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The Negotiable Instruments Act, 1881
Meaning of negotiable instruments

Question 1
Explain the meaning of negotiable instruments?
Answer
It is an instrument which is transferable !b" customs of tra#e$ b" #eli%er", li&e cash, an# is
also capable of being sue# upon b" the person hol#ing for the time being' The propert" in
such an instrument passes to a bona fi#e transferee for %alue' The attribute of negotiabilit" is
ac(uire# b" certain #ocuments b" custom'
)ection 1* of the Negotiable Instruments Act, 1881 #oes not #efine a negotiable instrument
although it mentions onl" three &in#s of negotiable instruments namel", bills, notes an#
che(ues' +ut it #oes not necessaril" follow that there can be no other negotiable instruments
than those enumerate# in the Act' )ection 1, of the Transfer of -ropert" Act, 188 spea&s of
instruments which are for the time being, b" law of custom, negotiable, impl"ing thereb" that
the .ourts in In#ia ma" follow the practice of the English .ourts in exten#ing the character of
Negotiable Instruments Act' Thus in In#ia, /o%ernment promissor" notes, )hah 0og 1un#is,
#eli%er" or#ers an# railwa" receipts for goo#s ha%e been hel# to be negotiable b" usage or
custom'
2efinitions
Question
Explain the essential elements of a promissor" note' )tate, gi%ing reasons, whether the
following instruments are %ali# promissor" notes3
!i$ 4 promises to pa" 5, b" a promissor" note, a sum of 6 7,888, fifteen #a"s after the #eath
of +'
!ii$ 4 promises to pa" 5, b" a promissor" note, 6 7888 an# all other sums, which shall be
#ue'
9 The Institute of .hartere# Accountants of In#ia
Answer
Essential Elements of a -romissor" Note3
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Must be in writing'
-romise to pa"3 The instrument must contain an express promise to pa"'
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2efinite an# uncon#itional3 The promise to pa" must be #efinite an# uncon#itional' If it is
uncertain or con#itional, the instrument is in%ali#'
)igne# b" the ma&er3 The instrument must be signe# b" the ma&er, otherwise it is
incomplete an# of no effect' E%en if it is written b" the ma&er himself an# his name
appears in the bo#" of the instrument, his signature must be there'
.ertain parties3 The instrument must point out with certaint" as to who the ma&er is an#
who the pa"ee is' ;hen the ma&er an# the pa"ee cannot be i#entifie# with certaint" from
the instrument itself, the instrument, e%en if it contains an uncon#itional promise to pa",
is not a promissor" note'
.ertain sum of mone"3 The sum pa"able must be certain an# must not be capable of
contingent a##itions or subtractions'
-romise to pa" mone" onl"3 The pa"ment must be in the legal ten#er mone" of In#ia'
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Answer to -roblem3 In the case number 1, the pa"ment to be ma#e in fifteen #a"s after the
#eath of +' Though the #ate of #eath is uncertain, it is certain that + shall #ie' Therefore the
instrument is %ali#'
In the secon# case= the sum pa"able is not certain within the meaning of )ection : of the
Negotiable Instruments Act, 1881= 1ence the -romissor" Note is not a %ali# one'
Question *
Explain the meaning of >1ol#er? an# >1ol#er in #ue course? of a negotiable instrument' The
#rawer, >2? is in#uce# b" >A? to #raw a che(ue in fa%our of -, who is an existing person' >A?
instea# of sen#ing the che(ue to >-?, forgoes his name an# pa"s the che(ue into his own
ban&' ;hether >2? can reco%er the amount of the che(ue from >A?s ban&er' 2eci#e'
Answer
Meaning of >1ol#er? an# the >1ol#er in #ue course? of a negotiable instrument 3
>1ol#er?3 1ol#er of negotiable instrument means as regar#s all parties prior to himself, a hol#er
of an instrument for which %alue has at an" time been gi%en'
>1ol#er in #ue course?3 !i$ In the case of an instrument pa"able to bearer means an" person
who, for consi#eration became its possessor before the amount of an instrument pa"able' !ii$
In the case of an instrument pa"able to or#er, >hol#er in #ue course? means an" person who
became the pa"ee or en#orsee of the instrument before the amount mentione# in it became
'* +usiness @aws, Ethics an# .ommunication
pa"able' !iii$ 1e ha# come to possess the instrument without ha%ing sufficient cause to belie%e
that an" #efect existe# in the title of transferor from whom he #eri%e# his title'
The problem is base# upon the pri%ileges of a >hol#er in #ue course?' )ection : of the
Negotiable Instrument Act, 1881, states that an acceptor of a bill of exchange #rawn in a
fictitious name an# pa"able to the #rawer?s or#er is not, b" reason that such name is fictitious,
relie%e# from liabilit" to an" hol#er in #ue cause claiming un#er an en#orsement b" the same
han# as the #rawer?s signature, an# purporting to be ma#e b" the #rawer' In this problem, - is
not a fictitious pa"ee an# 2, the #rawer can reco%er the amount of the che(ue from A?s
ban&ers A North an# )outh ;ales +an& +' Mac&eth !1B88$ A'.' 1*,C Town an# .ountr"
A#%ance .o' +, -ro%incial +an& !1B1,$ Ir' D':1E'
Question :
Deferring to the pro%isions of the Negotiable Instruments Act, 1881, examine the %ali#it" of the
following -romissor" Notes3
!i$ I owe "ou a sum of 6 1,888' >A? tells >+?'
!ii$ >4? promises to pa" >5? a sum of 6 18,888, six months after >5?s marriage with >F?
Answer
-romissor" Note 3 A -romissor" Note is an instrument in writing containing an uncon#itional
un#erta&ing signe# b" the ma&er, to pa" a certain sum of mone" onl" to, or to the or#er of
certain person, or the bearer of the Instrument' !)ection :, The Negotiable Instruments Act,
1881$'
Essential elements3 !refer answer no' on the page no' '1= '$
+ase# on the abo%e con#itions in accor#ance with the #efinition of a promissor" note, the
answers to the two problems is as un#er3
!i$
!ii$
It is not a promissor" note in the first case, since there is no promise to pa"'
In the secon# case also it is not a promissor" note since as there is probabilit" that 5
ma" not marr"'
Question 7
;hat are the essential elements of a %ali# acceptance of a +ill of Exchange? An acceptor
accepts a G+ill of ExchangeH but write on it GAccepte# but pa"ment will be ma#e when goo#s
#eli%ere# to me is sol#'H 2eci#e the %ali#it"'
Answer
Essentials of a %ali# acceptance of a +ill of Exchange3
The essentials of a %ali# acceptance are as follows3
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Acceptance must be written3 The #rawee ma" use an" appropriate wor# to con%e" his
assent' It ma" be sufficient acceptance e%en if Iust signatures are put without a##itional
wor#s' An oral acceptance is not %ali# in law'>
Acceptance must be signe#3 A mere signature woul# be sufficient for the purpose'
Alternati%el", the wor#s >accepte#? ma" be written across the face of the bill with a
signature un#erneathC if it is not so signe#, it woul# not be an acceptance'
Acceptance must be on the bill3 The acceptance shoul# be on the face of the bill normall"
but it is not necessar"' An acceptance written on the bac& of a bill has been hel# to be
sufficient in law' ;hat is essential is that must be written on the billC else it creates no
liabilit" as acceptor on the part of the person who signs it'
Acceptance must be complete# b" #eli%er"3 Acceptance woul# not be complete an# the
#rawee woul# not be boun# until the #rawee has either actuall" #eli%ere# the accepte#
bill to the hol#er or ten#ere# notice of such acceptance to the hol#er of the bill or some
person on his behalf'
;here a bill is #rawn in sets, the acceptance shoul# be put on one part onl"' ;here the
#rawee signs his acceptance on two or more parts, he ma" become liable on each of
them separatel"'
Acceptance ma" be either general or (ualifie#3 An acceptance is sai# to be general when
the #rawee assents without (ualification or#er of the #rawer' The (ualification ma" relate
to an e%ent, amount, place, time etc' !Explanation to )ection 8< of the Negotiable
Instruments Act, 1881$' In the gi%en case, the acceptance is a (ualifie# acceptance since
a con#ition has been attache# #eclaring the pa"ment to be #epen#ent on the happening
of an e%ent therein state#'
As a rule, acceptance must be general acceptance an# therefore, the hol#er is at libert"
to refuse to ta&e a (ualifie# acceptance' ;here, he refuse to ta&e it, the bill shall be
#ishonoure# b" non=acceptance' +ut, if he accepts the (ualifie# acceptance, e%en then it
bin#s onl" him an# the acceptor an# not the other parties who #o not consent thereto
!)ection 8<$'
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Question <
Examining the pro%isions of the Negotiable Instruments Act, 1881, #istinguish between
a J+ill of ExchangeJ an# a J-romissor" NoteJ'
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Answer
+usiness @aws, Ethics an# .ommunication
2istinction between a -romissor" Note an# a +ill of Exchange3
The #istincti%e features of these two t"pes of negotiable instruments are tabulate#
below3=
)l' No'
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-romissor" Note
It contains a promise to pa"
The liabilit" of the ma&er of a note is
primar" an# absolute
+ill of Exchange
It contains an or#er to pa"
The liabilit" of the #rawer of a bill is
secon#ar" an# con#itional' 1e woul#
be liable if the #rawee, after
accepting the bill fails to pa" the
mone" #ue upon it pro%i#e# notice of
#ishonor is gi%en to the #rawer within
the prescribe# time'
If a bill is pa"able sometime after
sight, it is re(uire# to be accepte#
either b" the #rawee himself or b"
someone else on his behalf, before it
can be presente# for pa"ment'
The ma&er or #rawer of an accepte#
bill stan#s in imme#iate relationship
with the acceptor an# the pa"ee
In the case of bill, the #rawer an#
pa"ee or the #rawee an# the pa"ee
ma" be the same person'
In the case of a bill of exchange,
there are three parties, %iK', #rawer,
#rawee an# pa"ee, an# an" two of
these three capacities can be fille# b"
one an# the same person'
The bills can be #rawn in sets
A bill of exchange too cannot be
#rawn con#itionall", but it can be
accepte# con#itionall" with the
consent of the hol#er' It shoul# be
note# that neither a promissor" note
nor a bill of exchange can be ma#e
pa"able to bearer on #eman#'
*' It is presente# for pa"ment without an"
pre%ious acceptance b" ma&er
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The ma&er of a promissor" note stan#s
in imme#iate relationship with the
pa"ee an# is primaril" liable to the
pa"ee or the hol#er'
It cannot be ma#e pa"able to the ma&er
himself, that is the ma&er an# the
pa"ee cannot be the same person
In the case of a promissor" note there
are onl" two parties, %iK' the ma&er
!#ebtor$ an# the pa"ee !cre#itor$'
A promissor" note cannot be #rawn in
sets
A promissor" note can ne%er be
con#itional
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Question ,
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;hat #o "ou mean b" an acceptance of a negotiable instrument? Examine %ali#it" of the
following in the light of the pro%isions of the Negotiable Instruments Act, 18813
!i$ An oral acceptance
!ii$ An acceptance b" mere signature without writing the wor# Gaccepte#H'
Answer
Meaning of Acceptance3 It is onl" the bill of exchange which re(uires acceptance' A bill is
sai# to be accepte# when the #rawee !i'e' the person on whom the bill is #rawn$, after putting
his signature on it, either #eli%ers it or gi%es notice of such acceptance to the hol#er of the bill
or to some person on his behalf' After the #rawee has accepte# the bill he is &nown as the
acceptor !)ection , para * of the Negotiable Instruments Act,1881$'
Acceptance ma" be either general or (ualifie#' The acceptance is (ualifie# when the #rawer
#oes not accept it accor#ing to the apparent term of the bill but attaches some con#ition or
(ualification which ha%e the effect of either re#ucing his !acceptor?s$ liabilit" or acceptance of
his liabilit" subIect to certain con#itions' A general acceptance is the acceptance where the
acceptor assents without (ualification to the or#er of the #rawer'
Lali#it" of Acceptance3 !i$3 It is one of the essential elements of a %ali# acceptance that the
acceptance must be written on the bill an# signe# b" the #rawee' An oral acceptance is not
sufficient in law' Therefore, an oral acceptance of the bill #oes not stan# to be a %ali#
acceptance'
!ii$3 The usual form in which the #rawee accepts the Instrument is b" writing the wor#
>accepte#?, across the face of the bill an# signing his name un#erneath' The mere signature of
the #rawee without the a##ition of the wor#s >accepte#? is a %ali# acceptance' As the law
prescribes no particular form for acceptance, there can be no #ifficult" in construing
ac&nowle#gement as an acceptance but it must satisf" the re(uirements of )ection , of the
Negotiable Instruments Act, 1881 i'e' it must appear on the bill an# must be signe# b" the
#rawee' !Mana&chan# %' .hartere# +an&$'
Question 8
Is there an" #ifference in the protection a%ailable to a ban&er in respect of a che(ue being
>crosse#? or >uncrosse#??
Answer
If a che(ue is uncrosse#, the ban&er is exonerate# for the failure to #irect either the
genuineness, or the %ali#it" of the en#orsement on the che(ue purporting to be that of the
pa"ee or is authorise# agent'
In case a che(ue is crosse#, the ban&er who pa"s the che(ue #rawn b" his customer, he can
#ebit the #rawerJs account so pai# e%en though the amount of che(ue #oes not reach true
owner' The protection that can be a%aile# are if the pa"ment has been ma#e in #ue course in
', +usiness @aws, Ethics an# .ommunication
goo# faith an# without negligence too an" person in possession thereof in the circumstances
which #o not excite an" suspicion that is not entitle# to recei%e the pa"ment of the che(ue' In
other wor#s, the con#ition of goo# faith an# without negligence woul# be the criteria applie#
for Iu#ging the con#uct of a collecting ban&er' E%en though the ban&er is protecte# for ha%ing
ma#e pa"ment of the che(ue to a wrong person, the true owner of the che(ue is entitle# to
reco%er the amount of the che(ue from the person who ha# no title to the che(ue'
Question B
)tate whether the following statement is correct or incorrect3
A che(ue mar&e# GNot=NegotiableH is not transferable
Answer
Incorrect
Question 18
2efine Gche(ueH, un#er the Negotiable Instruments Act, 1881'
between a che(ue an# a bill of exchange?
Answer
A che(ue is a bill of exchange #rawn on a specifie# ban&er an# not expresse# to be pa"able
otherwise than on #eman# an# it inclu#es the electronic image of a truncate# che(ue an# a
che(ue in the electronic form'
Essentials3
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.he(ue is alwa"s #rawn on a ban&'
.he(ue is alwa"s pa"able on #eman#'
)ince a che(ue is a species of a bill of exchange, it must satisf" all the re(uirements of a
bill of exchange, i'e'
!i$ it must be in writing an# signe# b" the #rawerC
!ii$ it must contain an uncon#itional or#er to pa"C
!iii$ the or#er must be to pa" a certain sum of mone" to or to the or#er of a certain
person, or to the bearer of the instrument'
2istinction between a che(ue an# a bill of exchange
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In a che(ue the #rawee is alwa"s a ban&, whereas in a bill the #rawee ma" be a >ban&? or
an" other person'
In a che(ue #a"s of grace are not allowe#, whereas in a bill three #a"s of grace are
allowe# for pa"ment'
Notice of #ishonour is not nee#e# in a che(ue, whereas notice of #ishonour is usuall"
re(uire# in case of a bill'
;hat are the #ifference
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A che(ue can be #rawn to bearer an# ma#e pa"able on #eman#, whereas a bill cannot
be bearer, if it is ma#e pa"able on #eman#'
.he(ue #oes not re(uire presentment for acceptance' It nee#s presentment for
pa"ment' +ill, sometimes, re(uire presentment for acceptance an# it is a#%isable to
present them for acceptance e%en when it is not essential to #o so'
.he(ue #oes not re(uire to be stampe# in In#ia, whereas bill must be stampe# accor#ing
to the law'
A che(ue ma" be crosse#, whereas a bill cannot be crosse#'
A che(ue being a re%ocable man#ate, the authorit" ma" be re%o&e# b" counterman#ing
pa"ment, an# is #etermine# b" notice of the customer?s #eath or insol%enc"' This is not
so in the case of a bill'
The #rawer of a bill is #ischarge# from liabilit", if it is not #ul" presente# for pa"ment but
the #rawer of a che(ue is not #ischarge# b" #ela" of the hol#er in presenting the che(ue
for pa"ment unless the #rawer has suffere# some loss #ue to #ela"'
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Question 11
;ho is hol#er in #ue course? 1ow he is #iffering from a 1ol#er?
Answer
1ol#er in 2ue .ourse3 It means an" person who, for consi#eration became its possessor
before the amount mentione# in it became pa"able' In the case of an instrument pa"able to
or#er, >hol#er in #ue course? means an" person who became the pa"ee or en#orsee of the
instrument before the amount mentione# in it became pa"able' In both the cases, he must
recei%e the instrument without ha%ing sufficient cause to belie%e that an" #efect existe# in the
title of the person from whom he #eri%e# his title' In other wor#s, hol#er in #ue course means
a hol#er who ta&es the instrument bona fi#e for %alue before it is o%er#ue, an# without an"
notice of #efects in the title of the person, who transferre# it to him' Thus, a person who
claims to be >hol#er in #ue course? is re(uire# to pro%e that3
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on pa"ing a %aluable consi#eration, he became either the possessor of the instrument if
pa"able to or#erC
he ha# come into the possession of the instrument before the amount #ue there un#er
became actuall" pa"ableC an#
he ha# come to possess the instrument without ha%ing sufficient cause to belie%e that
an" #efect existe# in the title of transferor?s from whom #eri%e# his title'
A hol#er ma" become the possessor or pa"ee of an instrument e%en without
consi#eration, whereas a hol#er in #ue course is one who ac(uires possession for
consi#eration'
2istinction between 1ol#er an# 1ol#er in 2ue .ourse3
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A hol#er in #ue course as against a hol#er must become the possessor pa"ee of the
instrument before the amount thereon become pa"able'
A hol#er in #ue course as against a hol#er must ha%e become the pa"ee of the
instrument in goo# faith i'e', without ha%ing sufficient cause to belie%e that an" #efect
existe# in the transferor?s title'
Question 1
)tate the pri%ileges of a >1ol#er in #ue courseH un#er the Negotiable Instruments Act, 1881'
A in#uce# + b" frau# to #raw a che(ue pa"able to . or or#er' A obtaine# the che(ue, forge#
.?s en#orsement an# collecte# procee#s to the che(ue through his +an&ers' + the #rawer
wants to reco%er the amount from .?s +an&ers' 2eci#e in the light of the pro%isions of
Negotiable Instruments Act, 1881=
!i$ ;hether + the #rawer, can reco%er the amount of the che(ue from .?s +an&ers?
!ii$ ;hether . is the Mictitious -a"ee?
;oul# "our answer be still the same in case . is a fictitious person?
Answer
-ri%ileges of a G1ol#er in 2ue .ourseH3 Accor#ing to the pro%isions of the Negotiable
Instruments Act, 1881, a hol#er in #ue course has the following pri%ileges3
!i$ A person signing an# #eli%ering to another a stampe# but otherwise inchoate instrument
is #ebarre# from asserting, as against a hol#er in #ue course, that the instrument has not
been fille# in accor#ance with the authorit" gi%en b" him, the stamp being sufficient to
co%er the amount !)ection 8$'
!ii$ In case of bill of exchange is #rawn pa"able to #rawer?s or#er in a fictitious name an# is
en#orse# b" the same han# as the #rawer?s signature' It is not permissible for acceptor
to allege as against the hol#er in #ue course that such name is fictitious !)ection :$'
!iii$ In case a bill or note is negotiate# to a hol#er in #ue course, the other parties to the bill
or note cannot a%oi# liabilit" on the groun# that the #eli%er" of the instrument was
con#itional or for a special purpose onl" !)ection : an# :,$'
!i%$ The person liable in a negotiable instrument cannot set up against the hol#er in #ue
course the #efences that the instrument ha# been lost or obtaine# from the former b"
means of an offence or frau# or far an unlawful consi#eration !)ection 78$'
!%$ No ma&er of a promissor" note, an# no #rawer of a bill or che(ue an# no acceptor of a
bill for the honour of the #rawer shall, in a suit thereon b" a hol#er in #ue course be
permitte# to #en" the %ali#it" of the instrument as originall" ma#e or #rawn !)ection 18$'
!%i$ No ma&er of a promissor" note an# no acceptor of a bill pa"able to or#er shall, in a suit
thereon b" a hol#er in #ue course, be permitte# to #en" the pa"ee?s capacit", at the rate
of the note or bill, to en#orse the same !)ection 11$'
The Negotiable Instruments Act, 1881 '18
In brief, it is clear that a hol#er in #ue course gets a goo# title in man" respects' Answer
to problem
Accor#ing to )ection : of the Negotiable Instruments Act, 1881 an acceptor of a bill of
exchange #rawn in a fictitious name an# pa"able to the #rawer?s or#er is not, b" reason
that such name is fictitious, relie%e# from liabilit" to an" hol#er in #ue course claiming
un#er an instrument b" the same han# as the #rawer?s signature, an# purporting to be
ma#e b" the #rawer'
The wor# Gfictitious pa"ee? means a person who is not in existence or being in existence, was
ne%er inten#e# b" the #rawer to ha%e the pa"ment' ;here #rawer inten#s the pa"ee to ha%e
the pa"ment, then he is not a fictitious pa"ee an# the forger" of his signature will affect the
%ali#it" of the che(ue'
Appl"ing the abo%e, answers to the (uestions as&e# can be as un#er3
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In this case +, the #rawer can reco%er the amount of the che(ue from .?s ban&ers
because .?s title was #eri%e# through forge# en#orsement'
1ere . is not a fictitious pa"ee because the #rawer inten#e# him to recei%e pa"ment'
III' The result woul# be #ifferent if . is not a real person or is a fictitious person or was not
inten#e# to ha%e the pa"ment'
Question 1*
A #raws an# + accepts the bill pa"able to . or or#er, . en#orses the bill to 2 an# 2 to
E, who is a hol#er=in=#ue course' Mrom whom E can reco%er the amount? Examining the
right of E, state the pri%ileges of the hol#er=in=#ue course pro%i#e# un#er the
Negotiable Instruments Act, 1881'
Answer
)ection *< of the Negotiable Instruments Act, 1881 #escribes the liabilities of prior
parties to the hol#er in #ue course' This section sa"s that a hol#er in #ue course has
pri%ilege to hol# e%er" prior part" to a negotiable instrument liable on it until the
instrument is #ul" satisfie#' 1ere the hol#er in #ue course can hol# all the prior parties
liable Iointl" an# se%erall"' -rior parties inclu#es the ma&er or #rawer, the acceptor an#
en#orsers' Accor#ingl" in the gi%en problem, E, a hol#er in #ue course can reco%er the
amount from all the prior parties i'e', 2 N . !the en#orsers$, + !an acceptor$ an# A !the
#rawer$'
-ri%ileges of a G1ol#er in 2ue .ourseH3 Accor#ing to the pro%isions of the Negotiable
Instruments Act, 1881, a hol#er in #ue course has the following pri%ileges3=
i' A person signing an# #eli%ering to another a stampe# but otherwise inchoate
instrument is #ebarre# from asserting, as against a hol#er in #ue course, that the
instrument has not been fille# in accor#ance with the authorit" gi%en b" him, the
stamp being sufficient to co%er the amount !)ection 8$'
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ii'
In case a bill of exchange is #rawn pa"able to #rawer?s or#er in a fictitious name
an# is en#orse# b" the same han# as the #rawer?s signature, it is not permissible
for acceptor to allege as against the hol#er in #ue course that such name is
fictitious !)ection :$'
iii' In case a bill or note is negotiate# to a hol#er in #ue course, the other parties to
the bill or note cannot a%oi# liabilit" on the groun# that the #eli%er" of the
instrument was con#itional or for a special purpose onl" !)ections : an# :,$'
i%' The person liable in a negotiable instrument cannot set up against the hol#er in
#ue course the #efences that the instrument ha# been lost or obtaine# from the
former b" means of an offence or frau# or for an unlawful consi#eration !)ection
78$'
%' No ma&er of a promissor" note, an# no #rawer of a bill or che(ue an# no acceptor
of a bill for the honour of the #rawer shall, in a suit thereon b" a hol#er in #ue
course be permitte# to #en" the %ali#it" of the instrument as originall" ma#e or
#rawn !)ection 18$'
%i' No ma&er of a promissor" note an# no acceptor of a bill pa"able to or#er shall, in a
suit thereon b" a hol#er in #ue course, be permitte# to #en" the pa"ee?s capacit"
to en#orse the same !)ection 11$'
Question 1:
A che(ue pa"able to bearer is crosse# generall" an# mar&e# Gnot negotiableH' The che(ue is
lost or stolen an# comes into possession of + who ta&es it in goo# faith an# gi%es %alue for it'
+ #eposits the che(ue into his own ban& an# his ban&er presents it an# obtains pa"ment for
his customer from the ban& upon which it is #rawn' The true owner of the che(ue claims
refun# of the amount of the che(ue from +'
Answers
The che(ue in the gi%en case was crosse# generall" an# mar&e# >Not Negotiable?' Thereafter,
the che(ue was lost or stolen an# came into the possession of +, who ta&es it in goo# faith
an# gi%es %alue for it' )ection 1*8 of the Negotiable Instruments Act, 1881 pro%i#es that a
person ta&ing a che(ue crosse# generall" or speciall", bearing in either case the wor#s >not
negotiable?, shall not ha%e, an# shall not be capable of gi%ing a better title to the che(ue than
that which the person from whom he too& it ha#' In %iew of these pro%isions, +, e%en though
he was a hol#er in #ue course, #i# not ac(uire an" title to the che(ue as against its true
owner' The a##ition of the wor#s >not negotiable? entirel" ta&es awa" the main feature of
negotiabilit", which is, that a hol#er with a #efecti%e title can gi%e a goo# title to a subse(uent
hol#er in #ue course' + #i# not obtain an" better title than his imme#iate transferor, who ha#
either stolen or foun# the che(ue an# was not the true owner of the che(ue' Therefore, as
regar#s the true owner, + was in no better position than the transferor' + is also liable to repa"
the amount of the che(ue to the true owner' 1e can, howe%er, procee# against the person
from whom he too& the che(ue'
In the gi%en case, both the collecting ban&er an# the pa"ing ban&ers woul# be exonerate#'
)ince the collecting ban&er, in goo# faith an# without negligence, ha# recei%e# pa"ment for +,
who was its customer of the che(ue which was crosse# generall", the ban&er woul# not be
liable, in case the title pro%e# to be #efecti%e, to the true owner b" reason onl" of ha%ing
recei%e# the pa"ment of the che(ue for his customer !)ection 1*1$' )ince the pa"ing ban&er
on whom the crosse# che(ue was #rawn, ha# pai# the same in #ue course, the ban&er woul#
also not be liable to the true owner' !)ection 18$'
Question 17
Deferring to the pro%isions of the Negotiable Instruments Act, 1881, examine the %ali#it" of the
following3
!i$ A +ill of Exchange originall" #rawn b" M for a sum of 6 18,888, but accepte# b" D onl"
for 6 ,,888'
!ii$ A che(ue mar&e# >Not Negotiable? is not transferable'
Answer
!i$ As per the pro%isions of the Negotiable Instruments Act 1881, acceptance ma" be either
general or (ualifie#' It is (ualifie# when the #rawee #oes not accept the bill accor#ing to
the apparent tenor of the bill but attaches some con#ition or (ualification which ha%e the
effect of either re#ucing his !acceptor?s$ liabilit" or acceptance of this liabilit" is subIect to
certain con#ition' The hol#er of the bill is entitle# to re(uire an absolute an#
uncon#itional acceptance, otherwise he will treat it as #ishonoure# howe%er, he ma"
agree to (ualifie# acceptance but he #oes so at his own peril, since he #ischarges all
parties prior to himself, unless he has obtaine# their consent'
Thus in this gi%en case in accor#ance with the Explanation to )ection 8< of the Act, when
the #rawee un#erta&es the pa"ment of part onl" of the sum or#ere# to be pai#, it is a
(ualifie# acceptance an# the #rawer ma" treat it as #ishonoure# unless agree# b" him' If
the 2rawer !M$ agrees to acceptance, the #rawee !D$ is responsible for a sum of 6 ,888
onl"'
!ii$ It is wrong statement' A che(ue mar&e# Gnot negotiableH is a transferable instrument' The
inclusion of the wor#s >not negotiable? howe%er ma&es a significant #ifference in the
transferabilit" of the che(ues' The hol#er of such a che(ue cannot ac(uire title better
than that of the transferor'
Question 1<
;hat are the essential elements of a O-romissor" noteO un#er the Negotiable Instruments Act,
1881? ;hether the following notes ma" be consi#ere# as %ali# -romissor" notes3
!i$
!ii$
!iii$
OI promise to pa" 6 7,888 or ,,888 to Mr' Dam'O
I promise to pa" to Mohan 6 788, if he secures <8P mar&s in the examination'
I promise to pa" 6 *,888 to Da%i after 17 #a"s of the #eath of A'
'1*
Answer
A promissor" note is an instrument !not being a ban& note or currenc" note$ in writing
containing an uncon#itional un#erta&ing, signe# b" the ma&er to pa" a certain sum of mone"
onl" to or the hol#er of, a certain person or to the bearer of the instrument, !)ection : of the
Negotiable Instruments Act, 1881$'
In %iew of the abo%e pro%ision of the sai# Act, following are the essential elements of a
promissor" note=
1'
'
*'
:'
7'
!i$
It must be in writing'
The promise to pa" must be uncon#itional'
The amount promise# must be a certain an# a #efinite sum of mone"'
The instrument must be signe# b" the ma&er'
The person to whom the promise is ma#e must be a #efinite person'
In case !i$, it is not a %ali# promissor" note because the amount is not certain'
Thus3
!ii$ In case !ii$, it is not a %ali# promissor" note because it is con#itional'
!iii$ In case !iii$, it is a %ali# promissor" note because #eath of A is a certaint" e%en if time of
#eath is not certain'
Question 1,
2iscuss with reasons, whether the following persons can be calle# as a >hol#er? un#er the
Negotiable Instruments Act, 18813
!i$ 4 who obtains a che(ue #rawn b" 5 b" wa" of gift'
!ii$ A, the pa"ee of the che(ue, who is prohibite# b" a court or#er from recei%ing the amount
of the che(ue'
!iii$ M, who fin#s a che(ue pa"able to bearer, on the roa# an# retains it'
!i%$ +, the agent of ., is entruste# with an instrument without en#orsement b" ., who is the
pa"ee'
!%$ +, who steals a blan& che(ue of A an# forges A?s signature'
Answer
-erson to be calle# as a hol#er3 As per section 8 of the Negotiable Instruments Act, 1881
>hol#er? of a Negotiable Instrument means an" person entitle# in his own name to the
possession of it an# to recei%e or reco%er the amount #ue thereon from the parties thereto'
Qn appl"ing the abo%e pro%ision in the gi%en cases=
!i$
'1:
5es, 4 can be terme# as a hol#er because he has a right to possession an# to recei%e
the amount #ue in his own name'
!ii$ No, he is not a >hol#er? because to be calle# as a >hol#er? he must be entitle# not onl" to
the possession of the instrument but also to recei%e the amount mentione# therein'
!iii$ No, M is not a hol#er of the Instrument though he is in possession of the che(ue, so is
not entitle# to the possession of it in his own name'
!i%$ No, + is not a hol#er' ;hile the agent ma" recei%e pa"ment of the amount mentione# in
the che(ue, "et he cannot be calle# the hol#er thereof because he has no right to sue on
the instrument in his own name'
!%$ No, + is not a hol#er because he is in wrongful possession of the instrument'
Question 18
/i%e the answer of the following3
!a$ A #raws a che(ue in fa%our of M ,a minor' M en#orses the same in fa%our of 4' The
che(ue is #ishonoure# b" the ban& on groun#s of ina#e(uate fun#s' 2iscuss the rights of
4'
!b$ A promissor" note was ma#e without mentioning an" time for pa"ment' The hol#er a##e#
the wor#s Gon #eman#H on the face of the instrument '2oes this amount to material
alteration?
!c$ A #raws a che(ue for 6 188 an# han#s it o%er to + b" wa" of gift' Is + a hol#er in #ue
course? Explain the nature of his title, interest an# right to recei%e the procee#s of the
che(ue'
!#$ A che(ue is #rawn pa"able to G+ or or#erH' It is stolen an# the thief forges +?s
en#orsement an# en#orses it to .' The ban&er pa"s the che(ue in #ue course' .an +
reco%er the mone" from the ban&er'
Answer
!a$ As per )ection <, a minor ma" #raw, en#orse, #eli%er an# negotiate the instrument so
as to bin# all parties except himself' Therefore, M is not liable' 4 can, thus, procee#
against A'
!b$ As per the pro%ision of the Negotiable Instruments Act,1881 this is not a material
alteration as a promissor" note where no #ate of pa"ment is specifie# will be treate# as
pa"able on #eman#' 1ence a##ing the wor#s Gon #eman#H #oes not alter the business
effect of the instrument'
!c$ + is a hol#er but not a hol#er in #ue course as he #oes not get the che(ue for %alue an#
consi#eration' 1is title is goo# an# bonafi#e' As a hol#er he is entitle# to recei%e 6 188
from the ban& on whom the che(ue is #rawn'
'17 +usiness @aws, Ethics an# .ommunication
!#$ Accor#ing to )ection 87,the #rawee ban&er is #ischarge# when he pa"s a che(ue
pa"able to or#er when it is purporte# to be en#orse# b" or on behalf of the pa"ee' E%en
though the en#orsement of Mr'+ is forge#, the ban&er is protecte# an# he is #ischarge#'
The true owner, +, cannot reco%er the mone" from the #rawee ban&'
Question 1B
M #rew a che(ue amounting to 6 la&h pa"able to N an# subse(uentl" #eli%ere# to him' After
receipt of che(ue N en#orse# the same to . but &ept it in his safe loc&er' After sometime, N
#ie#, an# - foun# the che(ue in NJs safe loc&er' 2oes this amount to In#orsement un#er the
Negotiable Instruments Act, 1881?
Answer
No, - #oes not become the hol#er of the che(ue as the negotiation was not complete# b"
#eli%er" of the che(ue to him' !)ection :8, the Negotiable Instruments Act, 1881$
Question 8
M owes mone" to N' Therefore, he ma&es a promissor" note for the amount in fa%our of N, for
safet" of transmission he cuts the note in half an# posts one half to N' 1e then changes his
min# an# calls upon N to return the half of the note which he ha# sent' N re(uires M to sen#
the other half of the promissor" note' 2eci#e how a rights of the parties are to be a#Iuste#'
Answer
The (uestion arising in this problem is whether the ma&ing of promissor" note is complete
when one half of the note was #eli%ere# to N' Rn#er )ection :< of the N'I' Act, 1881, the
ma&ing of a -SN is complete# b" #eli%er", actual or constructi%e' 2eli%er" refers to the whole
of the instrument an# not merel" a part of it' 2eli%er" of half instrument cannot be treate# as
constructi%e #eli%er" of the whole' )o the claim of N to ha%e the other half of the -SN sent to
him is not maintainable' M is Iustifie# in #eman#ing the return of the first half sent b" him' 1e
can change his min# an# refuse to sen# the other half of the -SN'
Question 1
- #raws a bill on Q for 6 18,888' Q accepts the bill' Qn maturit" the bill was #ishonore# b"
non=pa"ment' - files a suit against Q for pa"ment of 6 18,888' Q pro%e# that the bill was
accepte# for %alue of 6 ,,888 an# as an accommo#ation to the plaintiff for the balance amount
i'e' 6 *,888' Deferring to the pro%isions of the Negotiable Instruments Act, 1881 #eci#e
whether - woul# succee# in reco%ering the whole amount of the bill?
Answer
As per )ection :: of the Negotiable Instruments Act, 1881, when the consi#eration for which a
person signe# a promissor" note, bill of exchange or che(ue consiste# of mone", an# was
The Negotiable Instruments Act, 1881 '1<
originall" absent in part or has subse(uentl" faile# in part, the sum which a hol#er stan#ing in
imme#iate relation with such signer is entitle# to recei%e from him is proportionall" re#uce#'
AExplanation= The #rawer of a bill of exchange stan#s in imme#iate relation with the acceptor'
The ma&er of a promissor" note, bill of exchange or che(ue stan#s in imme#iate relation with
the pa"ee, an# the en#orser with his en#orsee' Qther signers ma" b" agreement stan# in
imme#iate relation with a hol#erE'
Qn the basis of abo%e pro%ision, - woul# succee# to reco%er 6 ,,888 onl" from Q an# not the
whole amount of the bill because it was accepte# for %alue as to 6 ,,888 onl" an# an
accommo#ation to - for 6 *,888'
Question
A +ill is #rawn pa"able at No' A=1, .A apartments, Ma"ur Lihar, New 2elhi, but #oes not
contain #rawee?s name' Mr' Lina" who resi#es at the abo%e a##ress accepts the bill' Is it a
%ali# +ill?
Answer
5es, it is a %ali# +ill an# Mr' Lina" is liable thereon' The #rawee ma" be name# or otherwise
in#icate# in the +ill with reasonable certaint"' In the present case, the #escription of the place
of resi#ence in#icates the name of the #rawee an# Mr' Lina", b" his acceptance,
ac&nowle#ges that he is the person to whom the bill is #irecte# !/ra" %s' Milner 181B$'
Question *
-ic& out the correct answer from the following an# gi%e reason'
-, obtains a che(ue #rawn b" M b" wa" of gift' 1ere - is a 3
1'
'
*'
:'
hol#er in #ue course
hol#er for %alue
hol#er
None of the abo%e
Answer
1ol#er 3 5es, - can be terme# as a hol#er because he has a right to possession an# to
recei%e the amount #ue in his own name'
Question :
0 accepte# a bill of exchange an# ga%e it to T for the purpose of getting it #iscounte# an#
han#ing o%er the procee#s to 0' T ha%ing faile# to #iscount it returne# the bill to 0' 0 tore the
bill in two pieces with the intention of cancelling it an# threw the pieces in the street' T pic&e#
up the pieces an# paste# the two pieces together, in such manner that the bill seeme# to ha%e
been fol#e# for safe custo#", rather than cancelle#' T put it into circulation an# it ultimatel"
'1, +usiness @aws, Ethics an# .ommunication
reache# @, who too& it in goo# faith an# for %alue' Is 0 liable to pa" the bill un#er the
pro%isions of the Negotiable Instruments Act, 1881 ?
Answer
The problem is base# upon the pri%ileges of a >hol#er in #ue course?, )ection 18 of the
Negotiable Instruments Act, 1881 pro%i#es that No'''''' #rawer of a bill shall in a suit thereon
b" a hol#er in #ue course be permitte# to #en" the %ali#it" of the instrument as originall"
#rawn' '''''' A hol#er in #ue course gets a goo# title of the bill'
Therefore in the gi%en problem 0 is liable to pa" for the bill' @ is a hol#er in #ue course, who
got the bill in goo# faith an# for %alue' !Ingham % -rimrose$
.lassification of instruments
Question 7
2istinguish between >+earer instrument? an# >Qr#er instrument? un#er the Negotiable
Instruments Act, 1881'
Answer
+earer an# Qr#er instruments3 An instrument ma" be ma#e pa"able3 !1$ to bearerC or !$ to
a specifie# person or to his or#er'
An instrument is sai# to be pa"able to bearer when it is expresse# to be so pa"able to its
bearer or when the onl" or last en#orsement on it is an en#orsement in blan&'! Explanation
to section1*$
An instrument is pa"able to or#er, !1$ when it is pa"able to the or#er of a specifie# person
or !$ when it is pa"able to a specifie# person or his or#er or, !*$ when it is pa"able to a speci=
fie# person without the a##ition of the wor#s Gor his or#erH an# #oes not contain wor#s
prohibiting transfer or in#icating an intention that it shoul# not be transferable' ;hen an
instrument, either originall" or b" en#orsement, is ma#e pa"able to the or#er of a specifie#
person an# not to him or his or#er, it is pa"able to him or his or#er, at his option'
;hen an instrument is not pa"able to bearer!i'e', in case of or#er instrument$, the pa"ee must
be in#icate# with reasonable certaint"'
)ight an# time bills etc !)ections 1 to 7$
Question <
)tate briefl" the rules lai# #own un#er the Negotiable Instruments Act for #etermining the #ate
of maturit" of a bill of exchange' Ascertain the #ate of maturit" of a bill pa"able hun#re# #a"s
after sight an# which is presente# for sight on :th Ma", 888'
Answer
.alculation of maturit" of a +ill of Exchange3 The maturit" of a bill, not pa"able on
#eman#, at sight, or on presentment, is at maturit" on the thir# #a" after the #a" on which it is
expresse# to be pa"able !)ection , para of Negotiable Instruments Act, 1881$' Three #a"s
are allowe# as #a"s of grace' No #a"s of grace are allowe# in the case of bill pa"able on
#eman#, at sight, or presentment'
;hen a bill is ma#e pa"able at state# number of months after #ate, the perio# state#
terminates on the #a" of the month which correspon#s with the #a" on which the instrument is
#ate#' ;hen it is ma#e pa"able after a state# number of months after sight the perio#
terminates on the #a" of the month which correspon#s with the #a" on which it is presente#
for acceptance or sight or note# for non=acceptance or proteste# for non=acceptance' ;hen it
is pa"able a state# number of months after a certain e%ent, the perio# terminates on the #a"
of the month which correspon#s with the #a" on which the e%ent happens !)ection *$'
;hen a bill is ma#e pa"able a state# number of months after sight an# has been accepte# for
honour, the perio# terminates with the #a" of the month which correspon#s with the #a" on
which it was so accepte#'
If the month in which the perio# woul# terminate has no correspon#ing #a", the perio#
terminates on the last #a" of such month !)ection *$'
In calculating the #ate a bill ma#e pa"able a certain number of #a"s after #ate or after sight or
after a certain e%ent is at maturit", the #a" of the #ate, or the #a" of presentment for
acceptance or sight or the #a" of protest for non=accor#ance, or the #a" on which the e%ent
happens shall be exclu#e# !)ection :$'
Three #a"s of grace are allowe# to these instruments after the #a" on which the" are
expresse# to be pa"able !)ection $'
;hen the last #a" of grace falls on a #a" which is public holi#a", the instrument is #ue an#
pa"able on the next prece#ing business #a" !)ection 7$'
Answer to -roblem3 In this case the #a" of presentment for sight is to be exclu#e# i'e' :th
Ma", 888' The perio# of 188 #a"s en#s on 1th August, 888 !Ma" , #a"s U 0une *8 #a"s U
0ul" *1 #a"s U August 1 #a"s$' Three #a"s of grace are to be a##e#' It falls #ue on 17th
August, 888 which happens to be a public holi#a"' As such it will fall #ue on 1:th August,
888 i'e' the next prece#ing business #a"'
Question ,
In what wa" #oes the Negotiable Instruments Act, 1881 regulate the #etermination of the >2ate
of maturit"? of a +ill of Exchange' Ascertain the >2ate of maturit"? of a bill pa"able 18 #a"s
after the #ate' The +ill of exchange was #rawn on 1st 0une, 887'
Answer
.alculation of maturit" of a +ill of Exchange3 The maturit" of a bill, not pa"able on
#eman#, at sight or on presentment, is at maturit" on the thir# #a" after the #a" on which it is
expresse# to be pa"able !)ection , para of Negotiable Instruments Act, 1881$' Three #a"s
are allowe# as #a"s of grace' No #a"s of grace are allowe# in the case of a bill pa"able on
#eman#, at sight, or presentment'
'1B +usiness @aws, Ethics an# .ommunication
;hen a bill is ma#e pa"able as state# number of months after #ate, the perio# state#
terminates on the #a" of the month, which correspon#s with the #a" on which the instrument is
#ate#' ;hen it is ma#e pa"able after a state# number of months after sight the perio#
terminates on the #a" of the month which correspon#s with the #a" on which it is presente#
for acceptance or sight or note# for non=acceptance on proteste# for Non=acceptance when it
is pa"able a state# number of months after a certain e%ent, the perio# terminates on the #a"
of the month which correspon#s with the #a" on which the e%ent happens' !)ection *$'
;hen a bill is ma#e pa"able a state# number of months after sight an# has been accepte# for
honour, the perio# terminates on the #a" of the month which correspon#s with the #a" on
which it was so accepte#'
If the month in which the perio# woul# terminate has no correspon#ing #a", the perio#
terminates on the last #a" of such month !)ection *$'
In calculating the #ate a bill ma#e pa"able a certain number of #a"s after #ate or after sight or
after a certain e%ent is at maturit", the #a" of the #ate, or the #a" of protest for non=
acceptance, or the #a" on which the e%ent happens, shall be exclu#e# !)ection :$'
Three #a"s of grace are allowe# to these instruments after the #a" on which the" are
expresse# to be pa"able' !)ection $'
;hen the last #a" of grace falls on a #a", which is public holi#a", the instrument is #ue an#
pa"able on the next prece#ing business #a" !)ection 7$'
Answer to -roblem3 In this case the #a" of presentment for sight is to be exclu#e# i'e' 1st
0une, 887' The perio# of 18 #a"s en#s on Bth )eptember, 887 !0une B #a"s U 0ul" *1
#a"s U August *1 2a"s U )eptember B #a"s V 18 #a"s$' Three #a"s of grace are to be
a##e#' It falls #ue on n# Qctober, 887, which happens to be a public holi#a"' As such it will
fall #ue on 1st Qctober, 887 i'e', the next prece#ing +usiness 2a"'
Question 8
+harat execute# a promissor" note in fa%our of +hushan for 6 7 crores' The sai# amount was
pa"able three #a"s after sight' +hushan, on maturit", presente# the promissor" note on 1 st
0anuar", 888 to +harat' +harat ma#e the pa"ments on : th 0anuar", 888' +hushan wants to
reco%er interest for one #a" from +harat' A#%ise +harat, in the light of pro%isions of the
Negotiable Instruments Act, 1881, whether he is liable to pa" the interest for one #a"?
Answer
.laim of Interest3 )ection : of the Negotiable Instruments Act, 1881 states that where a bill
or note is pa"able after #ate or after sight or after happening of a specifie# e%ent, the time of
pa"ment is #etermine# b" exclu#ing the #a" from which the time begins to run'
Therefore, in the gi%en case, +harat will succee# in obIecting to +hushan?s claim' +harat pai#
rightl" Gthree #a"s after sightH' )ince the bill was presente# on 1st 0anuar", +harat was
re(uire# to pa" onl" on the :th an# not on *r# 0anuar", as conten#e# b" +harat'
Negotiation, negotiabilit", assignabilit"
Question B
;hat #o "ou mean b" an en#orsement' +riefl" explain the t"pes of an en#orsement'
Answer
'8
The en#orsement consists of the signature of the hol#er ma#e on the bac& of the negotiable
instrument with the obIect of transferring the instrument' If there is no space on the
instrument, the en#orsement ma" be ma#e on a slip of paper attache# to it' This attachment
is &nown as GAllongeH'
Accor#ing to )ection 17 of the Negotiable Instruments Act, 1881 G when the ma&er or hol#er
of a negotiable instrument signs the same, otherwise than as such ma&er, for the purpose of
negotiation, on the bac& or face therefore or on slip of paper annexe# thereto, or so signs for
the same purpose a stampe# paper inten#e# to be complete# as negotiable instrument, he is
sai# to en#orse the same, an# is calle# the en#orser'H
T"pes of In#orsements'
1'
'
*'
:'
7'
<'
,'
8'
En#orsement in +lan&
En#orsement in Mull
Destricti%e En#orsement
En#orsement sans recourse
.on#itional En#orsement
Macultati%e En#orsement
-artial En#orsement
)ans frais En#orsement
Question *8
4 b" in#ucing 5 obtains a +ill of Exchange from him frau#ulentl" in his !4$ fa%our' @ater, he
enters into a commercial #eal an# en#orses the bill to F towar#s consi#eration to him !F$ for
the #eal' F ta&es the bill as a 1ol#er=in=#ue=course' F subse(uentl" en#orses the bill to 4 for
%alue, as consi#eration to 4 for some other #eal' Qn maturit" the bill is #ishonoure#' 4 sues 5
for the reco%er" of the mone"'
;ith reference to the pro%isions of the Negotiable Instruments Act, #eci#e whether 4 will
succee# in the case ?
Answer
The problem state# in the (uestion is base# on the pro%isions of the Negotiable Instruments
Act, 1881 as containe# in )ection 7*' The section pro%i#es3 >Qnce a negotiable instrument
passes through the han#s of a hol#er in #ue course, it gets cleanse# of its #efects pro%i#e#
the hol#er was himself not a part" to the frau# or illegalit" which affecte# the instrument in
some stage of its Iourne"' Thus an" #efect in the title of the transferor will not affect the rights
of the hol#er in #ue course e%en if he ha# &nowle#ge of the prior #efect pro%i#e# he is himself
not a part" to the frau#' !)ection 7*$'
Thus appl"ing the abo%e pro%isions it is (uite clear that 4 who originall" in#uce# 5 in obtaining
the bill of exchange in (uestion frau#ulentl", cannot succee# in the case' The reason is
ob%ious as 4 himself was a part" to the frau#'
Question *1
;hat is a >)ans Decours? en#orsement? A bill of exchange is #rawn pa"able to 4 or or#er' 4
en#orses it to 5, 5 to F, F to A,A to + an# + to 4' )tate with reasons whether 4 can reco%er
the amount of the bill from 5, F, A an# +, if he has originall" en#orse# the bill to 5 b" a##ing
the wor#s >)ans Decours''
Answer
Meaning of )ans Decours En#orsement3 It is a t"pe of en#orsement on a Negotiable
Instrument b" which the en#orser absol%es himself or #eclines to accept an" liabilit" on the
instrument of an" subse(uent part"' The en#orser signs the en#orsement putting his=signature
along with the wor#s, G)AN) DE.QRD)H'
In the problem 4, the en#orser becomes the hol#er after it is negotiate# to se%eral parties'
Normall", in such a case, none of the interme#iate parties is liable to 4' This is to pre%ent
>circuitr" of action?' +ut in this case 4?s original en#orsement is >sans recours? an# therefore,
he is not liable to 5, F, A an# +' +ut if the bill is negotiate# bac& to 4, all of them are liable to
him an# he can reco%er the amount from all or an" of them !)ection 7 para $'
Question *
+ obtains A?s acceptance to a bill of exchange b" frau#' + en#orses it to . who is a hol#er in
#ue course' . en#orses the bill to 2 who &nows of the frau#' Deferring to the pro%isions of the
Negotiable Instruments Act, 188, #eci#e whether 2 can reco%er the mone" from A in the
gi%en case'
Answer
)ection 7* of the Negotiable Instruments Act, 1881 pro%i#es that a hol#er of negotiable
instrument who #eri%es title from a hol#er in #ue course has the right thereon of that hol#er in
#ue course' )uch hol#er of the bill who is not himself a part" to an" frau# or illegalit" affecting
it, has all the rights of that hol#er in #ue course as regar#s to the acceptor an# all parties to
the bill prior to that hol#er' In this case, it is clear that though 2 was aware of the frau#, he
was himself not a part" to it' 1e obtaine# the instrument from . who was a hol#er in #ue
course' )o 2 gets a goo# title an# can reco%er from A'
2ifferent pro%isions relating to Negotiation
Question **
'
4, a maIor, an# M, a minor, execute# a promissor" note in fa%our of -' Examine with reference
to the pro%isions of the Negotiable Instruments Act, the %ali#it" of the promissor" note an#
whether it is bin#ing on 4 an# M'
Answer
Minor being a part" to negotiable instrument3 E%er" person competent to contract has
capacit" to incur liabilit" b" ma&ing, #rawing, accepting, en#orsing, #eli%ering an# negotiating
a promissor" note, bill of exchange or che(ue !)ection <, para 1, Negotiable Instruments Act,
1881$'
As a minor?s agreement is %oi#, he cannot bin# himself b" becoming a part" to a negotiable
instrument' +ut he ma" #raw, en#orse, #eli%er an# negotiate such instruments so as to bin# all
parties except himself !)ection <, para $'
In %iew of the pro%isions of )ection < explaine# abo%e, the promissor" note execute# b" 4
an# M is %ali# e%en though a minor is a part" to it' M, being a minor is not liableC but his
immunit" from liabilit" #oes not absol%e the other Ioint promisor, namel" 4 from liabilit"
A)ulochana %' -an#i"an +an& @t#', AID !1B,7$ Ma#' ,8E'
Question *:
A #raws a bill on +' + accepts the bill without an" consi#eration' The bill is transferre# to .
without consi#eration' . transferre# it to 2 for %alue' 2eci#e='
!i$ ;hether 2 can sue the prior parties of the bill, an#
!ii$ ;hether the prior parties other than 2 ha%e an" right of action inter se?
/i%e "our answer in reference to the -ro%isions of Negotiable Instruments Act, 1881'
Answer
-roblem on Negotiable Instrument ma#e without consi#eration3 )ection :* of the
Negotiable Instruments Act, 1881 pro%i#es that a negotiable instrument ma#e, #rawn,
accepte#, in#orse# or transferre# without consi#eration, or for a consi#eration which fails,
creates no obligation of pa"ment between the parties to the transaction' +ut if an" such part"
has transferre# the instrument with or without en#orsement to a hol#er for consi#eration, such
hol#er, an# e%er" subse(uent hol#er #eri%ing title from him, ma" reco%er the amount #ue on
such instrument from the transferor for consi#eration or an" prior part" thereto'
!i$ In the problem, as as&e# in the (uestion, A has #rawn a bill on + an# + accepte# the bill
without consi#eration an# transferre# it to . without consi#eration' @ater on in the next
transfer b" . to 2 is for %alue' Accor#ing to pro%isions of the aforesai# section :*, the bill
ultimatel" has been transferre# to 2 with consi#eration' Therefore, 2 can sue an" of the
parties i'e' A, + or ., as 2 arri%e# a goo# title on it being ta&en with consi#eration'
'* +usiness @aws, Ethics an# .ommunication
!ii$ As regar#s to the secon# part of the problem, the prior parties before 2 i'e', A, +, an# .
ha%e no right of action inter se because first part of )ection :* has clearl" la"s #own that
a negotiable instrument, ma#e, #rawn, accepte#, in#orse# or transferre# without
consi#eration, or for a consi#eration which fails, creates no obligation of pa"ment
between the parties to the transaction prior to the parties who recei%e it on consi#eration'
Question *7
+riefl" explain the circumstances of #ishonour of a Negotiable Instrument' ;hat are the
conse(uences of a >che(ue being #ishonoure# for insufficienc" of fun#s? in the account?
Answer
2ishonour b" non=acceptance !)ection B1, the Negotiable Instruments Act, 1881$3 A bill
ma" be #ishonoure# either b" non=acceptance or b" non=pa"ment' A #ishonour b" non=
acceptance ma" ta&e place in an" one of the following circumstances3
!i$ when the #rawee either #oes not accept the bill within fort"=eight hours of presentment or
refuse to accept itC
!ii$ when one of se%eral #rawees, not being partners, ma&es #efault in acceptanceC
!iii$ when the #rawee gi%es a (ualifie# acceptanceC
!i%$ when presentment for acceptance is excuse# an# the bill remains unaccepte#C an#
!%$ when the #rawee is incompetent to contract'
An instrument is #ishonoure# b" non=pa"ment when the part" primaril" liable e'g', the
acceptor of a bill, the ma&er of a note or the #rawee of a che(ue, ma&e #efault in pa"ment'
An instrument is also #ishonoure# for non=pa"ment when presentment for pa"ment excuse#
an# the instrument, when o%er#ue, remains unpai#, un#er section ,< of the Act'
2ishonour of che(ue for insufficienc", etc' of fun#s in the account3 ;here an" che(ue
#rawn b" a person on an account maintaine# b" him with a ban&er for pa"ment is #ishonoure#
#ue to insufficienc" of fun#s, he shall be punishe# with imprisonment for a term which ma"
exten# to one "ear or with fine which ma" exten# to twice the amount of the che(ue or with
both A)ection 1*8 of the Negotiable Instruments Act, 1881E'
-ro%i#e# that nothing in this section shall appl" unless3
!i$ such che(ue shoul# ha%e been presente# to the ban& within a perio# of * months of the
#ate of #rawn or within the perio# of its %ali#it", whiche%er is earlier'
!ii$ The pa"ee or hol#er in #ue course of such che(ue ha# ma#e a #eman# in writing for the
pa"ment of the sai# amount of mone" from the #rawer within 17 #a"s of the receipt of
information b" him from the ban& regar#ing the return of the che(ue unpai#C an#
!iii$ The #rawer of the che(ue ha# faile# to pa" the mone" to the pa"ee or hol#er in #ue
course of the che(ue within 17 #a"s for the written #eman# for pa"ment'
Question *<
':
A promoter who has borrowe# a loan on behalf of compan", who is neither a #irector nor a
person=in=charge, sent a che(ue from the companies account to #ischarge its legal liabilit"'
)ubse(uentl" the che(ue was #ishonoure# an# the compliant was lo#ge# against him' 2oes
he is liable for an offence un#er section 1*8?
Answer
Accor#ing to )ection 1*8 of the Negotiable Instruments Act, 1881 where an" che(ue #rawn b"
a person on an account maintaine# b" him with a ban&er for pa"ment of an" amount of mone"
to another person fromSout of that account for #ischarging an" #ebt or liabilit", an# if it is
#ishonoure# b" ban&er on sufficient groun#s, such person shall be #eeme# to ha%e committe#
an offence an# shall be liable' 1owe%er, in this case, the promoter is neither a #irector nor a
person=in=charge of the compan" an# is not connecte# with the #a"=to=#a" affairs of the
compan" an# ha# neither opene# nor is operating the ban& account of the compan"' Murther,
the che(ue, which was #ishonoure#, was also not #rawn on an account maintaine# b" him but
was #rawn on an account maintaine# b" the compan"' Therefore, he has not committe# an
offence un#er section 1*8'
Question *,
0, a sharehol#er of a .ompan" purchase# for his personal use certain goo#s from a Mall
!2epartmental )tore$ on cre#it' 1e sent a che(ue #rawn on the .ompan"?s account to the Mall
!2epartmental )tore$ towar#s the full pa"ment of the bills' The che(ue was #ishonoure# b"
the .ompan"?s +an&' 0, the sharehol#er of the compan" was neither a 2irector nor a person
in=charge of the compan"' Examining the pro%isions of the Negotiable Instruments Act, 1881
state whether 0 has committe# an offence un#er )ection 1*8 of the Act an# #eci#e whether he
!0$ can be hel# liable for the pa"ment, for the goo#s purchase# from the Mall !2epartmental
)tore$'
Answer
The facts of the problem are i#entical with the facts of a case &nown as 1'N'2' Mulla MeroKe
Ls' .'5' )oma"a 0ulu, 0!88:$ 77 ).@ !A-$ wherein the An#hra -ra#esh 1igh .ourt hel# that
although the petitioner has a legal liabilit" to refun# the amount to the appellant, petitioner is
not the #rawer of the che(ue, which was #ishonoure# an# the che(ue was also not #rawn on
an account maintaine# b" him but was #rawn on an account maintaine# b" the compan"'
1ence, it was hel# that the petitioner 0 coul# not be sai# to ha%e committe# the offence un#er
)ection 1*8 of the Negotiable Instruments Act, 1881' Therefore 4 also is not liable for the
che(ue but legall" liable for the pa"ments for the goo#s'
Question *8
4 #raws a che(ue in fa%our of 5' After ha%ing issue# the che(ue he informs 5 not to present
the che(ue for pa"ment' 1e also informs the ban& to stop pa"ment' 2eci#e, un#er pro%isions
of the Negotiable Instruments Act, 1881, whether the sai# acts of 4 constitute an offence
against him ?
Answer
Qffence un#er the Negotiable Instruments Act, 18813 This problem is base# on the case of
Mo#i .ements @t#' Ls' Tuchil Tumar Nan#i, 1BB8' In this case the )upreme .ourt hel# that
once a che(ue is issue# b" the #rawer, a presumption un#er )ection 1*B of the Negotiable
Instruments Act, 1881 follows an# merel" because the #rawer issues a notice thereafter to the
#rawee or to the ban& for stoppage of pa"ment, it will not preclu#e an action un#er )ection
1*8' The obIect of )ections 1*8 to 1: of the Act is to promote the efficac" of the ban&ing
operations an# to ensure cre#ibilit" in transacting business through che(ues' )ection 1*8 is a
penal pro%ision in the sense that once a che(ue is #rawn on an account maintaine# b" the
#rawer with his ban&er for pa"ment of an" amount of mone" to another person from out of that
account for the #ischarge in whole or in part of an" #ebt or other liabilit", is informe# b" the
ban& unpai# either because of insufficienc" of amount to honour the che(ues or the amount
excee#ing the arrangement ma#e with the ban&, such a person shall be #eeme# to ha%e
committe# an offence'
Question *B
)tate, in brief, the groun#s on the basis of which a ban&er can #ishonor a che(ue un#er the
pro%isions of the Negotiable Instruments Act, 1881'
Answer
2ishonour of .he(ue W /roun#s3 A ban&er will be Iustifie# or boun# to #ishonor a che(ue
in the following cases, %iKC
X If a che(ue is un#ate#, if it is stale, that is if it has not been presente# within reasonable
perio#, which ma" %ar" three months to a "ear after its issue #epen#ent on the
circumstances of the case
If the instrument is inchoate or not free from reasonable #oubt
If the che(ue is post=#ate# an# presente# for pa"ment before its ostensible #ate
If the customer?s fun#s in the ban&er?s han#s are not >properl" applicable? to the pa"ment
of che(ue #rawn b" the former' Thus, shoul# the fun#s in the ban&er?s han#s be subIect
to a lien or shoul# the ban&er be entitle# to a set=off in respect of them, the fun#s cannot
be sai# to be Gproperl" applicableH to the pa"ment of the customer?s che(ue, an# the
ban&er woul# be Iustifie# in refusing pa"ment'
X
X
X
X
'<
If the customer has cre#it with one branch of a ban& an# he #raws a che(ue upon
another branch of the same ban& in which either he has account or his account is
o%er#rawn'
If the ban&ers recei%e notice of customer?s insol%enc" or lunac"
If the customer counterman#s the pa"ment of che(ue for the ban&er?s #ut" an# authorit"
to pa" on a che(ue ceases
If a garnishee or other legal or#er from the .ourt attaching or otherwise #ealing with the
mone" in the han# of the ban&er, is ser%e# on the ban&er
If the authorit" of the ban&er to honor a che(ue of his customer is un#ermine# b" the
notice of the latter?s #eath' 1owe%er, an" pa"ment ma#e prior to the receipt of the notice
of #eath is %ali#'
If notice in respect of closure of the account is ser%e# b" either part" on the other'
If it contains material alterations, irregular signature or irregular en#orsement'
X
X
X
X
X
X
Question :8
)tate whether the following statements are correct or incorrect3
The %ali#it" perio# of a che(ue is three months'
Answer
The %ali#it" perio# of a che(ue is three months' This statement is correct
Question :1
4 #raws a bill on 5 but signs it in the fictitious name of F' The bill is pa"able to the or#er of F'
The bill is #ul" accepte# b" 5' M obtains the bill from 4 thus becoming its hol#er in #ue
course' .an 5 a%oi# pa"ment of the bill? 2eci#e in the light of the pro%isions of the Negotiable
Instruments Act, 1881'
Answer
+ill #rawn in fictitious name3 The problem is base# on the pro%ision of )ection : of the
Negotiable Instruments Act, 1881' In case a bill of exchange is #rawn pa"able to the #rawer?s
or#er in a fictitious name an# is en#orse# b" the same han# as the #rawer?s signature, it is not
permissible for the acceptor to allege as against the hol#er in #ue course that such name is
fictitious' Accor#ingl", in the instant case, 5 cannot a%oi# pa"ment b" raising the plea that the
#rawer !F$ is fictitious' The onl" con#ition is that the signature of F as #rawer an# as en#orser
must be in the same han#writing'
', +usiness @aws, Ethics an# .ommunication
Question :
4, a legal successor of 5, the #ecease# person, signs a +ill of Exchange in his own name
a#mitte# a liabilit" of 6 78,888 i'e' the extent to which he inherits the assets from the
#ecease# pa"able to F after * months from 1st 0anuar", 88' Qn maturit", when F presents
the bill to 4, he !4$ refuses to pa" for the bill on the groun# that since the original liabilit" was
that of 5, the #ecease#, therefore he is not liable to pa" for the bill'
Deferring to the pro%isions of the Negotiable Instruments Act, 1881 #eci#e whether F can
succee# in reco%ering 6 78,888 from 4' ;oul# "our answer be still the same in case
4 #oes not state the limit in the bill an# the liabilit" is more than the assets he inherits from 5'
Answer
The problem is base# on the pro%isions of the Negotiable Instruments Act, 1881 as containe#
in )ection B' A legal representati%e of a #ecease# person who signs his own name on a
negotiable instrument, is personall" liable for the entire amount thereon, unless he expressl"
limits his liabilit" to the extent of the assets recei%e# b" him as such !)ection B$'
Appl"ing the abo%e pro%isions to the gi%en problem F is entitle# to reco%er 6 78,888S= from 4'
4 cannot refuse to pa" the amount since he has inherite# the assets of the #ecease#' 1e will
be liable to the extent of the full amount of the bill e%en if he inherits the propert" %alue# less
than the amount of the bill' Thus in the first case he will be liable to full amount of 6 78,888S='
In the secon# case since he has ma#e a limit in the instrument itself before signing on it, his
liabilit" will be onl" to the extent of 6 78,888S= an# not to the extent of the full amount as gi%en
on the instrument though he might ha%e inherite# the propert" of %alue greater amount than
that of the instrument'
Question :*
A che(ue was #ishonoure# at the first instance an# the pa"ee #i# not initiate action' The
che(ue was presente# for pa"ment for the secon# time an# again it was #ishonoure#' )tate in
this connection whether the pa"ee can subse(uentl" initiate prosecution for #ishonour of
che(ue'
Answer
)upreme .ourt in )a#anan#an +ha#ran %' Ma#ha%an )unil Tumar !1BB8$ : .@0 8 hel# that
on a careful anal"sis of section 1*8 of the Negotiable Instruments Act, 1881 it is seen that the
main part creates an offence when a che(ue is returne# b" the ban& unpai# for an" of the
reasons mentione# therein' The sai# pro%iso la"s #own three con#itions prece#ent to the
applicabilit" of the abo%e section an# the con#itions are3
!1$ the che(ue shoul# ha%e been presente# to the ban& within three months of its issue or
within the perio# of its %ali#it" whiche%er is earlierC
!$ the pa"ee shoul# ha%e ma#e a #eman# for pa"ment b" registere# notice after the
che(ue is returne# unpai#C an#
!*$ the #rawer shoul# ha%e faile# to pa" the amount within 17 #a"s of the receipt of notice' It
is onl" when all the abo%e three con#itions are satisfie# that a prosecution can be
launche# for the offence un#er section 1*8'
)o far as the first con#ition is concerne# clause !a$ of the pro%iso to section 1*8 #oes not put
an" embargo upon the pa"ee to successi%el" present a #ishonoure# che(ue #uring the perio#
of %ali#it"' It is not uncommon for a che(ue being presente# again an# again within its %ali#it"
perio# in the expectation that it woul# be encashe#' The (uestion whether #ishonour of the
che(ue on each occasion of its presentation gi%es rise to a fresh cause of action, the following
facts are re(uire# to be pro%e# to successfull" to prosecute the #rawer for an offence un#er
section 1*83=
!1$ that the che(ue was #rawn for pa"ment of an amount of mone" for #ischarge of a
#ebtSliabilit" an# the che(ue was #ishonoure#C
!$ that the che(ue was presente# within the prescribe# perio#C
!*$ that the pa"ee ma#e #eman# for pa"ment of the mone" b" gi%ing a notice in writing to
the #rawer within the stipulate# perio#C
!:$ that the #rawer faile# to ma&e the pa"ment within 17 #a"s of the receipt of the notice'
If one has to procee# on the basis of the generic meaning of the terms Gcause of actionH,
certainl" each of the abo%e facts woul# constitute a part of the cause of action, but it is
significant to note that clause !b$ of section 1: gi%es a restricti%e meaning in that it refers to
onl" one fact which will gi%e rise to the cause of action an# that is failure to ma&e the pa"ment
within 17 #a"s from the #ate of receipt of the notice'
+esi#es the language of section 1*8 an# section 1: which clearl" postulates onl" one cause
of action, there are other formi#able impe#iment which negates the concept of successi%e
causes of action' The combine# rea#ing of sections 1*8 an# 1: lea%e no room for #oubt that
cause of action within the meaning of section 1:!c$ arises an# can arise onl" once'
The final (uestion as how apparentl" conflicting pro%isions of the Act, one enabling the pa"ee
to repeate#l" present the che(ue an# the other gi%ing him onl" one opportunit" to file a
complaint for its #ishonour an# that too within one month from the #ate of cause of action
arises can be reconcile#, the .ourt hel# that the two pro%isions can be harmoniKe# with the
interpretation that on each presentation of the che(ue an# its #ishonour, a fresh right an# not
initiate such prosecution on the earlier cause of action'
ANote3 As per the D+I notification, the %ali#it" perio# of che(ues has been re#uce# from
< months to * months w'e'f' 1st April, 81E
Question ::
A a bro&er #raws a che(ue in fa%our of +, a minor' + in#orses the che(ue in fa%our of ., who
in turn in#orses it in fa%our of 2' )ubse(uentl", the ban& #ishonoure# the che(ue' )tate the
rights of . an# 2 an# whether +, can be ma#e liable?
'B
Answer
Accor#ing to )ection < of the Negotiable Instruments Act, 1881 a minor ma" #raw, en#orse,
#eli%er an# negotiate a negotiable instrument to bin# all parties except himself' Therefore, .
an# 2 cannot claim from +, who being a minor #oes not incur an" liabilit" on the che(ue' .
can claim pa"ment from A, the 2rawer, onl" an# 2 can claim against ., the en#orser an# A,
the #rawer'
Question :7
4 #raws a bill on 5 for 6 18,888 pa"able to his or#er' 5 accepts the bill but subse(uentl"
#ishonours it b" non=pa"ment' 4 sues 5 on the bill' 5 pro%es that it was accepte# for %alue as
of 6 8,888 an# as accommo#ation to 4 for 6 ,888' 1ow much can 4 reco%er from 5 ? 2eci#e
with reference to the pro%isions of the Negotiable Instruments Act, 1881'
Answer
Accor#ing to the pro%isions of )ection :: of the Negotiable Instruments Act,1881, when there
is a partial absence or failure of mone" consi#eration for which a person signe# a bill of
exchange, the same rules as applicable for total absence or failure of consi#eration will appl"'
Thus, the parties stan#ing in imme#iate relation to each other cannot reco%er more than the
actual consi#eration' Accor#ingl", 4 can reco%er onl" 6, 8888'
Question :<
;hat is the extent of liabilit" of the compan" an# the person!s$ in charge of the compan" in
respect of an offence for #ishonour of che(ues?
Answer
Mrom a perusal of )ection 1:1, it is apparent that in case where a compan" committe# an
offence un#er )ection 1*8, then not onl" the compan", but also e%er" person who at the time
when the offence was committe#, was in charge of an# was responsible to the compan" shall
#eeme# to be guilt" of the offence an# liable to be procee#e# against un#er those pro%isions,
onl" if that person was in charge of an# was responsible to the compan" for the con#uct of its
business' AT'-'/' Nair %s' 0in#al Menthol In#ian @t#' !881$ .@0 78 ).E
Question :,
Mor cogniKance of offence for the #ishonour of che(ue, shoul# the che(ue necessaril" be
presente# to the #rawee?s !pa"ee?s$ ban& or can it be presente# before an" ban& within the
stipulate# perio#?
Answer
GThe ban&H referre# to in clause !a$ to the pro%iso to )ection 1*8 of the Negotiable Instruments
Act, 1881, mean the #rawee=ban& on which the che(ue is #rawn an# not all ban&s where the
che(ue is presente# for collection inclu#ing the ban& of the pa"ee, in whose fa%our the che(ue
is issue#' It, howe%er, #oes not mean that the che(ue is alwa"s to be presente# to the
The Negotiable Instruments Act, 1881 '*8
#rawer?s ban& on which the che(ue is issue#' The pa"ee of the che(ue has the option to
present, the che(ue in an" ban& inclu#ing the collecting ban& where he has his account, but to
attract the criminal liabilit" of the #rawer of the che(ue, such collecting ban& is oblige# to
present the che(ue in the #rawee or pa"ee ban& on which the che(ue #rawn within the perio#
of three months from the #ate on which it is shown to ha%e been issue#' The non presentation
of the che(ue to the #rawee=ban& within the perio# specifie# in the )ection woul# absol%e the
person issuing the che(ue, of his criminal liabilit" un#er )ection 1*8 or the Act, who shall
otherwise ma" be liable to pa" the che(ue amount to the pa"ee in a ci%il action initiate# un#er
the law' A combine# rea#ing of )ections , , an# 1*8 of the Act woul# lea%e no #oubt that
the law man#ates the che(ue to be presente# at the ban& on which it is #rawn, if the #rawer is
to be hel# criminall" liable' )uch presentation is necessaril" to be ma#e within three months at
the ban& on which the che(ue is #rawn whether presente# personall", or through another
ban&, namel", the collecting ban& of the pa"ee A)hri Ishar Allo" )teels @t#' !%$ 0a"aswals
Neco' @t#' !881$ @.@I 18 !).$E
Question :8
;hether gi%ing of notice of #ishonour itself constitute receipt of notice for constituting offence
un#er section 1*8 of the Negotiable Instruments Act, 1881?
Answer
The abo%e matter was consi#ere# b" the )upreme .ourt in Qalmia .ement !+harat$ @t#
%'/alax" Tra#ers an# Agencies @t#', !881$ 7 .@0 < ).' The .ourt obser%e# that, the pa"ee
has to ma&e a #eman# b" gi%ing notice in writing an# it is a failure on the part of the #rawer to
pa" the amount within 17 #a"s A*8 #a"s as per Negotiable Instrument !Amen#ment an#
Miscellaneous -ro%isions$ Act, 88E of the receipt in writing of the sai# notice in writing gi%ing
is a process of which receipt is the accomplishment' It is therefore clear that ?gi%ing? notice is
not the same as ?receipt? of notice'
Question :B
;hat is the starting point for fifteen !now *8 #a"s$ #a"s notice?
Answer
)ection 1*8!b$, inter alia, pro%i#es that the pa"ee has to ma&e a #eman# for the pa"ment of
mone" b" gi%ing a notice to the #rawer of the che(ue within *8 #a"s of the receipt of
information b" him from the ban& regar#ing the return of the che(ue as unpai#' Therefore, the
*8 #a"s are to be counte# from the receipt of information regar#ing the return of the che(ue
as unpai#'
Question 78
;hether #eman# #raft is a che(ue?
'*1
Answer
)ection 1*1 of the Negotiable Instruments Act, 1881 is inten#e# to wi#en the scope of a
crosse# #raft as to contain all inci#ences of a crosse# che(ue' This is for the purpose of
foreclosing a possibilit" of hol#ing the %iew that a #raft cannot be crosse#' E%en if it is
possible to construe the #raft either as a -romissor" note or as a bill of exchange, the law has
gi%en the option to the hol#er to treat it as he chooses' This can be #etermine# from the
)ection 1*, which sa"s that where an instrument ma" be construe# either as a promissor"
note or bill of exchange, the hol#er ma", at his #iscretion, treat it as either an# the instrument
shall thence forwar# be treate# accor#ingl"' This means, once the hol#er has electe# to treat
the instrument as a che(ue, it cannot but be treate# as a che(ue thereafter' This is an
irretrie%able corollar" of exercising such an election b" the hol#er himself' A pa" or#er was
accor#ingl" hel# to be a che(ue entitling the ban& hol#ing the instrument to lo#ge a complaint
un#er )ection 1*8' A-unIab N )in# +an& % Lin&ar )aha&ari +an& @t#', !881$ : .@0 188 !).$E
Dights an# obligations of parties to an instrument obtaine# illegall" !)ections :7A, 78,
7B an# <8$'
Question 71
Mr' .le%er obtains frau#ulentl" from 0 a che(ue crosse# >Not Negotiable?' 1e later transfers
the che(ue to 2, who gets the che(ue encashe# from A+. +an&, which is not the 2rawee
+an&' 0, comes to &now about the frau#ulent act of .le%er, sues A+. +an& for the reco%er" of
mone"' Examine with reference to the rele%ant pro%isions of the Negotiable Instruments Act,
1881, whether 0 will be successful in his claim' ;oul# "our answer be still the same in case
.le%er #oes not transfer the che(ue an# gets the che(ue encashe# from A+. +an& himself?
Answer
Accor#ing to )ection 1*8 of the Negotiable Instruments Act, 1881 a person ta&ing che(ue
crosse# generall" or speciall" bearing in either case the wor#s >Not Negotiable? shall not ha%e
or shall not be able to gi%e a better title to the che(ue than the title the person from whom he
too& it ha#' In conse(uence, if the title of the transferor is #efecti%e, the title of the transferee
woul# be %itiate# b" the #efect'
Thus base# on the abo%e pro%isions, it can be conclu#e# that if the hol#er has a goo# title, he
can still transfer it with a goo# title, but if the transferor has a #efecti%e title, the transferee is
affecte# b" such #efects, an# he cannot claim the right of a hol#er in #ue course b" pro%ing
that he purchase# the instrument in goo# faith an# for %alue' As Mr' .lea%er in the case in
(uestion ha# obtaine# the che(ue frau#ulentl", he ha# no title to it an# coul# not gi%e to the
ban& an" title to the che(ue or mone"C an# the ban& woul# be liable for the amount of the
che(ue for encashment' !/reat ;estern Dailwa" .o' %' @on#on an# .ountr" +an&ing .o'$
The answer in the secon# case woul# not change an# shall remain the same for the reasons
gi%en abo%e'
Thus 0 in both the cases shall be successful in his claim from A+. ban&'
Question 7
'*
A owes a certain sum of mone" to +' A #oes not &now the exact amount an# hence he ma&es
out a blan& che(ue in fa%our of +, signs an# #eli%ers it to + with a re(uest to fill up the amount
#ue, pa"able b" him' + fills up frau#ulentl" the amount larger than the amount #ue, pa"able b"
A an# en#orses the che(ue to . in full pa"ment of #ues of +' .he(ue of A is #ishonoure#'
Deferring to the pro%isions of the Negotiable Instruments Act, 1881, #iscuss the rights of +
an# .'
Answer
)ection :: of the Negotiable Instruments Act, 1881 is applicable in this case' Accor#ing to
)ection :: of this Act, + who is a part" in imme#iate relation with the #rawer of the che(ue is
entitle# to reco%er from A onl" the exact amount #ue from A an# not the amount entere# in the
che(ue' 1owe%er the right of ., who is a hol#er for %alue, is not a#%ersel" affecte# an# he can
claim the full amount of the che(ue from +'
Question 7*
;hat #o "ou un#erstan# b" OMaterial alterationH un#er the Negotiable Instruments Act, 1881?
)tate whether the following alterations are material alterations un#er the Negotiable
Instruments Act, 1881?
!i$ The hol#er of the bill inserts the wor# Oor or#erH in the bill,
!ii$ The hol#er of the bearer che(ue con%erts it into account pa"ee che(ue,
!iii$ A bill pa"able to J is con%erte# into a bill pa"able to 4 an# 5
Answer
As per the Negotiable Instruments Act, 1881, an alteration can be calle# a material alteration if
it alters or attempts to alters the character of the instrument an# affects or is li&el" to affect the
contract which the instrument contains or is e%i#ence of' Thus, it totall" alters the business
effect of the instrument' It ma&es the instrument spea& a language other than that was
inten#e#'
The following materials alterations ha%e been authorise# b" the Act an# #o not re(uire an"
authentication3
!a$ filling blan&s of inchoate instruments A)ection 8E
!b$ .on%ersion of a blan& en#orsement into an en#orsement in full A)ection :BE
!c$ .rossing of che(ue A)ection 17E
The important material an# non=material alternation are3
Material alteration Non=material alteration
1' Alteration of #ate of instrument !e'g' if a 1' .on%ersion of instrument pa"able to
bill #ate# 1st ma", 1BB8$ is change# to abearer'
'** +usiness @aws, Ethics an# .ommunication
bill #ate# 1st 0une, 1BB8'
' Alteration of time of pa"ment !e'g' if a bill ' .on%ersion of instrument pa"able to
pa"able three months after #ate isbearer into or#er'
change# to bill pa"able four months
pa"able after #ate$'
*' Alteration of place of pa"ment !e'g', if a *' Elimination of the wor#s >or or#erJ from an
en#orsement'bill pa"able at 2elhi is change# to bill
pa"able at Mumbai$'
:' Alteration of amount pa"able !e'g', if bill :' A##ition of the wor#s >or #eman#? to a note
in which no time or pa"ment is expresse#'for 6 1,888 is change# to a bill
for
6 888
7' .on%ersion of blan& en#orsement into
special en#orsement'
<' A##ition of a new part" to an instrument'
,' Alteration of one of the clauses of the
instrument containing a penal action
As per the abo%e sections the changes of serial numbers !i$ is non=material an# changes of
serial numbers !ii$ !iii$ are material changes in the gi%en problem'
Question 7:
2o the following alteration of a negotiable instrument ren#er the instrument %oi#?
!a$ The hol#er of a bill alters the #ate of the instrument to accelerate or postpone the time of
pa"ment'
!b$ The #rawer of a negotiable instrument #raws a bill but forgets to write the wor#s Gor
or#erH' )ubse(uentl", the hol#er of the instrument inserts these wor#s'
!c$ A bill pa"able three months after #ate is altere# into a bill pa"able three months after
sight'
!#$ A bill was #ate# 88 instea# of 88* an# subse(uentl" the agent of the #rawer
correcte# the mista&e'
!e$ A bill is accepte# pa"able at the Rnion +an&, an# the hol#er, without the consent of the
acceptor, scores out the name of the Rnion +an& an# inserts that of the )"n#icate +an&'
Answer
!a$ 5es'
!b$ No'
!c$ 5es'
!#$ No'
!e$ 5es'
'*:
Accor#ing to )ection 8, of the Negotiable Instruments Act, 1881, an" material alteration of a
Negotiable Instrument ren#ers the same %oi# as against an" one who is part" thereto at the
time of ma&ing such alteration an# #oes not consent thereto, unless it was ma#e in or#er to
carr" out the common intention of the original parties an# an" such alteration, if ma#e b" an
en#orsee #ischarges en#orser from all liabilit" to him in respect of the consi#eration thereof'
The alteration must be so material that it alters the character of the instrument, to a great
extent' Alterations of the #ate, amount pa"able, time, place of pa"ment are regar#e# as
material alterations'
Question 77
Qn a +ill of Exchange for 6 1 la&h, 4?s acceptance to the +ill is forge#' >A? ta&es the +ill from
his customer for %alue an# in goo# faith before the +ill becomes pa"able' )tate with reasons
whether >A? can be consi#ere# as a >1ol#er in #ue course? an# whether he !A$ can recei%e the
amount of the +ill from >4?'
Answer
Accor#ing to section B of the Negotiable Instruments Act, 1881 >hol#er in #ue course? means
an" person who for consi#eration becomes the possessor of a promissor" note, bill of
exchange or che(ue if pa"able to bearer or the pa"ee or en#orsee thereof, if pa"able to or#er,
before the amount in it became pa"able an# without ha%ing sufficient cause to belie%e that an"
#efect existe# in the title of the person from whom he #eri%e# his title'
As >A? in this case prima facie became a possessor of the bill for %alue an# in goo# faith before
the bill became pa"able, he can be consi#ere# as a hol#er in #ue course'
+ut where a signature on the negotiable instrument is forge#, it becomes a nullit"' The hol#er
of a forge# instrument cannot enforce pa"ment thereon' In the e%ent of the hol#er being able
to obtain pa"ment in spite of forger", he cannot retain the mone"' The true owner ma" sue on
tort the person who ha# recei%e#' This principle is uni%ersal in character, b" reason where of
e%en a hol#er in #ue course is not exempt from it' A hol#er in #ue course is protecte# when
there is #efect in the title' +ut he #eri%es no title when there is entire absence of title as in the
case of forger"' 1ence >A? cannot recei%e the amount on the bill'
Question 7<
A ban&er ma#e pa"ment of a che(ue in which the #rawers signature was forge#' .an the
ban&er claim protection in respect of such pa"ment? ;hat woul# be the protection if it was a
case of forger" of en#orseeJs signature?
Answer
In case of che(ues, the pa"ing ban&er is gi%en statutor" protection against the pa"ment of
che(ues ha%ing forge# en#orsements' An# the ban&er cannot be hel# liable if it ma&es
'*7 +usiness @aws, Ethics an# .ommunication
pa"ment in goo# faith an# without an" negligence !)ection 87, the Negotiable Instruments Act,
1881$' +ut the ban&er will not be protecte# where the pa"ment of a che(ue is ma#e on which
the #rawerJs signature was forge#' The reason for the same is that the ban&er is protecte#
onl" in case of forger" of en#orserJs signature an# not in case of forger" of #rawerJs signature'
Question 7,
4 #rew a che(ue pa"able to J5 or on or#erJ' Rnfortunatel" it was lost an# 5Js en#orsement was
forge#' )ubse(uentl", the ban&er pa"s for the che(ue' Is the ban&er #ischarge# from liabilit"?
;hat will be the conse(uences if the #rawerJs signatures were forge#?
Answer
The pa"ing ban&er is #ischarge# from liabilit", #espite the forge# In#orsement in fa%our of the
pa"ee, because of special protection grante# b" section 87!1$ of the Negotiable Instruments
Act, 1881'
In another instance, where the #rawerJs signature is forge#, a ban&er remains liable to the
#rawer e%en b" a pa"ment in #ue course an# cannot #ebit the #rawerJs account'
Question 78
1ow #o "ou #istinguish between #ischarge of instrument an# #ischarge of part" un#er the
Negotiable Instruments Act, 1881?
Answer
An instrument is sai# to be #ischarge# onl" when the part" who is ultimatel" liable thereon is
#ischarge# from liabilit"' Therefore, #ischarge of a part" to an instrument #oes not #ischarge
the instrument itself' .onse(uentl", the hol#er in #ue course ma" procee# against the other
parties liable for the instrument' Qn the other han#, when a bill has been #ischarge# b"
pa"ment, all rights there un#er are extinguishe# e%en a hol#er in #ue course cannot claim an"
amount un#er the bill'
Question 7B
;hat will be the effect of the following alterations on the %ali#it" of a bill?
!i$ A bill pa"able with >lawful interest? is altere# into one pa"able with 1P interest'
!ii$ A bill is accepte# pa"able at the In#ian +an&, )arita Lihar, New 2elhi' The hol#er without
the consent of the acceptor scores out )arita Lihar an# inserts .han#ni .how& instea#'
Answer
!i$ The following alterations are material, i'e', the alteration of W
!1$ the #ate,
!$ the sum pa"able,
!*$ the time of pa"ment,
!:$ the place of pa"ment,
!7$ inclusion of place of pa"ment,
!<$ the rate of interest'
'*<
These alterations %itiate the instrument' )o, in the gi%en case alteration in the interest
rate %itiates the %ali#it" of the bill, since lawful interest is 18P un#er the +an&ing, -ublic
Minancial Institutions N Negotiable Instruments !Amen#ment$ Act, 1B88'
!ii$ In this case, the alteration is material' It ren#ers the instrument %oi# against persons who
were parties thereto before such alteration, unless the" ha%e consente# to the alteration
!)ec' 8,$
Question <8
Daman is the pa"ee of an or#er che(ue' 0ohn steals the che(ue an# forges Daman?s
signatures an# en#orses the che(ue in his own fa%our' 0ohn then further en#orses the che(ue
to Anil, who ta&es the che(ue in goo# faith an# for %aluable consi#eration'
Examine the %ali#it" of the che(ue as per pro%isions of the Negotiable Instruments Act, 1881
an# also state whether Anil can claim the pri%ileges of a 1ol#er in 2ue course'
Answer
Morger" confers no title an# a hol#er ac(uires no title to a forge# instrument' A forge#
#ocument is a nullit"' The propert" in the instrument remains %este# in the person who is the
hol#er at the time when the forge# signatures were put on it' Morger" is also not capable of
being ratifie#' In the case of forge# en#orsement, the person claiming un#er forge#
en#orsement e%en if he is purchaser for %alue an# in goo# faith, cannot ac(uire the rights of a
hol#er in #ue course' Therefore, Anil ac(uires no title on the che(ue ! Mercantile +an& %s'
2?)il%a,*8 +om'@'D'17$'
Notice of 2ishonour
Question <1
Is notice of #ishonour necessar" in the following cases3
!a$ 4 ha%ing a balance of 6 1,888 with his ban&ers an# ha%ing no authorit" to o%er #raw,
#rew a che(ue for 6 7,888S=' The che(ue was #ishonoure# when #ul" presente# for
repa"ment'
!b$ 4, #rawer of a +ill informs 5, the hol#er of the bill that the bill woul# be #ishonoure# on
the presentment for pa"ment'
Answer
Notice of #ishonour is not necessar" in both the cases' A)ection B8 of the Negotiable
Instruments Act, 1881E'
'*, +usiness @aws, Ethics an# .ommunication
Noting an# -rotesting
Question <
A +ill of Exchange is #ishonoure# b" the acceptor' Explain the pro%isions of GNotingH an#
G-rotestH un#er the Negotiable Instruments Act, 1881'
Answer
The law relate# to the noting an# protest of negotiable instruments is enshrine# in )ection BB
to 18:A of the Negotiable Instruments Act, 1881'
Noting3 Accor#ing to section BB, when a promissor" note or bill of exchange has been
#ishonoure# b" non=acceptance, or non=pa"ment the hol#er ma" cause such #ishonour to be
note# b" a notar" public upon the instrument, or on a paper attache# thereto, or partl" upon
each' )uch note must be ma#e within a reasonable time after #ishonour, an# must specif"
the #ate of #ishonour, the reason for the #ishonour or if the instrument has not been expressl"
#ishonoure#, the reason wh" the hol#er treats it as #ishonour an# the notar"?s charges'
-rotest3 Accor#ing to section 188, when a promissor" note or bill of exchange has been
#ishonoure# b" non=acceptance or non=pa"ment, the hol#er ma" within a reasonable time,
cause such #ishonour to be note# an# certifie# b" a notar" public' )uch certificate is calle# a
protest'
The contents of a protest are lai# #own in section 181 of the Act' Accor#ing to section 18,
when a promissor" note or bill of exchange is re(uire# to be proteste#, notice of such protest
must be gi%en instea# of notice of #ishonour, in the same manner an# subIect to the same
con#itions, but the notice ma" be gi%en b" the notar" ma&ing the protest' Rn#er section 18*,
all bills of exchange #rawn pa"able at some other place than the place mentione# as the
resi#ence of the #rawee, an# which are #ishonoure# b" non=acceptance, ma", without further
presentation to the #rawee, be proteste# for non=pa"ment in the place specifie# for pa"ment,
unless pai# before or at maturit"'
Neither noting nor protesting is compulsor" in the case of inlan# bills' +ut un#er section 18:,
e%er" foreign bill must be proteste# for #ishonour, when such protest is re(uire# b" law of the
countr" where the bill was #rawn' The merit of protest an# noting is that it woul# become
goo# prima=facie e%i#ence in a court of law that the instrument has been #ishonoure#' It is
pertinent to note that as per section 11B the court is boun# to recognise a protest, but it ma"
or not recognise noting'
Acceptance an# pa"ment for honour an# reference in case of nee#
Question <*
;hat is meant b" >-a"ment for 1onour? in respect of a +ill of Exchange? ;hen can the
>-a"ment for 1onour? be ma#e? ;hat are the rights of the >-a"er for 1onour??
Answer
'*8
-a"ment for honour3 It means a pa"ment which is ma#e b" an" person for the honour of an"
part" liable on the bill after it has been proteste# for non=pa"ment'
The following con#itions are essential for the pa"ment of honour3
!1$ The bill must ha%e been note# or proteste# for non=pa"ment'
!$ The person pa"ing or his agent #eclares before Notar" -ublic the part" for whose honour
he pa"s'
!*$ )uch #eclaration must ha%e been recor#e# b" the Notar" -ublic'
!:$ -a"ment must be ma#e for the honour of an" part" liable on the bill or not !)ection 11*$'
The #rawee in case of nee# ma", howe%er, accept an# pa" the bill of exchange without
pre%ious protest' !)ection 118$'
Dight of the pa"er for honour3 An" person ma&ing pa"ment for honour is entitle# to all the
rights, in respect of the bill, of the hol#er at the time of such pa"ment' 1e ma" reco%er from
the part" for whose honour he pa"s all sums so pai# with interest thereon an# all expenses
properl" incurre# in ma&ing such pa"ment !)ection 11:$'
-resentment of Instruments
Question <:
-romissor" note #ate# 1st Mebruar", 881 pa"able two months after #ate was presente# to
the ma&er for pa"ment 18 #a"s after maturit"' ;hat is the #ate of Maturit"? Explain with
reference to the rele%ant pro%isions of the >Negotiable Instruments Act, 1881 whether the
en#orser an# the ma&er will be #ischarge# b" reasons of such #ela"'
Answer
2ela" in presentment for pa"ment of a promissor" note3 If a promissor" note is ma#e
pa"able on a state# number of months after #ate, it becomes pa"able three #a"s after the
correspon#ing #ate of months after the state# number of months !)ection * rea# with )ection
Negotiable Instruments Act 1881$' Therefore, in this case the #ate of maturit" of the
promissor" note is :th April, 881'
In this case the promissor" note was presente# for pa"ment 18 #a"s after maturit"' Accor#ing
to )ection <: of Negotiable Instruments Act rea# with )ection <<, a promissor" note must be
presente# for pa"ment at maturit" b" on behalf of the hol#er' In #efault of such presentment,
the other parties of the instrument !that is, parties other than the parties primaril" liable$ are
not liable to such hol#er' The en#orser is #ischarge# b" the #ela"e# presentment for pa"ment'
+ut the ma&er being the primar" part" liable on the instrument continues to be liable'
Question <7
A issues a che(ue for 6 7,888S= in fa%our of +' A has sufficient amount in his account with
the +an&' The che(ue was not presente# within reasonable time to the +an& for pa"ment an#
'*B +usiness @aws, Ethics an# .ommunication
the +an&, in the meantime, became ban&rupt' 2eci#e un#er the pro%isions of the Negotiable
Instruments Act, 1881, whether + can reco%er the mone" from A?
Answer
The problem as as&e# in the (uestion is base# on the pro%isions of the Negotiable
Instruments Act, 1881 as containe# in )ection 8:' The section pro%i#es that where a che(ue
is not presente# b" the hol#er for pa"ment within a reasonable time of its issue an# the #rawer
suffers actual #amage through the #ela" because of the failure of the ban&, he is #ischarge#
from liabilit" to the extent of such #amage' In #etermining what is reasonable time, regar#
shall be ha# to the nature of the instrument, the usage of tra#e an# ban&ers, an# the facts of
the particular case'
Accor#ingl", in the gi%en case, the #rawer is #ischarge# from the liabilit" to pa" the amount of
che(ue to +' 1owe%er, + can sue against the ban& for the amount of the che(ue appl"ing the
abo%e pro%isions'
Question <<
>A? #raws a che(ue for 6 78,888' ;hen the che(ue ought to be presente# to the #rawee ban&,
the #rawer has sufficient fun#s to ma&e pa"ment of the che(ue' The ban& fails before the
che(ue is presente#' The pa"ee #eman#s pa"ment from the #rawer' ;hat is the liabilit" of the
#rawer'
Answer
)ection 8: of the Negotiable Instruments Act, 1881 pro%i#es that where a che(ue is not
presente# for pa"ment within a reasonable time of its issue an# the #rawer or person on
whose account it is #rawn ha# the right at the time when presentation ought to ha%e been
ma#e, as between himself an# the ban&er, to ha%e the che(ue pai# an# suffers actual #amage
through the #ela", he is #ischarge# from the liabilit", that is to sa", to the extent to which such
#rawer or person is a cre#itor of the ban&er to a larger amount than woul# ha%e been if such
che(ue ha# been pai#' In #etermining what is a reasonable time, regar# shall be ha# to the
nature of the instrument, the usage of tra#e an# of ban&er, an# the facts of the particular case'
Appl"ing the abo%e pro%isions to the gi%en problem since the pa"ee has not presente# the
che(ue to the #rawer?s ban& within a reasonable time when the #rawer ha# fun#s to pa" the
che(ue, an# the #rawer has suffere# actual #amage, the #rawer is #ischarge# from the
liabilit"'
E4ED.I)E
1' A #raws a bill on + for 6 788 pa"able to his or#er' A accepts the bill but subse(uentl" #ishonours it b" non=
pa"ment' A sues + on the bill' + pro%es that it was accepte# for %alue as to 6 :88 an# as accommo#ation
to A as to the balance' 1ow much can A reco%er from +?
A1int3 6 :88 as per )ection :: of the Negotiable Instruments Act,1881E
'
':8
A execute# a promissor" note in fa%our of +' ;ithout +?s #eman#ing pa"ment, A pai# the mone" #ue on the
note but left the note in his han#s' )ubse(uentl" + in#orse# it to . for consi#eration' . ha# &nowle#ge of
the pa"ment ma#e b" A' . brings a suit against A an# + for reco%er" of mone" on the note' ;ill he succee#
against either or both?
A1int3 1e can succee# against A as well as against both as per )ections B an# 78 of the N'I' Act,1881E
*' A bill is #rawn G-a" to A or or#er the sum of one thousan# rupeesH' In the margin, the amount state# is 6
18, 888 in figures' !a$ Is this a %ali# bill? !b$ If so, for what amount?
A1int3 !a$ 5esC !b$ Mor 6 1888 as per section 18 of the N'I'Act,1881E
:' 4 #raws a bill of exchange pa"able at 1,pitampura,New 2elhi' It #oes not contain the name of an" #rawee,
although 5 li%es at the state# a##ress' 5 accepts the bill' ;oul# 5 be liable un#er the bill?
A1int3 The bill is %ali# an# 5 shall be liable' +" his acceptance, 5 ac&nowle#ge# that he was the inten#e#
#rawee in the billE

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The Negotiable Instruments Act, 1881

Meaning of negotiable instruments

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