NEGOTIABLE INSUTRUMENTS ACT 1881

1. DEFINITION OF A NEGOTIABLE INSTRUMENT [SECTION 13] The word 'negotiable' means transferable from one person to another, and the term 'instr ment' means 'an! written do" ment b! whi"h a right is "reated in fa#o r of some person$' Th s, the negotiable instr ment is a do" ment b! whi"h rights #ested in a person "an be transferred to another person in a""ordan"e with the pro#isions of the Negotiable Instr ments %"t, 1&&1$ The term 'negotiable instr ment' has been defined as ' % 'negotiable instr ment' means a promissor! note, bill of e("hange or "he) e pa!able either to order or to bearer$*

MAIN FEATURES OF A NEGOTIABLE INSTRUMENT %n instr ment ma! be negotiable either b!

+1, Stat te ' -romissor! notes, bills of e("hange and "he) es are negotiable instr ments nder the Negotiable Instr ments %"t, 1&&1. or +/, 0! sage ' 0an1 notes, ban1 drafts, share warrants, bearer debent res, di#idend warrants, s"ripts and treas r! bills %n instr ment is to be "alled 'negotiable' if it possesses the following "hara"teristi" feat res2

1, 3reel! transferable ' Transferabilit! ma! be b! +a, deli#er!, or +b, b! endorsement and deli#er!$ /, 4older's title free from defe"ts2 The holder +of the negotiable instr ment, in d e "o rse a") ires a good title not withstanding an! defe"t in a pre#io s holder's title$ % holder in d e "o rse is one who re"ei#es the instr ment for #al e and witho t an! noti"e as to the defe"t in title of the transferor$ 3, The 4older "an s e in his own Name ' %nother "hara"teristi" feat re of a negotiable instr ment, is that its holder in d e "o rse, "an s e on the instr ment in his own name$ 5, % negotiable instr ment "an be transferred infinit m, i$e$, "an be transferred an! n mber of times till its mat rit!$ 6, % negotiable instr ment is s b7e"t to "ertain pres mptions$

-res mptions as to negotiable instr ments [Se"tions 11&'118] 1, %s to Consideration ' E#er! negotiable instr ment is deemed to ha#e been made, drawn, and a""epted endorsed, negotiated or transferred for "onsideration$ /, %s to date' E#er! negotiable instr ment bear the date on whi"h it is made or drawn$

3, %s to %""eptan"e' E#er! bill of e("hange was a""epted within a reasonable time after the date mentioned therein and before the date of its mat rit!$ 5, %s to Transfer' E#er! transfer of a negotiable instr ment was made before the date of its mat rit! in "ase of an instr ment pa!able otherwise than on demand$

6, %s to the order of Endorsements ' The endorsements appearing on it were made in the order in whi"h the! appear thereon$ 9, %s to lost Instr ments ' :here an instr ment has been lost or destro!ed, that it was d l! stamped and the stamp was d l! "an"elled$ ;, %s to holder'in'd e "o rse ' The holder of the instr ment is a holder in d e "o rse$ &, %s to dishono r ' If a s it is filed pon an instr ment, whi"h has been dishono red, the Co rt shall, on proof of the protest, pres me the fa"t of dishono r nless it is dispro#ed$

2. PROMISSORY NOTE [Se"tion 5] <efinition % promissor! note is an instr ment in writing +not being a ban1 note or a " rren"! note, "ontaining an n"onditional nderta1ing, signed b! the ma1er to pa! a "ertain s m of mone! to, or to the order of, a "ertain person or to the bearer of the instr ment

E(amples of -romissor! Notes =%> signs instr ments in the following terms2 *I a"1nowledge m!self to be indebted to '0' in ?s$ 1@@@, to be paid on demand, for #al e re' "ei#ed$* 3ollowings are Not -romissor! Notes$ +i, *Ar$ 0, I$O$B$ +I owe !o , ?s$ 1@@@$* +ii, *I promise to pa! 0 ?s$ 16@@ on <'s death, pro#ided he lea#es me eno gh to pa! that s m,*

+iii, *I promise to pa! 0 ?s$ 6@@ se#en da!s after m! marriage with C$* Essentials or Chara"teristi"s of a -romissor! Note 3rom the definition, it is "lear that a promissor! note m st ha#e the following essential elements$

+1, In writing - % promissor! note m st be in writing$ :riting in"l des print and t!pewriting$ +/, Promi ! to "#$ - It m st "ontain an nderta1ing or promise to pa!$ Thus, a mere a"1nowledgement of indebtedness is not s ffi"ient$ Noti"e that the se of the word Cpromise' is not essential to "onstit te an instr ment as promissor! note$ +3, Un%on&ition#' - The promise to pa! m st not be "onditional$ Th s, instr ments pa!able on performan"e or non'performan"e of a parti" lar a"t or on the happening or non'happening of an e#ent are not promissor! notes$ +5, Sign!& ($ t)! M#*!r The promissor! note m st be signed b! the ma1er, otherwise it is of no effe"t$ +6, C!rt#in P#rti! - The instr ment m st point o t with "ertaint! the ma1er and the pa!ee of the promissor! note$ +9, C!rt#in +m o, mon!$ - The s m pa!able m st be "ertain or "apable of being made "ertain$

+;, Promi ! to "#$ mon!$ on'$ - If the instr ment "ontains a promise to pa! something in addition mone!, it "annot be a promissor! note$ +&, N+m(!r- "'#%!- &#t! !t% - These are s all! fo nd in a promissor! note b t are not essential in law$ If a promissor! note does not bear a date, it is deemed to ha#e been made when it was deli#ered$ +8, It m#$ (! "#$#('! in in t#''m!nt +1@, It m#$ (! "#$#('! on &!m#n& or #,t!r # &!,init! "!rio& - -a!able 'on demand' means pa!able immediatel! or an! time till it be"omes time'barred$ % demand promissor! note be"omes time barred on e(pir! of 3 !ears from the date it bears$ +11, It %#nnot (! m#&! "#$#('! to (!#r!r on &!m#n& or !.!n "#$#('! to (!#r!r #,t!r # %!rt#in "!rio& +1/, It m+ t (! &+'$ t#m"!& +n&!r t)! In&i#n St#m" A%t - It means that the stamps of the re) isite amo nt m st ha#e been affi(ed on the instr ment and d l! "an"elled either before or at the time of its e(e" tion$ % promissor! note, whi"h is not so stamped, is a n llit!$

/. BILL OF E0C1ANGE 2Se"tion 6] % 'bill of e("hange' is defined b! as an instr ment in writing, "ontaining an n"onditional order, signed b! the ma1er, dire"ting a "ertain person to pa! a "ertain s m of mone! onl! to or to the order of, a "ertain person, or to the bearer of the instr ment$

Characteristic Features of a Bill of Exchange 1$ /$ 3$ 5$ 6$ 9$ ;$ &$ 8$ It m st be in writing$ It m st %ont#in #n or&!r to "#$ and not a promise or re) est$ The order m st be +n%on&ition#'$ There m st be t)r!! "#rti! , #iD$, drawer, drawee and pa!ee$ The "#rti! m+ t (! %!rt#in$ It m st be ign!& ($ t)! &r#w!r$ The +m "#$#('! m+ t (! %!rt#in or "apable of being made "ertain$ The or&!r m+ t (! to "#$ mon!$ and mone! alone$ It m st be &+'$ t#m"!& as per the Indian Stamp %"t$

1@$ N mber, date and pla"e are not essential$ 3. C1E4UE [Se"tion 9] % "he) e is defined as 'a bill of e("hange drawn on a spe"ified ban1er and not e(pressed to be pa!able otherwise than on demandE$ Th s, a "he) e is a bill of e("hange with two added feat res, #iD$2 +i, it is alwa!s drawn on a spe"ified ban1er. and

+ii, it is alwa!s pa!able on demand and not otherwise$ Bill of Exchange and Cheque distinguished C)!5+! 1, /, It m st be drawn onl! on a ban1er$ 1, Bi'' o, E6%)#ng! It "an be drawn on an! person in"l ding a ban1er$ The amo nt ma! be pa!able on demand or after a$ spe"ified time$

The amo nt is alwa!s pa!able on demand$ /,

3,

The "he) e is not entitled to da!s of gra"e$

3, 5,

% san"e +time, bill is entitled to three da!s of gra"e$ % bill pa!able after sight m st be a""epted$ Crossing of a bill of e("hange is not possible$ Noti"e of dishono r is ne"essar! to hold the parties liable thereon$ % part! who does not re"ei#e a noti"e of dishono r "an generall! es"ape its liabilit! thereon$ % bill is noted or protested to establish dishono r$

5, 6, 9,

%""eptan"e is not needed$ % "he) e "an be "rossed Noti"e of dishono r is not ne"essar!$ The parties thereon remain liable, e#en if no noti"e of dishono r is gi#en$ 6, 9,

;, &,

% "he) e is not to be noted or protested in "ase of dishono r$

;,

The prote"tion gi#en to the pa!ing ban1er in respe"t of "rossed "he) es is &, No s "h prote"tion is a#ailable in the pe" liar to this instr ment$ "ase of bills$

Promissory Note and Bill of Exchange distinguished Promi or$ Not! 1, There are onl! two parties F the ma1er +debtor, and the pa!ee +"reditor,$ 1, Bi'' o, E6%)#ng! There are three parties F the drawer, the drawee and the pa!ee' altho gh an! two of these "apa"ities ma! be filled b! one and the same person$ It "ontains an n"onditional order to the drawee to pa! a""ording to the drawerCs dire"tors$ % bill pa!able Cafter sightC m st be a""epted b! the drawee or his agent before it is presented for pa!ment$ The liabilit! of the drawer is se"ondar! and "onditional pon non'pa!ment b! the drawee$ Noti"e of dishono r m st be gi#en b! the holder to the drawer and the intermediate endorsers to hold them liable thereon$

/, 3,

% note "ontains an n"onditional promise b! the ma1er to pa! the pa!ee$ No prior a""eptan"e is needed$

/,

3,

5, 6,

The liabilit! of the ma1er or drawer is primar! and absol te$ No noti"e of dishono r need be gi#en$

5,

6,

9, 9, The ma1er of the note stands in immediate relation with the pa!ee$

The ma1er or drawer does not stand in immediate relation with the a""eptor drawee$

7. 1OLDER AND 1OLDER8IN8DUE8COURSE [Se"tion & G 8] Holder of negotia le instrument % holder of a negotiable instr ment is a person entitled in his own name to the possession of that negotiable instr ment #n& to re"ei#e or re"o#er the amo nt d e thereon from the parties thereto$

! "holder in-due-course" % 'holder in'doe'"o rse'- on the other hand, is a person who for "onsideration be"ame the pos' sessor of a negotiable instr ment before the d e date of pa!ment of that instr ment #n& witho t ha#ing s ffi"ient "a se to belie#e that an! defe"t e(isted in the title of the person from whom he deri#ed his title$ Th s, where a person re"ei#es a negotiable instr ment witho t "onsideration, he ma! be a holder b t will not be "alled as a holder in d e "o rse$ 9. CERTAIN IMPORTANT CONCEPTS AND E0PLANATIONS Am(ig+o+ In tr+m!nt #$ection %&' - the holder ma! at his ele"tion treat it as either and the instr ment shall be then"eforward treated a""ordingl!$ :)!r! Amo+nt i t#t!& &i,,!r!nt'$ in Fig+r! #n& :or& ;S!%tion 18< 8 the amo nt stated in words shall be the amo nt nderta1en or ordered to be paid$ In%)o#t! In tr+m!nt ;S!%tion 2=< 8 It means an instrument that is incom(lete in certain res(ects$ :here one person signs and deli#ers to another person a d l! stamped negotiable instr ments #n& howe#er, that negotiable instr ment is either wholl! blan1 or ha#ing written thereon$ S "h an instr ment is th s in"omplete +in"hoate,$ The ma1er of the instr ment has thereb! (rima facie a thorises the holder thereof to ma1e or "omplete, for an! amo nt therein ut not exceeding the amo nt "o#ered b! the stamp$

Lo t or Sto'!n In tr+m!nt ;S!%. 78< 8 In s "h instan"es, the possessor or endorsee who has fo nd or had obtained the instr ment b! fra d shall not be entitled to re"ei#e the amo nt d e thereon from s "h ma1er of the lost instr ment$ +Exce(tion F when the later +finder, person is

holder in d e "o rse,$ Forg!& In tr+m!nt ' %s a general r le, a forged signat re does not "onfer a good title$ E#en a holder in d e "o rse "annot "laim pa!ment on a forged instr ment$ >. C1E4UE [Se"tion 9] )eaning of a Cheque % Che) e, in essen"e, is an order b! the " stomer of the ban1 dire"ting his ban1er to pa! on demand, the spe"ified amo nt, to or to the order of the person named therein or to the bearer$ It has been defined as a bill of e("hange drawn on a spe"ified ban1er and not e(pressed to be pa!able otherwise than on demand$ % "Cheque in the electronic form" means a Che) e, whi"h "ontains the e(a"t mirror image of a paper Che) e, and is generated, written and signed in a se" re s!stem ens ring the minim m safet! standards with the se of digital signat re +with or witho t biometri"s signat re, and as!mmetri" "r!pto s!stem$ % *truncated Cheque* means a Che) e whi"h is tr n"ated d ring the "o rse of a "learing "!"le, either b! the "learing ho se or b! the 0an1 whether pa!ing or re"ei#ing pa!ment, immediatel! on generation of an ele"troni" image for transmission, s bstit ting the f rther ph!si"al mo#ement of the "he) e in writing$

Features of a Cheque % Che) e is a bill of e("hange with following feat res, #iD$, +i, +ii, +iii, +i#, +#, +#i, +#ii, +#iii, +i(, m st be in writing. "ontain an n"onditional order to pa! drawn on a spe"ified ban1er. for a "ertain s m of mone!. the pa!ee m st be a definite person. amo nt m st be written both in fig res and words. it m st be dated$ it is alwa!s drawn on a spe"ified ban1er. and it is alwa!s pa!able on demand and not otherwise$

Cheques in electronic form In #iew of the ban1ing transforming from traditional ban1ing to e'ban1ing, the ele"troni" form

or ele"troni" image of a Che) e as a #alid Che) e has also now been re"ogniDed [Negotiable Instr ments +%mendment, %"t, /@@/]$ +ating of cheques The drawer of a Che) e is e(pe"ted to date it before it lea#es his hands$ % "he) e witho t a date is "onsidered in"omplete and is ret rned npaid b! the ban1s$ % post'dated "he) e is as m "h negotiable as a "he) e for whi"h pa!ment is d e, i$e$, the transferee of a post'dated "he) e, li1e that of the "he) e on whi"h pa!ment is d e, a") ires a better title than its transferor, if he is a holder in d e "o rse$

Crossing of cheques Crossing is a ni) e feat re asso"iated with a "he) e affe"ting to a "ertain e(tent the obligation of the pa!ing ban1er and also its negotiable "hara"ter$ It is a pe" liar method of modif!ing the instr ment to the ban1er for pa!ment of the "he) e$ Crossing on a cheque is a direction to the (aying an,er y the dra-er that (ayment should not e made across the counter. The pa!ment on a "rossed "he) e "an be "olle"ted onl! thro gh a ban1er$ Crossing of a "he) e is effe"ted b! drawing two parallel trans#erse lines with or witho t the words 'and "ompan!' or an! abbre#iation thereof$ % "he) e that is not "rossed is "alled an Copen "he) eC$

$ignificance of crossing %s pa!ment "annot be "laimed a"ross the "o nter on a "rossed "he) e, "rossing of "he) es ser#es as a meas re of safet! against theft or loss of "he) es in transit$

Ty(es of crossing Crossing ma! be either +1, /eneral ' to mean as where a "he) e bears a"ross its fa"e an addition of the words 'and "ompan!' or an! abbre#iation thereof, between two parallel trans#erse lines or of two parallel trans#erse lines simpl!, either with or witho t the words 'not negotiable', that addition shall be deemed a "rossing and the "he) e shall be deemed to be "rossed generall! +/, $(ecial ' implies the spe"ifi"ation of the name of the ban1er on the fa"e of the "he) e The ob7e"t of spe"ial "rossing is to dire"t the drawee ban1er to pa! the "he) e onl! if it is presented thro gh the parti" lar ban1 mentioned therein$ Th s, it ma1es the "he) e s!stem still safer$

Not Negotia le Crossing % person who ta1es s "h a "he) e shall not ha#e and shall not be "apable of gi#ing a better title to the "he) e than that whi"h the person, from whom he too1 it in the first instan"e, had$ Th s, b! in"l ding the words 'not negotiable', the "he) e is depri#ed of its spe"ial feat re of negotiabilit!$ % ban1, therefore, sho ld be e(tra "aref l in pa!ing s "h "he) es$

!ccount Payee Crossing #!0c Payee Crossing' %n %H" pa!ee "rossing signifies that the drawer intends the pa!ment to be "redited onl! to the pa!eeEs a""o nt and in none else$ The addition of '%H" pa!ee' to a "rossing has no legal san"tit! and the pa!ing ban1er ma! ignore s "h a dire"tion witho t being liable for an! damages$

Not Negotia le, !0c Payee Crossing The instr ment is rendered not negotiable +ma1ing the 'pa!ing ban1er' responsible to see that pa!ment is made to the person who is entitled to re"ei#e it, pl s %H" pa!ee "rossing dire"ts the "olle"ting ban1er to "olle"t it for the pa!ee onl!$

1ho can cross a cheque % "he) e ma! be "rossed b! an! of the following2 1$ The drawer of a "he) e$ /$ The holder of a "he) e$ 3$ The 0an1er, in whose fa#o r the "he) e has been "rossed spe"iall!$ )ar,ing of cheques Aar1ing or "ertifi"ation is a method adopted when the pa!ing ban1er #erifies the " stomer's a""o nt and indi"ates thereon that there are eno gh f nds in his a""o nt torn that "he) e$ [ Sit# R#m .. Bom(#$ B+''ion A o%i#tion +1896,]$ Aar1ing onl! "ertifies the gen ineness of the drawer's signat re and the s ffi"ien"! of f nds$

)aterial alterations E6' +i, <ate. +ii, The time of pa!ment. %n alteration is material if it alters materiall! or s bstantiall! the operation of the instr ment and thereb! the rights and liabilities of the parties$ In A'&on .. Cornw#'', a material alteration was defined as *an alteration, whi"h alters the b siness effe"t of the instr ment if sed for an! b siness p rpose$

+iii,

The pla"e of pa!ment.

+i#,The s m pa!able. +#, The n mber of parties. +#i,The relationship between parties. +#ii, Iegal "hara"ter of the instr ment. +#iii, Opening a "rossed "he) e. +i(, Con#erting an order "he) e into a bearer "he) e$ It is immaterial as to who ma1es the alteration$ %n alteration made b! an o tsider or stranger to the instr ment will be "onsidered as an alteration made b! the holder himself as it is the d t! of the holder to preser#e the instr ment, free from s "h forgeries$

Effect of )aterial !lteration %n! material alteration of a negotiable instr ment, whi"h has not been, "onsented to b! either the drawee or the pa!ee is #oid as against them$ !lterations -hich are not material +i, 3illing blan1s of the instr ment. +ii, Con#ersion of blan1 endorsement into endorsement in f ll. +ii, Crossing of "he) es. +iii, %ltering a general "rossing into a spe"ial "rossing. addition of the words 'a""o nt pa!ee' negotiable' to a "rossing. and where a "he) e is "rossed spe"iall!, the ban1er to whom "rossed, "rossing it spe"iall! to another ban1er, his agent for "olle"tion. +i#, +#, Can"eling the word bearer and ma1ing the "he) e pa!able to order. and %lteration made with the "onsent of the parties$ 8. T1E PAYING BAN?ER The 'pa!ing ban1er' is a term sed to denote the position and d ties of the drawee'ban1s in pa!ing "he) es of their " stomers$ Th s, 'pa!ing ban1er' is a ban1er pon whom a "he) e is drawn$ <BTIES %N< ?ES-ONSI0IIITIES O3 % '-%JINK'0%NLE?' The drawee of a "he) e ha#ing s ffi"ient f nds of the drawer in his hands m st pa! the "he) e when d l! re) ired so to do$ In defa lt of s "h pa!ment, the pa!ing ban1 m st "ompensate the

drawer for an! loss or damage "a sed b! s "h defa lt E6 In Ro'in .. St!w#r& it was held that e#en tho gh the defa lt arose thro gh inad#erten"e, and in fa"t the "he) e was s bse) entl! paid, the Co rt will not award merel! nominal damages, be"a se "redit of the " stomer was serio sl! affe"ted$ This wo ld be the "ase e#en if the " stomer's a""o nt was o#erdrawn b t the ban1er had agreed to pa! his "he) es on an o#erdraft within "ertain limits$ [F'!ming .. B#n* o, N!w @!#'#n&]$ Protection in case of crossed cheques % ban1er pa!ing the "he) es "rossed generall! to a ban1er or to the spe"ified ban1er, is prote"ted e#en if it t rns o t to be a pa!ment to a wrong pa!ee$

Payment in due course [Se"tion 1@] -a!ment in d e "o rse means pa!ment in a""ordan"e with the apparent tenor of the instr ment made in good faith and witho t negligen"e$ The! are as follows2 ' %. Payment must e in accordance -ith the a((arent tenor of the instrument 2. Payment must e made in good faith and -ithout negligence 3. Payment must e made to the (erson in (ossession of the instrument 4. Payment must e made to the (erson entitled to recei5e. 6. Payment must e made in money only$ 1hen an,er must refuse (ayment % pa!ing ban1er m st ref se pa!ment on "he) es if an! of the following "ir" mstan"es e(ist2 1. :here the " stomer "o ntermands the pa!ment +stopped b! the drawer, /$ On re"eipt of a noti"e of " stomer's death 3$ On " stomer's be"oming insol#ent 5$ On re"eipt of a noti"e of the " stomer's insanit! 6$ On re"eipt of Karnishee order 6$ On assignment of Credit balan"e ;$ On s spi"io s mis se b! tr stee 1hen an,er may refuse (ayment

1$ :here the "he) e is post'dated$ /$ :here the f nds of the " stomer are ins ffi"ient$ 3$ :here a "he) e is not d l! presented$ 5$ Not properl! signed 7oint holders 6$ Aaterial alteration or irreg larit! 6$ -resented after #alidit! period A. DIS1ONOUR OF A C1E4UE ON GROUNDS OF INSUFFICIENCY OF FUNDS [Se"tions 13& to 15/] Se"tion 13& to 15/ of the Negotiable Instr ments %"t pro#ide for "riminal penalties in the e#ent of dishono r of "he) es for ins ffi"ien"! of f nds$ The drawer, nder Se"$ 13&, ma! be p nished with imprisonment pto / !ears +earlier I !ear, or with a fine p to twi"e the amo nt of the "he) e or with both$ The enhan"ement in the penal pro#isions was made b! Negotiable Instr ments +%mendment, %"t /@@/ w$e$f$ 6$/$/@@3$ In order to attra"t the aforesaid penalties, following "onditions m st be satisfied2

#%'. 7nsufficiency of funds

The Co rts ha#e held the following amo nting to dishono r for ins ffi"ien"! of f nds2 +i, Stop'pa!ment instr "tions to the pa!ee'ban1 [ ET B TD Cor"n. Lt&. .. I& T!%)no'ogi! B Engro P. Lt&. +1889,]$ +ii, ?e) est to the pa!ee not to present the "he) e till f rther information [ Mo&i C!m!nt Lt&. .. ?+%)i' ?+m#r N#n&i +188&,]$ +iii, Che) e re"ei#ed ba"1 from the pa!ee'ban1 with the remar1s '%""o nt Closed' [ G.M. Mitt#' St#in'! St!!' . . N#g#rC+n# In.! tm!nt +188;, and N.E.P. C. Mi%on Lt&. . . M#gn# L!# ing Lt&$ +1888,]$

#2'.Payment against an enforcea le de t #3'. Cheque should e (resented to the (aying an, -ithin the 5alidity (eriod +generall! 9 months from the date on whi"h it is drawn, #4'. Payee to ser5e +efault Notice, demanding (ayment -ithin 38 days #6'. +ra-er lia le u(on failure to (ay -ithin 38 days9 :(on failure Com(laint in -riting; <ffence tria le y %st )agistrate The pa!ee ha#ing failed to re"ei#e the pa!ment within 3@ da!sC of noti"e of dishono r of the

"he )e, shall ha#e to ma1e a poli"e "omplaint in this regard$ This is a "ogniDable offen"e and shall be tried b! a Aetropolitan Aagistrate or a M di"ial Aagistrate of the 3irst Class$ <ffences y com(anies % dire"tor, manager, se"retar! or other offi"er of the "ompan! shall be liable to be pro"eeded against and p nished a""ordingl! in "ase the offen"e has been "ommitted with the "onsent or "onni#an"e, or is attrib table to an! negle"t on his part in this regard$ ' R#Cn!! ) Agg#rw#' .. Ani' B)#''# +/@@1,$ 4owe#er, a (erson -ill not e lia le in a "ase$ +i, where s "h person pro#es that the offen"e was "ommitted witho t his 1nowledge, or +ii, where he had e(er"ised all d e diligen"e to pre#ent the "ommission of s "h offen"e. +iii, where he is nominated as a <ire"tor of a "ompan! b! the Central Ko#ernment or State Ko#ernment or finan"ial instit tions$ -O:E? O3 COB?T TO T?J C%SES SBAA%?IIJ [SECTION 153] This is a non-o stante "la se$ It o#errides the pro#isions "ontained in the Code of Criminal -ro"ed re, 18;3$ It has been now pro#ided that offen"es for dishono r of "he) es shall be tried b! a M di"ial magistrate of the first "lass or b! a Aetropolitan Aagistrate$ In the "ase of s mmar! trial, the ma(im m senten"e that ma! be passed b! the Aagistrate shall be imprisonment for a term not e("eeding one !ear and an amo nt of fine not e("eeding fi#e tho sand r pees$ The trial shall, so far as pra"ti"able, "onsistent with the interests of 7 sti"e, be "ontin ed from da! to da!$ 3 rther, e#er! trial shall be "ond "ted as e(peditio sl! as possible and an endea#o r shall be made to conclude the trial -ithin six months from the date of filing of the "omplaint$ E#er! offen"e p nishable nder Negotiable Instr ments %"t shall be "ompo ndable +Se"tion 15;, 1=. T1E COLLECTING BAN?ER One of the prin"ipal f n"tions of a ban1er is to re"ei#e instr ments from his " stomer in order to "olle"t the pro"eeds and "redit them to his " stomer's a""o nt$ :hen a"ting in this "apa"it! he is "alled a *"olle"ting ban1er*$ :hile "olle"ting his " stomer's "he) es, a ban1er a"ts either2 #i' Ban,er as Holder for 5alue ' :hen, to oblige a " stomer, a ban1 pa!s the pro"eeds of a "he) e drawn pon another ban1er, before "olle"tion, he is treated as a holder for #al e$

Similarl!, where, a " stomer pa!s in a "he) e and the ban1er e(pressl! or impliedl! permits him to draw against it before it is "leared, the ban1er will be regarded as a holder for #al e$ #ii' Ban,er as !gent ' % "olle"ting ban1er a"ts, as an agent of the " stomer if he "redits the " stomer's a""o nt with the amo nt of the "he) e after it is a"t all! realised$ +uties and res(onsi ilities of a collecting an,er < e Care and <iligen"e in Colle"tion of Che) es -resentation for pa!ment b! the ne(t wor1ing da! after the re"eipt of the "he) es$ Noti"e of <ishono r 11. BIILS OF E0C1ANGE AND PROMISSORY NOTE =inds of ills 0ills are of different 1inds$ Some of these are2

%. 7nland Bill

%n inland bill2

+a, m st be drawn and made pa!able in India, or +b, m st be drawn in India pon a person resident in India altho gh it ma! be pa!able o tside India$ E6' N of 0omba! draws a bill on J of <elhi pa!able at Jor1shire +B$L$,$ 2. Foreign Bills

% foreign bill of e("hange is

+a, drawn in India pon a person resident o tside India and made pa!able o tside India, or +b, drawn o tside India and pa!able in India$ E6' N of 0omba! draws a bill of e("hange on J of Iondon pa!able at Iondon$ 3. Trade and !ccommodation Bills

% trade bill is a bill of e("hange iss ed in respe"t of a gen ine trade transa"tion$ S "h bills are drawn b! the seller on the b !er in respe"t of pa!ment of the pri"e of the

goods sold and p r"hased$

Sin"e an a""ommodation bill is drawn and a""epted witho t an! "onsideration, it "reates no obligation of pa!ment between the parties to the transa"tion$ 0 t, howe#er, all ills are not genuine ills i$e., the! do not represent a trade transa"tion b t are drawn as a "on#enient mode of a""ommodating a friend$ E6 ' Th s, N ma! be in need of mone! and approa"hes his friend J who instead of lending mone! dire"tl!, draws and a""epts a bill of e("hange, sa!, for ?s$ 6,@@@$ If the "redit of J is good it lends a " rren"! to the bill and it "an be dis"o nted with the ban1ers or an! other person$ On mat rit!, N remits the amo nt with J who in t rn pa!s it in hono ring the bill of e("hange on presentment$ Th s, it pro#ides an a""ommodation to the part! and is, therefore, "alled an '%""ommodation 0ill'$ The lang age and form of an a""ommodation bill is, howe#er, similar to a gen ine trade bill$

4. Time Bills #:sance Bills'

Time bills, also "alled as san"e bills, are bills pa!able at a fi(ed period after date or sight of the bills$ Th s, a bill of e("hange drawn pa!able at 3 months after the date it is drawn is a time or san"e bill$ $imilarly, a bill drawn pa!able at 8@ da!s after sight is again a time or san"e bill$ % time bill ma! also be made pa!able at a fi(ed period after an e#ent whi"h is "ertain to happen$ 4en"e, a bill pa!able at 8@ da!s after the death of the drawer will be a #alid time bill$

6. +emands Bills

% bill of e("hange or a promissor! note is pa!able on demand when It is made pa!able 'on demand' or 'at sight' or 'on presentationE$ No time for pa!ment is mentioned therein +Se"tion 18,$

+i, +ii,

>. Clean and +ocumentary Bill

It is a "ommon pra"ti"e in home as well as foreign trade to deli#er to the ban1er along with the bills of e("hange, the do" ments of title to the goods$ #E6- Iorr! ?e"eipt, ?ailwa! ?e"eipt or 0ill or Iading,$ :here the ban1er is instr "ted to deli#er to the drawee of the bill the do" ments of title against a""eptan"e of the bill, the bill is "alled as <o" ments against %""eptan"e of 0ill +<H% 0ill, and where the do" ments are to be released onl! against pa!ment, it is "alled as <o" ments against -a!ment ad 0ill +<I- 0ill,$

Parties to a Bill of Exchange 1$ The +ra-er ' the person who draws or ma1es the bill$ /$ The +ra-ee ' the person on whom the bill is drawn$ 3$ The Payee ' the person to whom the amo nt of the bill is pa!able$ 5$ The Holder ' is the original pa!ee b t where the bill has been endorsed, the endorsee$ 6$ The endorser ' is the person who endorses a bill$ 9$ The endorsee ' is the person to whom the bill is negotiated b! endorsement$ !cce(tor for Honour %n a""eptor for hono r is a person who, on the ref sal b! the original drawee to a""ept the bill or to f rnish better se" rit! when demanded b! the notar!, a""epts the bill in order to safeg ard the hono r of the drawer or an! endorser$ %""eptor for hono r m st spe"if! as to whose hono r he is a""epting the bill of e("hange $ :here the a""eptor does not e(press for whose hono r it is made, it shall be

Parties to ! Promissory Note 1$ The )a,er ' the person who ma1es the note promising 'to pa! the amo nt stated therein$ 2. The Payee ' the person to whom the amo nt of the note is pa!able$ 3. The Holder ' is either the original pa!ee or an! other person in whose fa#o r the note been endorsed$ 4. The Endorser ' the person who indorses the note in fa#o r of another person$ 6. The Endorsee ' the person in whose fa#o r the note is negotiated b! indorsement$ ACCEPTANCE The a""eptan"e of a bill is the indi"ation b! the drawee of his assent to the order of the drawer$ It has been defined as the signat re of the drawee of a bill who has signed his assent pon bill and deli#ered it or gi#en noti"e of s "h signing to the holder to some person on his behalf$ %n a""eptan"e to be #alid m st be #a' in writing, # ' signed b! the drawee or his agent, #c' on bill of e("hange, and

#d' "ompleted b! deli#er! to the holder or b! noti"e of a""eptan"e to him or some person on his behalf [D#gCi.#n M#+Ci Eit)'#ni .. MF R#n%)#)o&# M!g)#Ci- 1856] %n a""eptan"e of a bill ma! be general or ) alified$ #a' /eneral !cce(tance # ' ?ualified !cce(tance 1ho may !cce(t % bill of e("hange ma! be a""epted b! the following persons +1, The drawee of the bill +/, :here there are more than one drawees, b! all or some of them$ +3, % drawee in "ase of need$ +5, %n agent of an! of the person mentioned abo#e$ +6, %n a""eptor for hono r$ +9, %n agent of the a""eptor for hono r$ +;, In "ase no drawee is mentioned in the bill and a person a""epts it, he be"omes an acce(tor y esto((el. !cce(tance for Honour :hen a bill of e("hange has been noted or protested for non'a""eptan"e or for better se" rit! and an! person a""epts it s pra protest for hono r of the drawer or of an!one of the endorsers, s "h person is "alled an a""eptor for hono r$ %fter a""eptan"e of the bill b! the a""eptor for hono r, the pa!ee, at the d e date, has to present the bill first to the drawee for pa!ment and if it is also dishono red for pa!ment b! the drawee and noted or protested as the "ase ma! be it sho ld then be presented to the a""eptor for hono r for pa!ment$ PRESENTMENT %. -resentment of a negotiable instr ment is made for two p rposes$ Presentment for acce(tance ' It is onl! bills of e("hange that re) ire presentment for a""eptan"e and that too not all b t "ertain 1ind of bills onl!$ 0ill pa!able on demand or on a fi(ed date need not be presented for a""eptan"e$ Presentment for (ayment ' % negotiable instr ment m st be presented for pa!ment to the ma1er, a""eptor or drawee, thereof, as the "ase ma! be, b! the holder or his agent$

2.

DIS1ONOUR %. +ishonour y Non-!cce(tance #Se"tion 81, +I, :hen the drawee does, not a""ept it within 5& ho rs from the time of presentment for a""eptan"e. +/, when presentment for a""eptan"e is e(" sed and it remains na""epted. +3, when the drawee is a person in"ompetent to "ontra"t. +5, when the drawee "o ld not be fo nd after a reasonable sear"h$ +6, where the a""eptan"e is ) alified. +9, where one or more of the se#eral drawees ref se to a""ept the bill$ 2. +ishonour y Non-Payment Notice of +ishonour :hen a negotiable instr ment is dishono red b! non'a""eptan"e or non'pa!ment, the holder m st gi#e noti"e of dishono r to the drawer and all other parties whom he see1s to ma1e liable$ Ea"h part! re"ei#ing noti"e of dishono r m st in order to render an! prior part! liable to himself gi#e noti"e of dishono r to s "h part! within a reasonable time after he has re"ei#ed it$ The noti"e ma! be oral or in writing tho gh for safet! it is ad#isable to gi#e a written noti"e$

Notice of dishonour unnecessary +1, :hen it is &i "!n !& wit) ($ t)! "#rt$ entitled thereto$ +/, :hen the "#$m!nt )# (!!n %o+nt!rm#n&!& b! the drawer or endorser$ +3, :hen the "#rt$ %)#rg!& %o+'& not +,,!r &#m#g! ,or w#nt o, noti%!$ +5, :hen the "#rt$ !ntit'!& to noti%! %#nnot #,t!r r!# on#('! !#r%) (! ,o+n&$ +6, :here the "#rt$ 'i#('! to gi.! noti%! i +n#('! , witho t an! fa lt of its own, to gi#e it, e$g$ death or serio s illness of the holder or his agent or an! other a""ident$ +9, :here the "romi or$ not! i not n!goti#('!$ +;, In "ase the &r#w!r )im !', i #%%!"tor, no noti"e is ne"essar! to "harge the drawer$ +&, :hen the "#rt$ !ntit'!& to noti%!- *nowing t)! ,#%t - "romi ! +n%on&ition#''$ to "#$ the amo nt d e on the instr ment$ NOTINK Noting is a "on#enient method of a thenti"ating the fa"t of dishono r$ :here an instr ment is

dishono red, the holder, besides gi#ing the abo#e noti"e, sho ld get the bill or promissor! note 'noted' b! the notar! p bli"$ The notar! p bli" presents the instr ment, notes down in his register date of its dishono r and the reason, if an!, gi#en b! the a""eptor$ If the instr ment has been e(pressl! dishono red, the reason wh! the holder treats it as dishono red and the notar!'s "harges sho ld be metioned$ 'Noting' m st be made within a reasonable time after dishono r$ Noting is not com(ulsory in the "ase of an inland bill or note, b t foreign bills m st be protested, if s re) ired b! the law of the pla"e where drawn$ PROTESTING The protest is the formal notarial "ertifi"ate attesting the dishono r of the bill and based pon the noting$ %fter the noting has been made, the formal protest ma! be drawn p b! the notar! at his leis re$ :hen the protest is drawn p it relates ba"1 to the date of noting$ % protest to be #alid m st "ontain the following parti" lars2 1$ The instr ment itself, or a literal trans"ript thereof$ /$ The names of the parties against whom the instr ment is protested$ 3$ The fa"t and reasonHreasons for dishono r$ 5$ -la"e and time of dishono r or ref sal to gi#e better se" rit!$ 6$ Signat re of the notar! p bli"$ 6$ In the e#ent of an a""eptan"e for hono r or of a pa!ment for hono r, the name of the person b! whom or the person for whom, and the manner in whi"h, s "h a""eptan"e or pa!ment was offered and effe"ted$ COMPENSATION Com(ensation to holder The holder is entitled to the amo nt d e pon the instr ment with interest pl s the e(penses properl! in" rred in noting and protesting it$

Com(ensation to Endorser If an endorser of a bill has paid the amo nt d e thereon, he is entitled to the amo nt so paid pl s e(penses with interest O 9 per "ent per ann m from the date of his pa!ing to the date of his re"ei#ing ba"1 amo nt$

Com(ensation against an,er Compensation that ma! be "laimed in"l de damages to "redit and rep tation of the drawer, and

the Co rt wo ld normall! award e(emplar! or #indi"ti#e damages$

12. 1UNDIS 4 ndis are instr ments written in an oriental lang age$ The word 'h ndi' appears to ha#e been deri#ed, from the Sans1rit wor1 'h nd' whi"h means 'to "olle"t'$ These h ndis were, therefore, originall! sed for the "olle"tion of debts$ 4 ndis ha#e been in "ir" lation in India from #er! earl! times, long before the Negotiable Instr ment %"t, 1&&1$ It is to be noted that The Negotiable Instr ments %"t does not a((ly to hundis, b t where, b! an! words in the instr ment itself, the sages regarding s "h instr ments are e("l ded, or where it is e(pressl! indi"ated that the legal relations of the parties thereto shall be go#erned b! the Negotiable Instr ments %"t 1&&1, the %"t be"omes appli"able$ In the absen"e of an! of the abo#e indi"ations, h ndis shall be go#erned b! lo"al sages appl!ing to s "h do" ments [?#n)$#'#' .. R#m*+m#r, 1869]$

=inds of hundis

$hah-@og Hundi ' % Shah'7og h ndi is drawn b! one mer"hant on another as1ing the latter to pa! the said h ndi to a 'Shah'$ 'Shah' is a respe"table and responsible person, a man of worth and 1nown in the baDar$ +arshni Hundi +pa!able at sight, ' % darshni h ndi m st be presented for pa!ment within a reasonable time after its re"eipt b! the holder$ )uddati Hundi or )iadi Hundi F 4 ndi pa!able agter a spe"ified period of time$ Nam @og Hundi - % h ndi pa!able to the spe"ified person is "alled Nam'7og h ndi. Nishan.@og Hundi This h ndi is pa!able onl! to the persons who presents it$ +hani.@og Hundi- % dhani'7og h ndi is pa!able to a dhani, owner$ Firman-@og and +e,hanhar Hundis F There are pa!able to order.