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 sage relating to an instr!ent in
oriental langage i"e", a +n&i"
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 $#o ta3es it bona fide, an& for ,ale, not$it#stan4ing an( &efe%t of
title in t#e 'erson fro! $#o! #e too3 it, fro! $#i%# it follo4s t#at an instr!ent %annot
be negotiable nless it is s%# an& in s%# a state t#at t#e tre o$ner %ol& 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$ing are t#e %on&itions of negotiabilit(7
0i1 T#e instr!ent s#ol& be freel( transferable" An instr!ent %annot be negotiable
nless it is s%# an& in s%# state t#at t#e tre o$ner %ol& transfer b( si!'le
&eli,er( or en&orse!ent an& &eli,er("
0ii1 T#e 'erson $#o ta3es it for ,ale an& in goo& fait# is not affe%te& b( t#e
&efe%t in t#e title of t#e transferor"
0iii1 S%# a 'erson %an se 'on t#e instr!ent in #is o$n na!e"
Negotiabilit( in,ol,es t$o ele!ents na!el(, transferabilit( free fro! e*ities an&
transferabilit( b( &eli,er( or en&orse!ent 0Moo3er8ee 9" In Tailors Priya ," Gulab hand,
AIR 1:;< Cal1"
Bt t#e A%t re%ognises onl( t#ree t('es of instr!ents ,i=", %i >ro!issor( Note, a
Bill of" E)%#ange an& a C#e*e as negotiable instr!ents" +o$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#ol& 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 $#o obtains it in good fait# an& for %onsi&eration gets it free fro!
all &efe%ts an& %an se 'on it in #is o$n na!e"
/" T#e #ol&er #as t#e rig#t to transfer" T#e negotiabilit( %ontines till t#e
!atrit("
!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 rle arise b( ,irte of statte 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
$it#ot noti%e of an( &efe%t of title, a%*ires t#e instr!ent free on an( &efe%t,
i.e., #e a%*ires a better title t#an t#at of t#e transferor"
Important Characteristics of Negotiable Instruments
@ollo$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$ner of t#e 'ro'ert(
%ontaine& in it"
0?1 T#e( are freel( transferable"
0/1 A #ol&er in &e %orse gets t#e instr!ent free fro! all &efe%ts of title of
an( 're,ios #ol&er"
0A1T#e #ol&er in &e %orse is entitle& to se on t#e instr!ent in #is o$n
na!e"
0<1 T#e instr!ent is transferable till !atrit( 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 isse1"
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" Sb8e%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#og# it is !a&e
'a(able in a foreign %ontr("
"+) ,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 otsi&e In&ia an& !a&e 'a(able otsi&e or insi&e In&iaB or
0ii1 it !st be &ra$n in In&ia an& !a&e 'a(able otsi&e In&ia an& &ra$n on a
'erson resi&ent otsi&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 ftre" 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!bigos 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%titios '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!bigos 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" Bt $#ere t#e &ra$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!bigos 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 at#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!ont s'e%ifie& t#erein, an& not e)%ee&ing t#e a!ont, %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 %orse for s%# a!ont" 'ro,i&e& t#at no 'erson ot#er t#an a #ol&er in
&e %orse 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!ont inten&e& b( #i! to be 'ai& t#ereon"
T#e at#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%orse-"
Bt 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%orse- %an re%o,er t#e $#ole a!ont !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#og# t#e a!ont at#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/ bt
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
langages 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!ont 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 sffi%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 (or !arriage to IF-, is
%on&itional" Bt 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!ont !st" not be %a'able of
%ontingent a&&itions or sbtra%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 %ontr(" 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 signatre 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 isse& 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 rles $#i%# a''l(1E 'ro!issor( notes are in general a''li%able
I
to bills" T#ere are #o$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 bt
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#onore& b( eit#er non6a%%e'tan%e or non6'a(!ent"
0i1 /cce0tor for honour2 @rt#er, an( 'erson !a( ,olntaril( be%o!e a 'art(
to a bill as a%%e'tor" A 'erson, $#o on t#e refsal b( t#e original &ra$ee to
a%%e't t#e bill or to frnis# better se%rit(, $#en &e!an&e& b( t#e notar(,
a%%e't t#e bill su0ra 0rotest in or&er to safegar& t#e #onor of t#e &ra$er or
an( en&orser, is %alle& t#e a%%e'tor for #onor"
!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$ee an&
'a(ee, t#og# an( t$o ot 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 $it#ot an( 'rior a%%e'tan%e b( t#e !a3er" A
bill 'a(able after sig#t !st be a%%e'te& b( t#e &ra$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& absolte, bt t#e liabilit(
of t#e &ra$er of a bill is se%on&ar( an& %on&itional"
0f1 @oreign bill !st be 'roteste& for &is#onor bt no s%# 'rotest is ne%essar(
in t#e %ase of a note"
0g1 5#en a bill is &is#onore&, &e noti%e of &is#onor is to be gi,en b( t#e
#ol&er to t#e &ra$er an& t#e inter!e&iate en&orsee, bt 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 %ontr( to anot#er %ontr( $it# a ,ie$ 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 $#o is a resi&ent in In&ia, e,en t#og# it is !a&e
'a(able in a foreign %ontr(" Bt a 'ro!issor( note to be an inlan& s#oi& be &ra$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 bt &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 genine 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#osan& r'ees onl( for ,ale re%ei,e&-" A $ill sign t#e bill an&
t#en 'resent it to B for a%%e'tan%e" T#is is ne%essar( be%ase, ntil a bill is a%%e'te&
b( t#e &ra$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 genine tra&e bill"
/ccommodation &ill
All bills are not genine 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&
$it#ot %onsi&eration is %alle& an a%%o!!o&ation bill" T#e 'art( len&ing #is
na!e to oblige t#e ot#er 'art( is 3no$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%ase as bet$een t#e! t#ere $as no
%onsi&eration an& t#e instr!ent $as !erel( to #el', Bt t#e a%%o!!o&ation
'art( is liable to a #ol&er for ,ale, $#o ta3es t#e a%%o!!o&ation bill for
,ale, t#og# s%# #ol&er !a( not be a #ol&er in &e %orse" 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,or 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#osan&
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%ont" T#e real &ebtor in
t#is %ase is not C, bt A t#e 'a(ee $#o 'ro!ises to rei!brse C before t#e
'erio& of t#ree !ont#s onl(" A is #ere t#e 'rin%i'al &ebtor an& Ban& C are !ere
sreties" T#is in,ersion of liabilit( affor&s a goo& &efinition of an a%%o!!o&ation
bill -If as bet$een t#e original 'arties to 6 t#e bill t#e one $#o s#ol& 0rima facie
be 'rin%i'al is in" fa%t t#e sret( $#et#er #e be &ra$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 sall( &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&" Bt 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, sall( its o$n bran%#" It %annot so easil( be %onter6!an&e&" It %annot be !a&e
'a(able to bearer"
HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH
S0ecimen of a &an1 .raft
/.&.. Bank
6.7.8. &ranch
No..................... .ate...................
)n demand 0ay 9/9 or order the sum of ru0ees one thousand fi:e hundred only for :alue
recei:ed.
5s. %,-;;<$
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$a(s 'a(able on &e!an&" A %#e*e being a s'e%ies of
a bill of e)%#ange, !st satisf( all t#e re*ire!ents of a billB it &oes not, howe:er,
re#uire acce0tance.
Note: B( ,irte of Se%tion /1 of t#e Reser,e Ban3 of In&ia A%t, no bill of e)%#ange or
#n&i %an be !a&e 0ayable to bearer on demand an& no 'ro!issor( note or a ban1
draft can be made 0ayable to bearer at all, whether on demand or after a s0ecified
time. )nly a che#ue can be 0ayable to bearer on demand.
Parties to a cheque
The following are the parties to a cheque:
(a) The drawer: The person who draws the cheque
(!) The drawee: The !an"er of the drawer on who# the cheque is
drawn
(c), (d), (e) and (f) The pa$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 rle, 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, bt t#e
&ra$er of a %#e*e is &is%#arge& onl( if #e sffers an( &a!age b( &ela( in
'resent!ent for 'a(!ent"
0f1 Noti%e of t#e &is#onor of a bill is ne%essar(, bt not in t#e %ase of a %#e*e"
0g1 T#e %#e*e being a re,o%able !an&ate, t#e at#orit( !a( be re,o3e& b(
%onter!an&ing 'a(!ent, an& is &eter!ine& b( noti%e of t#e %sto!erDs &eat#
or insol,en%(" T#is is not so in t#e %ase of bilt
"h) / che#ue may be crossed, but not a bill
A %#e*e is a bill of e)%#ange &ra$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 bt 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:,,,,,,
Sd8,
No,,,,,,,,,,,,,,,,,,,,,
Banker
A ban3er is one $#o &oes ban3ing bsiness" Se%tion <0b1 of t#e Ban3ing Reglation
A%t, 1:A: &efines ban3ing as, -a%%e'ting for t#e 'r'ose of len&ing or in,est!ent, of
&e'osits of !one( fro! t#e 'bli%, re'a(able on &e!an& or ot#er$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( fn%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!ont &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#rog# 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# stattes" T#e general
o'inion is t#at a %sto!er is one $#o #as an a%%ont $it# t#e ban3 or $#o tilises t#e
ser,i%es of t#e ban3"
T#e s'e%ial featres of t#e legal relations#i' bet$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 #onor %#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%%ont to an(one else"
;" Obligation to gi,e reasonable noti%e to t#e %sto!er, if t#e ban3er $is#es to
%lose t#e a%%ont"
C" Rig#t of lien o,er an( goo&s an& se%rities baile& to #i! for a general balan%e
of account.
8" Rig#t of set off an& rig#t of a''ro'riation"
:" Rig#t to %lai! in%i&ental %#arges an& interest as 'er rles an& reglations of
t#e ban3 as %o!!ni%ate& to t#e %sto!er at t#e ti!e of o'ening t#e a%%ont"
;s,,,,,,,8,
Liability of a Banker
B( o'ening a %rrent a%%ont of a %sto!er, t#e ban3er be%o!es liable to #is
&ebtor to t#e e)tent of t#e a!ont so re%ei,e& in t#e sai& a%%ont an& n&erta3es to
#onor t#e %#e*es &ra$n b( t#e %sto!er so long as #e #ol&s sffi%ient fn&s to
t#e %sto!erDs %re&it" If a ban3er, $it#ot 8stifi%ation, fails to #onor t1is %sto!erDs
%#e*es, #e is liable to %o!'ensate t#e &ra$er for an( loss or &a!age sffere& b( #i!"
Bt t#e 'a(ee or #ol&er of t#e %#e*e #as no %ase of a%tion against t#e ban3er as t#e
obligation to #onor a %#e*es is onl( to$ar&s t#e &ra$er"
T#e ban3er !st also !aintain 'ro'er an& a%%rate a%%onts of %re&its an& &ebits"
+e !st #onor a %#e*e 'resente& in &e %orse" Bt in t#e follo$ing %ir%!stan%es,
#e must refse to #onor a %#e*e an& in so!e ot#ers #e may &o so"
8. When Banker must Refuse Payment
In t#e follo$ing %ases t#e at#orit( of t#e ban3er to #onor %sto!erDs %#e*e %o!es to
an en&, #e must refse to #onor %#e*es isse& b( t#e %sto!er7
0a1 5#en a %sto!er %onter!an&s 'a(!ent Le", $#ere or $#en a %sto!er, after
issing a %#e*e isses instr%tions not to #onor it, t#e ban3er !st not 'a( it"
"b) >hen the ban1er recei:es notice of customer9s death.
L 5#en %sto!er #as been a&8&ge& an insol,ent"
0&1 5#en t#e ban3er re%ei,es noti%e of %sto!erDs insanit("
"e) >hen an order "e.g., Garnishee )rder) of the ourt, 0rohibits 0ayment.
"f) >hen the customer has gi:en notice of assignment of the credit balance of his
account.
0g1 5#en t#e #ol&erDs title is &efe%ti,e an& t#e ban3er %o!es to 3no$ of it"
"h) >hen the customer has gi:en notice for closing his account.
When Banker may Refuse Payment
In t#e follo$ing %ases t#e ban3er !a( refse to 'a( a %sto!erDs %#e*e7
0a1 5#en t#e %#e*e is 'ost6&ate&"
0b1 5#en t#e ban3er #as not sffi%ient fn&s of t#e &ra$er $it# #i! an& t#ere
is no %o!!ni%ation bet$een t#e ban3 an& t#e %sto!er to #onor t#e
%#e*e"
0%1 5#en t#e %#e*e is of &obtfl legalit("
0&1 5#en t#e %#e*e is not &l( 'resente&, e"g", it is 'resente& after ban3ing
#ors"
0e1 5#en t#e %#e*e on t#e fa%e of it is irreglar, a!bigos or ot#er$ise
!ateriall( altered.
(f) <hen t#e %#e*e is 'resente& at a bran%# $#ere t#e %sto!er #as no a%%ont"
0g1 5#en so!e 'ersons #a,e 8oint a%%ont an& t#e %#e*e is not signe& 8ointl( b(
all or b( t#e sr,i,ors of t#e!"
0#1 5#en t#e %#e*e #as been allo$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 %orse" +e
%an &ebit t#e a%%ont of t#e %sto!er $it# t#e a!ont e,en t#og# t#e en&orse!ent
trns ot sbse*entl( to #a,e been forge&, or t#e agent of t#e 'a(ee $it#ot at#orit(
en&orse& it on be#alf of t#e 'a(ee" It $ol& be seen t#at t#e 'a(ee in%l&es en&orsee"
T#is 'rote%tion is grante& be%ase a ban3er %annot be e)'e%te& to 3no$ t#e signatres
of all t#e 'ersons in t#e $orl&" +e is onl( bon& to 3no$ t#e signatres of #is o$n
%sto!ers"
T#erefore, t#e forger( of &ra$erDs signatre $ill not or&inaril( 'rote%t t#e ban3er bt
e,en in t#is %ase, t#e ban3er !a( &ebit t#e a%%ont of t#e %sto!er, if it %an s#o$ t#at
t#e forger( $as inti!atel( %onne%te& $it# t#e negligen%e of t#e %sto!er an& $as t#e
'ro)i!ate %ase of loss"
I n t#e %ase of bearer %#e*es, t#e rle is t#at on%e a bearer %#e*e, al$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 %orse" Bt a %#e*e $#i%# be%o!es bearer b( a
sbse*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 %orse"
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!ont &e t#eren&er in &e %orse in or&er to obtain a ,ali& &is%#arge
against t#e #ol&er"
A 'a(!ent in &e %orse !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#ot negligen%e to an( 'erson in 'ossession
t#ereof" "
A 'a(!ent $ill be a 'a(!ent in &e %orse 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
1
0b1 it is !a&e in goo& fait# an& $it#ot negligen%e, an& n&er %ir%!stan%es
$#i%# &o not affor& a gron& for belie,ing t#at t#e 'erson to $#o! it is
!a&e is not entitle& to re%ei,e t#e a!ontB
0%1 it 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 gron&
belie,ing t#at #e is not entitle& to re%ei,e 'a(!ent of t#e a!ont !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 %orse 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#og# 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 stattor(
obligation, stattor( in natre" 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#ol& 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 $#i%# t#e %sto!er #a& no title in fa%t"
In s%# %ases, t#e tre o$ner !a( se 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 ensre t#at all t#e signatres
a''earing in en&orse!ents on t#e re,erse of t#e %#e*e are genine" T#e ban3er is
e)'e%te& to be %on,ersant onl( $it# t#e signatres of #is %sto!er" A %sto!er to
$#o! a %#e*e #as been en&orse&, $ol& re*e4t #is ban3er to %olle%t a %#e*e" In
t#e e,ent of t#e en&orserDs signatre being 'ro,e& to be forge& at iater &ate, t#e ban3er
$#o %olle%te& t#e 'ro%ee&s s#ol& 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 stattor( '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& $it#ot negligen%e re%ei,e& 'a(!ent for a
%sto!er of a %#e*e %rosse& generall( or s'e%ifi%all( to #i!self 6s#all not, in %ase t#e
title to t#e %#e*e 'ro,es &efe%ti,e, in%r an( liabilit( to t#e tre o$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%%ont $it#
t#e a!ont of6t#e %#e*e before re%ei,ing 'a(!ent t#ereof"-
T#e re*isites of %lai!ing 'rote%tion n&er Se%tion 1/1 are as follo$s7
0i1 T#e %olle%ting ban3er s#ol& #a,e a%te& in goo& fait# an& $it#ot negligen%e" An
a%t is &one in goo& fait# $#en it is &one #onestl(" T#e 'lea of goo& fait# %an
be rebtte& on t#e gron& 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 br&en of
'ro,ing t#at t#e %#e*e $as %olle%te& in goo& fait# an& $it#ot negligen%e is
'on t#e ban3er %lai!ing 'rote%tion" @ailre to ,erif( t#e reglarit( of
en&orse!ents, %olle%ting a %#e*e 'a(able to t#e a%%ont 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#ol& #a,e %olle%te& a %rosse& %#e*e, i"e", t#e %#e*e s#ol&
#a,e been %rosse& before it %a!e to #i! for %olle%tion"
0iii1 T#e 'ro%ee&s s#ol& #a,e been %olle%te& for a %sto!er, i"e", a 'erson $#o
#as an a%%ont $it# #i!"
0i,1 T#at t#e %olle%ting ban3er #as onl( a%te& as an agent of t#e %sto!er" If
#e #a& be%o!e t#e #ol&er for ,ale, t#e 'rote%tion a,ailable n&er Se%tion 1/1
is forfeite& 6 5#ere for instan%e, t#e ban3er allo$s t#e %sto!er to $it#&ra$ t#e
a!ont of t#e %#e*e before t#e %#e*e is %olle%te& or $#ere t#e %#e*e #as
been a%%e'te& in s'e%ifi% re&%tion of an o,er&raft, t#e ban3er is deemed to
ha:e become the holder for :alue and the 0rutection is lost. Bt t#e e)'lanation
to Se%tion 1/1 sa(s t#at t#e !ere %re&iting of t#e a!ont to t#e a%%ont &oes
not i!'l( t#at t#e ban3er #as be%o!e a #ol&er for ,ale be%ase &e to
a%%onting %on,enien%es t#e ban3er !a( %re&it t#e a%%ont of t#e %#e*e to
t#e %sto!erDs a%%ont e,en before 'ro%ee&s t#ereof are realise&"
Oerdue! "tale or Out#of#date Che$ues
A %#e*e is o,er&e or be%o!es statte6barre& after t#ree (ears fro! its &e &ate
of isse" A #ol&er %annot se 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, $#i%# #as been in
%ir%lation for !ore t#an si) !ont#s, is regar&e& b( ban3ers as stale" If, as a reslt of
an( &ela( in 'resenting a %#e*e, t#e &ra$er sffers an( loss, as b( t#e failre 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#onore&" C %an enfor%e 'a(!ent against B bt 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 $rongfl &is#onor of #is %#e*e bt it is not
liable to t#e 'a(ee or #ol&er of t#e %#e*e" T#e #ol&er #as no rig#t to en"tEr%e 'a(!ent
fro! t#e ban3er e)%e't in t$o %ases, na!el(, 0i1 $#ere t#e #ol&er &oes not 'resent t#e
%#e*e $it#in a reasonable ti!e after isse, an& as a reslt t#e &ra$er sffers &a!age
b( t#e failre of t#e ban3er in li*i&ation 'ro%ee&ingsB an& 0ii1 $#ere ban3er 'a(s a
%rosse& %#e*e b( !ista3e o,er t#e %onter, #e is liable to t#e o$ner for an(
loss o%%asione& b( it"
Crossing of Che$ues
A %#e*e is eit#er -o'en- or -%rosse&-" An o'en %#e*e %an be 'resente& b(
t#e 'a(ee to t#e 'a(ing ban3er an& is 'ai& o,er t#e %onter" A %rosse& %#e*e
%annot be 'ai& a%ross t#e %onter bt !st be %olle%te& t#rog# a ban3er"
A crossing is a &ire%tion to t#e 'a(ing ban3er to 'a( t#e !one( generall( to a
ban3er or to a 'arti%lar ban3er, an& not to 'a( ot#er$ise" T#e ob8e%t of %rossing
is to se%re 'a(!ent to a ban3er so t#at it %ol& be tra%e& to t#e 'erson
re%ei,ing t#e a!ont of t#e %#e*e" Crossing is a &ire%tion to t#e 'a(ing ban3er
t#at t#e %#e*e s#ol& be 'ai& onl( to a ban3er or a s'e%ifie& ban3er" To restrain
negotiabilit(, a&&ition of $or&s -Not Negotiable- or -A%%ont >a(ee Onl(- is
ne%essar(" A %rosse& bearer %#e*e %an be negotiate& b( &eli,er( an& %rosse&
or&er %#e*e b( en&orse!ent an& &eli,er(" Crossing affor&s se%rit( an&
'rote%tion to t#e #ol&er of t#e %#e*e"
'odes of Crossing 0Se%tions 1?/61/1A1
T#ere are t$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 %onter of t#e ban3 bt t#rog# a ban3 onl(" T#e a&&ition of t#e $or&s -an&
Co"- &o not #a,e an( signifi%an%e bt t#e a&&ition of t#e $or&s -not negotiable-
restri%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#ot t#e $or&s -not negotiable- t#at a&&ition %onstittes a crossing an&
t#e %#e*e is crossed s0ecially and to that !an"er The pa$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 #onor t#e %#e*e onl(
$#en it is 'res%ribe& t#rog# 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 $arns t#e collecting ban1er t#at t#e 'ro%ee&s are to
be %re&ite& onl( to t#e a%%ont of t#e 'a(ee, or t#e 'art( na!e&, or #is agent" If
t#e %olle%ting ban3er allo$s t#e 'ro%ee&s of a %#e*e bearing s%# %rossing to
be %re&ite& to an( ot#er a%%ont, #e $ill be gilt( 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%%ont of t#e 'erson na!e& as 'a(ee"
S0ecimen
of a general
crossing
S0ecimen
of a s0ecial
crossing


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 featre 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#ot
negligen%e, for ,ale, before !atrit( an& $it#ot 3no$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 %orse $#o a%*ires an in&is'table title to t#e %#e*e" 05#en t#e instr!ent
'asses t#rog# a #ol&er6in6&e %orse, it is 'rge& of all &efe%ts an& t#e sbse*ent
#ol&ers also get goo& title1" It is e)a%tl( t#is i!'ortant featre $#i%# is ta3en a$a( b(
%rossing t#e %#e*e -not negotiable-" In ot#er $or&s, a %#e*e %rosse& Nnot negotiable-
is 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%orse" So long as t#e title of t#e transferors is goo&, t#e title of t#e transferees
is also goo& bt 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 sbse*ent transfereesD title also be%o!e tainte& $it# t#e sa!e &efe%t6t#e(
%annot %lai! to be #ol&ers6in6&e6%orse"
T#e ob8e%t of t#is Se%tion is to affor& 'rote%tion to t#e &ra$er or #ol&er of a %#e*e
$#o is &esiros of trans!itting it to anot#er 'erson, as !%# 'rote%tion as %an
reasonabl( be affor&e& to #i! against &is#onestl( or a%tal !is%arriage in t#e %orse 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 ,ale for it, I %olle%ts t#e %#e*e t#rog# #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(" Bt I %annot %lai! t#at #e is a #ol&er6in6&e %orse
$#i%# #e %ol& #a,e n&er t#e nor!al %ir%!stan%es %lai!e&" T#e reason is t#at
%#e*e is %rosse& -not negotiable- an& #en%e t#e tre o$nerDs 0#ol&erDs1 rig#t
s'er%e&es t#e rig#ts of t#e #ol&er6in6&e6%orse" 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%ase t#e %#e*e $as %rosse& -not negotiable- an& not for
an( "ot#er reason" T#s -not negotiable- %rossing not onl( 'rote%ts t#e rig#ts of t#e tre
o$ner of t#e %#e*e bt also ser,es as a $arning to t#e en&orseesD to en*ire
t#orog#l( before ta3ing t#e %#e*e as t#e( !a( #a,e to be ans$erable to t#e tre
o$ner t#ereof if t#e en&orserDs title is fon& 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 $or&s -not negotiableO la%3s negotiabilit( an& t#erefore
is not a negotiable instr!ent in t#e ,tre sense" It &oes not restri%t transferabilit( bt
restri%ts negotiabilit( onl("
'aturity
C#e*es are al$a(s 'a(able on &e!an& bt 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 !atrit(" A%%or&ing to Se%tion
?? of t#e A%t, -t#e !atrit( 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
isse&" T#e *estion of !atrit(, 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"
Matrit( is t#e &ate on $#i%# t#e 'a(!ent of an instr!ent falls &e" E,er(
instr!ent 'a(able at a s'e%ifie& 'erio& after &ate or after sig#t is entitle& to
t#ree &a(s of gra%e" S%# a bill or note !atres or falls &e on t#e last &a( of t#e
gra%e 'erio&, an& !st be 'resente& for 'a(!ent on t#at &a( an& if
&is#onore&, sit %an be institte& on t#e ne)t &a( after !atrit(" If an instr!ent
is 'a(able b( instal!ents, ea%# instal!ent is entitle& to t#ree &a(s of gra%e" No
&a(s of gra%e are allo$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& $ol& 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 9anar(, ?EE1, is !a&e 'a(able at
one !ont#s after &ate" T#e instr!ent is at !atrit( on t#e t#ir& &a(
after t#e ?8t# @ebrar(, ?EE1, Le" on /r& Mar%#, ?EE1"
0ii1 A negotiable instr!ent &ate& /Et# Agst, ?EE1, is !a&e 'a(able t#ree
!ont#s after &ate" T#e instr!ent is at !atrit( on"/r& De%e!ber, ?EE1"
0iii1 A negotiable instr!ent" &ate& t#e /1 st Agst, ?EE1, is !a&e 'a(able
t#ree !ont#s after &ate" T#e instr!ent is at !atrit( on /r& De%e!ber,
?EE1"
If t#e &a( of !atrit( falls on a 'bli% #oli&a(, t#e instr!ent is 'a(able on t#e
0receeding bsiness &a(" T#s if a bill is at !atrit( on a Sn&a(" It $ill be
&ee!e& &e on Satr&a( an& 0ot on Mon&a("
T#e as%ertain!ent of t#e &ate of !atrit( be%o!es i!'ortant be%ase 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!ont 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#og# #e !a( re%ei,e its
'a(!ent"
&older in (ue Course
Se%tion : states t#at a #ol&er in &e %orse 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
!atrit( an& $it#ot #a,ing sffi%ient %ase to belie,e t#at an( &efe%t e)iste& in
t#e title of t#e 'erson fro! $#o! #e &eri,e& #is title"
In or&er to be a #ol&er in &e %orse, a 'erson !st satisf( t#e follo$ing
%on&itions7
0i1 +e !st be t#e #ol&er of t#e instr!ent"
0ii1+e s#ol& #a,e obtaine& t#e instr!ent for ,ale or %onsi&eration"
0iii1 +e !st #a,e obtaine& t#e negotiable instr!ent before !atrit("
0i,1 T#e instr!ent s#ol& be %o!'lete an& reglar on t#e fa%e of it"
0,1 T#e #ol&er s#ol& ta3e t#e instr!ent in goo& fait#"
A #ol&er in &e %orse 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, bt also ser,es
as a %#annel to 'rote%t all sbse*ent #ol&ers" A #ol&er in &e %orse %an
re%o,er t#e a!ont of t#e instr!ent fro! all 're,ios 'arties, alt#og#, as a
!atter of fa%t, no %onsi&eration $as 'ai& b( so!e of t#e 're,ios '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!ont fro!
all 'arties 're,ios 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 $#i%# #e is sb8e%t, !a( bin& #i!self an& be bon& b( !a3ing,
&ra$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, lnati%s, i&iots, &rn3en '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" Bt 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 $#i%# #as been
en&orse& all t#e 'arties a%%e'ting t#e !inor are liable in t#e e,ent of its &is#onor"
Liability of Parties
T#e 'ro,isions regar&ing t#e liabilit( of 'arties to negotiable instr!ents are lai&
&o$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 bon&, in %ase of &is#onor b( t#e
&ra$ee or a%%e'tor t#ereof, to %o!'ensate t#e #ol&er, 'ro,i&e& &e noti%e of &is#onor "
#as been gi,en to or re%ei,e& b( t#e &ra$er" T#e natre 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#onor, #e $ill %o!'ensate t#e #ol&er or an(
en&orser, 'ro,i&e& noti%e of &is#onor #as been &l( gi,en" +o$e,er, in %ase of
a%%o!!o&ation bill no noti%e of &is#onor 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 &efalt 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 sffi%ient fn&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 $#en &l( re*ire& to &o
so an&, or in &efalt of s%# 'a(!ent, #e s#all %o!'ensate t#e &ra$er for an( loss or
&a!age %ase& b( s%# &efalt"
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$a(s be a ban3er" T#e ban3er, t#erefore, is bon& to 'a( t#e %#e*e of
t#e &ra$er, i"e", %sto!er, if t#e follo$ing %on&itions are satisfie&7
0i1 T#e ban3er #as sffi%ient fn&s to t#e %re&it of %sto!erDs a%%ont"
0ii1 T#e fn&s are 'ro'erl( a''li%able to t#e 'a(!ent of s%# %#e*e, e"g", t#e
fn&s are not n&er an( 3in& of lien et%" "
0iii1 T#e %#e*e is &l( re*ire& to be 'ai&, &ring ban3ing #ors an& on or after
t#e &ate on $#i%# it is !a&e 'a(able"
If t#e ban3er is n8stifie& in refsing to #onor t#e %#e*e of its %sto!er, it s#all
be liable for &a!ages"
*. Liability of "=a1er" of Note and 99/cce0tor9 of &ill 0Se%tion /?1
In t#e absen%e of a %ontra%t to t#e %ontrar(, t#e !a3er of a 'ro!issor( note an& t#e
a%%e'tor before !atrit( of a bill of e)%#ange are bon& to 'a( t#e a!ont t#ereof at
!atrit(, a%%or&ing to t#e a''arent tenor of t#e note or a%%e'tan%e res'e%ti,el(" T#e
a%%e'tor of a bill of e)%#ange at or after !atrit( is bon& to 'a( tbe a!ont t#ereof to
t#e #ol&er on &e!an&7
It follo$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 absolte an& n%on&itional bt t#e liabilit( n&er t#is Se%tion is sb8e%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
!atrit( an& not before"
+. Liability of endorser 0Se%tion /<1
E,er( en&orser in%rs liabilit( to t#e 'arties t#at are sbse*ent to #i!" 5#oe,er
en&orses an& &eli,ers a negotiable instr!ent before !atrit( is bon& t#ereb( to e,er(
sbse*ent #ol&er in %ase of &is#onor of t#e instr!ent b( t#e &ra$ee, a%%e'tor or
!a3er, to %o!'ensate s%# #ol&er of an( loss or &a!age %ase& to #i! b( s%#
&is#onor 'ro,i&e& 0i1 t#ere is no %ontra%t to t#e %ontrar(B 0ii1 #e 0en&orser1 #as not
e)'ressl( e)%l&e&, li!ite& or !a&e %on&itional #is o$n liabilit(B an& 0iii1 &e noti%e of
&is#onor #as been gi,en to, or re%ei,e& b(, s%# en&orser" E,er( en&orser after
&is#onor, is liable 'on t#e instr!ent as if it is 'a(able on &e!an&"
+e is bon& b( #is en&orse!ent not$it#stan&ing an( 're,ios alteration of t#e
instr!ent" 0Se%tion 881 P
-. Liability of Prior Parties 0Se%tion /;1
E,er( 'rior 'art( to a negotiable instr!ent is liable t#ereon to a #ol&er in &e
%orse ntil t#e instr!ent is &l( satisfie&" >rior 'arties !a( in%l&e t#e !a3er or
&ra$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 %orse is 8oint an& se,eral" T#e #ol&er in
&e %orse !a( #ol& an( or all 'rior 'arties liable for t#e a!ont of t#e &is#onore&
instr!ent"
6. Liability interse
Garios 'arties to a negotiable instr!ent $#o are liable t#ereon stan& on
a &ifferent footing $it# res'e%t to t#e natre of liabilit( of ea%# one of t#e!"
@. Liability of /cce0tor of ,orged !ndorsement 0Se%tion A11
An a%%e'tor of a bill of e)%#ange alrea&( en&orse& is not relie,e& fro!
liabilit( b( reason t#at s%# en&orse!ent is forge&" if #e 3ne$ 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%titios na!e an& 'a(able to
t#e &ra$erDs or&er is not, b( reason t#at s%# na!e is fi%titios, relie,e& fro!
liabilit( to an( #ol&er In &e %orse %lai!ing n&er an en&orse!ent b( t#e sa!e
#an& as t#e &ra$erDs signatre, 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 %onstitte 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 $ritten an&
registere& &o%!ent"
Negotiabilit( an& Assignabilit( Distingis#e&
A transfer b( negotiation &iffers fro! transfer b( assign!ent in t#e follo$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%tate a transfer" Assign!ent re*ires
a $ritten &o%!ent signe& b( t#e transferor"
0b1 Noti%e of transfer of &ebt 0a%tionable %lai!1 !st be gi,en b( t#e assignee to t#e
&ebtor in or&er to %o!'lete #is titleB no s%# noti%e is ne%essar( in a transfer b(
negotiation"
0%1 On assign!ent, t#e transferee of an a%tionable %lai! ta3es it sb8e%t to all t#e
&efe%ts in t#e title of, an& sb8e%t to all t#e e*ities an& &efen%es a,ailable
against t#e assignor, e,en t#og# #e too3 t#e assign!ent for ,ale an& in good
fait#" In %ase of negotiation t#e transferee, as #ol&er6in6&e %orse, -ta3es t#e
instr!ent free fro! an( &efe%ts in t#e title of t#e transferor"
Importance of (eliery
Negotiation is effe%te& b( !ere &eli,er( of a bearer instr!ent an& b( en&orse!ent
an& &eli,er( of an or&er instr!ent" T#is s#o$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 ,olntaril( $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 (eliery
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 bt t#e onl( ort#e last en&orse!ent
is in blan3"
0iii1 5#ere t#e 'a(ee is a fi%titios or a non6e)isting 'erson
0i,1 T#ese Instr!ents &o not re*ire signatre of t#e transferor" T#e 'erson
$#o ta3es t#e! is a #ol&er, an& %an se in #is o$n na!e on t#e!" 5#ere a
bearer negotiates an instr!ent b( !ere &eli,er(, an& &oes not 't #is
signatre t#ereon,6#e is not liable to an( 'art( to t#e instr!ent in %ase t#e
instr!ent is &is#onore&, 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#og#
it is sbse*entl( en&orse& in fll" T#e rle 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& $it#ot en&orse!ent, it is !erel( assigne& an&
not negotiate& an& t#e #ol&er t#ei;Ef is not entit7e& to t#e rig#ts of a #ol&er in
&e %orse, an& #e %annot negotiate it to a t#ir& 'erson"
En&orse!ent 0Se%tions 1< an& 1;1
5#ere t#e !a3er or #ol&er of a negotiable instr!ent signs t#e sa!e
ot#er$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 Salifie&"
0a1 &lan1 or General2 An en&orse!ent is to be blan3 or general $#ere
t#e en&orser !erel( $rites #is signatre 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#og#
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 %ontines tobe aMblan3" Bt 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 fll, b( $riting abo,e t#e en&orserDs signatre, 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!ont !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 fll" 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- $ol& be s'e%iall( en&orse& an& So#an en&orses it frt#er" A
blan3 en&orse!ent %an be trne& 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
frt#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%%ont 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!ont '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 sbse*ent #ol&ers
an& t#e( s#ol& not loo3 to #i! in %ase of &is#onor of instr!ent" T#e
en&orser e)%l&es #is liabilit( b( a&&ing t#e $or&s -sans re%orse- or
-$it#ot re%orse-, e"g", -'a( A or or&er sa!e re%orse-"
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!ont &e t#ereon &e'en& 'on t#e #a''ening of a s'e%ifie&
e,ent, alt#og# 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 rle '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 %orse of t#e bill b( se%on& en&orse!ent b(,D, %an
re%o,er t#e a!ont 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 se 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 illstration $ill !a3e t#e 'oint %lear" A is t#e 'a(ee of
a negotiable instr!ent" +e en&orses t#e instr!ent Dsans re%orseD to B, B en&orses to
C, C to D, an& D again en&orses it to A" In t#is %ase, A is not onl( reinstate&
in #is for!er rig#ts bt #as t#e rig#t of an en&orsee against B, C an& D"
Negotiation of Lost Instrument or that Obtained by )nla*ful 'eans
5#en a negotiable instr!ent #as been lost or #as been obtaine& fro! an(
!a3er, a%%e'tor or #ol&er t#ereof b( !eans of an offen%e or fra&, or for an
nla$fl %onsi&eration, no 'ossessor or en&orsee, $#o %lai!s t#rog# t#e
'erson $#o fon& or obtaine& t#e instr!ent is entitle& to re%ei,e t#e a!ont
&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#rog# $#o! #e
%lai!s $as, a #ol&er in &e %orse"
+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 fll, 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#rog#
#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#og# #e be a 'r%#aser for ,ale
an& in goo& fait#, for t#e en&orse!ent is a nllit(" @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, $#o si!'l( &eli,ers it to C, C forges BDs en&orse!ent an& transfer it to
D" +ere, D, as t#e #ol&er &oes not &eri,e #is title t#rog# t#e forge& en&orse!ent of B,
bt t#rog# t#e genine en&orse!ent of A an& %an %lai! 'a(!ent fro! an( of t#e
'arties to t#e instr!ent in s'ite of t#e inter,ening forgeg en&orse!ent"
,cceptance of a Bill of %-change
T#e &ra$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 refsal 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 $or&
-a%%e'te&- an& signs #is na!e n&erneat# #e be%o!es t#e a%%e'tor of t#e bill"
An a%%e'tan%e !a( be eit#er general or *alifie&" A general a%%e'tan%e is
absolte an& as a rle, an a%%e'tan%e #as to be general" " 5#ere an
a%%e'tan%e is !a&e sb8e%t to so!e %on&ition or *alifi%ation, t#ereb( ,ar(ing t#e
effe%t of t#e bill, it is a *alifie& a%%e'tan%e" T#e #ol&er of t#e bill !a( eit#er refse to
ta3e a *alifie& a%%e'tan%e or non6a%*ies%en%e in it" 5#ere #e refses to ta3e it, #e
%an treat t#e bill as &is#onore& b( non6a%%e'tan%e, an& se t#e &ra$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 #onor of an( 'art( t#ereto"
T#e stranger so a%%e'ting, $ill &e%lare n&er #is #an& t#at #e a%%e'ts t#e 'roteste&
bill for t#e #onor of t#e &ra$er or an( 'arti%lar en&orser $#o! #e na!es"
T#e a%%e'tor for #onor is liable to 'a( onl( $#en t#e bill #as been &l( 'resente&
at !atrit( to t#e &ra$ee for 'a(!ent an& t#e &ra$ee #as refse& 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 #onor 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 #onor, a%*ires all t#e
rig#t of #ol&er for $#o! #e 'a(s"
Presentment for ,cceptance
It is onl( bills of e)%#ange t#at re*ire 'resent!ent for a%%e'tan%e an& e,en t#ese
of %ertain 3in&s onl(" Bills 'a(able on &e!an& or on a fi)e& &ate nee& not be 'resente&"
T#s, a bill 'a(able +0 &a(s after &e &ate on t#e #a''ening of a %ertain e,ent !a( or
!a( not be 'resente& for a%%e'tan%e" Bt t#e follo$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) !atrit( 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( at#orise& agent" If t#e &ra$ee is &ea&, t#e bill s#ol& be 'resente&
to #is legal re'resentati,e, or if #e #as been &e%lare& an insol,ent, to t#e offi%ial re%ei,er
or assigner"
T#e follo$ing are t#e 'ersons to $#o! a bill of e)%#ange s#ol& be 'resente&7
0i1 T#e &ra$ee or #is &l( at#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 refses to a%%e't t#e bill"
0,i1 T#e a%%e'tor for #onor" 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 #onor" +e IS a
'erson $#o %o!es for$ar& to a%%e't t#e bill $#en it is &is#onore& b( non6
a%%e'tan%e"
T#e 'resent!ent !st be !a&e before !atrit(, $it#in a reasonable ti!e after it is
&ra$n, or $it#in t#e sti'late& 'erio&, if an(, on a bsiness &a( $it#in bsiness #ors
an& at t#e 'la%e of bsiness or resi&en%e of t#e &ra$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 $ill not be sffi%ient"
5#en 'resent!ent is %o!'lsor( an& t#e #ol&er fails to 'resent for a%%e'tan%e,
t#e &ra$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#onore& in t#e follo$ing %ases7
0a1 5#ere t#e &ra$ee %annot be fon& after reasonable sear%#"
0b1 5#ere &ra$ee is a fi%titios 'erson or one in%a'able of %ontra%ting"
0%1 5#ere alt#og# t#e 'resent!ent is irreglar, a%%e'tan%e #as been refse&
on so!e ot#er gron&"
Presentment for Payment
All notes" bills an& %#e*es !st be 'resente& for 'a(!ent to t#e !a3er,
a%%e'tor or &ra$ee t#ereof res'e%ti,el( b( or on be#alf of t#e #ol&er &ring t#e
sal #ors of bsiness, an& if at ban3erDs $it#in ban3ing #ors"
Presentment for Payment *hen %-cused
No 'resent!ent is ne%essar( an& t#e instr!ent !a( be treate& as
&is#onore& in t#e follo$ing %ases7
0a1 5#ere t#e !a3er, &ra$er or a%%e'tor a%ti,el( &oes so!et#ing so as to
intentionall( obstr%t t#e 'resent!ent of t#e instr!ent, e"g", &e'ri,es t#e
#ol&er of t#e instr!ent an& 3ee's it after !atrit("
0b1 5#ere #is bsiness 'la%e is %lose& on t#e &e &ate"
0%1 5#ere no 'erson is 'resent to !a3e 'a(!ent at t#e 'la%e s'e%ifie& for
'a(!ent"
0&1 5#ere #e %annot, after &e sear%# be fon&" 0Se%tion ;11
0e1 5#ere t#ere is a 'ro!ise to 'a( not$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 %ol& not 'ossibl( #a,e sffere& an( &a!age b(
non6'resent!ent"
0#1 5#ere t#e &ra$er is a fi%titios 'erson, or one in%o!'etent to %ontra%t"
0i1 5#ere t#e &ra$er an& t#e &ra$ee are t#e sa!e 'erson"
! 5#ere t#e bill is &is#onore& 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 %ontries of t#e #ol&er an& &ra$ee"
0I1 5#ere t#og# t#e 'resent!ent is irreglar, a%%e'tan%e #as been refse& on
so!e ot#er gron&s"
(ishonour by Non#,cceptance
Se%tion :1 'ro,i&es t#at a bill is sai& to be &is#onore& b( non6a%%e'tan%e7
0a1 5#en t#e &ra$ee &oes not a%%e't it $it#in A8 #ors fro! t#e ti!e of
'resent!ent for a%%e'tan%e"
0b1 5#en 'resent!ent for a%%e'tan%e is e)%se& an& t#e bill re!ains
na%%e'te&"
0%1 5#en t#e &ra$ee is in%o!'etent to %ontra%t"
0&1 5#en t#e &ra$ee is a fi%titios 'erson or after reasonable sear%# %an not
be fon&"
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#onore& 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 &efalt in 'a(!ent 'on being &l( re*ire& to 'a( t#e sa!e" Also, a
negotiable instr!ent is &is#onore& b( non6'a(!ent $#en 'resent!ent for 'a(!ent is
e)%se& an& t#e instr!ent $#en o,er&e re!ains n'ai&"
If t#e bill is &is#onore& eit#er b( non6a%%e'tan%e or b( non6 'a(!ent, t#e &ra$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#onor" T#e &ra$ee is liable onl( $#en t#ere is &is#onor b( non6'a(!ent"
Notice of (ishonour 0Se%tions :16:8 an& Se%tions 1E<61EC1
5#en a negotiable instr!ent is &is#onore& 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#onor to all
ot#er 'arties $#o! #e see3s to !a3e liable" Ea%# 'art( re%ei,ing noti%e of &is#onor
!st in or&er to ren&er an( 'rior 'art( liable to #i!self, gi,e noti%e of &is#onor 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 bt 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#onore&
t#e instr!ent isse& b( #i!" Noti%e of &is#onor 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, bt also in res'e%t of t#e
original %onsi&eration" "
Noti%e !a( be oral or in $riting, bt it !st be a%tal for!al noti%e" It !st be gi,en
$it#in a res'onsibleD ti!e of &is#onor"
Notice of (ishonour )nnecessary
No noti%e of &is#onor 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#onor
$ai,e&- ,
0b1 5#en t#e &ra$er #as %onter!an&e& 'a(!ent"
0%1 5#en t#e 'art( %#arge& $ol& not sffer &a!age for $ant of noti%e" 0&1
5#en t#e 'art( entitle& to noti%e %annot after &e sear%# be fon&"
0e1 5#en t#e o!ission to gi,e noti%e is %ase& b( na,oi&able %ir%!stan%es,
e"g", &eat# or &angeros illness of t#e #ol&er"
0f1 5#ere t#e a%%e'tor is also a &ra$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#onore&, t#e #ol&er is entitle& after gi,ing &e noti%e of
&is#onor, to se t#e &ra$er an& t#e en&orsers" Se%tion :: 'ro,i&es a %on,enient
!et#o& of at#enti%ating t#e fa%t of &is#onor b( !eans of -Noting-" 5#ere a bill or note
is &is#onore&, t#e #ol&er !a(, if #e so &esires, %ase s%# &is#onor 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 !inte !st be re%or&e& b( t#e notar( 'bli% $it#in a reasonable
ti!e after &is#onor an& !st %ontain t#e fa%t of &is#onor, t#e &ate of
&is#onor, t#e reason, if an(, assigne& for s%# &is#onor if t#e instr!ent #as
not been e)'ressl( &is#onore& t#e reasons $#( t#e #ol&er treats it &is#onore&
an& notar(Ds %#arges"
Protest
T#e 'rotest is t#e for!al notarial %ertifi%ate attesting t#e &is#onor of t#e bill,
an& base& 'on t#e noting $#i%# #as been effe%te& on t#e &is#onor of t#e bill"
After t#e noting #as been !a&e, t#e for!al 'rotest is &ra$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 ss'en&e&
'a(!ent, or #is %re&it #as been 'bli%l( i!'ea%#e&, before t#e !atrit( 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 refsal !a3es a 'rotest 3no$n as -'rotest for
better se%rit(-"
@oreign bills !st be 'roteste& for &is#onor $#en s%# 'rotest is re*ire&
b( t#e la$ 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#onor, 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#onor toget#er $it# t#e 'la%e an& ti!e of &is#onor an& t#e
signatre of t#e notar( 'bli%" >rotest affor&s an at#enti% e,i&en%e of &is#onor
to t#e &ra$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 %orseB
0b1 $#en t#e 'rin%i'al &ebtor Dbe%o!es t#e #ol&erB
0%1b( an a%t t#at $ol& &is%#arge si!'le %ontra%tB
0&1 b( renn%iationB an&
0e1 b( %an%ellation"
.ischarge of a Party or Parties
5#en an( 'arti%lar 'art( or 'arties are &is%#arge&, t#e instr!ent %ontines to
be negotiable an& t#e n&is%#arge& 'arties re!ain liable on it" @or e)a!'le, t#e
non6'resent!ent of a bill on t#e &e &ate &is%#arges t#e en&orsers fro! t#eir
liabilit(, bt t#e a%%e'tor re!ains liable on it"
A 'art( !a( be &is%#arge& in t#e follo$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 #ors to a%%e't t#e bill, all 're,ios '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,ios '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%# %ases
it to s'ea3 a &ifferent langage 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&, bt 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 $#o ta3e t#e altere&
instr!ent %annot %o!'lain" Se%tion 11 'ro,i&eU t#at an a%%e'tor or en&orser of a
negotiable instr!ent is bon& b( #is a%%e'tan%e or en&orse!ent not$it#stan&ing an(
're,ios 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( ot t#e %o!!on Intention of t#e 'arties,
0iii1 an alteration !a&e before t#e instr!ent is isse& 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 !atrit(, an& t#e bill is t#en sai&
to "be retire&, bt 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 $#i%# t#e bill #as to
rn" T#e interest allo$an%e Is 3no$n as rebate"
&undis
+n&is are negotiable instr!ents $ritten in an oriental langage" 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( bt if %sto! is silent on t#e 'oint in &is'te before t#e Cort, 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&igenos negotiable
instr!ents $#et#er t#e( are bills of e)%#ange or 'ro!issor( notes" An
instr!ent in or&er to be a #n&i !st be %a'able of being se& b( t#e #ol&er in
#is o$n na!e, an& !st b( t#e %sto! of tra&e be transferre& li3e %as# b(
&eli,er(" Ob,iosl( t#e
%sto!s relating to #n&is $ere !an(" In %ertain 'arts of t#e %ontr( e,en
oral
" "
a%%e'tan%e $as in ,age"
T#e follo$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"
(. Bo1hmi
4undi
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 natre
of 'oli%( of insran%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 &esiros 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&"
-. .arshani
4undi
T#is is a #n&i 'a(able at sig#t" It is freel( negotiable an& t#e 'ri%e is
reglate& 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" Usall( !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 sb8e%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 bsiness 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 !atrit("
0A1 E,er( negotiable instr!ent $as transferre& before its !atrit("
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 %orse"
081 In a sit 'on an instr!ent $#i%# #as been &is#onore&, t#e Cort s#all
'res!e t#e fa%t of &is#onor, or 'roof of t#e 'rotest"
+o$e,er t#ese legal 'res!'tions are rebttable b( e,i&en%e to t#e
%ontrar(" T#e br&en to 'ro,e to t#e %ontrar( lies 'on t#e &efen&ant to t#e sit
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#onor $it# a ,ie$ to &is%orage
t#e $it##ol&ing of 'a(!ent on negotiable instr!ents on &e &ates"
>enalties in %ase of &is#onor of %#e*es
C#a'ter IGII of t#e Negotiable Instr!ents A%t 'ro,i&es for 'enalties in %ase
of &is#onor of %ertain %#e*es for insffi%ien%ies of fn&s in t#e a%%onts"
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 retrne& b( t#e ban3 n'ai& for
t#e reason of insffi%ien%( of t#e a!ont of !one( stan&ing to t#e %re&it of t#e
a%%ont 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 $it# t#e ban3er for t#at a%%ont,
t#e &ra$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#ot '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!ont of t#e %#e*e, or $it# bot#"
In or&er to %onstitte t#e sai& offen%e
0a1 s%# %#e*e s#ol& #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 %orse of s%# %#e*e s#ol& #a,e !a&e a
&e!an& for t#e 'a(!ent of t#e sai& a!ont of !one( b( gi,ing noti%e, in
$riting, to t#e &ra$er of t#e %#e*e $it#in fifteen &a(s of t#e re%ei't of
infor!ation b( #i! fro! t#e ban3 regar&ing t#e retrn of t#e %#e*e
n'ai&B an&
0%1 t#e &ra$er of s%# %#e*e s#ol& #a,e faile& to !a3e t#e 'a(!ent of t#e
sai& a!ont of !one( to t#e 'a(ee or t#e #ol&er in &e %orse 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 Cort in
=odi ements Ltd. ," C.C. Nandi, 01:881 ?8 CLA A:1, #el& t#at !erel(D be%ase
t#e &ra$er isse& a noti%e to t#e &ra$ee or to t#e Ban3 for Dsto' 'a(!entD, it
$ol& not 're%l&e an a%tion n&er Se%tion 1/8 b( t#e &ra$ee or #ol&er in &e
%orse" Usal '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 ensre t#at genine an& #:nest
ban3 %sto!ers are not #arasse& or 't to in%on,enien%e, sffi%ient safegar&Ds
#a,e also been 'ro,i&e& in t#e ne$ C#a'ter,
as n&er7
0a1 t#at no Cort 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 %orse of t#e %#e*eB
0b1 t#at s%# %o!'laint is !a&e $it#in one !ont# or t#e &ate on $#i%# t#e %ase
of a%tion arisesB
0%1t#at SO Cort inferior to t#at of a Metro'olitan Magistrate or a 9&i%ial
Magistrate of t#e first %lass s#all tr( an( s%# offen%e"
HHHHHHHHHHHHHHHHHHHHHHHHHH
Re%o!!en&e& Rea&ing
Ele!ents of Mer%antile La$ b( N D Wa'oor"