Here's an overview of some key aspects covered by the Negotiable Instruments Act:
Definition of Negotiable Instruments: The Act defines negotiable instruments and specifies the types of instruments covered, including promissory notes, bills of exchange, and cheques.
Rights and Liabilities of Parties: It outlines the rights, duties, and liabilities of parties involved in negotiable instruments transactions, including drawers, endorsers, and holders in due course.
Endorsement: The Act regulates the endorsement of negotiable instruments, including special and blank endorsements, and specifies the legal implications of various endorsement types.
Holder in Due Course: It defines the concept of a "holder in due course" and establishes the privileges and protections afforded to such holders under the law.
Liability for Dishonor: The Act sets out the consequences of dishonor of negotiable instruments, including procedures for giving notice of dishonor and remedies available to holders in case of non-payment.
Presumptions and Evidence: It establishes various presumptions regarding negotiable instruments transactions and specifies rules regarding the burden of proof and admissibility of evidence in legal proceedings related to negotiable instruments.
Crossing of Cheques: The Act regulates the crossing of cheques and specifies the legal implications of different types of crossings, such as general crossing, special crossing, and restrictive crossing.
Penalties: The Act prescribes penalties for offenses related to negotiable instruments, including dishonor of cheques and other violations of the Act's provisions.
The Negotiable Instruments Act plays a crucial role in facilitating commercial transactions and financial activities by providing clarity and legal certainty in dealings involving negotiable instruments. It aims to promote efficiency, transparency, and trust in financial transactions while also protecting the interests of parties involved.
2. Decided Case Study :- Meters and
Instruments Pvt. Ltd. Vs. Kanchan
Mehta 2017
• Facts:- Was supposed to pay an amount to the former on monthly
basis according to an existing agreement between the two of them
had failed to do so.
• The Provision of Compoundable Offence is Present in Negotiable
Instruments (Amendments and Miscellaneous Provision Act), 2002 -
which does require the Consent of both the Parties in Concern.
• In the Present Case, as the company was willing to Compensate the
Complainant, the Court in the sake of proper delivery of justice
thought of discharging the accused for the complainant was
compensated with the amount that was necessary to be provided
with.
3. Negotiable Instruments
• Meaning: A Signed Document that Promises a Sum of
Payment to a specified Person or the Assignee /
• Characteristics :
• a. Easily Transferrable
• b. Must be in Writing
• c. Time of Payment must be Certain
• d. Payee also must be certain
Types : a. Promissory Note
• b. Bills of Exchange
• c. Cheque
8. Parties
• Drawer - The person who writes the bill of exchange or Cheque is called a
drawer.
Maker - The person who writes the promissory note is called the maker
• Drawee :- A person to whom the bill of exchange or cheque is drawn or
written is called drawee (The Drawee of the Cheque is always a banker.)
• Payee:- The specified person with the instrument, to the payment of
money is directed or on whom an order of the payment of money is
directed, is called a payee.
• When drawee of a bill of exchange or on its any part agreeing with it and
informs the holder or any person on behalf drawee is called acceptor.
10. Holder
• 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.
• A Holder in Due Course is someone who accepts a
Negotiable Instrument in a Value-for-Value
exchange without reason to doubt its legitimacy.
11. ‘Holder’ Vs. ‘Holder in Due Course’
• Holder is a Person who is entitled for the
possession of a negotiable instrument in his
own name.
• He shall receive or recover the amount due
thereon. Whereas a Holder-in-due-course is a
person who has obtained the instrument for
‘consideration’ and in ‘Good Faith’ and ‘before
maturity’
12. Negotiation and Types of
Endorsements
S. 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.”
• Blank Endorsement – Where the endorser signs his name only, and
it becomes payable to bearer.
• Special Endorsement – Where the endorser puts his sign and writes
the name of the person who will receive the payment.
• Restrictive Endorsement – Which restricts further negotiation.
• Partial Endorsement – Which allows transferring to the endorsee a
part only of the amount payable on the instrument.
• Conditional Endorsement – Where the fulfillment of some
conditions is required.
13. Dishonour of NI
• Dishonour of a Negotiable Instrument means
the loss of honour for the Instrument on the
part of the Maker, Drawee or acceptor, which
renders the instrument unsuitable for the
realization of the payment.
14. Noting and Protest
• S. 99 :- When a Promissory Note or Bill of exchange has
been dishonoured by non-acceptance or non-payment, the
holder may cause such dishonour to be noted by a notary
public upon the instrument, or upon a paper attached
thereto, or partly upon each.
• Such note must be made within a reasonable time after
dishonour, and must specify the date of dishonour, the
reason, if any, assigned for such dishonour, or, if the
instrument has not been expressly dishonoured, the
reason why the holder treats it as dishonoured, and the
notary’s charges.
15. S. 100 Protest
• S. 100 Protest:- When a promissory note or bill of exchange has
been dishonored by non-acceptance or non-payment, the holder
may, within a reasonable time, cause such dishonor to be noted and
certified by a Notary Public.
• Such certificate is called a Protest. Protest for better security. When
the acceptor of a bill of exchange has become insolvent, or his credit
has been publicly impeached, before the maturity of the bill, the
holder may, within a reasonable time, cause a notary public to
demand better security of the acceptor, and on its being refused
may, within a reasonable time, cause such facts to be noted and
certified as aforesaid.
• Such certificate is called a protest for better security
16. Other Related Cases S. 138 NI 1881
• Dalmia Cement (Bharat) Ltd. Vs. M/s. Galaxy
Traders and Agencies Ltd. Others
• Canara Bank Vs. Canara Sales Corporation
17. Decided Case Laws
• Dalmia Cements v. Galaxy Trading Agencies
• The case of M/s. Dalmia Cement (Bharat)M/s. Dalmia Cement (Bharat) Ltd. v.
M/s.Galaxy Traders & Agencies Ltd. & Ors. is one of the cases whose judgment
became a landmark for the Supreme Court, in this case, reasoning behind the
enactment of Section 138 of the Negotiable and Instruments Act, 1881 was given.
The facts of the case revolve around dishonouring of the cheque because of which
notice was issued to inform the accused. When the same was received by the
complainant by that time the period of filing the complaint was given to expire.
The same thing happened for the second time as well with the accused failing to
provide with the amount.
• The court basing its judgement on the existing facts said that Section 138 of the
Act has been made keeping in concern any kind of infringement of legal right of
the person whose payment has not been issued and therefore if any such situation
arises which will make it impossible for the person to get the payment then in such
case, the section should function the way it has been laid down to keep the
objective of the Act. Thus, in this case, the court ordered actions to be carried out
against the respondent as laid down in the Act.
18. Decided Case Laws
• The case of Canara Bank v. Canara Sales Corporation (1987) serves as a basis of
understanding the relationship shared between the banker and its customers that
are tied with threads of duties and equity, during the times of negligence by either
party or in case either party is involved with fraudulent activities.
• In this case, the respondent had a current account in the plaintiff’s bank which was
eventually found to be linked with fraudulent activity for the cheques which were
encashed and didn’t bear the initials of the managing director, the respondents.
Thus, forgery also took place in the given case. A suit was filed by the respondents
to compensate with the amount that has been lost.
• The Court highlighted that there was negligence on the part of both the creditor as
well as the debtor but the beam balance of negligence weighed more for the
banker than the company. Thus, mere negligence on the part of the Bank cannot
be a ground for not using the same.
• The court finally ruled that the company is eligible for compensation thereby
dismissing the case.
Notes de l'éditeur
The Negotiable Instrument Act, 1881: Negotiable Instruments – Meaning, Characteristics, Types. Parties, Holder
and holder in due course, Negotiation and Types of Endorsements, Dishonor of Negotiable Instrument – Noting and
Protest. (5+1)
M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta
The case of M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta (2017) was where the Supreme Court took into concern the object associated with Section 138 along with other statutory provisions laid down in Chapter XVII of the Negotiable Instrument Act, 1881 and passed its verdict.
The facts of the case go as such that the complainant, Kanchan Mehta under Section 138 of the Act had filed a complaint against the plaintiff on grounds that the latter who was supposed to pay an amount to the former on monthly basis according to an existing agreement between the two of them had failed to do so.
The Company had provided a Cheque to the Complainant thereby discharging their legal liabilities. The Same Cheque returned back for the presence of Insufficient Funds.
Legal Notices were provided to the company for the completion of their payment but the same was not fulfilled and the Company was responsible for the offence under Section 138 of the concerned Act. Further, when the Director of the company was willing to pay the complainant, there was a refusal of the Demand Draft from the Later’s End.
Thus, the company filed a suit against the complainant under Section 147 of the Act which was the provision for compoundable offences. The same was rejected by the concerned High Court on grounds that there was the absence of the consent of the complainant for holding the offence to be compounding by nature.
The Supreme Court passed a verdict saying that whatever offences have been laid down in Section 138 are civil by nature. Further, the provision of compoundable offence is present in Negotiable Instruments (Amendments and Miscellaneous Provision Act), 2002 which does require the consent of both the parties in concern. In the present case, as the company was willing to compensate the complainant, the court in the sake of proper delivery of justice thought of discharging the accused for the complainant was compensated with the amount that was necessary to be provided with.
Meaning : A negotiable instrument is a signed document that promises a sum of payment to a specified person or the assignee. In other words, it is a formalized type of IOU:
A transferable, signed document that promises to pay the bearer a sum of money at a future date or on-demand. The payee, who is the person receiving the payment, must be named or otherwise indicated on the instrument.
Characteristics:
Features of Negotiable Instruments
Easily Transferable: A negotiable instrument is easily and freely transferable. There are no formalities or much paperwork involved in such a transfer. The ownership of an instrument can transfer simply by delivery or by a valid endorsement.
Must be in Writing: All negotiable instruments must be in writing. This includes handwritten notes, printed, engraved, typed, etc.
Time of Payment must be Certain: If the order is to pay when convenient then such an order is not a negotiable instrument. Here the time period has to be certain even if it is not a specific date. For example, it is acceptable if the time of payment is linked with the death of a specific individual. As death is a certain event.
Payee also must be certain: The person to whom the payment is to be made must be a specific person or persons. Also, there can be more than one payee for a negotiable instrument. And “person” includes artificial persons as well, like body corporates, trade unions, chairman, secretary etc.
Types:
Holder is a person who is entitled for the possession of a negotiable instrument in his own name. Hence he shall receive or recover the amount due thereon. Whereas a Holder-in-due-course is a person who has obtained the instrument for consideration and in good faith and before maturity.
Blank Endorsement or General Endorsement
An endorsement is blank or general where the endorser signs his name only, and it becomes payable to bearer. Thus, where a bill is payable to “Ram or order”, and he writes on its back “Ram”, it is an endorsement in blank by Ram and the property in the bill can pass by a mere presentation.
We can convert a blank endorsement into an endorsement in full. We can do so by writing above the endorser’s signature, a direction to pay the instrument to another person or his order.
2. Special or Full Endorsement
An endorsement “in full” or a special endorsement is one where the endorser puts his signature on the instrument as well as writes the name of a person to whom order the payment is to be made.
A bill made payable to Ram or order, and endorsed “pay to the order of Shyam” would be specially endorsed and Shyam endorses it further. We can turn a blank endorsement into a special one by adding an order making the bill payable to the transferee.
3. Restrictive Endorsement
An endorsement is restrictive which restricts the further negotiation of an instrument.
Example of restrictive endorsement: “Pay to Mrs. Geeta only” or “Pay to Mrs Geeta for my use” or “Pay to Mrs Geeta on account of Reeta” or “Pay to Mrs. Geeta or order for collection”.
4. Partial Endorsement
An endorsement partial is one which allows transferring to the endorsee a part only of the amount payable on the instrument. This does not operate as a negotiation of the instrument.
Example: Mr. Mohan holds a bill for Rs. 5,000 and endorses it as “Pay Sohan or order Rs. 2500”. The endorsement is partial and invalid.
5. Conditional or Qualified Endorsement
Where the endorser puts his signature under such writing which makes the transfer of title subject to fulfilment of some conditions of the happening of some events, it is a conditional endorsement.
Negotiation Back
Where an endorser negotiates an instrument and again becomes its holder, we know it as negotiation back to that endorser. After negotiation back, none of the intermediary endorsees are then liable to him.
For example, Ram, the holder of a bill endorses it to Bala, Bala endorses to Kala, and Kala to Lala, and endorses it again to Ram. Ram, being a holder in due course of the bill by the second endorsement by Lala, can recover the amount thereof from Bala, Kala, or Lala and himself being a prior party is liable to all of them.
When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may cause such dishonour to be noted by a notary public upon the instrument, or upon a paper attached thereto, or partly upon each.
Such note must be made within a reasonable time after dishonour, and must specify the date of dishonour, the reason, if any, assigned for such dishonour, or, if the instrument has not been expressly dishonoured, the reason why the holder treats it as dishonoured, and the notary’s charges.
According to the Indian Law, a Notary Public or Notary is a person who is authorized to carry out certain legal formalities/activities. This would include drawing up and/or validating contracts, deeds and other such legal documents.
Dalmia Cements v. Galaxy Trading Agencies
The case of M/s. Dalmia Cement (Bharat)M/s. Dalmia Cement (Bharat) Ltd. v. M/s.Galaxy Traders & Agencies Ltd. & Ors. is one of the cases whose judgment became a landmark for the Supreme Court, in this case, reasoning behind the enactment of Section 138 of the Negotiable and Instruments Act, 1881 was given. The facts of the case revolve around dishonouring of the cheque because of which notice was issued to inform the accused. When the same was received by the complainant by that time the period of filing the complaint was given to expire. The same thing happened for the second time as well with the accused failing to provide with the amount.
The court basing its judgement on the existing facts said that Section 138 of the Act has been made keeping in concern any kind of infringement of legal right of the person whose payment has not been issued and therefore if any such situation arises which will make it impossible for the person to get the payment then in such case, the section should function the way it has been laid down to keep the objective of the Act. Thus, in this case, the court ordered actions to be carried out against the respondent as laid down in the Act.
Canara Bank v. Canara Sales Corporation
The case of Canara Bank v. Canara Sales Corporation (1987) serves as a basis of understanding the relationship shared between the banker and its customers that are tied with threads of duties and equity, during the times of negligence by either party or in case either party is involved with fraudulent activities.
In this case, the respondent had a current account in the plaintiff’s bank which was eventually found to be linked with fraudulent activity for the cheques which were encashed and didn’t bear the initials of the managing director, the respondents. Thus, forgery also took place in the given case. A suit was filed by the respondents to compensate with the amount that has been lost.
The Court highlighted that there was negligence on the part of both the creditor as well as the debtor but the beam balance of negligence weighed more for the banker than the company. Thus, mere negligence on the part of the Bank cannot be a ground for not using the same.
The court finally ruled that the company is eligible for compensation thereby dismissing the case.
