Negotiable Instrument

PRESENTED BY:
MEETU
SHUBHANGHI
 What is Negotiable instrument

 Under Sec 13
“ A negotiable instrument means a promissory note,
bill of exchange or cheque payable either to order or
to bearer.”
 Characteristics of Negotiable Instrument.

1. Freely transferable.
2. Title of holder free from all defects.
3. Recovery
4. Presumptions
a) Consideration
b) Date
c) Time of acceptance.
d) Time of transfer
e) Order of indorsements
f) Stamp
g) Holder presumed to be holder in due course.
 Promissory Note

 Under Sec 4
A promissory note is an instrument in writing
containing an unconditional undertaking, signed by
the maker, to pay a certain sum of the money only to,
or to order of , a certain person, or to the bearer of
the instrument.
 Parties to Negotiable Instrument

 The person who makes the promissory note and

promises to pay is called the maker.

 The person to whom the payment is to be made is

the payee.
Essential Elements

 It must be in writing.
 It must contain a promise to pay.
 The promise must be definite & unconditional.
 It must be signed by the maker.
 It requires certain parties, i.e., the maker, the payee.
 The parties must be certain.
 The sum payable must be certain.
 It must contain a promise to pay money only.
 The formalities relating to number, date, place &
consideration, through usually found in bills, are not
essential in law. But a note must be affixed with the
necessary stamp under Indian Stamp Act, 1899.
 Bills of Exchange

 Under Sec 5
A bills of exchange is an instrument in writing
containing an unconditional order, signed by the
maker, directing a certain person to pay a certain
sum of money only to , or to the order of, a certain
person or the bearer of the instrument.
 Parties to Bills of Exchange

 The person who gives the order to pay or who makes

the bill is called the drawer.

 The person who is directed to pay is called the

drawee.

 The person to whom the payment is to be made is

called the payee.
 Essentials Elements

 It must be in writing.
 It must contain an order to pay.
 The order must be unconditional.
 It requires three parties, i.e., the drawer, the drawee,
the payee.
 The parties must be certain.
 It must be signed by the drawer.
 The sum payable must be certain.
 It must contain an order to pay money.
 The formalities relating to number, date, place &
consideration, through usually found in bills, are not
essential in law. But a bill must be affixed with the
necessary stamp.
 Dishonour of a Cheque for insufficiency
of funds in the account (Sec 138)

A drawer of a dishonoured cheque shall be deemed

to have committed an offence. For this offence, he
shall be punished with imprisonment for a term
which may extend to 2 years[increased from one year
to 2 years by the Negotiable
Instruments(Amendment and Miscellaneous Act,
2002]or with a fine which may extend to twice the
amount of the cheque or with both provided-
I . the cheque has been dishonored due to insufficiency
of funds in the account maintained by him with a
banker for payment of any amount of money to another
person from out of that account;
Ii the payment for which the cheque was issued, should
have been in discharge of a legally enforceable debt or
liability in whole or part of it;
Iii. The cheque should have been presented by the
payee or the holder in due course within a period of 6
months from the date on which it is drawn or within
the period of its validity whichever is earlier;
Iv. The payee or the holder in due course of the cheque
should have given notice demanding payment within
thirty days (period raised from 15 days to 30 days by the
[Negotiable Instruments and Miscellaneous Provisions]
Act, 2002) from the drawer on receipt of information of
dishonor of cheque from the bank;
V. the drawer is liable only if he fails to make payment
within 15 days of such notice period and
Vi. The payee or holder in due course of the cheque
dishonoured should have made a complaint within one
month of cause of action arising under Sec 138.
Presumption in favour of holder(Sec 139)
It shall be presumed unless contrary is proved that the
holder of a cheque received the cheque of the nature
referred to in Sec 138 for discharge , in whole or in
part. Of any debt or other liability.
Defence which may not be allowed in any
prosecution under Sec. 138(Sec 140)

It shall not be a defense in a prosecution for an

offence under Sec.138 that the drawer had no reason
to believe that when he issued that the cheque that
cheque may be dishonoured for the reasons
mentioned in Sec 138.
 Offences by companies

If the person committing an offence is a co. every

person who, at the time the offence was committed,
was in charge of, and was responsible to, the
company for the conduct of the business of the
company as well as the company, shall be deemed to
be guilty of offence and shall be liable to be
proceeded against and punished accordingly in case
the offence has been committed with his consent or
connivance, or is attributable to any neglect on his
part in this regard. But under this section a person
will not be liable in a case-
i. where such person proves that the offence was
committed without his knowledge, or
Ii. Where he had exercised all due dilligence to
prevent the commission of such offence.
Iii. Where a person is nominated as a Director of a co
by virtue of his holdings any office or employment in
the Central Govt. or State Govt. or a Financial
corporation owned or controlled by the Central Govt.
or State Govt.
 Cognizance of offences( Sec 142)

Notwithstanding anything contained in the Code of

Criminal Procedure, 1973-
A. no court shall take cognizance of any offence
punishable under Sec 138 except upon a complaint,
in writing, made by the payee or, as the case may be,
the holder in due course of the cheque.
B. such complaint is made within one month of the
date on which the cause of action arises under Sec
138;
bb [provided that the cognizance of a complaint may
be taken by the court after the prescribed period, if
the complainant satisfies the court that he had
sufficient cause for not making a complaint within
such period].
C no court inferior to that of a Metropolitan
Magistrate or a Judicial Magistrate of the First Class
shall try any offence punishable under Sec 138
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