5. The Negotiable Instruments (Ammended) Act 2015
Negotiable Instruments – Concept (S13), Characteristics, Classification of Negotiable Instruments (Ss. 11, 12, 17-20, 42, 43, 104,134,135) Maturity of Instruments.
Promissory Note and Bill of Exchange (Ss. 4,5, 108-116) - Concept, Essentials of Promissory Note, Bill of Exchange (Ss. 4, 5), Essential features of promissory note and Bill of exchange, Kinds Promissory note and Bill of exchange, Cheque (S.6) – Concept, Types & Crossing of Cheque, Distinguish between Bill of Exchange & Cheque, Dishonour of Cheque – Concept & Penalties (Ss. 138, 139,142)
Miscellaneous Provisions (S. 8-10, 22, 99-102, 118-122, 134-137) – Parties to Negotiable instruments Holder, Holder in due course, Rights & Privileges of Holder in due course, Payment in due course, Noting & Protest (99-104A)
THE NEGOTIABLE INSTRUMENTS (AMMENDED) ACT 2015.
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Characteristics
of Negotiable Instruments :
1. Writing and signature
2. Payable by legal tender money of
India.
3. Acquisition of Property
4. Freely transferable property.
5. Good title.
6. No need of notice.
7. Remedy.
8. Rights of Holder in due course.
9. Presumption.
Classification of Negotiable
Instruments
We can study negotiable instruments under the following
broad classifications. These classifications depend on various features like
transferability, negotiability, rights of holders, etc.
1. Bearer Instruments
There are two important conditions for negotiable
instruments to become payable to bearers. Firstly, parties to the transactions
must express it to be so payable. Secondly, the only endorsement for it should
be an endorsement in blank.
These two requirements basically imply that any
holder of such instruments can obtain payment for them. For example, a bill of
exchange is payable to any person who holds it. These bearer instruments
include cheques, bills of exchange and promissory notes.
2. Order Instruments
Negotiable instruments can often be payable to
order in certain cases. They are payable when the instruments expressly state
them to be so. Furthermore, they may be payable to order only to a specific
person. The only requirement is that there should be no prohibition on their
transferability.
3. Inland Instruments
Section 11 of the NI Act deals with inland
instruments. This provision basically regulates instruments that are drawn and
made payable in India. Alternatively, they may be payable outside India but
only if they are drawn upon by an Indian resident.
4. Foreign Instruments
Every instrument that is not inland automatically
becomes a foreign instrument. These instruments are drawn in a foreign country
but may be payable within or outside India. They may even originate in India
but only for payment to a person who resides abroad.
5. Demand Instruments
Sometimes, an instrument may not specify a time
period during which it remains payable. Such instruments are generally payable
whenever the bearer demands. Examples of such instruments include promissory
notes and bills of exchange.
6. Time Instruments
Unlike demand instruments, time instruments carry a
fixed future date for payment. For example, a promissory note may carry a
maturity date arising after 24 months of its issue. Such instruments may even
become payable upon the happening of a specific future event.
7. Ambiguous Instruments
An ambiguous instrument is basically 0ne that may
be either a bill or a note for its holder. Such situations arise in peculiar
circumstances only. For example, sometimes the drawee may be a fictitious
person or he may be incompetent to contract.
Under such circumstances, the holder of such
instruments may treat them either as bills of exchange or as promissory
notes. Section 17 of the Negotiable Instruments Act deals with such
situations.
8. Incomplete instruments
Incomplete instruments lack certain essential
requirements of typical negotiable instruments. In such cases, the holder of
the instrument has the authority to complete it up to the amount mentioned
therein. This, in turn, results in the creation of legally binding negotiable
instrument payable by law. Not only the first holder but also any subsequent
holder who procures such instruments can complete them.
MATURITY OF
AN INSTRUMENT
I.
“At
Sight”, “On Presentment”, “After Sight” (S.21)
On Demand
PN – After presentment for sight.
BOE – After acceptance – noting for non acceptance.
II.
Definition
of Maturity (S.22)
Section 22 says : “The
maturity of a PN, or BOE is the date at which it falls due.”
Limitation period :
“At sight” or “on
presentment” - 3 Y
On Demand – 3 Y
III.
What
are the Days of Grace ? (S.22)
Not – payable on demand,
at sight or on presentment – Maturity Third Day
1. Cheque
2. payable on demand, at sight or on
presentment
3. Bills or notes
No time for payment is
mentioned – no grace
IV.
Calculating
Maturity of Bills and Notes.
1. Bills or Notes payable so many months
after date or sight (S.23)
2. Bills or Notes payable so many days
after date or sight (S.24)
3. When days of maturity is a holiday
(S.25)
4. Promissory Notes payable by
Instalments (S.67)
ACT :
21. “At sight”.—“On presentment”.—
In a promissory note or bill of exchange the expressions “at
sight” and “on presentment” mean on demand. The expression “After sight”—“after sight” means, in a
promissory note, after presentment for sight, and, in a bill of exchange, after acceptance, or nothing for
non-acceptance, or protest for non-acceptance.
22. “Maturity”.—
The maturity of a promissory note or bill of exchange is the date at which it falls
due.
Days of grace.—Every promissory note or bill of exchange which is not expressed to be payable on
demand, at sight or on presentment is at maturity on the third day after the day on which it is expressed to
be payable.
23. Calculating maturity of bill or note payable so many months after date or sight.—
In
calculating the date at which a promissary note or bill of exchange, made payable a stated number of
months after date or after sight, or after a certain event, is at maturity, the period stated shall be held to
terminate on the day of the month which corresponds with the day on which the instrument is dated, or
presented for acceptance or sight, or noted for non-acceptance, or protested for non-acceptance, or the
event happens, or, where the instrument is a bill of exchange made payable a stated number of months after
sight and has been accepted for honour, with the day on which it was so accepted. If the month in which
the period would terminate has no corresponding day, the period shall be held to terminate on the last
day of such month.
Illustrations
(a) A negotiable instrument, dated 29th January, 1878, it made payable at one month after date. The instrument is at
maturity on the third day after the 28th February, 1878.
(b) A negotiable instrument, dated 30th August, 1878, it made payable three months after date. The instrument is at
maturity on the 3rd December, 1878.
(c) A promissory note or bill of exchange, dated 31st August, 1878, is made payable three months after date. The
instrument is at maturity on the 3rd December, 1878.
24. Calculating maturity of bill or note payable so many days after date or sight.—
In calculating
the date at which a promissory note or bill of exchange made payable a certain number of days after date
or after sight or after a certain event is at maturity, the day of the date, or of presentment for acceptance or
sight, or of protest for non-acceptance, or on which the event happens, shall be excluded.
25. When day of maturity is a holiday.—
When the day on which a promissory note or bill of
exchange is at maturity is a public holiday, the instrument shall be deemed to be due on the next
preceding, business day.
1. Subs. by Act 3 of 1951, s. 3 and the Sch., for “the States”.
Explanation.— The expression “public holiday” includes Sundays: 1
*** and any other day declared
by the 2
[Central Government], by notification in the Official Gazette, to be a public holiday.
PROMISSORY
NOTE
Defn (S.4)
Characteristics
/ Essentials of Promissory Note
1. PN must be in writing.
2. A promise to pay.
3. A definite and unconditional promise
to pay.
4. Signed by the maker or Drawer.
5. The maker or Drawer and the payee
must be certain.
6. A certain sum of money.
7. Promise to pay money and money only.
8. Formalities.
Date, place consideration.
9. Stamping.
BILL OF
EXCHANGE
Defn (S.5)
Essential
Characteristics of Bill of Exchange.
1. It must be in writing.
2. Drawer, the drawee and the payee.
3. Acceptor.
4. An unconditional order to pay.
5. Signed by the Drawer.
6. Certain sum of Money.
7. Order to pay money and money only.
8. Stamping.
TYPES OF
PROMISSORY NOTES.
1. Promissory Notes payable on Demand.
2. Promissory Note payable After Date.
3. Joint Promissory Note.
4. Joint and Several Promissory Notes.
TYPES OF
BILL OF EXCHANGE
1. Bill of Exchange payable on Demand.
2. Bill of Exchange payable after Date.
3. Inland Bill of Exchange.
4. Foreign Bill of Exchange.
5. Accommodation Bill of Exchange.
6. Fictitious Bill of Exchange.
7. Escrow.
CHEQUE
Defn (S.6)
RBI Notification
In exercise of
the powers conferred by Section 35A of the Banking Regulation Act, 1949, Reserve
Bank hereby directs that with effect from April 1, 2012, banks should not make
payment of cheques/drafts/pay orders/banker’s cheques bearing that date or any
subsequent date, if they are presented beyond the period of three months from the
date of such instrument.
Source : https://rbidocs.rbi.org.in/rdocs/notification/PDFs/CVC041111.PDF
CHARACTERISTICS
OR ESSENTIALS OF CHEQUE.
A cheque is
a Bill of Exchange.
1. Drawee of a cheque must be a Banker.
2. Cheque must be payable on demand.
3. Does not require acceptance.
4. Stamped --------
5. Signed by the drawer.
6. Dated - Post Dated/Ante Dated.
Truncated Cheque and Cheque in an Electronic form.
TYPES AND CROSSING OF CHEQUE.
1. Bearer Cheques.
2. Crossed Cheques.
a. Cheques Crossed Generally.
_______________
and Company
& Co.
Not Negotiable
& Co. Not Negotiable.
b. Proforma of Cheque Crossed Specially.
State Bank of India.
& Co State Bank of India
State Bank of India Not
Negotiable.
c. Restrictive Crossing.
AC Payee
AC Payee Not Negotiable
AC Payee State Bank of India.
DISTINGUISH
BETWEEN BILL OF EXCHANGE AND CHEQUE.
1. Who can be a Drawee.
2. Is acceptance required.
3. When is payment made ?
4. Is notice of dishonor required ?
5. Is noting and protest possible ?
6. Is Counter – manding payment possible
?
7. Is it payable to the bearer on demand
?
8. Is Crossing Possible ?
D Section 138. Dishonour of cheque for insufficiency, etc., of funds in the account.
1[Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for 2[a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless--
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, 3[within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation.-- For the purposes of this section, debt of other liability means a legally enforceable debt or other liability.
1. Ins. by Act 66 of 1988, s, 4 (w.e.f. 1-4-1989).
2. Subs. by Act 55 of 2002, s.7, for certain words (w.e.f. 6-2-2003).
3. Subs. by s. 7, ibid., for within fifteen days (w.e.f. 6-2-2003).
Section 142. Cognizance of offences.
1[(1)] Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),
(a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;
(b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138:
2[Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period;]
(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.].
3[(2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,--
(a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or
(b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.
Explanation.-- For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.]
1. Section 142 numbered as sub-section (1) thereof by Act 26 of 2015, s. 3 (w.e.f. 15-6-2015).
2. Ins. by Act 55 of 2002, s. 9 (w.e.f. 6-2-2003).
3. Ins. Act 26 of 2015, s. 3 (w.e.f. 15-6-2015).
HOLDER
Section 8 : “Holder”.—The “holder” of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.
Section 9 : “Holder in due course”.—“Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if 1[payable to order], before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
A B C D
Drawer Payee
PAYMENT IN DUE COURSE
Section 10 : “Payment in due course”.—‘‘Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.
Apparent Tenor : Apparent Tenor means apparent direction given in the instrument. Thus, a Crossed. Cheque will not be paid in cash, or a Cheque which is dated after date of. Apparent tenor of cheques means: date of cheque, sum of cheque both word and figure, name of payee, drawer signatures.
NOTING
Section 99 : Noting.—When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may cause such dishonour to be noted by a notary public upon the instrument, or upon a paper attached thereto, or partly upon each. Such note must be made within a reasonable time after dishonour, and must specify the date of dishonour, the reason, if any, assigned for such dishonour, or, if the instrument has not been expressly dishonoured, the reason why the holder treats it as dishonoured, and the notary’s charges.
PROTEST
Section 100 : Protest.—When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may, within a reasonable time, cause such dishonour to be noted and certified by a notary public. Such certificate is called a protest.
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