NEGOTIABLE INSTRUMENTS
CHAPTER=5
NEGOTIABLE INSTRUMENTS
Q.1. Define Negotiable
Instrument?
Ans:- Negotiable instruments refers to a document
which entitles a person to a sum of money and which is transferrable from one
person to another.
According to sec.13 of the Act, a
negotiable instrument means ‘’ a promissory mot, a bills of exchange or cheque
payable either to order or to bearer.”
Q.2. State the features of
Negotiable Instrument?
Ans:- The features of negotiable instrument are as
follows:-
i.
Freely transferable
:-
A negotiable Instrument is freely transferrable from person to another person,
either by delivery or by endorsement and delivery.
ii.
Must be in writing:- A negotiable
instrument must be in writing. This includes handwriting, typing, computer
printout etc.
iii.
The payee must be a
certain person:- It means that the person in whose favour the instrument
is made must be name or described with reasonable certainty.
iv.
Signature:- A negotiable
instrument must bear the signature of its maker. Without the signature of the
drawer or the maker, the instrument shall not be a valid one.
v.
Delivery:- Delivery of the
instrument is essential. Any negotiate instrument like a cheque or a promissory
note is not complete till it is delivery to its payee.
Q.3. What is promissory note?
State the features of promissory note? 2004, 2006, 2013
Ans:- Promissory note is a written promise made by a debtor
to pay certain sum of money due to a creditor. It is used to settle a business
transaction.
According to Negotiable
instrument Act, 1881, ‘’Promissory note is an instrument in writing containing
an unconditional undertaking sign by maker to pay a certain sum of money only
to a certain person or the order of a certain person’’.
The following Essential
Features of promissory note:-
i.
It must be in
Writing:- An oral promise to pay is not sufficient. It must be in writing.
ii.
Express promise to
pay:- There must be express promise to pay. Mere acknowledgement of
indebtedness is not sufficient.
iii.
Definite and
unconditional promise:- If a promise to pay is dependent upon an event which is
certain to happen, although the time of its happening is uncertain, the promise
to pay is unconditional
iv.
Sign by maker:- A promissory note
must be signed by maker. The signature may be made on any part of the
instrument.
v.
Promise to pay
money only: - Consideration in kind does not constitute valid
promissory note.
vi.
Stamped:- A promissory note
must be stamped.
Q.4. Name the parties to a Promissory
notes? Draw the Specimen of Promissory note?
Ans:- There are two parties to a promissory note:-
i.
Maker:- The maker is the debtor who makes and signs
the promissory note and who promise to pay.
ii.
Payee:- The payee in
creditor to whom promise is made for the payment.
|
Rs.
10000
Assam
April
01,2017
Three
months after date I promise to pay Mr. Ram or order the sum of ten thousand
rupees, for value received.
To
Mr. Ram
G.N.B. Road
STAMP
Tinsukia (Assam) Sd/- Mr. Govind
|
Q.5.What are the types of
promissory notes?
Ans:- there are types
of promissory notes:-
i.
Single or sole
promissory notes:- when one person makes a promissory note, it is called a
single or sole promissory note.
ii.
Joint promissory
note:- When two or more persons jointly makes a promissory note, it is known as
jointly promissory note.
Q.6. Write the three
advantages of promissory note?
Ans:- The followings
advantages of promissory note are as follows:-
i.
Promissory notes are written acknowledgment of debts.
ii.
It helps in easy and quick settlement of mutual
indebtedness.
iii.
It is easy to draw a promissory note.
Q.7. What is Bill of exchange?
What are its features? mention three parties of bills of exchange?
Ans:- A bill of exchange,
popularly known as a bill, as defined under sec 5. Of the negotiable instrument
act,1881 means, “an instrument in writing containing an unconditional order,
signed by 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’’
The followings essential
features of Bills of exchange:-
i.
Lit must be in writing
ii.
The contain a express order to pay
iii.
The order to pay must be definite and unconditional
iv.
It must be signed by the drawer
v.
The order must be to pay money only
vi.
Drawer, drawee and payee must be certain
vii.
It must be stamped
There
are three parties of bills of exchange namely:-
i.
Drawer:- The person who
draws the bill is called as drawer.
ii.
Drawee:- The person on whom
the bill is drawn is called a drawee.
iii.
Payee:- The person to whom
money is to be paid is named in the bill. He is called as payee.
Q.8.
What are the various types of bills of exchange?
Ans:- Types of bills of exchange:-
i.
Inland bill and
foreign bill:- An inland bill or instrument is defined as a negotiable
instrument which is drawn or made payable in India and a foreign bill is a
negotiable instrument which is drawn or made or payable outside India.
ii.
Time bill and
demand bill:- A time bill is payable at a fixed period after its date or after sight
and a demand bill is to be payable on demand bill or on sight.
iii.
Trade bill and
Accommodation bill:-A trade bill bills which arise out of genuine trade
transaction, An accommodation bill is drawn, accepted or endorse without
consideration to provide financial assistance.
iv.
Clean bill and
Documentary bill:- Clean bill is that bill which is not accompanied by any
documents. Documentary bill is that bill to which certain documents are
attached.
Q.9. Mention the advantages of
a bill of exchange? Draw a specimen o bill of exchange? (2013)
Ans:- The advantages of a bill of exchange :-
i.
The bill of exchange being transferrable from one
person to another facilitates transfer of value without actual transmission of
money.
ii.
The bill of exchange promotes rapid growth of trade
and commerce by facilitating credit transaction.
iii.
The accommodation bill of exchange also helps a
person to obtain funds at cheaper rates.
iv.
The foreign bill of exchange facilitates settlement
of international obligations and helps in promoting foreign trade.
v.
A bill of exchange enables the buyer to pay the goods
on credit and pay after the period of credit.
Specimen of bill of
exchange
|
Rs.
5000 Assam
August. 10, 2017
On Demand pay to Ram or order the sum of
five thousand rupees, for value received.
To
Gopal Sharma
Laxmi Nagar Road
Delhi
Accepted
Gopal Sharma
|
Q.10. Define cheque? Parties’ involved
in cheque? Mention Its Features?
Ans: - According to sec 6
of the negotiable instrument Act, 1881, “ A cheque is a bill of exchange deawn
on a specified banker and nor expressed to be payable otherwise than on demand.
A Cheque has Three parties:- Drawer, Drawee and Payee.
The essential
features of the cheque are follows:-
i.
It must be in writing. Cheque may be written with pen
or it may be printed or typewritten.
ii.
It must contain an express order to pay.
iii.
The order to pay must be definite and unconditional.
iv.
It must be in signed by the drawer.
v.
The order must be pay money only.
vi.
Drawer, drawee and payee must be certain.
vii.
It is always payable on demand and not otherwise.
viii.
The cheque does not need acceptance and it need not
be stamped.
ix.
A Cheque must be dated and it is valid for period of
six months from the dare of the cheque.
Q.11. What are the
Advantages of Cheque?
Ans:- The
followings are the important advantages of cheque:-
i.
It is very easy and safe to transfer of fund through
cheque. The customer of a bank can transfer any amount by the help of cheque.
ii.
Cheque is the easiest from of making payment. It saves
time which would have been wasted in country notes and coins.
iii.
The trader can make bulk payment by just drawing a cheque.
iv.
The record of money transaction by cheque is kept in bank
s it serves as legal evidence.
Q.12. State the meaning of Hundi? Write any two types
of Hundi? Distinguish between bills of exchange and Hundi?
Ans:- The word, “Hundi” has been derived from the Sanskrit
word “hund” or “huna” Which means to “collect”. A hundi is a traditional bill
of exchange which is written in oriental language. A Hundi may be defined as “a
written unconditional order signed by the creditor, directing the debtor to pay
a certain sum of money on demand or after a specified period to a person named
therein”. It may be payable at sight or demand or at the expiry of a certain
period.
Hundies may be the following types:-
i.
Muddatti Hundi:- It is payable after
the expiry of a certain period of time. It is similar to a time of bill of
exchange. It is also known as “Miadi Hundi.”
ii.
Nishan jog hundi:- It is payable to
the person who present in for payment.
iii.
Darshani Hundi:- It is a type of hundi
which is payable at sight or on demand.
iv.
Nam-jog Hundi:- It is payable to
the person named on the hundi.
v.
Dhani jog Hundi:- It is payable to
the “dhani” i.e. owner who holds the instruments or to the bearer.
vi.
Jokhmi Hundi:- It is drawn by
the consignor of goods o the consignee against the goods shipped.
Q.13. Define the term Holder
and Holder in due course of Negotiable instruments? When a person becomes a
holder in due course?
Ans:- According to Sec 8
of the Negotiable instrument Act 1881 “ The holder of a promissory note, Bill
of exchange or cheque means any person entitled in his own name to the
possession of the instrument and who has also the right to receive or recover
the amount due thereon from the parties thereto.”
According to Sec 9 of the
Negotiable Instrument Act 1881, “ Holder in due course means any person who,
for valuable consideration, becomes the possessor of a promissory note, bill of
exchange or cheque, whether payable to bearer or the payee or endorsee thereof,
before the amount mentioned in it becomes payable and without having sufficient
cause o believe that defect existed in the title of the person from whom he
derived his title.”
Thus, A person is said to be holder in due course in the following
cases:-
i.
The Negotiable Instrument must be in the possession of the
holder-in-due course.
ii.
The Negotiable Instrument must be regular and complete in
all aspects.
iii.
The Instrument must have been obtained for valuable
consideration.
iv.
The Negotiable must have been obtained before the amount
mentioned therein becomes payable or before maturity.
Q.14. What are the rights enjoyed
by the Holder of Negotiable Instrument?
Ans:- The Holder of a
Negotiable Instrument Enjoys the following rights:-
i.
He can claim payment of the instrument.
ii.
He can sue in his own name on the instrument to recover
the money.
iii.
He can negotiate an instrument to a third person.
iv.
He is entitled to cross a cheque either generally or
specially.
v.
He can convert an endorsement in blank into an endorsement
in full.
vi.
He can obtain a duplicate copy of a lost cheque.
Q.15. Explain the rights and
privileges of Holder in due course?
Ans:- A Holder in Due
course enjoys the following rights and privileges:-
i.
Instrument free
from all defects:- A holder in due course possesses better title than that
of his transferer or any of the prior parties and can give to the subsequent
parties the good title that he possesses. This is the greatest privilege of a
holder in due course.
ii.
Liability of prior
parties:- Every prior party to a negotiable instrument is liable thereon to a HDC
until the instrument is duly satisfied. Here prior party means the maker,
acceptor, of the instrument.
iii.
Protection in case
of fictitious bill:- in case the bill of exchange is drawn payable to the
drawer’s order in a fictitious name and is endorsed by the same hand as the
drawee’s signature, it is not permissible for acceptor to allege that such name
is fictitious.
iv.
Protection in case
of conditional delivery:- In case a bill a note is negotiated to the Holder in
due course, the other parties to the bill or note cannot escape liability on
the ground that the delivery of the instrument was conditional or for a special
purpose only.
v.
Protection in case
of instruments without consideration:- A negotiable made, drawn
endorsed without consideration does not give any right to intermediate parties.
However, when it comes in the hand of HDC, he can recover the amount due on
such instrument, from the prior parties.
vi.
Protection in case
of instrument obtained by unlawful means etc:- the person liable in a
negotiable instrument cannot set up against HDC, a defense that the instrument
had been lost or obtained by means of a fraud or unlawful consideration.
Q.16. Define Endorsement? Who
can endorse? Describe briefly different kind of endorsement? 1999, 2009, 2014
Ans:- The term
“Endorsement” means writing of a person’s name on the back of the instrument
for the purpose of negotiation.
According to section
15 of the Negotiable instrument actr 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 he is said to have endorsed
the instrument.
Endorsement of negotiable
instrument can be made only by the following parties of to the instrument:-
a) The payee (b) The
holder (c) The drawer of a bill or cheque (c) The maker (d) The endorsee.
The Different kind of endorsement explained below:-
i.
General or Blank
endorsement:- General endorsement means, an endorsement made by the
endorser without writing the name of the endorsee.
ii.
Special or Full
endorsement:- Special or full endorsement means an endorsement made by a
holder by signing his name and adding a direction to pay the amount to a
specified person.
iii.
Restrictive
endorsement:- an endorsement is said to be restrictive, when it prohibits or
restrictive the future negotiability of the instrument.
iv.
Partial
endorsement:- When the endorser intends to transfer to the endorsee
only a part of the amount of instrument by endorsement is called as partial
endorsement. Partial endorsement is not valid at law. For example, when a cheque of Rs 10,000 is
endorsed for Rs. 5000 is an example of partial endorsement.
v.
Conditional
endorsement:- When endorser makes his liability dependent upon the happening of an
event is called conditional endorsement.
vi.
Forged
endorsement:- When a negotiable instrument is endorsed with the forged signature of the endorser,
the endorsement is called forged endorsement.
Q.17. Discuss about the rules and regulations of a
valid endorsement?
Ans: - The rules and regulations regarding
endorsement may be:-
i.
Signature of the
endorser:- A regular endorsement implies signature of the holder of the negotiable
instrument himself or his duly authorized agent on its face or back for the
purpose of negotiation.
ii.
Spelling:- The endorser must
sign his name in the exact spelling as appearing on the instrument as its payee
or endorsee.
iii.
Sign in Ink:- Endorsement in
pencil or by a rubber stamp is usually not accepted.
iv.
Prefixed and
suffixed to be excluded:- The prefixes and suffixes to the name of the payee
or endorsee should not be included in the endorsement e.g. Mr., Mrs., Miss,
Shri, Dr, etc.
v.
Endorsement by
illiterate person: - An illiterate person can also make a valid endorsement by
putting his thumb impression on the instrument I the presence of a witness.
vi.
Endorsement by a
married women:- In the case of married women, the name of her husband
must also be mentioned in the endorsement.
vii.
Endorsement by
companies, firms: - In case of joint stock companies, firms, associations
etc. The endorsement should be made by person who is dully authorized to sign
on behalf of these institutions.
viii.
Delivery of the
instrument: - An endorsement must be completed by delivery of the instrument.
Q.18. What do you mean by Payment in due course? What
are its essential features?
Ans:- According to section 10 of the Negotiable instrument
Act, 1881, “Payment in due course means payment in accordance with the apparent
tenor of the instrument in good faith and without negligence to any person in
possession thereof under circumstances which do not afford a reasonable ground
for believing that he is not entitled to receive payment of the amount
mentioned”.
The followings are the essential features or
conditions of payment in due course:-
i.
The payment should be made in accordance with the apparent
tenor of the instrument.
ii.
The payment should be made in good faith and without
negligence.
iii.
The payment may be made either in cash or through a
clearing house or by a draft.
iv.
The payment should be made to the person who has the
actual possession of the instrument.
Q.19. What are the difference between the following?
i.
Bills of exchange
and Cheque.
ii.
Promissory note and
bills of Exchange.
iii.
Promissory note and
Cheque.
iv.
Holder and Holder
in due course.
v.
Bills of Exchange
and Hundi.
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Basic of Difference
|
Bills of Exchange
|
Cheque
|
|
Drawee
|
A bill of
exchange may be drawn on any person including a bank
|
A cheque is
always drawn on a bank i.e. drawee is always the banker
|
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Liability
|
Liability of
Drawer is secondary
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Liability of
Drawer is primary.
|
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Payee
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A bill can never
be issued payable to bearer
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A cheque may be
issued payable to the bearer.
|
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Days of Grace
|
Three days of
grace are allowed for payment of a bill unless it is payable on demand.
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No days of grace
are allowed for the payment of a cheque.
|
|
Stamping
|
A bill requires a
stamp according to its value.
|
A cheque does not
require stamping
|
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Basic of difference
|
Promissory Note
|
Bills of Exchange
|
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Nature
|
A Promissory note
contains a promise to pay.
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Bills of exchange
contain an order to pay.
|
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Liability
|
The liability of
the maker of a promissory note is primary and absolute.
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The liability of
the drawer of the bill is secondary and conditional.
|
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Payee
|
The maker and
payee cannot become the same person.
|
The Drawer and
payee can be a same person.
|
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Parties
|
There are two
parties i.e. maker and payee.
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There are three
parties i.e. Drawer, Drawee and payee.
|
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Acceptance
|
A promissory note
does not need any acceptance.
|
A Bill of
exchange require acceptance of the drawee to be a valid document.
|
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Basic of difference
|
Promissory Note
|
Cheque
|
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Nature
|
Promissory note
is an unconditional promise by maker to pay a certain sum of money.
|
Cheque is an
unconditional order to the bank to pay a certain sum of money.
|
|
Payment
|
It may be payable
on demand or after a certain period of time.
|
A cheque is
always payable on demand.
|
|
Parties
|
There are two
parties to a promissory note i.e. The maker and the payee.
|
There may be
three parties to a cheque the drawer, the drawee and payee.
|
|
Days of grace
|
Three days grace
Are allowed in a promissory note.
|
No days of grace
are allowed for payment of a cheque.
|
|
Stamping
|
It requires a
stamp according to its value.
|
AS cheque does not
require a stamp.
|
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Basic of difference
|
Holder
|
Holder- in -due -course
|
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Consideration
|
A person becomes
a holder even if he obtains the negotiable instrument without any
consideration.
|
A person becomes
a HDC only if he obtains the negotiable instrument for consideration.
|
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Before maturity
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A person becomes
a holder even is he obtains the negotiable instrument after the maturity of
the negotiable instrument.
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A person becomes
a HDC only if he obtains the negotiable instrument before its maturity.
|
|
Good faith, i.e. bonafide
|
A person a
holder, even if he does not obtain the negotiable instrument in good faith.
|
For being HDC, a
person must obtain the negotiable instrument in good faith.
|
|
Privileges
|
A holder Is not
entitled to the privileges, which are available for HDC.
|
A HDC is entitled
to various privileges as specified under the Negotiable instrument Act, 1881.
|
|
Right to sue
|
A holder cannot
sue all the prior parties
|
A HDC can sue all
the prior parties.
|
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Basic of difference
|
Bills of Exchange
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Hundi
|
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Language
|
Generally, A bill
is written in English
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A hundi may be
written in any of the recognized Indian language.
|
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Acceptance
|
A bill must be
accepted by the drawee
Before it become
a valid instrument.
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A hundi does not
need acceptance.
|
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Stamping
|
A bill requires a
stamp
|
Hundi does not
need stamping.
|
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Condition
|
A bill can never
be drawn conditionally.
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Hundi can
sometime be drawn with condition e.g. Jokhmi hundi.
|
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Form
|
In a bill only
the date are presented
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Hundi is written
in the form of a letter.
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Very
short Answer type Question :-
Q.1. In which year Negotiable instrument Act was
passed?
Ans:- In 1881 and it come into effect from in 1st
march, 1882.
Q.2. Mention any two type of Hundies?
Ans:- (a) Darshani hundi (b) Jokhmi hundi.
Q.2. Give an example of special endorsement?
Ans:- ‘Pay to Mr. Ram or order’ s/d Ramesh das is
endorsement in full or special endorsement.
Q.3. Give an Example of Negotiable instrument?
Ans:- Promissory note, Bills of Exchange, Cheque
Q.4. How many parties involved in Bills of exchange?
Ans:- There are Three parties are involved in bills of
Exchange: (i) The Drawer (ii) The Drawee, and (iii) The payee.
Q.5. How many parties involved in a Cheque?
Ans:- Three parties:
(i) The Drawer (ii) The Drawee, and (iii) The payee.
Q.6. How many days of grace are allowed in a bill?
Ans:- Three, Days of grace are allowed in a bill.
True or False
i.
Three days of grace are allowed for payment in case
of Promissory notes. True.
ii.
Three days of grace are allowed for payment in case
of Cheque. False.
iii.
The person to whom a bill of exchange is endorsed is
called the endorser. False
iv.
The person to whom a bill of exchange is endorsed is
called the endorsee. True
Fill in the Blanks
i.
Bills of exchange before its acceptance are called Draft.
ii.
The maker of a bill of exchange is called The Drawer.
iii.
The Acceptance of a bill of exchange is called as Drawee.
iv.
When a bill of exchange is drawn in indigenous
language it is called Hundi.
v.
Bills receivable account is a Real
account.
vi.
Accommodation bills are drawn and accepted without
any Consideration.
vii.
Bills are drawn by Creditor.
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