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NEGOTIABLE INSTRUMENTS
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Definition
Section 13 states negotiable instrument means:
promissory note or bill of exchange or
cheque payable to order or the bearer whether
the words order or bearer appear on the
instrument or not.
Negotiable Instrument means any document
transferable from one person to another.


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Essential features of negotiable
instrument:
1. Free transferability
2. Offer better title to the transferee.
3. Holder in due course is the owner.
4. Holder in due course can file recovery on
suits
5. The instrument is transferable till maturity.
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TYPES OF NEGOTIABLE INSTRUMENT
PROMISSORY NOTES
Instrument in writing containing unconditional
undertaking signed by the maker to pay a
certain sum of money to or to the order of a
certain person or to only the bearer of the
instrument

Parties : Maker, payee, holder, endorser,
endorsee.


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Essentials of Promissory note:
1. Instrument in writing
2. Undertaking to pay
3. The undertaking to pay is unconditional.
4. It must be signed by the maker.
5. Amount payable must be certain andinmoney
form.
6. The payee must be certain.
7. Must be duly stamped as per the Stamp Act.

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BILLS OF EXCHANGE

IS AN INSTRUMENT IN WRITING
UNCONDITIONAL ORDER SIGNED BY THE
MAKER DIRECTING A CERTAIN PERSON TO
PAY A CERTAIN SUM OF MONEY ONLY TO
OR THE ORDER OF CERTAIN SUM OR TO THE
BEARER OF THE INSTRUMENT.

Parties: Drawer, Drawee, Acceptor, payee, holder,
endorser, endorsee, drawee, acceptor

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Essentials of Bills of Exchange
1. It must be in writing
2. It must be an order to pay
3. The order to pay must be unconditional
4. It must be signed by the drawer.
5. The parties to the bill must be certain.
6. The order to pay must be in money.
7. The formalities like date , stamp and others
should be there.
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DEFINING PARTIES OF THE INSTRUMENT
HOLDER :
The "holder" of a promissory note, bill of exchange or
cheque means any person entitled in his own name
to the possession thereof and to receive or recover
the amount due thereon from the parties thereto.

Where the note, bill or cheque is lost or destroyed, its
holder is the person so entitled at the time of such
loss or destruction.

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"Holder in due course"
means any person who for consideration
became the possessor of a promissory note, bill
of exchange or cheque if payable to bearer, or
the payee or indorse thereof, if [payable to
order] before the amount mentioned in it
became payable, and without having sufficient
cause to believe that any defect existed in the
title of the person from whom he derived his title
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Negotiation.

When a promise note, bill of exchange or
cheque is transferred to any person, so as to
continue the person the holder thereof, the
instrument is said to be negotiated.

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Endorsement

When the marker or holder of an negotiable instrument
signs the same, otherwise than as such maker, for
the purpose of negotiation, one the back or face
thereof or on a slip of paper annexed thereto, or so
signs for the same purpose a stamped paper
intended to be completed as a negotiable
instrument, he is said to indorse the same, and is
called the endorser.


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NEGOTIATION BY ENDORSEMENT AND DELIVERY

Types:

-BLANK OR GENERAL: SIGNS OR WRITES AT THE BACK
PAYABLE TO BEARER.

-SPECIAL OR FULL: ORDERED TO SPECIFIC PERSON

-RESTRICTIVE : PROHIBITS OR RESTRICTS FURTHER
NEGOTIATION OF INSTRUMENTS.

-PARTIAL : ENDORSEMENT OF HALF OF THE AMOUNT

-CONDITIONAL OR QUALIFIED : CONDITIONS STIPULATED
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CHEQUE
A cheque is a bill of exchange drawn on a specified banker
and not expressed to be paid otherwise than on
demand.

-It is a B/E with two additional features:
-Always drawn on a banker.
-Always payable on demand.

A cheque could be open cheque( payable across counter ) or
closed cheque ( named with two parallel lines.)


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Section 138-

This section deals with Dishonour of cheque for insufficiency,
etc., of funds in the account. It says where any cheque drawn
by a person on an account maintained by him with a banker for
payment of any amount of money to another person from out
of that account for the discharge,

in whole or in part,

of any debt or other liability, is returned by the bank unpaid.
either because of the amount of money standing to the credit of
that account is insufficient to honour the cheque

or


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that it exceeds the amount arranged to be paid
from that account by an agreement made with
that bank, such person shall be deemed to have
committed an offence and shall, without
prejudice. to any other provision of this Act, be
punished with imprisonment for a term which
may extend to one year, or with fine which
may extend to twice the amount of the cheque,
or with both.

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TYPES OF CROSSINGS
General Crossing-
shown by two parallel lines
Special Crossings-
mentions name of the banker on the face of cheque
Not negotiable may or may not be written.
Restrictive Crossings-
Adopted for commercial or banking usage.




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HUNDIS

ARE NEGOTIABLE INSTRUMENTS NOT COVERED UNDER
THE ACT. THEY MAY AT TIMES BE B/E OR P/N

TYPES:
SHAH JOG: PAYABLE TO A RESPECTABLE HOLDER.
JOKHMI : DRAWN ON GOODS TO BE SAILED ON SHIP.
JAWABEE HUNDI: USED FOR REMITTING MONEY FROM
ONE PLACE TO ANOTHER.
NAM JOG : PAYABLE TO THE PARTY NAMED IN THE
BILL
DARSHANI HUNDI : PAYABLE AT DEMAND AND
PRESENTED AT DEMAND.
MIADI HUNDI : PAYABLE AFTER A SPECIFIC PERIOD OF
TIME

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FAQ
1. What are the reasons for dishonour of
cheques.
2. Discuss the criminal lability arising on
dishonour of a cheque.