MBA business law As per AKTU syllabus

1. Negotiable Instruments Act,
1881

2. • The word negotiable means “transferable
from one person to another in return for
consideration” and an instrument means “A
written document by which a right is created
in favor of some person”.
• Thus, a negotiable instrument is a document
which entitles a person to a sum of money
and which is transferable from one person to
another.

3. Characteristics of a negotiable
instrument
• Freely Transferable:- The property in a
negotiable instrument passes from one person
to another by delivery
• Consideration:- Every negotiable instrument is
presumed to have been made, drawn,
accepted, negotiated or transferred for
consideration.
• Date:- Every negotiable instrument bearing
date is presumed to have been drawn on such
date.

4. • Recovery:- The holder in due course can sue
upon a negotiable instrument in his own
name for the recovery of the amount.
• Time of acceptance:- When a bill of exchange
has been accepted it is presumed that it was
accepted within a reasonable time of its date
and before its maturity.
• Time of Transfer:- Every transfer of a
negotiable instrument is presumed to have
been made before its maturity.

5. Types of negotiable instrument
• There are three types of negotiable
instruments & these are:
a) Promissory Note
b) Bill of Exchange
c) Cheque

6. Promissory Note
• A promissory note is an instrument in writing
(not being a bank note or a currency note)
containing an unconditional undertaking
signed by the maker to pay a certain sum of
money only to or to the order of a certain
person or to the bearer of the instrument.
(Sec.4)
• The person who makes the promissory note &
promises to pay is called the maker & the
person to whom the payment is to be made is
called the payee.

7. Specimen of a promissory note
Rs. 1000 Kanpur, Nov. 17, 2015
Three months after date, I promise to pay Shyam or order the sum of one thousand
rupees, for value received.
To,
Shyam
Saket Nagar
Kanpur
Stamp
Sd/- Ram

8. Essential elements of a promissory
note
• Writing:- The instrument must be in writing.
Writing includes print & typewriting and may
also be in pen or ink.
• Promise to pay:- The instrument must contain
an express promise to pay. The following
instrument signed by A is not a promissory
note:
Ex. I am bound to pay the sum of Rs. 500
which I received from you.

9. • Definite and Unconditional:- The promise to pay
must be definite and unconditional. If it is
conditional or uncertain, the instrument is
invalid.
Ex. I promise to pay B Rs. 500 when he delivers
the goods.
• Signed by the maker:- The instrument must be
signed by the maker otherwise it is incomplete &
of no effect.
• Certain parties:- The instrument must point out
with certainty as to who the maker is & who the
payee is. Where the maker & the payee can’t be
identified with certainty with the instrument
itself, the instrument even if contain an
unconditional promise to pay is not a promissory
note.

10. • Certain sum of money:- The sum payable must
be certain and must not be capable of contingent
addition or subtraction.
Ex. I promise to pay B Rs. 1000 and all other sums
due to him.
• Promise to pay money only:- The payment to be
made under the instrument must be in the legal
tender money of India. If the instrument contains
a promise to pay something in addition to money,
it cannot be a promissory note.
Ex. I promise to pay B 20 shares & 10 bonds of XY
limited.
• It may be payable on demand or after a definite
period of time.

11. Bill of exchange
• 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 (Sec.5)

12. Parties to a bill
a) Drawer:- The person who gives the order to pay
or who makes the bill is called the drawer.
b) Drawee:- The person who is directed to pay is
called the drawee. When the drawee accepts the
bill, he is called the acceptor.
c) Payee:- The person to whom the payment is to
be made is called the payee.
The drawer or the payee who is in the possession
of the bill is called the holder. The holder must
present the bill to the drawee for its acceptance.
When the holder endorses the bill, note or
cheque, he is called the endorser. The person to
whom the bill, note or cheque is endorsed is
called the endorsee.

13. Specimen of Bill of exchange
Rs. 1000 Kanpur, Nov. 17, 2015
Three months after date, pay to Ram or order the sum of one thousand rupees,
for value received.
To,
Shyam
Saket Nagar
Kanpur
In case of need with Accepted
Indian Bank, Kanpur Shyam
Stamp
Sd/- Krishna

14. Essential elements of bill of exchange
a) It must be in writing.
b) It must contain an order to pay.
c) The order must be unconditional.
d) It requires three parties i.e., the drawer, the
drawee & payee.
e) The parties must be certain.

15. f) It must be signed by the drawer.
g) The sum payable must be certain.
h) It must contain an order to pay money only.
i) The formalities like number, date, place,
consideration etc are usually found in an
instrument although they are not essential in law
but a bill must be affixed with the necessary
stamp.

16. Difference between Promissory note
& Bill of exchange
Promissory Note Bill of Exchange
There are two parties. There are three parties.
It contains an unconditional promise to
pay.
It contains an unconditional order to
pay.
The maker of the note is the debtor & he
himself undertakes to pay.
The drawer of the bill is the creditor
who directs the drawee (his debtor) to
pay.
The liability of the maker of a note is
primary & absolute.
The liability of a drawer of a bill is
secondary & conditional.
A note cannot be made payable to the
maker himself.
In a bill, the drawer & the payee may be
one & the same person.

17. Cheque
• A cheque is a bill of exchange drawn upon a
specified banker and payable on demand and
it includes the electronic image of a cheque or
a cheque in the electronic form.
• A cheque in the electronic form means,
“Cheque which contains the exact mirror
image of a proper cheque and is generated,
written & signed in a secure system ensuring
the minimum safety standard with the use of
digital signature”.

18. A cheque is the species of a bill of exchange
but it has the following two additional
qualifications:
a) It is always drawn on specified banker.
b) It is always payable on demand.
All cheques are bill of exchange but all bill of
exchange are not cheque. A cheque must have
all the essential elements of a bill of exchange
but it doesn’t require acceptance as it is
intended for immediate payment.

19. Speciment of Cheque
• Assignment

20. Difference between a bill of exchange
and a cheque
Bill of exchange Cheque
It may be drawn on any person
including a banker.
It is always drawn on a banker.
It must be accepted before the drawee
to make payment upon it.
A cheque requires no acceptance.
It may be payable on demand or after
the expiry of a certain period after date
or sight.
It is always payable on demand.
A bill is never be crossed. A cheque may be crossed.
A bill except in certain cases must be
stamped.
A cheque doesn’t require any stamp.

21. Crossing of Cheques
• Open Cheque:- A cheque which is payable in
cash across the counter of the bank is called
an open cheque. When such a cheque is in
circulation, a great risk attends it. If it’s holder
looses it, it’s finder may go to the bank and
get payment unless its payment has already
been stopped.

22. Crossed Cheque
• A crossed cheque is one in which two parallel
transverse lines with or without the words ‘&
Co.’ are drawn. The payment of such a cheque
can be obtain only through banker. Thus,
crossing is a direction to the drawee banker to
pay the amount of money on a crossed
cheque generally to a banker so that the party
who obtains the payment of the cheque can
be easily traced.

23. Types of crossing
• There are two types of crossing:
• a) General Crossing:- A cheque is said to be
crossed generally where it bears across its face an
addition of
• i) The words “and company” or any abbreviation
thereof between two parallel transverse lines
either with or without the words “not
negotiable”.
• ii) Two parallel transverse lines simply either with
or without the words “not negotiable”. (Sec. 123)

24. Specimen of General Crossing

25. b) Special Crossing
• Where a cheque bears across its face in
addition of name of the banker either with or
without the words “not negotiable”, the
cheque is deemed to be crossed specially.
(Sec. 124)

26. Specimen of special crossing