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THE NEGOTIABLE INSTRUMENT ACT QUICK SUMMARY

THE NEGOTIABLE INSTRUMENT ACT QUICK SUMMARY

UPDATED QUICK SUMMARY OF NEGOTIABLE INSTRUMENT ACT

  • A promissory note is an unconditional undertaking, written and signed by the maker to pay a certain sum of money only to or to the order of a certain person. It does not include a bank note or currency note.
  • A bill of exchange is an unconditional written order signed by the drawer, directing a certain person to pay a certain sum of money to the specified person or to his order or to the bearer of the bill.
  • A cheque is a bill of exchange drawn on a specified banker and payable only on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.
  • A bearer instrument is one which is expressed to be payable to its bearer or which has last endorsement in blank.
  • An instrument payable to order is the one which is expressed to be payable to a particular person.
  • A negotiable instrument drawn or made in India and made payable in, or drawn upon any person resident in India shall be deemed to be inland instrument.
  • Any instrument which is not an inland instrument is a foreign instrument.
  • When the nature of an instrument is not clear, it is termed as ambiguous instrument. There such an instrument may be treated as either promissory or as a bill of exchange.
  • Inchoate instrument is an instrument that is signed and duly stamped but otherwise wholly or partially blank.
  • “At sight”, “on presentment”, expressions in reference to promiossory note or bill of exchange means on demand. Whereas expression “After sight” in a case of promissory note means after presentment for sight and in reference to bill of exchange means after acceptance/noting/protest for non-acceptance.
  • Maturity is the date of any instrument at which its payment becomes due. Any instruments are at maturity on the third day after the day on which it is expressed to be payable.
  • Negotiation means transfer of a negotiable instrument by one person to another in order to make the transferee the holder of the instrument.
  • Negotiation may be made by delivery or by endorsement and delivery.
  • Parties to an instruments- Every person capable of contracting may bind himself and be bound by the making/drawing/acceptance/indorsement/delivery and negotiation of an instruments. Minor is an exception binding all the parties except himself.
  • An agent can make, accept or indorse a negotiable instrument only if express authority has been granted to him by his principal.
  • A bank under certain conditions may refuse payment of cheque or is bound to dishonour cheque and when the cheque is dishonoured for insufficiency of funds in the account of a customer, it is treated as offence. The guilty may be punished with imprisonment for a term which may extend to two years or with fine of twice the amount of the cheque or with both.
  • Mode of discharge–The instrument is discharged when rights and obligations or claims of all the parties are extinguished.
  • Material Alteration means the alteration in the material part of the instrument resulting in the alteration in the basic parts of the nature and legal effects of the instruments and the liabilities of the parties.
  • An instrument is dishonoured by non-acceptance and non-payment of the instrument when duly presented.
  • Notice of dishonour is served by the holder formally against the parties to the effect that instrument has been dishonoured by non-acceptance or nonpayment.
  • Noting is the process of recording the fact and reasons of dishonour of a negotiable instrument by the notary public.
  • Protest is a certificate issued by a notary public attesting the fact of dishonour of a negotiable instrument recorded upon the instrument.
  • Important difference between the two is that noting consists of recording the fact and reasons of dishonour of N.I upon the instrument whereas protest is the certificate as to the fact that instrument has been dishonoured.
  • Payment of the amount due on instruments must be made to the holder with an interest at the specified rate expressly made payable on a promissory note or a bill of exchange. When no rate of interest is specified in the instrument, interest on the amount due shall be calculated at the rate of 18% per annum from the date at which the instrument ought to have been paid until realization of such amount.
  • In respect, to decide the rights of parties on the basis of negotiable instrument, the Court is entitled to make certain presumptions of consideration, as to date, as to time of acceptance, as to time of transfer, as to order of indorsements, as to stamps and that holder is a holder in due course.
  • The compensation payable by any party liable to the holder or any endorsor in case of dishonour of an instruments shall be determined by the rules given under Section 117 of the Act.

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