Professional Documents
Culture Documents
Finalo Law Law
Finalo Law Law
Negotiable Instruments as
Facilitators for
Trade and Commerce
&
10 Years taking forward
Semester II
Division (B)
A paper submitted under the partial fulfillment for the subject
LEGAL ASPECTS OF BUSINESS
Under the Guidance of
Prof. Anant Amdekar
Batch: 2014-2016
GROUP NO: 4
SR.N
O
1.
GROUP MEMBER
ROLL NO
Chintan Mhatre
82
2.
Vinay Mhatre
84
3.
Sumedh Munje
86
4.
Abhiskek Nagdeve
88
5.
Aadya Naik
90
6.
Prachiti Niwate
92
7.
Tushar Oswal
94
8.
Riddhi Palkar
96
9.
Vivek Pange
98
10.
Amit Paratwar
100
PROJECT CONTENTS
CHAPTER SCHEME.
Sr.No.
Topic
A.
CHAPTER I.
1.
2.
B.
CHAPTER II.
1.
2.
C.
CHAPTER III.
1.
2.
3.
4.
5.
D.
CHAPTER IV.
1.
2.
3.
Page No.
4.
E.
CHAPTER V.
4.
F.
CHAPTER VI.
1.
2.
3.
4.
1.
2.
3.
G.
1.
2.
3.
CHAPTER VII.
H.
CASE STUDIES
Exchange of goods and services has always been the basis of every business activity.
Goods are bought and sold for cash as well as on credit. All these transactions require flow of
cash either immediately or after a certain time. In modern business, large number of
transactions involving huge sums of money takes place every day. It is quite inconvenient as
well as risky for either party to make and receive payments in cash. Therefore, it is a common
practice for businessmen to make use of certain documents as means of making payment.
Some of these documents are called negotiable instruments.
Today the world as a whole has been the CENTRE OF COMMERCE because this
exchange is not only between individuals but also between people and nations. This naturally
implies the existence of certain surplus of wealth and certain provision for communication.
Both of which are essential for growth of commerce. Unless there is a surplus of wealth and
provision for communication, commerce cannot grow. Increase in Globalization led to the
EVOLUTION of negotiable instruments which further REVOLUTIONZED with the course
of time, acting as a FACILITATOR to trade and commerce and with the advent of technology
in transactions, its become a modernized concept
Negotiable Instruments are moreover a document of title which clearly explains the
rights towards the payment of money or a security for money which is transferable by
delivery either by custom or by legislation. The use of Negotiable Instrument is mainly to
facilitate payment for exports and imports of trade. Because money is promised to be paid,
the instrument itself can be used by the holder in due course as a store of value. The
instrument may be transferred to a third party; it is the holder of the instrument who will
ultimately get paid by the payer on the instrument.
The rapid growth of technology has revolutionized the world with computer, which is
used in every field of profession. This has reduced the use of negotiable instrument and in
future it may decline more. Even though the electronic revolution has got more advantages it
may be considered as the next step because the world needs time to get used to it.
Example 1:
If Chintan issues a cheque worth Rs. 15,000/ - in favor of Vinay, then Vinay can claim
Rs. 15,000/- from the bank, or he can transfer it to Sumedh to meet any business obligation,
like paying back a loan that he might have taken from Sumedh. Once he does it, Sumedh gets
a right to Rs. 15,000/- and he can transfer it to Abhiskek, if required. Such transfers may
continue till the payment is finally made to somebody.
In the above examples, we find that there are certain documents used for payment in
business transactions and are transferred freely from one person to another. Such documents
are called Negotiable Instruments. Thus, we can say negotiable instrument is a transferable
document, where negotiable means transferable and instrument means document. To
elaborate it further, an instrument, as mentioned here, is a document used as a means for
making some payment and it is negotiable i.e., its ownership can be easily transferred.
The term Negotiable Instrument is made up of two parts, Negotiable and
Instrument. The word, negotiable means being transferable (from one person to
another), and the word instrument signifies any written document through which a
right is created in favor of some person. Thus, the term Negotiable Instrument signifies
any document, necessarily in writing, through which the rights, vested in one person,
could be transferred in favor of another person, of course, in accordance with the
provisions of the Negotiable Instruments Act, 1881
instruments. Wherein commerce also the negotiable instruments are helping us in the
following ways.
Helpful in Dealing Business on Credit bases
Imagine how it is possible to get the business products for resale purpose without the
use of money. This is happening just because of the negotiable instruments. Further suppose
that, you want to do a business of computers but you do not have the money to purchase the
computers for resale purpose. And also if you do not have any other resource to get the
money for purchase you can still purchase the products for your business purpose with the
help of the negotiable instruments. Negotiable instruments such as promissory note and
specially the bills of exchange are specially made for this purpose so business can happen on
credit bases which is usually the styles nowadays.
Cash Free Asset
Due to the negotiable instruments it is became so easy to make payments through
negotiable instruments such as Cheques so that the use of cash is not their because most of
the times when you are taking cash with you anywhere it is not felt secure that because the
cash may be stolen by any one. The law relating to negotiable instruments is the law of the
commercial world which was enacted to facilitate the activities in trade and commerce
making provision of giving sanctity to the instruments of credit which could be deemed to be
convertible into money and easily passable from one person to another.
Instant receipts and payments of the dealings and transactions
We dont need to wait for days to get money from the bank and from the other places
but instead of it we just have to pay in the form of negotiable instrument such as cheques etc.
so that the people to whom we have to pay would receive that money.
by endorsement with its delivery. Usually, when we transfer any property to somebody, we
are required to make a transfer deed, get it registered, pay stamp duty, etc. But, such
formalities are not required while transferring a negotiable instrument.
Example 2:
Aadya draws a bearer cheque in favour of Prachiti but, instead of delivering it to her,
keeps it in the drawer of her table. However, in the absence of Aadya, Prachiti picks up the
cheque from Aadyas drawer. This will not amount to a valid transfer of the title to the
cheque, drawn in favour of Prachiti, even though it is made payable to the bearer.
2) Holders Title to be Free from Defects
It means that a person who receives a negotiable instrument has a clear and
undisputable title to the instrument. However, the title of the receiver will be absolute, only if
he has got the instrument in good faith and for a consideration. Also the receiver should have
no knowledge of the previous holder having any defect in his title. Such a person is known as
Holder in due Course.
Example 3:
Tushar issued a bearer cheque payable to Riddhi. It was stolen from Riddhi by a
person, who passed it on to Vivek. If Vivek received it in good faith and for value and
without knowledge of cheque having been stolen, he will be entitled to receive the amount of
the cheque. Here, Vivek will be considered as Holder in due Course.
3) Holder in Due Course can Sue in his own name
The holder in due course is entitled to sue in his own name in regard to the
instrument, on the ground that he is holding it in consideration of some values, i.e. having his
own stake involved in the instrument.
Example 4:
In the same above example, Vivek is Holder in Due Course so he can sue the drawer
who is Tushar in case he denies the payment for consideration. The most important point here
is the instrument should be bearer in nature.
4) Negotiable instrument must be in writing and must bear signature of its maker
All negotiable instruments must be in writing and signed in accordance with the rules
of instrument. Writing includes handwriting, typing, computer printout and engraving, etc.
Without the signature of the drawer or the maker, the instrument shall not be a valid one.
5) The payee must be a certain person
It means that the person in whose favor the instrument is made must be named or
described with reasonable certainty. The term person includes individual, body corporate,
trade unions, even secretary, director or chairman of an institution. The payee can also be
more than one person.
6) Promise for payment for a certain sum of money only
In every negotiable instrument there must be an unconditional order or promise for
payment. The instrument must involve payment of a certain sum of money only and nothing
else. For example, one cannot make a promissory note on assets, securities, or goods.
7) The time of payment must be certain
It means that the instrument must be payable at a time which is certain to arrive. If the
time is mentioned as when convenient it is not a negotiable instrument. However, if the time
of payment is linked to the death of a person, it is nevertheless a negotiable instrument as
death is certain, though the time thereof is not.
For instance, if Amit issues a cheque dated 1st April 2015 and the current date is 1st
December 2015, then thats not a valid negotiable instrument.
8) Delivery of the instrument is essential
Any negotiable instrument like a cheque or a promissory note is not complete till it is
delivered to its payee. For instance, you may issue a cheque in your brothers name but it is
not a negotiable instrument till it is given to your brother.
convenience of virtual payments which allow us the freedom to pay for goods almost
anywhere. So lets have a look at the timeline
Pastoral stage
Barter Exchange (Earliest forms of civilization)
Agricultural stage
Grain Barter (9000 - 8000 BC)
Livestock (8000 - 6000 BC)
Handicraft stage
Crude Metal Coins (1000 - 600 BC)
Guild stage
Precious Metal Coins (700 BC)
Domestic stage
Paper Money (806)
Factory stage
Gold (1816)
Industrial Revolution
Gold Bullion (1900)
8) Guild stage
A guild is an association of persons following a similar occupation and it is formed to
protect and promote the interest of its members through cooperative endeavors.
9) Precious Metal Coins (700 BC)
Gold and silver coins were first used in ancient Lydia (modern-day Turkey) and
coastal Greek cities. The profiles of gods and emperors were stamped into the metal.
10
artisans and traders came into existence. They settled down at fixed places which came to be
known as towns. Growth of these towns gave great stimulus to commerce. The size of the
market and the number of commodities exchanged in the market, both increased. Traders
from other countries brought luxury articles, metals and ornaments for sale.
Commerce continued to grow both in volume and space. After the decline of Guild
system, a new class of people, ENTERPRENEUR class, came into existence. This class of
people became a real intermediary between the producers and consumers. Further, growth of
commercial enterprise took place. Trade began to assume fixed forms. Production began to be
undertaken for the markets extended for the whole country. Division of labour received
further impetus. Production was divided into several branches and each branch tended to be
localized.
Commerce entered into another stage of its growth when nations of the world were
brought into commercial relationships through the invisible thread of trade. As a result of the
geographical discoveries of the late 15th, 16th and 17th centuries new trade routes were
opened up and commerce grew between nations. Now, in addition to the local market and the
trade extending over the whole area of a single country, commodities came to be sold and
purchased between traders from different countries in the world. This gave rise to an
international world market and to the international trade. Thus the nations of the world were
linked together through the medium of the world market.
Evolution of commerce is a never ending process. Almost every day new
experiments in its mechanism are made.
New forms and methods are being evolved in both socialist and capitalist countries,
in both developed and developing nations.
12
The above definition clearly stats that the act signifies any written document through
which a right is created in favour of some person, through which the rights, vested in one
person, could be transferred in favour of another person, in accordance with the provisions of
the Negotiable Instruments Act, 1881.
13
2) Money: Negotiable instruments are payable by legal tender money of India. The liabilities of
the parties of Negotiable Instruments are fixed and determined in terms of legal tender
money.
3) Regarding Date: Every negotiable instrument must bear the date of its execution or drawing
or acceptance for payment
4) Regarding Acceptance: It is presumed that every time any negotiable instrument is accepted
within a reasonable time after the date appearing thereon, and before the date of its maturity,
i.e. due date of payment.
5) Writing and Signature: Negotiable Instruments must be written and signed by the parties
according to the rules relating to Promissory Notes, Bills of Exchange and Cheques
6) Title: The transferee of a negotiable instrument, when he fulfills certain conditions, is called
the holder in due course. The holder in due course gets a good title to the instrument even in
cases where the title of the transferor is defective.
7) Notice: It is not necessary to give notice of transfer of a negotiable instrument to the party
liable to pay. The transferee can sue in his own name.
8) Evidence: A document which fails to qualify as a negotiable instrument may nevertheless be
used as evidence of the fact of indebtedness.
9) Regarding Dishonor of an Instrument: Where a suit has been filed, involving the dishonor
of an instrument, the Court will, on production of the proof of its having been duly protested,
presume that the negotiable instrument was dishonored, unless it is proved otherwise.
HISTROY
The history of the present Act is a long one. The Act was originally drafted in 1866 by
the 3rd India Law Commission and introduced in December, 1867 in the Council and it was
referred to a Select Committee. Objections were raised by the mercantile community to the
numerous deviations from the English Law which it contained. The Bill had to be redrafted in
14
1877. After the lapse of a sufficient period for criticism by the Local Governments, the High
Courts and the chambers of commerce, the Bill was revised by a Select Committee. In spite
of this Bill could not reach the final stage. In 1880 by the Order of the Secretary of State, the
Bill had to be referred to a new Law Commission.
On the recommendation of the new Law Commission the Bill was re-drafted and
again it was sent to a Select Committee which adopted most of the additions recommended
by the new Law Commission. The draft thus prepared for the fourth time was introduced in
the Council and was passed into law in 1881 being the Negotiable Instruments Act, 1881. The
most important class of Credit Instruments that evolved in India were termed Hundi. Their
use was most widespread in the twelfth century, and has continued till today. In a sense, they
represent the oldest surviving form of credit instrument. These were used in trade and credit
transactions; they were used as remittance instruments for the purpose of transfer of funds
from one place to another. In Modern era Hundi served as Travelers Cheques.
Modern Era
We prefer to carry a small piece of paper known as Cheque rather than carrying the
currency worth the value of the Cheque. Before 1988 there being no provision to restrain the
person issuing the Cheque without having sufficient funds in his account. Of course on
Dishonored cheque there is a civil liability accrued. In order to ensure promptitude and
remedy against the defaulters of the Negotiable Instrument a criminal remedy of penalty was
inserted in Negotiable Instruments Act, 1881 by amending it with Negotiable Instruments
Act, 1988.
With the insertion of these provisions in the Act the situation certainly improved and
the instances of dishonor have relatively come down but on account of application of
different interpretative techniques by different High Courts on different provisions of the Act
it further compounded and complicated the situation although on dishonor of cheques the
trends of the verdicts of the Supreme Court of India
Dutch Proverb
value received."
I promise to pay Sumedh Rs. 500 and all other sums which shall be due to him."
I promise to pay Tushar Rs. 500, first deducting there out any money which he may owe
me."
16
The Endorser
The person who endorses the note in favour of another person.
The Endorsee
The person in whose favour the note is negotiated by endorsement.
A promissory note must be in writing, duly signed by its maker and properly stamped as per
Indian Stamp Act.
The parties to a promissory note, i.e. the maker and the payee must be certain and a
promissory note may be payable on demand or after a certain date.
For example, if it is written three months after date I promise to pay Chintan or order a sum
of rupees Five Thousand only it is a promissory note.
17
18
BILLS OF EXCHANGE
SECTION 5
It I only by not paying ones bills that
one can hope to live in the memory of the commercial classes
Oscar Wilde
19
20
There is no fixed date for the payment of such bill. They become payable at any time,
when they are presented before payee by the holder.
2) Term Bills of Exchange:
These bills are payable after specified period of time. The period after which these
bills become due for payment is called tenor.
Types of Bills of Exchange on the Basis of Object:
1) Trade Bills:
These bills are drawn and accepted against the sale and purchase of goods on credit.
These are drawn by the seller (creditor) and accepted by the buyer (debtor).
2) Accommodation Bills:
Such bills do not involve any sale and purchase of goods; rather they are drawn
without any consideration. The purpose of such bills is to help one party or both the parties
financially.
endorsed by the drawer with a signed and dated order to pay the bank. The bank will become
the holder and the owner of the bill. After getting the bill, the bank will pay cash to the
drawer equal to the face value less interest or discount at an agreed rate for the number of
days it has to run. This process is known as discounting of a bill of exchange.
Endorsement of bill of exchange:
If the holder of the bill puts his signature on the back of the bill with a view to transfer
the property contained in it (right to receive money from the acceptor), then he becomes
endorser, and the person to whom the bill of exchange is transferred will become endorsee.
This procedure by which a bill is transferred from one person to another person for the
settlement of debts is called "endorsement".
Bill sent to Bank for collection:
If a business has numerous bills he got from various debtors he may send these bills to
his banker for collection purposes. It should be remembered that, this is not discounting of a
bill of exchange. The bill is sent for safety and collection purposes. The bank keeps the bill in
its custody till the due date and on the due date; the bank will present the bill to acceptor.
After collecting the amount, the bank transfers the amount to the account of its customer (by
giving credit to his account). The bank charges some nominal fee from the customer for
service he rendered. This is an expense for the customer and revenue for the bank.
22
the party from whom it has been received will be liable to pay for the amount. It is very
important to know that, when a bill is dishonored, in whose possession it was. Because when
a bill is dishonored, all the parties involved are affected and books of accounts of all the
parties have to be adjusted.
Such a bill is drawn and accepted without any sale and purchase of goods. As the bill
is drawn to fulfil the temporary need of money, there is no question of retaining this bill by
the drawer until the due date. The bill will be discounted and cash will be received
immediately. The drawer before maturity date is required to provide the acceptor with funds
so that he may need his acceptance on the due date.
CHEQUE
23
SECTION 6
Any general statement is like a cheque drawn on a bank.
Its value depends on what is there to meet it
Ezra Pound
24
A drawer is a person who issues a cheque, fills the details on the cheque like the name
of the payee, date and amount and signs it thereby ordering the drawee to issue the said
amount for the payee
2) Payee:
The payee is a recipient of the given cheque which he will get from the drawee by the
order of drawer.
3) Drawee bank:
The drawee will invariably be a bank and bank alone. Alternatively speaking a cheque
will invariably be drawn on a bank and bank only.
Example 5
Chintan has a savings account in Vijaya Bank and issues a cheque of Rs. 10,000 to
Vinay. In this case Chintan is Drawer, Vinay is Payee, and Drawee is Vijaya Bank.
CHINTAN
VIJAYA BANK
VINAY
DRAWER
DRAWEE
PAYEE
NOTE: Drawer and payee can be the same person if it is a self cheque
Example 6
Sumedh makes a bearer cheque in his name as mentioned, PAY TO SELF for Rs,
25,000 from his own savings account in SBI, then Sumedh is the Drawer as well as the
Payee, whereas SBI is the Drawer.
Requisites of a Cheque.
1) Instrument in Writing:
A cheque must be writing. It can be written in ink, typed or even printed. The ink used
should not be easily erasable. Overwriting or alteration will make the cheque dishonor. Oral
orders are not considered as cheques.
25
2) Unconditional Order:
In cheque there must contain an order by a depositor (drawer) on its bank (drawee) for
paying money to the holder (payees) and order should be unconditional. A cheque containing
conditional order is dishonored by the bank.
3) Payable on Demand:
A cheque when presented for payment must be paid on demand. If cheque is made
payable after the expiry of certain period of times then it will not be a cheque.
4) Certain Sum of Money:
Cheque must be for money only and it must be written in words and figures. If the
amount in words and figured will differ from each other or if there will be insufficient
balance in the account then the cheque will be dishonored.
5) Payee must be certain:
The payee of the cheque should be certain person i.e. either real person or artificial
person e.g. Joint Stock Company. The name of payee must be written on the cheque or it can
be made payable to bearer.
6) Avoidance of cancellations:
There shouldnt be any cancellations on the negotiable instrument. Any cancellations
found must be rectified by the signature of the drawer. Failure to do so will cause the
instrument to be of no value as it will come under the case of forgery
26
When the words "or bearer" appearing on the face of the cheque are not cancelled, the
cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein
or to any other else who presents it to the bank for payment. However, such cheques are
risky; this is because if such cheques are lost, the finder of the cheque can collect payment
from the bank.
2) Order Cheque
When the word "bearer" appearing on the face of a cheque is cancelled and when in
its place the word "or order" is written on the face of the cheque, the cheque is called an order
cheque. Such a cheque is payable to the person specified therein as the payee, or to any one
else to whom it is endorsed (transferred).
27
Anti-Dated Cheque
If a cheque bears a date earlier than the date on which it is presented to the bank, it is
called as "anti-dated cheque". Such a cheque is valid up to six months from the date.
6) Post-Dated Cheque
28
If a cheque bears a date which is yet to come (future date) then it is known as postdated cheque. A postdated cheque cannot be honored earlier than the date on the cheque.
7) Stale Cheque
If a cheque is presented for payment after six months from the date of the cheque it is
called stale cheque. A stale cheque is not honored by the bank.
8) Multilated cheque
If a cheque is torn into two or more pieces such cheque is Mutilated Cheque. If it
presented for payment, such a cheque the bank will not make payment against such a cheque
without getting confirmation of the drawer. In case, if a cheque is torn at the corners and no
material fact is erased or cancelled, the bank may make payment against such a cheque.
9) E-Cheque
Electronic cheque (e-cheque) is the image of a normal paper cheque generated,
written and signed in a secure system using digital signature and asymmetric crypto system.
Simply said an electronic cheque is nothing more than an ordinary cheque produced on a
computer system and instead of signing it in ink, it is signed using the digital equivalent of
ink. After the coming into force of The Negotiable Instruments (Amendment and
Miscellaneous Provisions) Act, 2002, legal recognition has been accorded to e-cheques and
they have been brought at par with the normal cheques. Now, a cheque includes an echeque.
29
Where a cheque bears across its face an addition of the words and Company or &
Co., between two parallel transverse lines, or simply two parallel transverse lines, either
with or without the words not negotiable, such crossing is referred to as a General
Crossing. The example of general crossing are where the following words are written simply
or between two parallel transverse lines
Blank
Crossing
The basic type of crossing which converts a bearer cheque to crossed cheque.
& Co.
Such crossing just means that this cheque can be paid not in cash but only through the
credit of any bank account, that is, to the account of the individual company.
A/C Payee
It means that the title to the cheque cannot be transferred to anyone else by
endorsement and that such cheque can be paid only by credit to the account of the payee
named.
Not Negotiable
Such crossing does not restrict its transferability in any manner. Such cheque can well
be transferred by endorsement and delivery in the case of an order cheque, and merely by
delivery in the case of a bearer cheque. Such crossing is just by way of a safeguard and any of
the endorsement happens to be unauthorized or illegal.
A Special Crossing bears across the face of the cheque the name of a banker.
Drawing of two parallel lines is not necessary in case of a specially crossed cheque. The
purpose of special crossing is to instruct the drawee i.e. the banker to make the payment of
the cheque only it is presented for payment through that particular bank, as mentioned
thereon, and not otherwise. This way the payment of the cheque is made even safer.
State
Bank
of India
Such crossing restricts the payment of the cheque at any of the branch, but only of the
specified bank, viz of the State Bank of India, in the present case.
State Bank of India A/C Payee
It means the cheque will be credited to the specific account number of the specified
person at this specified bank. Such cheques are the safest mode of payment, ensuing that it
can be credited to the account of the specific person stated (specific) in the cheque
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1) Date line:
Here we enter the date in this space. It's best to enter the current date so that we know
when we really wrote the cheque.
2) Or Bearer / or Order:
The words "or bearer" appearing on the face of the cheque are not cancelled, the
cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein
or to any other else who presents it to the bank for payment. If the words or bearer are
cancelled then it becomes an Order Cheque.
3) Payee line:
In this section, we specify who will receive funds from our account. We write the
name of the person or organization that we wish to pay. Only the named payee is allowed to
negotiate the cheque.
4) Rupee box:
Here we write the amount in numerical format. This box is sometimes called the
"courtesy box" because it appears on the cheque as a courtesy or convenience. When writing
a check, it's best to put the numbers in the amount box as far to the left as possible.
5) Amount in words:
On this line, we should write the amount of the cheque using words.
32
6) Account Number:
It is our account number which makes it easier for the drawee to perform transactions.
7) Signature line:
Here the cheque is signed at the line on the bottom right hand corner.
8) Drawee contact information and logo:
Our bank's name appears on every cheque so that recipients know who to contact. A
phone number and address may be included, or they might just see the bank's logo.
9) IFSC:
Indian Financial System Code is an alphanumeric code that uniquely identifies a
bank-branch participating in the two main Electronic Funds Settlement Systems in India: the
Real Time Gross Settlement (RTGS) and the National Electronic Funds Transfer (NEFT)
Systems.
Real time gross settlement systems (RTGS) are specialist funds transfer systems where
transfer of money or securities takes place from one bank to another on a "real time" and on
"gross" basis. Settlement in "real time" means payment transaction is not subjected to any
waiting period.
National Electronic Funds Transfer (NEFT) is to establish an electronic funds transfer
system to facilitate an efficient, secure, economical, reliable and expeditious system of funds
transfer and clearing in the banking sector throughout India, and to relieve the stress on the
existing paper based funds transfer and clearing system.
33
come in your account. However since most of the branches these days are CBS (Core
Banking Solution) enabled, so the cheques are generally payable at par.
DISHONOR OF CHEQUES
SECTION 138
Sections 138 to 142 of the N.I. Act were brought into existence by way of amendment by the
Banking, Public Financial Institutions and
Negotiable Instruments Laws (Amendment) Act, 1988.
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 a term which may extend 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;
1) 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
2) The payee or the holder in due course. of the cheque as the case may be, makes a
demand for the payment of the said amount of money by giving a notice, in
writing, to the drawer of the cheque, within thirty days of the receipt of information
by him from the bank regarding the return of the cheque as unpaid
3) 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.
35
36
6) Blank Cheque:
Respondent issued a blank cheque without mentioning the date and amount and sent it
with a letter requesting complainant to present it after a month Question whether blank
cheque will come within the definition of cheque? If the cheque is not drawn for a specified
amount it would not fall within a definition of bill of exchange - Act of complainant in filling
up amount portion and date was a material change and it could not be enforced even though it
was issued for a legal liability.
7) Admission of signature on the cheque is not equivalent with admission of execution
Right of the accused to contend that a blank signed cheque was mis-utilised by the
payee cannot be taken away by such mere admission of signature.
Cheque Forgery
Forgery is the process of making, adapting, or imitating objects, statistics, or
documents with the intent to deceive or earn profit by selling the forged item. Copies, studio
replicas, and reproductions are not considered forgeries, though they may later become
forgeries through knowing and willful misrepresentations.
Types of Forgery seen:
To write (copy and forge) the signature of a real (existing) person on the instrument so
cleverly with the fraudulent intention that it may pass as a genuine signature of a real person.
To write (copy and forge) the signature even of a fictitious (non-existing) person on the
instrument, with such fraudulent intention.
Even if a person has signed his own name on the instrument, it may as well be deemed as a
forgery.
CHAPTER V
Revolution in Negotiable Instruments
PAYMENT SYSTEMS IN INDIA
1) Digital Cash
A digital coin or digital cash consists of a message issued by a bank or other entity
and encrypted by its Private Key. The message contains the serial number of the cash, the
identity of the issuer and its Internet address, the amount of the cash and an expiry date. This
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serial number is unique to bank and can be decrypted by bank only this serial cannot be
altered unless message is tweaked i.e. it is permanent in nature and once set cannot be
changed
Example
When Ganesh has bought a book from online retailer and wants to make payment in
digital cash then for the given price, digital-cash code that is associated with the requested
digital-cash value i.e. book price generated from Ganesh, bank who provides him digital cash
service this code Is then communicated to online retailer ,the retailer will confirm the code
from bank whether it is correct value and there is no multiple transaction and then enter the
encrypted code with retailers bank account code to transfer money into retailers account.
2) Smart Card
A smart card is like an "electronic wallet". It is a standard credit card-sized plastic
intelligent token within which a microchip has been embedded within its body and which
makes it smart. Amongst other things, the card can be used to store money, or a value of
money, including digital coins
Example
Rajesh had gone out of station at his cousin marriage for 5 days to Delhi. He had gone
out for shopping in a mall. He purchases clothes, shoes and perfume for his cousin marriage.
He saw that cash he was carrying in his wallet was not enough to pay the bill. So he thought
rather of withdrawing cash from A.T.M he would pay directly by using his credit card. This
will save his time and easy to do the transaction.
Suppose there are two parties party A and party B entered into to a contract. If party A
wants to make payment to party B through Electronic Funds Transfer then party A will
approach his bank to make the payment to party B. Party A will give all the details of party A
and party B required for making an Electronic Fund Transfer to his bank and then the bank of
party A will make the payment to the bank of party B. The bank of party B then will make the
payment to party B.
4) Digital Cheque
Digital cheque is a form of payment used in Ecommerce. A digital cheque functions in
the same way as a paper cheque. It acts as a message to a bank to transfer funds to a third
party; however, it has a number of security advantages over conventional cheques since the
account number can be encrypted, a digital signature can be employed, and digital certificates
can be used to validate the payer, the payer's bank, and the account.
Example
A company that is depending on the received cheque clearing in time to use the funds
to manage an employee payroll will appreciate the speed that the electronic cheque deposit
method provides in comparison to waiting several days for paper cheque to clear.
5) Biometrics
It consists of methods for uniquely recognizing humans based upon one or more
intrinsic physical or behavioral traits. The traits that are considered include fingerprints,
retina and iris patterns, facial characteristics and many more. Biometrics is used as a form of
identity access management and access control. The meaning of Biometrics is life
measurement" which measure a particular set of a person's vital statistics in order to
determine identity.
Example:
Identify individuals in groups are means of identity access management & A PIN on
an ATM system at a bank is means of access control.
Biometric characteristics can be divided in two main classes
Behavioral Biometrics: It basically measures the characteristics which are acquired naturally
over a time. It is generally used for verification.
Examples:
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cards.
Reduce password administration costs.
Replace hard-to-remember passwords which may be shared or observed.
Points
India
Australia
40
Governing
act
Bills of Exchange
2
Contents
Promissory Notes
Cheques
Objectives of
governing act
Bills of exchange
Promissory notes
Cheques
Treasury notes
Certificate of Deposits
there is always the chicken and egg question of payment to the seller versus shipping and
delivery of the goods to the purchaser. If a seller requires payment in advance, then their sales
may suffer since purchasers would rightfully fear that they might pay in advance and the
seller not ship the goods. Likewise, if the seller ships the goods and trusts the buyer to pay,
then the seller runs the risk that the purchaser may not pay.
In order to address this recurring situation, banks step in as an intermediary and
provide various types of negotiable instrument financing that attempt to address the concerns
of both the buyer and the seller. For example, the buyer's bank may provide a letter of credit
to the seller, or the sellers bank, providing for payment upon presentation and approval of
certain specified documents, such as a bill of lading. The Seller's bank may make a loan by
advancing funds to the seller on the basis of the sales contract. These are some of the latest
styles of payment acting as negotiable instruments though they are not included in the act by
the Central Government.
There are four basic methods of trade finance by way of negotiable instruments:
1. Advance Payment: The buyer pays up front and trusts that the seller will forward the
goods. This method is the most secure for the seller and the least secure for the buyer.
2. Direct Payment: The Seller ships the goods and the Buyer pays the Seller directly. This
offers the most security for the Buyer and the least security for the Seller.
3. Documentary Collection: An international trade financing procedure in which a bank in
the buyers country acts as a fiduciary on behalf of the seller in collecting and remitting
payment for a shipment of goods.
4. Documentary Credit: This covers letter of credit transactions wherein the buyer has his
bank provide a letter of credit that effects the payment for the goods purchased. In effect, the
seller is comforted by substituting the credit worthiness of the bank for the creditworthiness
of the buyer. These transactions are subject to UCP 600 and are more fully explained in the
following section.
Letters of Credit as a Negotiable Instrument
42
The first thing to understand about Letters of Credit is that there are many different
variations that have been crafted over the years to meet the requirements of Buyers and
Sellers. However, there is a generally accepted format that permeates all Letter of Credit
transactions, and that framework will be explained here. The basic purpose of a Letter of
Credit is to comfort buyers and sellers in an international trade transaction by essentially
replacing the credit of the buyer with the financial backing of the bank that issues the letter of
credit.
Two basic types of letter of credit are used:
Commercial Letter of Credit:
This is the basic payment document guaranteeing the payment for the goods that are
being sold and shipped. Also called a Documentary Letter of Credit. An issuing bank issues
(or opens) a commercial letter of credit at the request of one of its customers, authorizing the
advising or confirming bank, to make a specified payment to the seller or shipper, known as
the beneficiary. The letter of credit is the banks commitment to fund draws covered by the
credit. In effect, the credit of the issuing bank replaces the credit of the bank's customer as the
party obligated to make the payments under the letter of credit.
Standby Letter of Credit
Whereas a commercial letter of credit is a payment mechanism for a particular
international trade transaction, a standby letter of credit serves as a secondary or back-up
means of payment. Issuing banks issue standby letters of credit in order to provide comfort to
other parties that the banks customer can perform some financial obligation to the
beneficiary. Usually, it is not expected that the issuing bank will ever be called upon to fund
the standby letter of credit.
CHAPTER VI.
PRIMARY RESEARCH ON SCOPE OF
NEGOTIABLE INSTRUMENTS
43
Name:
Age:
Gender:
Occupation:
2. Do you think you are fully aware of all Negotiable Instruments and their use?
Strongly Agree:
Agree:
Not Sure:
Disagree:
Strongly Disagree:
Hundi:
Bills of Exchange:
Promissory Notes:
Cheques:
4. Are you aware of what the digits at the bottom of the cheque indicate?
Yes:
No:
5. Are you aware of the consequences of dishonoring a negotiable instrument?
Yes:
No:
6. Do you prefer Internet Banking on Physical Banking Transactions?
Yes:
No:
7. Are you aware of the different kinds of frauds that take place with respect to
negotiable instruments?
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Yes:
No:
8. Have there been cases where multiple payments have happen from your account due
to internet connectivity issues while dealing in Internet Banking?
Yes:
No:
9. Are you aware of the kind of negotiable instruments like smart dcards, digital
Cheques, biometrics, etc ?
Yes:
No:
10. Would you like to be made awarefor the new types of negotiable instruments?
Yes:
No:
11. What are your suggestions and inputs in safeguarding and improvements on the
Negotiable Instruments in India?
Research Design.
Survey design:
45
The study is a cross sectional study because the data was collected at a single point of
time. This type of study utilizes different groups of people who differ in the variable of
interest, but share other characteristics. For the purpose of present study a related sample of
population was selected on the basis of convenience.
Sample Size and Design:
A sample of 30 people was taken on the basis of our convenience. The actual people
were interviewed on the basis of random sampling. Convenient Random Sample was used in
this research.
Research Period:
The Research work was carried for a week.
Research Instrument:
This work was carried out through self-administered questionnaires. The questions
included were closed ended and some also offered multiple choices.
Primary Data Collection:
The data, which was collected for the purpose of study, was majorly primary in nature
which comprises of information collected through college students. The data has been
collected directly from respondents with the help of structured questionnaires.
Analysis of Questionnaire
46
47
48
Institution
8096
7700
7761
Disposal
8202
7072
7750
Pendency
19831
18972
16943
49
19831
18972
20000
16943
18000
16000
14000
12000
10000
77617750
77007072
80968202
2011
2012
2013
8000
6000
4000
2000
0
Institution
Disposal
Pendency
Institution
10670
1988
20819
7189
Disposal
12139
2372
17724
6514
50
Pendency
34616
6415
54126
30591
DELHI
Institution; 18%
MUMBAI
Institution; 19%
Pending; 60%
Disposal; 21%
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MADRAS
Institution; 22%
Disposal; 19%
Pendency; 58%
CALCUTTA
Institution; 16%
Disposal; 15%
Pendency; 69%
CHAPTER VII
CONCLUSION
52
53
SUGGESTIONS
54
Biometrics:
55
NFC for mobile payments has struggled with adoption. Not least because the user
needs to have an NFC-enabled phone in order to be able to make these contactless payments
in addition to the retailer itself being set up to accept NFC payments. Hence what can be
better way than using your own fingerprint as the way of transaction. Fingerprint will store all
the data such as your credit card number, account number, it will work as OTP, and password
as it can be the safest way of transaction.
Interesting fact is consumers want to use their mobile device for payments. According
to Pew Research, 90% of U.S. adults have a mobile phone, 58% have smartphones and 42%
have tablets. An Accenture survey revealed that 71% of in-store shoppers are interested in
paying by mobile phone but only 9% of retailers have mobile wallet capabilities. Even
though users must access and log in to the Starbucks payment app, the coffee titan reports
that 15% of its in-store transactions in the U.S. are mobile payments. Until making a mobile
payment becomes faster than using a credit card, mobile payments will be stuck in low gear.
And the key to making mobile payments fast is to use biometrics to solve the authentication
problem and eliminate the need for consumers to enter a password.
We often think of biometrics as being leading technology, but in fact, biometrics has
been around since 1858 when Sir William Herschel used handprints to identify Civil Service
of India employees from others who might claim to be employees on payday. And consumers
are becoming more comfortable with biometrics in the form of voice and fingerprints.
Research firm Frost and Sullivan estimates that the number of global biometrics smartphone
users will reach 471.11 million in 2017. The banking industry is experimenting with
biometrics and payments. In February, U.S. Bank announced that employees are piloting
software that allows them to use their voice to login and access a credit card account on a
mobile device.
Barclays recently announced the Barclays Biometric Reader for its corporate banking
customers in the U.K. beginning in 2015. The reader uses Finger Vein Authentication
Technology (VeinID) from Hitachi to allow users to scan their finger to authorize payments
and access online accounts. Apparently, vein patterns are more difficult to spoof than even
fingerprints. Along with the launch of iPhone 6, Apple announced Apple Pay which uses
near-field communication (NFC) and Touch ID.
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RECOMMENDATIONS
Future Prospects on Transactions
Governments and some companies are moving away from strictly financial
assessments of wealth and incorporating more quality of life measures, and social strengths
are big components. Far future companies will become much more integrated into the fabric
of communities. This makes community cash forms and direct peer-to-peer payment systems
more viable, but also means social networks will keep companies in check and punish those
that misbehave.
As social entrepreneurs continue to make clever use of the web and phones, some
social network based payment systems could be developed that are free of commission and
fees, and if so, they will provide strong competition for todays payment systems, which
charge retailers a percentage of each transaction. Governments would encourage this since
removing fees and commission will be an economic stimulus equivalent to reducing VAT.
Tribal social networks will therefore be a key driver of change for banks, credit card
companies and phone based cash providers. This will also make it hard for walled gardens to
survive, where companies try to take a slice of each transaction on their systems. People will
demand the ability to spend their own cash on any platform without having to pay
commissions and social entrepreneurs will deliver the means to do so. Companies that try to
resist will suffer and likely see people simply boycott their platforms.
5 YEARS FORWARD
The next five years are critical for the success of electronic payments, particularly Near Field
Communication (NFC), the technology used on contactless cards or NFC-enabled mobile
phones.
Rival Smartphone operating systems will battle for supremacy with supposedly safer walled
Android.
Many new payment systems are emerging, hoping to grab market share, often using the
phone as both proof of presence and to run the app that processes transactions.
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Some of these payment systems will be cross platform, while others wont, echoing the battle
CASE STUDIES
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CASE STUDY 1
VIJAY MALLYA CHEQUE BOUNCE
Vijay Mallya vs. Delhi International Airport
PETITIONER: Delhi International Airport
RESPONDENT: Vijay Mallya
DATE OF JUDGMENT: 29/01/2015
CHEQUE AMOUNT: Rs 7.5 crore
Delhi High Court did not hear liquor baron Vijay Mallya's plea challenging summons
issued to him by a trial court in several cheque-bouncing cases in which he had to appear on
February 20, 2012. Justice Sunil Gaur fixed May 8 for hearing of the matter after the counsel
for the parties requested adjournment. The trial court had summoned Mallya as an accused
after GMR-led Delhi International Airport (DIAL), which operates the capital's Indira Gandhi
International Airport, had moved the trial court after a cheque amounting to Rs one crore
issued by Kingfisher Airlines Ltd on February 22, 2012 was returned to them a month later
containing the remarks "fund insufficient".
Delhi International Airport filed four cases against Mallya for dishonor of cheques for
a total amount of Rs 7.5 crore. The airline had issued the cheques towards payment for
services availed by them at the IGI airport here. Mallya, who was denied permission by the
government to be re-elected as managing director of the now-grounded Kingfisher Airlines,
has approached the court seeking direction to quash the September 2, 2014 and January 13,
2014 orders of the trial court by which he was summoned as an accused in the case.
He also sought direction for quashing of the complaint of 2012 pending before the
Metropolitan Magistrate here. Metropolitan Magistrate in January last had asked Mallya to
appear before him as an accused and defend himself in trial. In September last year, the
sessions judge had dismissed a revision application against the previous order.
CASE STUDY 2
P.N. KHANNA CHEQUE FORGERY
59
CASE STUDY 3
BRITANNIA INDUSTRIES LTD BILLS OF EXCHANGE FORGERY
60
CASE STUDY 4
AZHARRUDIN CHEQUE BOUNCE
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BIBLIOGRAPHY
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WEBLIOGRAPHY
http://www.scribd.com/doc/213870059/Negotiable-Law
http://en.wikipedia.org/wiki/Negotiable_Instruments_Act,_1881
http://en.wikipedia.org/wiki/Certificate_of_deposit
www.ddegjust.ac.in/studymaterial/mcom/mc-207-f.pdf
http://indiacode.nic.in/incodis/whatsnew/Negotiable.htm
http://www.scribd.com/doc/213870059/Negotiable-Law
http://archive.indianexpress.com/news/azharrudin-issued-nbw-in-rs-4.5-cr-chequebounce-case/918753/
http://www.hcmadras.tn.nic.in/jacademy/e%20journal/2011/eMay%202011.pdf
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%20D.%20Balachandran
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http://www.business-standard.com/article/pti-stories/cheque-bounce-hc-defershearing-on-mallya-s-plea-on-summon-115012901166_1.html
http://www.statista.com/statistics/278407/number-of-social-network-users-in-india/
https://www.kotakjifi.com/hashtag-banking-help.htm
http://www.airtel.in/about-bharti/media-centre/bharti-airtel-news/mobile/airtelmoney-makes-cashless-payments-a-reality-for-customers-in-delhi-ncr
http://www.accenture.com/Microsites/retail-research/Pages/consumer-researchresults.aspx#item-2014-feature-topics-mobility-shopping
http://ww2.frost.com/news/press-releases/frost-sullivan-biometrics-can-be-alternativeconventional-authentication-technologies-mobiles/
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