. negotiable instruments only valid in India

NEGOTIABLE INSTRUMENTS

SUBMITTED BY:11326: Shaishang Maniar11327: Najeeb Hemat11328: Priyanka Panchal11329: Paresh Chavda11330: Divyesh Parmar

INTRODUCTIONThe Negotiable Instruments Act was enacted, in India, in 1881. Prior to its enactment, the provision of the English Negotiable Instrument Act were applicable in India, and the present Act is also based on the English Act with certain modifications. It extends to the whole of India except the State of Jammu and Kashmir. The Act operates subject to the provisions of Sections 31 and 32 of the Reserve Bank of India Act, 1934.

Section 31 of the Reserve Bank of India Act provides that no person in India other than the Bank or as expressly authorized by this Act, the Central Government shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand. This Section further provides that no one except the RBI or the Central Government can make or issue a promissory note expressed to be payable or demand or after a certain time. Section 32 of the Reserve Bank of India Act makes issue of such bills or notes punishable with fine which may extend to the amount of the instrument.

The effect or the consequences of these provisions are:

1. A promissory note cannot be made payable to the bearer, no matter whether it is payable on demand or after a certain time.

2. A bill of exchange cannot be made payable to the bearer on demand though it can be made payable to the bearer after a certain time.

3. But a cheque {though a bill of exchange} payable to bearer or demand can be drawn on a person’s account with a banker.

Negotiable Instruments

•What is negotiable?• Negotiable means transferable.• The negotiation that goes on refers to the transfer of the

instrument between two people, or from one bank to another, or even from one country to another.

•What is an instrument?• In the broadest sense, almost any agreed-upon medium of

exchange could be considered a negotiable instrument.• In day-to-day banking, a negotiable instrument usually

refers to cheques, drafts, bills of exchange, hundi, and promissory notes.

Salient features of negotiable instrument

1. Freely transferable: The property in a negotiable instrument passes from one person to another by delivery, if the instrument is payable to bearer, and by indorsement and delivery if it is payable to order.

2. Title of holder free from all defects: A person, taking an instrument bona fide and for value, known as holder due course, gets the instrument free from all defects in the title of the transferor. He is not in any way affected by any defect in the title of the transferor or of any prior party.

Example. S sells certain goods to B. B gives a promissory note to S for the

price. He refuses to pay the promissory note, claiming that the goods are not according to order. If S sues B on the note, B’s defense is good. But if he negotiates the note to H, a holder in due course, B’s defense will be of no avail.

The holder in due course is also not affected by certain defenses, for example, fraud, which might be available against previous holders, provided he himself is not a party to it.

Characteristics of negotiable instrument

3. Recovery: The holder in due course can sue upon a negotiable instrument in his own name for the recovery of the amount. Further he need not give notice of transfer to the party liable on the instrument to pay.4. Presumptions:

a) Considerationb) Datec) Time of acceptanced) Time of transfere) Order of indorsementsf) Stampg) Holder presumed to be a holder in due courseh) Proof of protest

The above presumptions are rebuttable by evidence. If anyone challenges any of these presumptions, he has to prove his allegation. Again, these presumption would not arise where an instruments has been obtained by any offense, fraud or unlawful consideration.

Types of negotiable instrument

Cheque

Bill of exchange

Promissory note

Promissory Note (Pro-Note or Hand-Note)

Definition:

“ A promissory note is an instrument in writing (not being a bank note or currency note – you have to explain it why – read RBI Act, 1934) containing an 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 bearer of the instrument.”

-------Sec. 4 The person who makes the promise to pay is called the

Maker. He is the debtor and must sign the instrument. The person who will get the money (the creditor) is called

Payee.

Specimen of a promissory note

Essential Elements of a valid Promissory Note

1. The instrument must be in writing. Writing includes print and type writing and may also be in pencil or ink.

2. It must be signed by the maker of it. The signature or mark may be placed anywhere on the instrument, not necessarily at the bottoms. It may be at the top or at the back of the instrument. – name of the signatory must be clearly written and must have signed with free consent – reason is parties must be clearly identifiable.

3. It must contain a promise to pay. It must be expressed not implied or inferred.e.g. “Mr. Sen I.O.U. Rs. 1000”. Here I.O.U. stands for “ I owe you.” This is only an

admission of indebtedness and not a promise to pay. So it’s not a promissory note.

4. The promise to pay must be definite and unconditional. If it is coupled with a condition , it is not a promissory note.

e.g. “ I promise to pay B Rs.300 on D’s death provided D leaves me enough to pay this sum.”

Promise to pay at a specified time or at a specified place or after the occurrence of an event which is certain to occur or payment after calculating interest at a certain rate

---------are not regarded as conditions.

5. The maker of must be certain and definite – A promissory note can not be made payable to the maker (promisor) himself. Such a note is nullity.

6. It must be stamped according to the Indian Stamp Act _ write in detail.7. The sum of money to be paid must be certain.e.g. “ I promise to pay Shyam Sundar or order the sum of Rs. 1000, for value

received.”8. Instrument must point out with certainty as to who the maker is and who

the payee is.9. It must be payable on demand or after a certain definite period of time.10. The Reserve Bank Act prohibits the creation of a promissory note payable

on demand to the bearer of the note (Currency), except by the Reserve Bank or the Government of India – write detail or explain verbally

Essential Elements for a Promissory Note

Case Study on Promissory Note:

A lady called Gangabai was entitled, by endorsement, to a Government promissory note, which she had acquired through a broker named Acharya. Subsequently Acharya obtained possession of the note from Bai Gangabai, and he forged her endorsement on the note to himself. Subsequently he endorsed the note over to the defendants, the Bank of India, Ltd. The Bank sent the note, with other notes, to the Government Securities Department with a request for its renewal, and the note was in due course renewed by the prescribed officer of the Government Securities Department. When it was ultimately established that the signature of Bai Gangabai on the note had been forged by Acharya, Bai Gangabai sued the Secretary of State for the value of the note, and she recovered judgment for the amount due on the note with interest and costs.In this suit the Secretary of State sues the Bank of India, Ltd., and claims that the Bank is liable to indemnify him against the loss which he incurred by acting on the request of the Bank for the renewal of the note. Alternatively he claims that the renewed note, or the value thereof, may be returned to him on the basis that it was issued without consideration, or under a mistake of fact.

Bill of Exchange

Definition:

“ 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. 5e.g. To A.B. “ Six months after date pay P.Q. or order Rs. 1000” Sd/X.Y. Date……………….. Stamp…………………

• The maker of a bill of exchange is called the Drawer He writes & signs. The person who is directed to pay is called the Drawee on whom the bill is drawn. The person who will receive the money is called the Payee. Payee may be drawer or any other person to whom the bill has been endorsed• When the payee has custody of the bill, he is called the Holder in whose

possession the bill is . It is the holder’s duty to present the bill to the drawee for acceptance. The drawee becomes the Acceptor after signing on the bill - write in detail in acceptor• Sometimes the name of another person is mentioned as the person who

will accept the bill if the original drawee does not accept it. Such a person is called the Drawee in case of Need• Acceptor for honour: In case the original drawee refuses to accept the bill or to

furnish better security when demanded by the notary, any person who is not liable on the bill, may accept it with the consent of the holder, for the honour of any party liable on the bill. Such an acceptor is called ‘acceptor for honour’.

Bill of Exchange

Essential Elements of a Bill of Exchange

A Bill of Exchange to be valid must fulfill the following requirements:

1. The instrument must be in writing.2. It must be signed by the drawer.3. It must contain an order to pay, which is express and

unconditional.4. The drawer, drawee and the payee must be certain and definite

individuals.5. The amount of money to be paid must be certain.6. The payment must be in the legal tender money of India.7. The money must be payable to a definite person or according to

his order.8. It must be properly stamped.

9. The bill may be payable on demand or after a definite period of time. But no one except the Reserve Bank and the Government of India can draw a bill payable on demand to the bearer of the bill.

If any of the requirements mentioned above is not fulfilled, the document is not a bill of exchange.

e.g. “ Please let the bearer have Rs. 1000 and oblige.”

“ We hereby authorize you to pay on our account to the order of X, Rs 6000.”

Essential Elements of a Bill of Exchange

Specimen of a Bill of Exchange

Case study on Bill of Exchange:An exporter recently approached AIB Trade Finance Services with a common problem. The company was spending a lot of time chasing their debtors for payment. The Financial Director complained that despite having delivered their goods to the buyer, they were incurring considerable expense in staff time and communication costs in order to chase their moneyThe exporter had agreed to sell on an open account basis and was sending the shipping documents directly to the buyer to enable them to take possession of the goods prior to receiving payment. This meant that once the shipment had been made there was no control over when payment would be received.Despite the buyer's agreement to pay at the end of the month following the invoice date, the exporter found that payment was actually received 30 to 60 days later. In addition the time spent chasing the payment was creating additional costs as well as increasing the time spent on the account by the credit control function

CAN THE EXPORTER REGAIN CONTROL?AIB Trade Finance Services advised the company to consider using a Documentary Collection to obtain payment, or a commitment to pay from the buyer. This meant the exporter was encouraged to send their shipping documents to the buyer through the banking system accompanied by a Bill of Exchange* drawn on the buyer with a payment date at the end of the month following the date of shipment.The exporter instructed AIB Trade Finance Services, who in turn instructed the buyer's bank, to only release the shipping documents to the buyer against their acceptance of the Bill of Exchange and their agreement to make the payment on the due date. In addition AIB Trade Finance Services was able to instruct the buyer's bank to hold the accepted Bill of Exchange and present it to the buyer for payment on the due date.

Cheque

Parties to cheque

1. Drawer. He is the person who draws the cheque, i.e., the depositor of money in the bank. 2. Drawee. It is the drawer’s banker on whom the cheque has been drawn. 3. Payee. He is the person who is entitled to receive the payment of the cheque. 4. The holder: A person who is legally entitled to the possession of the

negotiable instrument in his own name and to receive the amount thereof, is called a ‘holder’. He is either the original payee, or the indorsee. In case the bill is payable to the bearer, the person in possession of the negotiable instrument is called the ‘holder’.

5. Indorser: When the holder transfers or indorses the instrument to anyone else, the holder becomes the ‘indorser’.

6. Indorsee: The person to whom the bill is indorsed is called an ‘indorsee’.

Essential Features of Cheque

1. A cheque must fulfill all the essential requirements of a bill of exchange.

2. A cheque may be payable to bearer or to order but in either case it must be payable on demand.

3. The banker named must pay it when it is presented for payment to him at his office during the usual office hours, provided the cheque is validly drawn and the drawer has sufficient funds to his credit.

4. Bills and notes may be written entirely by hand. There is no legal bar to cheques being handwritten. Usually , banks provide their customers with printed cheque forms which are filled up and signed by drawer.

5. The signature must tally with the specimen signature of the drawer kept in the bank.

• A cheque must be dated (Max. Validity: 3 months) A banker is entitled to refuse to pay a cheque which is not dated. A cheque becomes due for payment on the date specified on it.• A cheque drawn with a future date is valid but it is payable on and after

the date specified. Such cheques are called post-dated cheques.• A cheque may be presented for payment after due date but if there is too

much delay the bank is entitled to consider the circumstance suspicious and refuse to honour the cheque. (please explain how?) The period after which a cheque is considered too old or stale varies according to custom from place to place. It is usually 6 months in Indian cities. (Stale Cheque: As per banking practise in India a stale cheque would be a cheque which is not presented to the drawee bank within 6 months time from the date of the instrument.)

Essential Features of Cheque

Types of Cheques

Two Types:1. Open Cheques: An open cheque is one which is payable in cash across

the counter of the bank .

2. Crossed Cheques: A crossed cheque is one which has two short parallel lines marked across its face. It can be paid only to another banker.• The advantage of crossing is that it reduces the danger of unauthorized

persons getting possession of a cheque and cashing it. • A crossed cheque can only be cashed through a bank of which the payee

of the cheque is a customer.

Various kinds of Crossing1. General Crossing:- which bears across its face the words “ & co.” or the

words “not negotiable”. For general crossing two transverse lines on the face of cheque are essential. The paying banker shall pay only to a banker. There are two sloping parallel lines, marked across its face.

• The cheque bears an short form "& Co. "between the two parallel lines • The cheque bears the words "A/c. Payee" between the two parallel lines.• The cheque bears the words "Not Negotiable" between the two parallel

lines.

2. Special or Restrictive Crossing : When a particular bank's name is written in between the two parallel lines the cheque is said to be specially crossed. Where a cheque bears across its face an addition the name of banker either with or without the words “ not negotiable”. It contains: • The name of the banker across the face of cheque.• With the words “ not negotiable”• In addition to the word bank, the words "A/c. Payee Only", "Not

Negotiable" may also be written. The payment of such cheque is not made unless the bank named in crossing is presenting the cheque. The effect (or objective) of special crossing is that the bank makes payment only to the banker whose name is written in the crossing. Specially crossed cheques are more safe than a generally crossed cheques.

Why Crossing of Cheque is being used

• The important usefulness of a crossing cheque is that it cannot be covered at the counter but can be collected only by a bank from the drawee bank.• Crossing provides a protection and safeguard to the owner of the cheque

as by securing payment through a banker it can be easily detected to whose use the money is received. Where the cheque is crossed the paying banker shall not pay it except to a banker.• In case of not negotiable crossing the person holding such a cheque gets no

better title than that of his transfer and cannot suggest a better title to his own transferee. In case of 'account payee' only crossing, a direction is given to the collecting banker to collect cheque and to place the amount to the credit of the payee only.• A special crossing makes the cheque more safe than a general crossing

because the payee or holder cannot receive payment except through the banker named on the cheque.

Who can cross a Cheque

1. The drawer of a Cheque2. Holder of the Cheque 3. The Banker in whose favor the cheque has been crossed

specially

Case study on Cheque:

In Canara Bank vs. Canara Sales Corporation and Others[(1987)2 Supreme Court Cases 666]

The company has a current account with the bank which was operated by the Company’s Managing Director. The Company’s account in whose custody the cheque book was, forged the signature of the Managing Director in 42 Cheques totaling Rs.326047.92 over a period of time. This was detected by another accountant. The company immediately on detected of the fraud demanded the amount from the bank. The bank refused payment and therefore the company files a suit against the bank. The bank lost the suit and took the matter up to the Supreme Court. The Supreme Court dismissed the appeal of the bank and held that

Since the relationship between the customer and the bank is that of a creditor and debtor, the bank had no authority to make payment of a cheque containing a forged signature. The bank would be acted against the law in debiting the customer with the amount of the forged cheque as there would be no mandate on the bank to pay. The Supreme Court pointed out that the document in the cheque form on which the customer’s name as drawer was forged was a mere nullity. The bank would succeed only when it would establish adoption or estoppels. In dealing the case the Supreme Court relied on its earlier judgment in Bihta Cooperative Development and Cane Marketing Union Ltd vs. bank of Bihar (AIR 1967 Supreme Court 389)

PROMISSORY NOTE

1.It contains a promise to pay.2.It is presented for payment without

any previous acceptance by the maker.

3.It cannot be made payable to the maker himself. The maker and the payee cannot be the same person.

4.In the case of a promissory note there are only two parties, the maker and the payee.

5.A promissory note can never be conditional.

6.In case of dishonour no notice of dishonour is required to be given by the Holder

BILL OF EXCHANGE

1.It contains an order to pay.2.It is required to be accepted either by

the drawee or by some one else on his behalf, before it can be presented for payment.

3.The drawer and payee or the drawee and the payee may be the same person.

4.There are three parties, drawer, drawee and payee.

5.A bill of exchange cannot be drawn conditionally, but it can be accepted conditionally with the consent of the holder.

6.A notice of dishonour must be given in case of dishonour of a Bills of Exchange.

CHEQUE

1.Drawee: Cheque can be drawn only on a banker.

2. Time of payment: A cheque is payable on demand.

3. Grace period: Cheque is payable on demand and no grace period is allowed.

4. Notice of dishonour: Notice of dishonour is not necessary.

5. Acceptance: A cheque is not required to be presented for acceptance. It needs to be presented only for payment.

6.Crossing: A cheque may be crossed.7.Validity period: A cheque is usually

valid for a period of six months.

BILL OF EXCHANGE

1.The drawee may be any person.2.A bill may be drawn payable on

demand or on expiry of certain period after date or sight.

3. While calculating maturity three day’s grace (after it is expresses to be payable) is allowed.

4. A notice of dishonour is required.5. Bills require presentment for

acceptance and it is better to present them for acceptance even when it is not essential to do so –Why, you have to explain

6.A bill of exchange cannot be crossed.7. A bill may be drawn for any? period.

Estoppels

• Estoppel against denying original validity of instrument: The plea of original invalidity of the instrument cannot be put forth, against the holder in due course by the drawer of a bill of exchange or cheque or by an acceptor for the honour of the drawer. But where the instrument is void on the face of it e.g. promissory note made payable to 40 “bearer”, even the holder in due course cannot recover the money. Similarly, a minor cannot be prevented from taking the defence of minority. Also, there is no liability if the signatures are forged. (Sec. 120). • Estoppel against denying capacity of the payee to indorsee: No maker of promissory

note and no acceptor of a bill of exchange payable to order shall, in a suit therein by a holder in due course, be permitted to resist the claim of the holder in due course on the plea that the payee had not the capacity to indorse the instrument on the date of the note as he was a minor or insane or that he had no legal existence (Sec 121) • Estoppel against indorser to deny capacity of parties: An indorser of the bill by his

endorsement guarantees that all previous endorsements are genuine and that all prior parties had capacity to enter into valid contracts. Therefore, he on a suit thereon by the subsequent holder, cannot deny the signature or capacity to contract of any prior party to the instrument.

Classification of negotiable instruments

Bearer and order instruments:Bearer instruments: A negotiable instrument is payable to bearer

1. When it is expressed to be so payable, or2. When the only or last indorsement on the instrument is an indorsement in

blank.

Order instruments: A negotiable instrument is payable to order1. When it is expressed to be payable to order, e.g. “Pay to A or order”

or Pay to the order of A”. 2. When it is expressed to be payable to a particular person, and does

not contain words prohibiting or restricting its transfer, e.g. “Pay A one hundred rupees”

Classification of Bills of Exchange

Inland and foreign instruments:An inland bill:(a) must be drawn and made payable in India, or(b) must be drawn in India upon a person resident in India although it may be payable outside India.ExampleX of Bombay draws a bill on Y of Delhi payable at Yorkshire (U.K.).

A foreign bill of exchange is: - write its effect in case of invalid bill drawn outside India etc.(a) drawn in India upon a person resident outside India and made payable outside India, or(b) drawn outside India and payable in India.ExampleX of Bombay draws a bill of exchange on Y of London payable at London.


Trade and Accommodation BillsA trade bill is a bill of exchange issued in respect of a genuine trade transaction. Such bills are drawn by the seller on the buyer in respect of payment of the price of the goods sold and purchased.Since an accommodation bill is drawn and accepted without any consideration, it creates no obliga tion of payment between the parties to the transaction. But, however, all bills are not genuine bills i.e., they do not represent a trade transaction but are drawn as a convenient mode of accommodating a friend. Example - Thus, X may be in need of money and approaches his friend Y who instead of lending money directly, draws and accepts a bill of exchange, say, for Rs. 5,000. If the credit of Y is good it lends a currency to the bill and it can be discounted with the bankers or any other person. On maturity, X remits the amount with Y who in turn pays it in honoring the bill of exchange on presentment. Thus, it provides an accommodation to the party and is, there fore, called an 'Accommodation Bill'. The language and form of an accommodation bill is, however, similar to a genuine trade bill.


Time Bills (Usance Bills) and demand bills

Time bills, also called as usance bills, are bills payable at a fixed period after date or sight of the bills. Thus, a bill of exchange drawn payable at 3 months after the date it is drawn is a time or usance bill.

Similarly, a bill drawn payable at 90 days after sight is again a time or usance bill. A time bill may also be made payable at a fixed period after an event which is certain to happen.

Hence, a bill payable at 90 days after the death of the drawer will be a valid time bill.

Demands BillsA bill of exchange or a promissory note is payable on demand when It is made payable 'on demand' or 'at sight' or 'on presentation’. No time for payment is mentioned therein (Section 19).


Fictitious billWhen the name of the drawer or the payee or both is fictitious in a bill, the bill is called a fictitious bill. When both the drawer and the payee of a bill are fictitious persons, the acceptor is liable to a holder in due course, if the holder in due course can show that the signature of the supposed drawer and that of the first indorser (payee) are in the same handwriting (Sec. 42). If, however, the holder knows or has reason to believe that the drawer or the payee is a fictitious person, he is not a holder in due course as he is not getting the bill in good faith and as such cannot claim the money.


Documentary bill and clean billIt is a common practice in home as well as foreign trade to deliver to the banker along with the bills of exchange, the documents of title to the goods. (Ex-Lorry Receipt, Railway Receipt or Bill or Lading), the bill is called a documentary bill.

When no documents relating to the goods represented by the bill are attached to it, it is called clean bill.


Escrow:When a negotiable instrument is delivered conditionally or for a special purpose as a collateral security or for safe custody only, and not the purpose of transferring absolutely property therein, it is called escrow.Example: A, the holder of a bill, indorses it to “B” or order for the express purpose that B may get it discounted. B negotiates the bill to C who takes it bona fide and for value. C is as holder in due course, and he acquires a good title to the bill.

Ambiguous instrument: When an instrument owing to its faulty drafting may be interpreted either as a promissory note or a bill of exchange, it is called an ambiguous instrument. Its holder has to elect once for all whether he wants to treat it as a promissory note or a bill of exchange (Sec. 17) Example: A bill is drawn by A, an agent, acting within the scope of his authority upon his principal, P. The holder may, at his option, treat it as a note or bill because the drawer (A) and the drawee (P) are the same person.


Inchoate Stamped Instrument (Sec 20)• ISI is an incomplete instrument in some respect. • An inchoate stamped instrument is a paper signed and stamped in

accordance with the law relating to negotiable instruments and either wholly blank or containing an incomplete negotiable instrument.• When one person gives to another such a document, the latter is prima

facie entitled to complete the document and make it into a proper negotiable instrument up to the value mentioned in the instrument, or up to the value covered by the stamp affixed on it.• The person signing the instrument is liable on it to any holder in due

course.Example: Vikas signs his name on a blank but stamped instrument and gives the paper to Jitender with authority to fill it up as a promissory note for Rs 500 only. But Jitender fraudulently fills the paper for Rs.1000, the stamp put on it being sufficient to cover this amount. He then hands it to Ritesh for Rs 1000 who takes it in good faith for value. Can Ritesh recover the whole amount? Yes


Undated bills and notesA negotiable instrument is not invalid by reason that it is undated. If the instrument otherwise fulfils the legal requirements, the date of its execution can be proved by oral or other evidence. A holder in due course may, however, insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. Such an insertion is not regarded as a material alteration.

BILLS IN SETS

A bill of exchange is sometimes drawn in parts, especially when it has to be sent from one country to another. This is known as drawing a bill “in a set”.

The object of drawing the bill in a set is a) to avoid undue delay and unnecessary inconvenience which may arise due to the lost or miscarriage of the bill during the transit, and b) to ensure the safe transmission of at least one part of the bill to the drawee and its acceptance by him as early as possible.

Rules regarding bills in sets:1. A bill of exchange may be drawn in parts (two ,three, or four). All the parts

together make a set and the whole set constitutes only one bill .2. Each part of bill in a set must be numbered and must contain a provision that it

shall continue to be payable so long as the other parts remain unpaid. 3. The entire bill is extinguished when payment is made on one of the parts.4. The drawer must sign each part of the bill and deliver all the parts. But the stamp is

affixed on one part only and only one part of the whole set needs to be accepted. 5. When a person accepts or indorses different parts of the bill in favor of different

persons, he and the subsequent indorsers of each part are liable on such parts as if these parts were separate bills.

6. Where two or more parts of a set are negotiated to different holders in due course, he who first acquires title to his part is deemed to be the true owner of the bill. He is entitled to a) the possession of all other parts, and b) claim the money represented by the bill

Maturity:The maturity of a promissory note or bill of exchange is the date on

which it falls due. Every instrument payable otherwise than “on demand” is entitled to three days of grace.

Instruments not entitled to “days of grace” are1. A cheque (as it is intended for immediate payment) .2. A bill or note payable “at sight” or “on presentment” or “on demand” and 3. A bill or note in which no time is mentioned.

Instruments entitled to “days of grace”4. A bill or note payable on a specified day5. A bill or note payable “after sight”6. A bill or note payable at a certain period after date and 7. A bill or note payable at certain period after the happening of a certain

event

MATURITY AND DAYS OF GRACE

PAYMENT IN DUE COURSE

“Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof. Apparent tenor means the period, of time, as expressed in the instrument, after which it is payable. Further the payment to the person in possession of the instrument must be under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount mentioned in the instrument (Sec. 10)

Allahabad Bank v Kul Bhushan

PAYMENT IN DUE COURSE

Payment in due course , which results in discharge of a negotiable instrument, must satisfy the following conditions:

1. The payment must be in accordance with the apparent tenor of the instrument.

2. The payment must be made by or on behalf of the drawee or acceptor

3. The person to whom payment is made should be in possession of the instrument an should also be entitled to receive payment on it.

4. The payment should be made in good faith, without negligence and under bona fide circumstances.

5. There should not exist any ground for believing that the possessor is not entitled to receive payment.

INTEREST ON BILLS AND NOTES

1. When the rate of interest is specified in a promissory note or bill of exchange, it will be calculated at such rate on the principal money due thereon from the date of the instrument to the date of realization or tender of such amount. If a suit is filed on the instrument, interest is payable up to such date as the court directs (Sec. 79)

2. When no rate of interest is specified in the instrument, interest is calculated (in spite of any collateral agreement which is not embodied in the instrument) at the rate of 18% per annum (Sec. 80)

3. When the party charged is the indorser of an instrument dishonoured by non-payment, he is liable to pay interest only from the time that he receives notice of dishonor (Explanation to Sec. 80)

INTEREST ON BILLS AND NOTES

In the following cases, the rate of interest specified in the instrument may not be allowed by the court:1. Where the rate specified is excessive and the transaction is

substantially unfair (Usurious Loans Act 1918).2. Where the instrument has been obtained by coercion, undue

influence, fraud or misrepresentation (Sec. 19-A) of the Indian Contract Act 1872)

3. Where the stipulation in the contract for payment of interest is in the nature of a penalty (Sec. 74 of the Indian Contract Act 1872)

Thank you…

. negotiable instruments only valid in India

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Transcript of . negotiable instruments only valid in India