Negotiable Instrument Act, 1881 - PowerPoint Presentation

Slide1

Negotiable Instrument Act, 1881

-

Anusha

M.V

Assistant Professor

Slide2

Promissory Note

Sec. 4: “

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

.

Slide3

Illustrations:

A Signs instruments in the following terms:

(a ) “I promise to pay B or order Rs. 500.”

(b) “I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for value received.”

(c) “Mr. B, I O U Rs. 1,000.”

(d) “I promise to Pay B Rs. 500 and all other sums which shall be due to him.”

(e) “I promise to Pay B Rs. 500, first deducting there out any money which he may owe me.”

(f) “I promise to Pay B Rs. 500 seven days after my marriage with C.”

(g) “I, promise to Pay B Rs. 500 on D's death, provided D leaves me enough to pay that sum.”

Slide4

Requisites of promissory note

1. Promissory Note must be in writing.

Exclude an oral engagement to pay form purview of the Act.

It may be handwritten or typed and may be in any language.

It may be written on a paper or cloth or any other material that can be used for such purposes.

It is not necessary to use the word promise.

No particular form of writing is necessary for the validity of promissory note.

Slide5

To find out whether a particular document is promissory note –

Surrounding Circumstance under which it came to be executed.

Intention of the parties manifest from language of the instrument read as a whole.

Where the document is in the form of an acknowledgement coupled with a promise to pay by a particular day, it is a promissory note though stated as

hundi

.

Thus mere nomenclature given to instrument does not determine the nature of instrument.

Slide6

Negotiable instruments include promissory notes: but an instrument to be known as promissory note need not be negotiable instruments.

Sec. 4 did not lay down any rule that an instrument in order to be promissory note must be negotiable.

2. A promissory note must contain an undertaking to pay.

A mere acknowledgement of indebtedness without an express promise to pay the debt is not a promissory note.

Examples:

I have received Rs. 1000/ which I have borrowed from you, and I have to be accountable to you for the same with interest.

Slide7

Deposited with me Rs. 2000/ to be returned on demand.

A holder, who sues on demand instrument without having first demanded payment thereon, may have to bear cost of the action, if debtor shows that he is ready and willing to pay.

A promise to pay on demand necessarily implies a promise to pay.

A promissory note need not be payable on demand. It may be made payable on a fixed future date or on expiry of a specified date.

Promise to pay at certain place…

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3. the promise to pay should be unconditional

If a payment is contingent upon the happening of an uncertain event, it would be invalid even if the event occurs before the expiry of period fixed for the performance of the obligation.

A letter requesting a loan stating that the amount lent would be repaid is not promissory note.

Examples

of instruments not held as promissory instruments:

An instrument containing a promise to pay an settlement of account when litigation comes to an end.

I promise to pay on demand at my convenience.

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I promise to

Ramesh

of Rs. 500 out of money due to me from Suresh as soon as Suresh pays.

A note contained an undertaking to pay on or before specified date and the actions on the note is subject to jurisdiction of India and Singapore, is an unconditional undertaking.

A promise to pay the amount after receiving a months notice held to be an unconditional promise.

A note is not invalidated by a default clause that allows the

promisee

to realize the amount from certain properties of

promissor

, in the event of default to pay.

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4. promissory note must be signed by the maker

5. maker must be certain

Clear indication as to who undertakes to pay.

A promissory note may be made by several persons jointly or jointly and severally.

Where a note is made in the form: I promise to pay and is signed by A & B, it is deemed to be made by them jointly and severally liable.

I promise to pay A Rs. 1000 & all fines according to rule.

Where the rate of interest was not mentioned, a rate of six percent would be applicable under S. 80 of the Act.

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7. Instrument must contain a promise to pay money and money only

An agreement to containing an undertaking other than to pay money cannot be a

pronote

.

A document containing a promise to pay money in a currency, which is not that of a country where note is made & payable notwithstanding that is a

pronote

.

8. payee must be certain

Where a debtor made an entry of receipt of money in creditor’s book & stated that the borrowed money by him would be repaid on certain date, without stating as who was to be payee

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a

pronote

can not be made payable to the maker himself.

the requirement as to certainty of the payee does not apply if the note is payable to bearer.

however u/s. 31(2) of RBI Act, 1934, no person in India except the RBI or Central

Govt

as expressly authorized by the Act shall make or issue note payable to bearer.

It is usual and proper to state in a note the place where it is made. However omission to do so does not make instrument invalid.

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An undated instrument is deemed to have been dated on date of delivery.

S.5. “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.

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Requisites of Bill of Exchange

1. Bill of Exchange must be in writing.

2. Bill of Exchange must contain an order to pay.

3. the order contained in bill is unconditional.

4. Bill of Exchange must be signed by the drawer.

5. The

Drawee

must be certain.

payable at

certain place

bill

cannot be addressed to two or more

drawees

in the alternative.

Slide15

P.

Chandrabose

v.

C.

Gopalan

2008

CrLJ

953 NOC Mad.

Accused had handed over

duely

filled withdrawal slip to the complainant & the same was

dishonoured

.

It was held that withdrawal slip is not a

cheque

as it cannot be used in

favour

of any person other than the account holder.

It is not a negotiable instrument as it can not be negotiated.

Hence accused cannot be prosecuted for offence under S.138 upon a withdrawal slip being

dishonoured

due to insufficient funds.

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Death of the drawer of the

cheque

Vijay Singh & Ors.

v.

Manali

&

Malik

& Ors.

If the

cheque

was not presented during the life time of the drawer, it ceases to be a

cheque

after demise of the drawer since it ceased to be an order to be an order of a person entitled to make order to the bank to pay the money.

Slide17

7. “Drawer.” “

Drawee

”.—The maker of a bill of exchange or

cheque

is called the “drawer”; the person thereby directed to pay is called the “

drawee

”.

“

Drawee

in case of need”.— When in the Bill or in any endorsement thereon the name of any person is given in addition to the

drawee

to be resorted to in case of need, such person is called a “

drawee

in case of need.”

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“Acceptor”.—After the

drawee

of a bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the “acceptor”.

“Acceptor for honour”.— When a bill of exchange has been noted or protested for non-acceptance or for better security, and any person accepts it supra protest for honour of the drawer or of any one of the

indorsers

, such person is called an “acceptor for honour”.

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“Payee”.—The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the “Payee”.

In

Pratap

Singh

Yadav

&

Anr

.

v.

Behari

Pandey

son has issued a

cheque

to discharge debt of his father.

Upon

cheque

being returned dishonored, complaint U/S.138 is filed against the father as well as son.

Slide20

It was held that only son was liable & not father since offence U/S. 138 is essentially against the drawer of the

cheque

.

A conjoint reading of S. 7 and S. 138 clearly indicates that it is only the drawer of the

cheque

who can be held responsible for offence under S.138.

Slide21

In a case, allegation was that the accused gave a

cheque

.

There was no proof of the fact that the

cheque

was drawn and executed by accused.

It was held that execution is different from issuance of

cheque

.

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Acceptance:

The acceptance of bill of exchange is the signification by the

drawee

of his assent to the order of the drawer..

Where the

drawee

writes on a bill accepted but does not sign it, it not an acceptance.

The

drawee

of the bill is not liable on the bill in

the acceptance

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An acceptance by the

drawee

to perform his promise by means other than by the payment of money is invalid.

For instance a bill is drawn by A on B for Rs. 5000. B accepts it as payable in bills or payable in goods. This is not a valid acceptance.

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Holder

S.8. “Holder”.—The “holder” of a promissory note, bill of exchange or

cheque

means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.

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Where the note, bill or

cheque

is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.

Essentials:

Entitled to possession in his own name.

Right to receive or recover the amount due

Slide26

The Bill of Exchange Act, 1882

holder means the payee or

indorsee

of a bill or note who is in possession of it, or the bearer there of.

Comparison:

While possession is essential in case British legislation.

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A person may be entitled to possession of the instrument although he does not actual possession.

Example, where the bill is payable is without

indorsement

, entrusted by the payee to his agent, agent does not become the holder & the payee is entitled in his own name to the possession of the bill.

The holder of an instrument should be owner thereof.

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Holder means only a

dejure

holder

& not

de facto

holder.

the assignee of a note or bill is not a holder, unless the instrument is indorsed in his

favour

or payable to bearer & in his possession.

Right to recover or receive implies that he has right to sue on the instrument.

Holder does not include a person who does not have a right to recover the amount due thereon from the parties thereto, though he is possession of the instrument.

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To qualify as a holder, a person should have derived title to the instrument in a lawful manner.

A person who takes instrument from a person, who forges an

indorsement

or from thief or from a finder of a instrument or

a payee or

indorsee

, who is prohibited by the court order from receiving the amount is not a holder.

Slide30

A, a debtor of B, executed a note in

favour

of C in discharge of B’s debt to C.

it was held that C could sue A on the note & A could not avoid liability by pleading that he had only executed the note on

behaf

of B &

later repaid debt to B.