Summary of Negotiable Instruments Act, 1881

Summary of Negotiable Instruments Act, 1881

Negotiable Instrument Act (NI Act) 1881 came into impact from 1st March 1882. It has 148 Sections (Sections 138 to 142 were another in 1988 with impact from 1st April 1989 and Section 143 to 147 throughout December 2002. The newest change came within the sort of Negotiable Instruments Amendment Act 2018notifies through Official Gazette on ordinal August 2018.

Negotiable Instrument (NI) has been outlined below Section 13 of Negotiable Instrument Act, which implies and embraces note, bill of exchange and Cheque collectible to order or bearer. So, before going to the main points lets begin with the term Negotiability.

What is Negotiability?

Negotiability is that the distinctive feature that a negotiable instrument posse, which implies, the instrument is freely transferable and therefore the title of the transferee is healthier if he/she took the instrument for worth and in honestry below such circumstances having no suspicion regarding any defect within the title of the transferee. Such a transferee is named holder in due course.

Instruments that don’t seem to be transferable don’t seem to be Negotiable Instruments ab-initio like Motor transport receipt, Dock Warrant, Wharfinger‟s Certificate, LIC Policy, Document of Title to Immovable Property, Airways bill, Time Deposit receipt, Share Certificate etc.

Instruments that are transferable however if the transferee doesn’t get a higher title than the transferee is additionally not a negotiable instrument as per NI Act like Railway Receipt, Bill of Lading, Warehouse receipts etc that are termed as Quashi Negotiable Instruments.

Types of Negotiable Instruments

As per Section 13 of Negotiable Instrument Act, 1881, there are three kinds of Negotiable Instruments. Those are Promissory Note, Bill of Exchange and Cheque payable either to Order or Bearer of the Instrument; these are termed as Negotiable Instruments by Sculpture.

As per Section 137 of Transfer of Property act: Documents associated with Title of products like Railway Receipt, Bill of Lading, Warehouse receipt. (Airway Bills don’t seem to be treated as Negotiable Instruments). As per Practice: Government Promissory Note, treasury Bills, Certificate of Deposit, Business Papers.

Promissory Note (Section 4 of NI Act)

Under section 4 of NI Act, a promissory note is an instrument that contains a written promise signed by one party to pay another party or his order a particular total of cash, either on-demand or at a future date.

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A liability usually contains all the terms relating the indebtedness, like the principal quantity, rate, maturity, date and place of supply, and issuer’s signature. Promissory notes need stamping as per the Indian Stamp Act.

Parties of a dedication Note:

There are essentially two parties in dedication Note:
1. Promisor: who guarantees to pay the quantity.
2. Promisee: to whom the quantity is payable.

Types of Promissory Note:

There are two kinds of Promissory Notes:
1. Demand Promissory Note: A promissory note that is payable directly on demand.
2. Usance Promissory Note: A promissory Note is payable when a definite pre-decided amount.

Promissory Notes payable to bearer

As per Section 31 of RBI Act, Demand Promissory Notes/ Demand Bill of Exchange/ Hundis payable to bearer can’t be issued by anybody except RBI and Government of India since that’s nearly as good as Currency Notes and ruled by Indian Currency Act.

Bill of Exchange (Section 5 of NI Act)

As per Negotiable Instrument Act 1881, a bill of exchange is outlined as an instrument in writing containing an unconditional order, signed by the maker, directive a definite person to pay a definite total of cash solely to, or to the order of a definite personor to the bearer of the instrument.

The essential features of a bill of exchange are:

  • A Bill of Exchange should be in writing.
  • It’s an unconditional order to form payment a definite total to a definite person.
  • The maker of the bill of exchange should sign it.
  • The date on that payment is created should even be sure.
  • The quantity mentioned within the bill of exchange is payable either or on the expiry of a set amount of your time.
  • It should be sealed as per the necessity of law.

Parties to a Bill of Exchange:

In the instrument Bill of Exchange there are two parties
1. Drawer: The one who orders to pay. He’s the one who is entitled to receive the cash. He’s needed to sign the bill and send it to the drawee for acceptance.

  1. Drawee: Drawee is that the person on whom the bill us drawn. He’s the one who owes the cash and is directly to pay. Since a minor can’t incur any liability, he can’t be a drawee. The drawee becomes acceptor on acceptance of the bill of exchange for payment.

Drawee just in case of Need:
Another person to whom the bill is to be given for acceptance/payment if constant is shamed by drawee. A B/E can’t be aforementioned to possess been shamed unless and till it’s additionally shamed by remunerator just in case of would like.

Payee: The person to whom the cash is due. In most cases the drawer of the bill is himself the receiver.

Drawee in case of need:
Once the bill mentions the name of the extra person additionally to the drawee it’s referred to as drawee in case of need.

Acceptor for honor:
Once a BR has been noted or protested for non-acceptance and a person accept it for hoor of the drawer, such person is named as acceptor for honor.

Types of Bill of Exchange:

Following two forms of Bill of Exchange exists supported their nature, period etc.

Demand Bill:
Bill of Exchange due on demand or at sight or on its presentment and if no time is nominal.

Usance Bill:
A bill of exchange due once a while at a future date.

Inland Bill of Exchange (Section 11):

A Bill of Exchange that is drawn in India and is either due in India or on an individual resident in India. It’s two main characteristic:

1. Its continually drawn in India i.e the drawer should be in India
2. Due in India however not essentially by resident Indian or it’s going to be payable outside India however by a resident Indian.

Foreign Bill of Exchange (Section 12):

A bill that’s not associate in Inland bill of exchange. A bill that isn’t drawn in India or created due in India. The subsequent bill is also classified as a remote bill:

1. A bill drawn in India however due outside India by a individual who is not from India.
2. A bill drawn outside India however due in India or drawn outside India on an individual residing outside India however due in India.
3. A bill drawn in India and due outside India or drawn on an individual residing outside India and is due outside India.

Generally, a remote bill is drawn in additional than one set to beat the loss in transit whereas causation for acceptance. The accepted copy received initial becomes original and at that time, the opposite copies are treated as off. These copies are known as VIA.

Documentary Bill:
Bill in the midst of a document of Title to merchandise like Railway receipt, bill of loading etc.

Clean Bill:
Bill that isn’t in the midst of any document of Title to merchandise.

Accommodation Bill:
Once a bill is drawn for aside from trade dealing and issued inconsiderately is named accommodation bill and addressing such bills is terned as Kite Flying.

Hundi:
These are a kind of bill of exchange drawn in vernacular language as per the native use. A Hundi that has been paid up and off is named Khokha.

Dishonour of a Bill of Exchange:

A Negotiable Instrument are often dishonoured either due to Non-acceptance or Non-payment. Upon dishonour, the holder ought to offer notice of dishonour to all or any previous parties and get the shamed bill noted/protested.

Noting:
On dishonour of a bill or debt instrument, the holder might savvy noted by a official as per Section 91 of NI Act. Noting isn’t applicable for Cheques and it’s not mandatory for upcountry Bills. Further, the proper of a holder isn’t full of not obtaining the dishonored bill noted by a official.

Protest:
It’s dealt below Section 100 of NI Act. A protest could be a certificate issued by a official containing the facts of dishonour.

If a bill gets dishonoured by non-acceptance, then the holder will recover the number from all previous parties except the drawee and also the drawer are the principal individual. However just in case of dishonour thanks to non-payment, them the holder will recover the number from all previous parties together with the acceptor. During this case, the acceptor is that the principal individual.

Ambiguous instrument (Section 17 of NI Act)

The ambiguous instruments is Negotiable instrument that is probably thanks to faulty drafting is drawn in such a way that it are often treated as a B/E or debt instrument.

Inchoate Instrument (Section 20)

The incipient instrument is Negotiable instrument that is incomplete with reference to date, receiver and quantity. Holder of such instrument has the proper to finish it. Associate in Negotiable instrument with no signature isn’t valid in any respect.

Cheques (Section VI on NI Act)

As per section VI of the Negotiable Instrument Act, Cheque could be a Bill of Exchange, continually due on demand and also the drawee is usually a Bank. With the exception of physical cheque, Electronic cheque and image of the cheque are treated as valid instruments. No sure kind of Cheque is given within the act. However, RBI has prescribed formats and features as per CTS-2010 Cheque standards that have been created necessary w.e.f 01.01.2013.

Parties to a Cheque

Drawer: The one who attracts the cheque or the account holder.

Drawee: The Bank on whom the cheque is drawn or wherever the account is maintained.

Payee: The person named within the cheque or the beneficiary of the payment.

MICR (Magnetic Ink Character Recognition) Cheque

To facilitate ink Character Recognition based mostly Cheque process, instruments passing through clearing are needed to be issued in normal format and outlined size.

MICR Cheques have three sets of numbers at the lower band of the cheque.

Cheque Serial Number: First six digits represent the cheque variety.

City-Bank-Branch Number: Consecutive 9- digit variety conveys which means in three set of three digits. First set of 3 digits represents town code, Next 3 digit represents Bank Code and last three digits represent Branch Code.

Transaction code field: Comprising of two digits all told instruments except Government Cheques drawn on run that have a three digit group action code. Management documents – batch and block tickets – have a three digit illustration within the group action code field.

Account variety field: Consisting of six digits followed by a delimiter, is associate nonobligatory field. Within the case of presidency Cheques issued by run alone, the account variety is of seven digits. The government variety is ten digits long – seven digits occurring within the Account variety field and three within the group action code field.

Author: Neha Ghuge,
Government Law College, Mumbai/Second Year

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