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ACT1881
INTRODUCTION TO NEGOTIABLE 2
INSTRUMENTSACT, 1881
The Negotiable Instruments Act was enacted, in India, in 1881. Prior to its
enactment, the provision of the English Negotiable Instrument Act were
applicable in India, and the present Act is also based on the English Act with
certain modifications. It extends to the whole of India except the State of
Jammu and Kashmir. The Act operates subject to the provisions of Sections
31 and 32 of the Reserve Bank of India Act, 1934.
MEANING OF NEGOTIABLE 3
INSTRUMENT
The word negotiable means „transferable by delivery‟, and word
instrument means „a written document by which a right is created in favour
of some person. Thus, the term “negotiable instrument” means “a written
document transferable by delivery”.
According to Section 13 (1) of the Negotiable Instruments Act,
“A negotiable instrument means a promissory note, bill of exchange, or
cheque payable either to order or to bearer”. “A negotiable instrument
may be made payable to two or more payees jointly, or it may be made
payable in the alternative to one of two, or one or some of several payees”
[Section 13(2)].
FEATURESOF NEGOTIABLE 4
INSTRUMENTS
Writing and Signature
Money
Freely Transferable
Title of Holder Free from all Defects
Notice
Presumption
Special Procedure
Popularity
Evidence
TYPESOF NEGOTIABLE 5
INSTRUMENTS
There are two types of Negotiable Instruments:
1. Instruments Negotiable by Statute:
The Negotiable Instruments Act mentions only three kinds of
negotiable instruments (Section 13). These are:
1. Promissory Notes
2. Bills of Exchange, and
3. Cheques
2. Instruments Negotiable by Custom or Usage:
There are certain other instruments which have acquired the
character of negotiability by the usage or custom of trade. For example:
Exchequer bills, Bank notes, Share warrants, Circular notes, Bearer
debentures, Dividend warrants, Share certificates with blank transfer
deeds, etc.
PROMISSORY NOTES 6
Maker:
Maker is the person who promises to pay the amount statedin the
note.
Payee:
Payee is the person to whom the amount of the note ispayable.
Holder:
He is either the payee or the person to whom the note may
have been endorsed.
SPECIMEN OF PROMISSORY NOTE 9
Rs. 10,000
Lucknow April
10, 2013
Three months after date, I promise to pay Shri Ramesh (Payee) or to his order the sum of Rupees Ten
Thousand, for value received.
Stamp
To, Sd/-
Shri Ramesh, Ram
B-20, Green Park,
Mumbai.
(Maker)
BILLOF EXCHANGE 10
Drawer:
The maker of a bill of exchange is calledthe drawer.
Drawee:
The person directed to pay the money by the drawer is called the
drawee.
Payee:
The person named in the instrument, to whom or to whose order the
money are directed to be paid by the instruments are called the payee.
SPECIMEN OF BILLOF EXCHANGE 13
Rs. 10,000
Mumbai
April 10, 2013
Three months after date pay to Ram (Payee) order the sum of Ten Thousand Rupees, for value received.
To,
Sushil
B-20, Green Park,
Lucknow - 226020.
(Drawer) Stamp
In case of need with Accepted
Canara Bank, Delhi. Sushil Sd/- Ram
(Drawer)
CLASSIFICATION OF BILLOF 14
EXCHANGE
Inland and Foreign Bills [Section 11and12]
Inland Bill:
It is drawn in India on a person residing in India outside whether payable in or
India; or
It is drawn in India on a person residing outside India but payable in India.
Foreign Bill:
A bill drawn in India on a person residing outside India and made payable outside
India.
Drawn upon a person who is the resident of a foreign country.
CLASSIFICATION OF BILLOF 15
EXCHANGE (Cont.…)
Time and Demand Bills:
Time Bill: A bill payable after a fixed time is termed as a time bill. A bill payable
“after date” isa timebill.
Demand Bill: A bill payable at sight or on demand istermed as a demand bill.
Trade and Accommodation Bills:
Trade Bill: A bill drawn and accepted for a genuine trade transaction is termed as
“trade bill”.
Accommodation Bill: A bill drawn and accepted not for a genuine trade
transaction but only to provide financial help to some party is termed as an
“accommodation bill”.
CHEQUE 16
In writing
Express Order to Pay
Definite and Unconditional Order
Signed by the Drawer
Order to Pay CertainSum
Order to Pay Money Only
Certain Three Parties
Drawn upon a SpecifiedBanker
Payable on Demand
PARTIESTO ACHEQUE 18
Drawer:
Drawer is the person who draws the cheque.
Drawee:
Drawee is the drawer‟s banker on whom the cheque has been drawn.
Payee:
Payee is the person who is entitled to receive the payment of a
cheque.
SPECIMEN OF CHEQUE 19
Kapoorthala Bagh,
Mumbai – 400033
IFSCode:MAHB0000316
D D M M Y Y Y Y
Pay ……………………………………………………………………………………………………………......
……………………………………………………………………………………………………. Or Bearer
Rupees ……………………………………………………………………………………………………………
………………………………………………………………………………………… …Rs.
A/c No.
SHANKAR GAJARE
Signature
Please signabove
Bearer Cheque
Cross Cheque
The word „endorsement‟ in its literal sense means, writing on the back of
an instrument. But under the Negotiable Instruments Act it means, the writing of
one‟s name on the back of the instrument or any paper attached to it with the
intention of transferring the rights therein. Thus, endorsement is signing a
negotiable instrument for the purpose of negotiation. The person who effects an
endorsement is called an „endorser‟, and the person to whom negotiable
instrument istransferred by endorsement iscalled the „endorsee‟.
Kinds of Endorsement:
Blank or General Endorsement
Full or Special Endorsement
Partial Endorsement
Restrictive Endorsement
Conditional Endorsement