Negotiable Instrument Act, 1881

Negotiable Instruments Act,1881

INTRODUCTION

  • It is an Act to define and amend the law relating to promissory notes, bills of exchange and Cheques.
  • Commercial transaction (exchange of goods and service) takes place through Negotiable Instruments.
  • The Act neither considers nor affect the custom or local usage relating to an instrument in oriental language i.e., a Hundi. Therefore, provisions of this act are not applicable on Hundi.
  • Applicable to whole of India w.e.f. 1st March, 1882.

Negotiable Instrument in an instrument through which one can negotiate with another in the ordinary course of business/trade. It provides extra mean of credit in the market.

Diagram

Definition of Negotiable Instrument as per the Act

The Act has not defined the term Negotiable Instrument. According to Section 13, ‘a negotiable instrument’ means

  •  a promissory note,
  • bill of exchange or
  • Cheque

payable either to order or to bearer.

Thus this Act is applicable only on

  •  a promissory note,
  • bill of exchange or
  • Cheque

All other form of local/custom negotiable instruments (also known as hundi) are outside the scope of this Act.

According to ‘Willis—The Law of Negotiable Securities, Page 6’, A negotiable instrument may be defined as an instrument,

  • the property in which is acquired by anyone who takes it bona fide, and for value, notwithstanding any defect of title in the person from whom he took it.

According to this definition the following are the conditions of negotiability:

  • The instrument should be freely transferable. An instrument cannot be negotiable unless it is such and in such state that the true owner could transfer by simple delivery or endorsement and delivery.
  • The person who takes it for value and in good faith is not affected by the defect in the title of the transferor.
  • Such a person can sue upon the instrument in his own name.

IMPORTANT CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS

  1. The holder of the instrument is presumed to be the owner of the property contained in it.
  2. They are freely transferable
  3. A holder in due course gets the instrument free from all defects of title of any previous holder
  4. The holder in due course is entitled to sue on the instrument in his own name
  5. The instrument is transferrable till maturity, and in case of cheque till it stale (3 Months)

Holder

According to Section 8 of the Act a person is a holder of a negotiable instrument who is entitled in his own name

  1. to the possession of the instrument, and
  2. to recover or receive its amount from the parties thereto.

It is not every person in possession of the instrument who is called a holder. To be a holder, the person must be named in the instrument as the payee, or the endorsee, or he must be the bearer thereof. A person who has obtained possession of an instrument by theft, or under a forged endorsement, is not a holder, as he is not entitled to recover the instrument.

Note:

  • The holder implies de jure (holder in law) holder and not de facto (holder in fact) holder.
  • An agent holding an instrument for his principal is not a holder although he may receive its payment.

Holder in Due Course
Section 9 states that a holder in due course is

  1. a person who for consideration, obtains possession of a negotiable instrument if payable to bearer, or
  2. the payee or endorsee thereof, if payable to order, before its maturity and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

In order to be a holder in due course, a person must satisfy the following conditions:

  1. He must be the holder of the instrument.
  2. He should have obtained the instrument for value or consideration.
  3. He must have obtained the negotiable instrument before maturity.
  4. The instrument should be complete and regular on the face of it.
  5. The holder should take the instrument in good faith.

A holder in due course is in a privileged position. He is not only himself protected against all defects of the persons from whom he received the instrument as current coin, but also serves as a channel to protect all subsequent holders. A holder in due course can recover the amount of the instrument from all previous parties, although, as a matter of fact, no consideration was paid by some of the previous parties to the instrument or there was a defect of title in the party from whom he took it.

Once an instrument passes through the hands of a holder in due course, it is purged of all defects. It is like current coin. Whoever takes it can recover the amount from all parties previous to such holder.

Negotiation of Lost Instrument or that Obtained by Unlawful Means

When a negotiable instrument has been lost or has been obtained by means of an offence or fraud, or for an unlawful consideration,

  • no possessor or endorsee,
    • who claims through the person who found or obtained the instrument

is entitled to receive the amount due thereon from such maker, acceptor, or holder from any party prior to such holder

  • unless such possessor or endorsee is a holder in due course.

Forged Endorsement

  • If an instrument is endorsed in full, it cannot be negotiated except by an endorsement. Thus, if an instrument be negotiated by means of a forged endorsement, the endorsee acquires no title even though he be a purchaser for value and in good faith, for the endorsement is a nullity. Forgery conveys no title.
  • But where the instrument is a bearer instrument or has been endorsed in blank, it can be negotiated by mere delivery, and the holder derives his title independent of the forged endorsement and can claim the amount from any of the parties to the instrument.
    • For example, a bill is endorsed, “Pay A or order”. A endorses it in blank, and it comes into the hands of B, who simply delivers it to C, C forges B’s endorsement and transfer it to D. Here, D, as the holder does not derive his title through the forged endorsement of B, but through the genuine endorsement of A and can claim payment from any of the parties to the instrument in spite of the intervening forged endorsement.

Classification of Negotiable Instruments

diagram

Bearer Instruments:

A promissory note, bill of exchange or cheque is payable to bearer when

  •  it is expressed to be so payable, or
  • the only or last endorsement on the instrument is an endorsement in blank.

A person who is a holder of a bearer instrument can obtain the payment of the instrument.

Order Instruments:

A promissory note, bill of exchange or cheque is payable to order

  • which is expressed to be so payable; or
  • which is expressed to be payable to a particular person, and does not contain any words

prohibiting transfer or indicating an intention that it shall not be transferable.

Inland Instruments (Section 11)

An inland instrument is one which is either:

  • drawn and made payable in India, or
  • drawn in India upon some persons resident therein, even though it is made payable in a foreign country.

Note: Since a promissory note is not drawn on any person, an inland promissory note is one which is made payable in India.

Foreign Instruments

An instrument which is not an inland instrument, is deemed to be a foreign instrument.

Demand Instruments

  •  A promissory note or a bill of exchange in which no time for payment is specified is an instrument payable on demand.
  • Such instruments can be presented for payment any time.
  • Cheque is always payable on demand.

Time Instruments

  • Time instruments are those which are payable at sometime in the future.
  • Therefore, a promissory note or a bill of exchange payable
    • after a fixed period, or certain period after sight, or
    • on specified day, or
    • on the happening of an event which is certain to happen

is known as a time instrument.

The expression “after sight” in a promissory note means that the payment cannot be demanded on it unless it has been shown to the maker.

In the case of bill of exchange, the expression “after sight” means after acceptance.

Ambiguous Instruments

  • An instrument which can be treated as a bill or as a note (at the option of the holder), is an ambiguous instrument.
  • According to English Bills of Exchange Act, where in a bill,
    • the drawer (marker of bill) and the drawee (who has to pay the money) are the same person (like in case demand draft)
    • where the drawee is a fictitious person or a person incompetent to contract,

the holder may treat the instrument, at his option, either as a bill of exchange or as a promissory note.

Inchoate or Incomplete Instrument

It is an instrument in which

  •  one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments, and
  • either wholly blank or having written thereon an incomplete negotiable instrument,

Here the holder has authority to make or complete such negotiable instrument, for any amount specified therein, and not exceeding the amount, covered by the stamp.

Liability of an inchoate instrument:

  •  The person to whom inchoate instrument is delivered can recover only such amount as he was authorized to fill.
  • A HDC can recover the whole amount stated in the instrument but not exceeding the amount covered by stamp, even though the amount authorised was smaller.

Hundis

Instruments written in oriental/local languages i.e. hundis are also negotiable instruments.

Promissory Notes

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 to, or to the order of, a certain person, or only to bearer of the instrument. (Section 4)

Parties to a Promissory Note
A promissory note has the following parties:

  • The maker: the person who makes or executes the note promising to pay the amount stated therein.
  • The payee: one to whom the note is payable.
  • The holder: is either the payee or some other person to whom he may have endorsed the note.
  • The endorser.
  • The endorsee.

Essentials of a Promissory Note
To be a promissory note, an instrument must possess the following essentials:

  • It must be in writing. An oral promise to pay will not do.
  • It must contain an express promise or clear undertaking to pay.
  • A mere acknowledgement of debt is not sufficient. If A writes to B “I owe you (I.O.U.) Rs. 500″, there is no promise to pay and the instrument is not a promissory note.
  • The promise or undertaking to pay must be unconditional. A promise to pay “when able”, or “as soon as possible”, or “after your marriage to D”, is conditional. But a promise to pay after a specific time or on the happening of an event which must happen, is not conditional, e.g. “I promise to pay Rs. 1,000 ten days after the death of B”, is unconditional.
  • The maker must sign the promissory note in token of an undertaking to pay to the payee or his order.
  • The maker must be a certain person, i.e., the note must show clearly who is the person engaging himself to pay.
  • The payee must be certain. The promissory note must contain a promise to pay to some person or persons ascertained by name or designation or to their order.
  • The sum payable must be certain and the amount must not be capable of contingent additions or subtractions. If A promises to pay Rs. 100 and all other sums which shall become due to him, the instrument is not a promissory note.
  • Payment must be in legal money of the country. Thus, a promise to pay Rs. 500 and deliver 10 quintals of rice is not a promissory note.
  • It must be properly stamped in accordance with the provisions of the Indian Stamp Act. Each stamp must be duly cancelled by maker’s signature or initials.
  • It must contain the name of place, number and the date on which it is made. However, their omission will not render the instrument invalid, e.g. if it is undated, it is deemed to be dated on the date of delivery.

Note: PN or BOE shall not be payable to bearer on demand. PN shall not be payable to bearer.

Bills of Exchange

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. (Section 5)

The definition of a bill of exchange is very similar to that of a promissory note and for most of the cases the rules which apply to promissory notes are in general applicable to bills. There are however, certain important points of distinction between the two.

Parties to bills of exchange
The following are parties to a bill of exchange:

  • The Drawer: The person who draws the bill.
  • The Drawee: The person on whom the bill is drawn.
  • The Acceptor: One who accepts the bill. Generally, the drawee is the acceptor but a stranger may accept it on behalf of the drawee.
  • The payee: One to whom the sum stated in the bill is payable, either the drawer or any other person may be the payee.
  • The holder: is either the original payee or any other person to whom, the payee has endorsed the bill. In case of a bearer bill, the bearer is the holder.
  • The endorser: when the holder endorses the bill to any one else he becomes the endorser.
  • The endorsee: is the person to whom the bill is endorsed.
  • Drawee in case of need: Besides the above parties, another person called the “drawee in case of need”, may be introduced at the option of the drawer. The name of such a person may be inserted either by the drawer or by any endorser in order that resort may be had to him in case of need, i.e., when the bill is dishonoured by either non-acceptance or non-payment.
  • Acceptor for honour: Further, any person may voluntarily become a party to a bill as acceptor. A person, who on the refusal by the original drawee to accept the bill or to furnish better security, when demanded by the notary, accept the bill supra protest in order to safeguard the honour of the drawer or any endorser, is called the acceptor for honour.

Essentials of a Bill of Exchange

  1.  It must be in writing.
  2. It must contain an unconditional order to pay money only and not merely a request.
  3. It must be signed by the drawer.
  4. The parties must be certain.
  5. The sum payable must also be certain.
  6. It must comply with other formalities e.g. stamps, date, etc.

Distinction between Bill of Exchange and Promissory Note

Promissory Note

Bill of Exchange

A promissory note is a two-party instrument, with a maker (debtor) and a payee (creditor).

In a bill there are three parties—drawer, drawee and payee, though any two out of the three capacities may be filled by one and the same person.

A note cannot be made payable to the maker himself

In a bill, the drawer and payee may be the same person

A note contains an unconditional promise by the maker to pay to the payee or his order

A bill is an unconditional order to the drawee to pay according to the directions of the drawer

A note is presented for payment without any prior acceptance by the maker.

A bill payable after sight must be accepted by the drawee or someone else on his behalf before it can be presented for payment.

The liability of the maker of a pro-note is primary and absolute

Liability of the drawer of a bill is secondary and conditional

No protest is necessary in the case a note is dishonoured

Foreign bill must be protested for dishonour

No notice of dishonour is required to be given to anyone

When a bill is dishonoured, due notice of dishonour is to be given by the holder to the drawer and the intermediate endorsee

A promissory note cannot be made payable to bearer

A bill can be drawn payable to bearer provided it is not payable on demand

Inland Bills (Sections 11 and 12)
A bill of exchange is an inland instrument if it is

  1. drawn or made and payable in India, or
  2. drawn in India upon any person who is a resident in India, even though it is made payable in a foreign country.

But a promissory note to be an inland should be drawn and payable in India, as it has no drawee.

Two essential conditions to make an inland instrument are:

  1.  the instrument must have been drawn or made in India; and
  2. the instrument must be payable in India or the drawee must be in India.

 Examples:

  • A bill drawn in India, payable in USA, upon a person in India is an inland instrument.
  • A bill drawn in India and payable in India but drawn on a person in USA is also an inland instrument.

Foreign Bills
All bills which are not inland are deemed to be foreign bills. Normally foreign bills are drawn in sets of three copies.

Trade Bill
A bill drawn and accepted for a genuine trade transaction is termed as a trade bill. When a trader sells goods on credit, he may make use of a bill of exchange. Suppose A sells goods worth Rs. 1,000 to B and allows him 90 days time to pay the price, A will draw a bill of exchange on B, on the following terms: “Ninety days after date pay A or order, the sum of one thousand rupees only for value received”. A will sign the bill and then present it to B for acceptance. This is necessary because, until a bill is accepted by the drawee, nobody has either rights or obligations. If B agrees to obey the order of A, he will accept the bill by writing across its face the word “accepted” and signing his name underneath and then delivering the bill to the holder. B, the drawee, now becomes the acceptor of the bill and liable to its holders. Such a bill is a genuine trade bill.

Accommodation Bill
An accommodation bill is a bill in which a person lends or gives his name to oblige a friend or some person whom he knows or otherwise. In other words, a bill which is drawn, accepted or endorsed   without consideration is called an accommodation bill.

The party lending his name to oblige the other party is known as the accommodating or accommodation party, and the party so obliged is called the party accommodated. An accommodation party is not liable on the instrument to the party accommodated because as between them there was no consideration and the instrument was merely to help. But the accommodation party is liable to a holder for value, who takes the accommodation bill for value, though such holder may not be a holder in due course.

Thus, A may be in need of money and approach his friends B and C who, instead of lending the money directly, propose to draw an “Accommodation Bill” in his favour.

If the credit of B and C is good, this device enables A to get an advance of Rs. 1,000 from his banker at the commercial rate of discount. The real debtor in this case is not C, but A the payee who promises to reimburse C before the period of three months only. A is here the principal debtor and B and C are mere sureties.

This inversion of liability affords a good definition of an accommodation bill: “If as between the original parties to the bill the one who should prima facie be principal is in fact the surety whether he be drawer, acceptor, or endorser, that bill is an accommodation bill”.

Bills in Sets (Section 132 and 133)
Foreign bills are usually drawn in sets to avoid the danger of loss. They are drawn in sets of three, each of which is called “Via” and as soon as any one of them is paid, the others become inoperative.

All these parts form one bill and the drawer must sign and deliver all of them to the payee. The stamp is affixed only on one part and one part is required to be accepted. But if the drawer mistakenly accepts all the parts of the same bill, he will be liable on each part accepted as if it were a separate bill.

Right to Duplicate Bill
Where a bill of exchange has been lost before it was overdue, the person who was the holder to it may apply to the drawer, to give him another bill of the same tenor. It is only the holder who can ask for a duplicate bill, promissory note or cheque.

Bank Draft
A bill of exchange is also sometimes spoken of as a draft. It is called as a bank draft when a bill of exchange drawn by one bank on another bank, or by itself on its own branch, and is a negotiable instrument. It is very much like the cheque with three points of distinction between the two.

  • A bank draft can be drawn only by a bank on another bank, usually its own branch.
  • It cannot so easily be counter-manded.
  • It cannot be made payable to bearer.

Cheques

Section 6 of the Act provides that a ‘cheque’ is a

  • bill of exchange
    • drawn on a specified banker and
      • always payable on demand

and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

A cheque in the electronic form means a cheque

  • drawn in electronic form
    • by using any computer resource and
      • signed in a secure system with digital signature and asymmetric crypto system or with electronic signature, as the case may be;

A truncated cheque’ means a cheque

  • which is truncated during the course of a clearing cycle,
    • either by the clearing house or by the bank whether paying or receiving payment,
      immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.

Thus, a cheque is a bill of exchange with two additional qualifications, namely:

  •  it is always drawn on a banker, and
  • it is always payable on demand.

A cheque being a species of a bill of exchange, must satisfy all the requirements of a bill; it does not, however, require acceptance.

Note:

  • All cheques are bills of exchange but all bills are not cheques.

Parties to a cheque
The following are the parties to a cheque:

  1. The drawer: The person who draws the cheque.
  2. The drawee: The banker of the drawer on whom the cheque is drawn. (c) (d), (e) and (f) The payee, holder, endorser and endorsee: same as in the case of a bill.

Essentials of a Cheque

  • It is always drawn on a banker.
  • It is always payable on demand.
  • It does not require acceptance.
  • A cheque can be drawn on bank where the drawer has an account.
  • Cheques may be payable to the drawer himself. It may be made payable to bearer on demand unlike a bill or a note.
  • The banker is liable only to the drawer. A holder has no remedy against the banker if a cheque is dishonoured.
  • A cheque is usually valid for fix months (3 months). However, it is not invalid if it is post-dated or ante-dated.
  • No Stamp is required to be affixed on cheques.

Distinction between Cheques and Bills of Exchange

Cheque

Bill of Exchange

A cheque is always drawn on a banker

A bill may be drawn on any one

A cheque can only be drawn payable on demand

A bill may be drawn payable on demand, or on the expiry of a specified period after sight or date.

A cheque does not require acceptance and is intended for immediate payment.

A bill payable after sight must be accepted before payment can be demanded

No grace is given in the case of a cheque, for payment

A grace of 3 days is allowed in the case of time bills

The drawer of a cheque is discharged only if he suffers any damage by delay in presentment for payment

The drawer of a bill is discharged, if it is not presented for payment

No notice of dishonour is required in the case of a cheque

Notice of the dishonour of a bill is necessary

The cheque being a revocable mandate, the authority may be revoked by countermanding payment and is determined by notice of the customer’s death or insolvency.

This is not so in the case of bill.

A cheque may be crossed.

But not a bill

 

Liability of a Banker towards payee or holder

  • If a banker, without justification, fails to honour his customer’s cheques, he is liable to compensate the drawer for any loss or damage suffered by him.
  • But the payee or holder of the cheque has no cause of action against the banker as the obligation to honour a cheque is only towards the drawer.

When Banker must Refuse Payment

  • When a customer countermands payment i.e., where or when a customer, after issuing a cheque issues instructions not to honour it, the banker must not pay it.
  • When the banker receives notice of customer’s death.
  • When customer has been adjudged an insolvent.
  • When the banker receives notice of customer’s insanity.
  • When an order (e.g., Garnishee Order) of the Court, prohibits payment.
  • When the customer has given notice of assignment of the credit balance of his account.
  • When the holder’s title is defective and the banker comes to know of it.
  • When the customer has given notice for closing his account.

When Banker may Refuse Payment
In the following cases the banker may refuse to pay a customer’s cheque:

  • When the cheque is post-dated.
  • When the banker has no sufficient funds of the drawer with him and there is no communication between the bank and the customer to honour the cheque.
  • When the cheque is of doubtful legality.
  • When the cheque is not duly presented, e.g., it is presented after banking hours.
  • When the cheque on the face of it is irregular, ambiguous or otherwise materially altered.
  • When the cheque is presented at a branch where the customer has no account.
  • When some persons have joint account and the cheque is not signed jointly by all or by the survivors of them.
  • When the cheque has been allowed to become stale, i.e., it has not been presented within six months of the date mentioned on it.

Protection of Paying Banker (Sections 10, 85 and 128)
In case where a cheque payable to order purports to be endorsed by or on behalf of the payee
The banker is discharged by payment in due course. Bank can debit the account of the customer with the amount even though the endorsement turns out subsequently to have been forged, or the agent of the payee without authority endorsed it on behalf of the payee. A banker cannot be expected to know the signatures of all the persons in the world. He is only bound to know the signatures of his own customers.

In case where drawer’s signature is forged
The forgery of drawer’s signature will not ordinarily protect the banker but even in this case, the banker may debit the account of the customer, if it can show that the forgery was intimately connected with the negligence of the customer and was the proximate cause of loss.

Note:

  • In the case of bearer cheques, the rule is that once a bearer cheque, always a bearer cheque.

Protection in case where payment is made in due Course (Section 10)
Any person liable to make payment under a negotiable instrument, must make the payment of the amount due thereunder in due course in order to obtain a valid discharge against the holder.

A payment in due course means a payment in accordance with the apparent tenor of the instrument, in good faith and without negligence to any person in possession thereof.

A payment will be a payment in due course if:

  • it is in accordance with the apparent tenor of the instrument, i.e., according to what appears on the face of the instrument to be the intention of the parties;
  • it is made in good faith and without negligence, and under circumstances which do not afford a ground for believing that the person to whom it is made is not entitled to receive the amount;
  • it is made to the person in possession of the instrument who is entitled as holder to receive payment;
  • payment is made under circumstances which do not afford a reasonable ground believing that he is not entitled to receive payment of the amount mentioned in the instrument; and
  • payment is made in money and money only.

A paying banker making payment in due course is protected.

Protection of Collecting Banker
While so collecting the cheques for a customer, it is quite possible that the banker collects for a customer, proceeds of a cheque to which the customer had no title in fact. In such cases, the true owner may sue the collecting banker for “conversion”. In the event of the endorser’s signature being proved to be forged at a later date, the banker who collected the proceeds should not be held liable.

According to Section 131, a banker who has in good faith and without negligence, received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason of only having received such payment.

The requisites of claiming protection under Section 131 are as follows:

  • The collecting banker should have acted in good faith and without negligence. The burden of proving that the cheque was collected in good faith and without negligence is upon the banker claiming protection. Failure to verify the regularity of endorsements, collecting a cheque payable to the account of the company to the credit of the director, etc. are examples of negligence.
  • The banker should have collected a crossed cheque, i.e., the cheque should have been crossed before it came to him for collection.
  • The proceeds should have been collected for a customer, i.e., a person who has an account with him.
  • That the collecting banker has only acted as an agent of the customer.

Overdue, Stale or Out-of-date Cheques

  • A cheque is overdue or becomes statute-barred after three years from its due date of issue. A holder cannot sue on the cheque after that time.
  • A cheque, which has been in circulation for more than 3 months, is regarded by bankers as stale.

Note:

  • If, as a result of any delay in presenting a cheque, the drawer suffers any loss, as by the failure of the bank, the drawer is discharged from liability to the holder to the extent of the damage.

Rights of Holder against Banker
A banker is liable to his customer for wrongful dishonour of his cheque but it is not liable to the payee or holder of the cheque. The holder has no right to enforce payment from the banker. Bank is liable in two cases, namely,

  1. where the drawer suffers damage by the failure of the banker in liquidation proceedings; and
  2. where a banker pays a crossed cheque by mistake over the counter

Crossing of Cheques
A cheque is either “open” or “crossed”.

  • An open cheque can be presented by the payee to the paying banker and is paid over the counter.
  • A crossed cheque cannot be paid across the counter but must be collected through a banker.

A crossing is a direction to the paying banker to pay the money generally to a banker or to a particular banker, and not to pay otherwise.

Modes of Crossing (Sections 123-131A)
General Crossing Special Crossing Not Negotiable Crossing A/c Payee (Restrictive Crossing)
Two parallel transverse lines on the cheque Writing between two parallel transverse lines name of the Banker e.g. State Bank of India Must be crossed generally or specially  
Cheque must be paid only to a banker Payment to be made only to the banker named or his collecting banker Must contain the word “not negotiable”    
Can be converted into special crossing Cannot be converted into general crossing Effect= the title of the transferee shall not be better than the title of the transferor.  
Sometimes words like “& Co.” are written between two parallel transverse line; but addition of such the words do not have any significance      
 
& Co.
SBI
   
       

Not Negotiable Crossing
A cheque may be crossed not negotiable by writing across the face of the cheque the words “Not Negotiable” within two transverse parallel lines in the case of a general crossing or alongwith the name of a banker in the case of a special crossing.

Section 130 of the Negotiable Instruments Act provides “A person taking a cheque crossed generally or specially bearing in either case with the words ”not negotiable” shall not have and shall not be capable of giving, a better title to the cheque than that which the person from whom he took it had”.

The crossing of cheque “not negotiable” does not mean that it is non-transferable. It only deprives the instrument of the incident of negotiability.

Maturity
Maturity is the date on which the payment of an instrument falls due. Every instrument payable at a specified period after date or after sight is entitled to three days of grace. Such a bill or note matures or falls due on the last day of the grace period, and must be presented for payment on that day and if dishonoured, suit can be instituted on the next day after maturity. If an instrument is payable by instalments, each instalment is entitled to three days of grace. No days of grace are allowed for cheques, as they are payable on demand.

  • Cheques are always payable on demand but other instruments like bills, notes, etc. may be made payable on a specified date or after the specified period of time.
  • The date on which payment of an instrument falls due is called its maturity. According to
  • Section 22 of the Act, “the maturity of a promissory note or a bill of exchange is the date at which it falls due”.
  • According to Section 21 a promissory note or bill of exchange payable “at sight” or “on presentment” is payable on demand. It is due for payment as soon as it is issued.
  • The question of maturity, therefore, arises only in the case of a promissory note or a bill of exchange payable “after date” or “after sight” or at a certain period after the happening of an event which is certain to happen.

Note:

  • Where a note or bill is expressed to be payable on the expiry of specified number of months after sight, or after date, the period of payment terminates on the day of the month which corresponds with the date of instrument, or with the date of acceptance if the bill be accepted or presented for sight, or noted or protested for non-acceptance.
  • If the month in which the period would terminate has no corresponding day, the period shall be held to terminate on the last day of such month.

Illustration

  1. A negotiable instrument dated 31st January, 2001, is made payable at one months after date. The instrument is at maturity on the third day after the 28th February, 2001, i.e. on 3rd March, 2001.
  2. A negotiable instrument dated 30th August, 2001, is made payable three months after date. The instrument is at maturity on 3rd December, 2001.
  3. A negotiable instrument dated the 31st August, 2001, is made payable three months after date. The instrument is at maturity on 3rd December, 2001.

If the day of maturity falls on a public holiday, the instrument is payable on the preceeding business day. Thus, if a bill is at maturity on a Sunday. It will be deemed due on Saturday and not on Monday.

Capacity of Parties
Capacity to incur liability as a party to a negotiable instrument is co-extensive with capacity to contract. According to Section 26, every person capable of contracting according to law to which he is subject, may bind himself and be bound by making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque.

Minors, lunatics, idiots, drunken person and persons otherwise disqualified by their personal law,
They do not incur any liability as parties to negotiable instruments.

But incapacity of one or more of the parties to a negotiable instrument in no way, diminishes the abilities and the liabilities of the competent parties.

  • Where a minor is the endorser or payee of an instrument which has been endorsed all the parties accepting the minor are liable in the event of its dishonour.

Liability of Parties

1.

Liability of Drawer (Section 30)
The drawer of a bill of exchange or cheque is bound,

·         in case of dishonour by the drawee or acceptor thereof,

to compensate the holder, provided due notice of dishonour has been given to or received by the drawer.

The liability of a drawer of a bill of exchange is secondary and arises only on default of the drawee, who is primarily liable to make payment of the negotiable instrument.

2.

Liability of the Drawee of Cheque (Section 31)
The drawee of a cheque (bank) having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required to do so and in default of such payment, he shall compensate the drawer for any loss or damage caused by such default.
The banker, therefore, is bound to pay the cheque of the drawer, i.e., customer, if the following conditions are satisfied:

  • The banker has sufficient funds to the credit of customer’s account.
  • The funds are properly applicable to the payment of such cheque, e.g., the funds are not under any kind of lien etc.
  • The cheque is duly required to be paid, during banking hours and on or after the date on which it is made payable.
    If the banker is unjustified in refusing to honour the cheque of its customer, it shall be liable for damages.

3.

Liability of “Maker” of Note and “Acceptor” of Bill (Section 32)
In the absence of a contract to the contrary, the maker of a promissory note and the acceptor before maturity of a bill of exchange are bound to pay the amount thereof at maturity, according to the apparent tenor of the note or acceptance respectively. The acceptor of a bill of exchange at or after maturity is bound to pay the amount thereof to the holder on demand.

4.

Liability of endorser (Section 35)
Every endorser incurs liability to the parties that are subsequent to him. Whoever endorses and delivers a negotiable instrument before maturity is bound thereby to every subsequent holder in case of dishonour of the instrument by the drawee, acceptor or maker, to compensate such holder of any loss or damage caused to him by such dishonour provide

  • there is no contract to the contrary;
  • he (endorser) has not expressly excluded, limited or made conditional his own liability; and
  • due notice of dishonour has been given to, or received by, such endorser.

Every endorser after dishonour, is liable upon the instrument as if it is payable on demand. He is bound by his endorsement notwithstanding any previous alteration of the instrument (Section 88)

5.

Liability of Prior Parties (Section 36)
Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied. The liability of the prior parties to a holder in due course is joint and several. The holder in due course may hold any or all prior parties liable for the amount of the dishonoured instrument.

6.

Liability of Acceptor of Forged Endorsement (Section 41)
An acceptor of a bill of exchange already endorsed is not relieved from liability by reason that such endorsement is forged, if he knew or had reason to believe the endorsement to be forged when he accepted the bill.

7.

Acceptor’s Liability on a Bill drawn in a Fictitious Name
An acceptor of a bill of exchange drawn in a fictitious name and payable to the drawer’s order is not, by reason that such name is fictitious, relieved from liability to any holder in due course claiming under an endorsement by the same hand as the drawer’s signature, and purporting to be made by the drawer.

 

Negotiability and Assignability distinguished
A transfer by negotiation differs from transfer by assignment in the following respects:

  • Negotiation requires mere delivery of a bearer instrument and endorsement and delivery of an order instrument to effectuate a transfer. Assignment requires a written document signed by the transferor.
  • Notice of transfer of debt (actionable claim) must be given by the assignee to the debtor in order to complete his title; no such notice is necessary in a transfer by negotiation.
  • On assignment, the transferee of an actionable claim takes it subject to all the defects in the title of, and subject to all the equities and defences available against the assignor, even though he took the assignment for value and in good faith. In case of negotiation the transferee, as holder-in-due course, takes the instrument free from any defects in the title of the transferor.

Endorsement (Sections 15 and 16)

According to Section 15, where the maker or holder of a negotiable instrument signs the same for the purpose of negotiation,

  • on the back or face thereof or
  • on a slip of paper annexed thereto (called Allonge), or
  • so, signs for the same purpose, a stamped paper intended to be completed as a negotiable instrument,

he is said to endorse the same, the person to whom the instrument is endorsed is called the endorsee.

In other words, ‘endorsement’ means and involves the writing of something on the back of an instrument for the purpose of transferring the right, title and interest therein to some other person.

Classes of endorsement

  1. Blank or General: An endorsement is to be blank or general where the endorser merely writes his signature on the back of the instrument, and the instrument so endorsed becomes payable to bearer, even though originally it was payable to order. Thus, where bill is payable to “Mohan or order”, and he writes on its back “Mohan”, it is an endorsement in blank by Mohan and the property in the bill can pass by mere delivery, as long as the endorsement continues to be a blank. But a holder of an instrument endorsed in blank may convert the endorsement in blank into an endorsement in full, by writing above the endorser’s signature, a direction to pay the instrument to another person or his order.
  2. Special or Full: If the endorser signs his name and adds a direction to pay the amount mentioned in the instrument to, or to the order of a specified person, the endorsement is said to be special or in full. A bill made payable to Mohan or Mohan or order, and endorsed “pay to the order of Sohan” would be specially endorsed and Sohan endorses it further. A blank endorsement can be turned into a special one by the addition of an order making the bill payable to the transferee.
  3. Restrictive: An endorsement is restrictive which prohibits or restricts the further negotiation of an instrument. Examples of restrictive endorsement: “Pay A only” or “Pay A for my use” or “Pay A on account of B” or “Pay A or order for collection”.
  4. Partial: An endorsement partial is one which purports to transfer to the endorsee a part only of the amount payable on the instrument. A partial endorsement does not operate as negotiation of the instrument. A holds a bill for Rs. 1,000 and endorses it as “Pay B or order Rs. 500”. The endorsement is partial and invalid.
  5. Conditional or qualified: An endorsement is conditional or qualified which limits or negatives the liability of the endorser. An endorser may limit his liability in any of the following ways:
    • By sans recourse endorsement, i.e. by making it clear that he does not incur the liability of an endorser to the endorsee or subsequent holders and they should not look to him in case of dishonour of instrument. The endorser excludes his liability by adding the words “sans recourse” or “without recourse”, e.g., “pay A or order sans recourse”.
    • By making his liability depending upon happening of a specified event which may never happen, e.g., the holder of a bill may endorse it thus: “Pay A or order on his marrying B”. In such a case, the endorser will not be liable until A marries B.

Negotiation Back
Where an endorser negotiates an instrument and again becomes its holder, the instrument is said to be negotiated back to that endorser and none of the intermediary endorsees are then liable to him. For example, A, the holder of a bill endorses it to B, B endorses to C, and C to D, and endorses it again to A. Here A cannot sue B, C and D.

Where an endorser so excludes his liability and afterwards becomes the holder of the instrument, all the intermediate endorsers are liable to him. A is the payee of a negotiable instrument. He endorses the instrument ‘sans recourse’ to B, B endorses to C, C to D, and D again endorses it to A. In this case, A is not only reinstated in his former rights but has the right of an endorsee against B, C and D.

Presentment for Acceptance
Following bills must be presented for acceptance otherwise, the parties to the bill will not be liable on it:

  • A bill payable after sight. Presentment is necessary in order to fix maturity of the bills; and
  • A bill in which there is an express stipulation that it shall be presented for acceptance before it is presented for payment.

The following are the persons to whom a bill of exchange should be presented:

  1. The drawee or his duly authorised agent.
  2. If there are many drawees, bill must be presented to all of them.
  3. The legal representatives of the drawee if drawee is dead.
  4. The official receiver or assignee of insolvent drawee.
  5. To a drawee in case of need, if there is any.
  6. The acceptor for honour, if required.

The presentment must be made before maturity, within a reasonable time after it is drawn, or within the stipulated period, if any, on a business day within business hours and at the place of business or residence of the drawee. The presentment must be made by exhibiting the bill to the drawee; mere notice of its existence in the possession of holder will not be sufficient.

When presentment is compulsory and the holder fails to present for acceptance, the drawer and all the endorsers are discharged from liability to him.

Presentment for Acceptance when Excused
Compulsory presentment for acceptance is excused and the bill may be treated as dishonoured in the following cases:

  • Where the drawee cannot be found after reasonable search.
  • Where drawee is a fictitious person or one incapable of contracting.
  • Where although the presentment is irregular, acceptance has been refused on some other ground.

Presentment for Payment when Excused
No presentment is necessary and the instrument may be treated as dishonoured in the following cases:

  • Where the maker, drawer or acceptor actively does something so as to intentionally obstruct the presentment of the instrument, e.g., deprives the holder of the instrument and keeps it after maturity.
  • Where his business place is closed on the due date.
  • Where no person is present to make payment at the place specified for payment.
  • Where he cannot, after due search be found. (Section 61)
  • Where there is a promise to pay notwithstanding non-presentment.
  • Where the presentment is express or impliedly waived by the party entitled to presentment.
  • Where the drawer could not possibly have suffered any damage by non-presentment.
  • Where the drawer is a fictitious person, or one incompetent to contract.
  • Where the drawer and the drawee are the same person.
  • Where the bill is dishonoured by non-acceptance.
  • Where presentment has become impossible, e.g., the declaration of war between the countries of the holder and drawee.
  • Where though the presentment is irregular, acceptance has been refused on some other grounds.

Dishonour by Non-Acceptance
Section 91 provides that a bill is said to be dishonoured by non-acceptance:

  • When the drawee does not accept it within 48 hours from the time of presentment for acceptance.
  • When presentment for acceptance is excused and the bill remains unaccepted.
  • When the drawee is incompetent to contract.
  • When the drawee is a fictitious person or after reasonable search cannot be found.
  • Where the acceptance is a qualified one.

Dishonour by Non-payment (Section 92)

  • A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same.
  • A negotiable instrument is also dishonoured by non-payment when presentment for payment is excused and the instrument when overdue remains unpaid.

Notice of Dishonour (Sections 91-98 and Sections 105-107)

  • When a negotiable instrument is dishonoured either by non-acceptance or by non-payment, the holder or some party liable thereon must give notice of dishonour to all other parties whom he seeks to make liable.
  • Each party receiving notice of dishonour must in order to render any prior party liable to himself, give notice of dishonour to such party within a reasonable time after he has received it.

Objective behind notice

  • The object of giving notice is not to demand payment but to whom the party notified of his liability and in case of drawer to enable him to protect himself as against the drawee or acceptor who has dishonoured the instrument issued by him.
  • Notice of dishonour is so necessary that an omission to give it discharges all parties other than the maker or acceptor. These parties are discharged not only on the bill or note, but also in respect of the original consideration.

Notice may be oral or in writing, but it must be actual formal notice. It must be given within a reasonable time of dishonour.

Notice of Dishonour Unnecessary
No notice of dishonour is necessary:

  • When it is dispensed with or waived by the party entitled thereto, e.g., where an endorser writes on the instrument such words as “notice of dishonour waived”,
  • When the drawer has countermanded payment (in case of cheques).
  • When the party charged would not suffer damage for want of notice.
  • When the party entitled to notice cannot after due search be found.
  • When the omission to give notice is caused by unavoidable circumstances, e.g., death or dangerous illness of the holder.
  • Where the acceptor is also a drawer, e.g., where one branch of firm draws on its another branch.
  • Where the promissory note is not negotiable. Such a note cannot be endorsed.
  • Where the party entitled to notice promises to pay unconditionally.

Noting and Protest (Sections 99-104A)

Noting
Where a note or bill is dishonoured, the holder is entitled, after giving due notice of dishonour, to sue the drawer and the endorsers.

Section 99 provides a convenient method of authenticating the fact of dishonour by means of “Noting”. Where a bill or note is dishonoured, the holder may, if he so desires, cause such dishonour to be noted by a notary public on the instrument, or on a paper attached thereto or partly on each.

The noting or minute must be recorded by the notary public within a reasonable time after dishonour and must contain the fact of dishonour, the date of dishonour, the reason, if any, assigned for such dishonour if the instrument has not been expressly dishonoured the reasons why the holder treats it dishonoured and notary’s charges.

Protest
The protest is the formal notarial certificate attesting the dishonour of the bill, and based upon the noting which has been effected on the dishonour of the bill. After the noting has been made, the formal protest is drawn up by the notary and when it is drawn up it relates back to the date of noting.

Where the acceptor of a bill has become insolvent, or has suspended payment, or his credit has been publicly impeached, before the maturity of the bill, the holder may have the bill protested for better security.

The notary public demands better security and on its refusal makes a protest known as “protest for better security”.

Foreign bills must be protested for dishonour when such protest is required by the law of the place where they are drawn. Foreign promissory notes need not be so protested. Where a bill is required by law to be protested, then instead of a notice of dishonour, notice of protest must be given by the notary public.

A protest to be valid must contain on the instrument itself or a literal transcript thereof, the names of the parties for and against whom protest is made, the fact and reasons for dishonour together with the place and time of dishonour and the signature of the notary public. Protest affords an authentic evidence of dishonour to the drawer and the endorsee.

Discharge

The discharge in relation to negotiable instrument may be either

  • discharge of the instrument or
  • discharge of one or more parties to the instrument from liability.

Discharge of the Instrument
A negotiable instrument is discharged:

  •  by payment in due course;
  • when the principal debtor becomes the holder;
  • by an act that would discharge simple contract;
  • by renunciation; and
  • by cancellation

Discharge of a Party or Parties
When any particular party or parties are discharged, the instrument continues to be negotiable and the undischarged parties remain liable on it. For example, the non-presentment of a bill on the due date discharges the endorsers from their liability, but the acceptor remains liable on it.

A party may be discharged in the following ways:

  • By cancellation (by the holder) of the name of any party to it with the intention of discharging him.
  • By release, when the holder releases any party to the instrument
  • Discharge of secondary parties, i.e., endorsers.
  • By the operation of the law, i.e., by insolvency of the debtor.
  • By allowing drawee more than 48 hours to accept the bill, all previous parties are discharged.
  • By non-presentment of cheque promptly the drawer is discharged
  • By taking qualified acceptance, all the previous parties are discharged.
  • By material alteration.

Material Alteration (Section 87)

An alteration is material which in any way alters

  • the operation of the instrument and
  • the liabilities of the parties thereto.

A material alteration renders the instrument void, but it affects only those persons who have already become parties at the date of the alteration. Those who take the altered instrument cannot complain.

An acceptor or endorser of a negotiable instrument is bound by his acceptance or endorsement notwithstanding any previous alteration of the instrument.

Examples of material alteration are:

  1. Alteration of the date of the instrument
  2. Alteration of the sum payable,
  3. Alteration in the time of payment,
  4. Alteration of the place of payment,
  5. Alteration of the rate of interest,
  6. Alteration by addition of a new party,
  7. Tearing the instrument in a material part.

There is no material alteration and the instrument is not vitiated in the following cases:

  1. correction of a mistake, to carry out the common intention of the parties,
  2. an alteration made before the instrument is issued and made with the consent of the parties,
  3. crossing a cheque,
  4. addition of the words “on demand” in an instrument where no time of payment is stated.

Section 89 affords protection to a person who pays an altered note bill or cheque. However, in order to be able to claim the protection, the following conditions must be fulfilled:

  1. the alteration should not be apparent;
  2. the payment must be made in due course; and
  3. the payment must be by a person or banker liable to pay.

In case of electronic image of a truncated cheque
Any bank or a clearing house which receives a transmitted electronic image of a truncated cheque, shall verify from the party who transmitted the image to it, that the image so transmitted to it and received by it, is exactly the same. Where there is any difference in apparent tenor of such electronic image and the truncated cheque, it shall be a material alteration.

If the bank fails to discharge this duty, the payment made by it shall not be regarded as good and it shall not be afforded protection.

Retirement of a Bill under Rebate
An acceptor of a bill may make payment before maturity, and the bill is then said to be retired, but it is not discharged and must not be cancelled except by the acceptor when it comes into his hands. It is customary in such a case to make allowance of interest on the money to the acceptor for the remainder of the time which the bill has to run. The interest allowance is known as rebate.

Hundis

  • Hundis are negotiable instruments written in an oriental (local) language.
  • They are not covered under the Negotiable Instruments Act, 1881.
  • They are governed by the customs and usages in the locality but if custom is silent on the point in dispute before the Court, this Act applies to the hundis.
  • The term “hundi” was formerly applicable to native bills of exchange. The promissory notes were then called “teep”.

Some different types of Hundi

  1. Shah Jog Hundi
    “Shah” means a respectable and responsible person or a man of worth in the bazar. Shah Jog Hundi means a hundi which is payable only to a respectable holder, as opposed to a hundi payable to bearer. In other words the drawee before paying the same has to satisfy himself that the payee is a ‘SHAH’.
  2. Jokhmi Hundi
    A “jokhmi” hundi is always drawn on or against goods shipped on the vessel mentioned in the hundi. It implies a condition that money will be paid only in the event of arrival of the goods against which the hundi is drawn. It is in the nature of policy of insurance. The difference, however, is that the money is paid beforehand and is to be recovered if the ship arrives safely.
  3. Jawabee Hundi
    According to Macpherson, “A person desirous of making a remittance writes to the payee and delivers the letter to a banker, who either endorses it on to any of his correspondents near the payee’s place of residence, or negotiates its transfer. On the arrival, the letter is forwarded to the payee, who attends and gives his receipt in the form of an answer to the letter which is forwarded by the same channel of the drawer or the order.” Therefore, this is a form of hundi which is used for remitting money from one place to another.
  4. Nam jog Hundi
    It is a hundi payable to the party named in the bill or his order. The name of the payee is specifically inserted in the hundi. It can also be negotiated like a bill of exchange. Its alteration into a Shah Jog hundi is a material alteration and renders it void.
  5. Darshani Hundi
    This is a hundi payable at sight. It is freely negotiable and the price is regulated by demand and supply. They are payable on demand and must be presented for payment within a reasonable time after they are received by the holder.
  6. Miadi Hundi
    This is otherwise called muddati hundi, that is, a hundi payable after a specified period of time. Usually money is advanced against these hundis by shroffs after deducting the advance for the period in advance.

Presumptions of Law

It shall be presumed that:

  • Every negotiable instrument was made or drawn for consideration irrespective of the consideration mentioned in the instrument or not.
  • Every negotiable instrument having a date was made on such date.
  • Every accepted bill of exchange was accepted within a reasonable time before its maturity.
  • Every negotiable instrument was transferred before its maturity.
  • The instruments were endorsed in the order in which they appear on it.
  • A lost or destroyed instrument was duly signed and stamped.
  • The holder of the instrument is a holder in due course.
  • In a suit upon an instrument which has been dishonoured, the Court shall presume the fact of dishonour, or proof of the protest.

However these legal presumptions are rebuttable by evidence to the contrary. The burden to prove to the contrary lies upon the defendant to the suit and not upon the plaintiff.

Payment of Interest in case of dishonour (18% p.a)
When no rate of interest is specified in the instrument, interest on the amount due thereon shall,

  • notwithstanding any agreement relating to interest between any parties to the instrument,

be calculated at the rate of 18% per annum,

  • from the date at which the same ought to have been paid by the party charged,
    • until tender or realization of the amount due thereon, or
    • until such date after the institution of a suit to recover such amount as the Court directs.

Explanation.—When the party charged is the endorser of an instrument dishonoured by non-payment, he is liable to pay interest only from the time that he receives notice of the dishonour.

Dishonour of Cheque for Insufficiency, etc., of Funds in the Account [Section 138]
Where any cheque drawn by a person on an account maintained by him with a banker

  • for payment of any amount of money to another person from out of that account
    • for the discharge, in whole or in part, of any debt or other liability,

is returned by the bank unpaid,

  • either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or
  • that it exceeds the amount arranged to be paid from that account by an agreement made with that bank,

such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished

  • with imprisonment for a term which may be extended to 2 years, or
  • with fine which may extend to twice the amount of the cheque, or
  • with both.

Provided that nothing contained in this section shall apply unless—

  • the cheque has been presented to the bank within a period of 6 months from the date on which it is drawn or within the period of its validity, whichever is earlier;
  • the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
  • the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within 15 days of the receipt of the said notice.

Presumption in Favour of Holder [Section 139]
It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability.

It means once the execution of cheque is admitted, Section 139 creates a presumption that the holder of a cheque receives the cheque in discharge, in whole or in part, of any debt or other liability

Defence which may not be allowed in any prosecution under Section 138 [Section 140]
It shall not be a defence in a prosecution for an offence under section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in section 138.

Power to Direct Interim Compensation
Section 143A(1) Negotiable Instruments Act provides that notwithstanding anything contained in the Code of Criminal Procedure, 1973, the Court trying an offence under section 138 of the Negotiable Instrument Act,1881(Dishonour of cheque for insufficiency, etc., of funds in the account) may order the drawer of the cheque to pay interim compensation to the complainant—

  •  in a summary trial or a summons case, where he pleads not guilty to the accusation made in the complaint; and
  • in any other case, upon framing of charge.

Section 143A (2) states that the interim compensation under sub-section (1) shall not exceed 20% of the amount of the cheque.

Section 143A (3), the interim compensation shall be paid within sixty days from the date of the order under sub-section (1), or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the drawer of the cheque.

Evidence on Affidavit
Section 145 of the Act provides that notwithstanding anything contained in the Code of Criminal Procedure, 1973, the evidence of the complainant may be given by him on affidavit and may, subject to all just exceptions be read in evidence in any enquiry, trial or other proceeding under the Code of Criminal Procedure, 1973.

The Court may, if it thinks fit, and shall, on the application of the prosecution or the accused, summon and examine any person giving evidence on affidavit as to the facts contained therein.

Bank’s Slip Prima Facie Evidence of Certain Facts
According to Section 146, the Court shall, in respect of every proceeding under this Chapter, on production of Bank’s slip or memo having thereon the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is disproved.

Offences to be Compoundable
Section 147 of the Act provides that notwithstanding anything contained in the Code of Criminal Procedure, 1973, every offence punishable under the Negotiable Instrument Act shall be compoundable.

Power of Appellate Court to Order Payment Pending Appeal against Conviction
Section 148(1) provides that notwithstanding anything contained in the Code of Criminal Procedure, 1973, in an appeal by the drawer against conviction under section 138 of the Negotiable Instrument Act, 1881 (Dishonour of cheque for insufficiency, etc., of funds in the account), the Appellate Court may order the appellant to deposit such sum which shall be a minimum of 20% of the fine or compensation awarded by the trial Court.

Such amount shall be deposited within 60 days from the date of the order, or within such further period not exceeding 30 days as may be directed by the Court on sufficient cause being shown by the appellant.

The Appellate Court may direct the release of the amount deposited by the appellant to the complainant at any time during the pendency of the appeal.

It may be noted that if the appellant is acquitted, the Court shall direct the complainant to repay to the appellant the amount so released, with interest at the bank rate as published by the RBI, prevalent at the beginning of the relevant financial year, within 60 days from the date of the order, or within such further period not exceeding 30 days as may be directed by the Court on sufficient cause being shown by the complainant.

National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS)|
National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to-one funds transfer. Under this Scheme, individuals, firms and corporates can electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country participating in the Scheme.

NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. In DNS, the settlement takes place with all transactions received till the particular cut-off time.

These transactions are netted (payable and receivables) in NEFT whereas in RTGS the transactions are settled individually. For example, currently, NEFT operates in hourly batches. Any transaction initiated after a designated settlement time would have to wait till the next designated settlement time Contrary to this, in the RTGS transactions are processed continuously throughout the RTGS business hours.

The acronym ‘RTGS’ stands for Real Time Gross Settlement, which can be defined as the continuous (real- time) settlement of funds transfers individually on an order by order basis (without netting).

  • ‘Real Time’ means the processing of instructions at the time they are received rather than at some later time;
  • ‘Gross Settlement’ means the settlement of funds transfer instructions occurs individually (on an instruction by instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank of India, the payments are final and irrevocable.

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