheque [sec.6] Cheque is a bill of exchange drawn on a bank. All the feature of bill of exchange +Drawee is a bank. every cheque is a bill of exchange in which a Drawee is a branch of a bank. Hence, cheque is also made like a bill of exchange and it has all the factures of bills of exchange.

Overdue, stale of out of date cheques:

Overdue, stale of out of date cheques Cheque is overdue after 6 month as per banking regulation act. Cheque is overdue after 3 year as per negotiable instrument act. Holder can not sue on cheque after that time.

Classification of negotiable instruments:

Classification of negotiable instruments Order instrument Bearer instrument Blank instrument Demand instrument Time instrument Payment in due course Inland instrument Foreign instrument


Cont.... Stamp paper for bills of exchange or promissory note.

Parties of negotiable instrument :

Parties of negotiable instrument Drawer, maker Drawee, acceptor Payee Endorser indrosee


holder Holder Holder Drawer Drawee Holder Holder A B C D E F

Holder in due course [sec.9]:

Holder in due course [sec.9] He must be the holder Consideration Instrument received before the maturity date Good faith Instrument should be complete - - - - - - - - goods lost instrument to D A B C D E

Priory parties:

Priory parties Drawer Drawee Holder A B C D E F

Types of endorsement:

Types of endorsement Blank or general Special or full Restrictive Partial endorsement Conditional or Qualified Sans recourse endorsement

PowerPoint Presentation:

Acceptance for honour Dishonour by non acceptance (sec. 91) Discharge by non payment (sec.92) Notice of dishonour (sec. 93) Notice of dishonour unnecessary (sec.98)

Discharge of negotiable instrument:

Discharge of negotiable instrument When the payment of the negotiable is made (a) interest rate When the debtor (Drawee) becomes the holder By cancellation of instrument Discharge of parties


NOTING AND PROTEST(sec.99-104) Noting is a process by which a negotiable instrument is presented by the holder to the Drawee. By noting an evidence is created that instrument was presented. This evidence will be useful in court in court when a case is file for dishonour of bill. For the purpose of noting government appoint a notery and notery will present the bill to the parties for payment.


NATERIAL ALTERATION(sec.87) Material alteration means a substantial alteration. So if there is material alteration in the instrument it means that instrument is altered. If the alteration is not material than also instrument may become useless depending upon circumstances. material alteration may be of different type:- Alteration changes the operation of the instrument. Any alteration which changes the liability of the parties is material .


AMBIGUOUS INSTRUMENT(sec.17) The instrument is ambiguous if the holder may treat the instrument as promissory notes or bill of exchange. These notes are such notes which will be valid and these can be fulfil instrument in court.


INCHOATE OR INCOMPLETE INSTRUMENTS(sec.20 ) These are the instrument which are incomplete and there is some blank space in the instrument. These instrument will be valid. These instrument can be enforce in court.


LIABILITY OF A BANKER When banker must refuse payment. When banker may refuse payment. must refuse payment:- 1. Customer has countermanded the payment. 2. Death of the customer or insolvent or insanity 3. Order of the court. 4.Holder title is defective and banks comes to of it. 5. Account will be close.


CONT........ May refuse the payment:- Cheque is past dated Insufficient balance Doubtful legality Presented Irregular or ambiguous cheque Material altered Cheque is stale

CROSSING OF CHEQUES(sec.123-131a):

CROSSING OF CHEQUES(sec.123-131a) General crossing Special crossing Accommodation bill Hundi Shah jog hundi Muddati hundi.



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