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NEGOTIABLE INSTRUMENTS ACT 1881

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Negotiable Instruments:

Banks in general deal with negotiable instruments

e.g. Promissory Notes, Bill of Exchange, Cheques.

These instruments are called Negotiable Instruments

and laws defining the instruments and their

transactions is called Negotiable instrument Act.

These instruments can either be bearer instruments

or order instruments.

These instruments differ from other financial

instruments in following respects (Negotiability):

(a) If the instrument is bearer instrument, it can betransferred to other person merely by delivery.

(b) If the instrument is order instrument, it can be

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Transferred to other person merely by endorsement

and delivery.

(c) Transferee of the instrument can get a better title

than the transferor, if he has obtained the

instrument for a value and in good faith, without

having a knowledge that there was a defect in title of

the transferor of the instrument.

Section 4: Promissory Note:

(a) It must be an instrument in writing

(b) It must not be a Bank note/Currency Note

(c) It must contain an unconditional undertaking

(d) It must contain a certain sum

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Section 5 : Bill of Exchange:

(a) Demand Bills

(b) Usance Bills (c) Section 21: At sight, on presentment, After sight

(d) Section 22: Maturity (Days of Grace

(e) Section 23, Section 24, Section 25 (Calculation of

maturity date)

Section 6: Cheque:

E cheque/Truncated cheque

Section 9: Holder in due course Section 10: Payment in due course

Section 14: Negotiation

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Section 15: Indorsement

Section 16: Indorsement in full or blank

Section 18: When amount in words & figures differ Section 26: Position of minor

Section 35: Liability of indorser: (Sans Course)

Sectin 36 : Liability of prior parties to holder in due

course

Section 49: Conversion of blank endorsement into

full

Section 43: NI without consideration Section 54: Instruments endorsed in blank (Bearer)

Section 56: Indorsement for part sum due

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Section 85 & 85 (A): Protection to the paying Banker

Section 87, 88 & 89: On Material alteration

CROSSING OF CHEQUES

Sec.123 Cheque crossed generally

Sec.124 Cheque crossed specially

Sec. 125 Crossing after issue

Sec.126 Payment of cheque crossed

generally/specially

Sec. 127 Payment of cheque crossed specially morethan once

Sec.128 Payment in due course of a crossed cheque

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Sec.129 Payment of crossed cheque out of due

course

Sec.130 Cheque bearing Not Negotiable Crossing

Sec.131 Protection to collecting banker of a crossed

cheque/Truncated cheque Sec.131(A) Crossed Draft

Sec.138 Dishonour of cheque for insufficiency, etc.

of funds in the account (Penal offence)

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General Rules regarding the form of endorsements:

In order to be effective an endorsement must be

regular.

Signatures on the document must be that of his or

his duly authorised agent e.g. banker etc. Any

signatures in block letters are irregular.

Should spell his name in the same way as it appearson the N.I. Any change in spelling in the

endorsement will make it irregular e.g. if his name on

the cheque is Akesh instead of Akash; regular

endorsement will be Akesh and not Akash

Any initial of name should neither be added or

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omitted. E.g. a cheque payable to S.C. Kapoor should

not be endorsed as S.Kapoor or S.C.B.Kapoor or

S.C.K.

Prefixes and Suffixes in the names should be

excluded e.g. Mr., Miss, Mrs., Dr., Professor, Col. Etc.

but a endorser may retain his title. e.g. Colonel

S.K.Verghese can endorse as S.K.Verghese Colonel

Married Woman If a NI is payable to married

woman, the endorsement can be:

Payee Regular endor Irregular endor

Mrs. Uma Kalia Uma Kalia or (Mrs.)

Uma Kalia

Mrs. Uma Kalia

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Payee Regular endor Irregular endor

Smt K.C.Jain Renu Jain

(Wife of Sh.K.C.Jain)Or

Renu Jain

(Smt. K.C.Jain)

Smt. K.C.Jain or

K.C.Jain

Illiterate Person : Should affix his thumb impression

For any endorsement which should be attested/

Witnessed by third person, who should also give

His address e.g.Thumb impression of Kalu

Attested/Witnessed by

Ram Singh, Sarpanch

25, Village Mandoli, Distt. Sonipat (Haryana)

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In case of business firms, endorsement may be

signed by the properitor, Partners, Authorised

officials as follows: For (or on behalf of or per pro) Janta Udyog

Kishan Chand

Properitor

For (or on behalf of or per pro) Ram Chand Kishen Chand

Ram Chand Kishen Chand

Partner Partner

For (or on behalf of or per pro) India Making Ltd Manohar Lal

Managing Director

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For Kailash Memorial College

Himmat Kumar

Principal

The following type of endorsements are irregular

Himmat Kumar

Principal

Kailash Memorial college Executor: If an executor is appointed on the death of a

person, he will endorse as follows:

K.P. Krishnan

Executor of the late Harric Ramaswamy Liquidator: Liquidator of a Company will endorse

For Vaibhav Trading Corporation Ltd. in liquidation

Rakesh Kumar

Official Liquidator

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Trustees: In case of Trusts, endorsement will be

For and behalf of Asha Ram Trust

Raj Pal Manek Ram Trustee Trustee

If a NI is payable to a woman in her maiden name

e.g. Miss Rekha Dhingra now married to Mr.

S.K.Chopra, she may endorse it as follows:

Rekha Dhingra

(now Mrs. Rekha Chopra) or

Rekha Chopra nee (or formerly Rekha Dhingra)