Chittagong independent university

ASSIGNMENT

Course Title: Mercantile and Business Laws

Course code: Law308

Submitted to: Md.Hasnath Kabir Fahim

Submitted by: Hasan Murad

ID:17204035

1. Define the term ‘negotiable instrument’ under the Negotiable

Instruments Act, 1881. What are the grounds for dishonor of Cheque
under the same Act?
Answer:
The negotiable instruments act, 1881 deals with three kinds of negotiable instruments
i.e. Promissory Note, bill of exchange and Cheque.
The word negotiable means “transferable by delivery” and the word instrument
means “written document by which a right is created in favor of some person”. Thus
the term negotiable instrument literally means “a written document transferable by
delivery”.
According to section 13 of Negotiable Instruments Act, 1881,
“A negotiable instrument means a Promissory Note, Bill of Exchange or Cheque
payable either to order or to bearer.

The grounds for dishonor of Cheque under this Act:

Section 138 of the Negotiable Instrument Act, 1881 draws criminal implications in
the event of dishonor of cheque for insufficiency of funds in the account.
1. Dishonour of cheque for insufficiency of funds in the account:
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 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.

2. “Stop Payment” Instructions:

The Judiciary has been confronted with the issue whether a cheque is dishonored by
reason of “stop-payment” instruction. This aspect had been deliberated by the
Supreme Court in the case of Modi Cements Ltd. v. Kuchil Kumar Nandi , wherein
the Supreme Court opined that if the drawer issues a notice to the drawee or to the
Bank for stoppage of the payment, the same will not preclude an action under Section
138 of the Act by the drawee or the holder of a cheque in due course.

3. Cheque has been lost:

In the case of Rangappa v. Sri Mohan , the Supreme Court has held that failure of
the drawer of the cheque to put up a probable defence for rebutting the presumption
that arises under Section 139 of the Act would justify conviction under Section 138 of
the Act even when the appellant drawer may have alleged that the cheque in question
had been lost and was being misused by the complainant.

4. Account closed:

NEPC Micon Ltd. v. Magma Leasing Ltd. In this case, the Supreme Court
extensively discussed the aspect of dishonor of cheque where the cheque is returned
by the Bank unpaid on the ground that the ‘account is closed’.

The Supreme Court in the case observed that if a cheque is dishonoured as the
account of money standing to the credit of ‘that account’ was ‘nil’ at the relevant time
apart from it being closed. Closure of the account would be an eventuality after the
entire amount in the account is withdrawn. It means that there was no amount in the
credit of “that account” on the relevant date when the cheque was presented for
honouring the same. so it would certainly be an offence under Section 138 as there
was insufficient or no fund to honour the cheque in ‘that account.

5. “Signatures do not match”:

In a recent case of M/s Laxmi Dychem v. State of Gujarat. Two-Judge Bench of the
Supreme Court was confronted with the question whether signature mismatch by
drawer of cheque would tantamount to cheque dishonor under Section 138 of the Act.
 The Court held in the affirmative and opined “signatures do not match” or that the
“image is not found”, which too implies that the specimen signatures do not match
the signatures on the cheque would constitute a dishonour within the meaning
of Section 138 of the Act.

2. Explain elaborately the procedures to file a case under Section-138 of the Negotiable
Instruments Act, 1881.

Answer:
The procedures to file a case under Section-138 of the Negotiable Instruments Act,
1881:

A cheque is said to be bounced or dishonored by non-payment when the drawee of the

cheque makes default in payment upon being duly required to pay the same.
The procedures to file a case under Section-138 of the Negotiable Instruments Act, 1881
are discussed below-

a drawer of a dishonored cheque shall be deemed to have committed an offence shall be

punishable with imprisonment for a term which may extend to one (01) year or with fine
which may extend to three (03) times of the amount of the cheque or with both.
Before the penal provisions can be revoked against the drawer of a cheque which has
bounded for him, the following requirements should be satisfied-

1. The cheque should have been dishonored due to insufficiency of funds or any other
reason.

2. The cheque should have been issued by the drawer in favour of another person for the
discharge of legally enforceable debt or other liability, in whole or in part.

3. The cheque should have been presented to the Bank within a period of six (06)
months from the date on which it is drawn or within the period of its validity,
whichever is earlier.

4. The payee or holder of the cheque should have made a demand for the payment of
money by giving a notice in writing to the drawer of the cheque within 30 days of the
receipt of information from the Bank regarding the return of the cheque as unpaid or
bounced.
5. If the drawer of such cheque should have failed to make the payment of the said
amount of money to the payee or the holder of the cheque within 30 days of the receipt of
the said notice of demand, the cause of action arises.
6. The payee or the holder of the cheque dishonored should have made a written
complaint of the offence to a competent court within one (01) month of the date on which
the cause of action arises.

There are 3 modes of serving notice to the drawer. They are-

-by handing over personally

-by registered post with Acknowledgment

-by publishing in a daily Bengali newspaper which has wide circulation.

Filing of case:

The case for dishonor of Cheque shall be filed in the Court of Judicial Magistrate but will
be tried only by the Court of Session. The case filed under section 138 of Negotiable
Instruments Act, 1881 is compoundable & bailable. Police cannot investigate the case
and cannot arrest without warrant without the order of the court.

Punishment:

Simple imprisonment that may extend upto 1 year or ,Fine which may extend to three
times of the amount of the cheque or ,Both.

Appeal:

Appeal against the decision of the Session Court under section 138 of the Negotiable
Instruments Act, 1881 shall to the High Court Division of the Supreme Court. If the case
is tried by the Joint District Judge then Appeal against the decision of Joint District Judge
will lie to the Session Judge. The accused must deposit 50% of the amount of the cheque
to the appellate court before preferring an appeal.
 2. Define Insurance, Re-Insurance & Double Insurance. Discuss the
objects & nature of the insurance contract.
Insurance:

Insurance means a promise of compensation for any potential future losses. Insurance is an
arrangement by which a company or the state undertakes to provide a guarantee of compensation
for specified loss, damage, illness, or death in return for payment of a specified premium.
According to Disnadle, Insurance is an instrument of distributing the loss of few among many.

Re-Insurance:

When an insurance company transfers a part of his risk on a particular policy by insuring it with
some other insurance company, it is called Reinsurance. The re-insurer will be liable for a
proportion of part of the loss. It is a method of reducing the risk of the insurer.

Double Insurance:

Double insurance is described as an insurance arrangement in which a particular subject or risk is

insured with multiple insurance policies of the same insurer, or with multiple insurers, for the
same period. The same risk and same subject is insured by the policy holder. The loss will be
shared by all the insurers. It is a method of assuring the benefit of insurance.

Objects & nature of the insurance contract are discussed below-

*** Objects of insurance ***

Covers risk:

Insurance is a way to reduce risk. It protects a person from any uncertain future event.

Small loss:

After occurrence of an uncertain event, an Insured person suffers only small portion of loss by
payment of premium.
Small premium:

The Insured person by depositing small amount of premium can avail reasonable amount of
damages from Insurer.

Expansion of Insurance business:

In this modern world of business the Insurance business can be a great advancement in the
economic sector.

***Nature of the insurance contract***

-By nature insurance is a devise of sharing risk by a large number of people among the few who
are exposed to risk by one or the other reason.

-The contract of Insurance basically protects the insured against the damage on occurrence of
some uncertain future events.

-Insurance provides facility of financial help in case of contingency.

-The Insured person within the contract of Insurance has an insurable interest.

-The contract of Insurance lies on the principle of Indemnity except life & sickness insurance.

-There is a scientific calculation of risks & the amount of premium in a contract of Insurance. A
contract of Insurance shall bear the general elements of Contract.
4. What are the basic principles of insurance contract? Explain.
There are six basic principles that create an insurance contract between the insured and the
insurer:

1. Nature of contract

2. Utmost Good Faith

3. Insurable Interest

4. Proximate Cause

5. Indemnity

6. Subrogation Nature of contract:

Nature of contract

Nature of contract is a fundamental principle of insurance contract. An insurance contract comes

into existence when one party makes an offer or proposal of a contract and the other party
accepts the proposal. A contract should be simple to be a valid contract. The person entering into
a contract should enter with his free consent.

Principle of Utmost Good Faith:

Under this insurance contract both the parties should have faith over each other. The insurer and
the insured must provide clear and concise information regarding the terms and conditions of the
contract. Any fraud or misrepresentation of facts can result into cancellation of the contract.

Principle of Insurable Interest:

Under this principle of insurance, the insured must have interest in the subject matter of the
insurance. If there is no insurable interest, an insurance company will not issue a policy. An
insurable interest must exist at the time of the purchase of the insurance.

Principle of proximate cause:

Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. This principle is applicable
when the loss is the result of two or more causes. The proximate cause means; the most dominant
and most effective cause of loss is considered. This principle is applicable when there are series
of causes of damage or loss.
Principle of indemnity:

Indemnity means security or compensation against loss or damage. Indemnity is a guarantee to

restore the insured to the position he or she was in before the uncertain incident that caused a loss
for the insured. The insurer compensates the insured (policyholder).The insurance company
promises to compensate the policyholder for the amount of the loss up to the amount agreed
upon in the contract.

Principal of subrogation:

The principle of subrogation enables the insured to claim the amount from the third party
responsible for the loss. It allows the insurer to pursue legal methods to recover the amount of
loss, For example, if you get injured in a road accident, due to reckless driving of a third party,
the insurance company will compensate your loss and will also sue the third party to recover the
money paid as claim.
5. Explain Arbitration as a genre of ADR mechanism. Write about
number, appointment and challenge procedure of an Arbitrator
under the Arbitration Act, 2001.

Arbitration:
Arbitration is a kind of ADR process where one or more arbitrators are there and after
a hearing, the arbitrator or arbitrators gives a decision or judgment. It is a process by
which parties consensually submit a dispute to a non-governmental decision-maker,
selected by or for the parties, to render a binding decision resolving a dispute in
accordance with neutral, adjudicatory procedures affording the parties an opportunity
to be heard. Arbitration is a common form of Alternative Dispute Resolution (ADR)
mechanism.

Appointment of arbitrators:

Under The Arbitration Act, 2001 section 12 provides that,

➢The parties are free to agree on a procedure for appointing the arbitrator or
arbitrators.
➢A person of any nationality may be an arbitrator, unless otherwise agreed by the
parties.

➢ In an arbitration with a sole arbitrator, if the parties fail to agree on the arbitration
within thirty days from receipt of a request by one party from the other party to so
agree the appointment shall be made upon request of a party-

(i) By the District Judge in case of arbitration other than international commercial
arbitration, and
(ii) In case of international commercial arbitration with three arbitrators, each party
shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third
arbitrator who shall be Chairman of the arbitral tribunal.
➢ If a party fails to appoint an arbitrator within thirty days of the receipt of a request
to do so from the other party or, the appointed arbitrators fail to agree on the third
arbitrator within thirty days of their appointment, the appointment shall be made,
upon the application of a party –
(i) by the District Judge except in case of international commercial arbitration,
and

(ii) by the Chief Justice or by any other Judge of the Supreme Court designated by
the Chief Justice in case of international commercial arbitration.

➢The appointment of the arbitrator or arbitrators under such cases shall be

made within sixty days from the receipt of the application thereof.

Challenge procedure:

Under The Arbitration Act, 2001 section 14 provides that,

➢The party who intends to challenge an arbitrator shall, within thirty days
after becoming aware of the circumstances of impartiality, send a written
statement of the reasons for the challenge to the arbitral tribunal.
➢Unless the arbitrator challenged withdraws from his office or the other
party agrees to the challenge, the arbitral tribunal shall decide on the challenge
within thirty days from the date of filing the written statement.
➢ Any party aggrieved by the decision of the arbitral tribunal may prefer an
appeal to the High Court Division within thirty days from the date of the said
decision.
➢ The High Court Division shall decide the matter within ninety days from
the date on which it is filed.

Thank you