Negotiable Instrument Act, 1881
Negotiable – Means transferable from one person to another
Instrument – Means written document which creates a right in favor of some person
“A Negotiable Instrument is a document by which rights can be transferred from one person to
another in accordance with the Negotiable Instrument Act, 1881”
Sec-13 – “A Negotiable Instrument means a Promissory Note, Bill of Exchange, or Cheque,
payable either to order or to bearer”
Essential Element of Negotiable Instrument
1- In Writing
2- Signed by Maker / Drawer
3- Promise or Order to Pay
4- Promise or Order is Unconditional
5- Transferability
6- Good Title of Transferee
7- Right of Action – Can Sue (Holder)
8- Endorsement / Delivery
9- Payable in Money
10- Certain Sum
11- Unconditional
Presumptions Related to Negotiable Instrument
1- Consideration
2- Date
3- Time of Acceptance – Reasonable
4- Order of Endorsement
5- Stamp – In case of lost, they are duly stamped
6- Time of Transfer – Made before date of Maturity
7- Holder in Due Course – Lawful Owners
Holder and Holder in Due Course
Holder- Sec-8 – Holder of a Promissory Note, Bill of Exchange or Cheque means any person
entitled in his name to the possession thereof and to receive or recover the amount due thereon
from the parties thereto
A person is called the holder of the Negotiable Instrument if the following conditions are
satisfied –
1- He must be entitled to the possession of the Negotiable Instrument in his own name and under
a legal right / title
2- He must be entitled to receive or recover the amount from the parties concerned in his own
name
Sec-8 - If a Negotiable Instrument is lost or destroyed its holder is the person so entitled at the
time of such loss or destruction?
In other words the person who was entitled to receive payment at the time Negotiable Instrument
was lost, will continue to be regarded as its holder, the finder does not become its holder
Holder in Due Course- Sec-9 – “Holder in due course means any person who for consideration,
become the possessor of a Promissory Note, Bill of Exchange or Cheque, if payable to bearer, or
the payee, or endorse thereof if payable to order, before the amount mentioned in it becomes
payable and without having sufficient cause to believe that defect existed in the title of the
person from whom he derived his title”
A person is a Holder in Due Course of a Negotiable Instrument if the following conditions are
satisfied –
1- The Negotiable Instrument must be in possession of Holder in Due Course
2- The Negotiable Instrument must be regular and complete in all respects
3- The Negotiable Instrument must have been obtained for valuable consideration
4- The Negotiable Instrument must have been obtained before the amount mentioned therein
becomes payable
5- The Negotiable Instrument must be taken on belief that the title is good
In other words where a person takes a Negotiable Instrument in good faith for value before it is
due, regular and complete with out any defect he is Holder in Due Course
Essential Element for Holder in Due Course
1- Consideration
2- Before Meeting
3- Good Faith
4- Regular and Complete
Difference between Holder & Holder in Due Course
1- Holder – No Consideration
Holder in Due Course – Consideration is Must
2- Holder - Possessor of a Negotiable Instrument before it become payable
Holder in Due Course – Possessor of Negotiable Instrument before it become payable
value
3- Holder – Liable
Holder in Due Course – No Liability
Rights of a Holder
1- An endorsement in blank may be converted by him into an endorsement in full
2- He is entitled to cross a Cheque either generally or specially and also with word “Not
Negotiable”
3- He can negotiate a Cheque to a third person, if such negotiation is not prohibited by the
direction given in Cheque
4- He can claim payment of the Negotiable Instrument and can sue in his own name on the
Negotiable Instrument
5- A duplicate copy of a lost Cheque may be obtained by a Holder
Privileges of a Holder in Due Course
for
1- He possess a better title free from defect
2- Liability of prior parties to Holder in Due Course
Sec-36
3- Right of Holder in Due Course in case of Inchoate Instrument (Incomplete)
4- Right in case of Fictious Bill
Sec-20
Sec-42
5- Right in case the Instrument is obtained by unlawful means or for unlawful consideration
Sec-58
6- Estoppels against denying capacity of payee to endorse
Sec-121
7- Estoppels against denying original validity of the Negotiable Instrument Sec-120
8- Estoppels against denying signature or capacity of prior party
Payment in Due Course
The payment of a Negotiable Instrument should be made to the right person by the paying
bankers or the acceptor of the Bill of Exchange, otherwise later should be responsible for the
same
Sec-10 – Payment in Due Course means payment in accordance with the appointer of the
Negotiable Instrument in good faith and with out negligence to any person in possession thereof
under circumstances which do not afford a reasonable ground for believing that he is not entitled
to receive payment of the amount mentioned trerein
1- The payment should be made in accordance with tenor of Negotiable Instrument
2- Payment should be made in good faith and without negligence
3- Payment must be made to the person in possession of Negotiable Instrument in circumstances
which do not arise suspicion about for his title
Holder for Value
Not defined in Negotiable Instrument. In England according to Bill of Exchange Act where value
of a Bill of Exchange has at any time been given, its holder is deemed to be a holder for value
Promissory Note
Sec-4
Sec-4 – “A Promissory Note is an Negotiable 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 Negotiable
Instrument”
In other words a Promissory Note is drawn and signed by the debtor (Called the Maker) who
promises to pay the creditor (Called the Payee) a certain sum of money. The Promissory Note
may be drawn in any form, but words must be mentioned “A Promise to Pay”
Format of Promissory Note –
Rs-3000/-
Allahabad
October, 9, 2008
Three months after date I promise to pay Mr. X or order the sum of three thousand
only for value received
To,
Mr. X
M.G. Road
Allahabad
S/d
Stamp
Mr. Y
Essential Element of Promissory Note
1- The Promissory Note must be in writing
2- Must contain Promise to Pay certain Amount
3- The promise to pay is unconditional
4- The Promissory Note must be signed by the Maker
5- The Maker of Promissory Note must be a certain person
6- The sum payable must be certain
7- The sum payable should be in money and money only
8- The Payee must be certain
9- The Promissory Note must be stamped – According to Indian Stamp Act, 1988
10- The time for payment should be certain
11- Others
A- It can be crossed like a Cheque
B- Sec-31 of Reserve Bank of India Act – Lays down that it can not be payable to the
bearer
C- The number, date, place etc. are not essential for a Promissory Note, if it does not bear
a date, it is deemed to have been made when it was delivered
Bill of Exchange
Sec-5
Sec-5 – “An Negotiable 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 Negotiable Instrument”
A Bill of Exchange therefore is a written acknowledgement of the debt, written by the creditor
and accepted by the debtor. So it must be –
1- In Writing
2- Unconditional
3- In form of an order
4- Payable to certain person
5- For a sum of money
Format of Bill of Exchange –
Rs-7500/-
Ghaziabad
January,20, 2008
On demand, pay to Mr. X or order a sum of Rs seven thousand and five hundred only
for value received
To,
Mr. X
Delhi
S/D
Stamp
Mr. Z
Characteristics of a Bill of Exchange
1- It must be stamped
2- It must be in writing
.
3- It must be signed by the Drawer
4- The amount to be paid must be certain
5- The amount is specified in terms of money
6- It can not be made payable to bearer on demand
7- It may be payable in installment
8- The drawer / drawee & payee must be certain
9- It can not be crossed like a Cheque
10- The order must be unconditional
11- It is dishonored by non-acceptance or non payment
12- It require acceptance by the drawee unless payable on demand
Types of Bill of Exchange
1- Inland Bill of Exchange
Sec-11
A- It is drawn and made payable in India
B- It is drawn in India and drawn upon any person resident in India
2- Foreign Bill of Exchange
A- Outside India and made payable in or drawn upon any person resident in any country
outside India
B- Outside India and made payable in India or drawn upon any person resident in India
C- In India upon person’s resident outside India and made payable outside India
3- Bills in Set
Sec-132 & 133 – “Foreign bills are generally drawn in sets of two or three”, each set is
numbered and has a reference to others (Original, duplicate, triplicate)
4- Time Bill – A Bill of Exchange payable after date or after a fixed time. It may be payable
either ‘After Date’ or ‘After Maturity’
5- Demand Bill – A bill of Exchange in which no time for payment is specified is considered to
be payable on demand in term as a demand bill
6- Trade Bill – Trade Bill means a bill drawn and accepted for a consideration and it may be
drawn in the course of a trade transaction
7- Accommodation Bill – An Accommodation Bill is one to which a person lends for none or
without consideration so as to accommodate some party thereto
8- Documentary Bill – When document are attached to a Bill of Exchange, it is called as a
documentary bill
Usually documentary bill are used in foreign trade of two type –
A- Documents against Acceptance Bill
B- Documents against Payment Bill
9- Clean Bill – Whereas a Bill of Exchange is not accompanied by any document it is known as
clean bill
Difference between Promissory Note & Bill of Exchange
1- Promissory Note – Two parties A- Debtor B- Creditor
Bill of Exchange – Three parties A- Drawee B- Drawer C- Payee
2- Promissory Note – Promissor & payee are not same
Bill of Exchange – May be same
3- Promissory Note – Unconditional promise by maker to pay payee
Bill of Exchange – To drawer to pay according to the directions of drawer
4- Promissory Note – No prior acceptance is needed
Bill of Exchange – Prior acceptance is needed
5- Promissory Note – Drawer is directly liable
Bill of Exchange – Drawer only liable when drawee rejects
6- Promissory Note – No notice of dishonor is needed
Bill of Exchange – Notice of dishonor is needed
7- Promissory Note – No direct relation in debtor & creditor
Bill of Exchange – Drawer & payee have some relationship
Parties to Bill of Exchange
1- Drawer
2- Drawee
3- Acceptor – Who Accept
4- Payee
5- Acceptor for Honor
6- Endorser
7- Drawee in case of need
8- Endorsee
9- Holder
Liability of Drawer – In case of Dishonor
Liability of Drawee Banker – If Sufficient Fund then must pay
Endorsement
Negotiation – Chief characteristics of a Negotiable Instrument is its negotiability. It can be
negotiated from one person to another
Sec-14 – “When a Promissory Note, Bill of Exchange or Cheque is transferred to any person, so
as to constitute that person the holder thereof, the instrument is said to be negotiated”
If the transfer of an instrument can not be called its holder as defined in Sec-8, the instrument is
not said to have been negotiated
A Negotiable Instrument is negotiated by two ways –
A- By Endorsement & Delivery
B- By Delivery
Endorsement – Sec-15 – “When the maker or holder of a Negotiable Instrument signs the same,
otherwise then 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 Negotiable Instrument, he is said to have endorsed the same and is called endorser
In other words writing the name of a person on the back / face of the Negotiable Instrument with
intention of transferring the right
Who Endorses – Maker / Holder
Sec-51
Legal Provision Regarding Endorsement
1- Effect of Endorsement
Sec-50
The endorsement of a Negotiable Instrument followed by delivery transfers to the endorsee the
property therein with the right of further negotiation
A- To endorse the Negotiable Instrument further
B- To deceive its amount for endorser or for some other specified person
CASE LAW
Kunji Pillai & others
VS.
(1969) 11 M.I.J. 148
Periasomi
Where a Negotiable Instrument is endorsed for any of the above purpose, the endorsee becomes
its holder and property therein is passed on to the endorsee
CASE LAW
Mothireddy
VS.
Pothireddy
A.I.R. (1963) A.P. 313
Right based on endorsement having been made for a specific purpose, namely, collection of the
amount, will be valid till that purpose is served
2- Endorser – Sec-51 – “Every sale maker, drawer, payee or endorsee or all of several joint
makers, drawers, payee, endorsee of a Negotiable Instrument may endorse and negotiate the
same”
Thus in case of Negotiable Instrument is held jointly by a number of persons, endorsement by all
of them is essential. One can not represent the other
3- Time – Sec-60 – A Negotiable Instrument may be negotiated until its payment has been made
by the banker, drawee or acceptor at or after maturity but not there after
4- Endorsement for a Part of Amount
Sec-56
The Negotiable Instrument must be endorsed for its entire amount
Sec-56 – “No writing on a Negotiable Instrument is valid for the purpose of negotiation if such
writing purports to transfer only a part of the amount appearing to be due on the instrument”
Thus an endorsement for a part of amount is invalid, but in case a Instrument has been partly
paid, it may be negotiated for the balance of the amount provided note to that effect is given on
the Instrument
Sec-56
5- Sec-57 – The legal representative of a diseased person can not negotiate by delivering only, a
Negotiable Instrument payable to order and endorsed by the deceased but not delivered
6- Sec-118 – “The endorsement appearing upon a Negotiable instrument were made in the order
in which they appear therein”
It means that the endorsement which appears on instrument first is presumed to have been made
earlier to the second one
General Rule Regarding the Form of Endorsement
An endorsement must be regular and valid in order to be effective. The following rules are
usually followed in this regard –
1- Signature of the endorser
2- Spelling
3- No addition or omission of initial of the name
4- Prefix & suffix to be excluded – Like Mr., Miss., Mrs., Shri. Etc.
Regular form of Endorsement
1- Married Women
Endorse as follows –
Payee
Mrs. Asha Gupta
Smt. R.K Gupta
Regular Endorsement
Asha Gupta
Prabha Gupta
(Wife of Mr. R.K Gupta
Irregular Endorsement
Mrs. Asha Gupta
Smt. R.K Gupta
2- Illiterate Person
By affixing his thumb impression
Thumb
Impression
Of A
3- Partnership Firm
Name off firm must be signed by a person (Partner, Manager Etc.)
For Kishan Chand Raja Ram
Raja Ram
Partner
4- Agent
Agent endorses the Cheque on behalf of his principal / master by using word for, on behalf of
Etc.
For (or on behalf of) Ram Chander
Kishan Chander
Agent / Manager
5- Joint Stock Companies & other Institutions
Endorsement should be made by a person, who is duly authorize to sign on behalf of these
AFor (or on behalf of) Book stores Limited
Ram Nath
(Director, Manager, Secretary, Accountant)
BFor Ram Manohar Lohiya Memorial College
XYZ
Principal
6- Liquidator
If a company id liquidated and an official receiver is appointed, the later will sign on behalf of
the company
For Arjun Trading Corporation Limited in Liquidation
Rajesh Kumar
Liquidator
7- Executor
If an executor is appointed on the death of a person, he will endorse
Rajeev Sharma
Executor of the Late Govind Sharma
8- Trustee
If a Cheque is payable to Trustees of Late Govind Ram Sharma, both or all of them will sign as
follows –
Rajesh Gupta & Suresh Gupta
Trustees of Late Govind Ram Sharma
Kinds of Endorsement
1- Endorsement in Blank
Sec-16 - If the endorser signs his name only, the endorsement is said to be “In Blank”
Sec-54 – The endorser does not specify the name of endorsee with the effect that an instrument
endorsed in blank becomes payable to the bearer (Subject to the provisions as regards to Cheque)
even though originally payable to order
2- Endorsement in Full
Sec-16 - If in addition to his signature, the endorser adds a direction to pay the amount
mentioned in the instrument to or to the order of a specified person, the endorsement is said to be
“Endorsement in Full”
Example – “Pay to Y” or “Pay to Y or order”
3- Conditional Endorsement
Sec-52 - If the endorser of a Negotiable Instrument, by express words in the endorsement, makes
his liability or the right of endorsee to receive the amount due therein, dependent on the
happening of a specified event although such event may never happen, such endorsement is
called as Conditional Endorsement
Example – “Pay C if he returns from Delhi”
Conditional endorsement do not make the instrument non transferable. However such
endorsement are generally not used
4- Restrictive Endorsement
Sec-50 – The endorsement may, by express words restrict or exclude the right to negotiate or
may merely constitute the endorsee or agent to endorse the instrument or to receive its contents
for the endorser or for some other specified person “Such Endorsement prohibits further
endorsement and is called as restrictive endorsement”
Example – “Pay C or the written must be credited to C”
The negotiability of an instrument is not restricted by the omission of the word “Or / Order”
Sec-52
5- Endorsement sans Recourse
Sec-52 – An endorser of a Negotiable Instrument may, by express words in the endorsement,
exclude his own liability therein
Example – “Pay to X or order at, his own risk”
“Pay to C without recourse to me”
6- Facultative Endorsement
The endorser must give notice of dishonor of the instrument to endorser, but the latter may wave
this duty of the endorsee by writing in endorsement “Notice of dishonor waived” the endorser
remains liable to the endorsee for the payment of the Negotiable Instrument
Assignment
Transfer of interest through Negotiable Instrument
Ownership can be transferred by writing a separate deed of transfer
Maturity of Negotiable Instrument
The date of maturity of a Promissory note or Bill of Exchange is to be calculated in accordance
with provisions of Sec-23, 24, 25 of The Negotiable Instrument Act, 1881
The date on which a Negotiable Instrument falls due for payment is called as the maturity of the
Instrument
In case of a Bill of Exchange or Promissory Note, which is not payable on demand, the date of
its maturity is expressed in the following ways
A-It may be payable at a certain number of days after sight
B- It may be payable at stated number of month after date or after sight
According to Sec-23 – Stated number of month after date or after sight will be calculated as
follows –
A- The stated period shall be held to terminate on the day of the month which correspond
with the day on which the Instrument is dated or presented for acceptance
Example –
1- A Negotiable Instrument dated 29/12/2010 is made payable at one month after date which is
28/01/2011
2- A Negotiable Instrument dated 30/08/2010 is made payable at three month after date which is
03/08/2010
B- If the month in which the period would terminate has no corresponding day, the period
shall be held to terminate on the last day of such month
Example –
A Bill of Exchange dated 31/01/2010 is made payable one month after date. The period of the
Bill of Exchange ends on 28/02/2011 and the bill is matured on 03/03/2011
According to Sec-24 – While calculating the date of maturity Negotiable Instrument made
payable a certain number of days after date or after sight or after certain event, the day of the
date or of the presentment for acceptance or sight or on which event happens shall exclude
Example –
A Bill of Exchange payable 30 days after sight is presented for sight on 01/01/2010; it falls due
on 03/02/2010
According to Sec-25 – If a Negotiable Instrument matures on a public holiday the Instrument
shall be deemed to be due on the next following business day. The expression “Public Holiday”
includes Sunday and any other day declared by the Government of India by notification in the
official gazette, to be a public holiday. In case the date of maturity is on emerging holiday, the
Instrument shall fall due for payment on the next following day.
Presentment and Dishonor
1- Presentment of Negotiable Instrument
Presentment of a Negotiable Instrument means placing it before the drawee or maker for any
purpose –
A- Presentment for Acceptance
Only Bill of Exchange requires presentment for acceptance, it is not legally necessary except
in following cases –
I-
Bills payable after sight require presentment for acceptance
II-
Bill that contain and express stipulation to obtain additional security and immediate
right of recourse
Rules Regarding Presentment for Acceptance
Sec-61 – Where the bill is directed to the drawee at a particular place, it should be presented at
that place, and if at the due date for presented he can not, after responsible search be found there,
the bill is dishonored
Essential Element –
IIIIII-
Acceptance must be given in bill
Signature by the drawee
Delivery to the holder
Type of Acceptance –
I-
General Acceptance – It means an unqualified acceptance i.e. where the drawee of a
bill accepts the liability to pay the amount in full without any limitation or condition
II-
Qualified Acceptance – An acceptance in which the, drawee accepts the bill subject
to certain qualification or conditions i.e. condition as to time, place, amount, event
Presentment to Whom
I-
Must be made to the drawee by his duly authorized person
II-
Where there are several drawee presentment must be made to all of them, unless the
drawee is authorized to accept for all
III-
If drawee is dead, presentment may be made to his receiver or assignee
Place and Time for Presentment
I-
At the place of drawee
II-
During business hours
III-
During business day
IV-
Within a reasonable time
V-
Where authorized by agreement or wage, presentment by a registered letter is
sufficient
VI-
If drawee can not be found, the bill should be treated as dishonored
B- Presentment for Sight
According to Sec-63 – A Promissory Note payable at a certain period, after sight must be
presented to maker thereof for sight by a person entitled to demand payment, within a
reasonable time after it is made and in business hours and on business day
C- Presentment for Payment
According to Sec-64 – A Negotiable Instrument must be presented for payement to the
maker, acceptor or drawee thereof respectively, by or on behalf of holder as hereinafter
provided. In default of such presentment, the other parties thereto are not liable therein to
such holder
Rules Regarding Presentment for Payment
III-
Sec-65 – Must be made during usual hours of business and if at a Bankers place,
within Banking hours
Sec-66 – A Promissory Note / Bill of Exchange made payable at a specified period
after date or sight thereof, must be presented for payment for maturity
III-
Sec-68 - A Negotiable Instrument drawn or accepted payable at a specified place and
not elsewhere must, in order to charge any party thereto, be presented for payment at
that place
IV-
Sec-69 - A Negotiable Instrument drawn or accepted at a specified place, must in
order to charge the maker or drawer thereof, he is presented for payment at that place
V-
Sec-70 – A Negotiable Instrument not made payable as mentioned in Sec-68, 69,
must be presented for payment at the place of business
VI-
Sec-71 – If no place is there presentment made to him in person where ever he found
VII-
Sec-74 – A Negotiable Instrument payable on demand must be presented for payment
within a reasonable time after it is recover by holder
VIII- Sec-75-A – Delay for presentment is excused, if circumstances are beyond control
IX-
Sec-77 – On negligence of Bank for presentment, Bank are liable to compensate
Presentment When Excused
A- Sec-61 – Where drawee can not be found after reasonable search
B- Sec-91 – Where the acceptance is qualified and not absolute
C- Where presentment is irregular
D- Drawee becomes insolvent
E- Drawee is a Fictious person
2- Acceptance for Honor / Payment
A Bill of Exchange is accepted only by the drawee or party and if he refuses to accept the
bill. Bill is said to be dishonored, but in certain cases when the original drawee refuses to
accept the bill when demanded by the notary, any person not being a party liable therein, may
accept the bill. It is Acceptance for Honor
Essential Elements –
A- The bill must have been noted and presented for dishonor on account of non-acceptance
B- With consent of parties
C- Must be made only by the person who is not already liable on the bill
D- Sec-109 – Acceptance for honor must be made in writing on the bill
E- Sec-110 – Whereas the acceptor does not state for whose honor it is made, it shall be
deemed to be made for the honor of drawer
F- Signed by the acceptor for honor
G- Acceptance for honor must be made before the bill is overdue
H- The bill must be accepted for full amount
Pavement for Honor
Sec113 – In case of Bill of Exchange, any person can pay the amount of the bill for the honor
of any person who is liable on the bill. It is called as Payment for Honor; it is not frequent in
use
Essential Elements –
A- Bill must have been noted and protested for non payment
B- Payment for honor must be made for the honor of any party liable on the bill
C- Paying person must declare before notary public
D- Can be made by any party whether he is already li8able on the bill or not
E- Where there are two or more offers for payment, the holder must generally accept
payment from the person who may discharge the largest number of person liable on the
bill
Rights for Payer for Honor
Sec-114 – Is entitled for all the rights with all expenses properly incurred in making such
payment
Right and Liability of the Acceptor for Honor
An acceptor for honor bind himself in the position of the person for whose honor he accept to
pay the amount of the bill
A- The bill should be noted and protested for non payment
B- Bill should be presented on date of maturity
C- Sec-111 – It will be sufficient to present the bill for presentment on the next day after the
date of maturity
D- Sec-112 – Acceptor is liable only when the bill has presented to him
3- Dishonor by Non-Acceptance
Sec-91 – A Bill of Exchange is said to be dishonored by non-acceptance when drawer make
default in accepting it, when it is properly presented for acceptance
A- When drawee does not accept it within 48 hours from it is presented for acceptance
B- When presentment is excused and bill is unaccepted
C- Where drawee gives qualified acceptance
D- When drawee is incompetent person
E- When one or more of the several drawee refuses to accept the bill
Dishonor by Non-Payment
Sec-92 – A Negotiable Instrument is said to be dishonored by non payment when maker of the
note makes default in payment upon being duty to pay for the same
Notice of Dishonor – The holder is required to notify drawee and endorser about the dishonor
within a reasonable period of time
Sec-93 – It is not necessary to give notice to maker
Noting and Protest
Inland Bill of Exchange and Promissory Note is noted or protested within reasonable time after
dishonor by notary public
Noting – Recording upon the Instrument
Sec-99
Protest – Formal certificate issued by notary public
Sec-100
Notice of Dishonor is not Necessary
Sec-98 – In these cases –
A- When it is dispensed by the party
B- If dishonor is by express mandate
C- Party is not found
D- Death, Lunacy, Serious Illness
E- Where Promissory Note is not Negotiable
F- When party knows the fact
G- If drawee himself is the acceptor
H- When party charged could suffer damage for want of notice
By whom Notice of Dishonor should be given – By Holder / Person liable for payment
Cheque
Sec-6 – A Cheque is a Bill of Exchange drawn on a specified Banker and not expressed to be
payable otherwise then “On Demand”
Sec-5 – “A Cheque 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”
Cheque is also a Bill of Exchange with following qualifications –
A- It is always drawn on a specified Banker
B- It is always payable on Demand
Thus we can say all Cheque is Bill of Exchange but all Bill of Exchange are not Cheque
Essential elements of Cheque
1- Writing
2- Unconditional
3- Signature
4- Order to Pay
5- Certain sum of Money
6- Certain Person
7- Payable on Demand
8- Date
Kind of Cheque
1- Bearer Cheque –
2- Order Cheque –
3- Crossed Cheque –
4- Open Cheque –
5- Marked Cheque –
6- Not Payable / Bad Cheque –
7- Anti Dated Cheque –
8- Post Dated Cheque –
9- Stole Cheque –
10- Mutated Cheque –
Crossing of Cheque
Crossing of Cheque is a mode to secure the payment; it is of following types –
1- General Crossing -
Sec-123
Not enchased on counter / Presented by a Banker to a Banker
And Company
Not Negotiable
2- Special Crossing
Sec-124
Collected through particular Banker
A/C Payee
State Bank of India
3- Not Negotiable Crossing
Very careful in payment
Not Negotiable
4- Restrictive Crossing
Restrict to certain account
A/C Payee
5- Double Crossing –
State Bank of India
To
ICICI Bank
As Agent for Collection
Who Can Cross the Cheque – Holder / Banker?
Precautions by Paying Bankers
1- Form of Cheque
2- Date of Cheque
3- Amount of Cheque
4- Drawee Signatures
5- Properly Endorsed
6- Material Alteration
7- Sufficiency of Fund
8- Order of Payment
Duties and Responsibility of Collecting Banker
1- Due care and diligence in collection of Cheque
2- Serving notice of dishonor
3- Agent for Collection – If on other place
4- Costumers Direction
5- Collection of Bill of Exchange
Statutory Protections for Bankers
1- Good Faith
2- Without Negligence
3- For Crossed Cheque
4- Agent of Costumer
5- Receipt of Payment
Circumstances in Which Bank Must Dishonor Costumers Cheque
1- Stop Payment
2- Death of Costumer
3- Insanity of Costumer
4- Insolvency of Costumer
5- Order of Court
6-Defective Title of Holder
7- Receipt of Notice of Assignment
8- Breach of Trust
Circumstances in Which Bank May Dishonor Costumers Cheque
1- Not Sufficient Fund
2- Bank has claim on costumer’s fund
3- Cheque is not in proper form
4- When Cheque issued against the Cheque sent for clearance
5- Not properly drawn
6- Costumers account is closed