N.i. act 010814

NEGOTIABLE INSTRUMENTS ACT

-Prof. Bijoy B BhattacharyyaDean, Banking

Welingkar Institute of Management Development & Research

Questions

1. ‘A ’ draws a cheque payable to ‘B’ or bearer. The cheque is lost by ‘B’. ‘C’ gets the cheque. Who is the holder?

A/B/C/ Nobody as the cheque is a lost one.

2. A Cheque is drawn in favour of ‘B’ who has already expired. Who is the holder?


Questions

3. ‘A ’ gets a cheque on the road which is drawn payable to ‘B’ or order. Representing himself as ‘B’, ‘A ’ endorses the cheque to ‘C’ who accepts in good faith and for valuable consideration. Can ‘C’ recover the amount of the Cheque?


Questions

4. The following is not a Negotiable Instrument:a) S/B A/C withdrawal slip b) Treasury Bill c) Certificate of Deposit d) Fixed Deposit Ceertificate

5. A cheque for Rs.30,000/- is received for payment in a current account with balance of Rs.30,000/-. Will the cheque be paid?


Questions

6. Where a Cheque bears a special crossing it can be paid only……

a) through a bank accountb) only through a bank account in drawee

bankc) only through the bank named in crossingd) C or its agent for collection.


Questions

7. A crossed cheque can be opened only by

a) holder in due courseb) any holderc) drawerd) Manager of the branch


Questions

8. A cheque is not capable of giving better title to the transferee than that of the transferor if it is ……

a) crossed account payeeb) crossed not negotiablec) drawn by an agentd) post dated


Questions

9. A customer has a joint SB A/c. (E or S) with balance of Rs.30,000 and also a current account in his individual name with balance of Rs.50,000. A cheque of Rs.35,000 is presented in clearing in his SB account. You should……

a) pass the cheque by creating overdraft in his SB A/cb) return the cheque c) an amount of Rs.5,000 can be transferred from current

account to pass the chequed) the cheque can be debited to current account and customer

be informed of this.


Questions

10.Public Holiday under N.I. Act 1881 can be declared by…..

a) Central Govt. b) State Govt.c) RBId) a or be) a or b or c


• The Negotiable Instruments Act of 1881.

• "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer.


• Section 31 of Reserve Bank of India Act, 1934 : No person other than Reserve Bank or Central Govt., can draw, accept, make or issue any bill of exchange or promissory note payable to bearer on demand.


SEC.13Meaning of Negotiable

Instruments • It means Promissory Note, Bill of

Exchange and cheque payable to order or bearer.

• Examples of Negotiable Instruments– Bank Draft– Certificate of Deposit– Commercial Paper– Treasury Bill– Share Warrant– Dividend Warrant


Characteristic Features of Negotiable Instrument

• Negotiability– The instrument is freely transferable • by delivery if it is payable to bearer and • by endorsement and delivery if it is payable to

order.

– A person (transferee) taking the instrument bonafide for value (known as a holder in due course) gets an absolute title to the instrument notwithstanding any defect in the title of the transferor or any prior party.


• Warehouse Receipts, B/Ls – satisfy the first feature but not the second – not a negotiable instrument.

• LIC Policy, Mate’s Receipt, Airways bill, FD Receipt etc – not even the first condition.


SEC.4Promissory Note

What is a Promissory Note ?• An instrument in writing• Signed by the maker• Containing an unconditional

undertaking to pay• A certain sum of money• To or to the order of a

certain person or to the bearer of the instrument

• Promise or order to pay is not “conditional”. Sum payable may be certain.


DPN / UPN

• DPN – payable immediately

• Usance – after a definite period of time.


SEC.22, 23, 24Calculation of Due Date /

Maturity• “At Sight” / ”On presentment” means

on demand. • “After Sight” means after

presentment.• Days of grace : 3rd day after the date

on which it is expressed to be payable.


SEC.5Bill of Exchange

What is a Bill of Exchange?• An instrument in writing.• Signed by the maker• Containing an

unconditional order.• Directing a certain person

to pay.• A certain sum of money• To or to the order of a

certain person or to the bearer of the instrument


Bill of Exchange & Promissory Note

• A bill of exchange is an order to pay money, while,

• A promissory note is a promise /undertaking to pay money.


SEC.6Cheque

• It is a bill of exchange• Drawn on a specified banker• Payable on demand


DEMAND DRAFT

• An order to pay money drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand is called Demand Draft.

• It is a negotiable instrument and has all the features of a bill of exchange.

• A demand draft remains valid for 3 months from the date of the instrument.


Parties to a Negotiable Instrument

• Parties to a Promissory Note –Maker (the person who promises to pay)– Payee (the person to whom the payment

has to be made)



• Parties to a Bill of Exchange– Drawer (a person who orders to pay)– Drawee (a person who is directed to

pay)– Payee (the person to whom the payment

is to be made)

• All usance bills need to be ‘Accepted’ by the drawee.



• Parties to a Cheque– Drawer (the account holder who draws

the cheque.)– Drawee (the bank)– Payee (the person in whose favour the

cheque is drawn)

• The drawee of a cheque cannot be anybody other than a bank.


CHEQUE - Definition

• A Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.


CHEQUE

• Payment of Cheque• Date of the Cheque– Stale cheque– Post dated cheque

• Payee of the cheque–Minor– Insolvent– A Company / Corporation / Govt. Department

• Amount mentioned in the cheque • Drawer’s Signature


CHEQUE

• Order / Bearer• Crossing of Cheque – General / Special

(Sec.123/124/126). • Sec.123 – When a cheque bears across its face an

addition of the words “and company” or any abbreviation thereof, between two parallel transverse lines or two transverse lines simply, either with or without the words “not negotiable”, that addition shall be deemed to be a crossing and the cheque shall be deemed to be crossed generally.

• Account Payee Welingkar Institute of Management

Development & Research

Biil of Exchange ChequeCannot be drawn payable to bearer on demand.

Drawee anybody.

Can be made demand / usance.

No crossing.

Usance bills need acceptance

Possible

Only a bank

Only on demand

Crossing

Do not require acceptance


Payment of Cheque

• Apparent tenor – Date, crossing, endorsement, name of payee, amount as an apparent on the instrument.

• Banker statutorily obliged to honour customers’ cheque subject to :

• i) sufficient funds of the drawer in his hands

• ii) properly applicable to the payment of the cheque.

• In default must compensate.Welingkar Institute of Management


• Sec 8 : “Holder” of a promissory note, B/E or Cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon to the parties thereto.


Parties to a Negotiable

Instrument• Holder – SEC.8 Holder should be entitled to

receive the amount – e.g. if the payee is insolvent, the holder of the cheque is the official liquidator.– He must be entitled to possess the document.– He should be entitled to receive the amount.

• Holder in due course – SEC.9– Consideration– Before Maturity– Good faith


• Holder Holder in due course Consideration not Consideration

essential essential

Actual possession Actual possession may not be there before maturity

essential

Defective transferor’s Good title even if title passes defective transferor’s title istitle defective


Payment in due course ( Sec 10 )

• Banker paying a cheque must ensure that payment is payment in due course.

• In accordance with apparent tenor of the instrument

• In good faith and without negligence to any person in possession of the instrument.

• Under circumstances not giving a ground to believe that the person receiving payment is not entitled to payment of the amount (Sec.10).


• Amount in figures and words different (Sec.18)


Sec 31

• The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable mto the payment of such cheque must pay the cheque when required to do so, and in default of such payment, must compensate the drawer for any loss or damage caused by such default

• Applies to only a BankWelingkar Institute of Management


Sec 31

2.The liability of drawee of cheque is to make payment, when there is a) Sufficient fundsb) Property applicable for paymentc) Required so by drawer d) All of Abovee) None


Sec 31

• Liability of the paying bank : • To honour the cheque drawn on its account, if sufficient

balance other than stop payment, death, garnishee/attachment order, earmarked, setoff, not clear balance Protection available to paying bank in case of forged endorsements (not forged signature), material alteration.

• The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required so to do, and, in. default of such payment, must compensate the drawer for any loss or damage caused by such default.


SEC 123 to 131Payment of crossed cheques

• Types of crossing– General Crossing, Account Payee – Special Crossing, not negotiable


• Sec 123: A cheque bearing across its face two parallel, transverse lines , the cheque is deemed to be crossed generally


• Sec. 124 : The essential feature of a special crossing is the addition of the name of a bank on the face of the cheque. Two parallel line or the words “not negotiable” may or may not be there.


• Sec 130 : “ A person taking a cheque crossed generally or specially bearing in either case the words ‘not negotiable’ shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it, had”


• 131. Non-liability of banker receiving payment of cheque

• A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally of specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment.


Sec. 131

• Conditions for protection• Collecting banker should have acted

in good faith • Without negligence• Receive payment for a customer• Cheque should be crossed generally

of specially


Sec : 138• 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 with imprisonment for 2["a term which may extend to two year"], or with fine which may extend to twice the amount of the cheque, or with both:

• Welingkar Institute of Management Development & Research

Conditions necessary for section 138

• Valid consideration• To be presented within validity period and

cheque should be returned unpaid / dishonoured.

• Payee to give written notice to drawer demanding payment within 30 days of receiving intimation of dishonour

• Drawer to be given 15 days’ time to make payment

• On expiry of 15 days, cause of action arises and within one month, criminal suit can be filed


• G.M.Mittal Stainless Steel Vs. Nagarjuna Investment (1997) 90 Comp. Case – Closure of Account

• M/S. Electronics Trade and Technology Vs. M/S. Indian Technologists and Engineers (P) Ltd. ISJ Banking 1996, SC 129 – Stop Payment

• Sadanandan Bhadran Vs. Madhavan Sunil Kumar – Cheque can be presented any number of time during the validity period

• s


Indorsement

• When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called the “Indorser”.


THANK YOU


N.i. act 010814

Documents

Transcript of N.i. act 010814