Description
1. What are negotiable Instruments?
2. Characteristics of Negotiable Instruments.
3. Types of Negotiable Instruments.
4. Promissory Note
a. Specimen of Promissory Note
b. Illustrations
5. Bills of Exchange
a. Specimen of Bills of Exchange
b. Illustrations
6. Cheques
a. Types of cheques
7. Set of Bills
8. Distinction between a promissory note and Bill of Exchange
9. Distinction between a cheque and Bill of Exchange
10. Presumption as to negotiable Instrument
11. Maturity of an Instrument
12. Payment in due course
Negotiable Instruments
Business Law
SIMSR MMM - I
GROUP MEMBERS NITIN BORHADE - 10 SACHIN DHAMANASKAR – 17 SIDDHESH JAGE – 27 NITIN KUTRE – 31 SANKET SAWANT – 50 TEJASHREE SAWANT - 51
Negotiable Instruments
Business Law
Contents
1. What are negotiable Instruments? 2. Characteristics of Negotiable Instruments. 3. Types of Negotiable Instruments. 4. Promissory Note a.
Specimen of Promissory Note
b. Illustrations 5. Bills of Exchange a. Specimen of Bills of Exchange b. Illustrations 6. Cheques a. Types of cheques 7. Set of Bills 8. Distinction between a promissory note and Bill of Exchange 9. Distinction between a cheque and Bill of Exchange 10. Presumption as to negotiable Instrument 11. Maturity of an Instrument 12. Payment in due course
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Negotiable Instruments
Business Law
What are negotiable Instruments?
? According to section 13 of the negotiable Instruments Act 1881, a negotiable instrument means promissory note, bill of exchange, or cheque, payable either to order or to bearer. We can say that, Negotiable Instrument is transferable documents, where negotiable means transferable and Instrument means documents Thus, Negotiable Instruments are documents meant for making payments, the ownership of which can transferred from one person to another many times before the final payment is made.
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Characteristics of Negotiable Instruments
? Possessor of the negotiable instrument is presumed to be the owner of the property contained therein. The ownership is changed by mere delivery or by valid endorsement and delivery. A person who receives a negotiable instrument has a clear and undisputable title to the instrument. A negotiable instrument must be in writing. In every negotiable instrument there must be an unconditional order or promise for payment.
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Types of Negotiable Instruments
? According to the Negotiable Instrument Act, 1881 there are just three types of Negotiable Instruments.
1. Promissory Note (Also called Pronotes) 2. Bill of Exchange (called bills) 3. Cheque ? However many other documents are also recognized as negotiable instruments, like Hundis, Treasury bills, share warrants bankers draft etc?
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Promissory Note
? Section 4 of the Negotiable Instrument act 1881 defines a promissory note as “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 if certain person or to bearer of the documents”. It is an unconditional written promise by one person to another in which the maker (payer) promise to pay on demand or at fixed or determinable date in the future There are primarily two parties involved in a promissory note. I. II. The maker or Drawer – Person who makes the note and promises to pay the amount stated therein. The Payee – the person to whom the amount is payable.
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In course of transfer of promissory note by payee and others, the parties involved may bea) The Endorser – the person who endorses the note in favour of another person. b) The Endorsee – the person in whose favour the note is negotiable by endorsement.
Specimen of a Promissory Note Rs. 10,000/-
New Delhi, 25th September 2010
On demand, I promise to pay Ramesh, s/o RamLal of Meerut or order a sum of Rs 10,000/- (Rupees Ten Thousand only), for value received. To, Ramesh Address…….. Sd/ Sanjeev Stamp
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Illustrations Signs instruments in the following terms (a) "I promise to pay Siddhesh or order Rs. 500." (b) " I acknowledge myself to be indebted to Sachin in Rs. 1,000 to be paid on demand, for value received." (c) Mr. Sachin, O U Rs. 1,000." (d) I promise to pay Sachin Rs. 500 and all other sums which shall be due to him." (e) I promise to pay Siddhesh Rs. 500, first deducting there out any money which he may owe me." (f) " I promise to pay Sachin Rs. 500 seven days after my marriage with C." (g) " I promise to pay Sachin Rs. 500 on D's death, provided D leaves me enough to pay that sum." (h) " I promise to pay Sachin Rs. 500 and to deliver to him my black horse on 1st January next." The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked (c), (d), (e), (f), (g) and (h) are not promissory notes.
Bill of Exchange
? Section 5 of the Negotiable Instrument act, 1881 defines a bill of exchange as “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 the order of certain person, or the bearer of the instrument”. There are three parties involved in Bill of exchange. i. ii. iii. The Drawer – the person who makes the order for making payment. The Drawee- the person to whom the order to pay is made. The Payee – the person to whom the payment is to be made
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The drawer can also draw a bill in his own name thereby he himself become the payee. Here the word is the bill would be “pay to us or order”
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Specimen of a Bill of Exchange 1 Rs. 10,000/New Delhi 25th September 2010
Five months after date pay Tejashree or (to his) order the sum of Rupees Ten Thousand only for value received. To Sameer Address Accepted Sameer Stamp S/d Rajiv
Cheque
? As per the Negotiable Instrument Act, 1881 defines a cheque as bill of exchange drawn on specified banker and not expressed to be payable otherwise than on demand. Actually, a cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or the bearer.
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Features of Cheques i. ii. iii. iv. v. vi. vii. A cheque must be in writing and duly signed by the drawer. It contains an unconditional order. It is issued on 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 be honored by the bank.
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Types of Cheque
Cheques are broadly having four typesa. Open cheque b. Crossed cheque c. Bearer cheque d. Order cheque
Open Cheque: A cheque is called Open when it is possible to get cash over the
counter at the bank. The holder of an open cheque can do the following i. Received its payment over the counter at the bank, ii. Deposit the cheque in his own account iii. Pass it to some one else by signing on the bank of a cheque
Crossed cheque
? Since open cheque is subject to risk of theft, it is dangerous to issue such cheques. This risk can be avoided by issuing another type of cheque called “crossed cheque”. The payment of cheque is not made over the counter at the bank. It is only credited to the bank account of payee. A cheque can be crossed by drawing two transferable parallel lines across the cheque.
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Bearer Cheque
? ? A cheque which is payable to any person to any person who presents it for payment at the bank counter is called “Bearer cheque” A bearer cheque can be transferred by mere delivery and requires no endorsement.
Order Cheque
? An order cheque is one which is payable to particular person. In such a cheque the word “bearer” may be cut out or cancelled and the word ‘ order’ is written. Payee can transfer an order cheque to someone else by signing his or her name on the back of it. 7|Page
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Negotiable Instruments
Business Law
Set of bills.
Set of bills. Bills of exchange may be drawn in parts, each part being numbered and containing a provision that it shall continue payable only so long as the others remain unpaid. All the parts together make a set ; but the whole set constitutes only one bill, and is extinguished when one of the parts, if a separate bill, would be extinguished. Exception.-When a person accepts or indorses different parts of the bill in favor of different persons, he and the subsequent endorsers of each part are liable on such part as if it were a separate bill. Holder of first acquired part entitled to all. As between holders in due course of different parts of the same set, he who first acquired title to his part is entitled to the other parts and the money represented by the bill.
Distinction between a promissory note and Bill of Exchange
Promissory note 1. It contains an unconditional promise 2. There are two parties involved- the maker and the payee. 3. It is made by the debtor. 4. Acceptance is not required. 5. The liability of the maker/drawer is primary and absolute. Bill of Exchange 1. It contains an unconditional order. 2. There are three parties involved – the drawer, the drawee and payee. 3. It is made by the creditor 4. Acceptance by the drawee is a must. 5. The liability of the maker/ drawer is secondary and conditional upon nonpayment by the cheque. 8|Page
Negotiable Instruments
Business Law
Distinction between a cheque and Bill of Exchange
Cheque 1. It is drawn only on banker. 2. The amount is always payable on demand. 3. It can be crossed to end its negotiability. 4. Acceptance is not required. Bill of Exchange 1. It can be drawn on anybody including a banker. 2. The amount is payable on demand or specific period. 3. It cannot be crossed.
4. Acceptance is a must.
Presumption as to negotiable Instrument
Presumptions as to negotiable instruments- Until the contrary is proved, the following presumptions shall be made: (a) Consideration; that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration ; (b) as to date; that every negotiable instrument bearing a date was made or drawn on such date ; (c) as to time of acceptance; that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity ; (d)as to time of transfer; that every transfer of a negotiable instrument was made before its maturity; 9|Page
Negotiable Instruments
Business Law
(e)as to order of endorsements; that the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon; (f)as to stamp; that a lost promissory note, bill of exchange or cheque was duly stamped ; (g) that holder is a holder in due course; that the holder of a negotiable instrument is a holder in due course: provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an SP offence or fraud. or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burthen of proving that the holder is a holder in due course lies upon him.
Maturity of an Instrument
Maturity
The maturity of a promissory note or bill of exchange is the date at which it falls due. Days of grace.- Every promissory note or bill of exchange which is not expressed to be payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is expressed to be payable. Calculating maturity of bill or note payable so many months after date or sight. In calculating the date at which a promissory note or bill of exchange, made payable a stated number of months after date or after sight, or after a certain event, is at maturity, the period stated shall be held to terminate on the day of the month which corresponds with the day on which the instrument is dated, or presented for acceptance or sight, or noted for non acceptance, or protested for non acceptance, or the event happens, or, where the instrument is a bill of exchange made payable a stated number of months after sight and has been accepted for honor, with the day on which it was so accepted. 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. Illustrations (a) A negotiable instrument, dated 29th January 2010, is made payable at one month after date. The instrument is at maturity on the third day after the 28th February 2010.
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(b) A negotiable instrument, dated 30th August 2010, is made payable three months after date. The instrument is at maturity on the 3rd December 2010. (c) A promissory note or bill of exchange, dated 31st August 2010, is made payable three months after date. The instrument is at maturity on the 3rd December ,2010.
Payment in due course
Payment in due course means payment in accordance with the apparent tenor of the instrument in good faith and without 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 there in mentioned.
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doc_253521733.doc
1. What are negotiable Instruments?
2. Characteristics of Negotiable Instruments.
3. Types of Negotiable Instruments.
4. Promissory Note
a. Specimen of Promissory Note
b. Illustrations
5. Bills of Exchange
a. Specimen of Bills of Exchange
b. Illustrations
6. Cheques
a. Types of cheques
7. Set of Bills
8. Distinction between a promissory note and Bill of Exchange
9. Distinction between a cheque and Bill of Exchange
10. Presumption as to negotiable Instrument
11. Maturity of an Instrument
12. Payment in due course
Negotiable Instruments
Business Law
SIMSR MMM - I
GROUP MEMBERS NITIN BORHADE - 10 SACHIN DHAMANASKAR – 17 SIDDHESH JAGE – 27 NITIN KUTRE – 31 SANKET SAWANT – 50 TEJASHREE SAWANT - 51
Negotiable Instruments
Business Law
Contents
1. What are negotiable Instruments? 2. Characteristics of Negotiable Instruments. 3. Types of Negotiable Instruments. 4. Promissory Note a.
Specimen of Promissory Note
b. Illustrations 5. Bills of Exchange a. Specimen of Bills of Exchange b. Illustrations 6. Cheques a. Types of cheques 7. Set of Bills 8. Distinction between a promissory note and Bill of Exchange 9. Distinction between a cheque and Bill of Exchange 10. Presumption as to negotiable Instrument 11. Maturity of an Instrument 12. Payment in due course
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Negotiable Instruments
Business Law
What are negotiable Instruments?
? According to section 13 of the negotiable Instruments Act 1881, a negotiable instrument means promissory note, bill of exchange, or cheque, payable either to order or to bearer. We can say that, Negotiable Instrument is transferable documents, where negotiable means transferable and Instrument means documents Thus, Negotiable Instruments are documents meant for making payments, the ownership of which can transferred from one person to another many times before the final payment is made.
?
?
Characteristics of Negotiable Instruments
? Possessor of the negotiable instrument is presumed to be the owner of the property contained therein. The ownership is changed by mere delivery or by valid endorsement and delivery. A person who receives a negotiable instrument has a clear and undisputable title to the instrument. A negotiable instrument must be in writing. In every negotiable instrument there must be an unconditional order or promise for payment.
?
? ?
Types of Negotiable Instruments
? According to the Negotiable Instrument Act, 1881 there are just three types of Negotiable Instruments.
1. Promissory Note (Also called Pronotes) 2. Bill of Exchange (called bills) 3. Cheque ? However many other documents are also recognized as negotiable instruments, like Hundis, Treasury bills, share warrants bankers draft etc?
3|Page
Negotiable Instruments
Business Law
Promissory Note
? Section 4 of the Negotiable Instrument act 1881 defines a promissory note as “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 if certain person or to bearer of the documents”. It is an unconditional written promise by one person to another in which the maker (payer) promise to pay on demand or at fixed or determinable date in the future There are primarily two parties involved in a promissory note. I. II. The maker or Drawer – Person who makes the note and promises to pay the amount stated therein. The Payee – the person to whom the amount is payable.
?
?
In course of transfer of promissory note by payee and others, the parties involved may bea) The Endorser – the person who endorses the note in favour of another person. b) The Endorsee – the person in whose favour the note is negotiable by endorsement.
Specimen of a Promissory Note Rs. 10,000/-
New Delhi, 25th September 2010
On demand, I promise to pay Ramesh, s/o RamLal of Meerut or order a sum of Rs 10,000/- (Rupees Ten Thousand only), for value received. To, Ramesh Address…….. Sd/ Sanjeev Stamp
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Negotiable Instruments
Business Law
Illustrations Signs instruments in the following terms (a) "I promise to pay Siddhesh or order Rs. 500." (b) " I acknowledge myself to be indebted to Sachin in Rs. 1,000 to be paid on demand, for value received." (c) Mr. Sachin, O U Rs. 1,000." (d) I promise to pay Sachin Rs. 500 and all other sums which shall be due to him." (e) I promise to pay Siddhesh Rs. 500, first deducting there out any money which he may owe me." (f) " I promise to pay Sachin Rs. 500 seven days after my marriage with C." (g) " I promise to pay Sachin Rs. 500 on D's death, provided D leaves me enough to pay that sum." (h) " I promise to pay Sachin Rs. 500 and to deliver to him my black horse on 1st January next." The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked (c), (d), (e), (f), (g) and (h) are not promissory notes.
Bill of Exchange
? Section 5 of the Negotiable Instrument act, 1881 defines a bill of exchange as “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 the order of certain person, or the bearer of the instrument”. There are three parties involved in Bill of exchange. i. ii. iii. The Drawer – the person who makes the order for making payment. The Drawee- the person to whom the order to pay is made. The Payee – the person to whom the payment is to be made
?
The drawer can also draw a bill in his own name thereby he himself become the payee. Here the word is the bill would be “pay to us or order”
5|Page
Negotiable Instruments
Business Law
Specimen of a Bill of Exchange 1 Rs. 10,000/New Delhi 25th September 2010
Five months after date pay Tejashree or (to his) order the sum of Rupees Ten Thousand only for value received. To Sameer Address Accepted Sameer Stamp S/d Rajiv
Cheque
? As per the Negotiable Instrument Act, 1881 defines a cheque as bill of exchange drawn on specified banker and not expressed to be payable otherwise than on demand. Actually, a cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or the bearer.
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Features of Cheques i. ii. iii. iv. v. vi. vii. A cheque must be in writing and duly signed by the drawer. It contains an unconditional order. It is issued on 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 be honored by the bank.
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Negotiable Instruments
Business Law
Types of Cheque
Cheques are broadly having four typesa. Open cheque b. Crossed cheque c. Bearer cheque d. Order cheque
Open Cheque: A cheque is called Open when it is possible to get cash over the
counter at the bank. The holder of an open cheque can do the following i. Received its payment over the counter at the bank, ii. Deposit the cheque in his own account iii. Pass it to some one else by signing on the bank of a cheque
Crossed cheque
? Since open cheque is subject to risk of theft, it is dangerous to issue such cheques. This risk can be avoided by issuing another type of cheque called “crossed cheque”. The payment of cheque is not made over the counter at the bank. It is only credited to the bank account of payee. A cheque can be crossed by drawing two transferable parallel lines across the cheque.
? ? ?
Bearer Cheque
? ? A cheque which is payable to any person to any person who presents it for payment at the bank counter is called “Bearer cheque” A bearer cheque can be transferred by mere delivery and requires no endorsement.
Order Cheque
? An order cheque is one which is payable to particular person. In such a cheque the word “bearer” may be cut out or cancelled and the word ‘ order’ is written. Payee can transfer an order cheque to someone else by signing his or her name on the back of it. 7|Page
?
Negotiable Instruments
Business Law
Set of bills.
Set of bills. Bills of exchange may be drawn in parts, each part being numbered and containing a provision that it shall continue payable only so long as the others remain unpaid. All the parts together make a set ; but the whole set constitutes only one bill, and is extinguished when one of the parts, if a separate bill, would be extinguished. Exception.-When a person accepts or indorses different parts of the bill in favor of different persons, he and the subsequent endorsers of each part are liable on such part as if it were a separate bill. Holder of first acquired part entitled to all. As between holders in due course of different parts of the same set, he who first acquired title to his part is entitled to the other parts and the money represented by the bill.
Distinction between a promissory note and Bill of Exchange
Promissory note 1. It contains an unconditional promise 2. There are two parties involved- the maker and the payee. 3. It is made by the debtor. 4. Acceptance is not required. 5. The liability of the maker/drawer is primary and absolute. Bill of Exchange 1. It contains an unconditional order. 2. There are three parties involved – the drawer, the drawee and payee. 3. It is made by the creditor 4. Acceptance by the drawee is a must. 5. The liability of the maker/ drawer is secondary and conditional upon nonpayment by the cheque. 8|Page
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Distinction between a cheque and Bill of Exchange
Cheque 1. It is drawn only on banker. 2. The amount is always payable on demand. 3. It can be crossed to end its negotiability. 4. Acceptance is not required. Bill of Exchange 1. It can be drawn on anybody including a banker. 2. The amount is payable on demand or specific period. 3. It cannot be crossed.
4. Acceptance is a must.
Presumption as to negotiable Instrument
Presumptions as to negotiable instruments- Until the contrary is proved, the following presumptions shall be made: (a) Consideration; that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration ; (b) as to date; that every negotiable instrument bearing a date was made or drawn on such date ; (c) as to time of acceptance; that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity ; (d)as to time of transfer; that every transfer of a negotiable instrument was made before its maturity; 9|Page
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Business Law
(e)as to order of endorsements; that the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon; (f)as to stamp; that a lost promissory note, bill of exchange or cheque was duly stamped ; (g) that holder is a holder in due course; that the holder of a negotiable instrument is a holder in due course: provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an SP offence or fraud. or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burthen of proving that the holder is a holder in due course lies upon him.
Maturity of an Instrument
Maturity
The maturity of a promissory note or bill of exchange is the date at which it falls due. Days of grace.- Every promissory note or bill of exchange which is not expressed to be payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is expressed to be payable. Calculating maturity of bill or note payable so many months after date or sight. In calculating the date at which a promissory note or bill of exchange, made payable a stated number of months after date or after sight, or after a certain event, is at maturity, the period stated shall be held to terminate on the day of the month which corresponds with the day on which the instrument is dated, or presented for acceptance or sight, or noted for non acceptance, or protested for non acceptance, or the event happens, or, where the instrument is a bill of exchange made payable a stated number of months after sight and has been accepted for honor, with the day on which it was so accepted. 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. Illustrations (a) A negotiable instrument, dated 29th January 2010, is made payable at one month after date. The instrument is at maturity on the third day after the 28th February 2010.
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(b) A negotiable instrument, dated 30th August 2010, is made payable three months after date. The instrument is at maturity on the 3rd December 2010. (c) A promissory note or bill of exchange, dated 31st August 2010, is made payable three months after date. The instrument is at maturity on the 3rd December ,2010.
Payment in due course
Payment in due course means payment in accordance with the apparent tenor of the instrument in good faith and without 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 there in mentioned.
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