Negotiable Instrumetns Act

1. NI ACT SYLLABUS-1
• Acceptance, Acceptor, Acceptor
for Honour
• Bill of Exchange, Demand Bill,
Usance Bill, Accomodation
Bill, Kite plying, Foreign Bill,
Inland Bill
• Cheque, Bearer Cheque, Order
Cheque,
• Crossing, General Crossing,
Special Crossing, Account Payee
Crossing, Not Negotiable
Crossing
• Due Date, Days of Grace
• Demand Draft
• Dishonour (Bouncing) of Cheque
• Drawee, Drawee in case of need
• Drawer.
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2. NI ACT SYLLABUS-2
• Endorsement, Endorser,
Endorsee, Full Endorsement,
Blank endorsement,
Per Pro endorsement, Restrictive
Endorsement,
Sans Recourse endorsement,
Allonge
• Exceeds arrangement
• Funds insufficient.
• Holder, Holder for value
• Holder in due course
• Inchoate instrument
• Material Alteration
• Negotiation, Negotiation Back
• Noting
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3. NI ACT SYLLABUS-3
• Payee
• Payment in due course
• Post dated Cheque
• Presentment for payment
• Promissory Note
• Protesting
• Protection to collecting banker
• Protection to Paying banker
• Provision for criminal action
• Rights & Liabilities of a holder in
due course
• Stale Cheque
• Stop payment of a Cheque
• Title of the Account
• Validity of a Cheque
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4. What is a
Negotiable Instrument?
• NEGOTIABLE INSTRUMENT IS
NOT DEFINED BY NI ACT.
• IT IS A WRITTEN DOCUMENT
WHICH CREATES SOME
RIGHTS IN FAVOUR OF SOME
PERSON AND WHICH IS
FREELY TRANSFERABLE NOT
WITHSTANDING ANY DEFECT
IN THE TITLE OF THE
TRANSFEROR
• IN CASE OF OTHER
PROPERTIES, TRANSFEREE
GETS SAME TITLE AS THAT
OF TRANSFEROR.
• IN CASE OF N.I.,
TRANSFEREE GETS GOOD
TITLE EVEN IF TRANSFEROR
HAS DEFECTIVE TITLE,
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5. DIFFERENCE BETWEEN
N I & OTHER GOODS?
• MR. X LOST A RING WORTH
Rs.5,000/- AND A BEARER
CHEQUE FAVOURING “X”
WORTH Rs.5,000/-
• MR. Y FOUND THEM. GAVE
THE CHEQUE AND RING TO A
JEWELLERS SHOP AND
PURCHASED A NEW CHAIN.
• MR.X LODGED A Police
complaint. POLICE CAN
RECOVER RING FROM
JEWWELER SHOP AND GIVE
IT TO MR.X. BUT, THEY
CANNOT RECOVER THE
CHEQUE OR ITS EQUIVALENT
FROM JEWELLER SHOP,
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6. What are
Negotiable Instruments?
• PROMISSORY NOTE, BILL OF
EXCHANGE AND CHEQUE ARE
THE THREE BASIC NEGOTIABLE
INSTRUMENTS NAMED IN NI ACT.
• THE FOLLOWING ARE ALSO
CONSIDERED AS NEGOTIABLE
INSTRUMENTS.
• DEMAND DRAFT, TRAVELLER
CHEQUE, GIFT CHEQUE, DIVIDEND
WARRANT, INTEREST WARRANT,
BANKERS’ CHEQUE, PAY ORDER,
COMMERCIAL PAPER.
• THE FOLLOWING ARE NOT
NEGOTIABLE INSTRUMENTS.
• DEPOSIT RECEIPT, NSC, POSTAL
ORDER, SHARE CERTIFICATE,
BILL OF LADING, LORRY RECEIPT,
AIRWAY BILL, RAILWAY RECEIPT,
STOCK INVEST, DOCK WARRANT
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7. What is Negotiation?
• TRANSFER OF A
NEGOTIABLE INSTRUMENT
BY PAYEE/HOLDER IN DUE
COURSE TO AN OTHER
PERSON SO AS TO
CONSTITUTE THE
TRANSFEREE THE OWNER
THERE OF IS CALLED
NEGOTIATION.
• IN SHORT IT IS TRANSFER OF
OWNERSHIP IN A N.I.
• IT IS LIKE A SALE OF N.I.
How a NI is Negotiated?
• A Bearer NI is negotiated by
Delivery.
• An Order NI is negotiated by
Endorsement & Delivery
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8. What is Negotiation?
• TRANSFER OF A
NEGOTIABLE INSTRUMENT
BY PAYEE/HOLDER IN DUE
COURSE TO AN OTHER
PERSON SO AS TO
CONSTITUTE THE
TRANSFEREE THE OWNER
THERE OF IS CALLED
NEGOTIATION.
• IN SHORT IT IS TRANSFER OF
OWNERSHIP IN A N.I.
• IT IS LIKE A SALE OF N.I.
How a NI is Negotiated?
• A Bearer NI is negotiated by
Delivery.
• An Order NI is negotiated by
Endorsement & Delivery
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9. Promissory note
S-4. It is an instrument
in writing
containing an unconditional
undertaking
signed by the maker,
to pay a certain sum of money
only to, or to the order of, a
certain person, or to the bearer
of the instrument.
“I promise to pay Bank of
Maharashtra Rs.10,000/-” Sd/
2 parties.
Promisor (Maker)
Promisee (Payee)-
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10. Bill of exchange
S-5. It 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.
• To, Mr.Vishal,
• On demand pay to Shantilal
Rs.5,000/- for value received.
• sd/-
• 3 parties.
Draqwer, Drawee, & Payee
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11. Cheque
S-6 A “cheque” is a
bill of exchange
drawn on a specified banker
payable on demand and
it includes the electronic
image of a truncated cheque
and a cheque in the electronic
form.
Bank of Maharashtra,
Pune main branch
date: 10-2-07
Pay to Shantilal or Bearer
Rs. One hundred only Rs.100/
ChNo.12345 Sd/-
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12. Holder in due course
S-9 “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
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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13. Payment in due course
S-10. “means payment in
accordance with
the apparent tenor of the
instrument
in good faith and
without negligence
to any person in possession
thereof
under circumstances which do
not afford a reasonable ground
for believing that he is not
entitled to receive payment of
the amount therein mentioned.
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14. Endorsement.
s-15. When the maker or
holder of an negotiable
instrument
signs the same,
for the purpose of negotiation,
on the back or face thereof or
on a slip of paper annexed
thereto,
he is said to indorse the same,
and is called the endorser.
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15. Types of Endorsement
S-16.
Endorsement in blank
The endorser signs his name
only,
Endorsement in full
The endorser signs his name
and adds a direction to pay the
amount mentioned in the
instrument to, or to the order
of, a specified person,
The person so specified is
called the “endorsee” of the
instrument
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16. Token Lost by bearer
• Mr. Vishal presented a bearer
cheque for Rs.10,000/-. He was
issued a token no.7
• He had gone out for a while to
attend personal work.
• When he returned to the Bank
to receive payment, he found
that the token was lost by him.
• When he went to cashier to
inform about the loss of token,
the cashier told him that the
token No.7 has already been
presented by Mr.Subhas and
he has paid 10,000/- to Subhas
• Is Bank liable to Mr.Vishal?
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17. Alteration not visible
• Mr.Vithal issued a cheque of
Rs.1,000/- to Mr.Shankar.
Mr.Shankar altered the amount
as Rs.10,000/- in words and
figures.
• The alteration was not visible
to naked eyes. The Bank
debited Rs.10,000/- to Vithal’s
account.
• Mr.Vithal demanded credit of
Rs.9,000/- since he had issued
a cheque for Rs.1,000/- and not
Rs.10,000/-
• Is Bank liable to Mr.Vithal?
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18. Stop payment by Payee
• Your customer Mr.Shantilal
issued a cheque to Mr. Ashok.
The cheque has been
presented for payment
through clearing.
• You have received a phone
from Mr.Ashok stating that the
cheque received from
Mr.Shantilal has been lost by
him. Mr.Ashok (Payee)
requests you to stop payment
of the cheque.
• Will you return the cheque?
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19. Forgery of Signature
• You have received a cheque
for Rs.10,000 through clearing
issued by your customer.
• The signature of the drawer
tallies and the cheque is in
order. you have passed the
cheque.
• Your customer has
complained that a leaf has
been stolen from his cheque
book and some body has
forged his signature, He has
not issued this cheque.
• Your customer has demanded
credit of Rs10,000/- since he
had not issued the cheque.
• Is Bank liable?
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20. Liability of Collecting
Banker
• Mr.Raju sent a DD drawn on
SBI, favouring XYZ pvt Ltd for
Rs.10,000/-
• XYZ pvt Ltd deposited the DD
in their current a/c with you.
You collected the DD and
credited the amount to their
current A/c.
• XYZ Ltd withdrew the amount
but did not send the goods to
Mr.Raju. They absconded.
• Mr.Raju filed the case against
XYZ Pvt Ltd, SBI and your
Bank
• Is Bank liable to Mr.Raju?
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21. Token first
• Mr. Vishal presented a bearer
cheque for Rs.10,000/-. He was
issued a token no.7
He approached cashier for
payment. Cashier asked for
token.
• Mr.Vishal insisted that
payment should be made first.
He will handover the token
after receiving the payment.
• Cashier insisted that the token
should be handed over first.
• Is cashier justified?
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22. Bouncing of a cheque
• What is meant by bouncing of
a cheque?
• When a drawee bank returns a
cheque unpaid without
passing it, then it is called
bouncing of a cheque.
• Whether bouncing of a
cheque is a criminal offence in
all cases?
• No. Bouncing of a cheque
becomes a criminal offence
only if the provisions as laid
down in Section 138 of NI Act
are fulfilled.
• Cheques returned with the
technical reasons do not
result in criminal offence.
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23. Preface to amendments
Negotiable Instruments
Amendment Act 1988. Came into
force w.e.f 19-12-1988
Section 138 to section 142 have
been incorporated which contain
the provisions regarding
bouncing of a cheque.
There are some safeguards to
protect the genuine cases of
cheque bouncing.
The objective was to improve the
credibility of a cheque and in turn
to enhance the acceptability of a
cheque for making payments,
To punish those who abuse the
cheque facility
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24. Section 138 of NI Act
If a person gives a cheque towards full
partial discharge of a debt or any
other liability, and if that cheque is
returned unpaid on the ground of lack
of adequate balance in an account or
for not making any arrangemnt for the
payment of the cheque, this shall be
treated as an offence under this act
and shall be punishable with
imprisonment of 2 years and or a fine
for double the amount of the cheque,
Provided the cheque is presented
within 6 months or validity period,
the payee has given a notice within 30
days and
the drawer has failed to make payment
within 15 days.
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25. S-138 SIMPLIFIED.
• Bouncing of a cheque will be a
criminal offence if the following
conditions are fulfilled.
1) Cheque should have been
issued towards a debt or any
other liability.
2) Cheques should have been
returned with the reason “Funds
insuficient” or “ Not arranged for”
“Account closed” and “Payment
stopped by the drawer” will have
the same effect as funds
insufficient.
3) Cheque should have been
presented within its validity
period or 6 months.
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26. S-138 SIMPLIFIED.(cntd)
• Bouncing of a cheque will be a
criminal offence if the following
conditions are fulfilled.
4) Payee or Holder in Due course
should have issued a notice to
the drawer within 30 days.
5) The drawer has failed to make
the payment within 15 days
6) The payee or holder in due
course files a case within 30
days.
Even if any one condition is not
fulfilled, then it will not be a
criminal offence.
However Civil case can be filed.
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27. S-138 DATES
1) DATE OF CHEQUE 10-1-06
2) CHEQUE DEPOSITED AT
COLLECTING BANK ON 12-1-06
3) CHEQUE PRESENTED TO PAYING
BANKER ON 13-1-06
4) DRAWEE BANK RETURNED THE
CHEQUE ON 14-1-06
5) COLLECTING BANK INFORMED
PAYEE ON 15-1-06
6) PAYEE RECEIVED THE NOTICE ON
16-1-06
HE HAS 2 OPTIONS.
A) REPRESENT THE CHEQUE
B) TAKE ACTION U/S 138.
HE HAS TO GIVE NOTICE BEFORE
31-1-06
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28. S-138 SIMPLIFIED.(cntd)
• Bouncing of a cheque will be a
criminal offence if the following
conditions are fulfilled.
4) Payee or Holder in Due course
should have issued a notice to
the drawer within 30 days.
5) The drawer has failed to make
the payment within 15 days
6) The payee or holder in due
course files a case within 30
days.
Even if any one condition is not
fulfilled, then it will not be a
criminal offence.
However Civil case can be filed.
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29. S-138. Questions
Q.1 How many times a cheque can
be presented?
A: There is no restriction on the
number of times a cheque can
be presented within its validity
period.
It can be presented as many
times as possible as long as it
has not become a stale cheque.
When a cheque is bounced, it is
not binding on payee to either
represent the cheque or file a
case under S-138. It is the option
of the payee. He may opt for
filing a case or he may opt for
representing the cheque. He can
file case after the last case of
bouncing.
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30. Format of Notice
From:-
Date:
To,
Reg; Bouncing of Ch. No.___
Ch.No.__ dated___ drawn on
__Branch of __ Bank for Rs.____
(Rs._______)issued by you has been
returned unpaid on _____ with the
reason_____.
Please make the payment of Rs.____
by cash/DD on or before _____.
If we do not receive the payment
within the above date, we shall be
constrained to file a criminal case
against under s-138 to s.142 of NI
ACT.
Yours faithfully
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31. S-138. Questions
CHECK YOUR BALANCE
BEFORE YOU SIGN YOUR
CHEQUE.
IF THE CHECQUE BOUNCES
YOU WILL HAVE TO CHECK IN
INTO A JAIL.
CHECKOUT AFTER TWO
YEARS.
PAY THE LODGING CHARGES
UPTO DOUBLE THE AMOUNT
OF CHEQUE.
FOR FURTHER DETAILS
CHECK SECTION 138 OF NI
ACT.
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