NEGOTIABLE INSTRUMENTS ACT,1881

Definition of a Negotiable Instr !ent" T#e la$ relating to negotiable instr !ents is %ontaine& in t#e Negotiable Instr !ents A%t, 1881" It is an A%t to &efine an& a!en& t#e la$ relating to 'ro!issor( notes, bills of e)%#ange an& %#e* es" T#e A%t &oes not affe%t t#e % sto! or lo%al oriental lang age i"e", a + n&i" sage relating to an instr !ent in

T#e ter! "negotiable instrument" !eans a &o% !ent transferable fro! one 'erson to anot#er" +o$e,er t#e A%t #as not &efine& t#e ter!" It !erel( sa(s t#at -A "negotiable instr !ent- !eans a 'ro!issor( note, bill of e)%#ange or %#e* e 'a(ab1e eit#er to or&er or to bearer" .Se%tion 1/0112 A negotiable instr !ent !a( be &efine& as -an instr !ent, t#e" 'ro'ert( in $#i%# is a%* ire& b( an(one $#o ta3es it bona fide, an& for ,al e, not$it#stan4ing an( &efe%t of title in t#e 'erson fro! $#o! #e too3 it, fro! $#i%# it follo4s t#at an instr !ent %annot be negotiable nless it is s %# an& in s %# a state t#at t#e tr e o$ner %o l& transfer t#e %ontra%t or engage!ent %ontaine& t#erein b( si!'le &eli,er( of instr !ent- 05illis6 The Law of Negotiable Securities, Page 6). A%%or&ing to t#is &efinition t#e follo$ing are t#e %on&itions of negotiabilit(7 0i1 T#e instr !ent s#o l& be freel( transferable" An instr !ent %annot be negotiable nless it is s %# an& in s %# state t#at t#e tr e o$ner %o l& transfer b( si!'le &eli,er( or en&orse!ent an& &eli,er(" 0ii1 T#e 'erson $#o ta3es it for ,al e an& in goo& fait# is not affe%te& b( t#e &efe%t in t#e title of t#e transferor" 0iii1 S %# a 'erson %an s e 'on t#e instr !ent in #is o$n na!e" Negotiabilit( in,ol,es t$o ele!ents na!el(, transferabilit( free fro! e* ities an& transferabilit( b( &eli,er( or en&orse!ent 0Moo3er8ee 9" In Tailors Priya ," Gulab hand, AIR 1:;< Cal1" B t t#e A%t re%ognises onl( t#ree t('es of instr !ents ,i=", %i >ro!issor( Note, a Bill of" E)%#ange an& a C#e* e as negotiable instr !ents" +o$e4er, it &oes not !ean t#at ot#er instr !ents are not negotiable instr !ents 'ro,i&e& t#at t#e( satisf( t#e follo$ing %on&itions of negotiabilit(7 1" T#e instr !ent s#o l& be freel( transferable b( t#e % sto! of tra&e" Transferabilit( !a( be b( 0i1 &eli,er( or 0ii1 en&orse!ent an& &eli,er(" ?" T#e 'erson $#o obtains it in good fait# an& for %onsi&eration gets it free fro! all &efe%ts an& %an s e 'on it in #is o$n na!e" /" T#e #ol&er #as t#e rig#t to transfer" T#e negotiabilit( %ontin es till t#e !at rit("

!ffect of Negotiability T#e general 'rin%i'le of la$ relating to transfer of 'ro'ert( is t#at no one %an 'ass a better title t#an #e #i!self #as "nemodat #uad non$habet). The e)%e'tions to t#is general r le arise b( ,irt e of stat te or b( a % sto!" A negotiable instr !ent is one s %# e)%e'tion $#i%# is originall( a %reation of !er%antile % sto!" T# s a bona fide transferee of negotiable instr !ent for %onsi&eration $it#o t noti%e of an( &efe%t of title, a%* ires t#e instr !ent free on an( &efe%t, i.e., #e a%* ires a better title t#an t#at of t#e transferor" Important Characteristics of Negotiable Instruments @ollo$ing are t#e i!'ortant %#ara%teristi%s of negotiable instr !ents7 011 T#e #ol&er of t#e instr !ent is 'res !e& to be t#e o$ner of t#e 'ro'ert( %ontaine& in it" 0?1 T#e( are freel( transferable" 0/1 A #ol&er in & e %o rse gets t#e instr !ent free fro! all &efe%ts of title of an( 're,io s #ol&er" 0A1T#e #ol&er in & e %o rse is entitle& to s e on t#e instr !ent in #is o$n na!e" 0<1 T#e instr !ent is transferable till !at rit( an& in %ase of %#e* es till it be%o!es stale 0on t#e e)'ir( of ; !ont#s fro! t#e &ate of iss e1" 0;1 Certain e* al 'res !'tions are a''li%able to all negotiable instr !ents nless t#e %ontrar( is 'ro,e&" Classification of Negotiable Instruments T#e negotiable instr !ents !a( be %lassifie& as n&er7 "%) &earer 'nstruments A 'ro!issor( note, bill of e)%#ange or %#e* e is 'a(able to bearer $#en 0i1 it is e)'resse& to be so 'a(able, or 0ii1 t#e onl( or last en&orse!ent on t#e instr !ent is an en&orse!ent in blan3, A 'erson $#o is a #ol&er of a bearer instr !ent %an obtain t#e 'a(!ent of t#e instr !ent" "())rder 'nstruments A 'ro!issor( note, bill of e)%#ange or %#e* e is 'a(able to or&er 0i1 $#i%# is e)'resse& to be so 'a(ableB or 0ii1 $#i%# is e)'resse& to be 'a(able to a 'arti% lar 'erson, an& &oes not %ontain an( $or&s 'ro#ibiting transfer or in&i%ating an intention t#at it s#all not be transferable" "*) 'nland 'nstruments 0Se%tion 111 A 'ro!issor( note, bill of e)%#ange or %#e* e &ra$n or !a&e in In&ia, an&

!a&e 'a(able, or &ra$n 'on an( 'erson, resi&ent in In&ia s#all be &ee!e& to be an inlan& instr !ent" Sin%e a 'ro!issor( note is not &ra$n on an( 'erson, an inlan& 'ro!issor( note is one $#i%# is !a&e 'a(able in In&ia" S b8e%t to t#is e)%e'tion, an inlan& instr !ent is one $#i%# is eit#er7 0i1 &ra$n an& !a&e 'a(able in In&ia, or
0ii1 &ra$n in In&ia 'on so!e 'ersons resi&ent t#erein, e,en t#o g# it is !a&e 'a(able in a foreign %o ntr(" "+) ,oreign 'nstruments An instr !ent $#i%# is not an inlan& instr !ent, is &ee!e& to be a foreign instr !ent" T#e essentials of a foreign instr !ent in%l &e t#at7 0i1 it ! st be &ra$n o tsi&e In&ia an& !a&e 'a(able o tsi&e or insi&e In&iaB or 0ii1 it ! st be &ra$n in In&ia an& !a&e 'a(able o tsi&e In&ia an& &ra$n on a 'erson resi&ent o tsi&e In&ia" "-) .emand 'nstruments 0Se%tion 1:1 A 'ro!issor( note or a bill of e)%#ange in $#i%# no ti!e for 'a(!ent is s'e%ifie& is an instr !ent 'a(able on &e!an&" "6) Time 'nstruments Ti!e instr !ents are t#ose $#i%# are 'a(able at so!eti!e in t#e f t re" T#erefore, a 'ro!issor( note or a bill of e)%#ange 'a(able after a fi)e& 'erio&, or after sig#t, or on s'e%ifie& &a(, or on t#e #a''ening of an e,4nt $#i%# is %ertain to #a''en, is 3no$n as a ti!e instr !ent" T#e e)'ression -after slig#t- in a 'ro!issor( note !eans t#at t#e 'a(!ent %annot be &e!an&e& on it nless it #as been s#o$n to t#e !a3er" In t#e %ase of bill of e)%#ange, t#e e)'ression -after sig#t- !eans after a%%e'tan%e, or after noting for non6a%%e'tan%e or after 'rotest for non6a%%e'tan%e" /mbiguous 'nstruments 0Se%tion 1C1 An instr !ent, $#i%# in for! is s %# t#at it !a( eit#er be treate& b( t#e #ol&er as a bill or as a note, is an a!big o s instr !ent" Se%tion <0?1 of t#e Englis# Bills of E)%#ange A%t 'ro,i&es t#at $#ere in a bill, t#e &ra$er an& t#e &ra$ee are t#e sa!e 'erson or $#ere t#e &ra$ee is a fi%titio s 'erson or a 'erson in%o!'etent to %ontra%t, t#e #ol&er !a( treat t#e instr !ent, at #is o'tion, eit#er as a bill of e)%#ange or as a 'ro!issor( note" Bill &ra$n to or to t#e or&er of t#e &ra$ee or b( an agent on #is 'rin%i'al, or b( one bran%# of a ban3 on anot#er or b( t#e &ire%tion of a %o!'an( or t#eir %as#ier are also a!big o s instr !ents" A 'ro!issor( note a&&resse& to a t#ir& 'erson !a( be treate& as a bill b( s %# 'erson b( a%%e'ting it, $#ile a bill not a&&resse& to an(one !a( be treate& as a note" B t $#ere t#e &ra$er an& 'a(ee are t#e same e.g., $#ere A &ra$s a bill 'a(able to ADs or&er, it is not an a!big o s instr !ent an& %annot be treate& as a 'ro!issor( note" On%e an instr !ent #as been treate& eit#er as a bill or as a note, it

%annot be treate& &ifferentl( after$ar&s" 'nchoate or 'ncom0lete 'nstrument 0Se%tion ?E1 5#en one 'erson signs an& &eli,ers to anot#er a 'a'er sta!'e& in a%%or&an%e $it# t#e la$ relating to negotiable instr !ents, an& eit#er $#oll( blan3 or #a,ing $ritten t#ereon an in%o!'lete negotiable instr !ent, #e t#ereb( gi,:S 0rima facie a t#orit( to t#e #ol&er t#ereof to !a3e or %o!'lete, as t#e %ase !a( be , 'on it a negotiable instr !ent, for an( a!o nt s'e%ifie& t#erein, an& not e)%ee&ing t#e a!o nt, %o,ere& b( t#e sta!'" S %# an instr !ent is %alle& an in%#oate instr !ent" T#e 'erson so signing s#all be liable 'on s %# instr !ent, in t#e %a'a%it( in $#i%# #e signs t#e sa!e, to an( #ol&er in & e %o rse for s %# a!o nt" 'ro,i&e& t#at no 'erson ot#er t#an a #ol&er in & e %o rse s#all re%o,er fro! t#e 'erson &eli,ering t#e instr !ent an(t#ing in e)%ess of t#e a!o nt inten&e& b( #i! to be 'ai& t#ereon" T#e a t#orit( to fill ' a blan3 or in%o!'lete instr !ent !a( be e)er%ise& b( an( -#ol&er- an& not onl( t#e first #ol&er to $#o! t#e instr !ent $as &eli,ere&" T#e 'erson signing an& &eli,ering t#e 'a'er is liable bot# to a -#ol&er- an& a -#ol&er6in6& e6%o rse-" B t t#ere is a &ifferen%e in t#eir res'e%ti,e rig#ts" A -#ol&er- %an re%o,er onl( $#at t#e 'erson signing an& &eli,ering t#e 'a'er agree& to 'a( n&er t#e instr !ent, $#ile a -#ol&er6in6 & e6%o rse- %an re%o,er t#e $#ole a!o nt !a&e 'a(able b( t#e instr !ent 'ro,i&e& t#at it is %o,ere& b( t#e sta!', e,en t#o g# t#e a!o nt a t#orise& $as s!aller" Kinds of Negotiable Instruments T#e A%t re%ognises onl( t#ree 3in&s of negotiable instr !ents n&er Se%tion 1/ b t it &oes not e)%l &e an( ot#er negotiable instr !ent 'ro,i&e& t#e instr !ent entitles a 'erson to a s ! of !one( an& is transferable b( &eli,er(" Instr !ents $ritten in oriental lang ages i.e. # n&is are also negotiable instr !ents" T#ese instr !ents are &is% sse& belo$7 "i) Promissory Notes A -'ro!issor( note- is an instr !ent in $riting 0not being a ban3 note or a % rren%( note1 %ontaining an n%on&itional n&erta3ing, signe& b( t#e !a3er to 'a( a %ertain s ! of !one( to, or to t#e or&er of, a %ertain 'erson, or onl( to bearer of t#e instr !ent" 0Se%tion A1 Parties to a Promissory Note: A 'ro!issor( note #as t#e follo$ing 'arties7 0a1 The ma1er2 t#e 'erson $#o !a3es or e)e% tes t#e note 'ro!ising to 'a( t#e a!o nt state& t#erein" 0b1 The 0ayee2 one to $#o! t#e note is 'a(able" 0%1 The holder2 is eit#er t#e 'a(ee or so!e ot#er 'erson to $#o! #e !a( #a,e en&orse& t#e note"

0&1 The endorser. 0e1 The endorsee. !ssentials of a Promissory Note2 To be a 'ro!issor( note" an instr !ent ! st 'ossess t#e follo$ing essentials7 0a1 It ! st be in $riting" An oral 'ro!ise to 'a( $ill not &o" 0b1 It ! st %ontain an e)'ress 'ro!ise or %lear n&erta3ing to 'a(" A 'ro!ise to 'a( %annot be inferre&" A !ere a%3no$le&ge!ent of &ebt is not s ffi%ient" If A $rites to B -I o$e (o 0I"O"U"1 Rs. <EE-,t#ere is no 'ro!ise to 'a( an& t#e instr !ent is not a 'ro!issor( note" 0%1 T#e 'ro!ise or n&erta3ing to 'a( ! st be n%on&itional" A 'ro!ise to 'a( -$#en able-, or -as soon as 'ossible-, or -after (o r !arriage to IF-, is %on&itional" B t a 'ro!ise to 'a( after a s'e%ifi%D ti!e or on t#e #a''ening of an e,ent $#i%# ! st #a''en, is not %on&itional, e"g" -I 'ro!ise to 'a( Rs" 1,000 ten &a(s after t#e &eat# of B-, is n%on&itional" 0&1 T#e !a3er ! st sign t#e 'ro!issor( note in to3en of an n&erta3ing to 'a( to t#e 'a(ee or #is or&er" 0e1 T#e !a3er ! st be a %ertain 'erson, Le", t#e note ! st s#o$ %learl( $#o is

t#e 'erson engaging #i!self to 'a("

"

0f1 T#e 'a(ee ! st be %ertain" T#e 'ro!issor( note ! st %ontain a 'ro!ise to 'a( to so!e 'erson or 'ersons as%ertaine& b( na!e or &esignation or to t#eir or&er" 0g1 T#e s ! 'a(able ! st be %ertain an& t#e a!o nt ! st" not be %a'able of %ontingent a&&itions or s btra%tions" If A 'ro!ises to 'a( Rs" 1EE an& all ot#er s !s $#i%# s#all be%o!e & e to #i!, t#e instr !ent is not a 'ro!issor( note" 0#1 >a(!ent ! st be in legal !one( of t#e %o ntr(" T# s, a 'ro!ise to 'a( Rs" <EE an& &eli,er 1E * intals of ri%e is not a 'ro!issor( note" 0i1 It ! st be 'ro'erl( sta!'e& in a%%or&an%e $it# t#e 'ro,isions of t#e In&ian Sta!' A%t" Ea%# sta!' ! st be & l( %an%elle& b( !a3erDs signat re or initials" 081 It ! st %ontain t#e na!e of 'la%e, n !ber an& t#e &ate on $#i%# it is !a&e" +o$e,er, t#eir o!ission $ill not ren&er t#e instr !ent in,ali&, e"g" if it is n&ate&, it is &ee!e& to be &ate& on t#e &ate of &eli,er(" Note: A 'ro!issor( note %annot be !a&e 'a(able or iss e& to bearer, no !atter $#et#er it is 'a(able on &e!an& or after a %ertain ti!e 0Se%tion /1 of t#e RBI A%t1" "ii) &ills of !3change A -bill of e)%#ange- is an instr !ent in $riting %ontaining an n%on&itional or&er, signe& b( t#e !a3er, &ire%ting a %ertain 'erson to 0ay a certain sum of money only to or to t#e or&er of, a %ertain 'erson or to t#e bearer of t#e instr !ent" 0Se%tion <1

T#e &efinition of a bill of e)%#ange is ,er( si!ilar to t#at of a 'ro!issor( note an& for !ost of t#e %ases t#e r les $#i%# a''l(1E 'ro!issor( notes are in general a''li%able
I

to bills" T#ere are #o$e,er, %ertain i!'ortant 'oints of &istin%tion bet$een t#e t$o" Parties to bills of e3change T#e follo$ing are 'arties to a bill of e)%#ange7 0a1 The .rawer2 t#e 'erson $#o &ra$s t#e bill" 0b1 The .rawee2 t#e 'erson on $#o! t#e bill is &ra$n" 0%1 The /cce0tor2 one $#o a%%e'ts t#e bill" Generall(, t#e &ra$ee is t#e a%%e'tor b t a stranger !a( a%%e't it on be#alf of t#e &ra$ee"

"d) The 0ayee2 one to $#o! t#e s ! state& in t#e bill is 'a(able, eit#er t#e &ra$eror an( ot#er 'erson !a( be t#e 'a(ee" 0e1 The holder2 is eit#er t#e original 'a(ee or an( ot#er 'erson to $#o!, t#e 'a(ee #as en&orse& t#e bill" In %ase of a bearer bill, t#e bearer is t#e #ol&er" 0f1 The endorser2 $#en t#e #ol&er en&orses t#e bill to an(one else #e be%o!es t#e en&orser" 0g1 The endorsee2 is t#e 'erson to $#o! t#e bill is en&orse&" 0#1 .rawee in case of need2 Besi&es t#e abo,e 'arties" anot#er 'erson %alle& t#e -&ra$ee in %ase of nee&-, !a( be intro& %e& at t#e o'tion of t#e &ra$er" T#e na!e of s %# a 'erson !a( be inserte& eit#er b( t#e &ra$er or b( an( en&orser in or&er t#at resort !a( be #a& to #i! in %ase of nee&, i"e", $#en t#e bill is &is#ono re& b( eit#er non6a%%e'tan%e or non6'a(!ent" 0i1 /cce0tor for honour2 @ rt#er, an( 'erson !a( ,ol ntaril( be%o!e a 'art( to a bill as a%%e'tor" A 'erson, $#o on t#e ref sal b( t#e original &ra$ee to a%%e't t#e bill or to f rnis# better se% rit(, $#en &e!an&e& b( t#e notar(, a%%e't t#e bill su0ra 0rotest in or&er to safeg ar& t#e #ono r of t#e &ra$er or an( en&orser, is %alle& t#e a%%e'tor for #ono r" !ssentials of a &ill of !3change2 011 It ! st be in $riting" 0?1 It ! st %ontain an n%on&itional or&er to 'a( !one( onl( an& not !erel( a re* est 0/1 It ! st be signe& b( t#e &ra$er" 0A1 T#e 'arties ! st be %ertain" 0<1 T#e s ! 'a(able ! st also be %ertain" 0;1 It ! st %o!'l( $it# ot#er for!alities e"g" sta!'s, &ate,et%" .istinction between &ill of !3change and Promissory Note T#e follo$ing are t#e i!'ortant 'oints of &istin%tion bet$een a bill of e)%#ange an& a 'ro!issor( note7 0a1 A 'ro!issor( note is a t$o6'art( instr !ent, $it# a !a3er 0&ebtor1 an& a

'a(ee 0%re&itor1" In a bill" t#ere are t#ree 'arties6&ra$er, &ra$ee an& 'a(ee, t#o g# an( t$o o t of t#e t#ree %a'a%ities !a( be fille& b( one an& t#e sa!e 'erson" In a billB t#e &ra$er is t#e !a3er $#o or&ers t#e &ra$ee to 'a( t#e bill to a 'erson %alle& t#e 'a(ee or to #is or&er" 5#en t#e &ra$ee a%%e'ts t#e bill #e is %alle& t#e a%%e'tor,
0b1 A note %annot be !a&e 'a(able to t#e !a3er #i!self, $#ile in a bill, t#e &ra$er an& 'a(ee !a( be t#e sa!e 'erson" 0%1 A note %ontains an n%on&itional 'ro!ise b( t#e !a3er to 'a( to t#e 'a(ee or #is or&erB in a bill t#ere is an n%on&itional or&er to t#e &ra$ee to 'a( a%%or&ing to t#e &ire%tions of t#e &ra$er" 0&1 A note is 'resente& for 'a(!ent $it#o t an( 'rior a%%e'tan%e b( t#e !a3er" A bill 'a(able after sig#t ! st be a%%e'te& b( t#e &ra$ee or so!eone else on #is be#alf before it %an be 'resente& for 'a(!ent" 0e1 T#e liabilit( of t#e !a3er of a 'ro6note is 'ri!ar( an& absol te, b t t#e liabilit( of t#e &ra$er of a bill is se%on&ar( an& %on&itional" 0f1 @oreign bill ! st be 'roteste& for &is#ono r b t no s %# 'rotest is ne%essar( in t#e %ase of a note" 0g1 5#en a bill is &is#ono re&, & e noti%e of &is#ono r is to be gi,en b( t#e #ol&er to t#e &ra$er an& t#e inter!e&iate en&orsee, b t no s %# noti%e nee& to be gi,en in t#e %ase of a note" 0#1 A bill %an be &ra$n 'a(able to bearer 'ro,i&e& it is not 'a(able on &e!an&" A 'ro!issor( note %annot be !a&e 'a(able to be/rer, e,en if it is !a&e 'a(able ot#er$ise t#an on &e!an&"

4ow &ill of !3change )riginates 6 ,orms of &ills of !3change. Bills of e)%#ange $ere originall( se& for 'a(!ent of &ebts b( tra&ers resi&ing in one %o ntr( to anot#er %o ntr( $it# a ,ie$ to a,oi& trans!ission of %oin" No$6a6&a(s t#e( are se& !ore as tra&e bills bot# in %onne%tion $it# &o!esti% tra&e an& foreign tra&e an& are %alle& inlan& bills an& foreign bills res'e%ti,el(" 'nland &ills 0Se%tions 11 an& 1?1 A bill of e)%#ange is an inlan& instr !ent if it is 0i1 &ra$n or !a&e an& 'a(able in In&ia, or 0ii1 &ra$n in In&ia 'on an( 'erson $#o is a resi&ent in In&ia, e,en t#o g# it is !a&e 'a(able in a foreign %o ntr(" B t a 'ro!issor( note to be an inlan& s#o i& be &ra$n an& 'a(able in In&ia, as it #as no &ra$ee" T$o essential %on&itions to !a3e an inlan& instr !ent are7 011 t#e instr !ent ! st #a,e been &ra$n or !a&e in In&iaB an& 0?1 t#e instr !ent ! st be 'a(able in In&ia or t#e &ra$ee ! st be in In&ia" !3am0les2 A bill &ra$n in In&ia, 'a(able in USA, 'on a 'erson in In&ia is an inlan& instr !ent" A bill &ra$n in In&ia an& 'a(able in In&ia b t &ra$n on a

'erson in USA is also an inlan& instr !ent or !a&e in In&ia ,oreign &ills All bills $#i%# are not inlan& are &ee!e& to be foreign bills" Nor!all( foreign bills are &ra$n in sets of t#ree %o'ies" Trade &ill A bill &ra$n an& a%%e'te& for a gen ine tra&e transa%tion is ter!e& as a tra&e bill" 5#en a tra&er sells goo&s on %re&it, #e !a( !a3e se of a bill of e)%#ange" S ''ose A sells goo&s $ort# Rs" 1,EEE to B an& allo$s #i! :E &a(s ti!e to 'a( t#e 'ri%e, A $ill &ra$ a bill of e)%#ange on B, in t#e follo$ing ter!s7 -Ninet( &a(s after &ate 'a( A or or&er, t#e s ! of one t#o san& r 'ees onl( for ,al e re%ei,e&-" A $ill sign t#e bill an& t#en 'resent it to B for a%%e'tan%e" T#is is ne%essar( be%a se, ntil a bill is a%%e'te&

b( t#e &ra$ee, nobo&( #as eit#er rig#ts or obligations" If B agrees to obe( t#e or&er of A, #e $ill a%%e't t#e bill b( $riting a%ross its fa%e t#e $or& -a%%e'te&an& signing #is na!e n&erneat# an& t#en &eli,ering t#e bill to t#e #ol&er" B, t#e &ra$ee, no$ be%o!es t#e a%%e'tor of t#e bill an& liable to its #ol&ers" S %# a bill is a gen ine tra&e bill" /ccommodation &ill All bills are not gen ine tra&e bills, as t#e( are often &ra$n for a%%o!!o&ating a 'art(" An a%%o!!o&ation bill is a bill in $#i%# a 'erson len&s or gi,es #is na!e to oblige a frien& or so!e 'erson $#o! #e 3no$s or ot#er$ise" In ot#er $or&s, a bill $#i%# is &ra$n, a%%e'te& or en&orse& $it#o t %onsi&eration is %alle& an a%%o!!o&ation bill" T#e 'art( len&ing #is na!e to oblige t#e ot#er 'art( is 3no$n as t#e a%%o!!o&ating or a%%o!!o&ation 'art(, an& t#e 'art( so oblige& is %alle& t#e 'art( a%%o!!o&ate&" An a%%o!!o&ation 'art( is not liable on t#e instr !ent to t#e 'art( a%%o!!o&ate& be%a se as bet$een t#e! t#ere $as no %onsi&eration an& t#e instr !ent $as !erel( to #el', B t t#e a%%o!!o&ation 'art( is liable to a #ol&er for ,al e, $#o ta3es t#e a%%o!!o&ation bill for ,al e, t#o g# s %# #ol&er !a( not be a #ol&er in & e %o rse" T# s, A !a( be in nee& of !one( an& a''roa%# #is frien&s B an& C $#o, instea& of len&ing t#e !one( &ire%tl(, 'ro'ose to &ra$ an -A%%o!!o&ation Bill- in #is

fa,o r in t#e follo$ing for!7 -T#ree !ont#s after &ate 'a( A or or&er, t#e s ! of R 'ees one t#o san& onl(D B
To C

If t#e %re&it of Ban& C is "goo&, t#is &e,i%e enables A to get an a&,an%e of Rs" 1,EEE fro! #is ban3er at t#e %o!!er%ial rate of &is%o nt" T#e real &ebtor in t#is %ase is not C, b t A t#e 'a(ee $#o 'ro!ises to rei!b rse C before t#e 'erio& of t#ree !ont#s onl(" A is #ere t#e 'rin%i'al &ebtor an& Ban& C are !ere s reties" T#is in,ersion of liabilit( affor&s a goo& &efinition of an a%%o!!o&ation bill -If as bet$een t#e original 'arties to 6 t#e bill t#e one $#o s#o l& 0rima facie be 'rin%i'al is in" fa%t t#e s ret( $#et#er #e be &ra$er, a%%e'tor, or en&orser, t#at bill is an a%%o!!o&ation bill-" Bills in Sets (Section 1/? an& 1//1 @oreign bills are s all( &ra$n in sets to a,oi& t#e &anger of loss" T#e( ar:e &ra$n in sets of t#ree, ea%# of $#i%# is %alle& -Gia- an& as soon as an(one of t#e! is 'ai&, t#e ot#ers be%o!e ino'erati,e" All t#ese 'arts for! one bill an& t#e &ra$er ! st sign an& &eli,er all of t#e! to t#e 'a(ee" T#e sta!' is affi)e& onl( on one 'art an& one 'art is re* ire& to be a%%e'te&" B t if t#e &ra$er !ista3enl( a%%e'ts all t#e 'arts of t#e sa!e bill, #e $ill be liable on ea%# 'art accepted as if it $ere a se'arate bill" 5ight to .u0licate &ill 5#ere a bill of e)%#ange #as been lost before it $as o,er& e, t#e 'erson $#o
$as t#e #ol&er to it !a( a''l( to t#e &ra$er, to gi,e #i! anot#er bill of t#e sa!e tenor" It is onl( t#e #ol&er $#o %an as3 for a & 'li%ate bill, 'ro!issor( note or %#e* e"
\

Bank Draft
A bill of e)%#ange is also so!eti!es s'o3en of as a &raft" It is %alle& as a ban3 &raft $#en a bill of e)%#ange &ra$n b( one ban3 on anot#er ban3, or b( itself on its o$n bran%#, an& is a negotiable instr !ent" It is ,er( ! %# li3e t#e %#e* e $it# t#ree 'oints of &istin%tion bet$een t#e t$o" A ban3 &raft %an be &ra$n onl( b( a ban3 on anot#er ban3, s all( its o$n bran%#" It %annot so easil( be %o nter6!an&e&" It %annot be !a&e 'a(able to bearer"

HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH

S0ecimen of a &an1 .raft /.&. . Bank 6.7.8. &ranch No.....................

.ate...................

)n demand 0ay 9/9 or order the sum of ru0ees one thousand fi:e hundred only for :alue recei:ed. 5s. %,-;;<$

Sd.< =anager To 9&9 &ranch, "Place) In t#e abo,e &e!an& &raft t#e &ra$er is I"J"K" Bran%#, t#e &ra$ee is DBD bran%# an& t#e 'a(ee is DAD" "iii) he#ues

Se%tion ; of t#e A%t 'ro,i&es t#at a %#e* e is a bill of e)%#ange &ra$n on a s'e%ifie& ban3er, an& not e)'resse& to be 0ayable otherwise than on demand. Si!'l( state&, a %#e* e is a bill of e)%#ange &ra$n on a ban3 'a(able al$a(s on &e!an&" T# s, a %#e* e is a bill of e)%#ange $it# t$o a&&itional * alifi%ations, na!el(7 0i1 it is al$a(s &ra$n on a ban3er, an& 0ii1 it is al$a(s 'a(able on &e!an&" A %#e* e being a s'e%ies of a bill of e)%#ange, ! st satisf( all t#e re* ire!ents of a billB it &oes not, howe:er, re#uire acce0tance.

Note: B( ,irt e of Se%tion /1 of t#e Reser,e Ban3 of In&ia A%t, no bill of e)%#ange or
# n&i %an be !a&e 0ayable to bearer on demand an& no 'ro!issor( note or a ban1 draft can be made 0ayable to bearer at all, whether on demand or after a s0ecified time. )nly a che#ue can be 0ayable to bearer on demand. Parties to a cheque

The following are the parties to a cheque: (a) The drawer: The person who draws the cheque (!) The drawee: The !an"er of the drawer on who# the cheque is drawn

(c), (d), (e) and (f) The pa$ee, holder, endorser and endorsee: sa#e as in the case of a !ill Essentials of a Cheque (1) It is alwa$s drawn on a !an"er (%) It is alwa$s pa$a!le on de#and (&) It does not require acceptance There is, howe'er, a custo# a#ong !an"s to #ar" cheques as good for purposes of clearance (() A cheque can !e drawn on !an" where the drawer has an account ()) *heques #a$ !e pa$a!le to the drawer hi#self It #a$ !e #ade pa$a!le to !earer on de#and unli"e a !ill or a note (+) The !an"er is lia!le onl$ to the drawer A holder ,has no re#ed$ against the !an"er if a cheque is dishonoured (-) A cheque is usuall$ 'alid for fi. #onths /owe'er, it is not in'alid 0f it is post dated or ante,dated (1) No Sta#p is required to !e affi.ed on cheques
.istinction between he#ues and &ills of !3change As a general r le, t#e 'ro,isions a''li%able to bills pa$a!le on de#and appl$ to

cheques, (et t#ere are fe$ 'oints of &istin%tion bet$een t#e t$o, na!el(7
0a1 A %#e* e is a bill of e)%#ange an& al$a(s &ra$n on a ban3er, $#ile a bill !a( be &ra$n on an(one, in%l &ing ban3er" 0b1 A %#e* e %an onl( be &ra$n 'a(able on &e!an&, a bill !a( be &ra$n 'a(able on &e!an&, or on t#e e)'ir( of a s'e%ifie&D 'erio& after sig#t or &ate" 0%1 A bill 'a(able after sig#t ! st be a%%e'te& before 'a(!ent %an be &e!an&e&, a %#e* e &oes not re* ire a%%e'tan%e and is inten&e& for i!!e&iate 'a(!ent" 0&1 A gra%e of / &a(s is allo$e& in t#e %ase of ti!e bills, $#ile no gra%e is gi,en" in t#e %ase of a %#e* e, for 'a(!ent" 0e1 T#e &ra$er of a bill is &is%#arge&, if it is not 'resente& for 'a(!ent, b t t#e &ra$er of a %#e* e is &is%#arge& onl( if #e s ffers an( &a!age b( &ela( in 'resent!ent for 'a(!ent" 0f1 Noti%e of t#e &is#ono r of a bill is ne%essar(, b t not in t#e %ase of a %#e* e" 0g1 T#e %#e* e being a re,o%able !an&ate, t#e a t#orit( !a( be re,o3e& b( %o nter!an&ing 'a(!ent, an& is &eter!ine& b( noti%e of t#e % sto!erDs &eat# or insol,en%(" T#is is not so in t#e %ase of bilt "h) / che#ue may be crossed, but not a bill A %#e* e is a bill of e)%#ange &ra$n on a s'e%ifie& ban3er an& al$a(s 'a(able on &e!an&" A %#e* e is al$a(s &ra$n on a 'arti% lar ban3er an& is al$a(s 'a(able on &e!an&" Conse* entl(, all %#e* es are bills of e)%#ange b t all bills are not %#e* es"

S0ecimen of a he#ue

A2* 2an" 3ate4444444444444 5a$ 6A7,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,or the !earer su# of rupees,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,onl$ A8c No,,,,,,,,,9:,,,,,, No,,,,,,,,,,,,,,,,,,,,,
Banker A ban3er is one $#o &oes ban3ing b siness" Se%tion <0b1 of t#e Ban3ing Reg lation A%t, 1:A: &efines ban3ing as, -a%%e'ting for t#e ' r'ose of len&ing or in,est!ent, of &e'osits of !one( fro! t#e ' bli%, re'a(able on &e!an& or ot#er$ise an& $it#&ra$able b( %#e* e, &raft or ot#er$ise"- T#is &efinition e!'#asises t$o 'oints7 011 t#at t#e 'ri!ar( f n%tion of a ban3er %onsists of a%%e'ting of &e'osits for t#e ' r'ose of len&ing or in,esting t#e sa!eB 0?1 t#at t#e a!o nt &e'osite& is re'a(able to t#e &e'ositor on &e!an& or a%%or&ing to t#e agree!ent" T#e &e!an& for re'a(!ent %an be !a&e t#ro g# a %#e* e, &raft or ot#er$ise, an& not !erel( b( ,erbal or&er" Customer T#e ter! -% sto!er- is neit#er &efine& in In&ian nor in Englis# stat tes" T#e general o'inion is t#at a % sto!er is one $#o #as an a%%o nt $it# t#e ban3 or $#o tilises t#e ser,i%es of t#e ban3" T#e s'e%ial feat res of t#e legal relations#i' bet$een t#e ban3er an& t#e % sto!er !a( be ter!e& as t#e obligations an& rig#ts of t#e ban3er" T#ese are7 1" Obligation to #ono r %#e* es of t#e % sto!ers" ?" Obligation to %olle%t %#e* es an& &rafts on be#alf of t#e % sto!ers" /" Obligation to 3ee' 'ro'er re%or& of transa%tions $it# t#e % sto!er" A" Obligation to %o!'l( $it# t#e e)'ress stan&ing instr %tions of t#e % sto!er" <" Obligation not to &is%lose t#e state of % sto!erDs a%%o nt to an(one else" ;" Obligation to gi,e reasonable noti%e to t#e % sto!er, if t#e ban3er $is#es to %lose t#e a%%o nt" C" Rig#t of lien o,er an( goo&s an& se% rities baile& to #i! for a general balan%e of account. 8" Rig#t of set off an& rig#t of a''ro'riation" :" Rig#t to %lai! in%i&ental %#arges an& interest as 'er r les an& reg lations of t#e ban3 as %o!! ni%ate& to t#e % sto!er at t#e ti!e of o'ening t#e a%%o nt"

;s,,,,,,,8, Sd8,

Liability of a Banker B( o'ening a % rrent a%%o nt of a % sto!er, t#e ban3er be%o!es liable to #is &ebtor to t#e e)tent of t#e a!o nt so re%ei,e& in t#e sai& a%%o nt an& n&erta3es to #ono r t#e %#e* es &ra$n b( t#e % sto!er so long as #e #ol&s s ffi%ient f n&s to t#e % sto!erDs %re&it" If a ban3er, $it#o t 8 stifi%ation, fails to #ono r t1is % sto!erDs %#e* es, #e is liable to %o!'ensate t#e &ra$er for an( loss or &a!age s ffere& b( #i!" B t t#e 'a(ee or #ol&er of t#e %#e* e #as no %a se of a%tion against t#e ban3er as t#e obligation to #ono r a %#e* es is onl( to$ar&s t#e &ra$er" T#e ban3er ! st also !aintain 'ro'er an& a%% rate a%%o nts of %re&its an& &ebits" +e ! st #ono r a %#e* e 'resente& in & e %o rse" B t in t#e follo$ing %ir% !stan%es,

#e must ref se to #ono r a %#e* e an& in so!e ot#ers #e may &o so"
8. When Banker must Refuse Payment In t#e follo$ing %ases t#e a t#orit( of t#e ban3er to #ono r % sto!erDs %#e* e %o!es to an en&, #e must ref se to #ono r %#e* es iss e& b( t#e % sto!er7 0a1 5#en a % sto!er %o nter!an&s 'a(!ent Le", $#ere or $#en a % sto!er, after iss ing a %#e* e iss es instr %tions not to #ono r it, t#e ban3er ! st not 'a( it" "b) >hen the ban1er recei:es notice of customer9s death. L 5#en % sto!er #as been a&8 &ge& an insol,ent" 0&1 5#en t#e ban3er re%ei,es noti%e of % sto!erDs insanit(" "e) >hen an order "e.g., Garnishee )rder) of the ourt, 0rohibits 0ayment. "f) >hen the customer has gi:en notice of assignment of the credit balance of his account.

0g1 5#en t#e #ol&erDs title is &efe%ti,e an& t#e ban3er %o!es to 3no$ of it"
"h) >hen the customer has gi:en notice for closing his account.

When Banker may Refuse Payment In t#e follo$ing %ases t#e ban3er !a( ref se to 'a( a % sto!erDs %#e* e7 0a1 5#en t#e %#e* e is 'ost6&ate&" 0b1 5#en t#e ban3er #as not s ffi%ient f n&s of t#e &ra$er $it# #i! an& t#ere is no %o!! ni%ation bet$een t#e ban3 an& t#e % sto!er to #ono r t#e %#e* e" 0%1 5#en t#e %#e* e is of &o btf l legalit(" 0&1 5#en t#e %#e* e is not & l( 'resente&, e"g", it is 'resente& after ban3ing #o rs" 0e1 5#en t#e %#e* e on t#e fa%e of it is irreg lar, a!big o s or ot#er$ise

!ateriall( altered. (f) <hen t#e %#e* e is 'resente& at a bran%# $#ere t#e % sto!er #as no a%%o nt"
0g1 5#en so!e 'ersons #a,e 8oint a%%o nt an& t#e %#e* e is not signe& 8ointl( b( all or b( t#e s r,i,ors of t#e!" 0#1 5#en t#e %#e* e #as been allo$e& to be%o!e stale, Le", it #as not been 0resented within si3 months of the date mentioned on it.

5rotection of 5a$ing 2an"er (Sections 10, 1) and 1%1)

Se%tion 8< la(s &o$n t#at $#ere a %#e* e 'a(able to or&er ' r'orts to be en&orse& b( or on be#alf 6of t#e 'a(ee t#e ban3er is &is%#arge& b( 'a(!ent in & e %o rse" +e %an &ebit t#e a%%o nt of t#e % sto!er $it# t#e a!o nt e,en t#o g# t#e en&orse!ent t rns o t s bse* entl( to #a,e been forge&, or t#e agent of t#e 'a(ee $it#o t a t#orit( en&orse& it on be#alf of t#e 'a(ee" It $o l& be seen t#at t#e 'a(ee in%l &es en&orsee" T#is 'rote%tion is grante& be%a se a ban3er %annot be e)'e%te& to 3no$ t#e signat res of all t#e 'ersons in t#e $orl&" +e is onl( bo n& to 3no$ t#e signat res of #is o$n % sto!ers" T#erefore, t#e forger( of &ra$erDs signat re $ill not or&inaril( 'rote%t t#e ban3er b t e,en in t#is %ase, t#e ban3er !a( &ebit t#e a%%o nt of t#e % sto!er, if it %an s#o$ t#at t#e forger( $as inti!atel( %onne%te& $it# t#e negligen%e of t#e % sto!er an& $as t#e 'ro)i!ate %a se of loss" I n t#e %ase of bearer %#e* es, t#e r le is t#at on%e a bearer %#e* e, al$a(s a bearer %#e* e" 5#ere, t#erefore, a %#e* e originall( e)'resse& b( t#e &ra$er #i!self to be 'a(able to bearer, t#e ban3er !a( ignore an( en&orse!ent on t#e %#e* e" +e $ill be &is%#arge& b( 'a(!ent in & e %o rse" B t a %#e* e $#i%# be%o!es bearer b( a s bse* ent en&orse!ent in blan3 is not %o,ere& b( t#is Se%tion" A ban3er is &is%#arge& fro! liabilit( on a %rosse& %#e* e if #e !a3es 'a(!ent in & e %o rse" Payment in due Course 0Se%tion 1E1 An( 'erson liable to !a3e 'a(!ent n&er a negotiable instr !ent, ! st !a3e t#e 'a(!ent of t#e a!o nt & e t#ere n&er in & e %o rse in or&er to obtain a ,ali& &is%#arge against t#e #ol&er" A 'a(!ent in & e %o rse !eans a 'a(!ent in a%%or&an%e $it# t#e a''arent tenor of t#e instr !ent, in good fait# an& $it#o t negligen%e to an( 'erson in 'ossession t#ereof" " A 'a(!ent $ill be a 'a(!ent in & e %o rse if7 0a1 it is in a%%or&an%e $it# t#e a''arent tenor of t#e instr !ent, i"e" a%%or&ing to $#at a''ears on t#e fa%e of t#e instr !ent to be t#e intention of t#e 'artiesB

0b1 it is !a&e in goo& fait# an& $it#o t negligen%e, an& n&er %ir% !stan%es $#i%# &o not affor& a gro n& for belie,ing t#at t#e 'erson to $#o! it is !a&e is not entitle& to re%ei,e t#e a!o ntB

0%1it is !a&e to t#e 'erson in 'ossession of t#e instr !ent $#o is entitle& as
#ol&er to re%ei,e 'a(!entB 0&1 'a(!ent is !a&e n&er %ir% !stan%es $#i%# do not afford a reasona!le gro n& belie,ing t#at #e is not entitle& to re%ei,e 'a(!ent of t#e a!o nt !entione& in t#e instr !entB an& 0e1 'a(!ent is !a&e in !one( an& !one( onl(" Un&er Se%tions 1E an& 1?8, a 'a(ing ban3er !a3ing 'a(!ent in & e %o rse is 'rote%te&"

Collecting Banker
Colle%ting Ban3er is one $#o %olle%ts t#e 'ro%ee&s of a %#e* e for a % sto!er" Alt#o g# a ban3er %olle%ts t#e 'ro%ee&s of a %#e* e for a % sto!er ' rel( as a !atter of ser,i%e, (et t#e Negotiable Instr !ents A%t, 1881 in&ire%tl( i!'oses stat tor( obligation, stat tor( in nat re" T#is is e,i&ent fro! Se%tion 1?; of t#e A%t $#i%# 'ro,i&es t#at a %#e* e bearing a -general %rossing- s#all not be 'ai& to an(one ot#er t#an ban3er an& a %#e* e $#i%# is -s'e%iall( %rosse&- s#all not be 'ai& to a 'erson ot#er t#an t#e ban3er to $#o! it is %rosse&" T# s, a 'a(ing ban3er ! st 'a( a generall( %rosse& %#e* e onl( to a ban3er t#ereb( !eaning t#at it s#o l& be %olle%te& b( anot#er ban3er" 5#ile so %olle%ting t#e %#e* es for a % sto!er, it is * ite 'ossible t#at t#e ban3er %olle%ts for a % sto!er, 'ro%ee&s of a %#e* e to $#i%# t#e % sto!er #a& no title in fa%t" In s %# %ases, t#e tr e o$ner !a( s e t#e %olle%ting ban3er for -%on,ersion-" At t#e sa!e ti!e, it %annot be e)'e%te& of a ban3er to 3no$ or to ens re t#at all t#e signat res a''earing in en&orse!ents on t#e re,erse of t#e %#e* e are gen ine" T#e ban3er is e)'e%te& to be %on,ersant onl( $it# t#e signat res of #is % sto!er" A % sto!er to $#o! a %#e* e #as been en&orse&, $o l& re* e4t #is ban3er to %olle%t a %#e* e" In t#e e,ent of t#e en&orserDs signat re being 'ro,e& to be forge& at iater &ate, t#e ban3er $#o %olle%te& t#e 'ro%ee&s s#o l& not be #el& liable for t#e si!'le reason t#at #e #as !erel( %olle%te& t#e 'ro%ee&s of a %#e* e" Se%tion 1/1 of t#e Negotiable Instr !ents A%t affor&s stat tor( 'rote%tion in s %# a %ase $#ere t#e % sto!erDs title to t#e %#e* e $#i%# t#e ban3er #as %olle%te& #as been * estione&" It rea&s as follo$s7

-A ban3er $#o #as in good fait# an& $it#o t negligen%e re%ei,e& 'a(!ent for a
% sto!er of a %#e* e %rosse& generall( or s'e%ifi%all( to #i!self 6s#all not, in %ase t#e title to t#e %#e* e 'ro,es &efe%ti,e, in% r an( liabilit( to t#e tr e o$ner of t#e %#e* e b( reason of onl( #a,ing re%ei,e& s %# 'a(!ent" !30lanation2 A ban3er re%ei,es 'a(!ent of a %rosse& %#e* e for a % sto!er $it#in t#e !eaning of t#is se%tion not$it#stan&ing t#at #e %re&its #is % sto!erDs a%%o nt $it# t#e a!o nt of6t#e %#e* e before re%ei,ing 'a(!ent t#ereof"T#e re* isites of %lai!ing 'rote%tion n&er Se%tion 1/1 are as follo$s7 0i1 T#e %olle%ting ban3er s#o l& #a,e a%te& in goo& fait# an& $it#o t negligen%e" An a%t is &one in goo& fait# $#en it is &one #onestl(" T#e 'lea of goo& fait#

%an be reb tte& on t#e gro n& of re%3lessness in&i%ati,e of $ant of 'ro'er %are an& attention" T#erefore, ! %# &e'en&s 'on t#e fa%ts of t#e %ase" T#e b r&en of 'ro,ing t#at t#e %#e* e $as %olle%te& in goo& fait# an& $it#o t negligen%e is 'on t#e ban3er %lai!ing 'rote%tion" @ail re to ,erif( t#e reg larit( of en&orse!ents, %olle%ting a %#e* e 'a(able to t#e a%%o nt of t#e %o!'an( to t#e %re&it of t#e &ire%tor, et%" are e)a!'les of negligen%e" 0ii1 T#e ban3er s#o l& #a,e %olle%te& a %rosse& %#e* e, i"e", t#e %#e* e s#o l& #a,e been %rosse& before it %a!e to #i! for %olle%tion" 0iii1 T#e 'ro%ee&s s#o l& #a,e been %olle%te& for a % sto!er, i"e", a 'erson $#o #as an a%%o nt $it# #i!"

0i,1

T#at t#e %olle%ting ban3er #as onl( a%te& as an agent of t#e % sto!er" If #e #a& be%o!e t#e #ol&er for ,al e, t#e 'rote%tion a,ailable n&er Se%tion 1/1 is forfeite& 6 5#ere for instan%e, t#e ban3er allo$s t#e % sto!er to $it#&ra$ t#e a!o nt of t#e %#e* e before t#e %#e* e is %olle%te& or $#ere t#e %#e* e #as been a%%e'te& in s'e%ifi% re& %tion of an o,er&raft, t#e ban3er is deemed to ha:e become the holder for :alue and the 0rutection is lost. B t t#e e)'lanation to Se%tion 1/1 sa(s t#at t#e !ere %re&iting of t#e a!o nt to t#e a%%o nt &oes not i!'l( t#at t#e ban3er #as be%o!e a #ol&er for ,al e be%a se & e to a%%o nting %on,enien%es t#e ban3er !a( %re&it t#e a%%o nt of t#e %#e* e to t#e % sto!erDs a%%o nt e,en before 'ro%ee&s t#ereof are realise&"

O erdue! "tale or Out#of#date Che$ues A %#e* e is o,er& e or be%o!es stat te6barre& after t#ree (ears fro! its & e &ate of iss e" A #ol&er %annot s e on t#e %#e* e after t#at ti!e" A'art fro! t#is 'ro,ision, t#e #ol&er of a %#e* e is re* ire& to 'resent it for 'a(!ent $it#in a reasonable ti!e, as a %#e* e is not !eant for in&efinite %ir% lation" In In&ia, a %#e* e, $#i%# #as been in %ir% lation for !ore t#an si) !ont#s, is regar&e& b( ban3ers as stale" If, as a res lt of an( &ela( in 'resenting a %#e* e, t#e &ra$er s ffers an( loss, as b( t#e fail re of t#e ban3, t#e &ra$er is &is%#arge& fro! liabilit( to t#e #ol&er to t#e e)tent of t#e &a!age" Liability of %ndorser In or&er to %#arge an en&orser, it is ne%essar( to 'resent t#e %#e* e for 'a(!ent $it#in a reasonable ti!e of its &eli,er( b( s %# en&orser" DAD en&orses an& &eli,ers a %#e* e to B, an& B 3ee's it for an nreasonable lengt# of ti!e, an& t#en en&orses an& &eli,ers it to C" C 'resents it for 'a(!ent $it#in a reasonable ti!e after its re%ei't b( #i!, an& it is &is#ono re&" C %an enfor%e 'a(!ent against B b t not against A, as #ua A, t#e %#e* e #as be%o!e stale" Rights of &older against Banker A ban3er is liable to #is % sto!er for $rongf l &is#ono r of #is %#e* e b t it is not liable to t#e 'a(ee or #ol&er of t#e %#e* e" T#e #ol&er #as no rig#t to en"tEr%e 'a(!ent

fro! t#e ban3er e)%e't in t$o %ases, na!el(, 0i1 $#ere t#e #ol&er &oes not 'resent t#e %#e* e $it#in a reasonable ti!e after iss e, an& as a res lt t#e &ra$er s ffers &a!age b( t#e fail re of t#e ban3er in li* i&ation 'ro%ee&ingsB an& 0ii1 $#ere ban3er 'a(s a

%rosse& %#e* e b( !ista3e o,er t#e %o nter, #e is liable to t#e o$ner for an( loss o%%asione& b( it" Crossing of Che$ues A %#e* e is eit#er -o'en- or -%rosse&-" An o'en %#e* e %an be 'resente& b( t#e 'a(ee to t#e 'a(ing ban3er an& is 'ai& o,er t#e %o nter" A %rosse& %#e* e %annot be 'ai& a%ross t#e %o nter b t ! st be %olle%te& t#ro g# a ban3er" A crossing is a &ire%tion to t#e 'a(ing ban3er to 'a( t#e !one( generall( to a ban3er or to a 'arti% lar ban3er, an& not to 'a( ot#er$ise" T#e ob8e%t of %rossing is to se% re 'a(!ent to a ban3er so t#at it %o l& be tra%e& to t#e 'erson re%ei,ing t#e a!o nt of t#e %#e* e" Crossing is a &ire%tion to t#e 'a(ing ban3er t#at t#e %#e* e s#o l& be 'ai& onl( to a ban3er or a s'e%ifie& ban3er" To restrain negotiabilit(, a&&ition of $or&s -Not Negotiable- or -A%%o nt >a(ee Onl(- is ne%essar(" A %rosse& bearer %#e* e %an be negotiate& b( &eli,er( an& %rosse& or&er %#e* e b( en&orse!ent an& &eli,er(" Crossing affor&s se% rit( an& 'rote%tion to t#e #ol&er of t#e %#e* e" 'odes of Crossing 0Se%tions 1?/61/1A1 T#ere are t$o t('es of %rossing $#i%# !a( be se& on %#e* e, na!el(7 0i1 General, an& 0ii1 S'e%ial" To t#ese !a( be a&&e& anot#er t('e, Le" Restri%ti,e %rossing" It is general %rossing $#ere a %#e* e bears a%ross its fa%e an a&&ition of t$o 'arallel trans,erse lines an&Mor t#e a&&ition of t#e $or&s -an& Co"- bet$een t#e!, or a&&ition of -not negotiable-" As state& earlier, $#ere a %#e* e is %rosse& generall(, t#e 'a(ing ban3er $ill 'a( to an( ban3er" T$o trans,erse 'arallel lines are essential for a general %rossing 0Se%tions 1?/61?;1" In %ase of general %rossing, t#e #ol&er or 'a(ee %annot get t#e 'a(!ent o,er t#e %o nter of t#e ban3 b t t#ro g# a ban3 onl(" T#e a&&ition of t#e $or&s -an& Co"- &o not #a,e an( signifi%an%e b t t#e a&&ition of t#e $or&s -not negotiablerestri%t t#e negotiabilit( of t#e %#e* e an& in %ase of transfer, t#e transferee $ill not gi,e a better title t#an t#at of a transferor" 5#ere a %#e* e bears a%ross its fa%e an a&&ition of t#e na!e of a ban3er, eit#er $it# or $it#o t t#e $or&s -not negotiable- t#at a&&ition %onstit tes a crossing an& t#e %#e* e is crossed s0ecially and to that !an"er The pa$ing !an"er will pa$ onl$ to the !an"er whose na#e appears across the cheque, or to his collecting agent 5arallel trans'erse lines are not essential !ut the na#e of the !an"er is the insignia of a special

crossing In %ase of s'e%ial %rossing, t#e 'a(ing, ban3er is to #ono r t#e %#e* e onl( $#en it is 'res%ribe& t#ro g# t#e ban3 !entione& in t#e %rossing or itDs agent ban3" /ccount Payee9s rossing2 S %# %rossing &oes, in 'ra%ti%e, restri%t negotiabilit( of a %#e* e" It $arns t#e collecting ban1er t#at t#e 'ro%ee&s are to be %re&ite& onl( to t#e a%%o nt of t#e 'a(ee, or t#e 'art( na!e&, or #is agent" If t#e %olle%ting ban3er allo$s t#e 'ro%ee&s of a %#e* e bearing s %# %rossing to be %re&ite& to an( ot#er a%%o nt, #e $ill be g ilt( of negligen%e an& $ill not be
entitle& to t#e 'rote%tion gi,en to %olle%ting ban3er n&er Se%tion 1/1" S %# %rossing &oes not affe%t t#e 'a(ing ban3er, $#o is n&er no & t( to as%ertain t#at t#e %#e* e is in fa%t %olle%te& for t#e a%%o nt of t#e 'erson na!e& as 'a(ee" of S0ecimen a general crossing S0ecimen a s0ecial crossing

of

Not Negotiable Crossing A %#e* e !a( be %rosse& not negotiable b( $riting a%ross t#e fa%e of t#e %#e* e t#e $or&s -Not Negotiable- $it#in t$o trans,erse 'arallel lines in t#e %ase of a general %rossing or along $it# t#e na!e of a ban3er in t#e %ase of a s'e%ial %rossing" Se%tion 1/E of t#e Negotiable Instr !ents A%t 'ro,i&es -A 'erson ta3ing a %#e* e %rosse& generall( or s'e%iall( bearing in eit#er %ase $it# t#e $or&s -not negotiable- s#all not #a,e an& s#all not be %a'able of gi,ing, a better title to t#e %#e* e t#an t#at $#i%# t#e

'erson fro! $#o! #e too3 it #a&-" T#e %rossing of %#e* e -not negotiable- &oes not !ean t#at it is non6transferable" It onl( &e'ri,es t#e instr !ent of t#e in%i&ent of negotiabilit(" Nor!all( s'ea3ing, t#e essential feat re of a negotiable instr !ent as o''ose& to %#attels is t#at a 'erson $#o ta3es t#e instr !ent in goo& fait#, $it#o t negligen%e, for ,al e, before !at rit( an& $it#o t 3no$le&ge of t#e &efe%t in t#e title of t#e transferor, gets a goo& title to t#e instr !ent" In ot#er $or&s, #e is %alle& a #ol&er in & e %o rse $#o a%* ires an in&is' table title to t#e %#e* e" 05#en t#e instr !ent 'asses t#ro g# a #ol&er6in6& e %o rse, it is ' rge& of all &efe%ts an& t#e s bse* ent #ol&ers also get goo& title1" It is e)a%tl( t#is i!'ortant feat re $#i%# is ta3en a$a( b( %rossing t#e %#e* e -not negotiable-" In ot#er $or&s, a %#e* e %rosse& Nnot negotiableis li3e an( ot#er %#attel an& t#erefore t#e transferee gets sa!e title to t#e %#e* e $#i%# #is transferor #a&" T#at is to sa( t#at t#e transferee %annot %lai! t#e rig#ts of a #ol&er6 in6& e6%o rse" So long as t#e title of t#e transferors is goo&, t#e title of t#e transferees is also goo& b t if t#ere is a taint in t#e title to t#e %#e* e of one of t#e en&orsers, t#en all t#e s bse* ent transfereesD title also be%o!e tainte& $it# t#e sa!e &efe%t6t#e( %annot %lai! to be #ol&ers6in6& e6%o rse" T#e ob8e%t of t#is Se%tion is to affor& 'rote%tion to t#e &ra$er or #ol&er of a %#e* e $#o is &esiro s of trans!itting it to anot#er 'erson, as ! %# 'rote%tion as %an reasonabl( be affor&e& to #i! against &is#onestl( or a%t al !is%arriage in t#e %o rse of transit" @or e)a!'le, a %#e* e 'a(able to bearer is %rosse& generall( an& is !ar3e& -not negotiable-" It is lost or stolen an& %o!es into t#e 'ossession of I $#o ta3es it in good fait# an& gi,es ,al e for it, I %olle%ts t#e %#e* e t#ro g# #is ban3 an& 'a(ing ban3er also 'a(s" In t#is %ase, bot# t#e 'a(ing an& t#e %olle%ting ban3ers are 'rote%te& n&er Se%tions 1?8 an& 1/1 res'e%ti,el(" B t I %annot %lai! t#at #e is a #ol&er6in6& e %o rse $#i%# #e %o l& #a,e n&er t#e nor!al %ir% !stan%es %lai!e&" T#e reason is t#at %#e* e is %rosse& -not negotiable- an& #en%e t#e tr e o$nerDs 0#ol&erDs1 rig#t s 'er%e&es t#e rig#ts of t#e #ol&er6in6& e6%o rse" Sin%e I obtaine& t#e %#e* e fro! a 'erson $#o #a& no title to t#e %#e* e 0Le" fro! one $#ose title $as &efe%ti,e1 I %an %lai! no better title solel( be%a se t#e %#e* e $as %rosse& -not negotiable- an& not for an( "ot#er reason" T# s -not negotiable- %rossing not onl( 'rote%ts t#e rig#ts of t#e tr e o$ner of t#e %#e* e b t also ser,es as a $arning to t#e en&orseesD to en* ire t#oro g#l( before ta3ing t#e %#e* e as t#e( !a( #a,e to be ans$erable to t#e tr e o$ner t#ereof if t#e en&orserDs title is fo n& to be &efe%ti,e" -Not negotiable- restri%ts t#e negotiabilit( of t#e %#e* e an& in %ase of transfer, t#e transferee $ill not get a better title t#an t#at of a transferor" If t#e %#e* e be%o!es -not negotiable- it la%3s negotiabilit(" A %#e* e %rosse& s'e%iall( or generall( bearing t#e $or&s -not negotiableO la%3s negotiabilit( an& t#erefore is not a negotiable instr !ent in t#e ,tr e sense" It &oes not restri%t transferabilit( b t restri%ts negotiabilit( onl(" 'aturity C#e* es are al$a(s 'a(able on &e!an& b t ot#er instr !ents li3e bills, notes, et%"

!a( be !a&e 'a(able on a s'e%ifie& &ate or after t#e s'e%ifie& 'erio& of ti!e" T#e &ate on $#i%# 'a(!ent of an instr !ent falls & e is %alle& its !at rit(" A%%or&ing to Se%tion ?? of t#e A%t, -t#e !at rit( of a 'ro!issor( note or a bill of e)%#ange is t#e &ate at $#i%# it falls & e-" A%%or&ing to Se%tion ?1 a 'ro!issor( note or bill of e)%#ange 'a(able -at sig#t- or -on 'resent!ent- is 'a(able on &e!an&" It is & e for 'a(!ent as soon as it is iss e&" T#e * estion of !at rit(, t#erefore, arises onl( in t#e %ase of a 'ro!issor( note or a bill of e)%#ange 'a(able -after &ate- or -after sig#t- or at a %ertain 'erio& after t#e #a''ening of an e,ent $#i%# is %ertain to #a''en"

Mat rit( is t#e &ate on $#i%# t#e 'a(!ent of an instr !ent falls & e" E,er( instr !ent 'a(able at a s'e%ifie& 'erio& after &ate or after sig#t is entitle& to t#ree &a(s of gra%e" S %# a bill or note !at res or falls & e on t#e last &a( of t#e gra%e 'erio&, an& ! st be 'resente& for 'a(!ent on t#at &a( an& if &is#ono re&, s it %an be instit te& on t#e ne)t &a( after !at rit(" If an instr !ent is 'a(able b( instal!ents, ea%# instal!ent is entitle& to t#ree &a(s of gra%e" No &a(s of gra%e are allo$e& for %#e* es, as t#e( are 'a(able on &e!an&" 5#ere a note or bill is e)'resse& to be 'a(able on t#e e)'ir( of s'e%ifie& n !ber of !ont#s after sig#t, or after &ate, t#e 'erio& of 'a(!ent ter!inates on t#e &a( of t#e !ont# $#i%# %orres'on&s $it# t#e &ate of instr !ent, or $it# t#e &ate of a%%e'tan%e if t#e bill be a%%e'te& or 'resente& for sig#t, or note& or 'roteste& for non6a%%e'tan%e" If t#e !ont# in $#i%4 t#e 'erio& $o l& ter!inate #as no %orres'on&ing &a(, t#e 'erio& s#all be #el& to ter!inate on t#e last &a( of s %# !ont#" 'llustratio n 0i1 A negotiable instr !ent &ate& /1 st 9an ar(, ?EE1, is !a&e 'a(able at one !ont#s after &ate" T#e instr !ent is at !at rit( on t#e t#ir& &a( after t#e ?8t# @ebr ar(, ?EE1, Le" on /r& Mar%#, ?EE1" 0ii1 A negotiable instr !ent &ate& /Et# A g st, ?EE1, is !a&e 'a(able t#ree !ont#s after &ate" T#e instr !ent is at !at rit( on"/r& De%e!ber, ?EE1" 0iii1 A negotiable instr !ent" &ate& t#e /1 st A g st, ?EE1, is !a&e 'a(able t#ree !ont#s after &ate" T#e instr !ent is at !at rit( on /r& De%e!ber, ?EE1" If t#e &a( of !at rit( falls on a ' bli% #oli&a(, t#e instr !ent is 'a(able on t#e 0receeding b siness &a(" T# s if a bill is at !at rit( on a S n&a(" It $ill be &ee!e& & e on Sat r&a( an& 0ot on Mon&a(" T#e as%ertain!ent of t#e &ate of !at rit( be%o!es i!'ortant be%a se all t#ese instr !ents ! st be 'resente& for 'a(!ent on t#e last &a( of gra%e an& t#eir 'a(!ent %annot be &e!an&e& before t#at &ate" 5#ere an instr !ent is 'a(able b( instal!ents, it ! st be 'resente& for 'a(!ent on t#e t#ir& &a( after

t#e &a( fi)e& for t#e 'a(!ent of ea%# instal!ent" &older A%%or&ing to Se%tion 8 of t#e A%t a 'erson is a #ol&er of a negotiable instr !ent $#o is entitle& in #is o$n na!e 0i1 to t#e 'ossession of t#e instr !ent, an& 0ii1 to re%o,er or re%ei,e its a!o nt fro! t#e 'arties t#ereto" It is not e,er( 'erson in 'ossession of t#e instr !ent $#o is %alle& a #ol&er" To be a #ol&er, t#e 'erson ! st be na!e& in t#e instr !ent as t#e 'a(ee, or t#e en&orsee, or #e ! st be t#e bearer t#ereof" A 'erson $#o #as obtaine& 'ossession of an instr !ent b( t#eft, or n&er a forge& en&orse!ent, is not a #ol&er" as #e is not entitle& to re%o,er t#e instr !ent" T#e #ol&er i!'lies de ?ure 0#ol&er in la$1 #ol&er an& not de facto 0#ol&er in fa%t1 #ol&er" An agent #ol&ing an instr !ent for #is 'rin%i'al is not a #ol&er alt#o g# #e !a( re%ei,e its 'a(!ent" &older in (ue Course Se%tion : states t#at a #ol&er in & e %o rse is 0i1 a 'erson $#o for %onsi&eration, obtains 'ossession of a negotiable instr !ent if 'a(able to bearer, or 0ii1 t#e 'a(ee or en&orsee t#ereof, if 'a(able to or&er, before its !at rit( an& $it#o t #a,ing s ffi%ient %a se to belie,e t#at an( &efe%t e)iste& in t#e title of t#e 'erson fro! $#o! #e &eri,e& #is title" In or&er to be a #ol&er in & e %o rse, a 'erson ! st satisf( t#e follo$ing %on&itions7 0i1 +e ! st be t#e #ol&er of t#e instr !ent" 0ii1+e s#o l& #a,e obtaine& t#e instr !ent for ,al e or %onsi&eration" 0iii1 0i,1 +e ! st #a,e obtaine& t#e negotiable instr !ent before !at rit(" T#e instr !ent s#o l& be %o!'lete an& reg lar on t#e fa%e of it"

0,1 T#e #ol&er s#o l& ta3e t#e instr !ent in goo& fait#" A #ol&er in & e %o rse is in a 'ri,ilege& 'osition" +e is not onl( #i!self 'rote%te& against all &efe%ts of t#e 'ersons fro! $#o! #e re%ei,e& t#e instr !ent as % rrent %oin, b t also ser,es as a %#annel to 'rote%t all s bse* ent #ol&ers" A #ol&er in & e %o rse %an re%o,er t#e a!o nt of t#e instr !ent fro! all 're,io s 'arties, alt#o g#, as a !atter of fa%t, no %onsi&eration $as 'ai& b( so!e of t#e 're,io s 'arties to t#e instr !ent or t#ere $as a &efe%t of title in t#e 'art( fro! $#o! #e too3 it" )nce an instrument 0asses through the hands of a holder in due course, it is 0urged of all defects. It is li3e % rrent %oin" 5#oe,er ta3es it %an re%o,er t#e a!o nt fro! all 'arties 're,io s to s %# #ol&er" "
Capacity of Parties

Ca'a%it( to in% r liabilit( as a 'art( to a negotiable instr !ent is %o6e)tensi,e $it# %a'a%it( to %ontra%t" A%%or&ing to Se%tion ?;, e,er( 'erson %a'able of %ontra%ting a%%or&ing to la$ to $#i%# #e is s b8e%t, !a( bin& #i!self an& be bo n& b( !a3ing, &ra$ing, a%%e'tan%e, en&orse!ent, &eli,er( an& negotiation of a 'ro!issor( note, bill of e)%#ange or %#e* e"

Negati,el(, !inors, l nati%s, i&iots, &r n3en 'erson an& 'ersons ot#er$ise &is* alifie& b( t#eir 'ersonal la$, &o not in% r an( liabilit( as 'arties to negotiable instr !ents" B t in%a'a%it(" of one or !ore of t#e 'arties to a negotiable instr !ent in no $a(, &i!1nis#es t#e abilities an& t#e liabilities of t#e
%o!'etent 'arties" 5#ere a !inor is t#e en&orser or 'a(ee of an instr !ent $#i%# #as been en&orse& all t#e 'arties a%%e'ting t#e !inor are liable in t#e e,ent of its &is#ono r"
"

Liability of Parties T#e 'ro,isions regar&ing t#e liabilit( of 'arties to negotiable instr !ents are lai& &o$n in Se%tions /E to /? an& /< to A? of t#e Negotiable Instr !ents A%t" T#ese 'ro,isions are as follo$s7 %. Liability of .rawer 0Se%tion /E1 T#e &ra$er of a bill of e)%#ange or %#e* e is bo n&, in %ase of &is#ono r b( t#e &ra$ee or a%%e'tor t#ereof, to %o!'ensate t#e #ol&er, 'ro,i&e& & e noti%e of &is#ono r
"

#as been gi,en to or re%ei,e& b( t#e &ra$er" T#e nat re of &ra$erDs liabilit( is t#at b(

&ra$ing a bill, #e n&erta3es t#at 0i1 on & e 'resentation, it s#all be a%%e'te& an& 'ai& a%%or&ing to its tenor, an& 0ii1 in %ase of &is#ono r, #e $ill %o!'ensate t#e #ol&er or an( en&orser, 'ro,i&e& noti%e of &is#ono r #as been & l( gi,en" +o$e,er, in %ase of a%%o!!o&ation bill no noti%e of &is#ono r to t#e &ra$er is re* ire&" T#e liabilit( of a &ra$er of a bill of e)%#ange is se%on&ar( an& arises onl( on &efa lt of t#e &ra$ee, $#o is 'ri!aril( liable to !a3e 'a(!ent of t#e negotiable instr !ent" (. Liability of the .rawee of he#ue 0Se%tion /11

T#e &ra$ee of a %#e* e #a,ing s ffi%ient f n&s of t#e &ra$er in #is #an&s 'ro'erl( a''li%able to t#e 'a(!ent of s %# %#e* e ! st 'a( t#e %#e* e $#en & l( re* ire& to &o so an&, or in &efa lt of s %# 'a(!ent, #e s#all %o!'ensate t#e &ra$er for an( loss or &a!age %a se& b( s %# &efa lt" As a %#e* e is a bill of e)%#ange, &ra$n on a s'e%ifie& ban3er, t#e &ra$ee of a %#e* e ! st al$a(s be a ban3er" T#e ban3er, t#erefore, is bo n& to 'a( t#e %#e* e of t#e &ra$er, i"e", % sto!er, if t#e follo$ing %on&itions are satisfie&7 0i1 T#e ban3er #as s ffi%ient f n&s to t#e %re&it of % sto!erDs a%%o nt" 0ii1 T#e f n&s are 'ro'erl( a''li%able to t#e 'a(!ent of s %# %#e* e, e"g", t#e

f n&s are not n&er an( 3in& of lien et%"

"

0iii1 T#e %#e* e is & l( re* ire& to be 'ai&, & ring ban3ing #o rs an& on or after t#e &ate on $#i%# it is !a&e 'a(able" If t#e ban3er is n8 stifie& in ref sing to #ono r t#e %#e* e of its % sto!er, it s#all be liable for &a!ages" *. Liability of "=a1er" of Note and 99/cce0tor9 of &ill 0Se%tion /?1 In t#e absen%e of a %ontra%t to t#e %ontrar(, t#e !a3er of a 'ro!issor( note an& t#e a%%e'tor before !at rit( of a bill of e)%#ange are bo n& to 'a( t#e a!o nt t#ereof at !at rit(, a%%or&ing to t#e a''arent tenor of t#e note or a%%e'tan%e res'e%ti,el(" T#e a%%e'tor of a bill of e)%#ange at or after !at rit( is bo n& to 'a( tbe a!o nt t#ereof to t#e #ol&er on &e!an&7 It follo$s t#at t#e liabilit( of t#e a%%e'tor of a bill %orres'on&s to t#at of t#e !a3er of a note an& is absol te an& n%on&itional b t t#e liabilit( n&er t#is Se%tion is s b8e%t to t#e %ontra%t to t#e %ontrar( 0e"g", as in t#e %ase of a%%o!!o&ation bills1 an& !a( be e)%l &e& or !o&ifie& b( a %ollateral agree!ent" @ rt#er, t#e 'a(!ent ! st be !a&e to t#e 'art( na!e& in t#e instr !ent an& not to an(6one else, an& it ! st be !a&e at !at rit( an& not before" +. Liability of endorser 0Se%tion /<1 E,er( en&orser in% rs liabilit( to t#e 'arties t#at are s bse* ent to #i!" 5#oe,er en&orses an& &eli,ers a negotiable instr !ent before !at rit( is bo n& t#ereb( to e,er( s bse* ent #ol&er in %ase of &is#ono r of t#e instr !ent b( t#e &ra$ee, a%%e'tor or !a3er, to %o!'ensate s %# #ol&er of an( loss or &a!age %a se& to #i! b( s %# &is#ono r 'ro,i&e& 0i1 t#ere is no %ontra%t to t#e %ontrar(B 0ii1 #e 0en&orser1 #as not e)'ressl( e)%l &e&, li!ite& or !a&e %on&itional #is o$n liabilit(B an& 0iii1 & e noti%e of &is#ono r #as been gi,en to, or re%ei,e& b(, s %# en&orser" E,er( en&orser after &is#ono r, is liable 'on t#e instr !ent as if it is 'a(able on &e!an&" +e is bo n& b( #is en&orse!ent not$it#stan&ing an( 're,io s alteration of t#e

instr !ent" 0Se%tion 881

-. Liability of Prior Parties 0Se%tion /;1

E,er( 'rior 'art( to a negotiable instr !ent is liable t#ereon to a #ol&er in & e %o rse ntil t#e instr !ent is & l( satisfie&" >rior 'arties !a( in%l &e t#e !a3er or &ra$er, t#e a%%e'tor an& all t#e inter,ening en&orsers to a negotiable instr !ent" T#e liabilit( of t#e 'rior 'arties to a #ol&er in & e %o rse is 8oint an& se,eral" T#e #ol&er in & e %o rse !a( #ol& an( or all 'rior 'arties liable for t#e a!o nt of t#e &is#ono re& instr !ent"

6. Liability interse

Gario s 'arties to a negotiable instr !ent $#o are liable t#ereon stan& on a &ifferent footing $it# res'e%t to t#e nat re of liabilit( of ea%# one of t#e!" @. Liability of /cce0tor of ,orged !ndorsement 0Se%tion A11 An a%%e'tor of a bill of e)%#ange alrea&( en&orse& is not relie,e& fro! liabilit( b( reason t#at s %# en&orse!ent is forge&" if #e 3ne$ or #a& reason to belie,e t#e en&orse!ent to be forge& $#en #e a%%e'te& t#e bill" A. /cce0tor9s Liability on a &ill drawn in a ,ictitious Name An a%ee'tor of a bill of e)%#ange &ra$n in a fi%titio s na!e an& 'a(able to t#e &ra$erDs or&er is not, b( reason t#at s %# na!e is fi%titio s, relie,e& fro! liabilit( to an( #ol&er In & e %o rse %lai!ing n&er an en&orse!ent b( t#e sa!e #an& as t#e &ra$erDs signat re, an& ' r'orting to be !a&e b( t#e &ra$er"

Negotiation 0Se%tion 1A1

A negotiable instr !ent !a( be transferre& b( negotiation or assign!ent" Negotiation is t#e transfer of an instr !ent 0a note, bill or %#e* e1 for one 'erson to anot#er in s %# a !anner as to %on,e( title an& to %onstit te t#e transferee t#e #ol&er t#ereofQ" 5#en a negotiable instr !ent is transferre& b( negotiation, t#e rig#ts of t#e transferee !a( rise #ig#er t#an t#ose of t#e transferor, &e'en&ing 'on t#e %ir% !stan%es atten&ing t#e negotiation" 5#en t#e transfer is !a&e b( assign!ent, t#e assignee #as onl( t#ose rig#ts $#i%# t#e assignor 'ossesse&" In %ase of assign!ent, t#ere is a transfer of o$ners#i' b( !eans of a $ritten an& registere& &o% !ent" Negotiabilit( an& Assignabilit( Disting is#e&
A transfer b( negotiation &iffers fro! transfer b( assign!ent in t#e follo$ing res'e%ts7 0a1 Negotiation re* ires !ere &eli,er( of a bearer instr !ent an& en&orse!ent an& &eli,er( of an or&er instr !ent to effe%t ate a transfer" Assign!ent re* ires a $ritten &o% !ent signe& b( t#e transferor" 0b1 Noti%e of transfer of &ebt 0a%tionable %lai!1 ! st be gi,en b( t#e assignee to t#e &ebtor in or&er to %o!'lete #is titleB no s %# noti%e is ne%essar( in a transfer b( negotiation" 0%1 On assign!ent, t#e transferee of an a%tionable %lai! ta3es it s b8e%t to all t#e &efe%ts in t#e title of, an& s b8e%t to all t#e e* ities an& &efen%es a,ailable against t#e assignor, e,en t#o g# #e too3 t#e assign!ent for ,al e an& in good fait#" In %ase of negotiation t#e transferee, as #ol&er6in6& e %o rse, -ta3es t#e instr !ent free fro! an( &efe%ts in t#e title of t#e transferor" Importance of (eli ery Negotiation is effe%te& b( !ere &eli,er( of a bearer instr !ent an& b( en&orse!ent an& &eli,er( of an or&er instr !ent" T#is s#o$s t#at -&eli,er(- is essential in negotiable

instr !ents" Se%tion A; e)'ressl( 'ro,i&es t#at !a3ing a%%e'tan%e or en&orse!ent of negotiable instr !ent is not %o!'lete ntil &eli,er(,a& al or %onstr %ti,e, of t#e instr !ent" Deli,er( !a&e ,ol ntaril( $it# t#e intention of 'assing 'ro'ert( in t#e instr !ent to t#e 'erson to $#o! it is gi,en is essential"

Negotiation by 'ere (eli ery

A bill or %#e* e 'a(able to bearer is negotiate& b( !ere &eli,er( of t#e instr !ent" An Rinstr !ent is 'a(able to bearer7 0i1 5#ere it is !a&e so 'a(able, or 0ii1 5#ere it is originall( !a&e 'a(able to or&er b t t#e onl( ort#e last en&orse!ent is in blan3" 0iii1 5#ere t#e 'a(ee is a fi%titio s or a non6e)isting 'erson

0i,1 T#ese Instr !ents &o not re* ire signat re of t#e transferor" T#e 'erson $#o ta3es t#e! is a #ol&er, an& %an s e in #is o$n na!e on t#e!" 5#ere a bearer negotiates an instr !ent b( !ere &eli,er(, an& &oes not ' t #is signat re t#ereon,6#e is not liable to an( 'art( to t#e instr !ent in %ase t#e instr !ent is &is#ono re&, as #e #as not lent #is %re&it to it" +is obligations are onl( to$ar&s #is i!!e&iate transferee an& to no ot#er #ol&ers"

A %#e* e, originall( &ra$n 'a(able to bearer re!ains bearer, e,en t#o g# it is s bse* entl( en&orse& in f ll" T#e r le is once a bearer che#ue al>ays a bearer che#ue.
H,

Negotiation by !ndorsement and .eli:ery

An instr !ent 'a(able to a s'e%ifie& 'erson or to t#e or&er of a s'e%ifie& 'erson or to a s'e%ifie& 'erson or or&er is an instr !ent 'a(able to or&er" S %# an instr !ent %an be negotiate& onl( b( en&orse!ent an& &eli,er(" Unless t#e #ol&er signs #is en&orse!ent on t#e instr !ent, t#e transferee &oes not be%o!e a #ol&er" 5#ere an instr !ent 'a(able to or&er is &eli,ere& $it#o t en&orse!ent, it is !erel( assigne& an&

not negotiate& an& t#e #ol&er t#ei;Ef is not entit7e& to t#e rig#ts of a #ol&er in & e %o rse, an& #e %annot negotiate it to a t#ir& 'erson" En&orse!ent 0Se%tions 1< an& 1;1 5#ere t#e !a3er or #ol&er of a negotiable instr !ent signs t#e sa!e ot#er$ise t#an as s %# !a3er for t#e ' r'ose of negotiation, on t#e ba%3 or fa%e t#ereof or on a sli' of 'a'er anne)e& t#ereto 0%alle& Allonge1, or so, signs for t#e sa!e ' r'ose, a sta!'e& 'a'er inten&e& to be %o!'lete& as a negotiable instr !ent, #e is sai& to en&orse t#e sa!e 0Se%tion 1<1, t#e 'erson to $#o! t#e instr !ent is en&orse& is %alle& t#e en&orsee" In ot#er $or&s, Den&orse!entD !eans an& in,ol,es t#e $riting of so!et#ing on t#e ba%3 of an instr !ent for t#e ' r'ose of transferring t#e rig#t, title an& interest t#erein to so!e ot#er 'erson"

lasses of endorsement An en&orse!ent !a( be 0a1 Blan3 or General, 0b1 S'e%ial or @ ll, 0%1 Restri%ti,e, or 0&1 >artial, an& 0e1 Con&itional or S alifie&" 0a1 &lan1 or General2 An en&orse!ent is to be blan3 or general $#ere t#e en&orser !erel( $rites #is signat re on t#e ba%3 of t#e instr !ent, an& t#e instr !ent so en&orse& be%o!es 'a(able to bearer, e,en t#o g# originall( it $as 'a(able to or&er" T# s, $#ere bill is 'a(able to -Mo#an or or&er-, an& #e $rites on its ba%3 -Mo#an-, it is an en&orse!ent in blan3 b( Mo#an an& t#e 'ro'ert( in t#e bill %an 'ass b( !ere &eli,er(, as long as t#e en&orse!ent %ontin es tobe aMblan3" B t a #ol&er of an instr !ent en&orse& in blan3 !a( %on,ert t#e en&orse!ent in blan3 into an en&orse!ent In f ll, b( $riting abo,e t#e en&orserDs signat re, a &ire%tion to 'a( t#e instr !ent to anot#er 'erson or #is or&er" 0b1 S0ecial or ,ull2 If t#e en&orser signs #is na!e an& a&&s a &ire%tion to 'a( t#e a!o nt !entione& in t#e instr !ent to, or to t#e or&er of a s'e%ifie& 'erson, t#e en&orse!ent is sai& to be s'e%ial or in f ll" A bill !a&e 'a(able to Mo#an or Mo#an or or&er, an& en&orse& -'a( to t#e or&er of So#an- $o l& be s'e%iall( en&orse& an& So#an en&orses it f rt#er" A blan3 en&orse!ent %an be t rne& into a s'e%ial one b( t#e a&&ition of an or&er !a3ing t#e bill 'a(able to t#e transferee" " 0%1 5estricti:e2 An en&orse!ent is restri%ti,e $#i%# 'ro#ibits or restri%ts t#e f rt#er negotiation of an instr !ent" E)a!'les of restri%ti,e en&orse!ent7 ->a( A onl(- or ->a( A for !( se- or ->a( A on a%%o nt of B- or ->a( A or or&er for %olle%tion-" 0&1 Partial2 An en&orse!ent 'artial is one $#i%# ' r'orts to transfer to t#e en&orsee a 'art onl( of t#e a!o nt 'a(able on t#e instr !ent" A 'artial en&orse!ent &oes not o'erate as negotiation of t#e instr !ent" A #ol&s a bill for Rs" 1,EEE an& en&orses it as ->a( B or or&er Rs" <EE-" T#e en&orse!ent is 'artial an& in,ali&"
"e) onditional or #ualified2 An '-&orse!ent is %on&itional or * alifie& $#i%# li!its or negati,es t#e liabilit( of t#e en&orser" An en&orser !a( li!it #is liabilit( in an( of t#e follo$ing $a(s7 0i1 &y sans recourse endorsement, Le" b( !a3ing it %lear t#at #e &oes not in% r t#e liabilit( of an en&orser to t#e en&orsee or s bse* ent #ol&ers an& t#e( s#o l& not loo3 to #i! in %ase of &is#ono r of instr !ent" T#e en&orser e)%l &es #is liabilit( b( a&&ing t#e $or&s -sans re%o rse- or -$it#o t re%o rse-, e"g", -'a( A or or&er sa!e re%o rse-" 0ii1 B( !a3ing #is liabilit( &e'en&ing 'on #a''ening of a s'e%ifie& e,ent $#i%# !a( ne,er #a''en, e"g", t#e #ol&er of a bill !a( en&orse it t# s7 ->a( A6or or&er on #is !arr(ing B-" In s %# a %ase, t#e en&orser $ill not

be liable ntil" A !afries B" It is 'ertinent to refer to Se%tion <? of t#e Negotiable Instr !ents A%t, 1881 #ere" It rea&s -T#e en&orser of a negotiable instr !ent !a(, b( e)'ress $or&s in t#e en&orse!ent e)%l &e #is o$n liabilit( t#ereon, or !a3e s %# liabilit( or t#e rig#t of t#e en&orsee to re%ei,e t#e a!o nt & e t#ereon &e'en& 'on t#e #a''ening of a s'e%ifie& e,ent, alt#o g# s %# e,ent !a( ne,er #a''en"

Negotiation Back
5#ere an en&orser negotiates an instr !ent an& again be%o!es its #ol&er, t#e instr !ent is sai& to be negotiate& ba%3 to t#at en&orser an& none of t#e inter!e&iar( en&orsees are t#en liable to #i!" T#e r le 're,ents a %ir% it( of a%tion" @or e)a!'le, A, t#e #ol&er of a bill en&orses it to a, B en&orses to C, an& C to D, an& en&orses it again to A" A, being a #ol&er in & e %o rse of t#e bill b( se%on& en&orse!ent b(,D, %an re%o,er t#e a!o nt t#ereof fro! B, C, or D an& #i!self being a 'rior 'art( is liable to all of t#e!" T#erefore, A #a,ing been relegate& b( t#e se%on& en&orse!ent to #is original 'osition, %annot s e B, C an& D" >here an endorser so e3cludes his liability and afterwards becomes the holder of the instrument, all the intermediate endorsers are liable to him. - t#e itali%ise& 'ortion of t#e abo,e Se%tion is i!'ortant" An ill stration $ill !a3e t#e 'oint %lear" A is t#e 'a(ee of a negotiable instr !ent" +e en&orses t#e instr !ent Dsans re%o rseD to B, B en&orses to C, C to D, an& D again en&orses it to A" In t#is %ase, A is not onl( reinstate& in #is for!er rig#ts b t #as t#e rig#t of an en&orsee against B, C an& D"

Negotiation of Lost Instrument or that Obtained by )nla*ful 'eans 5#en a negotiable instr !ent #as been lost or #as been obtaine& fro! an( !a3er, a%%e'tor or #ol&er t#ereof b( !eans of an offen%e or fra &, or for an nla$f l %onsi&eration, no 'ossessor or en&orsee, $#o %lai!s t#ro g# t#e 'erson $#o fo n& or obtaine& t#e instr !ent is entitle& to re%ei,e t#e a!o nt & e t#ereon fro! s %# !a3er, a%%e'tor, or #ol&er fro! an( 'art( 'rior to s %# #ol&er unless s %# 'ossessor or en&orsee is, or so!e 'erson t#ro g# $#o! #e %lai!s $as, a #ol&er in & e %o rse" +orged %ndorsement
T#e %ase of a forge& en&orse!ent is $ort# s'e%ial noti%e" if an instr !ent is en&orse& in f ll, it %annot be negotiate& e)%e't b( an en&orse!ent signe& b( t#e 'erson to $#o! or to $#ose or&er t#e instr !ent is 'a(able, for t#e en&orsee obtains title onl( t#ro g# #is en&orse!ent" T# s, if an instr !ent be negotiate& b( !eans of a forge& en&orse!ent, t#e en&orsee a%* ires no title e,en t#o g# #e be a ' r%#aser for ,al e an& in goo& fait#, for t#e en&orse!ent is a n llit(" @orger( %on,e(s no title" &ut where the instrument is a bearer instrument or has been endorsed in blan1, it can be negotiated by mere deli:ery, and the holder deri:es his title inde0endent of the forged

endorsement and can claim the amount from any of the 0arties to to the instrument. @or e)a!'le, a bill is en&orse&, ->a( A or or&er-" A en&orses it in blan3, an& it %o!es into t#e #an&s of B, $#o si!'l( &eli,ers it to C, C forges BDs en&orse!ent an& transfer it to D" +ere, D, as t#e #ol&er &oes not &eri,e #is title t#ro g# t#e forge& en&orse!ent of B, b t t#ro g# t#e gen ine en&orse!ent of A an& %an %lai! 'a(!ent fro! an( of t#e 'arties to t#e instr !ent in s'ite of t#e inter,ening forgeg en&orse!ent"

,cceptance of a Bill of %-change

T#e &ra$ee of a bill of e)%#ange, as s %#, #as no liabilit( on an( bill a&&resse& to #i! for a%%e'tan%e or 'a(!ent" A ref sal to a%%e't or to 'a( s %# bill gi,es t#e #ol&er no rig#ts against #i!" T#e &ra$ee be%o!es liable onl( after #e a%%e'ts t#e bill" T#e a%%e'tor #as to $rite t#e $or& Da%%e'te&D on t#e bill an& sign #is na!e belo$ it"" T# s, it is t#e a%%e'tor $#o is 'ri!aril( liable on a bill" T#e a%%e'tan%e of a bill is t#e in&i%ation b( t#e &ra$ee of #is assent to t#e or&er of t#e &ra$er" T# s, $#en t#e &ra$ee $rites a%ross t#e fa%e of t#e bill t#e $or& -a%%e'te&- an& signs #is na!e n&erneat# #e be%o!es t#e a%%e'tor of t#e bill"

An a%%e'tan%e !a( be eit#er general or * alifie&" A general a%%e'tan%e is absol te an& as a r le, an a%%e'tan%e #as to be general" " 5#ere an a%%e'tan%e is !a&e s b8e%t to so!e %on&ition or * alifi%ation, t#ereb( ,ar(ing t#e
effe%t of t#e bill, it is a * alifie& a%%e'tan%e" T#e #ol&er of t#e bill !a( eit#er ref se to ta3e a * alifie& a%%e'tan%e or non6a%* ies%en%e in it" 5#ere #e ref ses to ta3e it, #e %an treat t#e bill as &is#ono re& b( non6a%%e'tan%e, an& s e t#e &ra$er a%%or&ingl("

,cceptance for &onour 5#en a bill #as been note& or 'roteste& for non6a%%e'tan%e or for better
se% rit(, an( 'erson not being a 'art( alrea&( liable t#ereon !a(, $it# t#e %onsent of t#e #ol&er, b( $riting on t#e bill, a%%e't t#e sa!e for t#e #ono r of an( 'art( t#ereto" T#e stranger so a%%e'ting, $ill &e%lare n&er #is #an& t#at #e a%%e'ts t#e 'roteste& bill for t#e #ono r of t#e &ra$er or an( 'arti% lar en&orser $#o! #e na!es" T#e a%%e'tor for #ono r is liable to 'a( onl( $#en t#e bill #as been & l( 'resente& at !at rit( to t#e &ra$ee for 'a(!ent an& t#e &ra$ee #as ref se& to 'a( an& t#e bill #as been note& an& 'roteste& for non6'a(!ent" 5#ere a bill #as been 'roteste& for non6'a(!ent after #a,ing been & l( a%%e'te&, an( 'erson !a( inter,ene an& 'a( it su0ra 0rotest for t#e #ono r of an( 'art( liable on t#e bill" 5#en a bill is 'ai& su0ra9 0rotest, it %eases to be negotiable" T#e stranger, on 'a(ing for #ono r, a%* ires all t#e rig#t of #ol&er for $#o! #e 'a(s"

Presentment for ,cceptance

It is onl( bills of e)%#ange t#at re* ire 'resent!ent for a%%e'tan%e an& e,en t#ese of %ertain 3in&s onl(" Bills 'a(able on &e!an& or on a fi)e& &ate nee& not be 'resente&" T# s, a bill 'a(able +0 &a(s after & e &ate on t#e #a''ening of a %ertain e,ent !a( or !a( not be 'resente& for a%%e'tan%e" B t t#e follo$ing bills ! st be 'resente& for a%%e'tan%e ot#er$ise, t#e 'arties to t#e bill $ill not be liable on it7 0a1 A bill 'a(able after sight. >resent!ent is ne%essar( in or&er to fi) !at rit( of t#e billsB an& 0b1 A bill in $#i%# t#ere is an e)'ress sti' lation t#at it s#all be 'resente& for a%%e'tan%e before it is 'resente& for 'a(!ent" Se%tion 1< 'ro,i&es t#at t#e 'resent!ent for a%%e'tan%e ! st be !a&e to t#e &ra$ee or #is & l( a t#orise& agent" If t#e &ra$ee is &ea&, t#e bill s#o l& be 'resente& to #is legal re'resentati,e, or if #e #as been &e%lare& an insol,ent, to t#e offi%ial re%ei,er or assigner" T#e follo$ing are t#e 'ersons to $#o! a bill of e)%#ange s#o l& be 'resente&7 0i1 T#e &ra$ee or #is & l( a t#orise& agent" 0ii1 If t#ere are !an( &ra$ees, bill ! st be 'resente& to all of t#e!"

(iii)

T#e legal re'resentati,es of t#e &ra$ee if &ra$ee is dead

0i,1T#e offi%ial re%ei,er or assignee of insol,ent &ra$ee"

0,1 To a &ra$ee in %ase of nee&, if t#ere is an(" T#is is ne%essar( $#en t#e original &ra$ee ref ses to a%%e't t#e bill"
0,i1 T#e a%%e'tor for #ono r" In %ase t#e bill is not a%%e'te& an& is note& or 'roteste& for non6a%%e'tan%e, t#e bill !a( be a%%e'te& b( t#e a%%e'tor for #ono r" +e IS a 'erson $#o %o!es for$ar& to a%%e't t#e bill $#en it is &is#ono re& b( non6 a%%e'tan%e" T#e 'resent!ent ! st be !a&e before !at rit(, $it#in a reasonable ti!e after it is &ra$n, or $it#in t#e sti' late& 'erio&, if an(, on a b siness &a( $it#in b siness #o rs an& at t#e 'la%e of b siness or resi&en%e of t#e &ra$ee" T#e 'resent!ent ! st be !a&e b( e)#ibiting t#e bill to t#e &ra$eeB !ere noti%e of its e)isten%e in t#e 'ossession of #ol&er $ill not be s ffi%ient"

5#en 'resent!ent is %o!' lsor( an& t#e #ol&er fails to 'resent for a%%e'tan%e, t#e &ra$er an& all t#e en&orsers are &is%#arge& fro! liabilit( to #i!"
Presentment for Acceptance *hen %-cused Co!' lsor( 'resent!ent for a%%e'tan%e is e)% se& an& t#e bill !a( be treate& as &is#ono re& in t#e follo$ing %ases7 0a1 5#ere t#e &ra$ee %annot be fo n& after reasonable sear%#" 0b1 5#ere &ra$ee is a fi%titio s 'erson or one in%a'able of %ontra%ting"

0%1 5#ere alt#o g# t#e 'resent!ent is irreg lar, a%%e'tan%e #as been ref se& on so!e ot#er gro n&"

Presentment for Payment All notes" bills an& %#e* es ! st be 'resente& for 'a(!ent to t#e !a3er, a%%e'tor or &ra$ee t#ereof res'e%ti,el( b( or on be#alf of t#e #ol&er & ring t#e s al #o rs of b siness, an& if at ban3erDs $it#in ban3ing #o rs" Presentment for Payment *hen %-cused No 'resent!ent is ne%essar( an& t#e instr !ent !a( be treate& as &is#ono re& in t#e follo$ing %ases7 0a1 5#ere t#e !a3er, &ra$er or a%%e'tor a%ti,el( &oes so!et#ing so as to intentionall( obstr %t t#e 'resent!ent of t#e instr !ent, e"g", &e'ri,es t#e #ol&er of t#e instr !ent an& 3ee's it after !at rit(" 0b1 5#ere #is b siness 'la%e is %lose& on t#e & e &ate" 0%1 5#ere no 'erson is 'resent to !a3e 'a(!ent at t#e 'la%e s'e%ifie& for 'a(!ent" 0&1 5#ere #e %annot, after & e sear%# be fo n&" 0Se%tion ;11 0e1 5#ere t#ere is a 'ro!ise to 'a( not$it#stan&ing non6'resent!ent" 0f1 5#ere t#e 'resent!ent is e)'ress or i!'lie&l( $ai,e& b( t#e 'art( entitle& to 'resent!ent" 0g1 5#ere t#e &ra$er %o l& not 'ossibl( #a,e s ffere& an( &a!age b( non6'resent!ent" 0#1 5#ere t#e &ra$er is a fi%titio s 'erson, or one in%o!'etent to %ontra%t" 0i1 5#ere t#e &ra$er an& t#e &ra$ee are t#e sa!e 'erson" ! 5#ere t#e bill is &is#ono re& b( non6a%%e'tan%e" 031 5#ere 'resent!ent #as be%o!e i!'ossible, e"g", t#e &e%laration of $ar bet$een t#e %o ntries of t#e #ol&er an& &ra$ee" 0I1 5#ere t#o g# t#e 'resent!ent is irreg lar, a%%e'tan%e #as been ref se& on so!e ot#er gro n&s" (ishonour by Non#,cceptance Se%tion :1 'ro,i&es t#at a bill is sai& to be &is#ono re& b( non6a%%e'tan%e7 0a1 5#en t#e &ra$ee &oes not a%%e't it $it#in A8 #o rs fro! t#e ti!e of 'resent!ent for a%%e'tan%e" 0b1 5#en 'resent!ent for a%%e'tan%e is e)% se& an& t#e bill re!ains na%%e'te&" 0%1 5#en t#e &ra$ee is in%o!'etent to %ontra%t" 0&1 5#en t#e &ra$ee is a fi%titio s 'erson or after reasonable sear%# %an not

be fo n&" 0e1 5#ere t#e a%%e'tan%e is a * alifie& one" (ishonour by Non#payment ."ection /01 A 'ro!issor( note, bill of e)%#ange or %#e* e is sai& to be &is#ono re& b( non6'a(!ent $#en t#e !a3er of t#e note, a%%e'tor of t#e bill or &ra$ee of t#e %#e* e !a3es &efa lt in 'a(!ent 'on being & l( re* ire& to 'a( t#e sa!e" Also, a
negotiable instr !ent is &is#ono re& b( non6'a(!ent $#en 'resent!ent for 'a(!ent is e)% se& an& t#e instr !ent $#en o,er& e re!ains n'ai&" If t#e bill is &is#ono re& eit#er b( non6a%%e'tan%e or b( non6 'a(!ent, t#e &ra$er an& ail t#e en&orsers of t#e bill are liable to t#e #ol&er, 'ro,i&e& #e gi,es noti%e of s %# &is#ono r" T#e &ra$ee is liable onl( $#en t#ere is &is#ono r b( non6'a(!ent" Notice of (ishonour 0Se%tions :16:8 an& Se%tions 1E<61EC1 5#en a negotiable instr !ent is &is#ono re& eit#er b( non6a%%e'tan%e or b( non6 'a(!ent, t#e #ol&er or so!e 'art( liable t#ereon ! st gi,e noti%e of &is#ono r to all ot#er 'arties $#o! #e see3s to !a3e liable" Ea%# 'art( re%ei,ing noti%e of &is#ono r ! st in or&er to ren&er an( 'rior 'art( liable to #i!self, gi,e noti%e of &is#ono r to s %# 'art( $it#in a reasonable ti!e after #e #as re%ei,e& it" T#e ob8e%t ot gi,ing noti%e is not to &e!an& 'a(!ent b t to $#o! t#e 'art( notifie& of #is liabilit( an& in %ase of &ra$er to enable #i! to 'rote%t #i!self as against t#e &ra$ee or a%%e'tor $#o #as &is#ono re& t#e instr !ent iss e& b( #i!" Noti%e of &is#ono r is so ne%essar( t#at an o!ission to gi,e Dit &is%#arges all 'arties ot#er t#an t#e !a3er or a%%e'tor" T#ese 'arties are &is%#arge& not onl( on t#e bill or note, b t also in res'e%t of t#e

original %onsi&eration"

"

Noti%e !a( be oral or in $riting, b t it ! st be a%t al for!al noti%e" It ! st be gi,en $it#in a res'onsibleD ti!e of &is#ono r" Notice of (ishonour )nnecessary No noti%e of &is#ono r is ne%essar(7 0a1 5#en it is &is'ense& $it# or $ai,e& b( t#e 'art( entitle& t#ereto, e"g" $#ere an en&orser $rites on t#e instr !ent s %# $or&s as -noti%e of &is#ono r $ai,e&- , 0b1 5#en t#e &ra$er #as %o nter!an&e& 'a(!ent" 0%1 5#en t#e 'art( %#arge& $o l& not s ffer &a!age for $ant of noti%e" 0&1 5#en t#e 'art( entitle& to noti%e %annot after & e sear%# be fo n&" 0e1 5#en t#e o!ission to gi,e noti%e is %a se& b( na,oi&able %ir% !stan%es, e"g", &eat# or &angero s illness of t#e #ol&er" 0f1 5#ere t#e a%%e'tor is also a &ra$er, e"g", $#ere a fir! &ra$s on its bran%#" 0g1

5#ere t#e 'ro!issor( note is not negotiable" S %# a note %annot be en&orse&" 0#1 5#ere t#e 'art( entitle& to noti%e 'ro!ises to 'a( n%on&itionall("

Noting and Protest 0Se%tions ::61EA A1

Noting 5#ere a note or bill is &is#ono re&, t#e #ol&er is entitle& after gi,ing & e noti%e of &is#ono r, to s e t#e &ra$er an& t#e en&orsers" Se%tion :: 'ro,i&es a %on,enient !et#o& of a t#enti%ating t#e fa%t of &is#ono r b( !eans of -Noting-" 5#ere a bill or note is &is#ono re&, t#e #ol&er !a(, if #e so &esires, %a se s %# &is#ono r to be note& b( a

notar( ' bli% on t#e instr !ent, or on a 'a'er atta%#e& t#ereto or 'artl( on ea%#" T#e noting or !in te ! st be re%or&e& b( t#e notar( ' bli% $it#in a reasonable ti!e after &is#ono r an& ! st %ontain t#e fa%t of &is#ono r, t#e &ate of &is#ono r, t#e reason, if an(, assigne& for s %# &is#ono r if t#e instr !ent #as not been e)'ressl( &is#ono re& t#e reasons $#( t#e #ol&er treats it &is#ono re& an& notar(Ds %#arges" Protest T#e 'rotest is t#e for!al notarial %ertifi%ate attesting t#e &is#ono r of t#e bill, an& base& 'on t#e noting $#i%# #as been effe%te& on t#e &is#ono r of t#e bill" After t#e noting #as been !a&e, t#e for!al 'rotest is &ra$n ' b( t#e notar( an& $#en it is &ra$n ' it relates ba%3 to t#e &ate of noting" 5#ere t#e a%%e'tor of a bill #as be%o!e insol,ent, or #as s s'en&e& 'a(!ent, or #is %re&it #as been ' bli%l( i!'ea%#e&, before t#e !at rit( of t#e bill, t#e #ol&er !a( #a,e t#e bill 'roteste& for better se% rit(" T#e notar( ' bli% &e!an&s better se% rit( an& on its ref sal !a3es a 'rotest 3no$n as -'rotest for better se% rit(-" @oreign bills ! st be 'roteste& for &is#ono r $#en s %# 'rotest is re* ire& b( t#e la$ of t#e 'la%e $#ere t#e( are &ra$n" @oreign 'ro!issor( notes nee& not be so 'roteste&" 5#ere a bill is re* ire& b( la$ to be 'roteste&, t#en instea& of a noti%e of &is#ono r, noti%e of 'rotest ! st be gi,en b( t#e notar( ' bli%" A 'rotest to be ,ali& ! st %ontain on t#e instr !ent itself or a literal trans%ri't t#ereof,t#e na!es of t#e 'arties for an& against $#o! 'rotest is !a&e, t#e fa%t an& reasons for &is#ono r toget#er $it# t#e 'la%e an& ti!e of &is#ono r an& t#e signat re of t#e notar( ' bli%" >rotest affor&s an a t#enti% e,i&en%e of &is#ono r to t#e &ra$er an& t#e en&orsee" (ischarge T#e &is%#arge in relation to negotiable instr !ent !a( be eit#er 0i1 T9is%#arge of t#e instr !ent or 0ii1 &is%#arge of one or !ore 'arties to t#e instr !ent fro! liabilit("

.ischarge of the 'nstrument A negotiable instr !ent is &is%#arge&7 0a1 b( 'a(!ent in & e %o rseB 0b1 $#en t#e 'rin%i'al &ebtor Dbe%o!es t#e #ol&erB 0%1b( an a%t t#at $o l& &is%#arge si!'le %ontra%tB 0&1 b( ren n%iationB an& 0e1 b( %an%ellation" .ischarge of a Party or Parties 5#en an( 'arti% lar 'art( or 'arties are &is%#arge&, t#e instr !ent %ontin es to be negotiable an& t#e n&is%#arge& 'arties re!ain liable on it" @or e)a!'le, t#e non6'resent!ent of a bill on t#e & e &ate &is%#arges t#e en&orsers fro! t#eir liabilit(, b t t#e a%%e'tor re!ains liable on it"
A 'art( !a( be &is%#arge& in t#e follo$ing $a(s 7 0a1 &y cancellation b( t#e #ol&er of t#e na!e of an( 'art( to it $it# t#e intention of &is%#arging #i!" 0b1 &y release, $#en t#e #ol&er releases an( 'art( to t#e instr !ent 0%1 .ischarge of secondary 0arties, Le", en&orsers" 0&1 &y the o0eration of the law, Le", b( insol,en%( of t#e &ebtor" 0e1 &y allowing &ra$ee !ore t#an A8 #o rs to a%%e't t#e bill, all 're,io s 'arties are &is%#arge&" 0f1 &y non$0resentment of %#e* e 'ro!'tl( t#e &ra$er is &is%#arge&" 0g1 &y ta1ing #ualified acce0tance, all t#e 're,io s 'arties are &is%#arge&" 0#1 &y material alteration. AA" 'aterial ,lteration 0Se%tion 8C1 An alteration is !aterial $#i%# in an( $a( alters t#e o'eration of t#e Instr !ent an& t#e liabilities of t#e 'arties t#ereto" T#erefore, an( %#ange in an instr !ent $#i%# %a ses it to s'ea3 a &ifferent lang age in"legal effe%t fro! t#at $#i%# it originall( s'o3e, or $#i%# %#anges legal %#ara%ter of t#e instr !ent is a !aterial alteration" A !aterial alteration ren&ers t#e instr !ent ,oi&, b t it affe%ts onl( t#ose 'ersons $#o #a,e alrea&( be%o!e 'arties at t#e &ate of t#e alteration" T#ose $#o ta3e t#e altere& instr !ent %annot %o!'lain" Se%tion 11 'ro,i&eU t#at an a%%e'tor or en&orser of a negotiable instr !ent is bo n& b( #is a%%e'tan%e or en&orse!ent not$it#stan&ing an(

're,io s alteration of t#e instr !ent"

V

"

E)a!'les of !aterial alteration are7 Alteration 0i1 of t#e &ate of t#e instr !ent 0Ii1 of t#e s ! 'a(able, 0iii1 in t#e ti!e of 'a(!ent, 0i,1 of t#e 'la%e of 'a(!ent, 0,1 of t#e rate of interest, 0,i1 !$ a&&ition of a ne$ 'art(, 0,ii1 tearing t#e instr !ent" in a !aterial 'art"

T#ere is no !aterial alteration an& t#e instr !ent is not ,itiate& in t#e follo$ing %ases 7 0i1 %orre%tion of a !ista3e, 0Ii1 to %arr( o t t#e %o!!on Intention of t#e 'arties, 0iii1 an alteration !a&e before t#e instr !ent is iss e& an& !a&e $it# t#e %onsent of t#e 'arties, 0i,1 %rossing a %#e* e, 0,1 a&&ition of t#e $or&s -on &e!an&- in an
instr !ent $#ere no ti!e of 'a(!ent is state&" Retirement of a Bill under Rebate An a%%e'tor of a bill !a( !a3e 'a(!ent before !at rit(, an& t#e bill is t#en sai& to "be retire&, b t it is not &is%#arge& an& ! st not be %an%elle& e)%e't b( t#e a%%e'tor $#en it %o!es into #is #an&s" It is % sto!ar( in s %# a %ase to !a3e allo$an%e of interest on t#e !one( to t#e a%%e'tor for t#e re!ain&er of t#e ti!e $#i%# t#e bill #as to r n" T#e interest allo$an%e Is 3no$n as rebate" &undis + n&is are negotiable instr !ents $ritten in an oriental lang age" T#e( are so!eti!es bills of e)%#ange an& so!eti!es 'ro!issor( notes, an& are not %o,ere& n&er t#e Negotiable Instr !ents A%t, 1881" Generall(, t#e( are go,erne& b( t#e % sto!s an& sages in t#e lo%alit( b t if % sto! is silent on t#e 'oint in &is' te before t#e Co rt, t#is A%t a''lies to t#e # n&is" T#e ter! -# n&i- $as for!erl( a''li%able to nati,e bills of e)%#ange" T#e 'ro!issor( notes $ere t#en %alle& -tea'-" T#e # n&is $ere in

%ir% lation in In&ia e,en before t#e 'resent Negotiable Instr !ent A%t, 1881 %a!e into o'eration" T#e sages atta%#e& to t#ese # n&is ,arie& $it# t#e lo%alit( in $#i%# t#e( $ere in %ir% lation" Generall( n&erstoo&, t#e ter! -# n&i- in%l &es all in&igeno s negotiable instr !ents $#et#er t#e( are bills of e)%#ange or 'ro!issor( notes" An instr !ent in or&er to be a # n&i ! st be %a'able of being s e& b( t#e #ol&er in #is o$n na!e, an& ! st b( t#e % sto! of tra&e be transferre& li3e %as# b( &eli,er(" Ob,io sl( t#e % sto!s relating to # n&is $ere !an(" In %ertain 'arts of t#e %o ntr( e,en oral "" a%%e'tan%e $as in ,ag e" T#e follo$ing t('es of # n&is are $ort# !entioning 7 %. Shah Bog 4undi -S#a#- !eans a res'e%table an& res'onsible 'erson or a !an of $ort# in t4e ba=ar" S#a# 9og + n&i !eans a # n&i $#i%# is 'a(able onl( to a res'e%table #ol&er,as o''ose&" to a # n&i 'a(able to bearer" In ot#er $or&s t#e &ra$ee before 'a(ing t#e sa!e #as to satisf( #i!self t#at t#e 'a(ee is a DS+A+D"

(. 4undi

Bo1hmi

A -8o3#!i- # n&i is al$a(s &ra$n on or against goo&s s#i''e& on t#e ,essel !entione& in t#e # n&i" It i!'lies a %on&ition t#at !one( $ill be 'ai& onl( in t#e e,ent of arri,al of t#e goo&s against $#i%# t#e # n&i is &ra$n" It is in t#e nat re of 'oli%( of ins ran%e" T#e &ifferen%e, #o$e,er, is t#at t#e !one( is 'ai& before #an& an& is to be re%o,ere& if t#e s#i' arri,es safel(" *. Bawabee 4undi A%%or&ing to Ma%'#erson, =A 'erson &esiro s of !a3ing a re!ittan%e $rites to t#e 'a(ee an& &eli,ers t#e letter to a ban3er, $#o eit#er en&orses it on to an( of #is %orres'on&ents near t#e 'a(eeDs 'la%e of resi&en%e, or negotiates its transfer" On t#e arri,al, t#e letter is for$ar&e& to t#e 'a(ee, $#o atten&s an& gi,es #is re%ei't in t#e for! of an ans$er to t#e letter $#i%# is for$ar&e& b( t#e sa!e %#annel of t#e &ra$er or t#e or&er"- T#erefore, t#is is a for! of # n&i $#i%# is se& for re!itting !one( fro! one 'la%e to anot#er" +. Nam ?og 4undi
It is a # n&i 'a(able to t#e 'art( na!e& in t#e bill or #is or&er" T#e na!e of t#e 'a(ee is s'e%ifi%all( inserte& in t#e # n&i" It %an also be negotiate& li3e a bill of e)%#ange" Its alteration into a Shah Bog # n&i is a" !aterial alteration an& ren&ers it ,oi&"

-. 4undi

.arshani

T#is is a # n&i 'a(able at sig#t" It is freel( negotiable an& t#e 'ri%e is reg late& b( &e!an& an& s ''l(" T#e( are 'a(able on &e!an& an& ! st be 'resente& for 'a(!ent $it#in a reasonable ti!e after t#e( are re%ei,e& b( t#e #ol&er" 6. =iadi 4undi
T#is is ot#er$ise %alle& muddati # n&i, t#at is, a # n&i 'a(able after a s'e%ifie& 'erio& of ti!e" Us all( !one( is a&,an%e& against t#ese # n&is b( s#roffs after &e& %ting t#e a&,an%e for t#e 'erio& in a&,an%e" T#ere are ot#er for!s of # n&is also li3e"

.hani Bog 4undi 6 A # n&i $#i%# is 'a(able to -&#ani- Le", t#e o$ner" ,irman Bog 4undi 6 $#i%# is 'a(able to or&er if %an be negotiate& b( en&orse!ent an& &eli,er(" Presumptions of Law A negotiable instr !ent is s b8e%t to %ertain 'res !'tions" T#ese #a,e been re%ognise& b( t#e Negotiable Instr !ents A%t n&er Se%tions 118 an& 11: $it# a

,ie$ to fa%ilitate t#e b siness transa%tions" T#ese are &es%ribe& belo$7 It s#all be 'res !e& t#at7 011 E,er( negotiable instr !ent $as !a&e or &ra$n for %onsi&eration irres'e%ti,e of t#e %onsi&eration !entione& in t#e instr !ent or not" 0?1 E,er( negotiable instr !ent #a,ing a &ate $as !a&e on s %# &ate" 0/1 E,er( a%%e'te& bill of e)%#ange $as a%%e'te& $it#in a reasonable ti!e before its !at rit(" 0A1 E,er( negotiable instr !ent $as transferre& before its !at rit(" 0<1 T#e instr !ents $ere en&orse& in t#e or&er in $#i%# t#e( a''ear on it" 0;1 A lost or &estro(e& instr !ent $as & l( signe& an& sta!'e&" 0C1 T#e #ol&er of t#e instr !ent is a #ol&er in & e %o rse" 081 In a s it 'on an instr !ent $#i%# #as been &is#ono re&, t#e Co rt s#all 'res !e t#e fa%t of &is#ono r, or 'roof of t#e 'rotest" +o$e,er t#ese legal 'res !'tions are reb ttable b( e,i&en%e to t#e %ontrar(" T#e b r&en to 'ro,e to t#e %ontrar( lies 'on t#e &efen&ant to t#e s it an& not 'on t#e 'laintiff" Payment of Interest in case of dishonour T#e Negotiable Instr !ents A%t, 1881 $as a!en&e& in t#e (ear 1:88, re,ising t#e rate of interest as %ontaine& in Se%tions 8E an& 11C, fro! ; 'er %ent to 18 'er %ent 'er ann ! 'a(able on negotiable instr !ents fro! t#e & e &ate in %ase no rate of interest is s'e%ifie&, or 'a(able to an en&orser fro! t#e &ate of 'a(!ent on a negotiable instr !ent on its &is#ono r $it# a ,ie$ to &is%o rage t#e $it##ol&ing of 'a(!ent on negotiable instr !ents on & e &ates" >enalties in %ase of &is#ono r of %#e* es C#a'ter IGII of t#e Negotiable Instr !ents A%t 'ro,i&es for 'enalties in %ase of &is#ono r of %ertain %#e* es for ins ffi%ien%ies of f n&s in t#e a%%o nts" Se%tions 1/8 to 1A? &eal $it# t#ese as'e%ts" T#e 'ro,isions %ontaine& in t#is C#a'ter 'ro,i&e t#at $#ere an( %#e* e &ra$n b( a 'erson for &is%#arge of an( liabilit( is ret rne& b( t#e ban3 n'ai& for t#e reason of ins ffi%ien%( of t#e a!o nt of !one( stan&ing to t#e %re&it of t#e a%%o nt on $#i%# t#e %#e* e $as &ra$n or for t#e reason t#at it e)%ee&s t#e arrange!ent !a&e b( t#e &ra$er of t#e %#e* e $it# t#e ban3er for t#at a%%o nt, t#e &ra$er of s %# %#e* e s#all be &ee!e& to #a,e %o!!itte& an offen%e" In t#at %ase, t#e &ra$er, $it#o t 're8 &i%e to t#e6;f#er 'ro,isions of t#e A%t, s#all be ' nis#able $it# i!'rison!ent for a ter! $#i%# !a( e)ten& to one (ear, or $it# fine $#i%# !a( e)ten& to t$i%e t#e a!o nt of t#e %#e* e, or $it# bot#" In or&er to %onstit te t#e sai& offen%e 0a1 s %# %#e* e s#o l& #a,e been 'resente& to t#e ban3 $it#in a 'erio& of

si) !ont#s fro! t#e &ate on $#i%# it is &ra$n or $it#in t#e 'erio& of its ,ali&it(, $#i%#e,er is earlierB an& 0b1 t#e 'a(ee or #ol&er in & e %o rse of s %# %#e* e s#o l& #a,e !a&e a &e!an& for t#e 'a(!ent of t#e sai& a!o nt of !one( b( gi,ing noti%e, in $riting, to t#e &ra$er of t#e %#e* e $it#in fifteen &a(s of t#e re%ei't of infor!ation b( #i! fro! t#e ban3 regar&ing t#e ret rn of t#e %#e* e n'ai&B an& 0%1 t#e &ra$er of s %# %#e* e s#o l& #a,e faile& to !a3e t#e 'a(!ent of t#e sai& a!o nt of !one( to t#e 'a(ee or t#e #ol&er in & e %o rse of t#e %#e* e $it#in fifteen &a(s of t#e re%ei't of t#e sai& noti%e" It #as also been 'ro,i&e& t#at it s#all be 'res !e&, nless t#e %ontrar( is 'ro,e&, t#at t#e #ol&er of s %# %#e* e re%ei,e& t#e %#e* e in t#e &is%#arge of a liabilit(" Defen%es $#i%# !a(or !a( not be allo$e& in an( 'rose% tion for s %# offen%e #a4e also been 'ro,i&e& to !a3e t#e 'ro,isions effe%ti,e" T#e S 're!e Co rt in =odi ements Ltd. ," C.C. Nandi, 01:881 ?8 CLA A:1, #el& t#at !erel(D be%a se t#e &ra$er iss e& a noti%e to t#e &ra$ee or to t#e Ban3 for Dsto' 'a(!entD, it $o l& not 're%l &e an a%tion n&er Se%tion 1/8 b( t#e &ra$ee or #ol&er in & e %o rse" Us al 'ro,isions relating to offen%es b( %o!'anies #a,e also been in%l &e& in t#e sai& ne$ C#a'ter" In or&er to ens re t#at gen ine an& #:nest ban3 % sto!ers are not #arasse& or ' t to in%on,enien%e, s ffi%ient safeg ar&Ds #a,e also been 'ro,i&e& in t#e ne$ C#a'ter, as n&er7 0a1 t#at no Co rt s#all ta3e %ogni=an%e of s %# offen%e e)%e't on a %o!'laint in $riting, !a&e b( t#e 'a(ee or t#e #ol&er in & e %o rse of t#e %#e* eB 0b1 t#at s %# %o!'laint is !a&e $it#in one !ont# or t#e &ate on $#i%# t#e %a se of a%tion arisesB 0%1t#at SO Co rt inferior to t#at of a Metro'olitan Magistrate or a 9 &i%ial Magistrate of t#e first %lass s#all tr( an( s %# offen%e" HHHHHHHHHHHHHHHHHHHHHHHHHH Re%o!!en&e& Rea&ing Ele!ents of Mer%antile La$ b( N D Wa'oor"