The document discusses negotiable instruments under the Negotiable Instruments Act of 1881. It defines negotiable instruments as those that can be transferred between parties, such as checks, drafts, bills of exchange, and some promissory notes. The key requirements for an instrument to be negotiable are that it must be in writing, signed, an unconditional promise to pay a fixed sum, freely transferable, and payable on demand or at a definite time. The main types of negotiable instruments are promissory notes, bills of exchange, and checks. Dishonor or bouncing of a check is a criminal offense, with punishments including fines and imprisonment.
1. Group Members:
Tasbeeh Fayaz Ali 17585
Hira Zainab 17084
Areeba Ahmed 17442
Saba Ishtiaq 18060
Mahrukh Rehman 17961
Abdullah Shaikhani 17107
Negotiable Instrument Act, 1881
Submitted to: Mansoor Ali Shahani
2. Negotiable means transferable.
The negotiation that goes on refers to the
transfer of the instrument between two
people, or from one bank to another or even
from one country to another.
Negotiable Instrument Act 1881
3. What is an instrument?
In the broadest sense, almost any agreed upon medium
of exchange could be considered a negotiable instrument.
In day to day banking, a negotiable instrument usually
refers to checks, drafts, bills of exchange, and some
types of promissory notes.
Definition and Meaning
4. •Be in writing
•Be signed by the maker or drawer
•Be an unconditional promise or order to pay
•State a fixed amount of money
•Be freely transferable from one to another person
•Be payable on demand or at a definite time
•Be payable to order or to bearer.
Nature of negotiable instrument
are:
5. Types of Negotiable
Instruments
There are 3 main types of negotiable
instruments. They are as follows:
1. Promissory Notes
2. Bill of Exchange
3. Cheque
6. Promissory Notes
Section 4 of the Act defines, “A promissory note is
an instrument in writing (note being a bank-note
or a currency note) containing an unconditional
undertaking, signed by the maker, to pay a
certain sum of money to or to the order of a
certain person, or to the bearer of the
instruments.” An instrument to be a promissory
note must possess the following elements.
It must be in writing
It must understand promise or clear
understanding to pay
Promise to pay must be unconditional
7. Bill of Exchange
Section 5 of the Act defines, “A bill 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 to the bearer of the instrument”
(1) It must be in writing.
(2) It must be signed by the drawer.
(3) The drawer, drawee and payee must be certain.
(4) The sum payable must also be certain.
(5) It should be properly stamped.
(6) It must contain an express order to pay money
and money alone.
8. Classification of Bills
1. Inland and foreign bills.
(2) Time and demand bills.
(3) Trade and accommodation bills.
9. Cheque
Section 6 of the Act defines “A cheque is a bill of
exchange drawn on a specified banker, and not
expressed to be payable otherwise than on
demand”.
A cheque is bill of exchange with two more
qualifications, namely,
It is always drawn on a specified banker, and
It is always payable on demand
Distinction between Bills of Exchange and
Cheque
10. Dishonor of Cheque
What is a cheque?
A cheque is one form of a bill of exchange.
However, all bills of exchange are not cheques. A
cheque is always drawn on a bank or a banker.
What do we mean by dishonor of cheque?
11. CASES
Case number one: When any cheque, drawn by
a person for the discharge of any liability is
returned by the bank unpaid, because of
insufficiency of the amount of money, the cheque
is said to have been dishonored
Case number two: The cheque amount exceeds
the amount that can be paid by the bank under an
arrangement entered into between the bank and
the drawer of the cheque
12. Compensation payable in case of
dishonour.
Certain rules must be followed in case of dishonour
of promissory note, bill of exchange or cheque.
○The holder is entitled to the amount due upon the
instrument together with the expenses properly
incurred in presenting, noting and protesting it.
13. Continued…
○ Receive the sum at current rate of exchange
between the twomplaces.
○An endorser who has paid the amount is entitled
to that amount plus interest on that amount at a
particular percent per annum until realization is
made.
○ A bill by the party dishonoured might be drawn
on the party liable to compensate him inclusive of
all taxes and expenses incurred during the whole
process.
14. Punishment on Bouncing of Cheques
A dishonored cheque is one, which when presented is
refused payment by the bank because of insufficient
funds or because it is not in order, dishonestly issuing
a cheque is a criminal offence in Pakistan.
489-F Dishonestly issuing a cheque: Whoever
dishonestly issues a cheque towards re-payment of a
loan or fulfillment of an obligation which is dishonored
on presentation shall be punishable with
imprisonment which may extend to three years and
with fine unless he can establish, for which the burden
of proof shall rest on him, that he had made
arrangements with his bank to ensure that the cheque
would be honored and that the bank was at fault in
not honoring the cheque.
15. Types of Cheque Fraud
There are Four main types of cheque fraud:
Counterfeit – cheques not written or authorized by
legitimate account holder.
Forged – Stolen cheque not signed by account
holder.
Altered – an item that has been properly issued by
the account holder but has been intercepted and the
payee and/or the amount of the item have been
altered.
Dishonestly issuing a cheque. (Section 489F of
Pakistan Penal Code)– Whoever dishonestly issues a
cheque towards re-payment of a loan or fulfillment of
an obligation
which is dishonored on presentation, shall be
punishable with imprisonment which may extend
to three years, or with fine, or with both.
16. Continued...
The offence under this section is cognizable by
police, non-bailable and compoundable.
“ Whoever dishonestly issues a cheque towards
re-payment of a finance or fulfillment of an
obligation which is dishonored on presentation,
shall be punishable with imprisonment which may
extend to one year, or with fine or with both,
unless he can establish, for which the burden of
proof shall rest on him, that he had made
arrangements with his bank to ensure that the
cheque would be honored and that the bank was
at fault in not honoring the cheque”.
17. And…
Issuance of cheque dishonestly is an offence
under the statute both civil and criminal remedies
could be availed simultaneously in such matters.
You can lodge First Information Report against
the signatory and at the same time can also file a
civil suit, there is no legal bar if criminal and civil
proceedings continue simultaneously. Before
lodging F.I.R. notice of dishonur of cheque should
also be given.
18. Case Study
Case
By means of fall preference A has obtain from B a
cheque crossed “not negotiable” he took that
cheque to a bank (other than drawee bank) which
paid it. B sues the bank for conversion.
Has A committed any offence or irregularity.
Under the negotiable instrument act.
Is B entitled to get any relief?
How will you decide the case
19. Answer
The given case is under the chapter of negotiable
instrument which means promissory notes, bills of
exchange or cheque payable either to order or to
bearer.
In this set case because of fall preference A obtain a
cheque from B a crossed cheque saying not
negotiable. He took the cheque to bank (collecting
banker) which paid it. Here the not negotiable word
came on crossing because of this crossing the
cheque becomes made available to pay to bearer that
is to anyone who holds it therefore here A did a lawful
negotiation as he got a cheque and went to the
collecting banker who collects the cross checks on
behalf of their customer, Because of not negotiable
tittle bank paying in good faith and without negligence
to their regular customer to ensure the interest of
20. Judgement
Here the cheque is crossed with the the label “not
negotiable” which means the transferee cannot get a better
title than that of transferor. It also means that it can be paid
only to a certain person. A negotiable cheque is one which
is made payable to bearer that is to anyone who “holds it.
Here because of fall preference A has obtain a cheque
because of that “not negotiable” cross cheque gives
authority to receive the payment of check therefore A
followed the rules and regulations covered under
negotiable instrument hence A the did not committed
any offence or irregularity under the Negotiation
instrument.
Here because of fall preference A obtain a cheque from B
with the cross cheque “not negotiable” because of this
crossing the cheque becomes made available to pay to
bearer that is to anyone who holds it. Hence here B will
not get any relif as the transaction is lawful under the
negotiable instrument act, 1881.
