Unit –
3: Negotiable Instruments Act
Meaning
of Negotiable Instruments
Negotiable
Instruments are money/cash equivalents. These can be converted into liquid cash
subject to certain conditions. They play an important role in the economy in
settlement of debts and claims. The transactions involving the Negotiable
Instruments in our country are regulated by law and the framework of the
Statute which governs the transaction of these instruments is known as The
Negotiable Instruments Act. This act was framed in our country in the year 1881
when the British ruled our country. Prior to 1881 the transactions governing
Negotiable Instruments were regulated under the cover of Indian Contract Act
1872.
The
term ‘negotiable’ means transferable and the word ‘document’ means ‘in
writing’. Therefore, negotiable means a written promise or order to pay money
which may be transferred from one person to another.
Section
13 of the Negotiable Instruments Act, 1881 states, “A negotiable instrument
means a promissory note, bill of exchange or cheque payable either to order or
to bearer.” A negotiable instrument may be made payable to two or more payees
jointly, or it may be made payable in the alternative to one of two, or one or
some of several payees.
Essentials or Characteristics of
Negotiable Instruments:
a)
Witting and Signature
according to the rules: A Negotiable Instrument must be in writing and
signed by the parties according to the rules relating to (a) promissory notes,
(b) Bills of Exchange and (c) Cheques.
b)
Payable by Money: Negotiable
Instruments are payable by the legal tender money of India. The Liabilities of
the parties are governed in terms of such money only.
c)
Unconditional
Promise: If the instrument is a promissory note, it must contain an
unconditional promise to pay. If the instrument is a bill or cheque, it must be
an unconditional order to pay money.
d)
Freely transferable:
A
negotiable instrument is transferable from one person to another by delivery or
by endorsement and delivery.
e)
Acquisition of
Property: Any person, who possesses a negotiable instruments, becomes its
owner and entitled to the sum of money, mentioned on the face of the
instrument. When it is payable to bearer, the property in its passes from one
holder to another by mere delivery. If it is payable to order, the property
passes by endorsement, i.e. by the signature of its holder on its back and its
delivery.
f)
Acquisition of Good
Title: The holder in due course, i.e. the transferee of a negotiable
instrument in good faith and for value, acquires a good title to the instrument
even if the title of the transferor is defective. Further his title will not be
affected, by any defect in the title of the transferor.
g)
No Need of Giving
Notice: There is no need of giving a notice of transfer of a negotiable
instrument to the party liable to pay the money.
h)
Right of the Holder
in Due Course: The holder in the due course remains unaffected by certain defenses,
which might be available against previous holders, as for example, fraud, to
which he is not a party.
i)
Certain
Presumptions: Unless contrary proved certain presumptions are in the made case
of all negotiable instruments. Consideration, date, signature of holder in due
course, for example, is presumed in the case of all instruments. The
presumptions from Special rules of Evidence under section 118 to 119.
Presumptions
of Negotiable instruments note
Unless
contrary proved certain presumptions are in the made case of all negotiable
instruments. Consideration, date, signature of holder in due course, for
example, is presumed in the case of all instruments. The presumptions from
Special rules of Evidence under section 118 to 119. Sec. 118 and 119 deal with
the following presumptions:
1.
Consideration: It is presumed that every negotiable
instrument was made or drawn, accepted, endorsed, negotiated or transferred for
consideration. As such the holder need not prove consideration. However, this
presumption would not arise if it is proved that the instrument was obtained
from its owner by any offence, fraud, or for unlawful consideration.
2.
Date: Every negotiable instrument is presumed to have been made on the
date which it bears.
3.
Time of acceptance: It is presumed that every accepted bill was
accepted within a reasonable time and before its maturity.
4.
Time of transfer: It is presumed that every transfer was made
before maturity.
5.
Order of endorsements: The endorsements are presumed to have been
made in the same order in which they appear.
6.
Stamp: In case an instrument is lost, it is presumed that it was duly
stamped and the stamp was duly cancelled.
7.
Every holder is a holder in due course: Every holder is presumed to be a
holder in due course.
8.
Dishonour of instrument: In case a suit is filed for dishonour of an
instruments the Court, on the proof of protest presumes that the instrument was
dishonoured.
It
should be noted that where the promisor denies the execution of the promissory
note taking the plea that he signed on a blank paper, then the burden is on the
plaintiff to prove execution.
It
should be noted further that presumption, as consideration, is not conclusive.
If execution of promissory note is proved, then burden to prove lack of
consideration is on the defendant.
Promissory
Note
Promissory
Note, in the law of negotiable instruments, is a written instrument
containing an unconditional promise by a party, called the maker, who signs the
instrument, to pay to another, called the payee, a definite sum of money either
on demand or at a specified or ascertainable future date. The note may be made
payable to the bearer, to a party named in the note, or to the order of the
party named in the note.
According
to the Section 4 of the Negotiable Instrument Act, 1881 “A Promissory Note is
an instrument in writing not being a bank note or a current note containing an
unconditional undertaking, signed by the maker, to pay a certain sum of money
only to, or do the order of, a certain person, or to the bearer of the
instrument.”
In
other words, we can say that a promissory note is an unconditional promise in
writing made by one person to another, signed by the maker, engaging to pay on
demand to the payee, or at fixed or determinable future time, certain in money,
to order or to bearer.
There
are two parties to a Promissory Note:
a)
Maker: It is the debtor, who promises to make the payment. It must be signed by
its maker.
b)
Payee: The person who receives the payment of the promissory note is the payee.
A
signs instruments in the following terms:
(a) "I promise to Pay B or order
Rs.500".
(b) "I acknowledge myself to be indebted
to B in Rs.1, 000, to be paid on demand, for value received”.
(c) “I promise to pay B Rs.500/- on
01-10-2005. etc are promissory notes”.
The
essentials of a valid Promissory note
1)
The Promissory Note Must Be in Writing: Mere
verbal promises or oral undertaking does not constitute a promissory note. The
intention of the maker of the note should be signified by writing in clear
words on the instrument itself that he undertakes to pay a particular sum of
money to the payee or order or to the bearer
2)
It Must Contain an Express Promise or Clear
Undertaking to Pay: The promise to pay must be expressed. It
cannot be implied or inferred. A mere acknowledgment of indebtness is not
enough.
3)
The Promise to Pay must be Definite and
Unconditional: The promise to pay contained in the note must be unconditional. If
the promise to pay is coupled with a condition, it is not a promissory note.
4)
The Maker of the Pro-note Must Be Certain: The
instrument should show on the fact of it as to who exactly is liable to pay.
The name of the maker should be written clearly and ascertainable on seeing the
document.
5)
It Should be Signed By the Maker: Unless the
maker signs the instrument, it is incomplete and of no legal effect. Therefore,
the person who promises to pay must sign the instrument even though it might
have been written by the promisor himself.
6)
The Amount Must Be Certain: The amount
undertaken to be paid must be definite or certain or not vague. That is, it
must not be capable of contingent additions or subtractions.
7)
The Promise Should Be to Pay Money: The
promissory note should contain a promise to pay money and money only, i.e.,
legal tender money. The promise cannot be extended to payments in the form of
goods, shares, bonds, foreign exchange, etc.
8)
The Payee Must Be Certain: The money
must be payable to a definite person or according to his order. The payee must
be ascertained by name or by designation. But it cannot be made payable either
to bearer or to the maker himself.
9)
It Should Bear the Required Stamping: The
promissory note should, necessarily, bear sufficient stamp as required by the
Indian Stamp Act, 1889.
10)
It Should Be Dated: The date
of a promissory note is not material unless the amount is made payable at
particular time after date. Even then, the absence of date does not invalidate
the promissory note and the date of execution can be independently proved.
However to calculate the interest or fixing the date of maturity or
lm\imitation period the date is essential. It may be ante-dated or postdated.
If post-dated, it cannot be sued upon till ostensible date.
11)
Demand: The promissory note may be payable on
demand or after a certain definite period of time.
12)
The Rate of Interest: It is
unusual to mention in it the rated of interest per annum. When the instrument
itself specifies the rate of interest payable on the amount mentioned it,
interest must be paid at the rate from the date of the instrument.
Specimen
of Promissory note
|
Rs.1,000
Mumbai, July 2, 2017
Three
months after date I promise to pay Shyam Sunder or order the sum of one
thousand rupees, for value received.
To,
Shyam
Sunder
222,
D.N.Nagar,
Andheri
(W), Mumbai – 400 053.
|
Bills
of Exchange
A
bill of exchange or “draft” is a written order by the drawer to the drawee to
pay money to the payee. It is an unconditional order issued by a person or
business which directs the recipient to pay a fixed sum of money to a third
party at a future date. The future date may be either fixed or negotiable. A bill
of exchange must be in writing and signed and dated. Bills of exchange are used
primarily in international trade, and are written orders by one person to his
bank to pay the bearer a specific sum on a specific date.
As
per Section 5 a “bill of exchange” is “an instrument in writing containing an
unconditional order, signed by the maker, directing a certain person to pay a
certain sum of money only to, or to the order of, a certain person or to the
bearer of the instrument.”
Essentials of a Bills of exchange
1)
Number of parties: A bill of exchange has 3 parties:
Ø
the drawer, who draws the bill of exchange
Ø
the drawee, who has to make the payment
Ø
the payee, who is entitled to the payment.
Sometimes
the drawer and the payee can be one and the same person.
2)
It Must be in writing: The Bill of Exchange
must be in writing.
3)
Express order to pay: This is the essence of a bill of exchange.
There must be an ‘order by the drawer to the drawee to pay’. The order must be
a command and not an excessive request.
4)
Order must be unconditional: The order to pay must be unconditional. In
other words the happening of the condition must be certain.
5)
Order to pay money only: Just as a promissory note, the instrument
must be for money only.
6)
Sum payable to be certain: The amount payable must be certain. There
should be no ambiguity in the amount to be paid through the Bill of Exchange.
7)
Must be signed: The instrument is complete only when it is
signed by the drawer and the drawee.
8)
Must bear the stamp: A Bill of Exchange must be properly stamped
in accordance with the Indian Stamp Act, 1899 and must also be properly
cancelled.
9)
Other formalities: Formalities such as date, place,
consideration, etc. are usually found in a Bill of Exchange.
10)
Requisites of a contract to be complied
with: All requisites of a valid contract
like capacity to contract, consideration, free consent, lawful object must be
present.
Specimen of Bills of exchange
|
Mr. X
Rs.50,000
|
Assam, April 01,2010
|
|
Three months after date pay to me or my
order, the sum of rupees Fifty Thousand only, for value received.
|
|
|
To
Mr. Y
Dibrugarh, Assam
|
Accepted
Stamp
Mr. X
Sd/-
Tinsukia, Assam
|
|
|
Sd/-
|
Cheque
and its essentials:
Cheque
is a very common form of negotiable instrument. If you have a savings bank
account or current account in a bank, you can issue a cheque in your own name
or in favor of others, thereby directing the bank to pay the specified amount
to the person named in the cheque. A cheque is an instrument drawn on a specified
banker and not expressed to be payable otherwise than on demand Therefore, a
cheque may be regarded as a bill of exchange; the only difference is that the
bank is always the drawee in case of a cheque.
The
maker of a cheque is called the ‘drawer’, and the person directed to pay is the
‘drawee’. The person named in the instrument, to whom or to whose order the
money is, by the instrument directed, to be paid, is called the ‘payee’
The
Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange drawn
on a specified banker and not expressed to be payable otherwise than on demand.
From
the above definition it appears that a cheque is an instrument in writing, containing
an unconditional order, signed by the maker, directing a specified banker to
pay, on demand, a certain sum of money only to, to the order of, a certain
person or to the bearer of the instrument. Actually, a cheque is an order by
the account holder of the bank directing his banker to pay on demand, the
specified amount, to or to the order of the person named therein or to the
bearer.
The essentials or features of a Cheque
are:
1.
An Instrument in Writing: A cheque must be in writing. It can be written in ink
pen, ball point pen, typed or even printed. Oral orders are not considered as
cheques.
2.
Cheque Contains an Unconditional Order: Every cheque contains an unconditional
order issued by the customer to his bank. It does not contain a request for payment.
A cheque containing conditional orders is dishonoured by the bank.
3.
Cheque is Drawn by a Customer on His Bank: A cheque is always drawn on a
specific bank mentioned therein. Cheque drawn by stranger is of no meaning.
Cheque book facility is made available only to account holder who are supposed
to maintain certain minimum balance in the account.
4.
Cheque Must be Signed By Customer: A cheque must be signed by customer (Account
holder). Unsigned cheques or signed by persons other than customers are not
regarded as cheque.
5.
Cheque Must be Payable on Demand: A cheque when presented for payment must be
paid on demand. If cheque is made payable after the expiry of certain period of
time then it will not be a cheque.
6.
Cheque Must Mention Exact Amount to Be Paid: Cheque must be for money only. The
amount to be paid by the banker must be certain. It must be written in words
and figures.
7.
Payee Must be Certain to Whom Payment is Made: The payee of the cheque should
be certain whom the payment of a cheque is to be made i.e. either real person
or artificial person like joint stock company. The name of the payee must be
written on the cheque or it can be made payable to bearer.
8.
Cheque Must be Duly Dated By Customer of Bank: A cheque must be duly dated by
the customer of bank. The cheque must indicate clearly the date, month and the
year. A cheque is valid for a period of six months from the date of issue.
9.
Cheque has 3 Parties: Drawer, Drawee & Payee:
Ø
Drawer: A drawer is a person, who draws a
cheque.
Ø
Drawee: A drawee is a bank on whom a cheque is
drawn.
Ø
Payee : A payee is a person in whose favour a
cheque is drawn
10.
Deliveries: Delivery of the Cheque is Essential
Types of Cheques:
Based on this characteristic, cheques
can be classified into two main groups. They are:
1.
Open cheques; and
2.
Crossed cheques
In case of open cheques, the amount of
such cheques can be collected by the payee over the counter of the bank. These
cheques are of two types:
1.
Bearer cheque: The cheque which
is payable to the bearer or the possessor, is called the bearer cheque. Such
cheque can be transferred by mere delivery without any endorsement. For
example, “Pay Ram or bearer” is a bearer cheque, where Ram or any other person
who possess the cheque, can collect the amount of the cheque.
2.
Order cheque: The cheque which
is payable only to a certain person (whose name appears on the cheque) or to
his order, is called the order cheque. The word ‘Order’ is written instead of
the word ‘Bearer’ on the cheque. The drawer can strike off the word ‘bearer’
and can write the word ‘order’ to make it an order cheque. An order cheque
cannot be transferred without endorsement and the paying banker takes
reasonable care before making the payment of such cheque. For example, “Pay Ram
or order” is an order cheque, where payment will be made only to Ram or to the
person to whom Ram has endorsed the cheque.
In case of crossed cheques, the amount
of such cheques cannot be collected over the counter of the bank. The amount of
such a cheque is paid through the bank account of the payee. Hence, they are safer
as compared to the open cheques.
A cheque can be crossed by drawing two
parallel transverse lines across the face of the cheque with or without the
words “and company” or “not negotiable” or “account payee” between the parallel
transverse lines. Crossing of a cheque means paying the money to the specified
person only by transferring the money to his account and not directly (cash). A
cheque can be crossed by the-
1. Drawer;
or
2. The holder;
when the cheque is open; or
3. The collecting
banker.
Difference
between bearer cheque and order cheque
a)
Bearer cheque is payable to the person named
on the cheque or to any bearer. But an order cheque is payable to the person
named on the cheque or to his order.
b)
Bearer cheque may be negotiated by more
delivery of cheque. But order cheque needs to be endorsed for the purpose of
negotiation.
c)
The risk is more in case of bearer cheque as
it can be encashed by anybody, even a thief. But, the degree of risks is less
in case of order cheque as it is payable to a particular person.
d)
Bearer cheque is suitable for making small
payments. But, order cheque is suitable for making big payments.
e)
There is no record of movement of bearer
cheque as it is transferred without endorsement. But there is a record of
movement of order cheque because it bears endorsement.
f)
Bearer cheque can be converted into order
cheque. But order cheque cannot be converted into bearer cheque.
Difference between open cheque and
crossed cheque
a)
Open cheque is payable across the counter of
the bank. But crossed cheque is payable only through a bank account.
b)
Open cheque does not require any parallel
lines on the face of the cheque. But crossed cheque requires two parallel lines
or some other indicators signifying crossing.
c)
Open cheque may be a bearer or order cheque.
But crossed cheque is not a bearer or order cheque.
d)
The degree of risk is more in case of open
cheque as it can be encashed by anybody across the bank’s counter. But, the
degree of risk is less in case of crossed cheque as it cannot be encashed by
any unauthorized person.
e)
Open cheque is used by the drawer to withdraw
money for himself. But crossed cheque is not used by the drawer to withdraw
money for his own use.
f)
Open cheque can be easily converted into
crossed cheque. But crossed cheque cannot be converted into open cheque except
by the drawer of the cheque.
Conditions
where a Banker honour/dishonour a cheque
The
Paying banker is bound to pay the cheque if the following conditions are
satisfied
a)
When the cheque has been drawn on the proper
form i.e. on the forms supplied by the banker.
b)
When the cheque bears a date and which is due.
c)
When there is sufficient fund in the account
of the customer to pay the cheque in full.
d)
When the fund is properly applicable for the
payment of the cheque.
e)
When the amount of the cheque is mentioned in
both words and figures and they are same.
f)
When the banker has no doubt regarding the
signature of the drawer i.e. it has not been forged.
g)
Incase of joint account, when all the account
holders have signed the cheque.
h)
When the cheque has been drawn on the
particular bank and branch in which the account has been opened by the
customer.
The
bank may dishonour a cheque for the following cases.
a)
When the cheque is post dated and it is
presented for payment before the date it bears.
b)
When there are insufficient funds to the
credit of the drawer.
c)
When the cheque is presented for payment at
branch where the drawer of the cheque has no account.
d)
When a cheque is not duly, presented, as for
example a cheque presented outside banking hours.
e)
When the cheque is ambiguous, mutilated,
materially altered or irregular.
f)
When the cheque has become stale, that is it
is not presented within six months of the issue of the cheque.
g)
When the signatures of the drawer of a cheque
do not tally with the specimen signatures in the records of the bank.
h)
When the amount in figures and in words is not
the same in a cheque.
i)
When the cheque is crossed and it is not
presented through a bank.
j)
Where the bank receives a notice of the
insolvency or insanity of the customer.
Endorsement:
The
term “Endorsement” of a negotiable instrument means writing of a person’s name
of the back of the instrument for the purpose of negotiation. According to
Section 15 of the Negotiable Instrument Act, 1881, “When the maker or holder of
a negotiable instrument sings his name, otherwise than such maker, for the
purpose of negotiation, on the back or face thereof or on a slip of paper
annexed thereto he is said to have endorsed the instrument.” The person who
puts his signature is called the “endorser” and the person in whose favour it
is being endorsed in called the “endorsee”.
Endorsement
of negotiable instruments can be made only by the following parties of to the
instrument:
a)
The Payee b) The holder c) The drawer of a bill of exchange d) The endorsee e)
The maker.
Different
kinds of endorsement with their respective significance are explained below:
a)
Blank or General Endorsement: An endorsement
is said to be blank or general, if the endorser sings on the back or on the
face of the instrument without specifying the name of any endorsee. The effect
of his endorsement makes the instrument payment to bearer even though
originally it was payable to order. For example, a cheque payable to Mr. X or
order and Mr. X endorse the cheque by simply affixing her signature. The effect
of this endorsement makes the instrument payable to bearer even though
originally it was payable to order.
b)
Full or Special Endorsement: If an endorser
signs his name and adds a direction to pay the amount mentioned in the
instrument to or to the order of a specified persons, such an endorsement is
said to be a full or special endorsement.
For example, “Pay to Mr. X or order” S/d Mr. Y is an example of full
endorsement. Here Mr. Y is the endorser and he has mentioned the name of the
endorsee – Mr. X.
c)
Conditional Endorsement: An endorsement is conditional
or qualified if it limits or neglects the liability of the endorser. For example, “Pay to Mr. X on his marriage”
s/d Mr. Y is a conditional endorsement. In case of conditional endorsement, the
liability of the endorser and the rights of the endorsee becomes conditional on
the happening of a particular event.
d)
Restrictive Endorsement: An endorsement is
said to be Restrictive, when it prohibits or restrictive the future
negotiability of the instrument, it merely entitles the holder of the instrument
to receive the amount on the instrument for a specified purpose. For example,”Pay
to Mr. X only” s/d Mr. Y. This endorsement confers all the rights of an
endorser to the endorsee except the right of negotiation.
e)
San Recourse endorsement and San frais endorsement:
In San recourse endorsement, the endorser by his expressed words excludes his
own liability and in San frais endorsement, the holders have no right against
the endorser if the instrument is dishonoured. For example,”Pay to Mr. X or
order – Notice of dishonour waived.” These types of endorsement are generally
used to avoid personal liability.
f)
Facultative endorsement: In such type of
endorsement, the endorser by his express words increases his liability or give
up some of his rights.
g)
Partial Endorsement: When the endorser intends
to transfer to the endorsee only a part of the amount of instrument by
endorsement, the endorsement is said to be partial. A partial endorsement does
not operate as a negotiation of the instrument. For example, when a cheque of
Rs. 10,000 is endorsed for Rs. 5000 is an example of partial endorsement.
h)
Forged endorsement: When a negotiable
instrument is endorsed with the forged signature of the endorser, the
endorsement is called forged endorsement.
The rules and regulations regarding
endorsement may be summarised as follows:
a)
Signature of the endorser: A regular
endorsement implies signature of the holder of the negotiable instrument
himself or his duly authorised agent on its face or back for the purpose of
negotiation.
b)
Spelling: The endorser must sign his name in
the exact spelling as appearing on the negotiable instrument.
c)
Prefixed and suffixes to be excluded:
Endorsement need not contain the complementary Prefixes or Suffixes e.g. Mr.,
Mrs., Shri, Smt etc.
d)
Sign in Ink: Endorsement in pencil or by a
rubber stamp is usually not accepted.
e)
Endorsement by a married woman: In the case of
married women, the name of her husband must also be mentioned in the
endorsement.
f)
Endorsement by illiterate person: An
illiterate person can make a valid endorsement by putting his thumb impression
on the instruments in the presence of a witness.
g)
Endorsement by companies, firms: In case of
joint stock companies, firms, associations etc., the endorsement should be made
by persons who are dully authorised to sign on behalf of these institutions.
h)
Delivery of the instrument: An endorsement
must be completed by delivery of the instrument.
Difference between bill of exchange and Promissory Note
|
Basis
|
Bill
of Exchange
|
Promissory
Note
|
|
Parties
|
There
are 3 parties – drawee, drawer and payee.
|
There
are 2 parties – maker or promisor and payee or promisee.
|
|
Drawer
|
It is drawn by the creditor
|
It is drawn by the debtor
|
|
Order or Promise
|
It contains an order to make payment. There
can be three parties to it, viz. the drawer, the Drawee and the payee.
|
It contains a promise to make payment. There
are only two parties to it, viz. the drawer and the payee.
|
|
Acceptance
|
It requires acceptance by the Drawee or
someone else on his behalf.
|
It does not require any acceptance.
|
|
Payee
|
Drawer and payee can be the same party
|
Drawer cannot be the payee of it
|
|
Set
|
A bill of
exchange can be drawn in sets.
|
Promissory
note cannot be drawn in sets.
|
|
Notice
|
The
maker of the bill of exchange is secondarily and conditionally liable to
payee. He becomes liable to pay only when the drawee refuses to honour the
bill. Drawer stands in immediate relation to the drawee or acceptor and not
the payee.
|
The
maker of the Promissory note is primarily and absolutely liable to payee.
Promisor stands in the immediate relation to the payee.
|
|
Notice
|
In case of its dishonour due notice of
dishonour is to be given by the holder to the drawer
|
No notice needs to be given in case of its
dishonour
|
Difference between cheque and bills of exchange:
|
Basis
|
Cheque
|
Bills
of Exchange
|
|
Drawee
|
A cheque is always drawn on a bank or banker.
|
A bill of
exchange can be drawn on any person including a banker.
|
|
Acceptance
|
A cheque does not require any acceptance.
|
A bill must
be accepted before the Drawee can be made liable upon it.
|
|
Payment
|
A cheque is payable immediately on demand without
any days of grace.
|
A bill of
exchange is normally entitled to three days of grace unless it is payable on
demand.
|
|
Stamp
|
A cheque does not require any stamp.
|
A bill of
exchange must be stamped.
|
|
Protection
|
A banker is given statutory protection with regard
to payment of cheques in certain circumstances.
|
No such
protection is available to the Drawee or acceptor of a bill of exchange.
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Crossing
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A cheque may be crossed.
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Bill can
never be crossed.
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Presentment
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If not
presented to the banker for payment, it does not discharge the drawer unless
he suffers injury or damages.
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Drawer
is discharged, if bill is not presented for payment to the acceptor.
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Noting and Protesting
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A cheque
is not required to be noted or protested for dishonour.
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A bill
of exchange may be noted or protested for dishonour.
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Crossing
of a cheque
A
cheque is said to be crossed when two parallel transverse line with or without
any words are drawn on the left hand corner of the cheque. The negotiability of
a cheque doesn’t affect for crossing. Crossing of a cheque refers to the
instruction to the banker relating to the payment of the cheque. A crossing is
the direction to the paying banker that the cheque should be paid only to a
banker. Crossing of cheque is very safety because the holder of the cheque is
not allowed to cash it across the counter. A crossed cheque provides protection
not only to the holder of the cheque but also to the receiving and collecting
bankers.
The
following parties can cross a cheque:
a)
The Drawer: The drawer of a cheque may cross a
cheque before issuing it. He may cross it generally or specially.
b)
The Holder: The holder of a cheque can cross
in the following way:
Ø
The holder may cross an open cheque generally
or specially.
Ø
The holder may specially cross a generally
crossed cheque.
Ø
The holder may add the words “Not-Negotiable”
in a generally or specially crossed cheque.
c)
The Banker: The banker to whom the cheque is
crossed specially may again cross it especially to another banker's agent, for
collection. This is called double special crossing.
Types of
crossing:
1. General crossing: A general crossing is a crossing where a
cheque simply bears two parallel lines with or without any words and without
any specification. According to Sec. 123 of the Negotiable Instrument Act,
1881, “When a cheque bears across its face an addition of the words. “And
company” or any abreactions thereof between two parallel transverse line or of
two parallel transverse lines simply either or without the words, “Not
Negotiable” that addition shall be deemed a general crossing. Simplify, In case
of General Crossing words such as “and company”, “not Negotiable”, “Account
payee” etc. may be inserted between the lines.
A
general crossing cheque protects the drawer and also the payee or the holder
thereof. Whenever a drawer desires to make payment to an outstation party, he
can cross the cheque so that even if the cheque is lost, only a piece of paper
is lost and nothing beyond that. If by any chance, it is encashed by a third
and unauthorized person, it is possible to find out to whose account the amount
is credited and the unauthorized person can be identifies and suitable action
taken against him.
2. Special crossing: Section 124 of the Negotiable Instruments Act,
1881 defines special crossing as “where a cheque bears across its face, an
addition of the name of a banker with or without the words “not negotiable”,
that addition shall be deemed a crossing and the cheque shall be deemed to be
crossed specially and to be crossed to that banker.”
Thus, in case of special crossing, the
name of a particular bank is written in between the parallel lines. The main
implication of this type of crossing is that the amount of the cheque will be
paid to the specified banker whose name is written in between the lines. Special
crossing is in a particular bank and by special crossing, he is assured of
double safety, safety to the drawer and safety to the payee.
3. Account payee
crossing: This type of crossing is done by adding the words ‘Account
Payee’. This can be made both in general crossing and special crossing. The
implication of this type of crossing is that the collecting banker has to
collect the amount of the cheque only for the payee. If he wrongly credits the
amount of the cheque to another account, he will be held responsible for the
same.
4. Not negotiable
crossing: When the words ‘not negotiable’ is added in generally or
specially crossed cheques, it is called not negotiable crossing. A cheque
bearing not negotiable crossing cannot be transferred. If a cheque bearing ‘Not
negotiable crossing’ is transferred, care must be taken regarding the ownership
of title of both the transferor and transferee.
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