negotiable instruments ( kanchan pandey)

8/6/2019 Negotiable Instruments ( Kanchan Pandey)

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Negotiable InstrumentB.Legislation

CP (302)

Presented By :- Kanchan Pandey


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Meaning of Negotiable

Instrument The term Negotiable Instrument consists of

two parts viz; Negotiable and Instrument.

The word negotiable means transferable bydelivery and the word instrument mean

written documents by which a right is

created in favour of some person.


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Definition of Negotiable InstrumentAccording to section 13 of the Negotiable

Instruments Act, 1881, a negotiableinstrument means

Promissory note, bill of exchange, orcheque, payable either to order or to

bearer.


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Payable to orderPayable to orderA note , bill or cheque is payable to order which isA note , bill or cheque is payable to order which is

expressed to be payable to a particular person or hisexpressed to be payable to a particular person or his

order. For exampleorder. For example

(i) Pay A(i) Pay A(ii) Pay A or order(ii) Pay A or order

(iii) Pay to the order of A(iii) Pay to the order of A

(iv) Pay A and B(iv) Pay A and B

(v) Pay A or B(v) Pay A or B

Are various forms in which an instrument may be madeAre various forms in which an instrument may be made

payable to order.payable to order.


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Payable to bearerPayable to bearerPayable to bearer means payable to any personPayable to bearer means payable to any person

whosoever bears it . A note, bill or cheque inwhosoever bears it . A note, bill or cheque inthe form pay to A or bearer or Pay bearerthe form pay to A or bearer or Pay bearer

is payable to bearer.is payable to bearer.


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Negotiable instrument must possess two

features The right of ownership contained in the instrument can be

transferred from one person to another by mere delivery.

The transferee taking the instrument in good faith and forconsideration gets a good title to the same even though thetitle of the transfer is defective.


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Essential Characteristic Features of a

Negotiable InstrumentPayable to order or bearer Freely transferable Presumption as to holder

Title of holder in due coursePresumption as to consideration


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NegotiableInstrumentPayable to order or bearer: - It must be payable either to

order or bearer

Freely Transferable:- A instrument payable to order is

negotiable by endorsement and delivery and an instrument

payable to bearer is negotiable by mere delivery

Presumption as to Holder:- Every holder of negotiable

instrument is presumed to be holder in due course (Section

118)


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Negotiable InstrumentTitle of holder in due course:- A holder in due course ( i.e.

the person who become the possessor of negotiable

instrument before maturity, for valuable consideration and

in good faith ) get the instrument free from all defects in the

title of transferor

Presumption as to considerations:- Every negotiable

instrument is presumed to have been made, drawn,

accepted, endorsed , negotiated or transferred for

consideration.


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Types of Negotiable Instruments

According to the Negotiable Instruments Act, 1881there are just three types of negotiable instruments

Promissory note

Bill of exchange

Cheque.However many other documents are also recognized

as negotiable instruments on the basis of custom and

usage, like hundis, treasury bills, share warrants, etc.,

provided they possess the features of negotiability


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Promissory Note

Promissory Note: A promissory note is an

instrument in writing containing an

unconditional undertaking, signed by themaker to pay a certain sum of money only to or

to the order of, a certain person or to the

bearer of the instrument ( Section 4).


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Sample of promissory note


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Parties to a Promissory Note

There are two parties involved in a promissorynote.

The Maker or Drawer the person whomakes the note and promises to pay theamount Stated.

The Payee the person to whom the amountis payable.


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Characteristic of Promissory Note

It must be in writing .

The promise to pay must be unconditional .

The amount promised must be a certain anda definite sum of money .

The instrument must be signed by the maker

The person to whom the promise is mademust be a definite person.


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Bill ofExchange

Bill of Exchange :- . 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

certain person to the bearer of theinstrument (Section 4).


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Characteristic of bill of exchange

The bill of exchange must be in writing

It must contain an order to pay. Words likeplease pay Rs 5,000/- on demand and obligeare not used.

The order must be unconditional. The order must be to pay money and money

alone.

The sum payable mentioned must be certainor capable of being made certain. The parties to a bill must be certain .


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Samples of Bill of exchange


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Parties to a Bill ofExchange

There are three parties involved in a bill of

exchange.

The Drawer The person who makes theorder for making payment.

The Drawee The person to whom the

order to pay is made. He is generally a

debtor of the drawer.

The Payee The person to whom the

payment is to be made.


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Types of bill

Accommodation Bill :- Accommodation bill is quite similar toan ordinary trade bill of exchange. The feature which

distinguish it from ordinary bill is that it is not supported by

any consideration or a trading transaction.

Fictitious Bill :- When in a bill of exchange the name of boththe drawer and the payee are fictitious , the bill is said to be a

fictitious bill.

Documentary Bill:- When document relating to the goodsrepresented by bill( railway receipt, invoice ) are attached to a

bill, then that is called as documentary bill.


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Cheques

Cheques:- a cheque as a bill of exchange drawnon a specified banker and not expressed to be

payable otherwise than on demand. Actually, a

cheque is an order by the account holder of thebank directing his banker to pay on demand, thespecified amount, to or to the order of the personnamed therein or to the bearer.


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Sample of

Cheques


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Features of a cheque

A cheque must be in writing and duly signed by the

drawer.

It contains an unconditional order.

It is issued on a specified banker only. The amount specified is always certain and must be

clearly mentioned both in figures and words.

The payee is always certain.

It is always payable on demand. The cheque must bear a date otherwise it is invalid and

shall not be honored by the bank.


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Types of Cheque

Open cheque.

Crossed cheque.

Bearer cheque.

Order cheque.


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Open cheque

Open cheque: A cheque is called Open when it ispossible to get cash over the counter at the bank.

The holder of an open cheque can do the

following: Receive its payment over the counter at the

bank,

Deposit the cheque in his own account

Pass it to some one else by signing on the back ofa cheque


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Crossed cheque

Crossed cheque: Since open cheque is subject torisk of theft, it is dangerous to issue suchcheques. This risk can be avoided by issuinganother types of cheque called Crossed

cheque. The payment of such cheque is notmade over the counter at the bank. It is onlycredited to the bank account of the payee. Acheque can be crossed by drawing two

transverse parallel lines across the cheque,with or without the writing Account payee orNot Negotiable


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Bearer cheque

Bearer cheque: A cheque which is payable toany person who presents it for payment at

the bank counter is called Bearer cheque. A

bearer cheque can be transferred by meredelivery.


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Order cheque

Order cheque: An order cheque is one which is

payable to a particular person. In such a

cheque the word bearer may be cut out or

cancelled and the word order may be

written. The payee can transfer an order

cheque to someone else by signing his or her

name on the back of it.


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BankDraft

A bank draft is an order issued by one bank on another bank or on

its own branch instructing the latter to pay a specified sum of

money to a specified person or his order.

Distinguishing features of draftIt can be drawn only by a bank on another bank or on its another branch and

not by an individual as in the case of cheque.

It cannot so easily be countermanded as a cheque.

It cannot be made payable to bearer.


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Time andDemand Instruments

An instrument payable after a fixed time or on a

specified date is termed as a time instrument. An

instrument payable after happening of an eventwhich is certain to happen, (e.g. Death) is also

called a time instrument.


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Ambiguous Instruments

An instrument , which in form is such that it may either

be treated as a bill of exchange or a promissory note

, is an ambiguous instrument.


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Thank You

Kanchan Pandey

negotiable instruments ( kanchan pandey)

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