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’

 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