SHORT QUESTIONS ON LAW OF NEGOTIABLE INSTURMENTS ACT 1881 FOR 2019

• SHORT QUESTIONS
  LAW OF NEGOTIABLE INSTRUMENT
• SHASHI AGGARWAL ECONOMICS AND LAW CLASSES

• MEANING OF NEGOTIABLE INSTRUMENTS

1. THE LAW RELATING TO NEGOTIABLE INSTRUMENT IN INDIA IS CONTAINED IN THE NEGOTIABLE INSTRUMENT ACT 1881
2. THE TERM NEGOTIABLE INSTRUMENT MEANS A DOCUMENT TRANSFERABLE BY DELIVER,
3. ACCORDING TO SECTION 13(1) OF THE NEGOTIABLE INSTRUMENTS ACT
4. A NEGOTIABLE INSTRUMENT MEANS A PROMISSORY NOTE,BILL OF EXCHANGE OR CHEQUE PAYABLE EITHER TO ORDER OR TO THE BEARER
5. WE CAN SAY A NEGOTIABLE INSTRUMENT IS ONE WHICH WHEN TRANSFERRED BY DELIVER OR ENDORSEMENT AND DELIVERY PASSES TO THE TRANSFEREE A GOOD TITLE TO PAYMENT IRRESPECTIVE OF THE TITLE OF TRANSFEROR PROVIDED THE TRANSFEREE IS A BONA FIDE HOLDER FOR THE VALUE WITHOUT NOTICE OF ANY DEFECT IN THE TITLE OF THE TRANSFEROR

• MEANING OF NEGOTIABLE INSTRUMENTS
  
  
• THE ACT ENUMERATES THREE KINDS OF NEGOTIABLE INSTRUMENTS

1. PROMISSORY NOTES
2. BILL OF EXCHANGE
3. CHEQUES

·         BY USAGE OR LAW OTHER INSTRUMENTS OTHER THAN THOSE MENTIONED ABOVE MAY BE IMPRESSED WITH THE CHARACTER OF NEGOTIABILITY.

·         AN INSTRUMENT IS NEGOTIABLE IF IT SATISFIES TWO CONDITIONS :-

1. THAT IS IN A FORM WHICH IS CAPABLE OF BEING USED BY THE HOLDER FOR THE TIME BEING ON HIS OWN NAME
2. THAT IS TRANSFERABLE BY DELIVERY

• MEANING OF PROMISSORY NOTE
• SECTION 4 OF NEGOTIABLE INSTRUMENTS ACT :

1. AN INSTRUMENT IN WRITING ( NOT BEING BANK NOTE OR CURRENCY)
2. CONTAINING AN UNCONDITIONAL UNDERTAKING SIGNED BY THE MAKER
3. TO PAY CERTAIN SUM OF MONEY ONLY TO OR TO THE ORDER OF A
4. CERTAIN PERSON OR TO THE BEARER OF THE INSTRUMENT

• FEATURES OF PROMISSORY NOTE

1. MUST BE IN WRITING
2. THE PROMISE TO PAY MUST BE EXPRESS
3. THE PROMISE TO PAY MUST BE UNCONDITIONAL
4. MUST BE SIGNED BY MAKER
5. THE MAKER MUST BE CERTAIN
6. PROMISE MUST BE TO PAY A CERTAIN SUM
7. THE PROMISE SHOULD BE TO PAY MONEY AND MONEY ONLY
8. THE PAYEE MUST BE CERTAIN
9. OTHER FORMAILITIES

• DIFFERENCE BETWEEN BILL OF EXCHANGE AND PROMISORY NOTE
• BILL OF EXCHANGE

1. SECTION DEFINES A BILL OF EXCHANGE AS AN INSTRUMENT IN WIRING CONTAINING AN UNCONDITIONAL ORDER SIGNED BY THE MAKER DIRECTING A CERTAIN PERSON TO PAY A CERTAIN SUM OF MONEY ONLY TO OR ORDER OF A CERTAIN PERSON OR TO THE BEARER OF THE INSTRUMENT
2. THREE PARTIES : DRAWER,DRAWEE AND PAYEE
3. UNCONDITIONAL ORDER TO PAY
4. REQUIRES AN ACCEPTANCE OF THE DRAWEE BEFORE IT IS PRESENTED FOR PAYMENT
5. LIABILITY OF THE DRAWER IS SECONDARY AND CONDITIONAL
6. NOTICE OF DISHONOUR MUST BE GIVEN
7. THE DRAWER STANDS IMMEDIATE RELATION WITH THE ACCEPTOR AND NOT THE PAYEE
8. CAN BE ACCEPTED CONDITIONALLY
9. CAN BE DRAWN IN SETS
10. THE DRAWER AND PAYEE MAY BE THE SAME PERSON
11. FOREIGN BILLS MUST BE PROTESTED FOR DISHONOUR
12. PRESENTMENT,ACCEPTANCE APPLICABLE ONLY TO BE

•  
• PROMISSORY NOTE

·         SECTION 4 OF NEGOTIABLE INSTRUMENTS ACT :AN INSTRUMENT IN WRITING ( NOT BEING BANK NOTE OR CURRENCY)

·         CONTAINING AN UNCONDITIONAL UNDERTAKING SIGNED BY THE MAKER

·         TO PAY CERTAIN SUM OF MONEY ONLY TO OR TO THE ORDER OF A

·         CERTAIN PERSON OR TO THE BEARER OF THE INSTRUMENT

1.     TWO PARTIES : MAKER AND PAYEE

2.     UNCONDITIONAL PROMISE TO PAY

3.     NO ACCEPTANCE

4.     PRIMARY LIABILITY OF THE MAKER

5.     NO NOTICE OF DISHONOUR

6.     DIFFERENCE BETWEEN BILL OF EXCHANGE AND PROMISSORY NOTE

7.     MAKERS STANDS IMMEDIATE RELATION WITH PAYEE

8.     CAN NOT BE DRAWN IN SETS

9.     MAKER CAN NOT PAY TO HIMSELF

10.  NO PROTEST

11.  NOT APPLICABLE

• DIFFERENCE BETWEEN BILL OF EXCHANGE AND CHEQUE
• CHEQUE
• SECTION 6 OF THE NEGOTIABLE INSTRUMENT ACT DEFINES A CHEQUE AS 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 THE TRUNCATED CHEQUE AND A CHEQUE IN THE ELECTRONIC FORM
• ALWAYS DRAWN ON A BANK OR BANKER
• DOES NOT REQUIRE ANY ACCEPTANCE
• PAYABLE IMMEDIATELY
• MAY BE CROSSED
• NOTICE OF DISHONOUR IS NOT NECESSARY
• CAN BE PAYABLE TO THE BEARER ON DEMAND
• A CHEQUE DOES NOT REQUIRE STAMPING
• MAY BE REVOKED BY COUNTERMANDING OF PAYMENT
• NO NEED OF NOTING AND PROTESTING
• THE DRAWER F A CHEQUE IS NOT DISCHARGED BY FAILURE OF THE HOLDER TO PRESENT IT IN DUE TIME UNLESS THE DRAWER HAS SUSTAINED DAMAGES BY THE DELAY
• STATUTORY PROTECTION

•  
• BILL OF EXCHANGE
• SECTION 5 DEFINES A BILL OF EXCHANGE AS AN INSTRUMENT IN WIRING CONTAINING AN UNCONDITIONAL ORDER SIGNED BY THE MAKER DIRECTING A CERTAIN PERSON TO PAY A CERTAIN SUM OF MONEY ONLY TO OR ORDER OF A CERTAIN PERSON OR TO THE BEARER OF THE INSTRUMENT

1. CAN BE DRAWN ON ANY PERSON INCLUDING A BANKER
2. MUST BE ACCEPTED BEFORE THE DRAWEE CAN BE MADE LIABLE ON IT
3. BILL OF EXCHANGE MAY BE USANCE AND ON DEMAND THREE DAYS OF GRACE
4. BILL OF EXCHANGE MAY NOT BE CROSSED
5. MAY BE STAMPED
6. CAN NOT BE COUNTERMANDED
7. CAN BE NOTING AND PROTESTING
8. DULY PRESENTED FOR PAYMENT
9. NO PROTECTION

• CROSSING OF CHEQUES
• CROSSING IS A DIRECTION TO THE BANKER NOT TO PAY THE CHEQUE ACROSS THE COUNTER BUT TO PAY TO BANK ONLY OR TO A PARTICULAR BANK IN AN ACCOUNT WITH THE BANK. OPEN CHEQUES OR BEARER CHEQUE ARE PAID OVER THE COUNTER OF THE BANK. IT GOES TO WRONG HANDS AND FROM HIM IT IS TRANSFERRED TO A HOLDER IN DUE COURSE HE WILL GET A GOOD TITLE AND THE RIGHT OF THE ORIGINAL HOLDER WILL BE AFFECTED.
• CROSSING PROVIDES PROTECTION AND SAFEGUARD TO THE OWNER OF THE CHEQUE BECAUSE IN CASE OF CROSSING OF THE CHEQUE THE PAYMENT IS CREDITED TO THE ACCOUNT OF THE PAYEES. CAN BE FOUND OUT EASILY IN WHOSE ACCOUNT HE CHEQUE IS CREDITED. CROSSING DOES NOT AFFECT THE NEGOTIABILITY EXCEPT WHERE  WORDS NOT NEGOTIABLE IS ADDED
• MODES OF CROSSING:-
• GENERAL CROSSING
• SPECIAL CROSSING
• MEANING OF HOLDER AND HOLDER IN DUE COURSE
• HOLDERS MEANS : SECTION 8

1. ANY PERSON ENTITLED IN HIS OWN NAME TO THE POSSESSION OF PROMISSORY NOTE/BE/CHEQUE
2. MUST HAVE THE POSSESSION AND RIGHT TO RECOVER

·         HOLDER IN DUE COURSE SECTION 9

1. WHO HAS  OBTAINED THE POSSESSION OF A NEGOTIABLE INSTRUMENT FOR CONSIDERATION IN GOOD FAITH WITHOUT ANY NOTICE OF DEFECT
2. MUST HAVE OBTAINED THE POSSESSION BEFORE THE MATURITY
3. THE INSTRUMENT SHOULD BE COMPLETE ON THE FACE OF IT.

• DIFFERENCE
• HOLDER

1. ANY PERSON ENTITLED IN HIS OWN NAME TO THE POSSESSION AND RECOVERY OF THE AMOUNT
2. MAY OR MAY NOT
3. NOT BETTER TITLE
4.  AGAINST TRANSFEROR
5. MAY BE ACQUIRED AFTER MATURITY

• HOLDER IN DUE COURSE

1. GET THE INSTRUMENT FOR VALUABLE CONSIDERATION
2. MUST
3. BETTER TITLE
4. SUE ALL PRIOR PARTIES

• BEFORE MATURITY
• MEANING OF ENDORSEMENT

1. ENDORSEMENT MEANS ANY THING WRITTEN OR PRINTED UPON THE BACK OF DEED. BUT UNDER NEGOTIABLE INSTRUMENT ACT IT MEANS THE WRITING OF ONE’S NAME ON THE BACK OF THE INSTRUMENT OR ANY PAPER ATTACHED TO IT WITH THE INTENTION OF TRANSFERRING THE RIGHT THEIR IN
2. SEC 15 BILL OF EXCHANGE,PROMISSORY NOTES AND CHEQUE CAN BE TRANSFERRED BY MAKING AN ENDORSEMENT EITHER ON THE INSTRUMENT OR SEPARATE PAPER
3. NO PARTICULAR WORDS
4. THE PERSON WHO ENDORSE THE INSTRUMENT IS CALLED ENDORSER AND TO WHOM IT IS TRANSFERRED IS CALLED ENDORSEE
5. NO LEGAL LIMIT ON ENDORSEMENT
6. SEPARATE SHEET KNOWN AS ALONG IS ATTACHED

• NOTING AND PROTESTING
• MEANING OF NOTING :
• WHEN A NEGOTIABLE INSTRUMENT IS DISHONOURED,THE HOLDER CAN AFTER GIVING THE PARTIES DUE NOTICE OF DISHONOUR SUE THE PARTIES LIABLE THEREON
• SECTION 99 PROVIDES A MODE OF AUTHENTICATING THE FACT THAT A BILL HAVE BEEN DISHONOURED
• NOTING IS MINUTE RECORDED BY A NOTARY PUBLIC ON THE DISHONOURED INSTRUMENT OR ON PAPER ATTACHED TO SUCH INSTRUMENT
• NOTING SHOULD SPECIFY THE INSTRUMENT:

1. THE FACT OF DISHONOUR
2. REASON
3. THE NOTARY’S CHARGES
4. A REFERENCE TO NOTARY’S REGISTER
5. THE NOTARY’S INITIALS

• PROTESTING

1. FORMAL CERTIFICATE OF THE NOTARY PUBLIC ATTESTING THE DISHONOUR OF THE BILL BY NON ACCEPTANCE OR BY NON PAYMENT
2. NOTARY DRAW A FORMAL CERTIFICATE OF PROTEST WHICH IS FORMAL DECLARATION ON THE BILL OR COPY THEREOF
3. THE MAIN BENEFIT IS THAT THE COURT ON THE PROOF OF THE PROTEST SHALL PRESUME THE FACT OF DISHONOUR
4. BESIDES THE PROTEST FOR NON ACCEPTANCE AND NON PAYMENT THE HOLDER MAY PROTEST THE BILL FOR SECURITY
5. WHEN BILL OF EXCHANGE AND PROMISSORY NOTES ARE REQUIRED TO BE PROTESTED,NOTICE OF PROTEST MUST BE GIVEN INSTEAD OF NOTICE OF DISHONOUR
6. INLAND BILLS MAY OR MAY NOT BE PROTESTED BUT FOREIGN BILLS MUST BE PROTESTED.