Negotiable Instrument Acts: - 1st April, 1881 It is an Act to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques. The term negotiable instrument means a document transferable from one person to another. Promissory Note- A promissory note is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money, or to the order of, a certain person, or only to bearer of the instrument. (Section 4) The Maker- The person who makes or executes the note promising to pay the amount stated therein. The Holder- Is either the payee or some other person to whom he may have endorsed the note. Bill of Exchange:- A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of, a certain person or to the bearer of the instrument. (Section 5) The Drawee- The person on whom the bill is drawn. The Endorsee- Is the person to whom the bill is endorsed. A promissory note is a two-party instrument with a maker (debtor) and a payee (creditor). In a bills of exchange there are three parties- drawer, drawee, and payee. A bill which is drawn, accepted or endorsed without consideration is called an accommodation bill. Only the holder who can ask for a duplicate bill, promissory note or cheque. A bill of exchange is also sometimes spoken of as a draft. ‘a cheque in the electronic form’ means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometric signature) and asymmetric crypto system. ‘a truncated cheque’ means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately an generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing. The expression ‘clearing house’ means the clearing house managed by the Reserve Bank of India or a clearing house recognized as such by the Reserve Bank of India. A cheque is a bill of exchange with two additional qualifications, namely: 1) it is always drawn on a banker and 2) it is always payable on demand. A cheque is usually valid for fix months. However, it is not invalid if it is post-dated or ante-dated. Section 5 (b) of the Banking Regulation Act, 1949 defines banking as, “accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft or otherwise”. A payment in due course means a payment in accordance with the apparent tenor of the instrument, in good faith and without negligence to any person in possession thereof. Under Section 10 and 128, a paying banker making payment in due course is protected. Section 126 of the Act which provides that a cheque bearing a “general crossing” shall not be paid to anyone other than banker and a cheque which is “specially crossed” shall not be paid to a person other than the banker to whom it is crossed. The Amendment Act, 2002 has added a new explanation to Section 131 which provides that it shall be the duty of the banker who receives payment based on an electronic image of a truncated cheque held with him, to verify the prima facie genuineness of the cheque to be truncated and any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care. Two transverse parallel lines are essential for a general crossing (Sections 123-126) Parallel transverse lines are not essential but the name of the banker is the insignia of a special crossing. Sudden holiday- business next day (After) Public holiday- preceding business day (Before) According to Section 22 of the Act, “the maturity of a promissory note or a bill of exchange is the date at which it falls due”. According to Section 21 promissory note or bill of exchange payable “at sight” or “on presentment” is payable on demand. No days of grace are allowed for cheque, as they are payable on demand. The holder implies de jure (holder in law) holder and not de facto (holder in facto) To be a holder, the person must be named in the instrument as the payee, or the endorsee or he must be the bearer thereof. A holder in due course is in a privileged position. The liability of a drawer of a bill of exchange is secondary and arises only an default of the drawer, who is primarily liable to make payment of the negotiable instrument. Prior parties may include the maker or drawer, the accepter and all the intervening endorsers to a negotiable instrument. The liability of the prior parties to a holder in due course is joint and several. Holder is a person entitled in his own name to the possession of a promissory note, bill of exchange or cheque and to receive or recover the amount due thereon from the parties. Holder in due course is generally a person who for consideration became possessor of a promissory note, bill of exchange or cheque. Negotiable Instrument is defined in Section 13 (1). Liabilities of drawer to compensate the holder in case of dishonor are primarily provided under Section 30. A negotiable instrument made, drawn, accepted, endorsed or transferred without consideration or for a consideration which fails, creates liability of payment between the parties to the transaction. A negotiable instrument may be transferred by negotiation or assignment. In case of assignment, there is a transfer of ownership by means of a written and registered document. A partial endorsement does not operate as negotiation of the instrument. Forgery conveys no title. Section 15 provides that the presentment for acceptance must be made to the drawer or his duly authorized agent. Section 91 provides that a bill is said to be dishonored by non-acceptance, when the drawer does not accept it within 48 hours from the time of presentment for acceptance. The drawer is liable only when there is dishonor by non-payment. Notice may be oral or in writing, but it must be actual formal notice. It must be given within a responsible time of dishonor. The notary public demands better security and on its refusal makes a protest known as “protest for better security”. Foreign promissory notes need not be so protested. Protest affords an authentic evidence of dishonor to the drawer and the endorsee. Section 88 provides that an acceptor or endorser of a negotiable instrument is bound by his acceptance or endorsement notwithstanding any previous alteration of the instrument. The interest allowance is known as rebate. Hundis are negotiable instruments written in an oriental language. Hundi was formerly applicable to native bills of exchange. Shah jog hundi means a hundi which is payable only to a respectable holder, as opposed to a hundi payable to bearer. A Jokhmi hundi is always drawn on or against goods shipped on the vessel mentioned in the hundi. Jokhmi hundi is in the nature of policy of insurance. Jawabee hundi which is used for remitting money from one place to another. Nam jog hundi is a hundi payable to the party named in the bill or his order. Darshani hundi are payable on demand and must be presented for payment within a reasonable time after they are received by the holder. This is otherwise called “muddati hundi”, ahundi payable after a specified period of time. Dhani jog hundi which is payable to ‘dhani’ i.e. the owner. Firman jog hundi which is payable to order if can be negotiated by endorsement and delivery.
Posted on: Mon, 18 Aug 2014 04:28:34 +0000
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