BUSINESS LAW
PRESENTMENT OF AN
NEGOTIABLE INSTRUMENT (NI)
TOPIC - 12
NEGOTIABLE INSTRUMENTS
NEGOTIABLE
Transferable from one person to another in return of
consideration
INSTRUMENT
Written document by which a right is created in favour
of some person
DEFINITION
A negotiable instrument means a promissory note, bill
of exchange or cheque payable either to order or to
bearer
CHARACTERISTICS OF
NEGOTIABLE INSTRUMENT
Freely Transferable
Title of holder free from all defects
Recovery
Presumption
Consideration
Date
Time of acceptance
Time of Transfer
Stamp
Holder presumed to be a holder in due course
Proof of protest
TYPES OF
NEGOTIABLE INSTRUMENTS
Negotiable by statute
Promissory notes, Bill of Exchange and Cheques
Negotiable by custom or usage
Government Promissory notes, Banker’s Drafts and Pay Orders,
Hundis, Delivery orders and railway receipts for goods
CLASSIFICATION OF
NEGOTIABLE INSTRUMENTS
Bearer and Order instruments
Bearer instruments
Order instruments
Inland and Foreign instruments
Inland instruments
Foreign instruments
Instrument payable on demand
Time instruments
CLASSIFICATION OF
NEGOTIABLE INSTRUMENTS
Accommodation Bill
A genuine trade bill
Bill is drawn, accepted or indorsed for consideration
An accommodation bill
Bill is drawn, accepted or indorsed without any consideration
FICTITIOUS BILL
DOCUMENTARY BILL AND CLEAN BILL
UNDATED BILLS AND NOTES
SAMPLES OF
NEGOTIABLE INSTRUMENTS
CHEQUE BILL OF EXCHANGE
PROMISSORY NOTE
PROMISSORY NOTE
DEFINITION
A ‘promissory note’ is an instrument in writing (not
being a bank note or a currency note) containing an
unconditional undertaking, signed by the maker, to pay
a certain sum of money only to, or to order of a certain
person or the bearer of the instrument (Sec.4)
The person who makes the promissory note and
promises to pay is called the maker
The person to whom the payment is to be made is
called the payee
APPROACH
I promise
to pay you
Rs 5000, after
my marriage Rs 5000 Mumbai, January 10th, 2009
with Rima
The amount of rupees five thousand IOU will give
you back in a few days time.
To,
Santu Mondal
222, Ashok Vihar Stamp
Mumbai-400011
APPROACH
I will sign a
promissory
note if you can
Rs 5000 Mumbai, January 10th, 2009
lend me the
amount of Rs
5000
Three months after date I promise to pay Santu
Mondal or order the sum of five thousand rupees
for value received.
To,
Santu Mondal Stamp
222, Ashok Vihar SD/GAVIN
Mumbai-400011
ELEMENTS OF A
PROMISSORY NOTE
It must be in writing
Promise to pay
Definite and unconditional
Signed by the maker
Certain parties
Certain sum of money
Promise to pay money only
Bank note or currency note is not a promissory note
It may be payable on demand or at a definite period
It cannot be made payable to bearer on demand
BILL OF EXCHANGE
DEFINITION
A bill of exchange is a instrument in writing containing an
unconditional order signed by the maker, directing a person to
pay a certain sum of money only to, or to the order of, a certain
person to the bearer of the instrument
PARTIES TO A BILL OF EXCHANGE
Drawer
The person who gives the order to pay or who makes the bill is called the
drawer
Drawee
The person is directed to pay is called the drawee
Payee
The person to whom the payment is to be made is called the payee
BILL OF EXCHANGE
HOW DOES IT WORK?
ROHIT (Payee)
ROOPESH (Drawee) Rs 5000 Mumbai, September 24th, 2009
Three months after date pay to Rohit or order the
sum of five thousand rupees, for value received.
To,
Roopesh Tanwar Stamp
222, Liberty Garden SD/Ram
Mumbai-400098
RAM (Drawer)
BILL IN SETS
A bill of exchange is sometimes drawn in parts,
especially when it has to be sent from one country to
another. This is known as drawing a bill ‘in a set’
ELEMENTS OF A
BILL OF EXCHANGE
It must be in writing
It must contain an order to pay
The order must be unconditional
It requires three parties
The parties must be certain
It must be signed by the drawer
The sum payable must be certain
It must contain an order to pay money
Bill must be affixed with the necessary stamp
INTEREST ON
BILLS & NOTES
Rate of interest specified in a promissory note or bill
of exchange calculated from the date of instrument
When no rate of interest is specified in the
promissory note or bill of exchange, it is calculated at
the rate of 18% / annum
Charged party in case of non-payment, is liable to
pay rate of interest only from the time party receives
notice of dishonour
MATURITY AND DAYS OF GRACE
BILLS AND NOTES
When a promissory note or bill of exchange is
payable after a specified period, the date on which it
falls due know as date of maturity, has to be
calculated. Every instrument payable otherwise
than ‘on demand’ is entitled to three days of grace
CHEQUES
DEFINITION
A cheque is a bill of exchange drawn upon a specified
banker and payable on demand (Sec.6). A cheque is
species of a bill of exchange; but it has the following
two additional qualification:
It is always drawn on a specified banker
It is always payable on demand
ELEMENTS OF A
CHEQUE
All cheques are bills of exchange, but all bills of
exchange are not cheques
A cheque must have all the essentials of a bill of
exchange
It must be signed by the drawer
It must contain an unconditional order to pay a
certain sum of money to the bearer of the cheque
It does not require acceptance as it is intended for
immediate payment
CROSSING
CHEQUES
GENERAL CROSSING
When a cheque is crossed generally,
the drawee banker shall not pay it
unless it is presented by a banker
SPECIAL CROSSING
Where a cheque is crossed specially
the banker on whom it is drawn shall
pay it only to the banker on whom it is
crossed, or his agent for collection
PRESENTMENT OF AN
NEGOTIABLE INSTRUMENT
Presentment means showing an instrument to the
drawer, drawee and payee for acceptance, sight or
payment
Three kinds of presentment
Presentment of Bill of Exchange for acceptance
Presentment of Promissory Note for sight
Presentment of Negotiable Instruments for payment
ESSENTIALS OF
ACCEPTANCE
It must be written on the bill
It must be signed by the drawee personally or
through a duly authorized agent
The accepted bill must be delivered to the holder
MODES OF
ACCEPTANCE
General Acceptance
Qualified Acceptance
Conditional
Partial
Qualified as to place
Qualified as to time
Acceptance by some of the drawees, but not all
PRESENTMENT FOR ACCEPTANCE
TO WHOM?
The Drawee
All or some of several drawees
Drawee in case of need
The duly authorized agent of the drawee
Legal representative if the drawee has died
Assignee, if the drawee has been declared an
insolvent
PRESENTMENT FOR ACCEPTANCE
WHEN & WHERE?
When
If a time for presentment for acceptance is specified in
a bill
Where
The bill should be presented at the place which is
specified for presentment
PRESENTMENT FOR ACCEPTANCE
EXCUSED
The drawee cannot be found
Drawee dead or insolvent
Drawee is a fictitious person
When presentment for acceptance is excused, the
bill is treated as dishonored
PRESENTMENT FOR
SIGHT
Promissory note cannot be accepted as the maker
himself is the person primarily liable on it
A promissory note must be presented to the maker
for sight in order to fix its maturity
If calculating time of presentment, public holidays
shall be excluded
If the maker cannot be found after a reasonable
search, presentment is excused
The instrument may be treated as dishonored
The presentment should be made during business
hours on a business day
PRESENTMENT FOR
PAYMENT
Negotiable Instruments must be presented for
payment by or on behalf of the holder
In default of presentment, the other parties to the
instrument are not liable thereon to such holder
If authorized by agreement, a presentment by means
of a registered letter is sufficient
PRESENTMENT FOR
PAYMENT IN DUE COURSE
It means payment in accordance with the apparent
tenor of the instrument in good faith and without
negligence to any person in possession thereof under
circumstances which do not afford a reasonable
ground for believing that his is not entitled to receive
payment of the amount therein mentioned
PRESENTMENT FOR PAYMENT
RULES
Hours for presentment
Presentment of instrument payable after date or sight
Presentment of promissory note payable by installments
Place of presentment
Presentment of cheque
Presentment of instrument payable on demand
Presentment to agent
Delay in presentment
Presentment excused
Liability of banker for negligently dealing with the bill presented
for payment
THANK YOU