+

The Negotiable Presented By:

Aditya Mahesh(08)
Instruments Act 1881 Agam Agarwal(10)
Ashish Mittal(37)
Harshal Pahadia(60)
Himanshu Aggarwal(63)
Jatin Goyal(64)
+
Background
 Goods are bought and sold for cash as well as on credit.

 All these transactions require flow of cash either immediately or

after a certain time.

 It is quite inconvenient as well as risky for either party to make and

receive payments in cash.

 Therefore, it is a common practice for businessmen to make use of

certain documents as means of making payment.

 To regulate and to ensure the standardization of practice ,

Negotiable Instrument act ,1881 , was introduced.

 The Negotiable Instrument Act ,1881, (as defined in the Entry

46 of List 1 )is an act to define and amend the law relating to
Promissory Notes , Bills of Exchange and Cheques.
+
Basic Conditions Of A Negotiable
Instruments
 Signed in writing.

 Payable to bearer or order.

 On demand or after certain days.

 Unconditional orders.

 Sum payable must be certain.

 Drawee and payee must be certain.

+
Types of Negotiable Instruments

 Promissory Notes.

 Bill of Exchange.

 Cheques.
+
Promissory Note

 A promissory note is an
instrument in writing (not
being a part of a bank
note or a currency – note)
containing an
unconditional
undertaking, signed by
the maker to pay a certain
sum of money to, or to the
order of a certain person
or to the bearer of the
instrument
+
Essentials of Promissory Note

 Writing : A promissory note must be in writing. Writing includes print and

typewriting

 Promise to pay: It must contain an Undertaking or promise to pay. Thus a mere

acknowledgement of debt is not sufficient. Notice that the use of the word
‘promise’ is not essential to constitute an instrument as a promissory note .
Promise should be to pay money only and that should be certain

 Signed by the maker : The promissory note must be signed by the maker
otherwise it has no effect.

 Parties :There are 2 parties involved ie maker and the payee

 It must be duly stamped under the Indian Stamp Act: It means that the
stamps of the requisite amount must have been affixed on the instrument
.(Stamp Duty Rate is based on the duration and the amount)
+
Identification Of Promissory Note
 (a) "I promise to pay B or order Rs. 500."

 (b) " I acknowledge myself to be indebted to B in Rs. 1,000 to be paid on

demand, for value received."

 (c) Mr. B, I owe you Rs. 1,000."

 (d) I promise to pay B Rs. 500 and all other sums which shall be due to him."

 (e) I promise to pay B Rs. 500, first deducting there out any money which he
may owe me."

 (f) " I promise to pay B Rs. 500 seven days after my marriage with C."

 (g) " I promise to pay B Rs. 500 on D's death, provided D leaves me enough to
pay that sum."

 (h) " I promise to pay B Rs. 500 and to deliver to him my black horse on 1st
January next."
+
Example

 Suppose you take a loan of Rupees Five Thousand from your friend
A.

 You can make a document stating that you will pay the money to A
or the bearer on demand. Or you can mention in the document that
you would like to pay the amount after three months.

 This document, once signed by you, duly stamped and handed over
to A, becomes a negotiable instrument.

 Now A can personally present it before you for payment or give this
document to some other person to collect money on his behalf. He
can endorse it in somebody else’s name who in turn can endorse it
further till the final payment is made by you to whosoever presents
it before you. This type of a document is called a Promissory Note.
+
Bill of Exchange

 A bill of exchange is defined as 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
+
Bill of Exchange

Rs. 10,000/- New Delhi

May 2,2001
Five months after date pay Aditya or (to his) order the sum of Rupees Ten
Thousand only for value received.
To Accepted Stamp
Jatin Jatin S/d
Address Agam
+
Characteristic of Bills of Exchange
 It must be in writing.

 It must contain an order to pay and not any request.

 The order must be unconditional.

 There must be 3 parties ie : drawer, drawee, and payee.

 The parties must be certain.

 It must be signed by the drawer.

 The drawer can also draw a bill in his own name thereby he himself
becomes the payee. Here the words in the bill would be Pay to us or
order. In a bill where a time period is mentioned, just like the above
specimen, is called a Time Bill. But a bill may be made payable on
demand also. This is called a Demand Bill.
+ Promissory Notes Vs Bills of
Exchange
Promissory Notes Bills of Exchange
 It contains an unconditional  It contains an unconditional
promise. order.

 There are 2 parties – the  There are 3 parties – the

maker & the payee. drawer, the drawee & the
payee.
 It is made by the debtor.  It is made by the creditor.
 Acceptance is not required.  Acceptance by the drawee is a
must.
 The liability of the
maker/drawer is primary &  The liability of the
absolute. maker/drawer is secondary &
conditional upon non-payment
by the drawee.
+
Cheque

 A cheque is defined as a bill of exchange drawn on a specified

banker and not expressed to be payable otherwise than on demand

 Thus a cheque is a bill of exchange with 2 added features:

 It must be drawn on a specified banker &

 It is always payable on demand and not otherwise

+
Types of Cheque:

 Open Cheque

 Bearer Cheque

 Crossed Cheque

 Order Cheque
+
Crossing of the Cheque

 Crossing of a cheque is a unique feature associated with a cheque

affecting to a certain extent the obligation of the paying Banker and
also its negotiable Character.

 Crossing of a Cheque is a direction to a particular Bank by the

Drawer that Payment should not be made across the Counter. The
payment on the crossed Cheque can be collected only through a
Bank.
+
Who can cross a Cheque

 1. The drawer of a Cheque

 2. Holder of the Cheque

 3.The Bank in whose favour the cheque has been crossed specially
+
Various kinds of Crossing

1. General Crossing:- which bears across its face the words “ & co.”
or the words “not negotiable”. For general crossing two
transverse lines on the face of cheque are essential. There are two
sloping parallel lines, marked across its face

 The cheque bears an short form "& Co. "between the two parallel
lines

 The cheque bears the words "A/c. Payee" between the two
parallel lines.

 The cheque bears the words "Not Negotiable" between the two
parallel lines.
+
Specimen of General Crossing
+
Various kinds of Crossing

2. Special or Restrictive Crossing :- When a particular bank's name

is written in between the two parallel lines the cheque is said to be
specially crossed. Where a cheque bears across its face an addition
the name of banker either with or without the words “ not
negotiable”. It contains:

 The name of the banker across the face of cheque.

 With the words “ not negotiable”

In addition to the word bank, the words "A/c. Payee Only", "Not
Negotiable" may also be written. The payment of such cheque is not
made unless the bank named in crossing is presenting the cheque.
The effect of special crossing is that the bank makes payment only to
the banker whose name is written in the crossing. Specially crossed
cheques are more safe than a generally crossed cheques.
+ Specimen of Special or Restrictive
Crossing
+
A Crossed Cheque is Safer Than A
Bearer Cheque
 When a cheque is crossed, the holder thereof cannot encash it at the
counter of the bank. Encashment at the counter of the bank is
possible only in the case of an open cheque, i.e. a bearer cheque or
an uncrossed cheque.

 The holder of a crossed cheque has to present the same to his bank
for collecting its amount from the drawee bank. When the amount of
the cheque is collected, the account of the holder is credited. Thus,
it is possible to trace the party receiving the amount of the cheque.
This is not so in the case of a bearer cheque because a bearer
cheque can be encashed by anybody who presents it at the counter
of the bank. Crossing, therefore, gives protection against payment of
a cheque to wrong parties.
+
Distinction

Cheque Bill of exchange

 It must be drawn only on Bank  It can be drawn on any person
including a Bank

 The amount is always payable  The amount may be payable

on demand on demand or after a specified
time

 A usance ( time) bill is entitled

 The Cheque is not entitled to to 3 days of grace.
days of grace
 Crossing of Bill of Exchange is
 Cheque can be crossed not possible
+
Dishonour of the Cheque on the
grounds of Insufficiency of Funds :

 Specific provisions are made to discourage bouncing of cheque.

 Section 138 to 142 of the Negotiable Instruments Act provide for

Criminal Penalties in event of Dishonour of Cheques for
Insufficiency of Funds.

 The drawer under Section 138 may be punished with imprisonment

upto 2 years or with a fine twice the amount of the Cheque or with
Both.

 Still liable to make payment despite punishment.

+
Penalty for Dishonour of Cheque

 Notice to drawer within 30 days from receiving information from

bank.

 Drawer should make payment within 15 days of receipt of notice.

 If not paid then payee should lodge complain to metropolitan

magistrate or judicial magistrate of first class.

 Notice can be sent by speed post or courier.

 Both civil and criminal cases permissible.

+
Return of Cheque should be for
insufficiency of fund
 Remark should be

o Insufficiency of fund.

o Exceed arrangement.

o Refer to drawer.

 Not in case of :

 Signature does not tally.

+
Offences By Company/Firm/Body
Corporate
Every person/entity who are :

 in charge or responsible

 Offence committed with the consent

 present at the time of offence

Are guilty.

Not liable if proved that offence committed without his knowledge.

Employee of government who are nominee director are also not

liable.
+
Presumption in favour of holder

 Court will presume dishonor of cheque once it receives bank’s slip

from the complainant.

 Then burden shifts to drawer of cheque to prove that the cheque

was not dishonoured.

 Court will take into consideration only the bank’s remark.

+
Notice to Drawer

 Within 30 days.

 Cheque can be presented multiple times before issue of the legal

notice.
+
IT ACT

 Information technology is one of the important law relating to

Indian cyber laws.
 It had passed in Indian parliament in 2000.
 This act is helpful to promote business with the help of internet. It
also set of rules
 and regulations which apply on any electronic business
transaction.
+ Main Objectives and Scope

1. It is objective of I.T. Act 2000 to give legal recognition to any transaction

which is done by electronic way or use of internet.

2. To give legal recognition to digital signature for accepting any agreement via
computer.

3. To provide facility of filling document online relating to school admission or

registration in employment exchange.
4. According to I.T. Act 2000, any company can store their data in electronic
storage.

5. To stop computer crime and protect privacy of internet users.

6. To give legal recognition for keeping books of accounts by bankers and other
companies in electronic form.

7. To make more power to IPO, RBI and Indian Evidence act for restricting
electronic crime.
+
E-Cheque

 After amendments to THE NEGOTIABLE INSTRUMENTS ACT,

1881. [17th December, 2002.]

 “ Cheque" - A "cheque" is a bill of exchange drawn on a

specified banker and not expressed to be payable otherwise
than on demand and it includes the electronic image of a
truncated cheque and a cheque in the electronic form.

 E-cheques are a mode of electronic payment.

 E-cheques work the same way as paper cheques and are a

legally binding promise to pay and cryptographic signatures
are substituted for handwritten signatures.
+
E-Cheque
+
Advantages and Disadvantages

 It would be impossible for an e-cheque to bounce.

 Bank can do paperless , efficient transactions.

 Merchant does not accept E-Cheque.

 The problem could be when someone have more than one signer and
endorser.
+ Cheque Truncation System -
Concept

 Cheque truncation is the conversion of physical into substitute

electronic form for transmission.

 It eliminates cumbersome physical movement of cheque and saves

time and processing cost.
+ CTS - Process
+ How to identify a CTS '2010' compliant
cheque ?
+ Benefits of the CTS

 Shorter clearing cycle

 Physical movement of the cheque is stopped.

 Multiple clearing locations.

 Reduce the scope for perpetuation of frauds inherent in paper

instruments.

 Reduction in operational risk and risks associated with paper

clearing.

 Improve operational efficiency.

+ Adoption Challenges

 Major IT and operational investment for banks.

 Replacement of Old cheque books.

 Creating awareness- public and officials.

 Hardwired behavior.
+ Non negotiable instruments

 There are some instruments which Although they are transferable by delivery
and endorsements, yet they are not able to give better title to the bonafide
transferee for value than what the transferor has.

 Therefore these are not negotiable instrument

 Money order

 Postal orders

 Deposit reciepts

 Share certificates

 Bill of lading

 Dock warrant
+ Distinction btw transferable & negotiable

 The distinction between transferable and negotiable documents is

that a document is transferable when it can be transferred by one
person to another, passing to the transferee the rights of the original
holder but no more, while a negotiable document can give to the
transferee rights that are better or greater than the right of the
transferor, provided that consideration is given for the transfer.
Therefore, only negotiable documents are an exception to the rule
that nobody can transfer to another person more rights than he has
(“nemo plus iuris ad alium transferre potest quam ipse habet ”).
+ MADAN GUPTA VS VIDEOCON

 The place of drawing the cheque

 The place of presentation to the bank

 The place of returning of cheque unpaid by the drawee bank

 The place from where the notice is served in writing to the

drawer demanding payment

 The place where drawer had to make payment within 15 days

of notice being served
+ HEMANT CHEMICALS VS RIVERSIDE INDUSTRIES

 "If due to stopping of payment a cheque is dishonored, that

case is also covered under Section 138 of the Negotiable
Instruments Act, if other requirements of that Section are
complied with. This is settled position of law,"
+ ICICI BANK VS DECCAN CHRONICLES
 ICICI Bank had advanced a loan of Rs. 511 cr. to Deccan
Chronicle Holdings Ltd.

 Deccan Chronicles issued a cheque of Rs. 350 Cr on

November 06, 2012 in favour of ICICI bank to be drawn on
Canara Bank and paid the rest of the amount.

 Cheque was returned by Canara Bank with remarks

“INSUFFICIENT FUNDS”

 ICICI has filed a petition under Section 138 Negotiable

Instruments act in the local court.

 Court has issued summons to Deccan Chronicles to appear

and explain the cheque dishonour.
+
Kingfisher Airlines Vs. Others

 Hyderabad Court issued NBWs against Vijay Mallya and

three executives. ‘Kingfisher Airlines Vs. GMR-HIAL’ –
Kingfisher Airlines issued cheque of Rs. 10.50 Cr. which
bounced when presented to the bank.

 In July 2012, the Chhatrapati Shivaji International Airport

(CSIA), which is operated by Hyderabad-based GVK Group,
filed a case against KFA after a cheque issued by the airline
for Rs 5 crore bounced.

 Indira Gandhi International Airport has filed cases against

KFA after cheques worth Rs. 45 Crores were dishonoured.
+ CHEQUE BOUNCE OFFENCE LIKELY TO GO

 Government may soon bring an amendment in the Negotiable

Instruments(NI) Act that will restrict banks from dragging a
person to court for an offence like cheque bounce.

 Changes in the NI Act will make it compulsory for the disputing

parties to resolve the matter through alternate ‘Dispute
Resolution Mechanism’.

 As per IMG recommendation, the use of alternate dispute

resolution mechanism on the lines of Section 89 of the Code of
Civil Procedure, through arbitration; conciliation; judicial
settlement including settlement through Lok Adalat of mediation
may be made compulsory in cheque bounce cases by making
suitable amendments in the negotiable instruments act.
+

THANK YOU!