Description
This is a Presentation explaining of negotiable instruments, parties to negotiable instruments, distinction between promissory note and bill of exchange, difference between bill of exchange and cheque,
NEGOTIABLE INSTRUMENTS ACT,1881
1
THE FLOW OF PRESENTATION
2
? THE ACT ? KEY TERMS ? CHARACTERSTICS ? KINDS OF NEGOTIABLE INSTRUMENTS ? ENDORSEMENT ? CROSSING OF CHEQUES ? DISHONOUR ? COLLECTING BANKER ? PAYING BANKER ? PROTECTION TO COLLECTING BANKER
? BOUNCING OF CHEQUE
Prof Chowdari Prasad
1/30/2013
Negotiable Instruments
3
? Negotiable Instruments
? Parties to Negotiable Instruments ? Negotiation of Negotiable Instruments ?
? Banker and Customer
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
3 1/30/2013
NI Act………….
4
? The Act deals with N.I.s; extends to whole of India ? Has been amended more than a dozen times…
? Deals with three kinds of negotiable instruments, ie., 1. Promissory Notes (Section 4) 2. Bills of Exchange (Section 5) and 3. Cheques (Section 6)
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
4 1/30/2013
NEGOTIABLE INSTRUMENTS ACT, 1881
5
? The NI Act Provides A Legal Framework For Non-
cash Paper Payment Instruments In India
? An Act To Define And Amend The Law Relating To
Promissory Notes, Bills Of Exchange And Cheques
? Law Relating To Negotiable Instruments
Prof Chowdari Prasad
1/30/2013
Objectives………
6
? Understand the essential characteristics…of NIs ? Note the instruments recognised as NIs… ? Understand essential requirements of a PN ? Understand the essential requirements of BEs ? Know the distinction between PN and BE
? Be familiar with the definition of a Cheque and
? Learn the distinction between Cheque and BE…
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 6 1/30/2013
Objectives
7
? Understand the concept of „crossing of cheques? ? Be aware of the various types of crossing ? Know the cases in which a banker must refuse and
„may refuse? payment of his customer?s cheques ? Understand the law relating to bouncing….. ? Understand the liabilities of a banker……
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
7 1/30/2013
Definition and Characteristics
8
? Negotiation means „transferable by delivery? and the
word instrument means „a written document by which a right is created in favour of some person.? Thus the term, “negotiable instrument” literally means „a written document transferable by delivery?.
13 – A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.
? Sec
? May be payable to two or more jointly………….
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 8 1/30/2013
Parties to Negotiable Instruments
9
? Introduction: Eg of NI are: Bills of Exchange,
Promissory Note, Cheque, Treasury Bill, Dividend Warrant, Share Warrant, Bearer Debenture, Hundi and Railway Bond, etc.
? These instruments involve number of parties like
Payer, Payee, Drawer, Drawee, Endorser, Endorsee, Beneficiary, Holder, Holder in Due Course………
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
9 1/30/2013
Negotiation of NIs
10
? Easy transferability being one of the essential
features of negotiable instruments, they are frequently transferred from one person to another for making payment and discharging business obligations
? The ownership of a negotiable instrument continues
to be transferred from one to another. This process is called „negotiation?
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
10 1/30/2013
Negotiable Instrument……….
11
? Payable to order…………. To a particular person ? Payable to bearer………… To any person whoever
bears it ? Is one which is, by legally recognised custom of trade or by law, transferable by delivery or by endorsement and delivery in such circumstances that (a) the holder of it for the time being may sue ………………………transferor?
Prof Chowdari Prasad
1/30/2013
CHARACTERSTICS
12
? NEGOTIABILITY ? WRITING & SIGNATURE ? MONEY ? CONSIDERATION ? NOTICE
Prof Chowdari Prasad
1/30/2013
13
Prof Chowdari Prasad
1/30/2013
Promissory Note
14
? Sec 4 – A Promissory Note is an 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 instrument?
? Essentials of a Promissory Note….. ? Instrument in Writing ? An unconditional undertaking ? Signature by the maker ? To pay a Certain Sum of Momey ? To a Certain Person, or to the Bearer of the Instrument
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 14 1/30/2013
15
Prof Chowdari Prasad
1/30/2013
Bill of Exchange
16
? Sec 5 – 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?
? Essentials of BE, Special Benefits of BE…
? Distinction between a PN and a Bill
? Documentary / Accommodation Bill……………
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 16 1/30/2013
Distinction between PN and BOE
? In a PN there are only two parties? In a BOE, there are three parties-
?
? ? ? ?
maker and the payee It contains an unconditional promise by the maker to the payee No acceptance is necessary The liability of the maker or drawer is primary and absolute The maker stands in immediate relationship with the payee No notice of dishonor need to be given.
?
? ?
? ?
drawer, the drawee and the payee It contains an unconditional order to the drawee or his agent to pay according to the drawer’s directions. A bill has to be accepted if it is a bill payable “ after sight” The liability of the drawer secondary i.e. when there is non payment by the drawee. Notice of dishonor to be given by the holder to the drawer The maker and the drawee do not stand in immediate relationship.
Cheque
18
? Sec 6 – 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
? Distinction between a Cheque and BE ? Bank Draft (Section 85 a)
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
18 1/30/2013
Differences between BOE and Cheque
BOE ? The drawee liable only after it is accepted ? Days of grace (three) are allowed in case of a bill except for payment on demand ? Drawee may be any one including the banker ? It should be presented for payment, otherwise it may dischare the liability of the drawer ? BOE cannot be crossed ? A notice of dishonor has to be given to the drawer Cheque ? A cheque does not require acceptance and it is intended for immediate payment ? No days of grace ? The drawee is always a banker ? Delay in presenting does not discharge the drawwer from his liability ? It may be crossed
ENDORSEMENT
20
? An instruction from the person holding the instrument, to
pay the money to the person directed by him, given on the note.
? Way of endorsement ? It can be either:
o Specific endorsement o Blank endorsement
Prof Chowdari Prasad
1/30/2013
CROSSING OF CHEQUES
21
? Payable only through a collecting banker (or into a
bank account) and not directly at the counter…..
? Two Parallel Lines
? „& Co? ? „A/c payee?
? „Not negotiable?
? „XYZ Bank only? ? …………………….
Prof Chowdari Prasad
1/30/2013
DISHONOURING
22
? Refusal of payment
non-acceptance ? Dishonour by non-acceptance.
non-payment ? Dishonour by non-payment.
? Noting by banker ? Formal notice
Prof Chowdari Prasad
1/30/2013
Collecting Banker & Paying Banker
23
? Collecting Banker:
A Banker who collects cheque amount / payment on behalf of his customers from the Drawer of a Cheque by presenting the same
? Paying Banker: A banker who holds the account of
the Drawer of the cheque and is obliged to make payment to the presenter (Payee) or his banker
Prof Chowdari Prasad
1/30/2013
Protection to Collecting Banker
24
? Sec 131 of NI Act ? Should act in good faith and without negligence ? Any suspicion in the mind of banker must be
inquired ? Not liable if Customer?s title turns out to be defective ? Customer deposits third party cheque, and banker credits the account with the proceeds immediatly, cheque gets dishonored, rightfully debit the account
Prof Chowdari Prasad
1/30/2013
Bouncing of Cheques
25
? A cheque is said to bounce or to be dishonored by
non-payment, when the banker defaults in its payment, even when he is required to pay
? Can become an offence – if given towards settlement
of some liability
Prof Chowdari Prasad
1/30/2013
Miscellaneous Provisions
26
? Time and Demand Instruments…. ? Ambiguous Instruments……………. ? Incohate Instruments………..
? Maturity of Negotiable Instruments…..
? Payment in Due Course…. ? Payment of Interest….. ? Noting ? Protest ? …..
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 26 1/30/2013
Banker and Customer
27
? A banker is one who is involved in banking business.
Banking Regulation Act, 1949 defines a banking company
? Banking is defined as „accepting, for the purpose of
lending or investment, of deposits of money from the public, repayable on demand or, otherwise, and withdrawable by cheque, draft, order or otherwise?.
? Customer of a bank is not defined by any law!
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 27 1/30/2013
doc_866216663.ppt
This is a Presentation explaining of negotiable instruments, parties to negotiable instruments, distinction between promissory note and bill of exchange, difference between bill of exchange and cheque,
NEGOTIABLE INSTRUMENTS ACT,1881
1
THE FLOW OF PRESENTATION
2
? THE ACT ? KEY TERMS ? CHARACTERSTICS ? KINDS OF NEGOTIABLE INSTRUMENTS ? ENDORSEMENT ? CROSSING OF CHEQUES ? DISHONOUR ? COLLECTING BANKER ? PAYING BANKER ? PROTECTION TO COLLECTING BANKER
? BOUNCING OF CHEQUE
Prof Chowdari Prasad
1/30/2013
Negotiable Instruments
3
? Negotiable Instruments
? Parties to Negotiable Instruments ? Negotiation of Negotiable Instruments ?
? Banker and Customer
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
3 1/30/2013
NI Act………….
4
? The Act deals with N.I.s; extends to whole of India ? Has been amended more than a dozen times…
? Deals with three kinds of negotiable instruments, ie., 1. Promissory Notes (Section 4) 2. Bills of Exchange (Section 5) and 3. Cheques (Section 6)
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
4 1/30/2013
NEGOTIABLE INSTRUMENTS ACT, 1881
5
? The NI Act Provides A Legal Framework For Non-
cash Paper Payment Instruments In India
? An Act To Define And Amend The Law Relating To
Promissory Notes, Bills Of Exchange And Cheques
? Law Relating To Negotiable Instruments
Prof Chowdari Prasad
1/30/2013
Objectives………
6
? Understand the essential characteristics…of NIs ? Note the instruments recognised as NIs… ? Understand essential requirements of a PN ? Understand the essential requirements of BEs ? Know the distinction between PN and BE
? Be familiar with the definition of a Cheque and
? Learn the distinction between Cheque and BE…
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 6 1/30/2013
Objectives
7
? Understand the concept of „crossing of cheques? ? Be aware of the various types of crossing ? Know the cases in which a banker must refuse and
„may refuse? payment of his customer?s cheques ? Understand the law relating to bouncing….. ? Understand the liabilities of a banker……
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
7 1/30/2013
Definition and Characteristics
8
? Negotiation means „transferable by delivery? and the
word instrument means „a written document by which a right is created in favour of some person.? Thus the term, “negotiable instrument” literally means „a written document transferable by delivery?.
13 – A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.
? Sec
? May be payable to two or more jointly………….
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 8 1/30/2013
Parties to Negotiable Instruments
9
? Introduction: Eg of NI are: Bills of Exchange,
Promissory Note, Cheque, Treasury Bill, Dividend Warrant, Share Warrant, Bearer Debenture, Hundi and Railway Bond, etc.
? These instruments involve number of parties like
Payer, Payee, Drawer, Drawee, Endorser, Endorsee, Beneficiary, Holder, Holder in Due Course………
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
9 1/30/2013
Negotiation of NIs
10
? Easy transferability being one of the essential
features of negotiable instruments, they are frequently transferred from one person to another for making payment and discharging business obligations
? The ownership of a negotiable instrument continues
to be transferred from one to another. This process is called „negotiation?
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
10 1/30/2013
Negotiable Instrument……….
11
? Payable to order…………. To a particular person ? Payable to bearer………… To any person whoever
bears it ? Is one which is, by legally recognised custom of trade or by law, transferable by delivery or by endorsement and delivery in such circumstances that (a) the holder of it for the time being may sue ………………………transferor?
Prof Chowdari Prasad
1/30/2013
CHARACTERSTICS
12
? NEGOTIABILITY ? WRITING & SIGNATURE ? MONEY ? CONSIDERATION ? NOTICE
Prof Chowdari Prasad
1/30/2013
13
Prof Chowdari Prasad
1/30/2013
Promissory Note
14
? Sec 4 – A Promissory Note is an 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 instrument?
? Essentials of a Promissory Note….. ? Instrument in Writing ? An unconditional undertaking ? Signature by the maker ? To pay a Certain Sum of Momey ? To a Certain Person, or to the Bearer of the Instrument
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 14 1/30/2013
15
Prof Chowdari Prasad
1/30/2013
Bill of Exchange
16
? Sec 5 – 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?
? Essentials of BE, Special Benefits of BE…
? Distinction between a PN and a Bill
? Documentary / Accommodation Bill……………
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 16 1/30/2013
Distinction between PN and BOE
? In a PN there are only two parties? In a BOE, there are three parties-
?
? ? ? ?
maker and the payee It contains an unconditional promise by the maker to the payee No acceptance is necessary The liability of the maker or drawer is primary and absolute The maker stands in immediate relationship with the payee No notice of dishonor need to be given.
?
? ?
? ?
drawer, the drawee and the payee It contains an unconditional order to the drawee or his agent to pay according to the drawer’s directions. A bill has to be accepted if it is a bill payable “ after sight” The liability of the drawer secondary i.e. when there is non payment by the drawee. Notice of dishonor to be given by the holder to the drawer The maker and the drawee do not stand in immediate relationship.
Cheque
18
? Sec 6 – 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
? Distinction between a Cheque and BE ? Bank Draft (Section 85 a)
1/30/2013 Prof Chowdari Prasad
BL3 - Prof Chowdari Prasad
18 1/30/2013
Differences between BOE and Cheque
BOE ? The drawee liable only after it is accepted ? Days of grace (three) are allowed in case of a bill except for payment on demand ? Drawee may be any one including the banker ? It should be presented for payment, otherwise it may dischare the liability of the drawer ? BOE cannot be crossed ? A notice of dishonor has to be given to the drawer Cheque ? A cheque does not require acceptance and it is intended for immediate payment ? No days of grace ? The drawee is always a banker ? Delay in presenting does not discharge the drawwer from his liability ? It may be crossed
ENDORSEMENT
20
? An instruction from the person holding the instrument, to
pay the money to the person directed by him, given on the note.
? Way of endorsement ? It can be either:
o Specific endorsement o Blank endorsement
Prof Chowdari Prasad
1/30/2013
CROSSING OF CHEQUES
21
? Payable only through a collecting banker (or into a
bank account) and not directly at the counter…..
? Two Parallel Lines
? „& Co? ? „A/c payee?
? „Not negotiable?
? „XYZ Bank only? ? …………………….
Prof Chowdari Prasad
1/30/2013
DISHONOURING
22
? Refusal of payment
non-acceptance ? Dishonour by non-acceptance.
non-payment ? Dishonour by non-payment.
? Noting by banker ? Formal notice
Prof Chowdari Prasad
1/30/2013
Collecting Banker & Paying Banker
23
? Collecting Banker:
A Banker who collects cheque amount / payment on behalf of his customers from the Drawer of a Cheque by presenting the same
? Paying Banker: A banker who holds the account of
the Drawer of the cheque and is obliged to make payment to the presenter (Payee) or his banker
Prof Chowdari Prasad
1/30/2013
Protection to Collecting Banker
24
? Sec 131 of NI Act ? Should act in good faith and without negligence ? Any suspicion in the mind of banker must be
inquired ? Not liable if Customer?s title turns out to be defective ? Customer deposits third party cheque, and banker credits the account with the proceeds immediatly, cheque gets dishonored, rightfully debit the account
Prof Chowdari Prasad
1/30/2013
Bouncing of Cheques
25
? A cheque is said to bounce or to be dishonored by
non-payment, when the banker defaults in its payment, even when he is required to pay
? Can become an offence – if given towards settlement
of some liability
Prof Chowdari Prasad
1/30/2013
Miscellaneous Provisions
26
? Time and Demand Instruments…. ? Ambiguous Instruments……………. ? Incohate Instruments………..
? Maturity of Negotiable Instruments…..
? Payment in Due Course…. ? Payment of Interest….. ? Noting ? Protest ? …..
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 26 1/30/2013
Banker and Customer
27
? A banker is one who is involved in banking business.
Banking Regulation Act, 1949 defines a banking company
? Banking is defined as „accepting, for the purpose of
lending or investment, of deposits of money from the public, repayable on demand or, otherwise, and withdrawable by cheque, draft, order or otherwise?.
? Customer of a bank is not defined by any law!
1/30/2013 Prof Chowdari Prasad BL3 - Prof Chowdari Prasad 27 1/30/2013
doc_866216663.ppt