Negotiation Sec- 14 Negotiation is a transfer of an instrument - PowerPoint Presentation

Negotiation Sec- 14 Negotiation is a transfer of an instrument from one person to another in such a manner as to express title & to represent the transferee the holder thereof. In simple words Negotiation means transfer of a NI by one person to another in order to make the transferee the holder of the instrument.Negotiation by delivery- Transfer of Bearer Negotiable Instrument by delivery which should be Voluntary. Negotiation by Endorsement & Delivery- An Order instrument can be negotiated only by way of Endorsement & Delivery.After Effect of Endorsement-Property is transferred to the endorseeEndorsee get right to negotiate the instrument, sue on instrument © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal 1

When a maker or holder writes the person’s name on the face or back of the instrument or on the slip of the paper annexed to NI&puts his signatures thereto for the purpose of negotiation, it is called ‘endorsement’.For eg- When an employer signs a check, they are endorsing the transfer of money from the business accounts to the account of the employee. Endorsement Sec- 15 Essentials of valid endorsement © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal2On the back or face of the instrument. i.e WritingMust be made by maker or holder. i.e Prepared by HolderMust be properly signed by the endorser.i.e Signed

Negotiation Back- sec 90 © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal3If a NI is negotiated by the Holder but the Endorser again becomes the holder of Such Negotiable Instrument again then it called Negotiation Back. For e.gA  B B  C C  D D  B Here B is the person who is the prior party to the Instrument.The Holder cannot enforce payment against an Intermediary party to whom he was previously liable thus B can not sue C or D but it can sue AAssignmentAssignment of a NI means transfer of ownership of the instrument from one person to another (assignor to assignee).

B a sis © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal 4 Negotiation Assignment Applicable Act Negotiable Instrument act’1881 Transfer of Property Act Meaning Negotiation means transfer of a NI by one person to another in order to make the transferee the holder of the instrument. Assignment of a NI means transfer of ownership of the instrument from one person to another (assignor to assignee). S c ope For Transferring NI only For Transferring Right Notice No Notice Required Notice must be given by Assignee to Debtor Stamp Duty No Stamp Duty Required Stamp Duty Required Presumption It is Presumed that every Negotiation is made for some Consideration. No such Presumption. Manner It can be negotiated by way of delivery or order or both Valid only if it is made in Writing and Signed Burden of Proof The Other Party has to prove that negotiation was without any consideration The Assignee has to prove that there was some consideration.

Holder-sec 8 A Holder in Due Course means a holder- who takes the instrument bona fide- forvalue -before it is overdue, and without any notice of defects in the title of the person, who transferred it to him.The holder of a N.I. means any person entitle to the possession of the instrument in his own name and to receive the amount thereon from the parties liable thereto. Basically we can say thatHe must be entitled to Possession of Negotiable Instrument in his own nameHe must be entitled to Receive or recover the amount due on such instrument.Holder in Due Course-sec 9 Basis Holder Holder in Due Course © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal 5 Only if he obtains NI for Consideration Only before Maturity Can Sue all the prior Parties Consideration Not Necessary Maturity Before or After Maturity Right to Sue Cannot sue all prior parties Privileges Less Privileges' than HDC More Privileges than Holder Good Faith Holder even if he obtains NI other than in Good Faith HDC only if he obtains NI in good Faith

Privileges of a Holder in Due Course**IMPT© 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal6A Holder who derives title from HDC has the same right as that of HDC. (Sec 53)Every prior party to NI is liable to a HDC. (Sec 36)HDC can claim full amount of the NI (Not exceeding amount covered by Stamp) even though such amount is in excess of the amount authorised by the person delivering an Inchoate NI (Sec 20)No Prior party can allege that NI was delivered conditionally or for a special purposeonly. (Sec 46)No prior party can set up a defence that the NI was drawn, made or endorsed by him without any Consideration. (Sec 43)The Person liable in NI cannot set up against the HDC the defences that the instrument had been lost or obtained from the former by means of an offence or fraud or unlawful consideration. (Sec 58)

Mandatory Grounds for Bank to Dishonour ChequeStop PaymentDeath of CustomerPost Dated ChequeInsolvency of CustomerDefect in Title Of HolderUndated Cheque Signature Mismatch Stale ChequeClosed Bank Account Insanity of Customer Altered ChequeDefect in Title of HolderLoss of Cheque OPTIONAL Grounds for Bank to Dishonour ChequeMiss Sita cannot recover the money from Mr. Ram.Insufficient FundsPresentation at Different Branch Presentation after Banking HoursFunds Not Applicable. Non Presentation of Cheque within Reasonable Time Sec 84 If the drawer has sufficient fund in his bank Account and issues a cheque in favour of Creditor and the Creditor fails to present the cheque for payment within reasonable time and in the meanwhile bank fails (Insolvent) then the Creditor cannot recover the amount from the Drawer. For e.g Mr Ram issue cheque of Rs. 1,00,000 to Miss Sita . Mr Ram had Sufficent Fund in the account with Bank.The Cheque was not presented within reasonable time to the Bank for paymment and the bank in themean time become insolvent. Thus is yhis case 29

Notice- demanding payment within 15 days; Cheque must be present within validity period; Payment should be for discharge of liability; © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal 8 Dishonour due to Insufficient funds; Bouncing of Cheque sec 138 to 142 Dishonour of Cheque due to Insufficient Fund is an offence. The Drawer is Punishable with Maximum Imprisonment of 2 Years or Amount equal to the two times(Maximum) of Cheque amount or both. However in order to attract following Condition need to be satisfied- Complaint within 1 month to Court If Payment is made otherwise than to Discharge Liability then it will not attract liability u/s 138 . For e.g. a person gift a cheque of Rs. 100000 s a gift and later on the Cheque get bounced. Then it will not attract liability under this section.

Material Alteration- sec 87 © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal9An alteration (Cherkhani karna) is called as material alteration if it alters-The Legal Effect of NIThe Rights and Liabilities of any of the parties of to a NI.Alteration can be-Crossing of ChequeFilling Blanks of Inchoate InstrumentConversion of Blank Endorsement into Full. Conversion of Bearer Instrument into Order Instrument.Conversion of General Crossing into Special Crossing.Effects-All parties to the NI not consenting to the material alterations are discharged and jisne kiya who gaya…For eg- A bill payable to Mr A was converted to Payable to Mr A & Mr. BThe Holder of Bearer Cheque convert it into A/c Payee Cheque

Acceptance- sec 7 When Drawee draws a bill and the Drawee delivers it to the holder of the bill or givesnotice of acceptance to the holder of the bill then it is termed as Acceptance.It should beWrittenSignedDelivery or Intimation to the holder that the bill has been accepted. General Acc eptance: When the drawee, while accepting the bill, does not attach any condition or qualification to it, it is called general acceptance.Qualified Acceptance The acceptance is qualified when it is given subject to some conditions or qualifications © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal 10 : The Holder of the bill may object to the Qualified Acceptance resulting in Automatic Dishonour of Bill due to Non Acceptance. If he give his consent to Qualified acceptance then all prior parties not giving consent will be discharged.

Liability in case of Fictitious Name sec 42An acceptor Of BOE which is drawn in FICTITIOUS NAME andPayable to the Drawer’s Order IS NOTRelieved from the Liability to any HDC by reason that such name is Fictitious.Moti moti baate aisa samajha jaye ki Ram ne shyam ke upar bill draw kiya lkn ram ne apna naam nhi likh kar Sita ka naam kar diya… yeh Bill Sita ke order pe payable tha… Shyam ne yeh bill accept kar liya….Ram ne yeh bill Ravan ko Endorse kar diya…. Ab Shyam apni laibility se bhaag nhi sakta is fact pe ki yeh bill sita ke farzi naam pebana hai…kyk usne yeh bill accept kiya hai…aur ravan ko usse karz chukana padegaSuppose: X uses a fictitious name in drawing a bill upon Z. Then he endorses the bill in the same fictitious name to Y, who presents the bill to Z for acceptance. Now if Z accepts the bill, he will be liable for payment in spite of fact that the name of drawer is fictitious. © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal 11

that the acceptance is by writing on the bill.that the acceptance is for the honour of any party already liable on the bill, and The acceptor for honour is not already liable on the bill,Acceptance has been made with the consent of holder, That the bill has been noted or protested for non acceptance or better security, Acceptance For Honour sec 108 Acceptance for honour means the acceptance given by some stranger when the original drawee refuses to accept or to give better security when demanded by a notary. The stranger may accept the bill of the honour of any party already liable thereto. Such stranger is called an acceptor for honour or acceptor supra protestConditions- © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal12The party who accept the bill for honour will be liable to pay the amount if the person on whose behalf he accepts the bill and he can recover the same form that party.

Payment For Honour sec 108 Just as a bill may be accepted for the honour of a party to bill, it may also be paid for the honour of a party liable to pay the bill. After payments he can recover from that person or any party prior to him.Notice OF Dishonour Sec 93Notice Of Dishonour need to be given by the holder or any of the parties to the instrument. Any party receiving notice must also transmit the same to all prior parties. Othe rwise he can not sue any prior party, if notice has not transmitted. Dispensed with by an express waiver , Party charged would not suffer damage Party not found after due search , When drawer is accepter , Accidental omission , In the case of a PN which is not negotiable, Party promises to pay unconditionally. Cases where Notice for Dishonour is not Required- © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal 40

Notice to Be Given to © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal14To all parties (other than the maker of a note, acceptor of a bill, or drawee of a cheque) to whom the holder seeks to make liable or to their duly authorized agentsWhere there are two or more persons jointly liable as drawer or endorsers, notice toany one of them is sufficient.In case of death of person, to legal representative and to official assignee in case of insolvency (Sec 97).NotingNoting is the process of recording the fact and reasons of dishonour of a NI by the notary public. It should be done within Reasonable time after dishonour of NI. It is not mandatory.The Dishonoured Bill is presented to Notary Official who in Turn again represent it for acceptance/payment. If the party again refuses then Notary Public records the fact of Dishonour. Protesting Protest is a formal certificate of dishonour issued by the notary public to the holder of a bill or note on his demand. Difference between Noting & Protesting is that noting consists of recording the fact and reasons of dishonor of NI upon the instrument; whereas Protest is the certificate as to the fact that instrument has been dishonoured.

Discharge of Negotiable Instrument When the party makes the payment in due course at or after maturity (u/s78), When the holder cancels the instrument with intention to release the party. If it becomes Time Barred- it is Discharged by operation of LawIn the case of Negotiation BackWhen the holder releases or renounces his right against the party primarilyon the NI.© 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal15

Discharge of One Or More Parties By cancellation By release By allowing drawee more than 48 hours to accept (Sec 83) By taking qualified acceptance (Sec 86) By not giving notice of dishonour By not presentment for acceptance of bill (Sec 61) By delay in presenting cheque (Sec 84) By negotiating back of a bill © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal 16

H un d i Miadi hundi orMuddati hundiDarshani hundi Shah Jog hundi Nam Jog hundiJokhmi hundi Dhani Jog Hundi Hundi means a BOE drawn in an Local Language. Payable at Sight Payable after Specified period Of Time Payable at Shah Payable to a Party named in Hundi or to his order. Hundi Drawn in respect of goods shipped on the vessel and is payable only when the goods reach their destination. Hundi Payable to the Bearer. © 2013 Gurukul CA/CS Prepared by CA. Mayank Mittal 17

#1: The undertaking contained in a promissory © 2013 Gurukul CA/CS18 note, to pay a certain sum of money is----ConditionalUnconditionalMay be conditional or unconditional depending upon the circumstancesNone of the above.Answer : (b) Unconditional

# 2: Which of these is not a negotiable © 2013 Gurukul CA/CS 19Instrumen as per the Negotiable Instrument tAct,1881Bill of exchangeDelivery noteBearer ChequeShare certificateAnswer: (d) Share Certificate

# 3: Which of the following is not a payment in© 2013 Gurukul C A/CS20 due course under NI Act 1881?Payment should be made in accordance with the apparent tenor of the instrumentA payment is made on instrument before the date of maturityPayment is made to the possessor of the instrument Payment made in good faith & without negligence Answer: b) A payment is made on instrument before the date of maturity

© 2013 Guruku l CA/CS21Y signs on bill and keeps it with himHe writes “accepted” on the back of bill but does not put his signature on billHe puts his signature on face of bill and returns it to XHe write ‘accepted on the face of bill but does not put his signature Answer: c) He puts his signature on face of bill and returns it to X

# 5: In which of the following situations could a © 2013 Guruku l C A/CS 22 bill of exchange not be negotiated? The time to pay is not determinable. The promise to pay is conditional. The amount to be paid is “the amount owing on account." All of the above. Answer: d) All of the above

#6: X made a note payable to the order of his son Y as a © 2013 Guruku l CA/CS23birthday giftpayable after one month. Y presented the note after 3 months and Xrefused to pay. Can Y sue for payment? Yes, because a note, unlike a cheque, cannot become stale dated Yes, because the note is a negotiable instrument that is required to pay No, because a note, like a cheque, can become stale dated. No, because the note was gratuitous so it is not binding for a lack of consideration. Answer: d) No, because the note was gratuitous so it is not binding for a lack of consideration

of criteria for a holder in due course?© 2013 Gurukul CA/CS24 # 7: Which of the following is NOT a part the The instrument is held by a party immediate to the promisor. The instrument is taken by someone, or through someone, who has given consideration for it. The instrument is taken complete and regular on its face. The instrument is taken before it is overdue and without notice of any dishonour. Answer: a) The instrument is held by a party immediate to the promisor.

© 2013 Guruku l C A/CS 25 S can recover money from BB is discharged from his liability.S can recover from official assignee of the bankS can sue B and Bank jointlyAnswer: b) B is discharged from his liability