1. The Negotiable Instruments Act ,1881
Group 7
Presented By
Divya doshi
Deep desai
Nirav kathoriya
Nilesh patel
Thakhat patel

2. Classification of Negotiable Instruments
Bearer or order instruments
Inland & Foreign instruments
Instruments payable on demand
Time instruments
Accommodation Bill
Fictitious bill
Documentary or clean bill
Escrow
Ambiguous Instrument
Inchoate Instrument
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3. BEARER AND ORDER INSTRUMENTS
An instrument is payable to bearer when I)it is expressed to be so payable. II) when the only or last endorsement on the instrument is an endorsement in blank. An instrument is payable to order when II)Expressed to be payable to particular Person.
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4. INLAND AND FOREIGN INSTRUMENT
INLAND INSTRUMENT. (sec 11)
(a) must be drawn and made payable in India, or
(b) must be drawn in India upon a person resident in India although it may be payable outside India.
Ex-X of Bombay draws a bill on Y of Delhi payable at Yorkshire (U.K.).
FOREIGN INSTRUMENT. (sec 12)
(a) drawn in India upon a person resident outside India and made payable outside India, or
(b) drawn outside India and payable in India.
Ex-X of Bombay draws a bill of exchange on Y of London payable at London.
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5. The Negotiable Instruments Act,1881
FOREIGN bills of exchange must be protested for dishonour when such protest is required by the law of the place where they are drawn (sec. 104). However, a foreign bill drawn in India need not be so protested. Protest in case of inland bill is optional. In case of foreign bills, it is absolutely essential.
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6. INSTRUMENT PAYABLE ON DEMAND
A promissory note, a bill of exchange in which no time for payment is specified and Cheque are payable on demand. Therefore, following are the instruments payable on the demand:
1} Bills and promissory notes expressed to be payable ‘on demand’ or ‘at sight’ or ‘on presentment’; 2} Bills and notes where no time for payment is specified;
3} Cheque is always payable on demand.
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7. The Negotiable Instruments Act,1881
Time instruments
A bill or note is a time instrument if is stated to be payable
1} At a fixed period after its dated
2} at a fixed period after sight
3} on or at a fixed period after an event which is certain to happen.
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8. The Negotiable Instruments Act,1881
Thus, a bill of exchange drawn payable at 3 months after the date it is drawn is a time bill.
Similarly, a bill drawn payable at 90 days after sight is again a time bill. A time bill may also be made payable at a fixed period after an event which is certain to happen.
Hence, a bill payable at 90 days after the death of the drawer will be a valid time bill
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9. The Negotiable Instruments Act,1881
Accommodation Bill
A trade bill is a bill of exchange issued in respect of a genuine trade transaction. Such bills are drawn by the seller on the buyer in respect of payment of the price of the goods sold and purchased.
Since an accommodation bill is drawn and accepted without any consideration, it creates no obliga­tion of payment between the parties to the transaction.
But, however, all bills are not genuine bills i.e., they do not represent a trade transaction but are drawn as a convenient mode of accommodating a friend.
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10. The Negotiable Instruments Act,1881
Illustration: Thus, X may be in need of money
-approaches his friend Y who instead of lending money directly, draws and accepts a bill of exchange, say, for Rs. 5,000.
-If the credit of Y is good it lends a currency to the bill and it can be discounted with the bankers or any other person.
-On maturity, X remits the amount with Y who in turn pays it in honoring the bill of exchange on presentment.
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11. The Negotiable Instruments Act,1881
Fictitious bill
A bill is fictitious when both the drawer and payee are fictitious persons. Where the drawer is also the payee of the bill, without any intention that payment shall be in conformity with the instrument, the instrument is fictitious. Also when payee is non-existing, the instrument is fictitious. A fictitious bill in the hands of a holder in due course becomes a good bill. The acceptor is liable to a holder in due course, if the holder in due course can show that the signature of the supposed drawer and that of the first endorser or payee are under the same hand. The liability of the holder in case of a fictitious bill is only towards the holder in due course
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12. Documentary or clean bill
It is a common practice in home as well as foreign trade to deliver to the banker along with the bills of exchange, the documents of title to the goods. (Ex- Lorry Receipt, Railway Receipt or Bill or Lading).
Where the banker is instructed to deliver to the drawee of the bill the documents of title against acceptance of the bill, the bill is called as Documents against Acceptance of Bill (D/A Bill) and where the documents are to be released only against payment, it is called as Documents against Payment ad Bill (DIP Bill).
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13. The Negotiable Instruments Act,1881
Escrow
A bill delivered conditionally is called an escrow.
Where a bill or note is delivered conditionally, the liability of the party delivering does not commence till the happening of the event or the fulfillment of the condition. Such a bill may also be delivered for a special purpose as collateral security. It is to be noticed that though a conditional delivery is valid, the condition attaches exclusively to the delivery and this does not affect the rule that the bill or note must be made conditional.
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14. The Negotiable Instruments Act,1881
Illustration of ESCROW:
A makes a note in favour of his servant and hands it to his solicitor telling to retain the note till his death and then to hand it to the servant if he should still continue in service. If this condition are complied with and the solicitor hands over the instrument to the servant, the servant can claim the amount of the note from the administrators of his master’s estate.
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15. The Negotiable Instruments Act,1881
Ambiguous Instrument
It is an instrument which owing to its faulty drafting can be interpreted either as a promissory note or a bill or exchange.
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16. The Negotiable Instruments Act,1881
Inchoate Instrument
It means an instrument that is incomplete in certain respects.
Where one person signs and delivers to another person a duly stamped negotiable instruments and however, that negotiable instrument is either wholly blank or having written thereon. Such an instrument is thus incomplete (inchoate).
The maker of the instrument has thereby prima facie authorises the holder thereof to make or complete, for any amount therein but not exceeding the amount covered by the stamp.
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17. Parties to a Negotiable Instrument

18. Capacity of Parties
According to sec 11 of the Indian Contract Act 1872, every person is competent to contract who is of the age of majority according to the law to which he is subject, and is of sound mind and is not disqualified from contracting by any law to which he is subject. A person competent to contract can become party to a negotiable instrument. His capacity to incur liability as a party to a bill of exchange, promissory note or cheque is co- extensive with his capacity to contract.

19. Minors
Corporation
Agent
Partners
Hindu joint family
Legal representative

20. Minors
As a minor agreement is void, he can not bind himself by becoming a party to a negotiable instrument. But he may Draw, indorse, deliver and negotiate a negotiable instrument so as to bind all parties except himself, that is he may operate as a channel to convey title and liabilities but not to originate it.
EX- A, B and M a minor, executed a promissory note in favour of P. Held, M’s immunity from liabilities did not absolve A & B, other joint promisors, from liability, A is not personaly liable on a bill or note given by him for necessary supply to him. It is his estate which is liable for such Bill or note.

21. Persons of Unsound Mind
Agreement of lunatics and drunken person like those of minors are void. Bills and notes drawn or made by such persons are void as against them provided that, at the time of execution of such instruments, they were incapable of forming a rational judgment as to the effect of such instrument.

22. Corporations
A corporation or joint stock company forms an exception to the general rule that the capacity to incur liabilities on a negotiable instrument is co –extensive with capacity to contract. A corporation being an artificial creation of la w, possesses only those power which its memorandum or Articles confer upon it.

23. Agents
A person capable of contracting may make, draw accept, indorse, deliver and negotiable a bill, note or cheque either himself or through a duly authorized agent acting in his name. but a general authority to transact business and to receive and discharge debts does not confer upon an agent the power of accepting or indorsing bills of exchange so as to bind his principal. It can be done into two way. [1] He may simply sign the principle’s name [2] He may sign by procuration.

24. Partner
In a trading firm, each partner has prima facie authority to bind his co–partners by drawing, signing, making, indorsing, accepting, transferring, negotiating, notes and cheques in the name and on A/C of partnership. But a person merely describing himself as a partner can not bind the firm.

25. Hindu Joint Family
The manager or karta of a “Hindu Joint Family” represent the family in all dealings with the outside world. He has an implied authority on behalf of the family to contract debts and pledge the credit 0f the family and borrowed money on a note or bill where he carriers on family business.

26. Legal Representatives
A legal representative is entitled to all the instrument of the holder after the death of the latter. He can sue on them for the recovery of amount. If he signs his name to a promissory note, bill of exchange, or cheque, he is personally liable there on unless he expressly limits his liability to the extent of the assets received by him as such.

27. Parties To Negotiable Instrument
Parties to Bill of Exchange.
Parties to Promissory Note.
Parties to cheque.

28. Parties to Bills of Exchange
Drawer
Maker
Drawee
Acceptor
Payee
Holder
Indorser
Indorsee
Drawee in case of need
Acceptor for honour.

29. Parties to Promissory Note
Maker
Payee
Holder
Indorser
Indorsee

30. Parties to Cheque
Maker
Drawee
Payee
Holder
Indorser
Indorsee

31. The Negotiable Instruments Act,1881
[1] Drawer :-
The person who makes the negotiable instruments called drawer.
[2] Drawee :-
The person on whom the negotiable instrument is drawn and who is directed to pay is called the Drawee.
[3] Payee :-
the person named in the negotiable instrument, to whom or whose order the money is paid is called payee.
[4] Maker :-
The person who makes the negotiable instruments or promises to pay is called a “Maker” of P.Note
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32. The Negotiable Instruments Act,1881
[5] indorser :- the person who indorses the negotiable instrument to another is called indorser. [6] Indorsee :- the person to whom the negotiable instrument is indorsed is called indorsee. [7] Acceptor for honor:- A stranger as a general rule,cannot accept a bill.But if a bill is dishonoured by non-acceptance,the holder may nevertheless allow any other person to accept it for the honour of the drawer.The person so accepting the bill is called “acceptor for honour”.
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33. The Negotiable Instruments Act,1881
[8] Drawee in case of need :-
when in the negotiable instrument or in any indorsement there on the name of any person is given in addition to the drawee to be reffered to in such case of need, such a person is called a drawee in the case of need.
Rs Delhi,1st July,2007
Three months later after date pay to John Jones or order,the sum of rupees two thousand,for value received.
To John Brown
15,Bright Square Kolkata Sd/-
In case of need with
Punjab national Bank,Kolkata
Stamp
Radhey
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34. The Negotiable Instruments Act,1881
Holder
DEFINITION :
The Holder of a promissory Note, Bill of Exchange or cheque means any
person entitled in his own name :
(1)To the possession thereof and
(2) To receive or recover the amount due thereon from the parties thereto.
Where the note, bill of exchange is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.
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35. The Negotiable Instruments Act,1881
Holder In Due Course
Any person is a holder in due course if he fulfills the following condition :
(1) That for consideration, he became
(A) the possessor of the negotiable instrument if payable to bearer or
(B) The payee or endorsee thereof if payable to order.
(2) That he became the holder of the instrument before its maturity. If the instrument is taken after it is due, the person taking it has, as against the other parties, only the rights of his immediate transferor.
(3) That he became the holder of the instrument in good faith, i.e. without sufficient cause to believe that any infirmity in the instrument of detect existed in the title of the person from whom he derived his title.
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36. The Negotiable Instruments Act,1881
A holder of a negotiable instrument will not be a holder in due course if :
He has obtained the instrument by gift of for an unlawful consideration or by some illegal method or
he has obtained the instrument either its maturity or
he has not obtained the instrument bona fide.
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37. Distinction Between Holder & Holder in Due Course:
Holder may become the possessor or payee of an instrument even whiout condideration
While Holder in Due Course who obtains possession from condieration
He may become the possessor before or after maturity.
It become before the amount thereon becomes payable.
He may have knowledge fo the defects in the title of the person from whom he derived his title
He must have beome the holder of the instrument in good faith and after exercising due care and caution
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38. Privileges of a holder in due course
Inchoate stamped instrument.
a person who has signed and delivered to another a stamped but otherwise inchoate instrument,is precluded from asserting , as agains a holder in due course , that the instrument has not been filled in accordance with the authority given by him, the stamp being sufficient to cover the amount.
Liability of prior parties
every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied
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39. The Negotiable Instruments Act,1881
3. Fictitious payee:
The acceptor of s bill cannot say , as against the holder in due course , that the other parties to the bill were fictiouous.
4. Negotiable instrument without consideration
When a negotiable instrument is made, drawn, accepted or transferred without consideration, it creates no obligation of payement between the parties to the transaction.An arrangement made without consideration is void(sec 25 of negotiable instrument act 1872)
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40. The Negotiable Instruments Act,1881
5. Conditional delivery
if a bill or not is negotiated to a holder in due course , the other parties to the instrument cannot avoid liability on the ground that the delivery of the instrument was conditional or for a specific purpose only.
6. Instrument cleansed of all defects
once a negotiable instrument passes through the hands of a holder in due course, it gets cleansed of its defects provided the holder was himself not a party to the fraud or illegality which affected the instrument in some stage of its journey. Thus any defect in the title of the transferor will not affect the rights of the holder in due course even if he had knowledge of the prior defect provided he himself is not a party to the fraud(sec 53).
e.g.
a bill, originally obtained by fraud from the drawer , gets into the hands of A, a holder in due course . A indorses the bill to B by way of gift. B can sue the acceptor for he stands on A’s title
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41. The Negotiable Instruments Act,1881
7. Instrument obtained by unlawful means or for unlawful consideration
the person liable to pay on a negotiable instrument cannot , as against a holder in due course, contend that he had lost it, or that it was obtained from him by means of an offence or fraud or for an unlawful consideration(sec 58).
8. Every holder is a holder in due course
The law presumes that every holder is a holder in due course, although the presumption is rebuttable(sec 118).
9. Estoppel agains denying original validity of instrument
The maker of a promissory note , the drawer of a bill of exchange or cheque and the acceptor of a bill of exchange for the honour of the drawer cannot , in a suit thereon by a holder in due course,deny the validity of the instrument as originally made or drawn(sec 120).
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42. The Negotiable Instruments Act,1881
10. Estoppel against denying capacity of payee to indorse
The maker of a promissory note , and the acceptor of a bill of exchange payable to order cannot, in a suit thereon by a holder in due course, deny the payee’s capacity at the date of the note or bill, to indorse the same(sec 121).
11. Indorser not permitted to deny the capacity of prior parties.
The indorser of a negotiable instrument cannot, in a suit thereon by a subsequent holder, deny the signature or capacity to contract of any prior party to the instrument (sec 122).
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43. The Negotiable Instruments Act,1881
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44. The Negotiable Instruments Act,1881
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