NEGOTIABLE INSTRUMENTS ACT, 1881

Presented By

SHANKAR GANESH

(12NA1E0056)

2MEANING OF NEGOTIABLE INSTRUMENT

The word negotiable means ‘transferable by delivery’, and word instrument means ‘a written document by which a right is created in favour of some person. Thus, the term “negotiable instrument” means “a written document transferable by delivery”.

According to Section 13 (1) of the Negotiable Instruments Act, “A negotiable instrument means a promissory note, bill of exchange, or cheque payable either to order or to bearer”. “A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees” [Section 13(2)].

3FEATURES OF NEGOTIABLE INSTRUMENTS

Writing and Signature

Money

Freely Transferable

Title of Holder Free from all Defects

Notice

Presumption

Special Procedure

Popularity

Evidence

4TYPES OF NEGOTIABLE INSTRUMENTSThere are two types of Negotiable Instruments:

1. Instruments Negotiable by Statute:

The Negotiable Instruments Act mentions only three kinds of negotiable instruments (Section 13). These are:

1. Promissory Notes

2. Bills of Exchange, and

3. Cheques

2. Instruments Negotiable by Custom or Usage:

There are certain other instruments which have acquired the character of negotiability by the usage or custom of trade. For example: Exchequer bills, Bank notes, Share warrants, Circular notes, Bearer debentures, Dividend warrants, Share certificates with blank transfer deeds, etc.

5PROMISSORY NOTES

Section 4 of the Act defines, “A promissory note is an instrument in writing (note being a bank-note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments.”

The person who makes the promissory note and promises to pay is called the maker. The person to whom the payment is to be made is called the payee.

6CHARACTERISTICS OF A PROMISSORY NOTE

It is an Instrument in Writing

It is a Promise to Pay

Signed by the Maker

Other Formalities

Definite and Unconditional Promise

Promise to Pay Money Only

Maker must be a Certain Person

Payee must be Certain

Sum Payable must be Certain

It may be Payable on Demand or After a Definite Period of Time

It cannot be Made Payable to Bearer on Demand

7PARTIES TO A PROMISSORY NOTE Maker:

Maker is the person who promises to pay the amount stated in the note.

Payee:

Payee is the person to whom the amount of the note is payable.

Holder:

He is either the payee or the person to whom the note may have been endorsed.

8SPECIMEN OF PROMISSORY NOTE

Rs. 10,000

LucknowApril 10, 2013

Three months after date, I promise to pay Shri Ramesh (Payee) or to his order the sum of Rupees Ten Thousand, for value received.

To,Shri Ramesh,B-20, Green Park,Mumbai.

(Maker)

Stamp

Sd/-Ram

9BILL OF EXCHANGE

According to Section 5 of the act, A bill of exchange is “an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument”. It is also called a Draft.

Special Benefits of Bill of Exchange:

A bill of exchange is a double secured instrument.

In case of immediate requirement, a Bill may be discounted with a bank.

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ESSENTIAL ELEMENTS OF BILL OF EXCHANGE

It must be in Writing.

Order to pay

Drawee

Signature of the Drawer

Unconditional Order

Parties

Certainty of Amount

Payment in Kind is not Valid

Stamping

Cannot be made Payable to Bearer on Demand

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PARTIES TO A BILL OF EXCHANGE Drawer:

The maker of a bill of exchange is called the drawer.

Drawee:

The person directed to pay the money by the drawer is called the drawee.

Payee:

The person named in the instrument, to whom or to whose order the money are directed to be paid by the instruments are called the payee.

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SPECIMEN OF BILL OF EXCHANGE

Rs. 10,000

MumbaiApril 10, 2013

Three months after date pay to Ram (Payee) order the sum of Ten Thousand Rupees, for value received.

To,SushilB-20, Green Park,Lucknow - 226020.

Stamp

Sd/- RamIn case of need with Canara Bank, Delhi.(Drawer)

(Drawer)Accepted

Sushil

13CHEQUE

According to Section 6 of the act, A cheque is “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”. A cheque is also, therefore, a bill of exchange with two additional qualification:

It is always drawn on a specified banker.

It is always payable on demand.

Special Benefits of Bill of Exchange:

A bill of exchange is a double secured instrument.

In case of immediate requirement, a Bill may be discounted with a bank.

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ESSENTIAL ELEMENTS OF A CHEQUE In writing

Express Order to Pay

Definite and Unconditional Order

Signed by the Drawer

Order to Pay Certain Sum

Order to Pay Money Only

Certain Three Parties

Drawn upon a Specified Banker

Payable on Demand

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PARTIES TO A CHEQUE

Drawer:

Drawer is the person who draws the cheque.

Drawee:

Drawee is the drawer’s banker on whom the cheque has been drawn.

Payee:

Payee is the person who is entitled to receive the payment of a cheque.

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SPECIMEN OF CHEQUE

Pay

……………………………………………………………………………………………………………......

……………………………………………………………………………………………………. Or Bearer

Rupees ……………………………………………………………………………………………………………

……………………………………………………………………………………………

Rs.

Kapoorthala Bagh,Mumbai – 400033IFSCode:MAHB0000316

A/c No.

“ΙΙ473792ΙΙ” 000240000 000000 10

SHANKAR GAJARE

SignaturePlease sign above

D D M M Y Y Y Y

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CONCLUSION:

I conclude that Negotiation thus requires two conditions to be fulfilled, namely:

There must be a transfer of the instrument to another person; and

The transfer must be made in such a manner as to constitute the transferee the holder of the instrument.

THANK YOU