Law Word Doc Final 10-3-13

7/30/2019 Law Word Doc Final 10-3-13

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NEGOTIABLE INSTRUMENTS ACT 1881

VIDYALANKAR INSTITUTE OF TECHNOLOGY

MMS 1ST YEAR (2012-14)

Evolution & Revolution of Negotiable Instruments as Facilitator for

Trade and Commerce and Ten years taking forward

Name of students:

Vidyalankar Institute Of Technology, Mumbai Wadala20012-13

Page 1

Roll No. Group Member

22 Sudha Jadhav

25 Prachi Pawar

27 Sudarshan mandave

29 Samrat Tawde

31 Sagar Kale

33 Aditya Bhujbal

35 Samir Gopal

39 Neha Jha

41 Priyanka Kambli

43 Kunal Anardi


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Name of Division : C.K.Prahalad.

Name of the course : MMS(2012-14).

Name of the Guide : Prof. Anant Amdekar.

INDEX


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Sr

.

No

Topic Page

1. INTRODUCTION 3

2. EVOLUTION OF NEGOTIABLE INSTRUMENTS 73. NEGOTIABLE INSTRUMENTS 8

4. TYPES AND FEATURES OF NEGOTIABLE

INSTRUMENTS

14

5. DIFFERENCES BETWEEN NEGOTIABLE INSTRUMENTS 22

6. DISHONOR OF NEGOTIABLE INSTRUMENTS 27

7. REVOLUTION OF PAYMENT SYSTEMS IN INDIA 30

8 CASE STUDY 34

9. FUTURE PROSPECTS OF NEGOTIABLE INSTRUMENTS 36

10

.

QUESTIONAIRE 38

11

.

CONCLUSION 39

12

.

WEBLIOGRAPHY AND BOOKS REFERRED 41


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1: INTRODUCTION

In India, there is reason to believe that instrument to exchange were in use from early

times and we find that papers representing money were introducing into the country by

one of the Mohammedan sovereigns of Delhi in the early part of the fourteenth century. The

word 'hundi', a generic term used to denote instruments of exchange in vernacular is derived

from the Sanskrit root 'hund' meaning 'to collect' and well expresses the purpose to which

instruments were utilized in their origin. With the advent of British rule in India commercial

activities increased to a great extent. The growing demands for money could not be met be

mere supply of coins; and the instrument of credit took the function of money which they

represented.

Before the enactment of the Negotiable Instrument Act, 1881, the law of negotiable

instruments as prevalent in England was applied by the Courts in India when any question

relating to such instruments arose between Europeans. When then parties were Hindu or

Mohammedans, their personal law was held to apply. Though neither the law books of

Hindu nor those of Mohammedans contain any reference to negotiable instruments as such,

the customs prevailing among the merchants of the respective community were recognized

by the courts and applied to the transactions among them. During the course of time there

had developed in the country a strong body of usage relating to hundis, which even the

Legislature could not without hardship to Indian bankers and merchants ignore. In fact,

the Legislature felt the strength of such local usages and though fit to exempt them from the

operation of the Act with a proviso that such usage may be excluded altogether by

appropriate words. In the absence of any such customary law, the principles derived from

English law were applied to the Indians as rules of equity justice and good conscience.

The history of the present Act is a long one. The Act was originally drafted in 1866

by the India Law Commission and introduced in December, 1867 in the Council and it was

referred to a Select Committee. Objections were raised by the mercantile community to the


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numerous deviations from the English Law which it contained. The Bill had to be redrafted

in 1877. After the lapse of a sufficient period for criticism by the Local Governments, the

High Courts and the chambers of commerce, the Bill was revised by a Select Committee. In

spite of this Bill could not reach the final stage. In 1880 by the Order of the Secretary of

State, the Bill had to be referred to a new Law Commission. On the recommendation

of the new Law Commission the Bill was re-drafted and again it was sent to a Select

Committee which adopted most of the additions recommended by the new Law

Commission. The draft thus prepared for the fourth time was introduced in the Council and

was passed into law in 1881 being the Negotiable Instruments Act, 1881.

Need for negotiable instruments:

1. Negotiable instruments such as cheques, bills of exchange, promissory notes etc. are

playing a vital role in today's boosting trade and commerce. Negotiable such as promissory

note and specially the bills of exchange are specially made for this purpose. Bills of

exchange help many people who do not have the money to spend money as capital in their

business.

2. There were the different stages of evolution of business. However it was seen that the

growth was very slow and the system was very complex. There were different

instruments used to purchase different commodities in different stages. The system of

exchange was such that it led to confusion and various complexities. To avoid such

confusion and to operate the business activities smoothly negotiable instruments were

introduced.

3. Due to the negotiable instruments it became very easy and secure to make payments

through cheques.

Objectives:

1. To study the evolution and revolution of negotiable instruments act.


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2. To study negotiable instruments act.

3. To study types of negotiable instruments.

4. To study the differences between the different negotiable instruments.

5. To study the impact of negotiable instruments act 10 years in future.

6. To get a better understanding of negotiable instruments act through case studies.

2: EVOLUTION OF NEGOTIABLE INSTRUMENTS

The world as a whole has been the cradle of commerce because this exchange is not

only between individuals but also between people and nations. This naturally implies

the existence of:

1- Certain surplus of wealth

2- Certain provision for communication

Both of which are essential for growth of commerce. Unless there is a surplus of wealth

and provision for communication, commerce cannot grow.

Example- In the primitive economic society when each tribe or family produced all that

is needed and consumed all that it produced, need of commerce did not and could notarise. Only after the division of labour and consistent development of exchange,

commerce began to grow. Once it started growing, it spread its invisible thread

throughout the length and breadth of the world leading to its present day complex

mechanism. These stages may be summarized as follows:

1. Nonexistence of commerce- In the early stage of economic life of man division

of labour scarcely existed. Man produced what he needed and consumed all that

he produced. Therefore commerce did not exist in this stage.

2. Trade in the form of barter- In the second stage, wants of the family became

more numerous and many families found themselves with certain goods and


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surplus and deficient in certain other goods. These families wanted to exchange

their surplus goods for those goods which they did not possess. This gave rise to

exchange of goods for goods, i.e., Barter system. Thus this is the place from

where commerce may be said to have begun.

3. Money as a medium of trade and town as the centre of trade- Commerce

reached into its third stage of growth when money was evolved as medium of

exchange to remove the limitations of barter. Introduction of money began led to

the extension of division of labour and specialization. People began to produce

goods for certain local markets. Thus, division of labour was extended to a

locality. Gradually a separate class of artisans and traders came into existence.

They settled down at fixed places which came to be known as towns.

Growth of these towns gave great stimulus to commerce. The size of the market

and the number of commodities exchanged in the market, both increased.

Traders from other countries brought luxury articles, metals and ornaments for

sale.

4. Economy and growth of commerce- Commerce continued to grow both in

volume and space. After the decline of Guild system, a new class of people,

ENTERPRENEUR class, came into existence. This class of people became a real

intermediary between the producers and consumers. Further, growth of commercial

enterprise took place. Trade began to assume fixed forms. Production began to be

undertaken for the markets extended for the whole country. Division of labour

received further impetus. Production was divided into several branches and each

branch tended to be localized. Various economic activities came to be clearly

marked off into distinct groups:

A- Agriculture

B- Trade

C- Commerce


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World economy and the world market- Commerce entered into another stage of its

growth when nations of the world were brought into commercial relationships through

the invisible thread of trade. As a result of the geographical discoveries of the late 15 th,

16th and 17th centuries new trade routes were opened up and commerce grew between

nations. Now, in addition to the local market and the trade extending all over the world,

commodities came to be sold and purchased between traders from different countries in

the world. This gave rise to an international world market and to an international trade.

Thus the nations of the world were linked together through the medium of the world

market.

Evolution of commerce is a never ending process. Almost every day new experiments

in its mechanism are made. New forms and methods are being evolved in both socialist

and capitalist countries, in both developed and developing nations.

Why was it necessary to introduce Negotiable Instruments?

Historically business developed by stages.

(1) Pastoral stage (2) Agricultural stage (3) Handicrafts stage (4) Guild stage (5)

Domestic stage and (6) Factory stage.

Pastoral stage: In primitive society man used things just as they were found in nature.With time, he learned to domesticate animals and breed them for food and clothing.

Since he had to find pastures for his animals, he tended to lead a wandering life. But in

this stage his work served mainly to support only him with his own needs and left very

little surplus available for exchange on a business basis.

Agricultural stage: In course of time, the nomadic tribes settled permanently at fixed

places, built up the huts and shelters for their residences and began cultivating the land

in common. Growing corns, grasses etc. became the main occupation. Agricultureemerged as the basic feature of economic living of man. He gradually produced more


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and then started to exchange it with other commodities. This was known as barter

system.

Handicraft stage: In this stage manufacturing was limited to the human efforts to

transform raw materials into finished goods. It included candle and soap making,

spinning, weaving, making of clothes and shoes, blacksmithing, leather dressing,

carpentry etc.

Guild stage: A guild is an association of persons following a similar occupation and it

is formed to protect and promote the interest of its members through cooperative

endeavors.

Domestic stage: A new class entrepreneur emerged as a link between producer and

consumer. Now entrepreneur purchased the raw materials for the purpose of

manufacture and sale nut did not do the processing himself. He took the risk of

productions and sale. Out of the proceeds of his undertaking, he paid for the materials

and labour. The amount left was his profit

Factory stage: In this stage an organized system of production under a single roof came

to be identified as a factory. Large scale operations with the use of mechanized

production processes resulted in producing good quality products at cheaper rates.However it was greatly influenced not only by its own processes but also by

government under which it operates.

These were the different stages of evolution of business. However it was noted that the

growth was very slow and the system was very complex. There were different

instruments used to purchase different commodities in different stages. The system of

exchange was such that it led to confusion and various complexities. To avoid such

confusion and to operate the business activities smoothly negotiable instruments wereintroduced.


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3: NEGOTIABLE INSTRUMENTS


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Exchange of goods and services is the basis of every business activity. Goods are bought

and sold for cash as well as on credit. All these transactions require flow of cash either

immediately or after a certain time. In modern business, large number of transactions

involving huge sums of money takes place every day. It is quite inconvenient as well as

risky for either party to make and receive payments in cash. Therefore, it is a common

practice for businessmen to make use of certain documents as means of making payment.

Some of these documents are called negotiable instruments.

Definition of Negotiable Instrument:

According to section 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

Meaning of Negotiable Instruments:

The concept of negotiability is one of the most important features of commercial paper. A

negotiable instrument is a written document, signed by the maker or drawer, and containing

an unconditional promise to pay (or order to pay) a certain sum of money on delivery, or at

a definite time, to the bearer (or to the order).

To understand the meaning of negotiable instruments let us take a few examples of day-to-

day business transactions.

Example

Suppose Dibakar, a book publisher has sold books to Navin for Rs 10,000/- on three months

credit. To be sure that Navin will pay the money after three months, Dibakar may write an

order address

ed to Navin that he is to pay after three months, for value of goods received by him,Rs.10,000/- to Dibakar or anyone holding the order and presenting it before him (Navin) for

payment. This written document has to be signed by Navin to show his acceptance of the


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order. Now, Dibakar can hold the document with him for three months and on the due date

can collect the money from Navin. He can also use it for meeting different business

transactions. For instance, after a month, if required, he can borrow money from Sunil for a

period of two months and pass on this document to Sunil. He has to write on the back of the

document an instruction to Navin to pay money to Sunil, and sign it. Now Sunil becomes

the owner of this document and he can claim money from Navin on the due date. Sunil, if

required, can further pass on the document to Amit after instructing and signing on the back

of the document. This passing on process may continue further till the final payment is

made.

In the above example, Navin who has bought books worth Rs. 10,000/- can also give an

undertaking stating that after three month he will pay the amount to Dibakar. Now Dibakar

can retain that document with himself till the end of three months or pass it on to others for

meeting certain business obligation (like with Sunil, as discussed above) before the expiry

of that three months time period.

You must have heard about a cheque. What is it? It is a document issued to a bank that

entitles the person whose name it bears to claim the amount mentioned in the cheque. If he

wants, he can transfer it in favour of another person. For example, if Akash issues a cheque

worth Rs. 5,000/ - in favour of Bidhan, then Bidhan can claim Rs. 5,000/- from the bank, orhe can transfer it to Chander to meet any business obligation, like paying back a loan that he

might have taken from Chander. Once he does it, Chander gets a right to Rs. 5,000/- and he

can transfer it to Dayanand, if required. Such transfers may continue till the payment is

finally made to somebody. In the above examples, we find that there are certain documents

used for payment in business transactions and are transferred freely from one person to

another. Such documents are called Negotiable Instruments.

Thus, we can say negotiable instrument is a transferable document, where negotiable meanstransferable and instrument means document. To elaborate it further, an instrument, as


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mentioned here, is a document used as a means for making some payment and it is

negotiable i.e., its ownership can be easily transferred.

Thus, negotiable instruments are documents meant for making payments, the ownership of

which can be transferred from one person to another many times before the final payment is

made.


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4: TYPES & FEATURES OF NEGOTIABLE INSTRUMENTS

Types of Negotiable Instruments:

According to the Negotiable Instruments Act, 1881 there are just three types of negotiableinstruments i.e., promissory note, bill of exchange and cheque. However many other

documents are also recognized as negotiable instruments on the basis of custom and usage,

like hundis, treasury bills, share warrants, etc., provided they possess the features of

negotiability. In the following sections, we shall study about Promissory Notes (popularly

called pronotes), Bills of Exchange (popularly called bills), Cheques and Hundis (a popular

indigenous document prevalent in India), in detail.

1.Promissory Note:

Section 4 of the Negotiable Instruments Act, 1881 defines a promissory note as 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 sum of money only to or to the order of a

certain person or to the bearer of the instrument.

Example:

Suppose you take a loan of Rupees Five Thousand from your friend Ramesh. You can make

a document stating that you will pay the money to Ramesh or the bearer on demand. Or you

can mention in the document that you would like to pay the amount after three months. This

document, once signed by you, duly stamped and handed over to Ramesh, becomes a

negotiable instrument. Now Ramesh can personally present it before you for payment or

give this document to some other person to collect money on his behalf. He can endorse it

in somebody elses name who in turn can endorse it further till the final payment is made by

you to whosoever presents it before you. This type of a document is called a Promissory

Note

Features of a promissory note:


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The features of a promissory note are:

i. A promissory note must be in writing, duly signed by its maker and properly stamped as

per Indian Stamp Act.

ii. It must contain an undertaking or promise to pay. Mere acknowledgement of

indebtedness is not enough. For example, if someone writes I owe Rs. 5000/- to Satya

Prakash, it is not a promissory note.

iii. The promise to pay must not be conditional. For example, if it is written I promise to

pay Suresh Rs 5,000/- after my sisters marriage, is not a promissory note.

iv. It must contain a promise to pay money only. For example, if someone writes I promise

to give Suresh a Maruti car it is not a promissory note.

v. The parties to a promissory note, i.e. the maker and the payee must be certain.

vi. A promissory note may be payable on demand or after a certain date. For example, if it

is written three months after date I promise to pay Satinder or order a sum of rupees Five

Thousand only it is a promissory note.

vii. The sum payable mentioned must be certain or capable of being made certain. It means

that the sum payable may be in figures or may be such that it can be calculated.

Parties to a Promissory Note:

There are primarily two parties involved in a promissory note. They are

i. The Maker or Drawer the person who makes the note and promises to pay the

amount stated therein is a drawer.

ii. The Payee the person to whom the amount is payable is a payee. In course oftransfer of a promissory note by payee and others, the parties involved may be:

a. The Endorser the person who endorses the note in favor of another person.


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b. The Endorsee the person in whose favor the note is negotiated by endorsement.

(Endorsement means transfer of any document or instrument to another person by signing

on its back or face or on a slip of paper attached to it)

Specimen of a Promissory Note

Rs. 10,000/- New Delhi

15th March 2013

On demand, I promise to pay Abhay, s/o Sitaram of Meerut or order a sum of Rs

10,000/- (Rupees Ten Thousand only), for value received.

To , Abhay Sd/ Sanjeev

Address.. Stamp

2.Bill of Exchange:

Section 5 of the Negotiable Instruments Act, 1881 defines a bill of exchange as 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.

Example:

Suppose Rajiv has given a loan of Rs.10,000 to Sameer, which Sameer has to return. Now,

Rajiv also has to give some money to Tarun. In this case, Rajiv can make a document


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directing Sameer to make payment up to Rs.10,000 to Tarun on demand or after expiry of a

specified period. This document is called a Bill of Exchange, which can be transferred to

some other persons name by Tarun.

Features of a bill of exchange:

The various features of a bill of exchange are:

i. A bill must be in writing, duly signed by its drawer, accepted by its drawee and properly

stamped as per Indian Stamp Act.

ii. It must contain an order to pay. Words like please pay Rs 5,000/- on demand and oblige

are not used.

iii. The order must be unconditional.

iv. The order must be to pay money and money alone.

v. The sum payable mentioned must be certain or capable of being made certain.

vi. The parties to a bill must be certain.

Parties to a Bill of Exchange:

There are three parties involved in a bill of exchange. They are:

i. The Drawer The person who makes the order for making payment. I

ii. The Drawee The person to whom the order to pay is made. He is generally a

debtor of the drawer.

iii. The Payee The person to whom the payment is to be made.


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The drawer can also draw a bill in his own name thereby he himself becomes the payee.

Here the words in the bill would be Pay to us or order. In a bill where a time period is

mentioned, just like the above specimen, is called a Time Bill. But a bill may be made

payable on demand also. This is called a Demand Bill.

Specimen of a Bill of Exchange

Rs. 10,000/- New Delhi

May 2,2001

Five months after date pay Tarun or (to his) order the sum of Rupees Ten

Thousand only for value received.

To Accepted Stamp

Sameer Sameer S/d

Address Rajiv

3.Cheques:

TheNegotiable Instruments Act, 1881defines a cheque as a bill of exchange drawn on a

specified banker and not expressed to be payable otherwise than on demand. Actually, a

cheque is an order by the account holder of the bank directing his banker to pay on demand,

the specified amount, to or to the order of the person named therein or to the bearer.

Cheque is a very common form of negotiable instrument. If you have a savings bank

account or current account in a bank, you can issue a cheque in your own name or in favour

of others, thereby directing the bank to pay the specified amount to the person named in the

cheque. Therefore, a cheque may be regarded as a bill of exchange; the only difference is

that the bank is always the drawee in case of a cheque.


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Features of a cheque:

The features of a cheque are:

i. A cheque must be in writing and duly signed by the drawer.

ii. It contains an unconditional order.

iii. It is issued on a specified banker only.

iv. The amount specified is always certain and must be clearly mentioned both in figuresand words.

v. The payee is always certain.

vi. It is always payable on demand.

vii. The cheque must bear a date otherwise it is invalid and shall not be honoured by the

bank.

Specimen of a Cheque:

......20.......

Pay..............................................................................................................

....................................................................................................... or Bearer

Rupees

STATE BANK OF INDIA


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Jawaharlal Nehru University, New Delhi 110067

MSBL 6 5 3 0 0 3 1 1 0 0 0 2 0 5 6 1 0

Types of Cheque:

Broadly speaking, cheques are of four types.

a) Open cheque, and

b) Crossed cheque.

c) Bearer cheque

d) Order cheque

a) Open cheque: A cheque is called Open when it is possible to get cash over the counter

at the bank. The holder of an open cheque can do the following:

i. Receive its payment over the counter at the bank,

ii. Deposit the cheque in his own account

iii. Pass it to someone else by signing on the back of a cheque.

b) Crossed cheque: Since open cheque is subject to risk of theft, it is dangerous to issue

such cheques. This risk can be avoided by issuing other types of cheque called Crossed

cheque. The payment of such cheque is not made over the counter at the bank. It is only


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credited to the bank account of the payee. A cheque can be crossed by drawing two

transverse parallel lines across the cheque, with or without the writing Account payee or

Not Negotiable.

c) Bearer cheque: A cheque which is payable to any person who presents it for payment at

the bank counter is called Bearer cheque. A bearer cheque can be transferred by mere

delivery and requires no endorsement.

d) Order cheque: An order cheque is one which is payable to a particular person. In such a

cheque the word bearer may be cut out or cancelled and the word order may be written.

The payee can transfer an order cheque to someone else by signing his or her name on the

back of it.

There is another categorization of cheques which is discussed below:

Ante-dated cheques:- Cheque in which the drawer mentions the date earlier to the date of

presenting if for payment. For example, a cheque issued on 20th May 2003 may bear a date

5th May 2003.

Stale Cheque:- A cheque which is issued today must be presented before at bank for

payment within a stipulated period. After expiry of that period, no payment will be made

and it is then called stale cheque. Find out from your nearest bank about the validity

period of a cheque.

Mutilated Cheque:- In case a cheque is torn into two or more pieces and presented for

payment, such a cheque is called a mutilated cheque. The bank will not make payment

against such a cheque without getting confirmation of the drawer. But if a cheque is torn at

the corners and no material fact is erased or cancelled, the bank may make payment againstsuch a cheque.


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Post-dated Cheque:- Cheque on which drawer mentions a date which is subsequent to the

date on which it is presented, is called post-dated cheque. For example, if a cheque

presented on 8th May 2003 bears a date of 25th May 2003, it is a post-dated cheque. The

bank will make payment only on or after 25th May 2003.

Amendments:

142. Cognizance of offences:

OBJECTS AND REASONS OF AMENDING ACT OF 2002

to provided discretion to the Court to waive the period of one month, which has been

prescribed for taking cognizance of case under the Act

147. Offences to be compoundable.


To prescribe procedure for dispensing with preliminary evidence of the

complainant

To prescribe procedure for servicing of summons to the accused or withness by the

Court through speed post or empanelled private couriers;

To provide summary trial of the cases under the Act with a view to speeding up

disposal of cases;

To make the offences under the Act compoundable

Offences by companies.

Notwithstanding anything contained in sub-section (1), where any offence under this Act

has been committed by a company and it is proved that the offence has been committed


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with the consent or connivance of, or is attribute to, any neglect on the part of, any director,

Manager, secretary, or other office of the company, such director, manager, secretary or

other officer shall also be deemed to be guilty of that offence and shall be liable to be

proceeded against and punished accordingly.


To exempt those directors from prosecution under section 141 of the Act who are

nominated as directors of a company by virtue of their holding any office or employment in

the Central Government or State Government or a financial corporation owned or controlled

by the Central Government, or the State Government, as the case may be of penalties in

case of dishonour of certain cheques for insufficiency of funds in the account

Where any cheque drawn by a person on an account maintained by him with a banker for

payment of any amount of money to another person from out of that account for the

discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid,

either because of the amount of money standing to the credit of that account is insufficient

to honour the cheque or that it exceeds the amount arranged to be paid from that account by

an agreement made with that bank, such person shall be deemed to have committed an

offence and shall without prejudice to any other provisions of this Act, be punished withimprisonment for "a term which may extend to two year"], or with fine which may extend

to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless-

(a) The cheque has been presented to the bank within a period of six months from the date

on which it is drawn or within the period of its validity, whichever is earlier.

(b) The payee or the holder induce course of the cheque, as the case may be, makes a

demand for the payment of the said amount of money by giving a notice, in writing, to the


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drawer, of the cheque, 3["within thirty days"] of the receipt of information by him from the

bank regarding the return of the cheques as unpaid, and

(c) The drawer of such cheque fails to make the payment of the said amount of money to

the payee or, as the case may be, to the holder in due course of the cheque, within fifteen

days of the receipt of the said notice.


(i) to increase the punishment as prescribed under the Act from one year to two years

(ii) to increase the period for issue of notice by the payee to the drawer from 15 days to 30 day

5: DIFFERENCES BETWEEN NEGOTIABLE INSTRUMENTS

(A) Difference between Bill of Exchange & Promissory Notes

Promissory Note Bill of Exchange


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1. It contains a promise to pay.

2. The liability of the maker of a note

is primary and absolute.

3. It is presented for payment without

any previous acceptance by the

maker.

4. The maker of a promissory note

stands in immediate relationship

with the payee and is primarily

liable to the payee or the holder.

5. It cannot be made payable to the

maker himself. The maker and the

payee cannot be the same person.

6. In the case of a promissory note

there are only two parties, viz., the

maker (debtor) and the payee

(creditor).

7. A promissory note cannot be drawn

1. It contains an order to pay.

2. The liability of the drawer of a bill

is secondary and conditional.

3. If a bill is payable sometime after

sight, it is required to be accepted

either by the drawee himself or by

someone else on his behalf, before

it can be presented for payment.

4. The maker or drawer of an

accepted bill stands in immediate

relationship with the acceptor and

the payee.

5. The drawer and payee or the

drawee and the payee may be the

same person.

6. There are three parties, viz,

drawer, drawee and payee, and

any two of these three capacities

can be filled by one and the same

person.

7. The bills can be drawn in sets.

8. A bill of exchange too cannot be


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in sets.

8. A promissory note can never be

conditional.

9. In case of dishonour no notice of

dishonour is required to be given by

the Holder.

drawn conditionally, but it can be

accepted conditionally with the

consent of the holder.

9. A notice of dishonour must begiven in case of dishonour of a

Bills of Exchange.

(B) Difference between a Cheque and a Bill of Exchange

Cheque Bill of Exchange

1. 1. Drawee 1. The drawee may be any person.


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Cheque can be drawn only on a banker.

2. 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. 4. Notice of dishonour

Notice of dishonour is not necessary.

5. Payee

A cheque can be drawn to bearer and

made payable on demand.

6 6. Acceptance

A cheque is not required to be

presented for acceptance. It needs to be

presented only for payment.

2. A bill may be drawn payable on

demand or on expiry of certain period

after date or sight.

3. While calculating maturity three

days grace is allowed.

4. A notice of dishonour is required.

5. A bill cannot be made bearer if it is

payable on demand. A bill drawn

payable to bearer on demand is void.

6. Bills sometimes, require presentment

for acceptance and it is advisable to

present them for acceptance even when it

is not essential to do so.

7. Affixation of proper stamps is


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7. Stamping

No stamp duty is payable on cheques.

8. Crossing

A cheque may be crossed.

9. Noting and protesting

There is no system for noting and

protesting in case of dishonour.

10. Discharge of drawer

The drawer does not get discharged

from his liability because of delay in

presenting the cheque to the bank for

payment.

1 11. Liability of drawee for dishonour

In case of dishonour of cheque the

drawee is liable to the drawer and not

to the payee.

1 12. Validity period

A cheque is usually valid fro a period

of six months.

necessary in case of Bills of Exchange.

8. A bill of exchange cannot be crossed.

9. In case of dishonour of abill proper

noting andprotesting is necessary.

10. The drawer of the bill stands

discharged from his liability if it is not

duly presented for payment.

11. In case of dishonour of the bill by non-

payment on an accepted bill of exchange

the drawee becomes liable to the payee.

12. A bill may be drawn for any period.


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6: DISHONOR OF NEGOTIABLE INSTRUMENTS


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Bills of exchange:

Dishonor of the bill:

When the bill of exchange is not accepted or not paid on maturity, the bill is said to have been

dishonored. The bill is dishonored on two accounts.

a. Dishonor by non-acceptance

b. Dishonor by non-payment

a. Dishonor by non-acceptance:

When the drawee refuses to accept the bill, it stands to be dishonored. The dishonor by-non-acceptance may have the following reasons:

1. The drawee doesnt accept the bill within 24 hours of its receipt.

2. When the drawee is not entitled to accept it.

3. When the drawee is a fake person.

4. If the bill is to be conditionally accepted

5. When the drawee disappears.

6. In cas0e there are many drawees, and all the drawees do not sign the bill.

b.Dishonor by Non-Payment:

Another reason for the dishonor of a bill is its non-payment at maturity the drawee may refuse to

make the payment of the bill when it is presented at maturity, this refusal gives rise to dishonor

by nonpayment.

The dishonor affects all the parties to the bill. They include the drawer, all endorse and endorse,

who are all accountable and liable to the holder.

Complaints of cheque :

To answer in nutshell, a person desirous to initiate action under section 138 of NegotiableVidyalankar Institute Of Technology, Mumbai Wadala20012-13

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10: Questionnaire

1. Do you use cheques / Bill of exchange / Promissory notes in your business or

professional transactions ?

a. Yes b. No

2. Do you know about negotiable instruments act?

a. Yes b. No

3. Have you ever come acrossed any problem while dealing with cheques / promissory

notes / bill of exchange?

a. Yes b. No

4. What are the problems you faced while dealing with cheques?

a) Cheque bouncing

b) Cheque cashed to different individual

c) Signature authentication

d) Delay in cheque encashment


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5. Have you come acrossed any fraud while dealing with cheques / promissory notes /

bill of exchange?

a. Yes b. No

6. Are you aware of the electronic cheque form?

a. Yes b. No

7. Do you think electronic transfers are safe?

a. Yes b. No

8. Does negotiable instruments help in easier and secure transactions?

a. Yes b. No

11: CONCLUSION

Legal system of negotiable instruments is an important part of commercial law, many

principles and norms of which embody its constant pursuing for efficiency or benefit.

Therefore, it is certain to analyse and study legal system of negotiable instruments from the

angle of economics. This document explains the necessity and feasibility of economic

analysis of legal system of negotiable instruments, and analyses respectively the legalsystem on act, rights and liabilities of negotiable instruments in economic analysis method

systematically, attempts to explore the economic logic hidden in the back of them and find

out those laws and regulations disconforming to economic principles in the legal system of

negotiable instruments.

Chapter I ,the introduction concerns about the history ,necessity is as follows:

first, the economic analysis method of law has some incomparable technological advantages

over other analytical methods, and is an irreplaceable and powerful analysis tool; second,

the traditional analysis method of law has some limitations and requires the economic

analysis method of law to overcome the limitations; third, there exists an inherent logical


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relation between efficiency and legal system of negotiable instruments, so it is the objective

requirement of the natural attribute of legal system of negotiable instruments to study legal

system of negotiable instruments in economic analysis methods objectives of negotiable

instruments .Chapter2 deals with the evolution of negotiable instruments .It speaks about

primitive economic society and the need of commerce during that time. Chapter 3 defines

the concepts of negotiable instruments and legal system of negotiable instruments,

introduces the characteristics and functions . Secondly, this chapter introduces and analyses

the economic principles which are applied to study the legal system of negotiable

instruments.

Chapter4 deals with types and features of the negotiable instruments .It explain

each negotiable instruments with specimen and example.. Chapter5 deals explains the

difference between the negotiable instruments. Chapter 6 provides insight about the

dishonor of negotiable instruments. When the bill of exchange is not accepted or not paid

on maturity, the bill is said to have been dishonored. Chapter 7 talks about the revolution in

the negotiable instruments. The digital cheque and use of biometrics in negotiable

instrument as a step forward in its revolution. Chapter 8th is case study on negotiable

instruments which highlights the problems in dealing with the negotiable instruments.

Chapter 9th is the future prospects of negotiable instruments and how technological

innovation in negotiable instruments will help in better business .Chapter 10 is a

Questionaire .

Webliography:

http://www.investorwords.com/3226/negotiable_instrument.htmlhttp://en.wikipedia.org/wiki/Negotiable_instrument

http://indiankanoon.org/doc/1132672/


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http://en.wikipedia.org/wiki/Computerhttp://en.wikipedia.org/wiki/Computerhttp://en.wikipedia.org/wiki/Computerhttp://www.investorwords.com/3226/negotiable_instrument.htmlhttp://www.investorwords.com/3226/negotiable_instrument.htmlhttp://en.wikipedia.org/wiki/Negotiable_instrumenthttp://en.wikipedia.org/wiki/Negotiable_instrumenthttp://indiankanoon.org/doc/1132672/http://indiankanoon.org/doc/1132672/http://www.investorwords.com/3226/negotiable_instrument.htmlhttp://en.wikipedia.org/wiki/Negotiable_instrumenthttp://indiankanoon.org/doc/1132672/http://en.wikipedia.org/wiki/Computer


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http://www.advocatekhoj.com/library/bareacts/negotiableinstruments/index.php?

Title=Negotiable%20Instruments%20Act,%201881

http://www.indiankanoon.org/doc/1157641/

Book Referred-

Business law by Tejpal Sheth

.


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http://en.wikipedia.org/wiki/Intrinsichttp://www.advocatekhoj.com/library/bareacts/negotiableinstruments/index.php?Title=Negotiable%20Instruments%20Act,%201881http://en.wikipedia.org/wiki/Access_controlhttp://www.advocatekhoj.com/library/bareacts/negotiableinstruments/index.php?Title=Negotiable%20Instruments%20Act,%201881http://www.advocatekhoj.com/library/bareacts/negotiableinstruments/index.php?Title=Negotiable%20Instruments%20Act,%201881http://en.wikipedia.org/wiki/Access_controlhttp://www.advocatekhoj.com/library/bareacts/negotiableinstruments/index.php?Title=Negotiable%20Instruments%20Act,%201881http://en.wikipedia.org/wiki/Identity_access_managementhttp://www.indiankanoon.org/doc/1157641/http://en.wikipedia.org/wiki/Personal_identification_numberhttp://www.indiankanoon.org/doc/1157641/http://en.wikipedia.org/wiki/Automatic_Teller_Machinehttp://en.wikipedia.org/wiki/Intrinsichttp://en.wikipedia.org/wiki/Traitshttp://en.wikipedia.org/wiki/Access_controlhttp://en.wikipedia.org/wiki/Identity_access_managementhttp://en.wikipedia.org/wiki/Personal_identification_numberhttp://en.wikipedia.org/wiki/Automatic_Teller_Machinehttp://www.advocatekhoj.com/library/bareacts/negotiableinstruments/index.php?Title=Negotiable%20Instruments%20Act,%201881http://www.advocatekhoj.com/library/bareacts/negotiableinstruments/index.php?Title=Negotiable%20Instruments%20Act,%201881http://www.indiankanoon.org/doc/1157641/


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