Negotiable instrument act of 1881

The act is called negotiable instrument of 1881. It came in to force on 1'

March,1882.

The provision of the act are based on English common law and customs & usage's

relating to the negotiable instrument in which were applied to negotiable

instruments prior to 1881.

The act governs only three kinds of negotiable instruments viz. promissory note, bill of

exchange and cheque.

The other documents like bill of lading, railway receipt etc., are not recognized by -the act

as negotiable instruments and therefore such documents are not governed by

negotiable instrument act.

Definition and Meaning :-

'The negotiable instrument act of 1881 defines negotiable instrument as "A negotiable

instrument means a promissory note not a bill of exchange or a cheque payable to order

or to the bearer of the instrument. Thus the act recognizes three kinds, of negotiable

instruments stated in the definition, however the definition given by the act is silent as

to the meaning of N.I. this term cart be defined by saying that it consist of two words

viz. negotiable & instrument The word negotiable means a transferable & instrument

means a document by which a right is created in favor of some persons.

Thus NI means transferable documents which creates right in favor of a certain person.

Ln other words a N.I means a piece of paper which entitles a person a certain sum of

money mentioned there in and which can be transferred from one person to another by

delivery or by endorsement of delivery. The person to whom it is so transferred

becomes entitled to the amt. mentioned in the document and a right to further transfer it.

In addition to this right he also has a right to file a suit on the basis of the document in

his own name in the event of his failure to receive the amount, mentioned in the

document.

Thus a bonafied transfer for value becomes entitled to all the above rights on the

instrument.

Definition and meaning of promissory note:- (SECTION 4)

N.I. act of 1881 defines promissory note. as "A promissory note is an instrument in

writing (not being a bank note or a currency note ) containing an unconditional under

taking, signed by the maker to pay a certain. sum of money only, to or to the order of

certain person or to the bearer of the instrument." • - The person who makes

promissory note is called maker and person who is entitle to receive payment or to

whose order payment is to made is called payee.

Essential requirement of promissory note :-

I) It must be in writing:- :- It must be in writing. In other words, an oral promise does

not make a promissory note since-it is not an instrument.. An oral promise to pay

cannot be called a promissory. note. The act has not prescribed any particular form for

a promissory note. It merely says that promissory must be in writing. The writing can

be in any form. It need not be on a stamp paper. However the writing in order to be a

promissory note must fulfill all essential requirements prescribed by the definition.

21 A promissory note must contain an undertaking promises:-A valid promissory note

must contains promise to pay a mere implied undertaking by use of words like debts

or dues, in an instrument is not sufficient. In other words acknowledgment of

liability or receipt of the amount cannot be called a promissory note. However, it is

not necessary that the Word promise or an undertaking must be used to have a valid

promissory note. It is sufficient that the words used in a document clearly indicates

the intention of the maker to pay •amount of the promissory note.

3)A Promise contain in a promissory note must be unconditional promise A Promise

to pay should not be dependent upon the happening or. non-happening of an events,

which is uncertain when it is dependent upon an uncertain event it is called a

conditional undertaking . And such an undertaking cannot create a valid promissory

note. But if the undertaking or promise is dependent upon an event which is certain to

happen it is riot a conditional undertaking and it can create a valid promissory note.

Similarly just because it contains sortie conditions in respect of time or place of

payment it is not a conditional undertaking. It can create a promissory note.

4.) A Promissory note must be signed by the person who makes it :- In other words

the maker should have put his signature at his own free will without any coercion ,

undue influence etc. having been used.

5) The amount promised to be paid must be certain sum of money :- The amt. must

be clearly specified in a promissory note. It must be a fixed sum of money, if the amt.

is left uncertain the document cannot be called a promissory note. However, just

because the promise is made to pay the interest on the fixed amount ,The arnount

cannot be called an uncertain amt.

6) A promise must be to say in monetary terms only :- A promissory note must

contain a promise to pay the liability in monetary terms only. A promise to pay

the entire amt. or part of the amt. in kind or in any other terms other than

monetary terms cannot create a promissory note.

7) Maker & The payee must be a certain person :- A promissory note must be

clearly mentioned as to who is liable on the promissory note at the same time.

When the promissory note is an order the promissory note must state with

certainty as to who is the person entitled to receive the amt. mentioned in the

document. In other words payee must be capable of being identified at the time of

making payments.

8)If a promissory note is a bearer, promissory note it cannot be made payable

on demand simultaneously.

9)A promissory note must be stamped according to the Bombay stamp act.

I 0)The maker & the payee of a promissory note cannot be one & the same person

when the promissory note is paid.

11) A promissory note can be made payable to bearer but when it is a bearer

promissory note it cannot be made payable on demand.

BILL OF EXCHANGE:-(Section 5)

The negotiable instrument act, 1881 defines BOE as " A BOE is an inst. in

writing, containing an unconditional order signed by the maker, directing certain

person , to pay a certain sum of money only to or to the order of certain person or

to the bearer of the instrument. " .

A BOE involves 'three parties viz, drawer, drawee and payee A drawer is. a

person who makes or draws a BOE. He is the person who gives an order to a

certain person to pay a certain sum of money only either to himself or to a third

person named in a BOE.

Drawee is a person who is directed by the drawer to pay a certain sum of money

only to the drawer or to the third person mentioned in the BOE. When the drawee

signs the BOE i.e. when he accepts the order of the drawer he is called the

acceptor.

A payee is the person to whom, or to whose order payment is to be made i.e. he

is the person entitled to receive the payment on the BOE.. All these three parties

must be clearly named & must be indicated with certainty in BOE. Sometimes

drawer & payee may be one & the same person e.g. Mi. A draws a BOE on Mr.

B & directs MY. B to make payment to himself. In this e.g. Mr. A is a drawer as

well as payee.

However, drawer & a drawer of a.BOE cannot be one and the same person.

Similarly drawee & payee cannot be one and the same person, at the time when the

bill is made or drawn. However, drawee may become payee as and by way of

negotiation back in ehich event the document stands duly discharged in the

hands of the drawee.

ESSENTIAL REQUTREIYLNT OF A BOB

I)In Writing. An oral order tO pay cannot be called a BOE. The act has not

prescribed any particular form for a BOE. It merely says that BOE must be in

writing. The writing can be in any form. It need not be on a stamp paper.

However the writing in order to be a BOE must all essential requirements

prescribed by the definition.

?)It must contain an order, a BOE must contain an order of drawer directing the

drawee to pay a certain sum of money only. Mere request in an inst. is not

sufficient to call the inst. a BOE.

3)An order contained in a BOE must be unconditional order :- An order to pay

should not be dependent upon the. happening or non-happening of an events,

which is uncertain when it is dependent upon an uncertain event it is called a

conditional order . And such an order cannot create a valid BOE . But if the

Undertaking or order is dependent upon an event which is certain to happen it is

not a conditional undertaking and it can create a valid BOE.

Similarly just because it contains some conditions in respect of time or place

of payment it is not a conditional undertaking. And it can create a BOE.

4) A BOE must be signed by the person who makes it, In other words the maker

should have put his Signature at his own free will without any coercion , undue

influence etc. having been used.

5) The amount ordered to be paid must be certain sum of money. The amt. must

be clearly specified in a BOE. It must be a fixed sum of money, if the amt. is left

uncertain the -document cannot be called a BOE. However, just because the order

is made to pay the interest on the fixed amount .The amount cannot be called an

uncertain amt.

6)An order must be to pay in monetary terms only :- A BOE must contain an order

to pay the liability in monetary terms only An order to pay the entire amt. or part

of the amt. in kind or in any other terms other than monetary terms cannot create

a BOE.

7) Maker & The payee must be a certain person. A BOE must be clearly mentioned

as to who is liable on the BOE note at the same time. When the DOE is an order. It

must state with certainty as to who is the person entitled to receive the amt

mentioned in the document.

In other words payee must be capable of being identified at the time of making.

payments.

If a BOB is a bearer, BOB it cannot be made payable on demand simultaneously.

8)A BOB can be made payable to the bearer. But when it is bearer BOB it cannot be

made payable on demand.

9)An order to pay must be unconditional , order of bill of exchange must be signed

by the drawer.

10) The order to pay rntiA be in monetary terms only.

11)Amt. payable must be a certain sum.

12) drawer, drawee, & payee must be a certain person.

13) a BOE must be duly stamped as per the stamp act.

14) a BOB can be made payable to bearer at the same time payable on demand.

Distinguish between a premiss cry note & a 130E:-

POints Bill of exchange Promissory note

.._1) No. of parties

-2)- Protnise/ord er

•3) Nature of liability

4) Acceptance

..5) Same identity of

payor and payee.

• 6)-Payable to

bearer.

7) Protest fordishonour. .

.._ _

. .8) Notice ofdishonour.

_

There are three parties-drawer, drawee and payee.

It contains an unconditionalorder.

The liability of the drawer issecondary and conditional.

It requires acceptance to

become a valuableinsUnment. ,

The drawer and payee maybe the same person.

It can be pa_yable_to bearer..It caw-let be drawn-asPayable-to--bearer v u I 1 -demand.

_It requires the protesting........-for dishonour.

Notice of dishonour mustbe given to all persons(including drawer) liableto pay.

There are two parties- makerAnd payee.

It contains an unconditionalPromise given by a debtor to acreditor.

.The liability of the maker isPrimary and absolute.

It does-not require anyacceptance since it is avaluable ins-mat-pent rightfrom the beginning. •

The maker and payee cannotbe the same person.

It cannot be payable .tobearer.

It does not require any ---- .protesting.

such notice is not requiredto be given to the maker.

MEANING & DEFINATION:- ( SECTION —6)

The negotiable instrument act of 1881 defines cheque as "cheque is a bill of

exchange drawn on a specified banker and not expressed to be payable otherwise

than on demand."

A cheque is always drawn on a bank and therefore in a cheque drawee is

always a bank. it can only be drawn on the specified bank with whom the drawer

has an account like BOE, a cheque also contains an unconditional order to pay !&

it involves three parties viz., drawocIdrawee(bank) & Payee.

However, unlike a BOE a cheque does not require any acceptance on the bank

on whom it is drawn , because drawing of a cheque simply amounts to giving a

direction to the bank who is the custodian of the money of the drawer td pay the

amt. of the cheque to the payees out of the funds of the drawer. The bank on

which it is drawn i.e. the drawee bank cannot be liable if the cheque is

dishonoured.Thus cheque is the special kind of BOE and though it is similar to

BOE in many asyects it does differ from DOE but all BOE are not cheques.

A cheque is always payable on demand & it cannot be made payable after a fixed

period of time. A cheque is valid for a period of 6months from the date on which

it is drawn, if the payee fails to present the cheque within the period of 6mo4s

as stated above he cannot there after receive the a.mt. of the cheque from the

bank.

A cheque can be crossed .generally or specifically or it may be a bearer cheque.

A cheque may bear past, present or future date. A cheque with a past

cheque,with a past date is known as anti dated cheque. A cheque with a fixture

date is known as post dated cheque.

ESSENTIAL features of a cheque:-

1)A cheque is a Bill if exchange.

2)lt contains an unconditional order to pay a certain sum of money only.

3)A drawee in case of a cheque is

always a bank

4)It must be signed by the drawer.

5)The order must be to pay money only.

6)A cheque involves a three parties viz., drawer, drawee & payee.

7)A cheque is always payable on demand & it cannot be made payable

after a fixed period of time. 8)Acceptance of the cheque by the bank is not

required.

Distinguish between cheaue & bill of exchange:-

Points BOE

It can be drawn upon anindividual .is well as a bank.It need not always be payable

1. Drawer.

2_ Payable on demand It is always payable to beareron

on demand.• demand_ It require an acceptance of the3. Acceptance it does not require an acceptance. drze.‘ee.

a It requires a stamp.4: Stamp it does not require a stamp.

• A bill; unless payable On5. Grace of days It is not entitled to three days of

grace.demand is entitled to threedays of grace_

It can be crossed. „ _. .. It cannot be crossed, ._ ..._.

Notice of dishonour is not required. Notice of dishonour is usually7. Notice of

dishonour, required.

Its fixed form is honoured by a bank. There is no fixed form. -8. Form

Types of cheques:-

Cheques can be broadly classified into two categories i.e. a)crossed cheque iv.

b)bearer cheque. _A cheque may be crossed either specially or generally. A

cheque may bear past, present or future date. A blieqtle with a past date is known

as antidated cheque. A cheque with a future date is called a post dated cheque.

Bearer cheque:-

A bearer cheque is a cheque which is not crossed. It may or may not bear the name

of payee. A bearer cheque is thus payable to the bearer of the cheque & it can be

encashed at the cash counter of the drawee bank.

In other words a person who is in possession of such a cheque can encash it by

presenting it at the cash counter of the bank on which it is drawn. A bearer cheque

carries a risk in as much as in the event of it being misplaced or stolen any person

who gets possession of this kind of cheque can recover the amt. mentioned in it by

merely presenting it at the cash counter of the drawee bank. Thus an order to

reduce the risk involved in hearer cheque another type of cheque which is

commonly used in crossed cheque.

Crossed cheque:-

A crossed cheque is a cheque which bears two parallel lines on the face of it. The

advantage of a crossed cheque is that the bank does not make the payment at the

cash counter. The payee of such a cheque can recover the ar»t. only by presenting

the cheque through his bank to drawee bank for which he has to deposit his

cheque into his account.

On such presentation if the drawer bank is satisfied about the validity of the

cheque and if the cheque fulfills all the requirements'. if-there is sufficient

credit balance in the a/c of the drawer it may honour the cheque. On the

cheque being honoured by the drawee bank the amt. of cheque gets credited

in the payees a/c in his bank.

Thus the risk involved in a crossed cheque is 'much less than the risk involved

in the bearer cheque. Crossed cheque can be classified into three categories:-

1)A cheque crossed generally.

2)A cheque crossed specially.

3)A cheque crossed a/c payee.

1)A cheque crossed generally:-

A cheque is said to be crossed generally when it is one of the following types:-

(a) when it bears two parallel lineson the face of it.

(b) when it bears abbreviation & company between two parallel lines.

(c) when the word not negotiable is written between the two parallel lines.-

All crossed cheques are basically generally crossed. The important features of this

type of crossing is that cannot he encash at the cash counter of the drawee bank.

When a cheque is crossed not negotiable it doesn't meant that it cannot be

transferred but the tranferee.will not get better title than what the transfer has. 2)A

cheque crossed specially:-

It is a cheque in which in between the two parallel lines the name of the bank

through which the payment is to be made is mentioned with or without the word

not negotiable or account payee.This kind of crossing gives the direction to the

drawee bank to pay the amt. of the cheque only when it is presented through the

bank whose name is mentioned in between the two parallel lines .

In other words , the payee must present the cheque through the bank whose name

is mentioned in between the two parallel

3)A cheque crossed account payee:-

When in..between The two Orallef lines the word a/o payee Or a/c payee. only is

Mentioned it is called an ale payee crossing. In addition to the features of generally

crossing an a/c payee crossing has one more feature tlhat is the drawee bank cannot

make the payment to any other person but to the person whose name is nnentioned

in the cheque & it is because of this features of this type of crossing that it is called

restrictive crossing..

LAW IN RESPECT OF DISHONOUR:- -.

Cheque or insufficiency of finds in the afc of the drawee (section 138 read with

section 142 h of the negotiable instrument act 1881 as amended in 1988) or

bouncing of a cheque.

As per negotiable instrument act of. 1881 as amended in 1988 when any person

draws a cheque for payment of any amt. to pay off either whole or part of his debts

or liability is dishonoured by bank either because the amt, of money sending to the

credit of the a/c of drawee is insufficient to honoured the cheque or that it exceeds

the amt. to be paid from the a/c of the drawer as per the agreement made with the

bank

(overdraft facility saanted by the bank) The person is drawer shall,be deemed to have

committed an offense and shall be punished with imprisonment for a term which can be

intended to lyTs Or with fine which may be twice the amt. of cheque or with both.

however drawer of dishonoured cheque can be made liable in above circumstances

for the said offense only when the payee compiles with the folio\ .:-ng

requirements:-

1) He should have presented the cheque within the validity period of six months

from the date on which it is drawn.

2)He must give notice of dishonour by registered post to the drawer within a

period of fifteen days from the date of his receiving intimation from bank that the

cheque is dishonoured.

3)If drawer of such a cheque fails to make payment of amt. of cheque within

fifteen days of receipt of such notice of dishonour the payee must institute the

criminal proceedings within a period of lmonth after expire of next 15days within

which the drawer was required to make the payment as stated above.

A drawer cannot be made criminally liable as per this new provision if the above

requirements are not strictly compiled within by payee than the only remedy left to

payee is to file a civil suit similarly if drawer makes payment within 15days from

the date of notice by him he cannot be made criminally liable similarly a drawee

cannot be made criminally liable if the cheque is not given for payment of debts or

liability.

Bearer & ordered docoment:-

A negotiable instrument in which no name of the person to whom the payment is to

be paid-is mentioned is called a bearer instrument. In a bearer instrument name of

the payee is left blank & therefore it is payable to the bearer of the instrument i.e.

to any person who is in possession of such a bearer instrument A bearer

instrument can be negotiated or transferred by mere delivery of the instrument to

the transferee.

A negotiable instrument which clearly specifies the name of the payee i.e. the

person to whom the payment is to be made is called an ordered instrument.

An ordered instrument is payable only to the person whose name is mentioned in

the instrument or to the person in whose favor the instrument is validly transferred.

An ordered instrument can be transferred as negotiated by endorsement & delivery

i.e. to negotiate the order instrument, it must be first endorsed & than delivered to

the transferee.

DEMAND INSTRUMENT:-

Negotiable instrument payable on demand & not after a specified period of

time are called demand documents It may be one of the following type

(I)Cheque is always payable on demand therefore, cheque is called a demand

document.

(2) A HOE or a promissory note which is payable at sight or on presentment or

specifically made payable on demand is called a demand document.

(3) A BCE or a promissory note in which no time is mentioned is

called a demand document. ACCOMODATION OF BILL OF

EXCHANGE:-

Accommodation of bill of exchange is drawn & accepted without

consideration i.e. withont any transaction or existence of liability. It is

generally drawn & accepted to accommodate the drawer or to accommodate

both the drawer & the drawee in their financial difficulty. A person who accept a

HOE is ca-lied -a accommodation party. And the drawer from whom each bill is

accepted is called Accommodated party. -

• When an accommodation HOE is drawn & accepted the drawer of such a bill

is bound, liable to provide the accommodation party i.e. the acceptor with

sufficient funds as agreed upon in or before the due .deta to enable the acceptor to

honour the bill of exchange on the due date.

The rights & privileges of a holder in due course are in no way affected by an

accommodation of BOE & he is entitled to recover the amt. of the BCE fram the

accommodation party, the acceptor who may ultirrately recover from the

accommodation party i.e. the drawer. In other words an accommodation BOB

can be enclosed or negotiated first like an ordinary BCE.

Inchoate stain ed instrunrent-incorn lete stain ed instrument)

Inchoate stamped instrument means an Incomplete stamped N.I. When a person

signs a stamp paper ov a paper duly stamped in accordance with the provisions of

law relating to NJ. act and a stamp act & leaves it wholly or partly blank and

delivers the same to another person, he thereby gives prima facie authority to that

another person to complete the document.

An inchoate stamped instrument may be Incomplete either in respect of-date, amt.,

rime of payment or in- respect of name of the payee etc. The holder of the inchoate

stamped instrument is entitled to fill up the blank and complete document_

However, if the inchoate stamped instrument is incomplete in respect of amt. , the

holder of the instrument cannot fill up the amt. which cannoi rJe covered by the

value of stamps affixed there on.

In order to make the signatory liable on the document following conditions must be

fulfilled:-

I) An inchoate instrument should have been signed by the maker and

delivered to another person.

II) Such an instrument have been adequately stamped in accordance with

law in force at the time of delivery of such document

2) Before taking any action on the basis of such a document should be completed

by the holder.

3) The amt. to be filled in by the holder should not exceed the amt. which would

be covered by the value of stamps affixed on such document.

INLAND & FOREIGN INSTRUMENT:-

A promissory note, BOE, or cheque drawn or made in India and payable in India is

an inland instrument. Similarly, a negotiable instrument drawn or made in India

though payable outside India is an inland instrument provided a person who is an

Indian resident

Noting & protesting of an inland instrument when dishonoured is not compulsory

A RN, BOE, or a cheque drawn or made outside India & payable outside India is a

foreign instrument SiMilarly, a negotiable instrument drawn or made in India and

payable outside India on a person who is not an Indian resident is a foreign

instrument.

In absence of any contract to contrary the liability of the maker of foreign bill of

exchange, P.N. or a cheque is governed & regulated by law of the country where it

was made and liability of the acceptor and the endorser is governed by the law of

the place where it is made payable.

HOLDER

The holder of a promissory note or 130E or a cheque means any person who is

entitled in his own name to the possession:thereof & to receive & recover the amt.

due thereon from the parties liable on the instrument In other words, to call a

person holder of negotiable-instruments following 2 conditions must be fulfilled :-

1) He should be entitled to the possession of N.I. in his own name. -

2) He should have a right to receive & recover the aint if the instrument is in his

own name.

Thus, the holder need not have actual possession of instrument, It is sufficient if

he his entitled to have possession of instrument in his own name

for e.g.:- The legal heirs of the deceased holder of a bill of exchange c.ti claim the

instrument as the holder of the B4O.E. by operation of the law.

A holder of instrument should not only be entitled to have possession of that

instrument but his possession must be lawful possession. However it is not

necessary that he must pay consideration to get the possession of

the instrument i.e. even if a person gets possession of the instrument as & by way

of gift he can be called holder of the negotiable instrument.

V.V.Ilvil) HOLDER. IN DUE COURSE

It means any person who for consideration becomes the possessor of a P.N.. BCE,

or a cheque if payable to ! -bearer or a payee or a endorsee thereof is payable to

order, before the amt. mentioned in it becomes due for & without having sufficient

cost to believe that there exists defect in the title of the transferor from -whom

Thus , to cal/ a person holder in due course, it is necessaty- that the following

conditions are fulfilled. -

1) He should be a holder for consideration i.e. on payment of

consideration either he should become a possessor of a bearer instrument or

endorser or payee of an order instrument

2) The instnurient should have been transfer to him before-the date of

maturity i.e. before the amt. mentioned therein becomes due for payment

3) He Should be a transferee in good faith & he should have obtain the document

without any notice of defect title of the transferor. In other words, he must exercise

reasonable diligence to satisfy that the transferor has a valid 'tight to transfer the

document.

Thus, a holder in due course means a possessor of a bearer instrument or an

endorsee or a payee of an , order installment who comes into possession of the

instrument for consideration before the date of maturity of instrument in good faith

and after having taken reasonable precaution to satisfy himself that it is free from

any defects in title of the transferor-Thus a person who comes into possession of the instruments without

consideration or after the date of maturity or with the full knowledge of the defect

of the transferor is merely a holder of the N.I. and be cannot be called a holder in

due course.

RIGHTS & PRIVELEDGES OF HOLDER IN DUE COURSE :-

1) Holder in due course is protected against all defects in title of the

person from whom he derived his title In other words holder in due

course gets a better title to the instrument even if the title of the

transferor is defective_ a

2) A holder in due course is entitle to receive & recover the amt.

mentioned in the instruments is also entitled to tile a suit against all the

parties liable on the instrument.

3) The capacity of an acceptor of a DOE or a maker of a P.N. rrra

cannot be denied as against the holder in due course nor can they deny the

validity

of the instrument as originally made as against a holder in due course.

4) A N.I. which is made, drawn or endorsed without consideration, if

comes in the hands of holder in due course. Absence of consideration

cannot be preceded as against the holder in due course for e.z.

accommodation DOE.

DRAWEE IN CASE OF NEED ,11S

Drawee in case of need is the person whose name is mentioned in the BOE in

addition to the name of the drawee and he is to be dissorted to only in case of

need i.e. when the BOE is dishonoured either for non acceptance or for non

payment by the original drawee of the BOE . Thus, the position of the drawee in

case of need is like that of a guarantor or a surity i.e. he is not actually liable on the

BOE, but he gives the guarantee that the original drawee will honour the BCE &

further undertakes that if the BOE is dishnoured by the original drawee he will

honour the BOE , when the name of the drawee in case of need is mentioned in

the BOE, it is obligatory on the part of the holder of the DOE to give.notice of

dishonour to the drawee in case of need to make him aware of the fact of

dishonour. If the holder fails to gives such a notice of dishonour, to the drawee in

case of need within a reasonable period, he shall be deemed to have discharged the

drawee in case of peed from the liability on the BOB.

ENDORSEMEIVT:- (Section 15)

The NI. act of 1881 defines endorsement as " when the maker or the holder of

the N.I.signs the same otherwise that as maker for the purpose of negotiation on

the back or on the face thereof or on a slip of paper annexed there to or so sign for

the same purpose a stamp paper intended to be completed as an negotiable

instrument, he is saidio have eT;dorsed the same & he is called a endorser ".

A person who endorses a negotiable instrument is endorser. A person in wthose

favour endorsement is made is called endorsee. & the act of signing a negotiable

instrument for the purpose of negotiation is called endorsement.

Following are condition for valid endcrsernent :-

1) A endorsement can only made by maker or holder of a negotiable

instrument. They include following parties to the instrument. Drawer of

BOB. , payee or endorsee of NJ. , holdenin due course.

When the there are more than one drawer or holder who are not partner,

all of them are required to sip the document jointly .However, when a

partnership firm is the holder of a negotiable instrument any partnei who is

duly authorized can endorsed a negotiable ientrument

2) It must be signed by the maker, as holder otherwise than as maker i.e.

otherWise then in the capacity of a maker.

3) An endorsement should be made on the back or on the face of

instrument or on a slip of paper annexed there to which is called

allonge or on a stamp paper which is intended to be completed as a

negotiable instrument.

4) 11 should be made with an intention to transfer not only the document

in favour of endorsee but also to transfer all rights to the document in

favour f endorsee including the rights to recover the amt. mentioned in

the document.

5) Endorsement is complete only on delivery of instrument to endorsee.

6) the NI. act has not prescribed any particular form of writing for an

endorsement. The only requiremtat in that the words used for it must

clearly indicate intentions of endorser to transfer the instrument in favor

of endorsee together with all rights of instrument.

\

On the endorsement, being duly completed by delivery of instrument, it not

only transfers instrument in

favor of transferee but also confesses upon transferee all rights of instrument and

also the right to further transfer the instrument

However, the endorser may by specific words restricts or exclude some of the rights of

endorsee. KINDS OF ENDORSEMENT :-

1) GENERAL OR BLANK ENDORSEMENT :-

An endorsement is said to be blank or General when the

endorser signs the document for the purpose of negotiation without writing

the name of endorsee (transferee).

A NJ. endorsed in blank is like a bearer instrument & any person who is

in possession of such an instrument is entitled to receive the amount

mentioned in the document.

In other words a N.J. endorsed in blank, is payable to the bearer of the

instrument even if it was originally an order instrument.

FOR E.G.:- A B.O.E. which is payable to ' B' can be endorsed by 'B', by

making a blank endorsement as under i.e. without writing the name of the

transferee which Will have the effect of converting an order doc. in to a bearer

doe.

TRANSFER TO Mr.

SD ( B )

A NI. which is endorsed in blank can be converted into full or special

endorsement by the endorsee without making any fresh endorsement &

without signing the instrurnent just by adding the name of the transferee in the

blank space above the signature of the endorser who has made blank

endorsement.

Thus, in the above e.g. if Mr. C is in the possession of the DOE with the blank

endorsement made by Mr. B, he can transfer the same to Mr. D without

making a fresh endorsement just by adding the name of Mr. D above the

signature of Mr. B.

TRANSFER TO Mr.

SD!- '( B )

2) FULL OR SPECIAL ENDORSEMENT :-

When a maker or a holder of a N.j . signs the N.I. for the purpose of

negotiation & also gives a specific direction to pay the amt. mentioned in the

instrument to a specified person or his order, it is called a full or special

endorsement

In other words, full or special endorsement is one in which the maker or

the holder in addition to his signature & the writings also specifies the name of

the person in whose favour the instrument is endorsed i.e. the name of the

endorsee for e.g, a BOB which is payable to Mr. B can be endorsed by Mr. B

by making fall endorsement i.e. by writing the name of the transferee.

For e.g. Mr. C

Transfer to Mr. C

SD /- ( B)

When a negotiable instrument is endorsed in full, the amt. of the

instrument cannot be claimed by any person except by the person in whose

favor it is validly transfer by the endorsee.

Thus, a N.J. which is a bearer instrument can be converted into an order

instrument by making full or special endorsement.

------- A N.I. , which endcnsed in blank can be converted in full or special

endorsement by the endorsee without making any fresh endorsement and

without signing the same just by adding the name of the transferee in the blank

space above the signature of the endorser who has made the blank

endorsement.

3) PARIZ4L ENDORSEMENT :-

No form of writing in the nature of endorsement is valid if it only transfer

a right to receive part of the amt. mentioned in the instrument. However, the

instrument is partly paid and the fact of such payment is recorded on the

instrument it can be endorsed for the balance amt. of the instrument which

remains unpaid.

4) RESTRICTIVE ENDORSEMENT - ( R. E. )

R.E. is one which prohibits farther negotiation of the inst-

ument.Thus, an endorsement is RE. when it by expressed words restricts the

negotiability of the instrument. The effect of R.E. is that it puts

- an end to the negotiability of the instrument and the person in whose favour it is

endorsed can only recover the amt. of the instrument.

For e.g. :- Transfer to Mr. A only.

5). CaND1770NAL OR QUALIFIED ENDORSEMENT

An endorsement is said to be conditional Or qualified when it is subject to

certain conditions.

The most common type of conditional or qualified endorsement is called "

SAN RECOURSE ENDORSEMENT

San recourse means without recourse. By writing such words the

endorser makes it very clear to the endorsee that he will be not be held liable

in the event the instrument is dishonoured.

Thus, when the instrument is endorsed with San recourse endorsement,

& it is dishonour the holder of such instrument cannot make the endorser

who had made San recourse endorsement liable on the instrument. Thus

by making a San recourse endorsement the endorser excludes his

liability on the instrument

6) FACULTATIVE ENDORSEMENT (F .E .)

When an endorser expressly gives up some of its rights on the

negotiable instrument, by making endorsement ,the endorsement is called

facultative endorsement.

For e.g. :- When an endorser by an endorsement gives up his right to

receive the notice of dishonour it called as F.E. Because under NJ act he has right

to receive the notice of dishonour when the instrument is dishonoun But by making

such an endorsement, the endorser gives up some of his rights to receive the notice

of dishonour a thereby relieves, the endorsee from his duty to give notice of

dishonour. In. other words, endorser increases his J iabil on the endorsement.

Therefore it is called FE.

NOTICE OF DISHONOUR(Section 93 to 98)

Notice of dishonour means a formal communication of the facts of

dishonour. The object of giving notice dishonour is not to demand payment but to

inform parties to the instrument that the instrument is dishonoured. Th when a NJ .

is dishonoured either for non acceptance or for non payment the holder must give

notice of dishonour all the parties liable on the instument.

Such notice of dishonour must clearly state the following facts :-

I) The fact that the instrument is dishonoured.

2) Whether the instrument is dishonoured for non payment.

3). The person to whom the notice is sent will be held liable of the

instrument.

If the holder fails to give such a notice of dishonour to the previous

transferor, the transferor's star discharged from their liabilities. The notice Of

dishonour can be given only by the parties to the instrument. Notice of

dishonour is not necessary in following cases :-

1) It is not necessary to the maker of the promissor:, note to the acceptor of BOE or

to a drawer of a che-que, as they the person primarily reliable to the instrument:

Aowever, the notice of dishonour must be given to the drawer of cheque if he is

to be made criminally liable as per the new provisions.

2) It is not necessary when it is dispensed by the person entitled to receive the

notice.

3)/t is not necessary when the parry entitled to receive the notice cannot be

found after the diligent search ( Research ).

4) It is not necessary for the drawer of the cheque who has instructed the bank to

stop payment of the cheque.

5) It is not necessary for the endorser who has made San Recourse Endorsement.

6) It is also not necessary where the endorser has endorsed the instrument by

making Facultative Endorsement i.e. when he has expressly given up his right

to receive notice of dishonour at the time of endorseuient

. . .

IVCTING AND PROTESTING :- (Section 99 to 104A)

NOTING :- When a promissory note or a BOE is dishonoured the

holder may after giving notice of dishonour may file a suit against the party

liable on the instrument. But before doing so he may get the facts of

dishonour authenticated by a notary public.In other words; he may

request a notary public to male a demand on his behalf from the person

ultimately liable on the instrument. If the person so liable refuses to accept

or make payment dispite of it being presented by the notary public, the

notary public will note tile fact of dishonour on the instrument or on a

piece of paper next to the instrument. This act of the notary public of

recording the facts of dishonour on the negotiable instrument is called the

noting of the NJ. Such noting should be made within the reasonable period

of time after the instrument is dishonoured.Noting must specify the date, the

reason of dishonour if any and the noting charges,

Noting is not necessary in case of promissory note or an inland

BOB. however, it is compulsory in case of foreign BOB.

Noting is an important piece of evidence to prove that the document is

actually dishonoured.

PROTEST :-

When an N.I. is dishonoured and is noted by the notary public he may

issue a separate certificate to that effect, such a certificate is called a

protest Thus, protest is a notorial formal certificate attesting the fact of

dishonour & is based on the noting made by the notary public.lt must bear

sufficient notorial stamps, seals & the sign of the notary public.

PAYMENT IN THE DUE COUR.SE :-

When the payment is made by person who has to honour the

instrument, in accordance with oceurance tenure of the instrument in

good faith & without negligence to any person in possession of the

instrument, the payment is said to be made in due course & the payment

in due course will discharge the party from his liability on

thecinsuument.

In other words, a party is discharged from his liability only

when he makes the payment in due course only when the foil,

conditions are satisfied :-

1) Payment should be in accordance with the occurance tenure of the instrument.

2) Payment of the instrument should be made by on behalf of the drawee, on the

acceptor or the maker.

3) Payment must be made in money only unless the parties have agreed to receive

the payment by ether N.I.

4) The person to whom the payment is made should be entitled to receive the payment

on the document & should be able to give valid discharge from the liability on the

instrument.

5) Payment should be in good faith & without any negligence to the person in

possession of the instrument -without any doubt about his right to receive the

amount mentioned in the instrument.