NEGOTIABLE INSTRUMENTS ACT,1881 ACT,1881 Definition of a Negotiable Instr!ent" T#e la$ relating to negotiable instr!ents is %ontaine& in t#e Negotiable Instr!ents A%t, 1881" It is an A%t to &efine an& a!en& t#e la$ relating to 'ro!issor( notes, bills of e)%#ange an& %#e*es" T#e A%t &oes not affe%t t#e %sto! or lo%al sage relating to an instr!ent in oriental langage i"e", a +n&i" T#e ter! "negotiable instrument" !eans a &o%!ent transferable fro! one 'erson to anot#er" +o$eer t#e A%t #as not &efine& t#e ter!" It !erel( sa(s t#at -A "negotiable instr!ent- !eans a 'ro!issor( note, bill of e)%#ange or %#e*e 'a(ab1e eit#er to or&er or to bearer" .Se%tion 1/012 A negotiable instr!ent !a( be &efine& as -an instr!ent, t#e" 'ro'ert( in $#i%# is a%*ire& b( an(one $#o ta3es it bona fide, an& for ale, not$it#stan4ing an( &efe%t of title in t#e 'erson fro! $#o! #e too3 it, fro! $#i%# it follo4s t#at an instr!ent instr!ent %annot be negotiable nless it is s%# an& in s%# a state t#at t#e tre o$ner %ol& transfer t#e %ontra%t or engage!ent %ontaine& t#erein b( si!'le &elier( of instr!ent- 05illis6 The Law of Negotiable Securities, Page 6). A%%or&ing to t#is &efinition t#e follo$ing follo$ing are t#e %on&itions of negotiabilit(7 0i T#e instr!ent s#ol& be freel( transferable" An instr!ent %annot be negotiable nless it is s%# an& in s%# state t#at t#e tre o$ner %ol& transfer b( si!'le &elier( or en&orse!ent an& &elier(" 0ii T#e 'erson $#o ta3es it for ale an& in goo& fait# is not affe%te& b( t#e &efe%t in t#e title of t#e transferor" transferor" 0iii S%# a 'erson %an se 'on t#e instr!ent in #is o$n na!e" Negotiabilit( inoles t$o ele!ents na!el(, transferabilit( free fro! e*ities an& transferabilit( b( &elier( or en&orse!ent 0Moo3eree 9" In Tailors Priya " Gulab hand, AIR 1:;< Cal" Bt t#e A%t re%ognises onl( t#ree t('es of instr!ents i=", %i >ro!issor( Note, a Bill of" E)%#ange an& a C#e*e as negotiable instr!ents" +o$e4er, it &oes not !ean t#at ot#er instr!ents are not negotiable instr!ents 'roi&e& t#at t#e( satisf( t#e follo$ing %on&itions of negotiabilit(7 1" T#e instr!ent s#ol& be freel( transferable b( t#e %sto! of tra&e" Transferabilit( !a( be b( 0i &elier( or 0ii en&orse!ent an& &elier(" ?" T#e 'erson $#o obtains it in good fait# an& for %onsi&eration gets it free fro! all &efe%ts an& %an se 'on it in #is o$n na!e" /" T#e #ol&er #as t#e rig#t to transfer" T#e T#e negotiabilit( %ontines till t#e !atrit("
!ffect of Negotiability
T#e general 'rin%i'le of la$ relating to transfer of 'ro'ert( is t#at no one %an 'ass a bett better er titl title e t#an t#an #e #i!s #i!sel elff #as #as nemodat #uad non$habet). The e)%e't e)%e'tio ions ns to t#is t#is gener general al rle rle arise arise b( irt irte e of stat statt te e or b( a %st %sto! o!"" A negotiable instr!ent is one s%# e)%e'tion $#i%# is originall( a %reation of !er%antile %sto!" T#s a bona transferee of negotiable negotiable instr!ent instr!ent for %onsi&erati %onsi&eration on bona fide fide transferee $it#ot $it#ot noti%e of an( &efe%t of title, title, a%*ires t#e instr!ent free on an( &efe%t, i.e., #e a%*ires a better title t#an t#at of t#e transferor" Important Characteristics of Negotiable Instruments
@ollo$ing are t#e i!'ortant %#ara%teristi%s of negotiable instr!ents7 01 T#e #ol&er of t#e instr!ent is 'res!e& to be t#e o$ner of t#e 'ro'ert( %ontaine& in it" 0? T#e( are freel( transferable" 0/ A #ol&er in &e %orse %or se gets t#e instr!ent free fro! all &efe%ts of title of an( 'reios #ol&er" 0T#e #ol&er in &e %orse is entitle& to se on t#e instr!ent in #is o$n na!e" 0< T#e instr!ent is transferable till !atrit( an& in %ase of %#e*es till it be%o!es stale 0on t#e e)'ir( of ; !ont#s fro! t#e &ate of isse" 0; Certain e*al 'res!'tions are a''li%able to all negotiable instr!ents nless t#e %ontrar( is 'roe&" Classification of Negotiable Instruments
T#e negotiable instr!ents !a( be %lassifie& as n&er7 %) &earer &earer 'nstru 'nstrumen ments ts
A 'ro!issor( note, bill of e)%#ange or %#e*e is 'a(able to bearer $#en 0i it is e)'res e)'resse se& & to be so 'a(a 'a(abl ble, e, or 0ii 0ii t#e t#e onl( onl( or last last en&o en&orse rse!e !ent nt on t#e t#e instr!ent is an en&orse!ent in blan3, A 'erson $#o is a #ol&er of a bearer instr!ent %an obtain t#e 'a(!ent of t#e instr!ent" ()rder 'nstruments
A 'ro!issor( note, bill of e)%#ange or %#e*e is 'a(able to or&er 0i $#i%# is e)'resse& to be so 'a(able or 0ii $#i%# is e)'resse& to be 'a(able to a 'arti 'arti% %la larr 'erso 'erson, n, an& an& &oes &oes not not %onta %ontain in an( an( $or&s $or&s 'ro# 'ro#ib ibit itin ing g trans transfe ferr or in&i%ating an intention t#at it s#all not be transferable" *) 'nland 'nstruments 0Se%tion 11
A 'ro!issor( note, bill of e)%#ange e)%#ang e or %#e*e &ra$n or !a&e in In&ia, an&
!ffect of Negotiability
T#e general 'rin%i'le of la$ relating to transfer of 'ro'ert( is t#at no one %an 'ass a bett better er titl title e t#an t#an #e #i!s #i!sel elff #as #as nemodat #uad non$habet). The e)%e't e)%e'tio ions ns to t#is t#is gener general al rle rle arise arise b( irt irte e of stat statt te e or b( a %st %sto! o!"" A negotiable instr!ent is one s%# e)%e'tion $#i%# is originall( a %reation of !er%antile %sto!" T#s a bona transferee of negotiable negotiable instr!ent instr!ent for %onsi&erati %onsi&eration on bona fide fide transferee $it#ot $it#ot noti%e of an( &efe%t of title, title, a%*ires t#e instr!ent free on an( &efe%t, i.e., #e a%*ires a better title t#an t#at of t#e transferor" Important Characteristics of Negotiable Instruments
@ollo$ing are t#e i!'ortant %#ara%teristi%s of negotiable instr!ents7 01 T#e #ol&er of t#e instr!ent is 'res!e& to be t#e o$ner of t#e 'ro'ert( %ontaine& in it" 0? T#e( are freel( transferable" 0/ A #ol&er in &e %orse %or se gets t#e instr!ent free fro! all &efe%ts of title of an( 'reios #ol&er" 0T#e #ol&er in &e %orse is entitle& to se on t#e instr!ent in #is o$n na!e" 0< T#e instr!ent is transferable till !atrit( an& in %ase of %#e*es till it be%o!es stale 0on t#e e)'ir( of ; !ont#s fro! t#e &ate of isse" 0; Certain e*al 'res!'tions are a''li%able to all negotiable instr!ents nless t#e %ontrar( is 'roe&" Classification of Negotiable Instruments
T#e negotiable instr!ents !a( be %lassifie& as n&er7 %) &earer &earer 'nstru 'nstrumen ments ts
A 'ro!issor( note, bill of e)%#ange or %#e*e is 'a(able to bearer $#en 0i it is e)'res e)'resse se& & to be so 'a(a 'a(abl ble, e, or 0ii 0ii t#e t#e onl( onl( or last last en&o en&orse rse!e !ent nt on t#e t#e instr!ent is an en&orse!ent in blan3, A 'erson $#o is a #ol&er of a bearer instr!ent %an obtain t#e 'a(!ent of t#e instr!ent" ()rder 'nstruments
A 'ro!issor( note, bill of e)%#ange or %#e*e is 'a(able to or&er 0i $#i%# is e)'resse& to be so 'a(able or 0ii $#i%# is e)'resse& to be 'a(able to a 'arti 'arti% %la larr 'erso 'erson, n, an& an& &oes &oes not not %onta %ontain in an( an( $or&s $or&s 'ro# 'ro#ib ibit itin ing g trans transfe ferr or in&i%ating an intention t#at it s#all not be transferable" *) 'nland 'nstruments 0Se%tion 11
A 'ro!issor( note, bill of e)%#ange e)%#ang e or %#e*e &ra$n or !a&e in In&ia, an&
!a&e 'a(able, or &ra$n 'on an( 'erson, resi&ent resi&ent in In&ia s#all be &ee!e& to be an inlan& instr!ent" Sin%e a 'ro!issor( note is not &ra$n on an( 'erson, an inlan& 'ro!issor( note is one $#i%# is !a&e 'a(able in In&ia" Sbe%t to t#is e)%e'tion, an inlan& instr!ent is one $#i%# is eit#er7 0i &ra$n an& !a&e !a&e 'a(able 'a(able in In&ia, In&ia, or 0ii &ra$n in In&ia 'on so!e 'ersons resi&ent t#erein, een t#og# it is !a&e 'a(able in a foreign %ontr(" %ontr(" +) oreign 'nstruments
An instr!ent $#i%# is not an inlan& instr!ent, is &ee!e& to be a foreign instr!ent" T#e essentials of a foreign instr!ent in%l&e t#at7 0i it !st be &ra$n otsi&e In&ia an& !a&e 'a(able otsi&e or insi&e In&ia or 0ii it !st be &ra$n in In&ia an& !a&e 'a(able otsi&e In&ia an& &ra$n on a 'erson resi&ent otsi&e In&ia" -) emand 'nstruments 0Se%tion 1:
A 'ro!issor( 'ro!issor( note or a bill of e)%#ange in $#i%# $#i%# no ti!e for 'a(!ent is s'e%ifie& is an instr!ent 'a(able on &e!an&" 6) Time 'nstruments
Ti!e instr!ents are t#ose $#i%# are 'a(able at so!eti!e in t#e ftre" T#erefore, a 'ro!issor( note or a bill of e)%#ange 'a(able after a fi)e& 'erio&, or after sig#t, or on s'e%ifie& &a(, or on t#e #a''ening of an e4nt $#i%# is %ertain to #a''en, is 3no$n as a ti!e instr!ent" T#e e)'ression -after slig#t- in a 'ro!issor( note !eans t#at t#e 'a(!ent %annot be &e!an&e& on it nless it #as been s#o$n to t#e !a3er" In t#e %ase of bill of e)%#ange, t#e e)'ression -after sig#t- !eans after a%%e'tan%e, or after noting for non6a%%e'tan%e or after 'rotest for non6a%%e'tan%e" /mbiguous /mbiguous 'nstruments 'nstruments 0Se%tion 1
An instr!ent, $#i%# in for! is s%# t#at it !a( eit#er be treate& b( t#e #ol&er as a bill bill or as a note, note, is an a!bigos a!bigos instr!e instr!ent" nt" Se%tion Se%tion <0? of t#e Englis Englis# # Bills Bills of E)%#ange A%t 'roi&es t#at $#ere in a bill, t#e &ra$er an& t#e &ra$ee are t#e sa!e 'erson or $#ere t#e &ra$ee is a fi%titios 'erson or a 'erson in%o!'etent to %ontra%t, t#e #ol&er !a( treat t#e instr!ent, at #is o'tion, eit#er as a bill of e)%#ange or as a 'ro!issor( note" Bill &ra$n to or to t#e or&er of t#e &ra$ee or b( an agent on #is 'rin%i'al, or b( one bran%# of a ban3 on anot#er or b( t#e &ire%tion of a %o!'an( or t#eir %as#ier are also a!bigos instr!ents" A 'ro!issor( note a&&resse& to a t#ir& 'erson !a( be treate& as a bill b( s%# 'erson b( a%%e'ting it, $#ile a bill not a&&resse& to an(one !a( be treate& as a note" Bt $#ere t#e &ra$er an& 'a(ee are t#e same e.g., $#ere A &ra$s a bill 'a(able to As or&er, it is not an a!bigos instr!ent an& %annot be treate& as a 'ro!issor( note" On%e an instr!ent #as been treate& eit#er as a bill or as a note, it
%annot be treate& &ifferentl( after$ar&s" 'nchoate or 'ncom0lete 'nstrument 0Se%tion ?
5#en one 'erson signs an& &eliers to anot#er a 'a'er sta!'e& in a%%or&an%e $it# t#e la$ relating to negotiable instr!ents, an& eit#er $#oll( blan3 or #aing $ritten t#ereon an in%o!'lete negotiable instr!ent, #e t#ereb( gi:S 0rima facie at#orit( to t#e #ol&er t#ereof to !a3e or %o!'lete, as t#e %ase !a( be ,'on it a negotiable instr!ent, for an( a!ont s'e%ifie& t#erein, an& not e)%ee&ing t#e a!ont, %oere& b( t#e sta!'" S%# an instr!ent is %alle& an in%#oate instr!ent" T#e 'erson so signing s#all be liable 'on s%# instr!ent, in t#e %a'a%it( in $#i%# #e signs t#e sa!e, to an( #ol&er in &e %orse for s%# a!ont" 'roi&e& t#at no 'erson ot#er t#an a #ol&er in &e %orse s#all re%oer fro! t#e 'erson &eliering t#e instr!ent an(t#ing in e)%ess of t#e a!ont inten&e& b( #i! to be 'ai& t#ereon" T#e at#orit( to fill ' a blan3 or in%o!'lete instr!ent !a( be e)er%ise& b( an( -#ol&er- an& not onl( t#e first #ol&er to $#o! t#e instr!ent $as &eliere&" T#e 'erson signing an& &eliering t#e 'a'er is liable bot# to a -#ol&er- an& a -#ol&er6in6&e6%orse-" Bt t#ere is a &ifferen%e in t#eir res'e%tie rig#ts" A -#ol&er- %an re%oer onl( $#at t#e 'erson signing an& &eliering t#e 'a'er agree& to 'a( n&er t#e instr!ent, $#ile a -#ol&er6in6 &e6%orse- %an re%oer t#e $#ole a!ont !a&e 'a(able b( t#e instr!ent 'roi&e& t#at it is %oere& b( t#e sta!', een t#og# t#e a!ont at#orise& $as s!aller" Kinds of Negotiable Instruments
T#e A%t re%ognises onl( t#ree 3in&s of negotiable instr!ents n&er Se%tion 1/ bt it &oes not e)%l&e an( ot#er negotiable instr!ent 'roi&e& t#e instr!ent entitles a 'erson to a s! of !one( an& is transferable b( &elier(" Instr!ents $ritten in oriental langages i.e. #n&is are also negotiable instr!ents" T#ese instr!ents are &is%sse& belo$7 i) Promissory Notes
A -'ro!issor( note- is an instr!ent in $riting 0not being a ban3 note or a %rren%( note %ontaining an n%on&itional n&erta3ing, signe& b( t#e !a3er to 'a( a %ertain s! of !one( to, or to t#e or&er of, a %ertain 'erson, or onl( to bearer of t#e instr!ent" 0Se%tion Parties to a Promissory Note:
A 'ro!issor( note #as t#e follo$ing 'arties7 0a The ma1er2 t#e 'erson $#o !a3es or e)e%tes t#e note 'ro!ising to 'a( t#e a!ont state& t#erein" 0b The 0ayee2 one to $#o! t#e note is 'a(able" 0% The holder2 is eit#er t#e 'a(ee or so!e ot#er 'erson to $#o! #e !a( #ae en&orse& t#e note"
0& The endorser. 0e The endorsee. !ssentials of a Promissory Note2
To be a 'ro!issor( note" an instr!ent !st 'ossess t#e follo$ing essentials7 0a It !st be in $riting" An oral 'ro!ise to 'a( $ill not &o" 0b It !st %ontain an e)'ress 'ro!ise or %lear n&erta3ing to 'a(" A 'ro!ise to 'a( %annot be inferre&" A !ere a%3no$le&ge!ent of &ebt is not sffi%ient" If A $rites to B -I o$e (o 0I"O"U" Rs. <-,t#ere is no 'ro!ise to 'a( an& t#e instr!ent is not a 'ro!issor( note" 0% T#e 'ro!ise or n&erta3ing to 'a( !st be n%on&itional" A 'ro!ise to 'a( -$#en able-, or -as soon as 'ossible-, or -after (or !arriage to IF-, is %on&itional" Bt a 'ro!ise to 'a( after a s'e%ifi% ti!e or on t#e #a''ening of an eent $#i%# !st #a''en, is not %on&itional, e"g" -I 'ro!ise to 'a( Rs" 1,000 ten &a(s after t#e &eat# of B-, is n%on&itional"
0& T#e !a3er !st sign t#e 'ro!issor( note in to3en of an n&erta3ing to 'a( to t#e 'a(ee or #is or&er" 0e T#e !a3er !st be a %ertain 'erson, Le", t#e note !st s#o$ %learl( $#o is
t#e 'erson engaging #i!self to 'a("
"
0f T#e 'a(ee !st be %ertain" T#e 'ro!issor( note !st %ontain a 'ro!ise to 'a( to so!e 'erson or 'ersons as%ertaine& b( na!e or &esignation or to t#eir or&er" 0g T#e s! 'a(able !st be %ertain an& t#e a!ont !st" not be %a'able of %ontingent a&&itions or sbtra%tions" If A 'ro!ises to 'a( Rs" 1 an& all ot#er s!s $#i%# s#all be%o!e &e to #i!, t#e instr!ent is not a 'ro!issor( note" 0# >a(!ent !st be in legal !one( of t#e %ontr(" T#s, a 'ro!ise to 'a( Rs" < an& &elier 1 *intals of ri%e is not a 'ro!issor( note" 0i It !st be 'ro'erl( sta!'e& in a%%or&an%e $it# t#e 'roisions of t#e In&ian Sta!' A%t" Ea%# sta!' !st be &l( %an%elle& b( !a3ers signatre or initials" 0 It !st %ontain t#e na!e of 'la%e, n!ber an& t#e &ate on $#i%# it is !a&e" +o$eer, t#eir o!ission $ill not ren&er t#e instr!ent inali&, e"g" if it is n&ate&, it is &ee!e& to be &ate& on t#e &ate of &elier(" Note: A 'ro!issor( note %annot be !a&e 'a(able or isse& to bearer, no !atter $#et#er it is 'a(able on &e!an& or after a %ertain ti!e 0Se%tion /1 of t#e RBI A%t" ii) &ills of !3change A -bill of e)%#ange- is an instr!ent in $riting %ontaining an n%on&itional or&er, signe& b( t#e !a3er, &ire%ting a %ertain 'erson to 0ay a certain sum of money only to or to t#e or&er of, a %ertain 'erson or to t#e bearer of t#e instr!ent" 0Se%tion <
T#e &efinition of a bill of e)%#ange is er( si!ilar to t#at of a 'ro!issor( note an& for !ost of t#e %ases t#e rles $#i%# a''l(1 'ro!issor( notes are in general a''li%able I
to bills" T#ere are #o$eer, %ertain i!'ortant 'oints of &istin%tion bet$een t#e t$o" Parties to bills of e3change T#e follo$ing are 'arties to a bill of e)%#ange7 0a The rawer2 t#e 'erson $#o &ra$s t#e bill" 0b The rawee2 t#e 'erson on $#o! t#e bill is &ra$n" 0% The /cce0tor2 one $#o a%%e'ts t#e bill" Generall(, t#e &ra$ee is t#e a%%e'tor bt a stranger !a( a%%e't it on be#alf of t#e &ra$ee"
d) The 0ayee2 one to $#o! t#e s! state& in t#e bill is 'a(able, eit#er t#e
&ra$eror an( ot#er 'erson !a( be t#e 'a(ee" 0e The holder2 is eit#er t#e original 'a(ee or an( ot#er 'erson to $#o!, t#e 'a(ee #as en&orse& t#e bill" In %ase of a bearer bill, t#e bearer is t#e #ol&er" 0f The endorser2 $#en t#e #ol&er en&orses t#e bill to an(one else #e be%o!es t#e en&orser" 0g The endorsee2 is t#e 'erson to $#o! t#e bill is en&orse&" 0# rawee in case of need2 Besi&es t#e aboe 'arties" anot#er 'erson %alle& t#e -&ra$ee in %ase of nee&-, !a( be intro&%e& at t#e o'tion of t#e &ra$er" T#e na!e of s%# a 'erson !a( be inserte& eit#er b( t#e &ra$er or b( an( en&orser in or&er t#at resort !a( be #a& to #i! in %ase of nee&, i"e", $#en t#e bill is &is#onore& b( eit#er non6a%%e'tan%e or non6'a(!ent" 0i /cce0tor for honour2 @rt#er, an( 'erson !a( olntaril( be%o!e a 'art( to a bill as a%%e'tor" A 'erson, $#o on t#e refsal b( t#e original &ra$ee to a%%e't t#e bill or to frnis# better se%rit(, $#en &e!an&e& b( t#e notar(, a%%e't t#e bill su0ra 0rotest in or&er to safegar& t#e #onor of t#e &ra$er or an( en&orser, is %alle& t#e a%%e'tor for #onor" !ssentials of a &ill of !3change2
01 It !st be in $riting" 0? It !st %ontain an n%on&itional or&er to 'a( !one( onl( an& not !erel( a re*est 0/ It !st be signe& b( t#e &ra$er" 0 T#e 'arties !st be %ertain" 0< T#e s! 'a(able !st also be %ertain" 0; It !st %o!'l( $it# ot#er for!alities e"g" sta!'s, &ate,et%" istinction between &ill of !3change and Promissory Note
T#e follo$ing are t#e i!'ortant 'oints of &istin%tion bet$een a bill of e)%#ange an& a 'ro!issor( note7 0a A 'ro!issor( note is a t$o6'art( instr!ent, $it# a !a3er 0&ebtor an& a
'a(ee 0%re&itor" In a bill" t#ere are t#ree 'arties6&ra$er, &ra$ee an& 'a(ee, t#og# an( t$o ot of t#e t#ree %a'a%ities !a( be fille& b( one an& t#e sa!e 'erson" In a bill t#e &ra$er is t#e !a3er $#o or&ers t#e &ra$ee to 'a( t#e bill to a 'erson %alle& t#e 'a(ee or to #is or&er" 5#en t#e &ra$ee a%%e'ts t#e bill #e is %alle& t#e a%%e'tor, 0b A note %annot be !a&e 'a(able to t#e !a3er #i!self, $#ile in a bill, t#e &ra$er an& 'a(ee !a( be t#e sa!e 'erson" 0% A note %ontains an n%on&itional 'ro!ise b( t#e !a3er to 'a( to t#e 'a(ee or #is or&er in a bill t#ere is an n%on&itional or&er to t#e &ra$ee to 'a( a%%or&ing to t#e &ire%tions of t#e &ra$er" 0& A note is 'resente& for 'a(!ent $it#ot an( 'rior a%%e'tan%e b( t#e !a3er" A bill 'a(able after sig#t !st be a%%e'te& b( t#e &ra$ee or so!eone else on #is be#alf before it %an be 'resente& for 'a(!ent" 0e T#e liabilit( of t#e !a3er of a 'ro6note is 'ri!ar( an& absolte, bt t#e liabilit( of t#e &ra$er of a bill is se%on&ar( an& %on&itional" 0f @oreign bill !st be 'roteste& for &is#onor bt no s%# 'rotest is ne%essar( in t#e %ase of a note" 0g 5#en a bill is &is#onore&, &e noti%e of &is#onor is to be gien b( t#e #ol&er to t#e &ra$er an& t#e inter!e&iate en&orsee, bt no s%# noti%e nee& to be gien in t#e %ase of a note" 0# A bill %an be &ra$n 'a(able to bearer 'roi&e& it is not 'a(able on &e!an&" A 'ro!issor( note %annot be !a&e 'a(able to be/rer, een if it is !a&e 'a(able ot#er$ise t#an on &e!an&"
4ow &ill of !3change riginates 6 orms of &ills of !3change.
Bills of e)%#ange $ere originall( se& for 'a(!ent of &ebts b( tra&ers resi&ing in one %ontr( to anot#er %ontr( $it# a ie$ to aoi& trans!ission of %oin" No$6a6&a(s t#e( are se& !ore as tra&e bills bot# in %onne%tion $it# &o!esti% tra&e an& foreign tra&e an& are %alle& inlan& bills an& foreign bills res'e%tiel(" 'nland &ills 0Se%tions 11 an& 1?
A bill of e)%#ange is an inlan& instr!ent if it is 0i &ra$n or !a&e an& 'a(able in In&ia, or 0ii &ra$n in In&ia 'on an( 'erson $#o is a resi&ent in In&ia, een t#og# it is !a&e 'a(able in a foreign %ontr(" Bt a 'ro!issor( note to be an inlan& s#oi& be &ra$n an& 'a(able in In&ia, as it #as no &ra$ee" T$o essential %on&itions to !a3e an inlan& instr!ent are7 01 t#e instr!ent !st #ae been &ra$n or !a&e in In&ia an& 0? t#e instr!ent !st be 'a(able in In&ia or t#e &ra$ee !st be in In&ia" !3am0les2 A bill &ra$n in In&ia, 'a(able in USA, 'on a 'erson in In&ia is an
inlan& instr!ent" A bill &ra$n in In&ia an& 'a(able in In&ia bt &ra$n on a
'erson in USA is also an inlan& instr!ent or !a&e in In&ia oreign &ills
All bills $#i%# are not inlan& are &ee!e& to be foreign bills" Nor!all( foreign bills are &ra$n in sets of t#ree %o'ies" Trade &ill
A bill &ra$n an& a%%e'te& for a genine tra&e transa%tion is ter!e& as a tra&e bill" 5#en a tra&er sells goo&s on %re&it, #e !a( !a3e se of a bill of e)%#ange" S''ose A sells goo&s $ort# Rs" 1, to B an& allo$s #i! : &a(s ti!e to 'a( t#e 'ri%e, A $ill &ra$ a bill of e)%#ange on B, in t#e follo$ing ter!s7 -Ninet( &a(s after &ate 'a( A or or&er, t#e s! of one t#osan& r'ees onl( for ale re%eie&-" A $ill sign t#e bill an& t#en 'resent it to B for a%%e'tan%e" T#is is ne%essar( be%ase, ntil a bill is a%%e'te&
b( t#e &ra$ee, nobo&( #as eit#er rig#ts or obligations" If B agrees to obe( t#e or&er of A, #e $ill a%%e't t#e bill b( $riting a%ross its fa%e t#e $or& -a%%e'te&an& signing #is na!e n&erneat# an& t#en &eliering t#e bill to t#e #ol&er" B, t#e &ra$ee, no$ be%o!es t#e a%%e'tor of t#e bill an& liable to its #ol&ers" S%# a bill is a genine tra&e bill" /ccommodation &ill
All bills are not genine tra&e bills, as t#e( are often &ra$n for a%%o!!o&ating a 'art(" An a%%o!!o&ation bill is a bill in $#i%# a 'erson len&s or gies #is na!e to oblige a frien& or so!e 'erson $#o! #e 3no$s or ot#er$ise" In ot#er $or&s, a bill $#i%# is &ra$n, a%%e'te& or en&orse& $it#ot %onsi&eration is %alle& an a%%o!!o&ation bill" T#e 'art( len&ing #is na!e to oblige t#e ot#er 'art( is 3no$n as t#e a%%o!!o&ating or a%%o!!o&ation 'art(, an& t#e 'art( so oblige& is %alle& t#e 'art( a%%o!!o&ate&" An a%%o!!o&ation 'art( is not liable on t#e instr!ent to t#e 'art( a%%o!!o&ate& be%ase as bet$een t#e! t#ere $as no %onsi&eration an& t#e instr!ent $as !erel( to #el', Bt t#e a%%o!!o&ation 'art( is liable to a #ol&er for ale, $#o ta3es t#e a%%o!!o&ation bill for ale, t#og# s%# #ol&er !a( not be a #ol&er in &e %orse" T#s, A !a( be in nee& of !one( an& a''roa%# #is frien&s B an& C $#o, instea& of len&ing t#e !one( &ire%tl(, 'ro'ose to &ra$ an -A%%o!!o&ation Bill- in #is
faor in t#e follo$ing for!7 -T#ree !ont#s after &ate 'a( A or or&er, t#e s! of R'ees one t#osan& onl( B To C
If t#e %re&it of Ban& C is "goo&, t#is &ei%e enables A to get an a&an%e of Rs" 1, fro! #is ban3er at t#e %o!!er%ial rate of &is%ont" T#e real &ebtor in t#is %ase is not C, bt A t#e 'a(ee $#o 'ro!ises to rei!brse C before t#e 'erio& of t#ree !ont#s onl(" A is #ere t#e 'rin%i'al &ebtor an& Ban& C are !ere sreties" T#is inersion of liabilit( affor&s a goo& &efinition of an a%%o!!o&ation bill -If as bet$een t#e original 'arties to 6 t#e bill t#e one $#o s#ol& 0rima facie be 'rin%i'al is in" fa%t t#e sret( $#et#er #e be &ra$er, a%%e'tor, or en&orser, t#at bill is an a%%o!!o&ation bill-" \
Bills in Sets (Section 1/? an& 1//
@oreign bills are sall( &ra$n in sets to aoi& t#e &anger of loss" T#e( ar:e &ra$n in sets of t#ree, ea%# of $#i%# is %alle& -ia- an& as soon as an(one of t#e! is 'ai&, t#e ot#ers be%o!e ino'eratie" All t#ese 'arts for! one bill an& t#e &ra$er !st sign an& &elier all of t#e! to t#e 'a(ee" T#e sta!' is affi)e& onl( on one 'art an& one 'art is re*ire& to be a%%e'te&" Bt if t#e &ra$er !ista3enl( a%%e'ts all t#e 'arts of t#e sa!e bill, #e $ill be liable on ea%# 'art accepted as if it $ere a se'arate bill" 5ight to u0licate &ill
5#ere a bill of e)%#ange #as been lost before it $as oer&e, t#e 'erson $#o $as t#e #ol&er to it !a( a''l( to t#e &ra$er, to gie #i! anot#er bill of t#e sa!e tenor" It is onl( t#e #ol&er $#o %an as3 for a &'li%ate bill, 'ro!issor( note or %#e*e" Bank Draft A bill of e)%#ange is also so!eti!es s'o3en of as a &raft" It is %alle& as a ban3 &raft $#en a bill of e)%#ange &ra$n b( one ban3 on anot#er ban3, or b( itself on its o$n bran%#, an& is a negotiable instr!ent" It is er( !%# li3e t#e %#e*e $it# t#ree 'oints of &istin%tion bet$een t#e t$o" A ban3 &raft %an be &ra$n onl( b( a ban3 on anot#er ban3, sall( its o$n bran%#" It %annot so easil( be %onter6!an&e&" It %annot be !a&e 'a(able to bearer"
HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH HHHHHHHHHHH
S0ecimen of a &an1 raft
/.&.. Bank .7.8. &ranch
No.....................
ate...................
n demand 0ay 9/9 or order the sum of ru0ees one thousand fi:e hundred only for :alue recei:ed. 5s. %,-;;<$
Sd.< =anager
To 9&9 &ranch, Place)
In t#e aboe &e!an& &raft t#e &ra$er is "J"K" Bran%#, t#e &ra$ee is B bran%# an& t#e 'a(ee is A" iii) he#ues
Se%tion ; of t#e A%t 'roi&es t#at a %#e*e is a bill of e)%#ange &ra$n on a s'e%ifie& ban3er, an& not e)'resse& to be 0ayable otherwise than on demand. Si!'l( state&, a %#e*e is a bill of e)%#ange &ra$n on a ban3 'a(able al$a(s on &e!an&" T#s, a %#e*e is a bill of e)%#ange $it# t$o a&&itional *alifi%ations, na!el(7 0i it is al$a(s &ra$n on a ban3er, an& 0ii it is al$a(s 'a(able on &e!an&" A %#e*e being a s'e%ies of a bill of e)%#ange, !st satisf( all t#e re*ire!ents of a bill it &oes not, howe:er, re#uire acce0tance.
Note: B( irte of Se%tion /1 of t#e Resere Ban3 of In&ia A%t, no bill of e)%#ange or #n&i %an be !a&e 0ayable to bearer on demand an& no 'ro!issor( note or a ban1 draft can be made 0ayable to bearer at all, whether on demand or after a s0ecified time. nly a che#ue can be 0ayable to bearer on demand. Parties to a cheque
The following are the parties to a cheque: (a) The drawer: The person who draws the cheque (!) The drawee: The !an"er of the drawer on who# the cheque is drawn
(c), (d), (e) and (f) The pa$ee, holder, endorser and endorsee: sa#e as in the case of a !ill Essentials of a Cheque (1)
It is alwa$s drawn on a !an"er
(%) It is alwa$s pa$a!le on de#and (&) It does not require acceptance There is, howe'er, a custo# a#ong !an"s to #ar" cheques as good for purposes of clearance () A cheque can !e drawn on !an" where the drawer has an account () *heques #a$ !e pa$a!le to the drawer hi#self It #a$ !e #ade pa$a!le to !earer on de#and unli"e a !ill or a note (+) The !an"er is lia!le onl$ to the drawer A holder has no re#ed$ against the !an"er if a cheque is dishonoured (-) A cheque is usuall$ 'alid for fi. #onths /owe'er, it is not in'alid f it is post dated or antedated () No Sta#p is required to !e affi.ed on cheques istinction between he#ues and &ills of !3change
As a general rle, t#e 'roisions a''li%able to bills pa$a!le on de#and appl$ to cheques, (et t#ere are fe$ 'oints of &istin%tion bet$een t#e t$o, na!el(7 0a A %#e*e is a bill of e)%#ange an& al$a(s &ra$n on a ban3er, $#ile a bill !a( be &ra$n on an(one, in%l&ing ban3er" 0b A %#e*e %an onl( be &ra$n 'a(able on &e!an&, a bill !a( be &ra$n 'a(able on &e!an&, or on t#e e)'ir( of a s'e%ifie& 'erio& after sig#t or &ate" 0% A bill 'a(able after sig#t !st be a%%e'te& before 'a(!ent %an be &e!an&e&, a %#e*e &oes not re*ire a%%e'tan%e and is inten&e& for i!!e&iate 'a(!ent" 0& A gra%e of / &a(s is allo$e& in t#e %ase of ti!e bills, $#ile no gra%e is gien" in t#e %ase of a %#e*e, for 'a(!ent" 0e T#e &ra$er of a bill is &is%#arge&, if it is not 'resente& for 'a(!ent, bt t#e &ra$er of a %#e*e is &is%#arge& onl( if #e sffers an( &a!age b( &ela( in 'resent!ent for 'a(!ent" 0f Noti%e of t#e &is#onor of a bill is ne%essar(, bt not in t#e %ase of a %#e*e" 0g T#e %#e*e being a reo%able !an&ate, t#e at#orit( !a( be reo3e& b( %onter!an&ing 'a(!ent, an& is &eter!ine& b( noti%e of t#e %sto!ers &eat# or insolen%(" T#is is not so in t#e %ase of bilt h) / che#ue may be crossed, but not a bill
A %#e*e is a bill of e)%#ange &ra$n on a s'e%ifie& ban3er an& al$a(s 'a(able on &e!an&" A %#e*e is al$a(s &ra$n on a 'arti%lar ban3er an& is al$a(s 'a(able on &e!an&" Conse*entl(, all %#e*es are bills of e)%#ange bt all bills are not %#e*es"
Speci#en of a *heque A2* 2an"
3ate4444444444444 5a$ 6A7or the !earer
su# of rupeesonl$ A8c No9
;s8 Sd8
No Banker
A ban3er is one $#o &oes ban3ing bsiness" Se%tion <0b of t#e Ban3ing Reglation A%t, 1:: &efines ban3ing as, -a%%e'ting for t#e 'r'ose of len&ing or inest!ent, of &e'osits of !one( fro! t#e 'bli%, re'a(able on &e!an& or ot#er$ise an& $it#&ra$able b( %#e*e, &raft or ot#er$ise"- T#is &efinition e!'#asises t$o 'oints7 01 t#at t#e 'ri!ar( fn%tion of a ban3er %onsists of a%%e'ting of &e'osits for t#e 'r'ose of len&ing or inesting t#e sa!e 0? t#at t#e a!ont &e'osite& is re'a(able to t#e &e'ositor on &e!an& or a%%or&ing to t#e agree!ent" T#e &e!an& for re'a(!ent %an be !a&e t#rog# a %#e*e, &raft or ot#er$ise, an& not !erel( b( erbal or&er" Customer
T#e ter! -%sto!er- is neit#er &efine& in In&ian nor in Englis# stattes" T#e general o'inion is t#at a %sto!er is one $#o #as an a%%ont $it# t#e ban3 or $#o tilises t#e seri%es of t#e ban3" T#e s'e%ial featres of t#e legal relations#i' bet$een t#e ban3er an& t#e %sto!er !a( be ter!e& as t#e obligations an& rig#ts of t#e ban3er" T#ese are7 1" Obligation to #onor %#e*es of t#e %sto!ers" ?" Obligation to %olle%t %#e*es an& &rafts on be#alf of t#e %sto!ers" /" Obligation to 3ee' 'ro'er re%or& of transa%tions $it# t#e %sto!er" " Obligation to %o!'l( $it# t#e e)'ress stan&ing instr%tions of t#e %sto!er" <" Obligation not to &is%lose t#e state of %sto!ers a%%ont to an(one else" ;" Obligation to gie reasonable noti%e to t#e %sto!er, if t#e ban3er $is#es to %lose t#e a%%ont" " Rig#t of lien oer an( goo&s an& se%rities baile& to #i! for a general balan%e of account. 8" Rig#t of set off an& rig#t of a''ro'riation" :" Rig#t to %lai! in%i&ental %#arges an& interest as 'er rles an& reglations of t#e ban3 as %o!!ni%ate& to t#e %sto!er at t#e ti!e of o'ening t#e a%%ont"
Liability of a Banker
B( o'ening a %rrent a%%ont of a %sto!er, t#e ban3er be%o!es liable to #is &ebtor to t#e e)tent of t#e a!ont so re%eie& in t#e sai& a%%ont an& n&erta3es to #onor t#e %#e*es &ra$n b( t#e %sto!er so long as #e #ol&s sffi%ient fn&s to t#e %sto!ers %re&it" If a ban3er, $it#ot stifi%ation, fails to #onor t1is %sto!ers %#e*es, #e is liable to %o!'ensate t#e &ra$er for an( loss or &a!age sffere& b( #i!" Bt t#e 'a(ee or #ol&er of t#e %#e*e #as no %ase of a%tion against t#e ban3er as t#e obligation to #onor a %#e*es is onl( to$ar&s t#e &ra$er" T#e ban3er !st also !aintain 'ro'er an& a%%rate a%%onts of %re&its an& &ebits" +e !st #onor a %#e*e 'resente& in &e %orse" Bt in t#e follo$ing %ir%!stan%es,
#e must refse to #onor a %#e*e an& in so!e ot#ers #e may &o so" 8. When Banker must Refuse Payment
In t#e follo$ing %ases t#e at#orit( of t#e ban3er to #onor %sto!ers %#e*e %o!es to an en&, #e must refse to #onor %#e*es isse& b( t#e %sto!er7 0a 5#en a %sto!er %onter!an&s 'a(!ent Le", $#ere or $#en a %sto!er, after issing a %#e*e isses instr%tions not to #onor it, t#e ban3er !st not 'a( it" b) >hen the ban1er recei:es notice of customer9s death.
5#en %sto!er #as been a&&ge& an insolent" 0& 5#en t#e ban3er re%eies noti%e of %sto!ers insanit(" e) >hen an order e.g., Garnishee rder) of the ourt, 0rohibits 0ayment. f) >hen the customer has gi:en notice of assignment of the credit balance of his account.
0g 5#en t#e #ol&ers title is &efe%tie an& t#e ban3er %o!es to 3no$ of it" h) >hen the customer has gi:en notice for closing his account.
When Banker may Refuse Payment
In t#e follo$ing %ases t#e ban3er !a( refse to 'a( a %sto!ers %#e*e7 0a 5#en t#e %#e*e is 'ost6&ate&" 0b 5#en t#e ban3er #as not sffi%ient fn&s of t#e &ra$er $it# #i! an& t#ere is no %o!!ni%ation bet$een t#e ban3 an& t#e %sto!er to #onor t#e %#e*e" 0% 5#en t#e %#e*e is of &obtfl legalit(" 0& 5#en t#e %#e*e is not &l( 'resente&, e"g", it is 'resente& after ban3ing #ors" 0e 5#en t#e %#e*e on t#e fa%e of it is irreglar, a!bigos or ot#er$ise
!ateriall( altered. (f)
5rotection of 5a$ing 2an"er (Sections 10, and 1%) Se%tion 8< la(s &o$n t#at $#ere a %#e*e 'a(able to or&er 'r'orts to be en&orse& b( or on be#alf 6of t#e 'a(ee t#e ban3er is &is%#arge& b( 'a(!ent in &e %orse" +e %an &ebit t#e a%%ont of t#e %sto!er $it# t#e a!ont een t#og# t#e en&orse!ent trns ot sbse*entl( to #ae been forge&, or t#e agent of t#e 'a(ee $it#ot at#orit( en&orse& it on be#alf of t#e 'a(ee" It $ol& be seen t#at t#e 'a(ee in%l&es en&orsee" T#is 'rote%tion is grante& be%ase a ban3er %annot be e)'e%te& to 3no$ t#e signatres of all t#e 'ersons in t#e $orl&" +e is onl( bon& to 3no$ t#e signatres of #is o$n %sto!ers" T#erefore, t#e forger( of &ra$ers signatre $ill not or&inaril( 'rote%t t#e ban3er bt een in t#is %ase, t#e ban3er !a( &ebit t#e a%%ont of t#e %sto!er, if it %an s#o$ t#at t#e forger( $as inti!atel( %onne%te& $it# t#e negligen%e of t#e %sto!er an& $as t#e 'ro)i!ate %ase of loss" I n t#e %ase of bearer %#e*es, t#e rle is t#at on%e a bearer %#e*e, al$a(s a bearer %#e*e" 5#ere, t#erefore, a %#e*e originall( e)'resse& b( t#e &ra$er #i!self to be 'a(able to bearer, t#e ban3er !a( ignore an( en&orse!ent on t#e %#e*e" +e $ill be &is%#arge& b( 'a(!ent in &e %orse" Bt a %#e*e $#i%# be%o!es bearer b( a sbse*ent en&orse!ent in blan3 is not %oere& b( t#is Se%tion" A ban3er is &is%#arge& fro! liabilit( on a %rosse& %#e*e if #e !a3es 'a(!ent in &e %orse" Payment in due Course 0Se%tion 1
An( 'erson liable to !a3e 'a(!ent n&er a negotiable instr!ent, !st !a3e t#e 'a(!ent of t#e a!ont &e t#eren&er in &e %orse in or&er to obtain a ali& &is%#arge against t#e #ol&er" A 'a(!ent in &e %orse !eans a 'a(!ent in a%%or&an%e $it# t#e a''arent tenor of t#e instr!ent, in good fait# an& $it#ot negligen%e to an( 'erson in 'ossession t#ereof" " A 'a(!ent $ill be a 'a(!ent in &e %orse if7 0a it is in a%%or&an%e $it# t#e a''arent tenor of t#e instr!ent, i"e" a%%or&ing to $#at a''ears on t#e fa%e of t#e instr!ent to be t#e intention of t#e 'arties 1
0b it is !a&e in goo& fait# an& $it#ot negligen%e, an& n&er %ir%!stan%es $#i%# &o not affor& a gron& for belieing t#at t#e 'erson to $#o! it is !a&e is not entitle& to re%eie t#e a!ont
0% it is !a&e to t#e 'erson in 'ossession of t#e instr!ent $#o is entitle& as #ol&er to re%eie 'a(!ent 0& 'a(!ent is !a&e n&er %ir%!stan%es $#i%# do not afford a reasona!le gron& belieing t#at #e is not entitle& to re%eie 'a(!ent of t#e a!ont !entione& in t#e instr!ent an& 0e 'a(!ent is !a&e in !one( an& !one( onl(" Un&er Se%tions 1 an& 1?8, a 'a(ing ban3er !a3ing 'a(!ent in &e %orse is 'rote%te&" Collecting Banker
Colle%ting Ban3er is one $#o %olle%ts t#e 'ro%ee&s of a %#e*e for a %sto!er" Alt#og# a ban3er %olle%ts t#e 'ro%ee&s of a %#e*e for a %sto!er 'rel( as a !atter of seri%e, (et t#e Negotiable Instr!ents A%t, 1881 in&ire%tl( i!'oses stattor( obligation" T#is is ei&ent fro! Se%tion 1?; of t#e A%t $#i%# 'roi&es t#at a %#e*e bearing a -general %rossing- s#all not be 'ai& to an(one ot#er t#an ban3er an& a %#e*e $#i%# is -s'e%iall( %rosse&- s#all not be 'ai& to a 'erson ot#er t#an t#e ban3er to $#o! it is %rosse&" T#s, a 'a(ing ban3er !st 'a( a generall( %rosse& %#e*e onl( to a ban3er t#ereb( !eaning t#at it s#ol& be %olle%te& b( anot#er ban3er" 5#ile so %olle%ting t#e %#e*es for a %sto!er, it is *ite 'ossible t#at t#e ban3er %olle%ts for a %sto!er, 'ro%ee&s of a %#e*e to $#i%# t#e %sto!er #a& no title in fa%t" In s%# %ases, t#e tre o$ner !a( se t#e %olle%ting ban3er for -%onersion-" At t#e sa!e ti!e, it %annot be e)'e%te& of a ban3er to 3no$ or to ensre t#at all t#e signatres a''earing in en&orse!ents on t#e reerse of t#e %#e*e are genine" T#e ban3er is e)'e%te& to be %onersant onl( $it# t#e signatres of #is %sto!er" A %sto!er to $#o! a %#e*e #as been en&orse&, $ol& re*e4t #is ban3er to %olle%t a %#e*e" In t#e eent of t#e en&orsers signatre being 'roe& to be forge& at iater &ate, t#e ban3er $#o %olle%te& t#e 'ro%ee&s s#ol& not be #el& liable for t#e si!'le reason t#at #e #as !erel( %olle%te& t#e 'ro%ee&s of a %#e*e" Se%tion 1/1 of t#e Negotiable Instr!ents A%t affor&s stattor( 'rote%tion in s%# a %ase $#ere t#e %sto!ers title to t#e %#e*e $#i%# t#e ban3er #as %olle%te& #as been *estione&" It rea&s as follo$s7
-A ban3er $#o #as in good fait# an& $it#ot negligen%e re%eie& 'a(!ent for a %sto!er of a %#e*e %rosse& generall( or s'e%ifi%all( to #i!self 6s#all not, in %ase t#e title to t#e %#e*e 'roes &efe%tie, in%r an( liabilit( to t#e tre o$ner of t#e %#e*e b( reason of onl( #aing re%eie& s%# 'a(!ent" !30lanation2 A ban3er re%eies 'a(!ent of a %rosse& %#e*e for a %sto!er $it#in
t#e !eaning of t#is se%tion not$it#stan&ing t#at #e %re&its #is %sto!ers a%%ont $it# t#e a!ont of6t#e %#e*e before re%eiing 'a(!ent t#ereof"T#e re*isites of %lai!ing 'rote%tion n&er Se%tion 1/1 are as follo$s7 0i T#e %olle%ting ban3er s#ol& #ae a%te& in goo& fait# an& $it#ot negligen%e" An a%t is &one in goo& fait# $#en it is &one #onestl(" T#e 'lea of goo& fait# %an
be rebtte& on t#e gron& of re%3lessness in&i%atie of $ant of 'ro'er %are an& attention" T#erefore, !%# &e'en&s 'on t#e fa%ts of t#e %ase" T#e br&en of 'roing t#at t#e %#e*e $as %olle%te& in goo& fait# an& $it#ot negligen%e is 'on t#e ban3er %lai!ing 'rote%tion" @ailre to erif( t#e reglarit( of en&orse!ents, %olle%ting a %#e*e 'a(able to t#e a%%ont of t#e %o!'an( to t#e %re&it of t#e &ire%tor, et%" are e)a!'les of negligen%e" 0ii T#e ban3er s#ol& #ae %olle%te& a %rosse& %#e*e, i"e", t#e %#e*e s#ol& #ae been %rosse& before it %a!e to #i! for %olle%tion" 0iii T#e 'ro%ee&s s#ol& #ae been %olle%te& for a %sto!er, i"e", a 'erson $#o #as an a%%ont $it# #i!" 0i T#at t#e %olle%ting ban3er #as onl( a%te& as an agent of t#e %sto!er" If #e #a& be%o!e t#e #ol&er for ale, t#e 'rote%tion aailable n&er Se%tion 1/1 is forfeite& 6 5#ere for instan%e, t#e ban3er allo$s t#e %sto!er to $it#&ra$ t#e a!ont of t#e %#e*e before t#e %#e*e is %olle%te& or $#ere t#e %#e*e #as been a%%e'te& in s'e%ifi% re&%tion of an oer&raft, t#e ban3er is deemed to ha:e become the holder for :alue and the 0rutection is lost. Bt t#e e)'lanation to Se%tion 1/1 sa(s t#at t#e !ere %re&iting of t#e a!ont to t#e a%%ont &oes not i!'l( t#at t#e ban3er #as be%o!e a #ol&er for ale be%ase &e to a%%onting %onenien%es t#e ban3er !a( %re&it t#e a%%ont of t#e %#e*e to t#e %sto!ers a%%ont een before 'ro%ee&s t#ereof are realise&" Oerdue! "tale or Out#of#date Che$ues
A %#e*e is oer&e or be%o!es statte6barre& after t#ree (ears fro! its &e &ate of isse" A #ol&er %annot se on t#e %#e*e after t#at ti!e" A'art fro! t#is 'roision, t#e #ol&er of a %#e*e is re*ire& to 'resent it for 'a(!ent $it#in a reasonable ti!e, as a %#e*e is not !eant for in&efinite %ir%lation" In In&ia, a %#e*e, $#i%# #as been in %ir%lation for !ore t#an si) !ont#s, is regar&e& b( ban3ers as stale" If, as a reslt of an( &ela( in 'resenting a %#e*e, t#e &ra$er sffers an( loss, as b( t#e failre of t#e ban3, t#e &ra$er is &is%#arge& fro! liabilit( to t#e #ol&er to t#e e)tent of t#e &a!age" Liability of %ndorser
In or&er to %#arge an en&orser, it is ne%essar( to 'resent t#e %#e*e for 'a(!ent $it#in a reasonable ti!e of its &elier( b( s%# en&orser" A en&orses an& &eliers a %#e*e to B, an& B 3ee's it for an nreasonable lengt# of ti!e, an& t#en en&orses an& &eliers it to C" C 'resents it for 'a(!ent $it#in a reasonable ti!e after its re%ei't b( #i!, an& it is &is#onore&" C %an enfor%e 'a(!ent against B bt not against A, as #ua A, t#e %#e*e #as be%o!e stale" Rights of &older against Banker
A ban3er is liable to #is %sto!er for $rongfl &is#onor of #is %#e*e bt it is not liable to t#e 'a(ee or #ol&er of t#e %#e*e" T#e #ol&er #as no rig#t to en"tr%e 'a(!ent
fro! t#e ban3er e)%e't in t$o %ases, na!el(, 0i $#ere t#e #ol&er &oes not 'resent t#e %#e*e $it#in a reasonable ti!e after isse, an& as a reslt t#e &ra$er sffers &a!age b( t#e failre of t#e ban3er in li*i&ation 'ro%ee&ings an& 0ii $#ere ban3er 'a(s a
%rosse& %#e*e b( !ista3e oer t#e %onter, #e is liable to t#e o$ner for an( loss o%%asione& b( it" Crossing of Che$ues
A %#e*e is eit#er -o'en- or -%rosse&-" An o'en %#e*e %an be 'resente& b( t#e 'a(ee to t#e 'a(ing ban3er an& is 'ai& oer t#e %onter" A %rosse& %#e*e %annot be 'ai& a%ross t#e %onter bt !st be %olle%te& t#rog# a ban3er" A crossing is a &ire%tion to t#e 'a(ing ban3er to 'a( t#e !one( generall( to a ban3er or to a 'arti%lar ban3er, an& not to 'a( ot#er$ise" T#e obe%t of %rossing is to se%re 'a(!ent to a ban3er so t#at it %ol& be tra%e& to t#e 'erson re%eiing t#e a!ont of t#e %#e*e" Crossing is a &ire%tion to t#e 'a(ing ban3er t#at t#e %#e*e s#ol& be 'ai& onl( to a ban3er or a s'e%ifie& ban3er" To restrain negotiabilit(, a&&ition of $or&s -Not Negotiable- or -A%%ont >a(ee Onl(- is ne%essar(" A %rosse& bearer %#e*e %an be negotiate& b( &elier( an& %rosse& or&er %#e*e b( en&orse!ent an& &elier(" Crossing affor&s se%rit( an& 'rote%tion to t#e #ol&er of t#e %#e*e" 'odes of Crossing 0Se%tions 1?/61/1A
T#ere are t$o t('es of %rossing $#i%# !a( be se& on %#e*e, na!el(7 0i General, an& 0ii S'e%ial" To t#ese !a( be a&&e& anot#er t('e, Le" Restri%tie %rossing" It is general %rossing $#ere a %#e*e bears a%ross its fa%e an a&&ition of t$o 'arallel transerse lines an&or t#e a&&ition of t#e $or&s -an& Co"- bet$een t#e!, or a&&ition of -not negotiable-" As state& earlier, $#ere a %#e*e is %rosse& generall(, t#e 'a(ing ban3er $ill 'a( to an( ban3er" T$o transerse 'arallel lines are essential for a general %rossing 0Se%tions 1?/61?;" In %ase of general %rossing, t#e #ol&er or 'a(ee %annot get t#e 'a(!ent oer t#e %onter of t#e ban3 bt t#rog# a ban3 onl(" T#e a&&ition of t#e $or&s -an& Co"- &o not #ae an( signifi%an%e bt t#e a&&ition of t#e $or&s -not negotiablerestri%t t#e negotiabilit( of t#e %#e*e an& in %ase of transfer, t#e transferee $ill not gie a better title t#an t#at of a transferor" 5#ere a %#e*e bears a%ross its fa%e an a&&ition of t#e na!e of a ban3er, eit#er $it# or $it#ot t#e $or&s -not negotiable- t#at a&&ition %onstittes a crossing an& t#e %#e*e is crossed s0ecially and to that !an"er The pa$ing !an"er will pa$ onl$ to the !an"er whose na#e appears across the cheque, or to his collecting agent 5arallel trans'erse lines are not essential !ut the na#e of the !an"er is the insignia of a special
crossing
In %ase of s'e%ial %rossing, t#e 'a(ing, ban3er is to #onor t#e %#e*e onl( $#en it is 'res%ribe& t#rog# t#e ban3 !entione& in t#e %rossing or its agent ban3" /ccount Payee9s rossing2 S%# %rossing &oes, in 'ra%ti%e, restri%t negotiabilit( of a %#e*e" It $arns t#e collecting ban1er t#at t#e 'ro%ee&s are to
be %re&ite& onl( to t#e a%%ont of t#e 'a(ee, or t#e 'art( na!e&, or #is agent" If t#e %olle%ting ban3er allo$s t#e 'ro%ee&s of a %#e*e bearing s%# %rossing to be %re&ite& to an( ot#er a%%ont, #e $ill be gilt( of negligen%e an& $ill not be entitle& to t#e 'rote%tion gien to %olle%ting ban3er n&er Se%tion 1/1" S%# %rossing &oes not affe%t t#e 'a(ing ban3er, $#o is n&er no &t( to as%ertain t#at t#e %#e*e is in fa%t %olle%te& for t#e a%%ont of t#e 'erson na!e& as 'a(ee" of
of
S0ecimen a general crossing S0ecimen a s0ecial crossing
Not Negotiable Crossing
A %#e*e !a( be %rosse& not negotiable b( $riting a%ross t#e fa%e of t#e %#e*e t#e $or&s -Not Negotiable- $it#in t$o transerse 'arallel lines in t#e %ase of a general %rossing or along $it# t#e na!e of a ban3er in t#e %ase of a s'e%ial %rossing" Se%tion 1/ of t#e Negotiable Instr!ents A%t 'roi&es -A 'erson ta3ing a %#e*e %rosse& generall( or s'e%iall( bearing in eit#er %ase $it# t#e $or&s -not negotiable- s#all not #ae an& s#all not be %a'able of giing, a better title to t#e %#e*e t#an t#at $#i%# t#e
'erson fro! $#o! #e too3 it #a&-" T#e %rossing of %#e*e -not negotiable- &oes not !ean t#at it is non6transferable" It onl( &e'ries t#e instr!ent of t#e in%i&ent of negotiabilit(" Nor!all( s'ea3ing, t#e essential featre of a negotiable instr!ent as o''ose& to %#attels is t#at a 'erson $#o ta3es t#e instr!ent in goo& fait#, $it#ot negligen%e, for ale, before !atrit( an& $it#ot 3no$le&ge of t#e &efe%t in t#e title of t#e transferor, gets a goo& title to t#e instr!ent" In ot#er $or&s, #e is %alle& a #ol&er in &e %orse $#o a%*ires an in&is'table title to t#e %#e*e" 05#en t#e instr!ent 'asses t#rog# a #ol&er6in6&e %orse, it is 'rge& of all &efe%ts an& t#e sbse*ent #ol&ers also get goo& title" It is e)a%tl( t#is i!'ortant featre $#i%# is ta3en a$a( b( %rossing t#e %#e*e -not negotiable-" In ot#er $or&s, a %#e*e %rosse& not negotiableis li3e an( ot#er %#attel an& t#erefore t#e transferee gets sa!e title to t#e %#e*e $#i%# #is transferor #a&" T#at is to sa( t#at t#e transferee %annot %lai! t#e rig#ts of a #ol&er6 in6&e6%orse" So long as t#e title of t#e transferors is goo&, t#e title of t#e transferees is also goo& bt if t#ere is a taint in t#e title to t#e %#e*e of one of t#e en&orsers, t#en all t#e sbse*ent transferees title also be%o!e tainte& $it# t#e sa!e &efe%t6t#e( %annot %lai! to be #ol&ers6in6&e6%orse" T#e obe%t of t#is Se%tion is to affor& 'rote%tion to t#e &ra$er or #ol&er of a %#e*e $#o is &esiros of trans!itting it to anot#er 'erson, as !%# 'rote%tion as %an reasonabl( be affor&e& to #i! against &is#onestl( or a%tal !is%arriage in t#e %orse of transit" @or e)a!'le, a %#e*e 'a(able to bearer is %rosse& generall( an& is !ar3e& -not negotiable-" It is lost or stolen an& %o!es into t#e 'ossession of $#o ta3es it in good fait# an& gies ale for it, %olle%ts t#e %#e*e t#rog# #is ban3 an& 'a(ing ban3er also 'a(s" In t#is %ase, bot# t#e 'a(ing an& t#e %olle%ting ban3ers are 'rote%te& n&er Se%tions 1?8 an& 1/1 res'e%tiel(" Bt %annot %lai! t#at #e is a #ol&er6in6&e %orse $#i%# #e %ol& #ae n&er t#e nor!al %ir%!stan%es %lai!e&" T#e reason is t#at %#e*e is %rosse& -not negotiable- an& #en%e t#e tre o$ners 0#ol&ers rig#t s'er%e&es t#e rig#ts of t#e #ol&er6in6&e6%orse" Sin%e obtaine& t#e %#e*e fro! a 'erson $#o #a& no title to t#e %#e*e 0Le" fro! one $#ose title $as &efe%tie %an %lai! no better title solel( be%ase t#e %#e*e $as %rosse& -not negotiable- an& not for an( "ot#er reason" T#s -not negotiable- %rossing not onl( 'rote%ts t#e rig#ts of t#e tre o$ner of t#e %#e*e bt also seres as a $arning to t#e en&orsees to en*ire t#orog#l( before ta3ing t#e %#e*e as t#e( !a( #ae to be ans$erable to t#e tre o$ner t#ereof if t#e en&orsers title is fon& to be &efe%tie" -Not negotiable- restri%ts t#e negotiabilit( of t#e %#e*e an& in %ase of transfer, t#e transferee $ill not get a better title t#an t#at of a transferor" If t#e %#e*e be%o!es -not negotiable- it la%3s negotiabilit(" A %#e*e %rosse& s'e%iall( or generall( bearing t#e $or&s -not negotiable la%3s negotiabilit( an& t#erefore is not a negotiable instr!ent in t#e ,tre sense" It &oes not restri%t transferabilit( bt restri%ts negotiabilit( onl(" 'aturity
C#e*es are al$a(s 'a(able on &e!an& bt ot#er instr!ents li3e bills, notes, et%"
!a( be !a&e 'a(able on a s'e%ifie& &ate or after t#e s'e%ifie& 'erio& of ti!e" T#e &ate on $#i%# 'a(!ent of an instr!ent falls &e is %alle& its !atrit(" A%%or&ing to Se%tion ?? of t#e A%t, -t#e !atrit( of a 'ro!issor( note or a bill of e)%#ange is t#e &ate at $#i%# it falls &e-" A%%or&ing to Se%tion ?1 a 'ro!issor( note or bill of e)%#ange 'a(able -at sig#t- or -on 'resent!ent- is 'a(able on &e!an&" It is &e for 'a(!ent as soon as it is isse&" T#e *estion of !atrit(, t#erefore, arises onl( in t#e %ase of a 'ro!issor( note or a bill of e)%#ange 'a(able -after &ate- or -after sig#t- or at a %ertain 'erio& after t#e #a''ening of an eent $#i%# is %ertain to #a''en"
Matrit( is t#e &ate on $#i%# t#e 'a(!ent of an instr!ent falls &e" Eer( instr!ent 'a(able at a s'e%ifie& 'erio& after &ate or after sig#t is entitle& to t#ree &a(s of gra%e" S%# a bill or note !atres or falls &e on t#e last &a( of t#e gra%e 'erio&, an& !st be 'resente& for 'a(!ent on t#at &a( an& if &is#onore&, sit %an be institte& on t#e ne)t &a( after !atrit(" If an instr!ent is 'a(able b( instal!ents, ea%# instal!ent is entitle& to t#ree &a(s of gra%e" No &a(s of gra%e are allo$e& for %#e*es, as t#e( are 'a(able on &e!an&" 5#ere a note or bill is e)'resse& to be 'a(able on t#e e)'ir( of s'e%ifie& n!ber of !ont#s after sig#t, or after &ate, t#e 'erio& of 'a(!ent ter!inates on t#e &a( of t#e !ont# $#i%# %orres'on&s $it# t#e &ate of instr!ent, or $it# t#e &ate of a%%e'tan%e if t#e bill be a%%e'te& or 'resente& for sig#t, or note& or 'roteste& for non6a%%e'tan%e" If t#e !ont# in $#i%4 t#e 'erio& $ol& ter!inate #as no %orres'on&ing &a(, t#e 'erio& s#all be #el& to ter!inate on t#e last &a( of s%# !ont#" 'llustratio n
0i A negotiable instr!ent &ate& /1 st 9anar(, ?1, is !a&e 'a(able at one !ont#s after &ate" T#e instr!ent is at !atrit( on t#e t#ir& &a( after t#e ?8t# @ebrar(, ?1, Le" on /r& Mar%#, ?1" 0ii A negotiable instr!ent &ate& /t# Agst, ?1, is !a&e 'a(able t#ree !ont#s after &ate" T#e instr!ent is at !atrit( on"/r& De%e!ber, ?1" 0iii A negotiable instr!ent" &ate& t#e /1 st Agst, ?1, is !a&e 'a(able t#ree !ont#s after &ate" T#e instr!ent is at !atrit( on /r& De%e!ber, ?1" If t#e &a( of !atrit( falls on a 'bli% #oli&a(, t#e instr!ent is 'a(able on t#e 0receeding bsiness &a(" T#s if a bill is at !atrit( on a Sn&a(" It $ill be &ee!e& &e on Satr&a( an& 0ot on Mon&a(" T#e as%ertain!ent of t#e &ate of !atrit( be%o!es i!'ortant be%ase all t#ese instr!ents !st be 'resente& for 'a(!ent on t#e last &a( of gra%e an& t#eir 'a(!ent %annot be &e!an&e& before t#at &ate" 5#ere an instr!ent is 'a(able b( instal!ents, it !st be 'resente& for 'a(!ent on t#e t#ir& &a( after t#e &a( fi)e& for t#e 'a(!ent of ea%# instal!ent"
&older
A%%or&ing to Se%tion 8 of t#e A%t a 'erson is a #ol&er of a negotiable instr!ent $#o is entitle& in #is o$n na!e 0i to t#e 'ossession of t#e instr!ent, an& 0ii to re%oer or re%eie its a!ont fro! t#e 'arties t#ereto" It is not eer( 'erson in 'ossession of t#e instr!ent $#o is %alle& a #ol&er" To be a #ol&er, t#e 'erson !st be na!e& in t#e instr!ent as t#e 'a(ee, or t#e en&orsee, or #e !st be t#e bearer t#ereof" A 'erson $#o #as obtaine& 'ossession of an instr!ent b( t#eft, or n&er a forge& en&orse!ent, is not a #ol&er" as #e is not entitle& to re%oer t#e instr!ent" T#e #ol&er i!'lies de ?ure 0#ol&er in la$ #ol&er an& not de facto 0#ol&er in fa%t #ol&er" An agent #ol&ing an instr!ent for #is 'rin%i'al is not a #ol&er alt#og# #e !a( re%eie its 'a(!ent" &older in (ue Course
Se%tion : states t#at a #ol&er in &e %orse is 0i a 'erson $#o for %onsi&eration, obtains 'ossession of a negotiable instr!ent if 'a(able to bearer, or 0ii t#e 'a(ee or en&orsee t#ereof, if 'a(able to or&er, before its !atrit( an& $it#ot #aing sffi%ient %ase to beliee t#at an( &efe%t e)iste& in t#e title of t#e 'erson fro! $#o! #e &erie& #is title" In or&er to be a #ol&er in &e %orse, a 'erson !st satisf( t#e follo$ing %on&itions7 0i +e !st be t#e #ol&er of t#e instr!ent" 0ii+e s#ol& #ae obtaine& t#e instr!ent for ale or %onsi&eration" 0iii
+e !st #ae obtaine& t#e negotiable instr!ent before !atrit("
0i
T#e instr!ent s#ol& be %o!'lete an& reglar on t#e fa%e of it"
0 T#e #ol&er s#ol& ta3e t#e instr!ent in goo& fait#" A #ol&er in &e %orse is in a 'riilege& 'osition" +e is not onl( #i!self 'rote%te& against all &efe%ts of t#e 'ersons fro! $#o! #e re%eie& t#e instr!ent as %rrent %oin, bt also seres as a %#annel to 'rote%t all sbse*ent #ol&ers" A #ol&er in &e %orse %an re%oer t#e a!ont of t#e instr!ent fro! all 'reios 'arties, alt#og#, as a !atter of fa%t, no %onsi&eration $as 'ai& b( so!e of t#e 'reios 'arties to t#e instr!ent or t#ere $as a &efe%t of title in t#e 'art( fro! $#o! #e too3 it" nce an instrument 0asses through the hands of a holder in due course, it is 0urged of all defects. It is li3e %rrent %oin" 5#oeer ta3es it %an re%oer t#e a!ont fro! all 'arties 'reios to s%# #ol&er" " Capacity of Parties
Ca'a%it( to in%r liabilit( as a 'art( to a negotiable instr!ent is %o6e)tensie $it#
%a'a%it( to %ontra%t" A%%or&ing to Se%tion ?;, eer( 'erson %a'able of %ontra%ting a%%or&ing to la$ to $#i%# #e is sbe%t, !a( bin& #i!self an& be bon& b( !a3ing, &ra$ing, a%%e'tan%e, en&orse!ent, &elier( an& negotiation of a 'ro!issor( note, bill of e)%#ange or %#e*e"
Negatiel(, !inors, lnati%s, i&iots, &rn3en 'erson an& 'ersons ot#er$ise &is*alifie& b( t#eir 'ersonal la$, &o not in%r an( liabilit( as 'arties to negotiable instr!ents" Bt in%a'a%it(" of one or !ore of t#e 'arties to a negotiable instr!ent in no $a(, &i!1nis#es t#e abilities an& t#e liabilities of t#e %o!'etent 'arties" 5#ere a !inor is t#e en&orser or 'a(ee of an instr!ent $#i%# #as been en&orse& all t#e 'arties a%%e'ting t#e !inor are liable in t#e eent of its &is#onor" "
Liability of Parties
T#e 'roisions regar&ing t#e liabilit( of 'arties to negotiable instr!ents are lai& &o$n in Se%tions / to /? an& /< to ? of t#e Negotiable Instr!ents A%t" T#ese 'roisions are as follo$s7 %. Liability of rawer 0Se%tion /
T#e &ra$er of a bill of e)%#ange or %#e*e is bon&, in %ase of &is#onor b( t#e &ra$ee or a%%e'tor t#ereof, to %o!'ensate t#e #ol&er, 'roi&e& &e noti%e of &is#onor
"
#as been gien to or re%eie& b( t#e &ra$er" T#e natre of &ra$ers liabilit( is t#at b( &ra$ing a bill, #e n&erta3es t#at 0i on &e 'resentation, it s#all be a%%e'te& an& 'ai& a%%or&ing to its tenor, an& 0ii in %ase of &is#onor, #e $ill %o!'ensate t#e #ol&er or an( en&orser, 'roi&e& noti%e of &is#onor #as been &l( gien" +o$eer, in %ase of a%%o!!o&ation bill no noti%e of &is#onor to t#e &ra$er is re*ire&" T#e liabilit( of a &ra$er of a bill of e)%#ange is se%on&ar( an& arises onl( on &efalt of t#e &ra$ee, $#o is 'ri!aril( liable to !a3e 'a(!ent of t#e negotiable instr!ent" (. Liability of the rawee of he#ue 0Se%tion /1
T#e &ra$ee of a %#e*e #aing sffi%ient fn&s of t#e &ra$er in #is #an&s 'ro'erl( a''li%able to t#e 'a(!ent of s%# %#e*e !st 'a( t#e %#e*e $#en &l( re*ire& to &o so an&, or in &efalt of s%# 'a(!ent, #e s#all %o!'ensate t#e &ra$er for an( loss or &a!age %ase& b( s%# &efalt" As a %#e*e is a bill of e)%#ange, &ra$n on a s'e%ifie& ban3er, t#e &ra$ee of a %#e*e !st al$a(s be a ban3er" T#e ban3er, t#erefore, is bon& to 'a( t#e %#e*e of t#e &ra$er, i"e", %sto!er, if t#e follo$ing %on&itions are satisfie&7 0i T#e ban3er #as sffi%ient fn&s to t#e %re&it of %sto!ers a%%ont" 0ii T#e fn&s are 'ro'erl( a''li%able to t#e 'a(!ent of s%# %#e*e, e"g", t#e fn&s are not n&er an( 3in& of lien et%" "
0iii T#e %#e*e is &l( re*ire& to be 'ai&, &ring ban3ing #ors an& on or after t#e &ate on $#i%# it is !a&e 'a(able" If t#e ban3er is nstifie& in refsing to #onor t#e %#e*e of its %sto!er, it s#all be liable for &a!ages" *. Liability of "=a1er" of Note and 99/cce0tor9 of &ill 0Se%tion /?
In t#e absen%e of a %ontra%t to t#e %ontrar(, t#e !a3er of a 'ro!issor( note an& t#e a%%e'tor before !atrit( of a bill of e)%#ange are bon& to 'a( t#e a!ont t#ereof at !atrit(, a%%or&ing to t#e a''arent tenor of t#e note or a%%e'tan%e res'e%tiel(" T#e a%%e'tor of a bill of e)%#ange at or after !atrit( is bon& to 'a( tbe a!ont t#ereof to t#e #ol&er on &e!an&7 It follo$s t#at t#e liabilit( of t#e a%%e'tor of a bill %orres'on&s to t#at of t#e !a3er of a note an& is absolte an& n%on&itional bt t#e liabilit( n&er t#is Se%tion is sbe%t to t#e %ontra%t to t#e %ontrar( 0e"g", as in t#e %ase of a%%o!!o&ation bills an& !a( be e)%l&e& or !o&ifie& b( a %ollateral agree!ent" @rt#er, t#e 'a(!ent !st be !a&e to t#e 'art( na!e& in t#e instr!ent an& not to an(6one else, an& it !st be !a&e at !atrit( an& not before" +. Liability of endorser 0Se%tion /<
Eer( en&orser in%rs liabilit( to t#e 'arties t#at are sbse*ent to #i!" 5#oeer en&orses an& &eliers a negotiable instr!ent before !atrit( is bon& t#ereb( to eer( sbse*ent #ol&er in %ase of &is#onor of t#e instr!ent b( t#e &ra$ee, a%%e'tor or !a3er, to %o!'ensate s%# #ol&er of an( loss or &a!age %ase& to #i! b( s%# &is#onor 'roi&e& 0i t#ere is no %ontra%t to t#e %ontrar( 0ii #e 0en&orser #as not e)'ressl( e)%l&e&, li!ite& or !a&e %on&itional #is o$n liabilit( an& 0iii &e noti%e of &is#onor #as been gien to, or re%eie& b(, s%# en&orser" Eer( en&orser after &is#onor, is liable 'on t#e instr!ent as if it is 'a(able on &e!an&" +e is bon& b( #is en&orse!ent not$it#stan&ing an( 'reios alteration of t#e
instr!ent" 0Se%tion 88
P
-. Liability of Prior Parties 0Se%tion /;
Eer( 'rior 'art( to a negotiable instr!ent is liable t#ereon to a #ol&er in &e %orse ntil t#e instr!ent is &l( satisfie&" >rior 'arties !a( in%l&e t#e !a3er or &ra$er, t#e a%%e'tor an& all t#e interening en&orsers to a negotiable instr!ent" T#e liabilit( of t#e 'rior 'arties to a #ol&er in &e %orse is oint an& seeral" T#e #ol&er in &e %orse !a( #ol& an( or all 'rior 'arties liable for t#e a!ont of t#e &is#onore& instr!ent"
6. Liability inter se
arios 'arties to a negotiable instr!ent $#o are liable t#ereon stan& on a &ifferent footing $it# res'e%t to t#e natre of liabilit( of ea%# one of t#e!"
@. Liability of /cce0tor of orged !ndorsement 0Se%tion 1
An a%%e'tor of a bill of e)%#ange alrea&( en&orse& is not reliee& fro! liabilit( b( reason t#at s%# en&orse!ent is forge&" if #e 3ne$ or #a& reason to beliee t#e en&orse!ent to be forge& $#en #e a%%e'te& t#e bill" A. /cce0tor9s Liability on a &ill drawn in a ictitious Name
An a%ee'tor of a bill of e)%#ange &ra$n in a fi%titios na!e an& 'a(able to t#e &ra$ers or&er is not, b( reason t#at s%# na!e is fi%titios, reliee& fro! liabilit( to an( #ol&er In &e %orse %lai!ing n&er an en&orse!ent b( t#e sa!e #an& as t#e &ra$ers signatre, an& 'r'orting to be !a&e b( t#e &ra$er"
Negotiation 0Se%tion 1 A negotiable instr!ent !a( be transferre& b( negotiation or assign!ent" Negotiation is t#e transfer of an instr!ent 0a note, bill or %#e*e for one 'erson to anot#er in s%# a !anner as to %one( title an& to %onstitte t#e transferee t#e #ol&er t#ereofQ" 5#en a negotiable instr!ent is transferre& b( negotiation, t#e rig#ts of t#e transferee !a( rise #ig#er t#an t#ose of t#e transferor, &e'en&ing 'on t#e %ir%!stan%es atten&ing t#e negotiation" 5#en t#e transfer is !a&e b( assign!ent, t#e assignee #as onl( t#ose rig#ts $#i%# t#e assignor 'ossesse&" In %ase of assign!ent, t#ere is a transfer of o$ners#i' b( !eans of a $ritten an& registere& &o%!ent" Negotiabilit( an& Assignabilit( Distingis#e& A transfer b( negotiation &iffers fro! transfer b( assign!ent in t#e follo$ing res'e%ts7 0a Negotiation re*ires !ere &elier( of a bearer instr!ent an& en&orse!ent an& &elier( of an or&er instr!ent to effe%tate a transfer" Assign!ent re*ires a $ritten &o%!ent signe& b( t#e transferor" 0b Noti%e of transfer of &ebt 0a%tionable %lai! !st be gien b( t#e assignee to t#e &ebtor in or&er to %o!'lete #is title no s%# noti%e is ne%essar( in a transfer b( negotiation" 0% On assign!ent, t#e transferee of an a%tionable %lai! ta3es it sbe%t to all t#e &efe%ts in t#e title of, an& sbe%t to all t#e e*ities an& &efen%es aailable against t#e assignor, een t#og# #e too3 t#e assign!ent for ale an& in good fait#" In %ase of negotiation t#e transferee, as #ol&er6in6&e %orse, -ta3es t#e instr!ent free fro! an( &efe%ts in t#e title of t#e transferor" Importance of (eliery
Negotiation is effe%te& b( !ere &elier( of a bearer instr!ent an& b( en&orse!ent an& &elier( of an or&er instr!ent" T#is s#o$s t#at -&elier(- is essential in negotiable instr!ents" Se%tion ; e)'ressl( 'roi&es t#at !a3ing a%%e'tan%e or en&orse!ent of negotiable instr!ent is not %o!'lete ntil &elier(,a&al or %onstr%tie, of t#e
instr!ent" Delier( !a&e olntaril( $it# t#e intention of 'assing 'ro'ert( in t#e instr!ent to t#e 'erson to $#o! it is gien is essential" Negotiation by 'ere (eliery
A bill or %#e*e 'a(able to bearer is negotiate& b( !ere &elier( of t#e instr!ent" An instr!ent is 'a(able to bearer7 0i 5#ere it is !a&e so 'a(able, or 0ii 5#ere it is originall( !a&e 'a(able to or&er bt t#e onl( ort#e last en&orse!ent is in blan3" 0iii
5#ere t#e 'a(ee is a fi%titios or a non6e)isting 'erson
0i T#ese Instr!ents &o not re*ire signatre of t#e transferor" T#e 'erson $#o ta3es t#e! is a #ol&er, an& %an se in #is o$n na!e on t#e!" 5#ere a bearer negotiates an instr!ent b( !ere &elier(, an& &oes not 't #is signatre t#ereon,6#e is not liable to an( 'art( to t#e instr!ent in %ase t#e instr!ent is &is#onore&, as #e #as not lent #is %re&it to it" +is obligations are onl( to$ar&s #is i!!e&iate transferee an& to no ot#er #ol&ers"
A %#e*e, originall( &ra$n 'a(able to bearer re!ains bearer, een t#og# it is sbse*entl( en&orse& in fll" T#e rle is once a bearer che#ue al>ays a bearer che#ue. H,
Negotiation by !ndorsement and eli:ery
An instr!ent 'a(able to a s'e%ifie& 'erson or to t#e or&er of a s'e%ifie& 'erson or to a s'e%ifie& 'erson or or&er is an instr!ent 'a(able to or&er" S%# an instr!ent %an be negotiate& onl( b( en&orse!ent an& &elier(" Unless t#e #ol&er signs #is en&orse!ent on t#e instr!ent, t#e transferee &oes not be%o!e a #ol&er" 5#ere an instr!ent 'a(able to or&er is &eliere& $it#ot en&orse!ent, it is !erel( assigne& an&
not negotiate& an& t#e #ol&er t#ei;f is not entit7e& to t#e rig#ts of a #ol&er in &e %orse, an& #e %annot negotiate it to a t#ir& 'erson" En&orse!ent 0Se%tions 1< an& 1; 5#ere t#e !a3er or #ol&er of a negotiable instr!ent signs t#e sa!e ot#er$ise t#an as s%# !a3er for t#e 'r'ose of negotiation, on t#e ba%3 or fa%e t#ereof or on a sli' of 'a'er anne)e& t#ereto 0%alle& Allonge, or so, signs for t#e sa!e 'r'ose, a sta!'e& 'a'er inten&e& to be %o!'lete& as a negotiable instr!ent, #e is sai& to en&orse t#e sa!e 0Se%tion 1<, t#e 'erson to $#o! t#e instr!ent is en&orse& is %alle& t#e en&orsee" In ot#er $or&s, en&orse!ent !eans an& inoles t#e $riting of so!et#ing on t#e ba%3 of an instr!ent for t#e 'r'ose of transferring t#e rig#t, title an& interest t#erein to so!e ot#er 'erson" lasses of endorsement
An en&orse!ent !a( be 0a Blan3 or General, 0b S'e%ial or @ll, 0% Restri%tie, or 0& >artial, an& 0e Con&itional or alifie&" 0a &lan1 or General2 An en&orse!ent is to be blan3 or general $#ere t#e en&orser !erel( $rites #is signatre on t#e ba%3 of t#e instr!ent, an& t#e instr!ent so en&orse& be%o!es 'a(able to bearer, een t#og# originall( it $as 'a(able to or&er" T#s, $#ere bill is 'a(able to -Mo#an or or&er-, an& #e $rites on its ba%3 -Mo#an-, it is an en&orse!ent in blan3 b( Mo#an an& t#e 'ro'ert( in t#e bill %an 'ass b( !ere &elier(, as long as t#e en&orse!ent %ontines tobe ablan3" Bt a #ol&er of an instr!ent en&orse& in blan3 !a( %onert t#e en&orse!ent in blan3 into an en&orse!ent In fll, b( $riting aboe t#e en&orsers signatre, a &ire%tion to 'a( t#e instr!ent to anot#er 'erson or #is or&er" 0b S0ecial or ull2 If t#e en&orser signs #is na!e an& a&&s a &ire%tion to 'a( t#e a!ont !entione& in t#e instr!ent to, or to t#e or&er of a s'e%ifie& 'erson, t#e en&orse!ent is sai& to be s'e%ial or in fll" A bill !a&e 'a(able to Mo#an or Mo#an or or&er, an& en&orse& -'a( to t#e or&er of So#an- $ol& be s'e%iall( en&orse& an& So#an en&orses it frt#er" A blan3 en&orse!ent %an be trne& into a s'e%ial one b( t#e a&&ition of an or&er !a3ing t#e bill 'a(able to t#e transferee" " 0% 5estricti:e2 An en&orse!ent is restri%tie $#i%# 'ro#ibits or restri%ts t#e frt#er negotiation of an instr!ent" E)a!'les of restri%tie en&orse!ent7 ->a( A onl(- or ->a( A for !( se- or ->a( A on a%%ont of B- or ->a( A or or&er for %olle%tion-" 0& Partial2 An en&orse!ent 'artial is one $#i%# 'r'orts to transfer to t#e en&orsee a 'art onl( of t#e a!ont 'a(able on t#e instr!ent" A 'artial en&orse!ent &oes not o'erate as negotiation of t#e instr!ent" A #ol&s a bill for Rs" 1, an& en&orses it as ->a( B or or&er Rs" <-" T#e en&orse!ent is 'artial an& inali&" e) onditional or #ualified2 An '-&orse!ent is %on&itional or *alifie& $#i%# li!its or
negaties t#e liabilit( of t#e en&orser" An en&orser !a( li!it #is liabilit( in an( of t#e follo$ing $a(s7 0i &y sans recourse endorsement, Le" b( !a3ing it %lear t#at #e &oes not in%r t#e liabilit( of an en&orser to t#e en&orsee or sbse*ent #ol&ers an& t#e( s#ol& not loo3 to #i! in %ase of &is#onor of instr!ent" T#e en&orser e)%l&es #is liabilit( b( a&&ing t#e $or&s -sans re%orse- or -$it#ot re%orse-, e"g", -'a( A or or&er sa!e re%orse-" 0ii B( !a3ing #is liabilit( &e'en&ing 'on #a''ening of a s'e%ifie& eent $#i%# !a( neer #a''en, e"g", t#e #ol&er of a bill !a( en&orse it t#s7 ->a( A6or or&er on #is !arr(ing B-" In s%# a %ase, t#e en&orser $ill not be liable ntil" A !afries B" It is 'ertinent to refer to Se%tion
rea&s -T#e en&orser of a negotiable instr!ent !a(, b( e)'ress $or&s in t#e en&orse!ent e)%l&e #is o$n liabilit( t#ereon, or !a3e s%# liabilit( or t#e rig#t of t#e en&orsee to re%eie t#e a!ont &e t#ereon &e'en& 'on t#e #a''ening of a s'e%ifie& eent, alt#og# s%# eent !a( neer #a''en"
Negotiation Back 5#ere an en&orser negotiates an instr!ent an& again be%o!es its #ol&er, t#e instr!ent is sai& to be negotiate& ba%3 to t#at en&orser an& none of t#e inter!e&iar( en&orsees are t#en liable to #i!" T#e rle 'reents a %ir%it( of a%tion" @or e)a!'le, A, t#e #ol&er of a bill en&orses it to a, B en&orses to C, an& C to D, an& en&orses it again to A" A, being a #ol&er in &e %orse of t#e bill b( se%on& en&orse!ent b(,D, %an re%oer t#e a!ont t#ereof fro! B, C, or D an& #i!self being a 'rior 'art( is liable to all of t#e!" T#erefore, A #aing been relegate& b( t#e se%on& en&orse!ent to #is original 'osition, %annot se B, C an& D" >here an endorser so e3cludes his liability and afterwards becomes the holder of the instrument, all the intermediate endorsers are liable to him. - t#e itali%ise& 'ortion of
t#e aboe Se%tion is i!'ortant" An illstration $ill !a3e t#e 'oint %lear" A is t#e 'a(ee of a negotiable instr!ent" +e en&orses t#e instr!ent sans re%orse to B, B en&orses to C, C to D, an& D again en&orses it to A" In t#is %ase, A is not onl( reinstate& in #is for!er rig#ts bt #as t#e rig#t of an en&orsee against B, C an& D"
Negotiation of Lost Instrument or that Obtained by )nla*ful 'eans
5#en a negotiable instr!ent #as been lost or #as been obtaine& fro! an( !a3er, a%%e'tor or #ol&er t#ereof b( !eans of an offen%e or fra&, or for an nla$fl %onsi&eration, no 'ossessor or en&orsee, $#o %lai!s t#rog# t#e 'erson $#o fon& or obtaine& t#e instr!ent is entitle& to re%eie t#e a!ont &e t#ereon fro! s%# !a3er, a%%e'tor, or #ol&er fro! an( 'art( 'rior to s%# #ol&er unless s%# 'ossessor or en&orsee is, or so!e 'erson t#rog# $#o! #e %lai!s $as, a #ol&er in &e %orse" +orged %ndorsement T#e %ase of a forge& en&orse!ent is $ort# s'e%ial noti%e" if an instr!ent is en&orse& in fll, it %annot be negotiate& e)%e't b( an en&orse!ent signe& b( t#e 'erson to $#o! or to $#ose or&er t#e instr!ent is 'a(able, for t#e en&orsee obtains title onl( t#rog# #is en&orse!ent" T#s, if an instr!ent be negotiate& b( !eans of a forge& en&orse!ent, t#e en&orsee a%*ires no title een t#og# #e be a 'r%#aser for ale an& in goo& fait#, for t#e en&orse!ent is a nllit(" @orger( %one(s no title" &ut where the instrument is a bearer instrument or has been endorsed in blan1, it can be negotiated by mere deli:ery, and the holder deri:es his title inde0endent of the forged endorsement and can claim the amount from any of the 0arties to to the instrument. @or
e)a!'le, a bill is en&orse&, ->a( A or or&er-" A en&orses it in blan3, an& it %o!es into
t#e #an&s of B, $#o si!'l( &eliers it to C, C forges Bs en&orse!ent an& transfer it to D" +ere, D, as t#e #ol&er &oes not &erie #is title t#rog# t#e forge& en&orse!ent of B, bt t#rog# t#e genine en&orse!ent of A an& %an %lai! 'a(!ent fro! an( of t#e 'arties to t#e instr!ent in s'ite of t#e interening forgeg en&orse!ent"
,cceptance of a Bill of %-change T#e &ra$ee of a bill of e)%#ange, as s%#, #as no liabilit( on an( bill a&&resse& to #i! for a%%e'tan%e or 'a(!ent" A refsal to a%%e't or to 'a( s%# bill gies t#e #ol&er no rig#ts against #i!" T#e &ra$ee be%o!es liable onl( after #e a%%e'ts t#e bill" T#e a%%e'tor #as to $rite t#e $or& a%%e'te& on t#e bill an& sign #is na!e belo$ it"" T#s, it is t#e a%%e'tor $#o is 'ri!aril( liable on a bill" T#e a%%e'tan%e of a bill is t#e in&i%ation b( t#e &ra$ee of #is assent to t#e or&er of t#e &ra$er" T#s, $#en t#e &ra$ee $rites a%ross t#e fa%e of t#e bill t#e $or& -a%%e'te&- an& signs #is na!e n&erneat# #e be%o!es t#e a%%e'tor of t#e bill"
An a%%e'tan%e !a( be eit#er general or *alifie&" A general a%%e'tan%e is absolte an& as a rle, an a%%e'tan%e #as to be general" " 5#ere an a%%e'tan%e is !a&e sbe%t to so!e %on&ition or *alifi%ation, t#ereb( ar(ing t#e effe%t of t#e bill, it is a *alifie& a%%e'tan%e" T#e #ol&er of t#e bill !a( eit#er refse to ta3e a *alifie& a%%e'tan%e or non6a%*ies%en%e in it" 5#ere #e refses to ta3e it, #e %an treat t#e bill as &is#onore& b( non6a%%e'tan%e, an& se t#e &ra$er a%%or&ingl("
,cceptance for &onour
5#en a bill #as been note& or 'roteste& for non6a%%e'tan%e or for better se%rit(, an( 'erson not being a 'art( alrea&( liable t#ereon !a(, $it# t#e %onsent of t#e #ol&er, b( $riting on t#e bill, a%%e't t#e sa!e for t#e #onor of an( 'art( t#ereto" T#e stranger so a%%e'ting, $ill &e%lare n&er #is #an& t#at #e a%%e'ts t#e 'roteste& bill for t#e #onor of t#e &ra$er or an( 'arti%lar en&orser $#o! #e na!es" T#e a%%e'tor for #onor is liable to 'a( onl( $#en t#e bill #as been &l( 'resente& at !atrit( to t#e &ra$ee for 'a(!ent an& t#e &ra$ee #as refse& to 'a( an& t#e bill #as been note& an& 'roteste& for non6'a(!ent" 5#ere a bill #as been 'roteste& for non6'a(!ent after #aing been &l( a%%e'te&, an( 'erson !a( interene an& 'a( it su0ra 0rotest for t#e #onor of an( 'art( liable on t#e bill" 5#en a bill is 'ai& su0ra9 0rotest, it %eases to be negotiable" T#e stranger, on 'a(ing for #onor, a%*ires all t#e
rig#t of #ol&er for $#o! #e 'a(s"
Presentment for ,cceptance It is onl( bills of e)%#ange t#at re*ire 'resent!ent for a%%e'tan%e an& een t#ese
of %ertain 3in&s onl(" Bills 'a(able on &e!an& or on a fi)e& &ate nee& not be 'resente&" T#s, a bill 'a(able +0 &a(s after &e &ate on t#e #a''ening of a %ertain eent !a( or !a( not be 'resente& for a%%e'tan%e" Bt t#e follo$ing bills !st be 'resente& for a%%e'tan%e ot#er$ise, t#e 'arties to t#e bill $ill not be liable on it7 0a A bill 'a(able after sight. >resent!ent is ne%essar( in or&er to fi) !atrit( of t#e bills an& 0b A bill in $#i%# t#ere is an e)'ress sti'lation t#at it s#all be 'resente& for a%%e'tan%e before it is 'resente& for 'a(!ent" Se%tion 1< 'roi&es t#at t#e 'resent!ent for a%%e'tan%e !st be !a&e to t#e &ra$ee or #is &l( at#orise& agent" If t#e &ra$ee is &ea&, t#e bill s#ol& be 'resente& to #is legal re'resentatie, or if #e #as been &e%lare& an insolent, to t#e offi%ial re%eier or assigner" T#e follo$ing are t#e 'ersons to $#o! a bill of e)%#ange s#ol& be 'resente&7 0i T#e &ra$ee or #is &l( at#orise& agent" 0ii If t#ere are !an( &ra$ees, bill !st be 'resente& to all of t#e!" (iii)
T#e legal re'resentaties of t#e &ra$ee if &ra$ee is dead
0iT#e offi%ial re%eier or assignee of insolent &ra$ee"
0 To a &ra$ee in %ase of nee&, if t#ere is an(" T#is is ne%essar( $#en t#e original &ra$ee refses to a%%e't t#e bill" 0i T#e a%%e'tor for #onor" In %ase t#e bill is not a%%e'te& an& is note& or 'roteste& for non6a%%e'tan%e, t#e bill !a( be a%%e'te& b( t#e a%%e'tor for #onor" +e IS a 'erson $#o %o!es for$ar& to a%%e't t#e bill $#en it is &is#onore& b( non6 a%%e'tan%e" T#e 'resent!ent !st be !a&e before !atrit(, $it#in a reasonable ti!e after it is &ra$n, or $it#in t#e sti'late& 'erio&, if an(, on a bsiness &a( $it#in bsiness #ors an& at t#e 'la%e of bsiness or resi&en%e of t#e &ra$ee" T#e 'resent!ent !st be !a&e b( e)#ibiting t#e bill to t#e &ra$ee !ere noti%e of its e)isten%e in t#e 'ossession of #ol&er $ill not be sffi%ient"
5#en 'resent!ent is %o!'lsor( an& t#e #ol&er fails to 'resent for a%%e'tan%e, t#e &ra$er an& all t#e en&orsers are &is%#arge& fro! liabilit( to #i!" Presentment for Acceptance *hen %-cused
Co!'lsor( 'resent!ent for a%%e'tan%e is e)%se& an& t#e bill !a( be treate& as &is#onore& in t#e follo$ing %ases7 0a 5#ere t#e &ra$ee %annot be fon& after reasonable sear%#" 0b 5#ere &ra$ee is a fi%titios 'erson or one in%a'able of %ontra%ting" 0% 5#ere alt#og# t#e 'resent!ent is irreglar, a%%e'tan%e #as been refse& on so!e ot#er gron&"
Presentment for Payment
All notes" bills an& %#e*es !st be 'resente& for 'a(!ent to t#e !a3er, a%%e'tor or &ra$ee t#ereof res'e%tiel( b( or on be#alf of t#e #ol&er &ring t#e sal #ors of bsiness, an& if at ban3ers $it#in ban3ing #ors" Presentment for Payment *hen %-cused
No 'resent!ent is ne%essar( an& t#e instr!ent !a( be treate& as &is#onore& in t#e follo$ing %ases7 0a 5#ere t#e !a3er, &ra$er or a%%e'tor a%tiel( &oes so!et#ing so as to intentionall( obstr%t t#e 'resent!ent of t#e instr!ent, e"g", &e'ries t#e #ol&er of t#e instr!ent an& 3ee's it after !atrit(" 0b 5#ere #is bsiness 'la%e is %lose& on t#e &e &ate" 0% 5#ere no 'erson is 'resent to !a3e 'a(!ent at t#e 'la%e s'e%ifie& for 'a(!ent" 0& 5#ere #e %annot, after &e sear%# be fon&" 0Se%tion ;1 0e 5#ere t#ere is a 'ro!ise to 'a( not$it#stan&ing non6'resent!ent" 0f 5#ere t#e 'resent!ent is e)'ress or i!'lie&l( $aie& b( t#e 'art( entitle& to 'resent!ent" 0g 5#ere t#e &ra$er %ol& not 'ossibl( #ae sffere& an( &a!age b( non6'resent!ent" 0# 5#ere t#e &ra$er is a fi%titios 'erson, or one in%o!'etent to %ontra%t" 0i 5#ere t#e &ra$er an& t#e &ra$ee are t#e sa!e 'erson" ! 5#ere t#e bill is &is#onore& b( non6a%%e'tan%e" 03 5#ere 'resent!ent #as be%o!e i!'ossible, e"g", t#e &e%laration of $ar bet$een t#e %ontries of t#e #ol&er an& &ra$ee" 0I 5#ere t#og# t#e 'resent!ent is irreglar, a%%e'tan%e #as been refse& on so!e ot#er gron&s" (ishonour by Non#,cceptance
Se%tion :1 'roi&es t#at a bill is sai& to be &is#onore& b( non6a%%e'tan%e7 0a 5#en t#e &ra$ee &oes not a%%e't it $it#in 8 #ors fro! t#e ti!e of 'resent!ent for a%%e'tan%e" 0b 5#en 'resent!ent for a%%e'tan%e is e)%se& an& t#e bill re!ains na%%e'te&" 0% 5#en t#e &ra$ee is in%o!'etent to %ontra%t" 0& 5#en t#e &ra$ee is a fi%titios 'erson or after reasonable sear%# %an not be fon&" 0e 5#ere t#e a%%e'tan%e is a *alifie& one"
(ishonour by Non#payment ."ection /01
A 'ro!issor( note, bill of e)%#ange or %#e*e is sai& to be &is#onore& b( non6'a(!ent $#en t#e !a3er of t#e note, a%%e'tor of t#e bill or &ra$ee of t#e %#e*e !a3es &efalt in 'a(!ent 'on being &l( re*ire& to 'a( t#e sa!e" Also, a negotiable instr!ent is &is#onore& b( non6'a(!ent $#en 'resent!ent for 'a(!ent is e)%se& an& t#e instr!ent $#en oer&e re!ains n'ai&" If t#e bill is &is#onore& eit#er b( non6a%%e'tan%e or b( non6 'a(!ent, t#e &ra$er an& ail t#e en&orsers of t#e bill are liable to t#e #ol&er, 'roi&e& #e gies noti%e of s%# &is#onor" T#e &ra$ee is liable onl( $#en t#ere is &is#onor b( non6'a(!ent" Notice of (ishonour 0Se%tions :16:8 an& Se%tions 1<61
5#en a negotiable instr!ent is &is#onore& eit#er b( non6a%%e'tan%e or b( non6 'a(!ent, t#e #ol&er or so!e 'art( liable t#ereon !st gie noti%e of &is#onor to all ot#er 'arties $#o! #e see3s to !a3e liable" Ea%# 'art( re%eiing noti%e of &is#onor !st in or&er to ren&er an( 'rior 'art( liable to #i!self, gie noti%e of &is#onor to s%# 'art( $it#in a reasonable ti!e after #e #as re%eie& it" T#e obe%t ot giing noti%e is not to &e!an& 'a(!ent bt to $#o! t#e 'art( notifie& of #is liabilit( an& in %ase of &ra$er to enable #i! to 'rote%t #i!self as against t#e &ra$ee or a%%e'tor $#o #as &is#onore& t#e instr!ent isse& b( #i!" Noti%e of &is#onor is so ne%essar( t#at an o!ission to gie it &is%#arges all 'arties ot#er t#an t#e !a3er or a%%e'tor" T#ese 'arties are &is%#arge& not onl( on t#e bill or note, bt also in res'e%t of t#e
original %onsi&eration"
"
Noti%e !a( be oral or in $riting, bt it !st be a%tal for!al noti%e" It !st be gien $it#in a res'onsible ti!e of &is#onor" Notice of (ishonour )nnecessary
No noti%e of &is#onor is ne%essar(7 0a 5#en it is &is'ense& $it# or $aie& b( t#e 'art( entitle& t#ereto, e"g" $#ere an en&orser $rites on t#e instr!ent s%# $or&s as -noti%e of &is#onor $aie&- , 0b 5#en t#e &ra$er #as %onter!an&e& 'a(!ent" 0% 5#en t#e 'art( %#arge& $ol& not sffer &a!age for $ant of noti%e" 0& 5#en t#e 'art( entitle& to noti%e %annot after &e sear%# be fon&" 0e 5#en t#e o!ission to gie noti%e is %ase& b( naoi&able %ir%!stan%es, e"g", &eat# or &angeros illness of t#e #ol&er" 0f 5#ere t#e a%%e'tor is also a &ra$er, e"g", $#ere a fir! &ra$s on its bran%#" 0g 5#ere t#e 'ro!issor( note is not negotiable" S%# a note %annot be en&orse&" 0# 5#ere t#e 'art( entitle& to noti%e 'ro!ises to 'a( n%on&itionall("
Noting and Protest 0Se%tions ::61 A Noting
5#ere a note or bill is &is#onore&, t#e #ol&er is entitle& after giing &e noti%e of &is#onor, to se t#e &ra$er an& t#e en&orsers" Se%tion :: 'roi&es a %onenient !et#o& of at#enti%ating t#e fa%t of &is#onor b( !eans of -Noting-" 5#ere a bill or note is &is#onore&, t#e #ol&er !a(, if #e so &esires, %ase s%# &is#onor to be note& b( a
notar( 'bli% on t#e instr!ent, or on a 'a'er atta%#e& t#ereto or 'artl( on ea%#" T#e noting or !inte !st be re%or&e& b( t#e notar( 'bli% $it#in a reasonable ti!e after &is#onor an& !st %ontain t#e fa%t of &is#onor, t#e &ate of &is#onor, t#e reason, if an(, assigne& for s%# &is#onor if t#e instr!ent #as not been e)'ressl( &is#onore& t#e reasons $#( t#e #ol&er treats it &is#onore& an& notar(s %#arges" Protest
T#e 'rotest is t#e for!al notarial %ertifi%ate attesting t#e &is#onor of t#e bill, an& base& 'on t#e noting $#i%# #as been effe%te& on t#e &is#onor of t#e bill" After t#e noting #as been !a&e, t#e for!al 'rotest is &ra$n ' b( t#e notar( an& $#en it is &ra$n ' it relates ba%3 to t#e &ate of noting" 5#ere t#e a%%e'tor of a bill #as be%o!e insolent, or #as ss'en&e& 'a(!ent, or #is %re&it #as been 'bli%l( i!'ea%#e&, before t#e !atrit( of t#e bill, t#e #ol&er !a( #ae t#e bill 'roteste& for better se%rit(" T#e notar( 'bli% &e!an&s better se%rit( an& on its refsal !a3es a 'rotest 3no$n as -'rotest for better se%rit(-" @oreign bills !st be 'roteste& for &is#onor $#en s%# 'rotest is re*ire& b( t#e la$ of t#e 'la%e $#ere t#e( are &ra$n" @oreign 'ro!issor( notes nee& not be so 'roteste&" 5#ere a bill is re*ire& b( la$ to be 'roteste&, t#en instea& of a noti%e of &is#onor, noti%e of 'rotest !st be gien b( t#e notar( 'bli%" A 'rotest to be ali& !st %ontain on t#e instr!ent itself or a literal trans%ri't t#ereof,t#e na!es of t#e 'arties for an& against $#o! 'rotest is !a&e, t#e fa%t an& reasons for &is#onor toget#er $it# t#e 'la%e an& ti!e of &is#onor an& t#e signatre of t#e notar( 'bli%" >rotest affor&s an at#enti% ei&en%e of &is#onor to t#e &ra$er an& t#e en&orsee" (ischarge
T#e &is%#arge in relation to negotiable instr!ent !a( be eit#er 0i 9is%#arge of t#e instr!ent or 0ii &is%#arge of one or !ore 'arties to t#e instr!ent fro! liabilit(" ischarge of the 'nstrument
A negotiable instr!ent is &is%#arge&7
0a b( 'a(!ent in &e %orse 0b $#en t#e 'rin%i'al &ebtor be%o!es t#e #ol&er 0%b( an a%t t#at $ol& &is%#arge si!'le %ontra%t 0& b( renn%iation an& 0e b( %an%ellation" ischarge of a Party or Parties
5#en an( 'arti%lar 'art( or 'arties are &is%#arge&, t#e instr!ent %ontines to be negotiable an& t#e n&is%#arge& 'arties re!ain liable on it" @or e)a!'le, t#e non6'resent!ent of a bill on t#e &e &ate &is%#arges t#e en&orsers fro! t#eir liabilit(, bt t#e a%%e'tor re!ains liable on it" A 'art( !a( be &is%#arge& in t#e follo$ing $a(s 7 0a &y cancellation b( t#e #ol&er of t#e na!e of an( 'art( to it $it# t#e intention of &is%#arging #i!" 0b &y release, $#en t#e #ol&er releases an( 'art( to t#e instr!ent 0% ischarge of secondary 0arties, Le", en&orsers" 0& &y the o0eration of the law, Le", b( insolen%( of t#e &ebtor" 0e &y allowing &ra$ee !ore t#an 8 #ors to a%%e't t#e bill, all 'reios 'arties are &is%#arge&" 0f &y non$0resentment of %#e*e 'ro!'tl( t#e &ra$er is &is%#arge&" 0g &y ta1ing #ualified acce0tance, all t#e 'reios 'arties are &is%#arge&" 0# &y material alteration. " 'aterial ,lteration 0Se%tion 8 An alteration is !aterial $#i%# in an( $a( alters t#e o'eration of t#e Instr!ent an& t#e liabilities of t#e 'arties t#ereto" T#erefore, an( %#ange in an instr!ent $#i%# %ases it to s'ea3 a &ifferent langage in"legal effe%t fro! t#at $#i%# it originall( s'o3e, or $#i%# %#anges legal %#ara%ter of t#e instr!ent is a !aterial alteration" A !aterial alteration ren&ers t#e instr!ent oi&, bt it affe%ts onl( t#ose 'ersons $#o #ae alrea&( be%o!e 'arties at t#e &ate of t#e alteration" T#ose $#o ta3e t#e altere& instr!ent %annot %o!'lain" Se%tion 'roi&e t#at an a%%e'tor or en&orser of a negotiable instr!ent is bon& b( #is a%%e'tan%e or en&orse!ent not$it#stan&ing an(
'reios alteration of t#e instr!ent"
"
V
E)a!'les of !aterial alteration are7 Alteration 0i of t#e &ate of t#e instr!ent 0Ii of t#e s! 'a(able, 0iii in t#e ti!e of 'a(!ent, 0i of t#e 'la%e of 'a(!ent, 0 of t#e rate of interest, 0i !$ a&&ition of a ne$ 'art(, 0ii tearing t#e instr!ent" in a !aterial 'art" T#ere is no !aterial alteration an& t#e instr!ent is not itiate& in t#e follo$ing %ases 7 0i %orre%tion of a !ista3e, 0Ii to %arr( ot t#e %o!!on Intention of t#e 'arties,
0iii an alteration !a&e before t#e instr!ent is isse& an& !a&e $it# t#e %onsent of t#e 'arties, 0i %rossing a %#e*e, 0 a&&ition of t#e $or&s -on &e!an&- in an instr!ent $#ere no ti!e of 'a(!ent is state&" Retirement of a Bill under Rebate
An a%%e'tor of a bill !a( !a3e 'a(!ent before !atrit(, an& t#e bill is t#en sai& to "be retire&, bt it is not &is%#arge& an& !st not be %an%elle& e)%e't b( t#e a%%e'tor $#en it %o!es into #is #an&s" It is %sto!ar( in s%# a %ase to !a3e allo$an%e of interest on t#e !one( to t#e a%%e'tor for t#e re!ain&er of t#e ti!e $#i%# t#e bill #as to rn" T#e interest allo$an%e Is 3no$n as rebate" &undis
+n&is are negotiable instr!ents $ritten in an oriental langage" T#e( are so!eti!es bills of e)%#ange an& so!eti!es 'ro!issor( notes, an& are not %oere& n&er t#e Negotiable Instr!ents A%t, 1881" Generall(, t#e( are goerne& b( t#e %sto!s an& sages in t#e lo%alit( bt if %sto! is silent on t#e 'oint in &is'te before t#e Cort, t#is A%t a''lies to t#e #n&is" T#e ter! -#n&i- $as for!erl( a''li%able to natie bills of e)%#ange" T#e 'ro!issor( notes $ere t#en %alle& -tea'-" T#e #n&is $ere in
%ir%lation in In&ia een before t#e 'resent Negotiable Instr!ent A%t, 1881 %a!e into o'eration" T#e sages atta%#e& to t#ese #n&is arie& $it# t#e lo%alit( in $#i%# t#e( $ere in %ir%lation" Generall( n&erstoo&, t#e ter! -#n&i- in%l&es all in&igenos negotiable instr!ents $#et#er t#e( are bills of e)%#ange or 'ro!issor( notes" An instr!ent in or&er to be a #n&i !st be %a'able of being se& b( t#e #ol&er in #is o$n na!e, an& !st b( t#e %sto! of tra&e be transferre& li3e %as# b( &elier(" Obiosl( t#e %sto!s relating to #n&is $ere !an(" In %ertain 'arts of t#e %ontr( een oral "" a%%e'tan%e $as in age" T#e follo$ing t('es of #n&is are $ort# !entioning 7 %. Shah Bog 4undi
-S#a#- !eans a res'e%table an& res'onsible 'erson or a !an of $ort# in t4e ba=ar" S#a# 9og +n&i !eans a #n&i $#i%# is 'a(able onl( to a res'e%table #ol&er,as o''ose&" to a #n&i 'a(able to bearer" In ot#er $or&s t#e &ra$ee before 'a(ing t#e sa!e #as to satisf( #i!self t#at t#e 'a(ee is a S+A+" (. 4undi
Bo1hmi
A -o3#!i- #n&i is al$a(s &ra$n on or against goo&s s#i''e& on t#e essel !entione& in t#e #n&i" It i!'lies a %on&ition t#at !one( $ill be 'ai& onl( in t#e eent of arrial of t#e goo&s against $#i%# t#e #n&i is &ra$n" It is in t#e natre of 'oli%( of insran%e" T#e &ifferen%e, #o$eer, is t#at t#e !one( is 'ai& before #an& an& is to be re%oere& if t#e s#i' arries safel(" *. Bawabee 4undi
A%%or&ing to Ma%'#erson, =A 'erson &esiros of !a3ing a re!ittan%e $rites to t#e 'a(ee an& &eliers t#e letter to a ban3er, $#o eit#er en&orses it on to an( of #is %orres'on&ents near t#e 'a(ees 'la%e of resi&en%e, or negotiates its transfer" On t#e arrial, t#e letter is for$ar&e& to t#e 'a(ee, $#o atten&s an& gies #is re%ei't in t#e for! of an ans$er to t#e letter $#i%# is for$ar&e& b( t#e sa!e %#annel of t#e &ra$er or t#e or&er"- T#erefore, t#is is a for! of #n&i $#i%# is se& for re!itting !one( fro! one 'la%e to anot#er" +. Nam ?og 4undi It is a #n&i 'a(able to t#e 'art( na!e& in t#e bill or #is or&er" T#e na!e of t#e 'a(ee is s'e%ifi%all( inserte& in t#e #n&i" It %an also be negotiate& li3e a bill of e)%#ange" Its alteration into a Shah Bog #n&i is a" !aterial alteration an& ren&ers it oi&"
-.
arshani
4undi
T#is is a #n&i 'a(able at sig#t" It is freel( negotiable an& t#e 'ri%e is reglate& b( &e!an& an& s''l(" T#e( are 'a(able on &e!an& an& !st be 'resente& for 'a(!ent $it#in a reasonable ti!e after t#e( are re%eie& b( t#e #ol&er" 6. =iadi 4undi T#is is ot#er$ise %alle& muddati #n&i, t#at is, a #n&i 'a(able after a s'e%ifie& 'erio& of ti!e" Usall( !one( is a&an%e& against t#ese #n&is b( s#roffs after &e&%ting t#e a&an%e for t#e 'erio& in a&an%e" T#ere are ot#er for!s of #n&is also li3e"
hani Bog 4undi 6 A #n&i $#i%# is 'a(able to -&#ani- Le", t#e o$ner" irman Bog 4undi 6 $#i%# is 'a(able to or&er if %an be negotiate& b(
en&orse!ent an& &elier(" Presumptions of Law
A negotiable instr!ent is sbe%t to %ertain 'res!'tions" T#ese #ae been
re%ognise& b( t#e Negotiable Instr!ents A%t n&er Se%tions 118 an& 11: $it# a ie$ to fa%ilitate t#e bsiness transa%tions" T#ese are &es%ribe& belo$7 It s#all be 'res!e& t#at7 01 Eer( negotiable instr!ent $as !a&e or &ra$n for %onsi&eration
irres'e%tie of t#e %onsi&eration !entione& in t#e instr!ent or not" 0? Eer( negotiable instr!ent #aing a &ate $as !a&e on s%# &ate" 0/ Eer( a%%e'te& bill of e)%#ange $as a%%e'te& $it#in a reasonable ti!e before its !atrit(" 0 Eer( negotiable instr!ent $as transferre& before its !atrit(" 0< T#e instr!ents $ere en&orse& in t#e or&er in $#i%# t#e( a''ear on it" 0; A lost or &estro(e& instr!ent $as &l( signe& an& sta!'e&" 0 T#e #ol&er of t#e instr!ent is a #ol&er in &e %orse" 08 In a sit 'on an instr!ent $#i%# #as been &is#onore&, t#e Cort s#all 'res!e t#e fa%t of &is#onor, or 'roof of t#e 'rotest" +o$eer t#ese legal 'res!'tions are rebttable b( ei&en%e to t#e %ontrar(" T#e br&en to 'roe to t#e %ontrar( lies 'on t#e &efen&ant to t#e sit an& not 'on t#e 'laintiff" Payment of Interest in case of dishonour
T#e Negotiable Instr!ents A%t, 1881 $as a!en&e& in t#e (ear 1:88, reising t#e rate of interest as %ontaine& in Se%tions 8 an& 11, fro! ; 'er %ent to 18 'er %ent 'er ann! 'a(able on negotiable instr!ents fro! t#e &e &ate in %ase no rate of interest is s'e%ifie&, or 'a(able to an en&orser fro! t#e &ate of 'a(!ent on a negotiable instr!ent on its &is#onor $it# a ie$ to &is%orage t#e $it##ol&ing of 'a(!ent on negotiable instr!ents on &e &ates" >enalties in %ase of &is#onor of %#e*es C#a'ter II of t#e Negotiable Instr!ents A%t 'roi&es for 'enalties in %ase of &is#onor of %ertain %#e*es for insffi%ien%ies of fn&s in t#e a%%onts" Se%tions 1/8 to 1? &eal $it# t#ese as'e%ts" T#e 'roisions %ontaine& in t#is C#a'ter 'roi&e t#at $#ere an( %#e*e &ra$n b( a 'erson for &is%#arge of an( liabilit( is retrne& b( t#e ban3 n'ai& for t#e reason of insffi%ien%( of t#e a!ont of !one( stan&ing to t#e %re&it of t#e a%%ont on $#i%# t#e %#e*e $as &ra$n or for t#e reason t#at it e)%ee&s t#e arrange!ent !a&e b( t#e &ra$er of t#e %#e*e $it# t#e ban3er for t#at a%%ont, t#e &ra$er of s%# %#e*e s#all be &ee!e& to #ae %o!!itte& an offen%e" In t#at %ase, t#e &ra$er, $it#ot 're&i%e to t#e6;f#er 'roisions of t#e A%t, s#all be 'nis#able $it# i!'rison!ent for a ter! $#i%# !a( e)ten& to one (ear, or $it# fine $#i%# !a( e)ten& to t$i%e t#e a!ont of t#e %#e*e, or $it# bot#" In or&er to %onstitte t#e sai& offen%e 0a s%# %#e*e s#ol& #ae been 'resente& to t#e ban3 $it#in a 'erio& of si) !ont#s fro! t#e &ate on $#i%# it is &ra$n or $it#in t#e 'erio& of its ali&it(, $#i%#eer is earlier an&
