Harshini Law

8/4/2019 Harshini Law

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March 2, 2011 [LAW ASSIGNMENT 02]

PART-A

A negotiable instrument is a document guaranteeing the payment of a specific amount of

money, either on demand, or at a set time. According to the Negotiable Instruments Act, 1881 inIndia there are just three types of negotiable instruments i.e., promissory note, bill of exchange

and cheque.

To be precise, A Negotiable Instrument means a

promissory note, bill of exchange or cheque payable

either to order or to bearer.

Explanation (i).-A promissory note, bill of exchange orcheque is payable to order which is expressed to be so

payable or which is expressed to be payable to a

particular person, and does not contain words

prohibiting transfer or indicating an intention that itshall not be transferable.

Explanation (ii).-A promissory note, bill of exchange or cheque is payable to bearer which is

expressed to be so payable or on which the only or last endorsement is an endorsement in blank.

Explanation (iii).-Where a promissory note, bill of exchange or cheque, either originally or by

endorsement, is expressed to be payable to the order of a specified person, and not to him or hisorder, it is nevertheless payable to him or his order at his option.

(2) A negotiable instrument may be made payable to two or more payees jointly, or it may bemade payable in the alternative to one of two, or one or -some of several payees.

Section 118 - Presumptions as to Negotiable Instruments

Until the contrary is proved, the following presumptions shall be made:(a) of consideration. - that every negotiable instrument was made or drawn for consideration, and

that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was

accepted, indorsed, negotiated or transferred for consideration;(b) as to date. - that every negotiable instrument bearing a date was made or drawn on such date;

(c) as to time of acceptance. - that every accepted bill of exchange was accepted within a

reasonable time after its date and before its maturity;(d) as to time of transfer. - that every transfer of a negotiable instrument was made before its

maturity;

(e) as to order of indorsements. - that the indorsements appearing upon a negotiable instrument

were made in the order in which they appear thereon;

(f) as to stamp. - that a lost promissory note, bill of exchange or cheque was duly stamped;(g) that holder is a holder in due course. - that the holder of a negotiable instrument is a holder in

due course;Provided that, where the instrument has been obtained from its lawful owner, or from any person

in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker

or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden ofproving that the holder is a holder in due course lies upon him.
http://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Cheque


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Promissory Note

Promissory Note is defined in Section 4 of the Negotiable Instruments Act, 1881. It is an

instrument signed by the maker containing an unconditional undertaking to pay a certain sum of

money only to the order of a certain person.

A bill of exchange

A bill of exchange is defined under Section 5 of the Negotiable Instruments Act, 1881. It is aninstrument containing an unconditional order, signed by the maker, directing a person to pay a

certain sum of money only to the order of a certain person or the bearer

The general differences between a promissory note and a bill of exchange are as follows:1. Number of Parties

In a Promissory Note there are two parties. In a Bill of Exchange, there are three parties.Partiesin a promissory note are called maker and payee while in Bill of exchange there is drawer,drawee and payee.

2. Nature of the Instrument

In a promissory note there is a promise to make the payment by the maker to the payee at acertain time. It is called an unconditional undertaking. In a Bill of exchange, it is an

unconditional order to make the payment.

3. Nature of liabilityThe maker of the promissory note has primary liability. If the payee demands the maker has to

pay directly to him. In a Bill of exchange, the drawee has the primary liability. In case of a

cheque which is a bill of exchange, the bank has to honour the cheque. The drawer will be liable

in case the bank dishonours the cheque for some reasons.4. Self-payment

As the promissory note has only two parties, one cannot make it payable to himself. But in a bill

of exchange, the drawer can make payment to the drawee of the instrument.

There are also other differences noted in some texts. But the above are the basic differencesbetween a promissory note and a bill of exchange.

CHEQUE

A cheque is a document/instrument that orders a payment of money. The person writing the

cheque, the drawer, usually has a chequing account where their money was previously deposited.

The drawer writes the various details including the money amount, date, and a payee on thecheque, and signs it, ordering their bank, known as the drawee, to pay this person or company

the amount of money stated.
http://en.wikipedia.org/wiki/Transactional_accounthttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Transactional_account


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Cheques are a type ofbill of exchange and were developed as a way to make payments without

the need to carry around large amounts ofgold and silver. Paper money also evolved from billsof exchange, and are similar to cheques in that they are a written order to pay the given amount

to whomever had it in their possession.

Dishonour of cheque

On dishonour of a cheque the drawer is punishable with imprisonment

for a term not exceeding two years or with a fine not exceeding twice the amount of thecheque or with both, if the following conditions are fulfilled:

(i) If the cheque is returned by the bank unpaid due to insufficiency of funds in the account

of drawer

(ii) If the cheque was drawn to discharge a legally enforceable debt or other liability.(iii) If the cheque has been presented to the bank within a period of six months from the date

on which it is drawn on or within the period of its validity, whichever is earlier.(iv) if the payee or the holder in due course of the cheque has given a written noticedemanding payment within 30 days from the drawer on receipt of information ofdishonour of cheque from the bank.

(v) If the drawer has failed to make payment within 15 days of the receipt of the said notice.

(Section 138)(vi) If the payee or a holder in due course has made a complaint within onemonth of cause

of action arising under Section 138 (Section 142)
http://en.wikipedia.org/wiki/Negotiable_instrument#Bill_of_exchangehttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Silverhttp://en.wikipedia.org/wiki/Banknotehttp://en.wikipedia.org/wiki/Banknotehttp://en.wikipedia.org/wiki/Silverhttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Negotiable_instrument#Bill_of_exchange


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ANALYSISAccording to The Negotiable Instrument Act,1881.

SITUATION ILIABILITIES OF THE DRAWER (JEEVAN):-

(Sec 30) Liability of drawer. This states that the drawer of any cheque or bill of exchange

is bound to pay the title holder, and in case of dishonor by the drawee he is liable to

compensate to the title holder, on a condition that a prior notice of dishonor has been

received by, or given to the drawer.

Here, Jeevan is liable to pay the compensation as well as full amount as mentioned in the

promissory note to Preetam only if he issues the notice of dishonor to Jeevan. Also, when Jeevan

made the cheque and presented to Preetam he did not have sufficient balance in his account

hence bank is not liable to Preetam and he take action against Jeevan.

Jeevan, in no case can discharge his liability as he did not mention without recourse on the

negotiable instrument before handing it over to Preetam and hence he is directly liable to pay to

Preetam.

LIABILITIES OF THE DRAWEE (BANK):-

(Sec 31) Liability of drawee. This states that the drawee of a cheque having sufficient

funds of the drawer in his hands properly applicable to the payment of such cheque

must pay the cheque when duly required so to do, and, in default of such payment,

must compensate the drawer for any loss or damage caused by such default.

The drawee of the cheque has to be a banker. And in default of any payment, the banker

(drawee) is responsible and is liable to compensate the drawer for any damages or loses

caused due to the same to the drawer.


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Here, the banker failed to pay to the amount mentioned in the cheque but when Jeevan made the

cheque in honor of Preetam, his bank account held insufficient balance to pay the cheque fully

and also he did not request for an overdraft to make the full payment. Hence, the liability of the

banker is only limited to the drawer and not towards the payee, therefore the drawee (banker) is

not liable to Preetam.

Conclusion:- Jeevan is solely liable.

SITUATION IIThe Procedure Swaraj needs to follow in order to get his money from Honda :-

Honda has not been able to make payment even on commitment given by them. The payment is

due by them. Honda committed to make the payment of both consignments jointly, considering

which Swaraj sent them the goods, but still the payment is due hence:-

Swaraj shall send a legal notice to Honda for the dishonor of the cheque under section138 (negotiable instrument act, 1881). The notice has to be sent to Honda within one

month after receiving information from his banker.

A span of 15days has to be given to Honda after receiving the notice for nonpayment. Even after receiving the notice if Honda fails to make the payment within 15 days,

Swaraj has the right to file the complaint against Honda in the court of Magistrate.

DEFENCE IN CASE OF DISHONOR OF CHEQUE:-

There is no defense in case of dishonor of cheque but the only argument Drawer can state

that is the signature on the cheque is forged

Or, if the cheque was lost and has been misused.

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