Negotiable Instruments Flashcards
Learn about the negotiability of Promissory Note, Bill of Exchange & Cheque.
What is a Negotiable Instrument?
A Negotiable instrument means a promissory note, Bill of exchange or cheque payable to order or to bearer.
It is:
• freely transferrable
• transferrable infinitum
• HDC gets a Valid title even though the prior party’s title is defective
Dishonour by non acceptance
Section 91
A bill of exchange
is said to be Dishonored if:
A. bill is duly presented for acceptance, and thea drawee or one of several drawees not being partners, refuse acceptance within forty-eight hours from the time of presentment
In other words
• makes default in acceptance
- upon being duly required to.
B. Where the acceptor is incompetent to contract
C. When the drawee makes a qualified acceptance
D. Where the date of presentment is excused and the bill is not accepted.
E. When the drawee is a fictitious person or cannot be found after reasonable search.
Effect : the holder can start an action against the drawer and the indorsers and need not wait for maturity of the bill.
Dishonour by non payment
Section 92
A promissory note, bill of exchange or cheque
is said to be Dishonored by non payment if:
• the maker of the note, acceptor of the bill or
drawer of the cheque
• makes default in payment
- upon being duly required to pay the same
What is a Promissory Note?
- Document
- in writing
- containing and unconditional undertaking
- signed by its maker
- to pay a certain sum of money
- to or the order of a certain person, or to bearer of the Instrument
What is a Bill of exchange?
- Document
- in writing
- containing an unconditional order
- signed by its maker
- directing a certain person
- to pay a certain some of money
- to or to the order of a certain person or to bearer of the Instrument
To whom and by whom should the notice of dishonour be given?
When a promissory note, bill of exchange or cheque is dishonoured by non acceptance or non payment,
the holder thereof, or some party thereto who remains liable must give notice, that
the Instrument has been so dishonoured
to all other parties whom the holder seeks to make severally liable thereon, and to someone of several parties whom he seeks to make jointly liable.
Section 138
Dishonour of cheque for insufficiency of funds etc in the Account
When a cheque is drawn on the account maintained by him with a banker
To make payment of any amount
To another person from out of that account
To discharge, I in while or in part, the debt or liability
Is returned by the bank unpaid
Either because: the amount of money standing to the credit of his account is insufficient to honour the cheque
Or that it exceeds the amount arranged to be paid from that account by an arrangement with that banker.
Such a person shall be deemed to have committed an offence and punished with imprisonment for a term which may extend to two years or fine which may extend to twice the amount on cheque.
Sec 138(a,b,c) : 138 will not apply unless
A. Cheque presented within validity period by the payee i.e., the cheque has been presented at the bank within a period of three months from the date cheque was drawn or within its validity period whichever is earlier.
B. Demand for payment by notice: the payee or HDC has given a notice of dishonor within 30 days from the day on which information was received by him of the check unpaid.
C. Failure of reattempt to make payment the drawer fails to pay the payee or HDC the amount of money with a period of 15 days from the day of his receipt of notice.
Who is deemed to be guilty and liable to be proceeded against in case of a Company u/s 138? And Exceptions
- person in charge as Banking Official
- Director(Firm- Partner), Manager, Secretary & Officer
Exceptions:
A. Where the Director, Manager, Secretary or Officer does not have the knowledge of commission of offence
B. The person or co. has attempted with due diligence to avoid it
C. Where the person is a nominee director who has been appointed temporarily by the central government or any financial institution.
Who is a Holder in due course?
Section 9
• a person
• who for consideration
• became a possessor of promissory note, bill of exchange or cheque (if payable to bearer) or the payee or endorsee of the cheque (if payable to order)
• before the amount mentioned in it became payable, and
• without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
What is a cheque?
. Cheque is a Bill of exchange
. Drawn on a banker, and
. Not expressed as payable otherwise than in demand
. It includes truncated cheque and cheque in electronic form.
Truncated cheque
A cheque truncated, . During the clearing cycle . Either by clearing House or bank . Whether paying or receiving payment .Imtrun on generating a truncated
Case of acceptance occurs only in case of one instrument that is:
Bill of Exchange
