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Negotiable Instruments Act 1881
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  1. Negotiable Instruments Act 1881 • Module VI: Negotiable Instruments Act, 1881 • Differences from a contract, parties to negotiable instrument • Classes • Promissory note • Bill of exchange • Dishonor of cheque

  2. Negotiable Instruments Act 1881 Negotiable Instruments Act Characteristics of a Negotiable Instruments: • Free Transferability • Holder is the owner • Holder in due course (good faith for consideration and right of recovery) • Validity period—6 months –Stale and Post dated • Presumptions as to NI: a) consideration; b) date; c) time of acceptance and payment;- accepted before maturity and transferred before maturity; d) instruments are endorsed in the order in which they appear; e) holder is a holder in due course; f) lost instruments, it is presumed that it was stamped; g) Proof of protest is enough for proving dishonour. IN all these cases burden of proof lies on the defendant and not on the plaintiff

  3. Kinds of Negotiable Instruments Act Kinds of Negotiable Instruments • Bearer Instruments • Order Instruments • Inland Instrument • Foreign Instrument • Demand Instrument • Ambiguous instrument • Inchoate or incomplete Instrument • Escrow (conditionally as a security)

  4. Negotiable Instruments Act Promissory Notes: Characteristics: In writing; Express promise (on demand or after a definite time but cannot be made payable to bearer on demand. Undertaking definite and unconditional Signature; Maker Jointly or jointly and severally Sum payable must be certain without any scope of contingent additions or subtractions Payment in money only and not in kind; Payee should be specified Bank note or currency note is not a promissory note. Consideration, date and Place –formalities

  5. Negotiable Instruments Act Bill of Exchange: Parties to a B/E & Characteristics: • In writing • Express Order (unconditional order) • Signature of the drawer • Drawer, drawee and Payee. The parties must be certain • Acceptor, Acceptor for Honour • Holder • Indorser and Indorsee • Jointly or jointly and severally • Sum payable must be certain without any scope of contingent additions or subtractions • Payment in money and not in kind • Payee should be specified • Number, Consideration, date and Place --formalities

  6. Negotiable Instruments Act Bill of Exchange: Parties to a B/E & Characteristics: Accommodation Bill • Where a bill of exchange is drawn to accommodate another party without underlying commercial transaction of buying or selling goods or services, such a bill of exchange is called ACCOMMODATION BILL. Bankers will not extend credit on accommodation bill. • In other words, where a bill is drawn without any consideration is called an accommodation bill. DA Bill and DP Bills and Clean Bills • Documents against Acceptance and Document against Payment.

  7. Negotiable Instruments Act CHEQUES-Parties to a cheque and characteristics • Cheque is a bill of exchange drawn on a specified banker and payable on demand and include the electronic image of a truncated cheque and a cheque in the elctronic form • In writing in the prescribed cheque book or electronic format. • Express Order (unconditional order) by the customer to his banker to pay the amount to the payee or the last payee in case of endorsement. • Payment only on demand. • Signature of the drawer • Drawer, drawee and Payee. Drawee is always the bank branch. • Holder • Indorser and Indorsee • Sum payable must be certain without any scope of contingent additions or subtractions • Payment in money and not in kind • Payee should be specified • Number, Consideration, date and Place --formalities

  8. Negotiable Instruments Act Truncated Cheques: Truncated cheque means a cheque which is truncated during the course of a clearing cycle either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting further physical movement of the cheque in writing. Crossing of Cheques: • Crossing of cheques is a direction to the banker to pay through an operative account and not directly by cash. i.e, cheques will be credited to an operative account –SB or CA or OD and the payee has to draw from that account in any mode of payment. • General Crossing and Special Crossing • Not Negotiable crossing (title not better than that of the transferor) • Restrictive Crossing

  9. Negotiable Instruments Act Legal Provisions • Holder and Holder in Due Course • Negotiation • Indorsements. In full, in blank, • Cheques—Electronic Cheques, Truncated Cheques • Crossing of Cheques—General Crossing, Special crossing, Restrictive Crossing, Not-Negotiable Crossing • Protection to a paying Banker • Payment in Due Course of open cheques and crossed cheques • Payment of altered instruments • Protection to a Collecting Banker • Good faith and without negligence

  10. Negotiable Instruments Act Legal Provisions (contd..) • Escrow: Where a negotiable instrument is delivered conditionally or for a special purpose as a collateral security or for safe custody only, and not for the purpose of transferring the absolute property in the instrument, it is called an ESCROW. • Inchoate Instruments (Filing up the blanks) • Interest on bills and notes—due dates, holidays etc

  11. Negotiable Instruments Act Legal Provisions: Dishonour of Negotiable Instruments • Liability of Drawer • Liability of drawee bank (wrongful dishonour, forged signature) • Liability of maker of note and acceptor of a bill • Liability of indorser • Dishonour of cheques-- a criminal office Sec 138 to 147