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4) The Negotiable Instrument Act
4) The Negotiable Instrument Act
Prior, the provision of the English Negotiable Instrument Act were applicable.
The Act operates subject to the provisions of Sections 31 and 32 of the Reserve
Bank of India Act, 1934.
Section 31 of the RBI Act: No person in India other than the Bank or as
expressly authorized by this Act, the Central Government shall draw, accept,
make or issue any bill of exchange, hundi, promissory note or engagement for
the payment of money payable to bearer on demand.
Section 32 of the RBI Act makes issue of such bills or notes punishable with fine
which may extend to the amount of the instrument.
Section 13 (a) of the Act, “Negotiable instrument means a promissory note, bill
of exchange or cheque payable either to order or to bearer, whether the word
“order” or “ bearer” appear on the instrument or not.”
Does not exclude the possibility of adding any other instrument which satisfies
the following two conditions of negotiability:
2. The person who obtains it in good faith and for value should get it free from all
defects and be entitled to recover the money of the instrument in his own
name.
Property:
In the case of bearer instrument, the property passes by mere delivery to the
transferee.
In the case of an order instrument, endorsement and delivery are required for
the transfer of property.
A bona fide transferee for value is not affected by any defect of title on the part
of the transferor or of any of the previous holders of the instrument.
Rights:
The transferee of the negotiable instrument can sue in their own name.
The holder of the instrument need not give notice of transfer to the party liable
to pay.
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PRESUMPTIONS AS TO NEGOTIABLE INSTRUMENT
Presumptions:
It is not necessary to write in a promissory note the words ‘for value received’
or similar expressions.
Prompt payment:
(f) as to stamp:— that a lost promissory note, bill of exchange or cheque was
duly stamped;
(g) that holder is a holder in due course:— that the holder of a negotiable
instrument is a holder in due course : provided that, where the instrutment has
been obtained from its lawful owner, or from any person in lawful custody
thereof, by means of an offence or fraud, or has been obtained from the maker
or acceptor thereof by means of an offence or fraud, or for unlawful
consideration, the burden of proving that the holder is a holder in due course
lies upon him.
In a suit upon an instrument which has been dishonoured, the Court shall, on
proof of the protest, presume the fact of dishonour, unless and until such fact is
disproved.
Sections 118 and 119 of the Negotiable Instrument Act lay down certain
presumptions which the court presumes in regard to negotiable instruments.
Consideration:
Rebutted by proof that the instrument had been obtained from its lawful owner
by means of fraud or undue influence.
Date:
If dated than presumed that it has been made or drawn on such date, unless the
contrary is proved.
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PRESUMPTIONS AS TO NEGOTIABLE INSTRUMENT
Time of acceptance:
If the acceptance is date, it will prima facie be taken as evidence of the date on
which it was made.
Time of transfer:
Assumed that every transfer of a negotiable instrument was made before its
maturity.
Stamp:
Assumed that a lost promissory note, bill of exchange or cheque was duly
stamped.
Proof of protest:
As per Section 119, in a suit upon an instrument which has been dishonoured,
the court shall on proof of the protest, assume the fact of dishonour.
(iii) Cheques.
(i) Hundis
The courts usually follow the practice of English courts with regards to the
character of negotiability to other instruments.
ESSENTIALS:
It must be in writing.
Other formalities
The sum payble may be “certain”, within the meaning of this section and section
4, although it includes future interest or is payable at an indicated rate of
exchange, or is according to the course of exchange, and although the
instrument provides that, on default of payment of an instalment, the balance
unpaid shall become due.
The person to whom it is clear that the direction is given or that payment is to
be made may be a “certain person”, within the meaning of this section and
section 4, although he is mis-named or designated by description only.
ESSENTIALS:
It must be in writing.
DISTINCTION:
Number of parties
Unconditional promise
Prior acceptance
Relation
Notice of dishonour
Any such instrument not so drawn, made or made payable shall be deemed to
be a foreign instrument.
Bills of exchange may be drawn in parts, each part being numbered and
containing a provision that it shall continue payable only so long as the others
remain unpaid. All the parts together make a set; but the whole set constitutes
only one bill, and is extinguished when one of the parts, if a separate bill, would
be extinguished.
As between holders in due course of different parts of the same set, he who first
acquired title to his part is entitled to the other parts and the money
represented by the bill.
The maturity of a promissory note or bill of exchange is the date at which it falls
due.
Days of grace.—
If the month in which the period would terminate has no corresponding day, the
period shall be held to terminate on the last day of such month.
Takeaway:
Section 6: “Cheque”.—
The maker of a bill of exchange or cheque is called the “drawer”; the person
thereby directed to pay is called the “drawee”.
“Drawee in case of need”.— When in the Bill or in any indorsement thereon the
name of any person is given in addition to the drawee to be resorted to in case
of need, such person is called a “drawee in case of need.”
“Acceptor”.—After the drawee of a bill has signed his assent upon the bill, or, if
there are more parts thereof than one, upon one of such parts, and delivered
the same, or given notice of such signing to the holder or to some person on his
behalf, he is called the “acceptor”.
“Acceptor for honour”.— [When a bill of exchange has been noted or protested
for non-acceptance acceptance or for better security,] and any person accepts it
supra protest for honour of the drawer or of any one of the endorsers, such
person is called an “acceptor for honour”.
The “holder” of a promissory note, bill of exchange or cheque means any person
entitled in his own name to the possession thereof and to receive or recover the
amount due thereon from the parties thereto.
Where the note, bill or cheque is lost or destroyed, its holder is the person so
entitled at the time of such loss or destruction.
“Holder in due course” means any person who for consideration became the
possessor of a promissory note, bill of exchange or cheque if payable to bearer,
before the amount mentioned in it became payable, and 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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PARTIES TO NEGOTIABLE INSTRUMENTS
Privileges of a holder in due course
When the maker or holder of a negotiable instrument signs the same, otherwise
than as such maker, for the purpose of negotiation, on the back or face thereof
or on a slip of paper annexed thereto, or so signs for the same purpose a
stamped paper intended to be completed as a negotiable instrument, he is said
to indorse the same, and is called the “endorser”.
1. If the endorser signs his name only, the indorsement is said to be “in blank,”
and if he adds a direction to pay the amount mentioned in the instrument to, or
to the order of, a specified person, the indorsement is said to be “in full”; and
the person so specified “endorsee”.—is called the “endorsee” of the instrument.
2. The provisions of this Act relating to a payee shall apply with the necessary
modifications to an indorsee.
Conditions:
The transfer must be made in such a manner as to constitute the transferee the
holder of the instrument.
The assignee entitled to possession and can recover the amount due on the
instrument from the parties.
As between such parties and any holder of the instrument other than a holder
in due course, it may be shown that the instrument was delivered conditionally
or for a special purpose only, and not for the purpose of transferring absolutely
the property therein.
Every sole maker, drawer, payee or indorsee, or all of several joint makers,
drawers, payees or indorsees, of a negotiable instrument may, if the
negotiability of such instrument has not been restricted or excluded as
mentioned in section 50, indorse and negotiate the same.
Section 52: Indorser who excludes his own liability or makes it conditional.—
Where an indorser so excludes his liability and afterwards becomes the holder
of the instrument, all intermediate indorsers are liable to him.
Conditional.
When a negotiable instrument has been lost, or has been obtained from any
maker, acceptor or holder thereof by means of an offence or fraud, or for an
unlawful consideration, no possessor or indorsee who claims through the
person who found or so obtained the instrument is entitled to receive the
amount due thereon from such maker, acceptor or holder, or from any party
prior to such holder, unless such possessor or indorsee is, or some person
through whom he claims was, a holder thereof in due course.
Forged instrument
Forged endorsement
Nothing in this section renders it necessary to give notice to the maker of the
dishonoured promissory note or the drawee or acceptor of the dishonoured bill
of exchange or cheque.
Any party receiving notice of dishonour must, in order to render any prior
party liable to himself, give notice of dishonour to such party within a
reasonable time, unless such party otherwise receives due notice as provided
by section 93.
When the instrument is deposited with an agent for presentment, the agent is
entitled to the same time to give notice to his principal as if he were the holder
giving notice of dishonour, and the principal is entitled to a further like period
to give notice of dishonour.
If the holder and the party to whom notice of dishonour is given carry on
business or live (as the case may be) in different places, such notice is given
within a reasonable time if it is dispatched by the next post or on the day next
after the day of dishonour.
If the said parties carry on business or live in the same place, such notice is
given within a reasonable time if it is dispatched in time to reach its destination
on the day next after the day of dishonour.
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
Shall be punished with imprisonment for a term which may be extended to two
years or with fine which may extend to twice the amount of the cheque, or with
both:
(a) the cheque has been presented to the bank within a period of six months from
the date on which it is drawn or within the period of its validity, whichever is
earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes
a demand for the payment of the said amount of money by giving a notice; in
writing, to the drawer of the cheque, within thirty days of the receipt of
information by him from the bank regarding the return of the cheque as
unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of
money to the payee or, as the case may be, to the holder in due course of the
cheque, within fifteen days of the receipt of the said notice.