Negotiable Instruments

BY B.K.VASHISHTHA
 Negotiable Instruments
 Governed by Negotiable instruments Act
1881
 A negotiable instrument means a

promissory note, bill of exchange or

cheque payable either to order or bearer
( section 13)
 Negotiable instruments are easily

transferable and the ownership of the

property may be passed on by mere
delivery and endorsement.
 Negotiable Instruments
 A negotiable instrument confers absolute
and good title on the transferee, who
takes it in good faith, for value and
without notice of the fact that the
transferor had a defective title.
 In the case of goods or commodity, the

transferor cannot transfer a better title to

the transferee, than he himself possesses.
 Distinct difference between transferability

and negotiability
 Negotiable Instruments

 A holder of a negotiable instrument

possesses the right to sue upon the
instrument in his own name
 As per section 8 of N I Act, 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.
 Negotiable Instruments
 As per section 9 of N I Act, 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 endorsee thereof if payable to
order, before the amount mentioned in it
became payable, and without having
sufficient cause to believe that defect
existed in the title of the person from
whom he derived his title.
 Negotiable Instruments
Holder Vs Holder in due course
 Consideration is not essential in case of a
holder
 Possession: holder in due course must
possess the instrument before it became
payable. In the case of the holder, neither
actual possession nor any time limit within
which it must be acquired is required
 Defect in the title : holder in due course
should have no cause to believe that any
defect exists in the title of the transferor
 Payment in due course
 Section 10 “ 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.”
 Payment in due course
 Payment should be made in accordance
with the apparent tenor of the instrument.
 Payment should be made in good faith

and without negligence.

 Payment must be made to the person in

possession of the instrument in

circumstances which do not arouse
suspicion about his title to possess the
instrument and to receive payment
thereof.
 Cheques
‘Did you get my cheque ?’
‘Yes, twice – once from you and when
the bank sent it back !’

A cheque is an unconditional order,

drawn on a specified banker and is
payable on demand
 Cheques
General crossing - Sec 123 of N I Act.
Where a cheque bears across its face
an addition of the words ‘ and co’ or any
abbreviation thereof, between two
parallel transverse lines simply, either
with or without the words‘ not
negotiable’, that addition shall be
deemed a crossing and the cheque shall
be deemed to be crossed generally.
 Cheques
Special crossing Section 124 of N I Act
Where a cheque bears across its face
an addition of the name of a banker,
either with or without the words ‘ not
negotiable’ , that addition shall be
deemed a crossing and the cheque
shall be deemed to be crossed specially
and to be crossed to that banker.
 Cheques
Not negotiable crossing Section 130
of N I Act
A person taking a cheque crossed
generally or specially, bearing in
either case the words ‘ not negotiable’
shall not have and shall not be
capable of giving a better title to the
cheque than that which the person
from whom he took it had.
 Negotiation
 Section 14 – When a promissory
note, bill of exchange or cheque is
transferred to any person, so as to
constitute that person the holder
thereof, the instrument is said to be
negotiated.
 By delivery
 By endorsement and delivery
 Endorsement
 Section 15 of N I Act
When the maker or holder of a negotiable
instrument signs the same, otherwise than
as such maker, for the purpose of
negotiation, on the back or face thereof or
on a slip of paper annexed thereto, or so
signs for the same purpose a stamped
paper intended to be completed as a
negotiable instrument, he is said to have
endorsed the same and is called the
endorser.
 Endorsement
 Endorsement in blank
 Endorsement in full

 Conditional endorsement

 Endorsement ‘ sans recourse’

 A forged endorsement does not pass

on title to a holder on due course

 Endorsement
Payee Irregular Regular
Mrs Dilip Nair- Mrs Dilip Nair- Dilip Nair

Dr Thomas - Dr Thomas -Thomas,M.D

Gen Gupta-Gen Gupta- Gupta(Genl)

Sai Trust- Sai Trust- For Sai Trust

Trustee
 Material Alterations

The following are not material alterations

 Conversion of endorsement in blank into

endorsement full
 Crossing of open cheque by holder

 Conversion of general crossing into special

crossing
 Conversion of “bearer” into “order”
 Payment of cheques
 Section 126 of N I Act
Where a cheque is crossed generally,
the banker on whom it is drawn shall
not pay it otherwise than to a banker
and where a cheque is crossed
specially, the banker on whom it is
drawn shall not pay it otherwise than
to the banker to whom it is crossed or
his agent for collection
 Payment of cheques
 Ante dated
 Post dated
 Stale cheques
 Amount in words and figures differs ( sec
18 of N I Act) )
 Authentication of alterations
 Forgery of drawer’s signature
 Payment during banking hours
 Protection to paying banker - 85(1) order
cheques, 85(2) bearer cheques
Refusal of payment of cheques
 Payment countermanded by the drawer
 Death of the drawer
 Insolvency of the drawer
 Insanity of the drawer
 Garnishee order
 Breach of trust – trust accounts
 Defective title of the property
 Mutilated cheques