Negotiable Instruments Act 1881

Prepared By:Sonali Daine - 68Pratima Pawar - 91Chetana Sawant -103Sneha Thakur - 115Avantika Udas - 116

What is money?

• Money is anything that is generally accepted as payment for goods and services and repayment of debts.

• Money is a "medium of exchange"

What is Negotiation?

• Business negotiation is the process by which typically two or more parties come together to try to create a mutually agreeable contractual decision. Each party will have competing interests and, thus, negotiations can be quite intricate and lengthy. Negotiations end when all parties have come to a final decision and have agreed to contractual guidelines.

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 checks, drafts, bills of exchange, and some types of promissory notes.

Types of negotiable instruments

Promissory NoteBill of exchange ChequeHundis

Bill of Exchange According to section 5 of Negotiable

Instrument 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 sum of money only to or to the order of a certain person or to the bearer of the instrument”

Types Of Negotiable Instruments • Bill of Exchange:

Writing, signed, accepted, stamped

Unconditional order to pay

Money only

Certain party

Certain sum

Parties – Drawer, Drawee & Payee

• A bill of exchange is a negotiable and unconditional written order, such as a check, draft, or trade agreement, addressed by one party to another.

• The receiver of the bill must pay the specified sum or deliver specified goods on demand or at a specified time.

• Bills of exchange are a common form of

internationally negotiable instruments.

Specimen Of A Bill Of Exchange

JAMMUJAMMU

2727thth Nov. 2006 Nov. 2006

StampStamp

Three months after due date, pay XYZ or order, theThree months after due date, pay XYZ or order, theSum of Rs 1000(one thousand only) for value received.Sum of Rs 1000(one thousand only) for value received.

To,To,M/S ABCM/S ABCGandhi NagarGandhi NagarJammuJammu

Parts Of A Bill Of Exchange

•Date•Term•Amount•Stamp•Parties

Parties to a Bill Of Exchange

Drawer Drawee Payee

Special features1. A Bill Of Exchange is an instrument

in writing2. It must be signed by the maker3. It contains an unconditional order4. The order must be to pay money

and money only5. The sum payable must be specific6. The amount must be paid within a

stipulated time7. The name of the drawee must be

clearly mentioned8. It must be dated and stamped

Advantages of Bill of Exchange

1. Purchase and Sale of Goods on Credit

2. Discounting Facility3. Easy to Recover the Amount4. Endorsement5. Certainly as to Payment6. No Reminder to Debtor7. Convenient Mean of Trade

Remittance8. Valid Evidence of Debt

Kinds of Bills Of Exchange

• Inland Bill• Foreign Bill• Demand Bill• Time Bill• Trade Bills• Accommodation Bills

Promissory Note

• A “Promissory Note” is an instrument (not being a banknote 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.

•Promissory NoteIn writing, signed, stampedUnconditional promise to payMoney onlyCertain partyCertain sumParties – Maker, Payee

Elements Of Promissory Note

1. Writing : No oral engagement Use of ink or pencil or can be

printed No particular form of words Intention must be clear

2. Undertaking to pay :

Clear intention No need of the word ‘Promise’

3. Unconditional :

Definite & an unconditional undertaking to pay

Certainty of payment

4. Promise to pay must be money only :

Agreement with consideration Promise to pay money as well as

something else is not a Promissory note

5. Specific sum:

Certain sum of money to be paid Payment with interest, installments

& indicated rate of exchange

6. Certain persons:

2 distinct persons Description of payee – by name or

designation No use of “You” for payee

7. Signed:

Maker’s sign Not only physical act but mental act

8. Stamping:

Chargeable with stamp duty Cancellation of stamps with maker’s

signature

Hundis

A hundi is the negotiable instrument used for the purpose of transfer of money without its actual physical movement

It is in the form of bill of exchange or promissory note

It is governed by local usage & customs

• HUNDIS

Drawn in any local language in accordance with the custom of the place.

Oldest form of negotiable instrument

Types of Hundis

Darshani Hundi :- Payable at sight

Muddati or Miadi Hundi :- Payable after specific period of time

Subtypes Shah Jog Hundi

Nam Jog Hundi

Dhani Jog Hundi

Jawabee Hundi

Jokhami Hundi

Cheque (Sec. 6)

Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand

Specimen of Cheque

FEATURES Duly signed by the drawer & must be

in writing

It contains an unconditional order

Issued on a specified banker only

Amount specified & payee is always certain

Cheque without date is invalid

Types of Cheque

Open Cheque

Crossed Cheque

Bearer Cheque

Order Cheque

Contd..Ante- Dated

Stale dated

Mutilated

Post- dated

Electronic

Truncated

Crossing Of Cheque

Crossing: Crossing of cheque gives safety. crossing of cheque is way of making it even more certain that money is to be paid to correct person. A crossed cheque will be paid to the banker through which is presented.

Cheques can be crossed by two types:- General crossing

- Special Crossing

General crossing Sec 123 & 126 It has two transverse parallel lines

marked across ots face It bears an abbreviation “&co.”between

the transverse parallel lines It bears the words non- negotiable

between two parallel lines.

& Co. NOT NEGOTIABLE

Special Crossing of Cheques

Sec 124 Defines Special Crossing:“where a cheque bears across its face, an

addition of the name of a banker, with or without the words ‘Not Negotiable’, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker

In this bankers name is written between two lines

The cheque requires words ‘ not negotiable’ Two transverse parallel lines are not necessary

Forms Of Special Crossing

Cheques crossed with bank name

Cheques crossed with A/c payee

Cheques crossed with Not negotiable.Bank O

f India

Cheque Crossed after issue: Sec 125

Following cases are allowed :

where a cheque is uncrossed, the holder may cross it generally or specially

a generally crossed cheque can be crossed specially.

The holder may add words not negotiable A banker may cross specially crossed cheque

to another banker or his agent for collection

Presentment and payment of cheque

According to sec 84 cheque must be presented to bank upon which it is drawn

Cheque must be presented within its validity period.

The drawee (bank) must have sufficient funds of drawer to make the payment

An obligation of the banker to honour the payment of cheque.

Dishonour of Cheque

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 exceeds the amount arranged to be paid by an agreement made with that bank, such person shall be deemed to have committed an offence.

(sec 138)

Notice in writing Constitutes an offence

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