Unga – sale of moveable goods – sales of goods act

Payment of those goods – negotiable instruments act 1881

Cheques dishonour
Carriage law – depends upon consent of parties, by the means they are
transporting goods, like carriage by railways – railways act, sea act, road act,
multi modal transport act etc. In india there is not a consolidated act for
carriage, but separate laws.
Buy carrier manual for this.
Transfer of properties act – transfer of immovable properties like house, land.
(Not part of this subject)
Continuance of laws, it validates all previous laws passed before Constitution if
they are in conformity to Constitution Art. 372 and Art 13.

Contracts including partnership, agency, contracts of carriage, and other special

forms of contracts, but not including contracts relating to agricultural land – part
of concurrent list.

On which date sale of goods act passed and when implemented

- 15th March 1930
- Came into force on 1st July, 1930

Relation between contracts and sale of goods act.

Earlier sec 76-123 ( ch 7) of contract act had been repealed and replaced by sale
of goods act.

Chapters in ICA 1872 – initially 11, now 9.

Why in 1930 2 laws were passed- to promote business and economic efficiency.
Initially it was Indian Sale of Goods Act, but it later became Sale of Goods Act.
Law Commission report in 1963, mc setalwad committee had recommended
that the term Indian should be removed from Indian contract act because it
looks like british made.
But those things will be writing or return writing oral or understand everything
that is getting practised everywhere so that is through customary principles
these things are considered to be written so do I have a question is it clear asked
so I have a question is it clear first or yesterday put I said kinda blue to you
cannot WTO be also considered the one of these agents so this is conceptual
clarity that you need not what we are dispensable in our class whatever that you
understand it you know that is privately this is governing the seller and the
buyers is that is there bulleted by 4 black sentence lips against man acts he’s a
public scale twist thanks for those are blocking of course the regulations rules
for the countries to get it implemented right and true countries those words are
getting that inefficient so any other question that we’re having just as we saw
I’m pleased

Ex aequo et bono

Connection with common law

Sec 66(e) – statute of torts or any other statute or principle practiced anywhere
in the world through sec 66e can be considered valid in India only condition is
that should not be in contrast to sale of goods act. Principal of lex mercatoria
All the sog act be it of uk or us all have this provision that laws and practices
not inconsistent with sog will be applicable. This has been debated.
Meaning of LM
Law of merchants, it has developed through certain principles and usages over
the period of time and it says that legal technicalities should not come in the
way of contract of sale. “Whatever that seems right and is not against public
policy will be valid in terms of contract formation". It is Ex aequo et bono
Thus it gives validity to customs of traders and merchants.
LM is an old concept that has been used since old times and developed in
medieval times. New term has emerged – New LM
It means in all the customs being followed by trade associations.
Agencies developing this – globally – Int chamber of commerce ICC, locally –
CII , FICCI, ASSOCHAM.
At inter governmental level (private) – UNIDROT 1924, UNCENTRAL (a UN
body)
These bodies are developing modern day LM.
In india sog, contract act, Constitution under art 13 recognises customs and
usages. Unidrot principles 2016 are applicable everywhere. Uncentral law
reflected through CISG is also applicable. Many countries have ratified it. We r
also trying to get a space in the manufacturing and exporting world.
Statute of frauds contract has been repealed by UK govt but its principles like
agency contracts or high purchase contract, written or unwritten requirement of
law, is still followed everywhere, through customary principles.

Why not WTO

Sog laws are private laws bw buyer and seller, and wto governs public law state
to state, and those are implemented in countries.

With regards to regulations, sec 46 and 55 of sog are inconsistent with sec 11 of
contracts act. In such a case sog will be applied.
Due to basic rules of interpretation that is followed everywhere in the world in
commercial law field.
I. Special law will prevail over general law. Lex specialis les generalis.
Vienna convention also talks about.
II. Customary principle, if there are 2 laws on same subject then the law
that is recent will take precedence.

Now everywhere both written and unwritten both are considered to be valid
form of contracts.
In some countries due to certainty in terms of business transactions specifically
in us they have declared that if traders have entered into an agreement of sale or
sale contract, that has to be in writing.
So there r 2 ways of entering into a contract– written, written and oral.
3rd one practiced in the market is that not all part of contracts can be written
there will be some parts of contracts on which there will be need to have
unwritten things, by implications, there are certain obligations that we r required
to follow.
Wisdom of sir charlmers is not sufficient to draft modern day contracts.
Everything pertaining to contract is not written. There lies the space for lawyers
like customs and usages bw market that area or territory. What intention the
parties were having. Customs and usages developed bw parties (It prevails over
customs of markets). In this way intention of parties is discerned.
The extent of autonomy given to merchants is public policy.
In case of dispute in international contracts, parties will decide which law
(choice of law) will be applied and which forum, based on jurisdiction will
determine the issue. In int convention dealing with sale of goods, article 6 of the
CISG which is considered to be the mother of party autonomy clause anywhere
in the world, it says even if the country chosen whose law will be applicable has
ratified the cisg, parties can decide to apply cisg law or not. PARTY
AUTONOMY IS THE MOST IMP THING IN DETERMINATION IN
TERMS OF OBLIGATIONS -
These obli are coming from the contract, the paper, deed, docs etc. that the
parties have signed.
So the main obligations will be coming through the contract – wri/oral that has
been agreed. In case something has not been mentioned, it will be decided by
default rule, which means legislations like SOGA 1930. If 2 diff countries,
choose the law, and if not chosen then based on the performance of contract the
obligations will be determined.

Art 1 (b) choose the country whose law will be applicable. If one of the country
has not ratified the cisg, say India and parties want cisg then, forum will not be
located in india, but cisg will be applicable.

Cisg is followed in 95% of the world sale contracts and is considered universal
sales law or lingu franca of sale contracts.
Every provision of soga 1930 starts with unless otherwise agreed, so it reflects
party autonomy has precedence over general rule, and in case of vacuum soga
will apply.

SOGA – 7 chapters, 66 sections

SECTION 3 – relation bw contracts and soga
SECTION 4 – 2 types of sale contracts executory (agreement to sale) and
executed (sale).
 1. Bilateral contract seller and buyer, it can be 2 indi or corp (in such case
look into companies act) (America says merchants and buyers)
2. Purpose of contract must be transfer of property general, specific, certain,
uncertain etc.
3. The property must be moveable goods
4. There must be a money consideration.

Preponderance of possibilities – even if consideration is not there the

contract will be valid, becoz party autonomy. Also it is not against public
policy. Open price contract.

Price fixation – section 9

Sec 2(7) of soga says transfer should be of moveable property.
Property means ? Moveable sec 3(36) general clauses act 1897
Minimal consent - ?
Statutory transactions means there r certain transactions that take place bcoz kf
virtue of law or because of a special contingency.
Various states and countries do it. Every country faces certain exigencies.
In India we have special services maintenance act bcoz there r many epidemics
or social disturbances that keep coming.

What happens Normally that state is a bigger authority and they behave as if
there is no rule that binds them and take away rights of ppl. In normal situations
freedom of contract must be available. But in statutory transactions the biggest
casualty that is there is of freedom of contract. Freedom of contract in terms of
sale of goods has 4 essentials that have to be followed bcoz its the only law that
governs sale of goods in india. (2 parties, subject of contract must be moveable
goods, consideration, transfer of property)
Various countries are having this law with certain modifications like Pak (pak
sale of goods act 1930 is exactly same as India), Ban, Myan

For entering into contract the foremost important requirement as per Sec 13 of
Contract Act 1872, is - consensus ad idem.
Free consent of both parties must be there.

Cases on how issue of statutory transactions have been dealt by the Courts
- State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.
SC said compulsory sale is a sale.
New Sugar India Mills v. Commissioner of Sales tax, Bihar, AIR 1963 SC Pg
1207
There are two opinions, one of Justice Shah and Justice Hidayatullah (most imp
opinion).
Justice Hidayatullah gave a dissenting opinion, saying consent in law of
contracts need not be expressed or implied or free or full. there are cases in
which sale takes place by operation of law rather than by mutual agreement
express or implied. He said since there is existence of law, there will be
presumption that it is a contract of sale.
He observed that ‘sale’ under compulsion is still a sale. They may often take
place without volition of the parties mutuality is not essential. This is where he
coined the term ‘minimal consent’. Compulsion may be contract. Parties don't
have freedom to not follow those statutory laws.

Salarjung mills ltd v state of mysore 1972 SC pg 87

SC in this case tried to analyse the modern concept of the term freedom of
contract to justify the contractual underbeings of statutory sales. It held that
statutory orders regulating the supply and distribution of goods by and bw
parties under the control orders do not absolutely impeach the freedom to enter
into contract. Legislative measures or statutory provisions regulating price,
delivery and supply restricting areas for transactions are all within the realm of
planning economic needs, ensuring production, and distribution of essential
commodities and basic necessary of the commodity. It is the duty of state under
Art 39 B and C, comes under state's duty to do economic planning, its duty to
ensure production and distribution of essential commodities and basic
neccessities and that's why the freedom of contract is not justified in terms of
contractual underbeings.

Coffee board karnataka v. Commissioner of commercial taxes AIR 1988 SC pg

1487
This case pertains to section 25 of this coffee act 1942. SC said there are 4
essentials of contract of sale
Parties competebt to contract
Mutual consent although restricted
Transfer of property
Payment of price.
Court also said that it is not necessary that offer and acceptance always be in
elementary form. Nor does the sale of goods act require that consent must be
expressed. Offer and acceptance can be spelled out from the conduct of the
parties not only through acts but omissions also. So the obligations imposed on
parties and penalties prescribed by the order do not militate against the positions
of that eventuality. Parties must be deemed to have completed the transactions
under the agreements by which 1 party binds itself to supply the stated
quantities of the goods to the other and at a price not higher than the notified
price, other party permits to buy the goods on the terms and conditions
mentioned in the permit or order of allotment issued in its favour by the
concerned authorities, it will be considered as sale.

So all these cases discuss that statutory transactions under Indian law are
considered to be sale that the parties contracting are aware t&c of agreement
and they concede to enter into the agreement on will. Therefore it cannot be said
that there is absence of consent. Only after full knowledge of the terms of the
contract do the parties decide to accept the cobtract or not.
So awareness by existence of law, will suffice for consent and form sale and
express or implied consent may remain absent.
In India the concept of freedom of contract in case of essential goods.

12-07-2021
Sale of goods Act derived from Britain’s 1893 Act of Sale of Goods Act.
What are the agents of lex mercatoria? Mansfield said mercantile law anywhere
in the world is same.
Agents - FICCI, ICC, ASSOCHAM
Sale distinguished from other transactions- In curriculum there are cases which
are basic cases in this topic. Eg- State of Madras V/s Gannon Dunkerley & Co.
It dealt with deemed sale, difference bw sale and A2s as well as composite
contract.
In composite contract. Along with sale of goods other contracts are also related.
Whether contract of labour or services or contract of materials that have been
supplied in subsequent to contract of sale of goods. For such contracts Gannon
Dunkerley case had used the term composite contracts.
State of A.P. v/s KallaSree Ramamurthy- How sale of goods contract is
different from hire purchase transactions.
Starting point of transactions - M/s New India Sugar Mills Ltd. V/s
Commissioner of Sales Tax, Bihar; AIR 1963 SC 1207- Justice Hidayatullah’s
dissenting opinion is very important to understand subsequent jurisprudence
that have come on this issue.
Related case on this statutory transactions Salarjung vishnu agencies and coffee
board of Karnataka are landmark.
7th case of CC- Northern India Caterer (India) Ltd. V/s Governor of Delhi;
(1978) 4 SCC 36 & (1980) 1 SCR 650. when goods are brought in hotel- when
one buys food, stays there and eats, when one buys food and gets it home and
when one orders from home- which one of these 3 is a contract of sale? - After
this case, deemed sale for purposes of taxes will be considered as sale even
though it hasn’t fulfilled all 4 essentials was included in Constitution under 46th
Amendment in . Scholars call it quasi contract of sale.
Badri Prasad V/s State of M.P.; AIR 1970 SC 706- this case talks about forest
products. When boundary certificate for timber is issued by the forest officer,
then it becomes goods. Before that under Section 3 of the transfer of property
act that is actionable claims or immovable goods.
Commissioner of Sales Tax, M.P. V/s M.P. Electricity Board, Jabalpur; AIR
1970 SC 732.- Helps in understanding tangibility and intangibility. It talks
about electricity. Before this case, goods that can be touched and stored was
called tangible goods. This case said one need not touch to make it goods.
Vikas Sales Corporations Vs. CCT, 1996, 4 SCC 433- Along with lottery tickets
this talks about licences under Foreign Trade Development Regulation Act,
1992. Whether this is a goods? So this case said yes.
2 more cases related to Vikas Sales case – Sunrise 2006 and Unrise 1986. These
are trinity of cases that deal with whether lottery tickets, replacement licenses
issued under Foreign Trade Development Regulation Act, 1992, whether those
are goods or not.
T.C.S. v/s State of A.P.; AIR 2005,371 – popular case. This created lots of
confusion and ambiguity- Is software a good? –UK and USA has diff ideas.
In India this cade said that tangibility and intangibility is not a criteria to
determine something as goods. It introduced concept of marketability. If its sold
in market freely then it is good. Soli Sorabjee made compelling arguments as
solicitor general. SC was appealed after AP HC verdict. The SC declared
software as goods after going through previous cases.
Bharat Sanchar Nigam Ltd. Vs. Union of India, 2006, 3 SCC, 1- BSNL is also a
commercial venture of GoI, so two agencies of GoI were fighting this case.
Whether sim card and electromagnetic waves are goods or not – different to
ganon Dunkerley, this case propounded dominant nature test.
In 2009 came I Magic case, SC case, it clarifies the ambiguities of the above
case.
Vodafone and Coal Elevators ltd. These r the latest transactions that deal with
differences sale, transactions and ors.
State of Uttaranchal Vs. Khurana Brothers, AIR 2011, SCC, 224- Whether
shares are goods or not?
Whenever we discuss topics, these cases will be used. These cases are important
and are representative cases.
Mulla on Sale of goods is imp., Journal of Business Law is also imp.,
Transfer of property
Under this ownership, possession as well as custody can be transferred.
Difference between Ownership, possession and custody -
For ownership, delivery is required to be done but it won’t change ownership. It
is still transferred to owner.
For transfer of property, time of delivery is immaterial.
When one buys goods, ownerships is with the one. The owner can use it or
dispose it further and seller has no control over goods. When ownership is
transferred,
1. Goods shall be free from all charges and encumbrances and
2. the right owner is deriving to have quiet possession of that particular
goods.
3. Owner can further dispose the goods. This means seller can’t say
anything in what manner you use (includes throwing, selling) the goods.
While being an owner, possession may not or may be with you.
Ownership gives rights –
• Can dispose
• Can sell
• Quiet possession of goods
• free from all charges and encumbrances
Ownership – buyer has right against seller (former owner).
Between Possessory rights and ownership, there is no relation.
Possession can be with anybody, for ex bailment, pledge or I bought goods
from shopkeeper but asked him to keep it in his shop for 1 day, so ownership is
with me and possession with shopkeeper. Possession doesn’t have anything
with ownership. Hire, pledgee and bailee have possession of goods but aren’t
owners.
Possession – right against owner.
Custody on the other hand, is indicative of the fact that when ownership or
possession lies with you, no 3rd person should take away the goods. When
custody is lost, one has right to trace and follow the goods. Custody is a right
against third parties and not the owner or seller.
In sale of goods what us getting transferred is ownership. Possession and
custody are inherent in ownership. But possession and custody doesn’t mean
ownership. When you have ownership, then possession or custody becomes
immaterial.
Custodians and Possessors can’t sell the goods. Diff is with degree. Ownership
has complete rights. Bailee has rights as possessor as per the contract. Custody
is right against 3rd persons.
Quiet Possession
Sec 14(2). R wala wrangler is infringing better title of the bonafide owner. If u
have stolen goods, u can’t sell. If found someone’s lost good on road, u can try
to find owner, and if u fail to find, then u can sell. If u r having right to sale i.e.
u are not infringing someone’s better title, then he can assume that there are no
charges of theft, no encumbrances etc.
Ownership is most important for SOGA 1930, it gives perfect title.
ONLY TRANSFER OF OWNERSHIP IS SUBJECT MATTER OF SALE OF
GOODS ACT, AND MERE TRANSFER OF POSSESSION via custody, quiet
possession, etc. WILL COME UNDER CONTRACT II/OTHER
TRANSACTIONS.
General property and Special Property
Property means rights like right to sell, dispose off, use, destroy, all of what
owner is having. So every goods is having property. Property means values in
the goods and it also means the rights, i.e. what to do with those goods. And
then we r talking about general and special properties.
Sec 2(11) defines property. Here property means general property in the goods
and not merely special property.
Whosoever has general property, they have ownership. They have rights
against the entire world. Absolute ownership.
Special property means limited rights over those goods as per the contract.
Right to possess right to custody, but not ownership. Ex – pledgee, mortgagee,
pledgee, bailee, hire-purchase transactions. They have been delegated right to
possess but aren’t entitled to become the owner. Owner can transfer goods to
somebody else.

So here lies the 3rd characteristics of contract of sale under

SECTION 4
1. Bilateral contract
2. Transfer of property bw parties
3. Property must be moveable goods.
Sec 2(7) of SOGA gives ex of every kind of moveable property. Because
goods in SOGA means moveable goods.
Sec 2(36) of general clauses act 1897, defines

Author NS Bindra in his book on general clauses act provides – ‘ moveable

property means every description which possess the characteristics of
transmission, transference, delivery, storage and possession. Sec 2(36) provides
every property that is not immovable is moveable goods.
Definition of the Act has caused many problems, lots of jurisprudence is there
for ex whether gas is goods, electricity/software/forest products etc. are goods.

13TH JULY
Significance of transfer of property i.e. proprietary rights in goods?
1. Ownership is transferred from seller to buyer. Buyer gets proprietary
rights. Absolute ownership.
Q. Can there be restrictions on further sale of goods on buyer?
(In ref to Simran's answer : In CoS there r 2 stipulations
1 is condition 2 is warranty. It talks about condition subsequent. We will talk
about it later.)
Ans. Sec 23 read with sec 25. Right of disposal can be reserved by express
provision in the contract. This kind of provision pertaining to retaining of
title for reasonable time, (sec 27 of contract act) are known as Romallapa
clause. There is a case behind it that explains it. Also there is an Aluminium
industries case 1976 which brought this concept in Soga. In common law
countries it is known as Romallapa clause, in Indian jurisprudence it is
known as retaining of title.
2. Risk attaches with property. Transfer entails passing of risk attached with
that property.
3. Action against 3rd parties can be taken only by owner.
4. Suit for price. The seller can sue the buyer for the price unless otherwise
agreed only after the goods has become property of the buyer. (Sec 55)
5. In case of insolvency of the owner or the buyer, the qs whether the goods
can be taken over by the official receiver or assignee will depend upon
 the party who is having property of the goods and which party has
become insolvent.

3rd thing under sec 4 i.e. GOODS

It is read along with sec 6 which talks about subject matter of contract.
Existing goods
Future goods
Owned or possessed goods
Owned – owner can transfer
Possessed – actual possession is not necessary, ownership is necessary.
Contingent Goods
Specific goods (sec 2(14))
Ascertained goods (sec 18)
Unascertained goods (sec 23)
Perishable goods (sec 7 n 8)
Some case laws mention Quasi-specific goods, generic goods
Why we require classification?
Lord Blackburn talks about he talks about 18 essentials that article should be
specific, and ascertained in a manner binding on both the parties for unless that
we sold the contract cannot be construed as a contract to pass the property in
that particular article. If the identification or agreeing on the certain
specification is not done in the contract then difficulty comes in terms of
transfer of property in goods.

Sec 2(14)
“specific goods” means goods identified and agreed upon at the time a
contract of sale is made”
The term ascertained goods has not been defined in SOGA and neither its
source is in British SOGA 1893 (amended). Sec 61 of this British soga 1879,
defines what types of goods can be there. They have also not defined what is the
meaning of ascertained goods.
The origin of definition lies in a statement given in a case that is also used in
Indian jurisprudence. The statement was given by Lord Atkin in In Re Waid. He
talks about ascertained probably means identified in acc with the agree after the
time the CoS is made.
Difference bw Specific and Ascertained goods
In specific goods at the time of CoS goods has been identified and agreed upon,
for ex colour, model, size etc. of the goods.
And if the goods have not been identified and agreed upon with regard to any
specifications, it will be considered ascertained goods. The time at which the
ascertainment will take place for the purpose of transfer of property, ascertained
goods will become specific goods. So the difference is in timeline.
In case of specific goods transfer of property takes place immediately. And in
case of ascertained goods, when the ascertainment takes place in future acc to
terms of the contract it becomes specific goods.
For sake of clarity, legislature has used different terms.
In Dan singh v Janaki Saran Kailashchandra Allahabad HC AIR 1989, the In Re
Waid case was followed.
Also, Js Blackburn had given his comment in Seath v Moore, (1886) 11 App
Cas 350 (HL) which is followed in many cases. So it means first, laws that
evolved through common law, have been codified in the form of SOG and used
worldwide. This is the origin of the purpose of the specifications into specific
goods, ascertained goods etc.
Read – Smith & Thomas, case book on contracts

Q. Whether existing goods can become future goods?

A. Yes, Sec 2(7) provides that those goods that the buyer needs to acquire from
a 3rd party under existing contract bw him and seller, they can be considered
future goods. So they are goods to be acquired by the buyer after entering into
contract of sale. (Agreement to sell)
Generic goods
Goods without identification. As per Benjamin if the name is merely mentioned,
it will be generic goods.
For ex – 100 kg sugar, without any specification.
In such case transfer of property will NOT take place.
Quasi-specific goods
Ex – A says B to provide 100 kg flour that you have kept in X godown. So
actual specification will take place in future as per terms of contract. So some
specification is already there and rest identification is required to be done.
Unascertained goods
More or less same as Generic goods, no ascertainment.
Other than specific goods, rest of the goods will require proper examination and
acceptance of goods which has to be understood from sec 41 and 42.
Reasonable analysis will be done by the buyer, whether they are as per his
requirement or not.
Sec 41 says that where goods have been delivered to the buyer and he has not
previously examined , then he gets the right to examine them whether they are
as per contract terms, whether written or oral. After this examination, he is
required to accept them, which can be done by 3 ways.
1. Intimation to the seller – buyer expressly intimates to the seller that I
have accepted the goods.
2. Adoption of particular transaction - He has done something to indicate
that he has transferred the goods to somebody else. He has started further
selling.
3. Silence is an art of conversation – He has not conveyed consent or done
anything with the goods after lapse of reasonable time, that means we can
assume that he has accepted.
What is reasonable time?
Depends on case to case basis i.e. facts and circumstances of the case. It is
perceptional in nature. If goods are perishable, time will be less.

14th July
Contingent goods depend on some contingency for sale and if the contingency
becomes impossible then the contract will also become void.
Movable Goods
Examples of movable goods given under sec 2(7)
Sec 3(36) of the General Clauses Act defines movable goods as every goods
other than immovable property.
Compared to British SOGA our act is more comprehensive bcoz in British soga
shares and stocks are not considered goods.
Movable goods is every property which possesses the characteristics of
transmission, transference, delivery, storage and possession.
Exceptions – Actionable Claim and money.
Actionable claim has been defined under Transfer of Property Act 1882.
Actionable claim refers to those properties that require certain overt actions on
the part of the person to get the property. For ex – Lottery ticket, u need to
claim money
Money – money is a sovereign right of country to circulate it under Banking
Regulation act 1949, RBI Act 1934. Govt.’s right to print and circulate money.
Money can’t be sold or purchased. But this rule is for current money or legal
tender.
Old Coins, antique coins can be sold.
Recently RBI had started giving 100 rupee coin in exchange for Rs 105. Was it
a sale?
In civil matters there will be harmonious construction, not only literal meaning.
100 rupees coin is a legal tender. RBI had cleared the matter by saying that this
is not a sale and it is only for some time. Curiosity value.

Q. We can’t refuse to accept legal tender?

A. Re 1note – sedition, bcoz it has signature of finance secretary. Given in RBI
Guidelines and IPC.
Other amounts – not sedition but lesser offence, they have sign of governor.
For sale of some goods, special laws are there, hence that will be available. So it
won’t be considered sale under SOGA. For ex – ships
Sale of some goods have been banned or restricted in some countries. For ex –
Marijuana
Standing timber or forest products goods will not be considered goods under
Act, till the time there is an agreement to severe them from the land, then it will
be considered goods. (1963 case)
There are some other acts as well. Sec 2(d) of Central Sales Tax Act 1956
defines goods and it talks about all materials articles commodities and all other
kinds of movable properties but does not include newspapers, actionable claims,
shares, securities and stocks.
Acc to Sec 2(j) of Trademarks Act 1999, anything which is subject of trade and
can be manufactured can be considered as goods.
UCC (Uniform Commercial Code) of US excludes software and information
from the category of goods unlike India were we recognise both as goods.
Read BSNL case for info and TCS v Andhra Pradesh read for software (must
read).
Sec 61(1) of the British SOGA defines movable goods includes all personal
chattels.
Art 2 of the CISG does not defines goods but provides, there are certain
categories of articles and goods which are not subject matter of CISG for ex
clause a of this article states, consumer goods are not considered sale of goods.
Diff bw consumer and buyer.
Consumer buys goods for his own consumption while a buyer under SOGA
buys goods for further transactions.
It also declares that sale by auction will not come under goods while we have
section 64 that provides a sale by auction will be goods under contract of sale.
Art 2 of CISG :
This Convention does not apply to sales:
(a) of goods bought for personal, family or household use, unless the
seller, at any time before or at the conclusion of the contract, neither knew
nor ought to have known that the goods were bought for any such use;
(b) by auction;
(c) on execution or otherwise by authority of law;
(d) of stocks, shares, investment securities, negotiable instruments or
money;
(e) of ships, vessels, hovercraft or aircraft;
(f) of electricity.

D, e and f clause are important. Indian SOGA includes stocks and shares,
investments, securities, negotiable instruments and money. Why? Different
countries have different kind of legal provisions so they have decided to operate
not according to world sales law, but domestic laws.
Sale of ships, vessels, aircrafts and hovercrafts are governed by separate laws.
They have been mentioned under exclusionary clause.
CISG does not considers electricity as goods, however in India it’s considered
goods. Case in which it was propounded – Madhya Pradesh Electricity Control
case.
Why CISG excludes electricity? Parties are located in different countries, its not
possible for them to sell and buy electricity.
Sale of electricity bw 2 parties in 2 different countries – not permitted
Sale of electricity bw 2 sovereigns – can be done by entering into treaties
Sale of electricity bw private parties in same country – supply of services not of
goods. (Matter of discussion) read RD Goyal v Reliance Industries.

15th JULY
Section 2(7) is inclusive in nature.
Purpose of General Clauses Act is to help the Courts in interpreting the terms in
India.
There is no uniform definition of goods for the purposes of sales and taxation
worldwide.
Sometimes along with goods, certain services and materials are supplied.
Whether they will be considered goods for contract of sale?
It has been deliberated over many years in different cases.

Composite Contract - 46th cons amendment 1982, brought the concept of

deemed sale. It means transactions for purpose of taxation will be considered
deemed sale. They don’t have complete element of transfer.
Cannon Dunkerley introduced this for the 1st time in Indian Jurisprudence.
Dominant nature test – BSNL case 2006.
Preponderant part.
Stocks and debentures are goods as per sec 2(7)
Debentures is an acknowledgement of debt given to a company.
Worldwide they r considered to be movable goods.
Timber are considered to be movable goods. Transfer of property act 1882, if
timber is permanently attached to land, then immovable goods. If not attached,
it clearly specifies, that timber will be considered movable goods.
SOGA mentions that if timber has been agreed to severed from land then it
becomes movable goods.

Dead wild animals are considered to be goods –

Indian govt has banned importation of dogs from other countries considering
their health and health difficulties in adapting to indian climate.

19th JULY
LIEN OVER ADVOCATE’S FILE
Advocates files is not goods even though SoGA affirms it because the special
law in this regard is advocates act 1961 that came subsequent to SoGA.
Doctrine of Eclipse has been applied on SoGA. Minnerva mills case. SC had
said it would be miscarriage of justice under Art. 22 of Consti.
If any advocate is found doing that it will be unprofessional misconduct and his
license can be seized by BCI. However this position is not uniform and in 2005
in Varish (check spelling) case House of Lords had declared that in some
circumstances Advocates can exercise Lien.
Read sec 45 of SoGA.

4. Fixation of price-
Commodity, mercantile, goods, chattel and thing are synonymous.
Price is fixed by parties. If govt. fixes price then its communist/socialist
economy.
In entrepreneurship countries, the people fix prices. Govt fixes prices only in
which it acts as a commercial enterprise. When it is party to a contract then
under General Finances Act, govt fixes the price. Or in case of emergencies. In
private law like sale of goods and ICA, parties fix prices. When commodities
are scarce, govt. interferes.
Section 4 read with 9 and 10 have elaborate provisions on fixation of prices. It
reiterates govt has no role. Based on consensus ad idem, parties fix price.
As per section 9 provides 3 ways,
Contract itself determines price.
Manner of fixing price is decided by contract. While contract is taking place i.e.
during transactions, price can be fixed.
Agreement to sell at valuation – Under it buyer and seller by mutual consent
assign a 3rd party the task to fix price. Currently not used, as the 3rd party
sometimes hijacks the contract. However if parties decide price and 3rd party is
tasked with inspection of quality of goods, then it isn’t agreement to sell
because there is a limited role to party no matter related to price aspect.

Default rule- implying the above methods are not there, then section 9 clause 2
talks of reasonable price. Who determines reasonable price? Parties can.
However, when there is no price given, it leads to conflict and the
court/arbitrator decides. Since it’s a question of fact under sec 9(2) read with sec
63, and fact here implies the market price prevailing at that time.
(Info - Suit for price – sec 55.)
FAVOUR CONTRACTORS under which 2 principles have emerged
1. Nachfrist clause, a German term under which extra time is given for
performance of contract. If price or desired quality of products is not
there, it does not immediately lead to termination of contract.
2. Price adjustment clause – If It implies when goods are problematic or not
delivered on time then after serving of notice pointing out defects in those
goods, after that depending on negotiations, price is fixed. So Indian law
open price contracts are not void although price is essential. Sec 10 talks
about that if the 3rd party is not fixing price, then contract is not void or
voidable rather a 3rd peculiar term is used - "agreement is thereby
avoided". It means depending upon conduct intention of parties, the faith
of the contract is depending.
So it is an example of preponderance of possibilities. Thus favour
contractors concept provides that cancelling contract is the last resort.
Drafting of contract
Parties are free to decide how the transfer will take place, whether absolute or
condition transfer, bargain, price etc. Everything is determined by parties based
on need & intention of parties. Sec 19 of SoGA provides that when the transfer
of property will take place depends on intention of parties.
Drafting of payment clause
i. Mode of payment
It includes mode of payment – Bank guarantee, letters of credit, cheque, hard
currency, payment in instalments.
In hard core transactions, cheque or BG or payment will be done subsequently
(deferred payment). If conditional is there payment and delivery of goods are
known as concurrent conditions, i.e. when goods will be delivered then payment
will be done, provided in sec 20, sec 32. Sec 45 and 46 together, talk about
payment done through credit.
Banking practices affirm payment through LoC. By UCP (uniform commercial
practices) sponsored by Int Chamber of Commerce, prices can also be fixed.
Q. Whether Bank draft can be dishonoured?
Ans – It can be, if bank does not accepts (probability is less). Sec 91 of
Negotiable Instruments Act provides 2 ways of dishonour:
1. Non payment
2. Non acceptance
Cheque is not frequently used, because cheque dishonour is rampant and it is a
criminal offense.
Law – On criminal offense arbitration cannot be done.
Q. Can cheque dishonour be resolved by arbitration?
Ans – Sec 147 of Negotiable Instruments Act says arbitration can be done.
Other components
ii. Date of payment
iii. Time of payment
iv. Currency of payment (Foreign currency can be used for payment.)
Aditya Kaushik's discussion on foreign currency.

20th July
4 things we have talked about in payment clause – mode, time, currency, place
Mode – payment can be done through BG, letters of credit, foreign currency etc.
Price must be paid in money consideration otherwise it will become barter.
Payment can be through cheque, banker’s draft, credit card. Whenever payment
is made through credit card then though the payment is being made by company
but this authority has been delegated by the card holder.
There can be lump sum payment as well as payment in instalments. When the
goods are to be measured and weighted and then purchased, it will be called
conditional contract.
The price when fixed payment is done in reasonable price under sec 9(2) as it
says reasonable price will only be there is no fixed price. What is reasonable
price? It is calculated on the basis of reference to the current market price at the
time and place of the delivery.
Court said that determination of MP is one of the alternatives. But commonly it
is understood that when there is no fixed price in contract and transfer of goods
has taken place then reasonable price will be determined based on MP.
Price adjustment clause- depending upon the intention of the parties. In long
term contracts or short term contracts this clause can be there. One thing that is
practiced is that before the price is re determined or re adjusted notice of this
has to be given by 1 party to the other party that the price can be adjusted
subsequent to contract.
Agreement to sell at valuation – both parties agree that 3rd party will fix price.
And if the valuer fails to fix the price, contract is avoided.
10. Agreement to sell at valuation.—(1) Where there is an agreement to sell
goods on the terms that the price is to be fixed by the valuation of a third party
and such third party cannot or does not make such valuation, the agreement is
thereby avoided:
Provided that, if the goods or any part thereof have been delivered to, and
appropriated by, the buyer, he shall pay a reasonable price therefor.
Proviso clause provides that if goods have been delivered or appropriated by
buyer then hr must pay a reasonable price. Appropriated as per combined
reading of sec 10, sec 41 and 23, means identified and agreed in accordance
with the terms of the contract that will be done subsequently only. When there
are Unascertained goods or future goods and which buyer has not previously
examined then under sec 41 he has that right to examine.
41. Buyer’s right of examining the goods.—(1) Where goods are delivered to
the buyer which he has not previously examined, he is not deemed to have
accepted them unless and until he has had a reasonable opportunity of
examining them for the purpose of ascertaining whether they are in conformity
with the contract.
(2) Unless otherwise agreed, when the seller tenders delivery of goods to the
buyer, he is bound, on request, to afford the buyer a reasonable opportunity of
examining the goods for the purpose of ascertaining whether they are in
conformity with the contract.

Sec 10(2) provides Where such third party is prevented from making the
valuation by the fault of the seller or buyer, the party not in fault may maintain
a suit for damages against the party in fault. If the valuer has fixed price
unreasonably high price or has colluded with one of the parties then the party
that suffered damages will have a legal cause against the valuer.
Valuer is not similar to arbitrator. Arbitrator helps in resolving disputes. Valuer
only fixes price.
Place of payment
The place of payment mentioned in contract.
Applying Preponderance of possibilities, if not mentioned then seller’s place of
business.
Sometimes contract is conditional in nature, for ex the place where goods is
delivered, the payment will be done or where doc of title under sec 2(4) is
handed the payment will be done. So these can be places of payment.
To understand document we can look into General Clauses Act and Indian
Evidence Act. Particularly in Eng movies counterfeit receipts/chit are there and
when u show other half of the chit then goods will be transferred. This is known
as in adenture. This practice is not in vogue now.
Docs, deed, in adenture are usually transferred from 1 party to another. It also
depends on mode of transportation of goods, if via railways then railway
receipt, if via air then contract of air freight and if via sea then bill of lading.
Sec 40 read with 9 provides the seller must bear any increase in the expenses
incidental to the payment which is caused due to a change in place of business
subsequent to the making of contract. Buyer won’t have to incur expenses.
The soga is silent on the issue of Cost of delivery of goods will be borne by
whom. It all depends on the terms of contract.

Time of payment
2 things are there:
1. Concurrent conditions (sec 4, 9 & 32) – if contract is silent on time then
delivery and time of payment will be concurrent. So both will be
simultaneous unless otherwise agreed.
2. For unless otherwise agreed conditions sec 11 is there. It talks about
stipulations as to time.

(Sec 4 is the mother of Contract of sale)

Our law talks about unless otherwise agreed in every provision bcoz it
believes in party autonomy.
 3. If goods bought on credit, then payment will be done at the time which
the credit term specifies.
4. If payment is done through negotiable instruments (sec 45) then normally
to encash an NI certain time is mentioned. During that time the seller
waives his right to be considered as an unpaid seller.
Types of NI -
In literary sense, there are 2 – promissory notes and bill of exchange.
For sake of brevity there are 4 – promissory notes, bill of exchange,
cheque and bank drafts (sec 85a).
Generally understood – 3 - promissory notes, bill of exchange and
cheque.
Cheque and bank drafts are considered types of bill of exchange only
with some differences. Hence on literary sense we say 2 only.

Currency of payment
Parties are free to choose the currency no matter from which country they
belong too. Normally though, when buyer and seller reside in different
countries, dollar is used. Till 1971 dollar was compulsory for international
transactions. After 1971, with the establishment of world economic order a
concept of basket of currency was introduced in IMF (a bank that regulates
monetary side of international trade). So dollar is no longer sole currency of
transaction. Usually currencies are prone to fluctuations. To prevent that, the
parties can specify the currency value of which date they will use for payment.
That will not inflate the value of goods and there will be no uncertainty.
Otherwise when price increase or decrease to a high extent then arguably
commercial hardships will be there, frustration, force majeure, supervening
impossibilities will apply.
Perishability of goods (Sec 7, 8 and 54(2))
It is said that sec 7 is the result of mistake and sec 8 is the result of frustration.
There is no definition of perishable goods given in Act. The point from which
you cannot sell goods can be termed point of deterioration.

21st July
Difference bw British soga and Indian soga lies in the fact that british soga
only talks about goods got perished and does not mention that it got so damaged
to such extent as no longer defining the description for which the goods have
been sold.
Our act is more comprehensive. Sec 7 says if the goods get sold without the
knowledge of seller about perishability then it is the result of mistake. Sec 7
read with sec 19 of ICA 1872, then the contract will be declared void.
7. Goods perishing before making of contract. — Where there is a contract for
the sale of specific goods, the contract is void if the goods without the
knowledge of the seller have, at the time when the contract was made, perished
or become so damaged as no longer to answer to their description in the
contract.
Examples
Barrow Lens v Bolard Ltd 1929 (origin of concept of perishability) Car stolen,
seller has no knowledge and he entered in contract to sell it. It was held that a
stolen car is a specific goods and it hot perished. Same case also talks abt part
perishability. If part of goods get perished, then if the remaining part can be
separated and has utility then contract of that would remain valid.
Normally perishability is talked about in terms of value and fruits vegetables
etc. are considered perishable.

‘Deterioration to such an extent that no longer defining the description for

which the goods have been sold’ – Hon v. Minister of Fond 1948 (Used in India
as well) case says deterioration is talked about in commercial sense. If the goods
have seized to exist in commercial sense then merchantability of the goods has
lost i.e. the ability of the goods to attract value in terms of whatever it deserves
or bcoz of perishability the goods has suffered such a change to prevent the
parties from using the goods in a manner contemplated at the time of entering
into the contract of sale.
‘Deterioration means changing the character of goods in commercial sense’
but this qs remained open ended as to what should be the degree of
damage?
Minister of food, rendall v Turnbull & co. 1908
These cases say that it all depends on the facts and circumstances.
One case was dealing with potatoes and other with berries.
Ex – I as a consumer i went to market to buy grapes. I will buy grapes based on
appearance. But if i am a big businessman and am buying grapes for making
wine, then i will not buy very fresh grapes bcoz i need to ferment them.
So perishability depends on intention of parties, purpose of use and nature of
goods.
Sec 8 – goods perishing before sale but after agreement to sell
8. Goods perishing before sale but after agreement to sell.—Where there is an
agreement to sell specific goods, and subsequently the goods without any fault
on the part of the seller or buyer perish or become so damaged as no longer to
answer to their description in the agreement before the risk passes to the buyer,
the agreement is thereby avoided.
Howell v coopland – read it. Source of sec 7 &8. British Parliament took this
case into consideration while drafting these provisions.
Contract of sale is taking place and goods are perishable goods and buyer
becomes insolvent. What is the fate of contract?
Contract won’t be rescinded. Sec 54(1) says- ‘Sale not generally rescinded by
lien or stoppage in transit.—(1) Subject to the provisions of this section, a
contract of sale is not rescinded by the mere exercise by an unpaid seller of his
right of lien or stoppage in transit.’
So 54(1) says that contract not rescinded. Seller needs to sell the goods because
they are perishable so he may re-sell them acc to provisions of 54(2). Seller
needs to serve a notice.
‘(2) Where the goods are of a perishable nature, or where the unpaid seller who
has exercised his right of lien or stoppage in transit gives notice to the buyer of
his intention to re-sell, the unpaid seller may, if the buyer does not within a
reasonable time pay or tender the price, re-sell the goods within a reasonable
time and recover from the original buyer damages for any loss occasioned by
his breach of contract, but the buyer shall not be entitled to any profit which
may occur on the re-sale. If such notice is not given, the unpaid seller shall not
be entitled to recover such damages and the buyer shall be entitled to the profit,
if any, on the re-sale.’
(Self explanatory)
Anticipatory breach – used in sec 62. If u do something in anticipation, the
burden of proof lies on the party who is acting. Contract is not rescinded when
buyer becomes insolvent, the buyer, if before the sale, becomes solvent again
then he may pay the price and buy them again.
Merchantability – no complete definition. 5 tests are there. Visibility test,
marketability test etc.

Hire Purchase Transactions

We had a hire purchase act 1972. It has been repealed in 2005 (was in force for
only 4 months). Under sec 2(c) it provided the definition of hire purchase
transaction. The act was repealed bcoz Parliament held that Contract Act was
sufficient to govern and regulate such transactions under Bailment (sec 148 –
171).
U want to purchase goods. You want to check it. You hire it, you have
possession, and you pay instalments for it. If you find that the goods are upto
the mark then you can purchase. So it has 2 parts.
1. Hiring of movable goods
2. Purchasing of the goods which us optional.
Important components :
I. There is a 1893 case lee v butler, that says if option to buy is not
there then it is not hire purchase. While in hire, the person has
to take reasonable care of goods. He can use them in anyway
but can’t dispose them off.
II. The payment in such agreements are always in instalments.
III. The contract shall always be in writing.
If I hire but i don’t purchase then we say that hiring got terminated.

Anup sharmah v bholanath sharma &ors 2013 1 SCC 400

Suryapal singh v siddhi vinayak motors and anr.s 2012 SCC 355
These 2 SC judgments have taken the definition of HP transactions from
repealed act bcoz contracts act does not define HP.

22nd July
Hire Purchase Transactions
Conditional agreement
Diff bw sale, contract and hire purchase?
HP Transactions have 2 elements – bailment and sale. If option of buying is
exercised then only 2nd element is fulfilled otherwise it continues to be bailment.
The basic ingredient of HP is goods are let on hire.
The motive behind HP transactions was the inability of person to buy goods on
his own. Minister H R Bhardwaj said that in such transactions the rate of
interest of hiring is too high so the hiree gets exploited and there are loan
available in market to buy goods so if anyone needs they can easily buy goods
on loan. The need for HP act is no more there. Such transactions can be
governed under Contracts Act, sale of goods act and HP Act (repealed). The HP
Act is mentioned here becoz even after repeal, 2 SC cases had used the Act and
the basis of such usage was General Clauses Act 1897. It gives authority to SC
to use repealed act to look into definitions of certain things.
Otherwise also under art 142, to do complete justice, SC can look into repealed
acts.
When merely bailment then – bailment under contracts act
When sale – sale of goods act
Obligations of hiree and hirer – HP Act
Chitti defines HP transactions. Halsbury’s law of England also defines it.
Useful case laws for defining HP transactions. These cases are imp bcoz they
came when there were no statute to define HP transactions.
KL Johar v deputy 1965 AIR 1082
Sundarram finance 1966
A recent Anoop Sharma case
HP transactions need to be in writing however there are some cases where
probabilities of oral transactions have been accepted, provided that conditions
of this oral transactions must be proved.
How HP works
Firstly goods are hired and payment of hire is done in instalments. Then if the
goods are found to be suitable for buying by the hirer, then he needs to assert
that he will buy. And based on the consent of both the parties, the Sale will take
place and such a transaction will be termed HP transaction.
5 Differences bw sale and HP
In a sale the property in goods is transferred to the buyer immediately or at the
time stipulated in the contract whereas in HP transactions the property in goods
passes to the buyer om the payment of last instalment when the option to buy is
exercised.
In a sale the position of the buyer is that of the owner of the goods, but in HP
the position of hirer is that if a bailee until he pays last instalment and buys the
goods.
In case of a sale the buyer cant terminate the contract and will have to pay for
goods if they are according to specifications supplied by buyer whereas in HP
hirer can return the goods to the owner and terminate the contract without any
liability to pay the remaining instalment.
In sale the seller takes all the risks resulting from insolvency of buyer whereas
in HP the owner takes no such risk and if the hirer fails to paying instalments
the owner has the right to take those goods back.
In case of sale the buyer can transfer title over goods to a bona fide purchaser
from him but in HP the hirer cannot transfer any title even to a bona fide
purchaser.
Many books mention one more point which is wrong.
In case of sale, sales tax is levied and in HP service tax or other taxes are levied.
But earlier and in present also as per Art 366 (29A) 46th cons amendment 1952)
of Consti, HP transactions are also considered deemed sale for purposes of
taxation. So on HP also sales tax are imposed.
Read HP act.
How to terminate HP contract :-
By performance
By release
By conduct
SECOND MODULE

In this module we'll read Sec 11 -17

How many stipulations (provisions or clauses) are there in contract of sale.
Ans – 2 warranty and condition (Sec 12(1))
In this section autonomy of the parties have been restricted in the sense that
parties will not determine whether any stipulation is a condition or warranty
rather the construction of contract will do. Stipulation can be of time, payment,
delivery, status of goods etc.
Sec 12 – 17 – refer to stipulations as to goods as in what quality, description etc.
will be of goods.
Sec 11 stipulations are in ref to performance of obligations and are not related to
goods. Time og payment and delivery can be called conditions and warranties
but those are related to performance and goods. Acc to Sir that’s the reason why
conditions and warranties have been defined after sec 11, though the heading
states conditions and warranties.
12. Condition and warranty.—
(1) A stipulation in a contract of sale with reference to goods which are the
subject thereof may be a condition or a warranty.
(2) A condition is a stipulation essential to the main purpose of the contract, the
breach of which gives rise to a right to treat the contract as repudiated.
(3) A warranty is a stipulation collateral to the main purpose of the contract,
the breach of which gives rise to a claim for damages but not to a right to reject
the goods and treat the contract as repudiated.
(4) Whether a stipulation in a contract of sale is a condition or a warranty
depends in each case on the construction of the contract. A stipulation may be a
condition, though called a warranty in the contract.
Breach of Condition – 2 rights – repudiation of contract + damages
Breach of warranty – only damages. No repudiation allowed.
A very important statement on stipulation –
“Once a condition always a condition"
Meaning – the ability to repudiate and take damages.
Certain case laws and jurists suggest there are 3 stipulations – condition,
warranty and innominate or intermediate terms
Innominate terms – It is neither condition nor a warranty completely. A
combination of the other 2 types. They say that the understanding of type of
stipulation depends upon the nature or gravity of the breach.
When we decide the terms of contract normally we understand they are fixed.
However jurists say that the gravity of breach will tell the purpose of contract.
In India we follow condition precedent. (Read about conditions precedent and
conditions subsequent).
Case law in this regard that innovated this particular aspect – kehe v bremer by
lord denning. It tells what is this anomaly in conditions precedent and condition
subsequent. Bcoz normally we understand that obligations of the parties are
determined by the terms of the contract which have been negotiated.
Q. Whether pre contractual liabilities are binding?
Generally in India they are not binding. But due to pre ponderance of
possibilities sometimes pre contractual obligations can be held binding. It
depends upon doctrine of substantial reliance, where the party relying on the
statement of the other party has done some overt act. The concept of promissory
estoppel comes into place, and the burden of proof lies on the party claiming the
benefits of the estoppel.
23rd July
Certain statements very popular –
‘Nobody buys the goods to lay on dunghill.’ Lord Atkin's statement in one of
the cases, it shows that when contracts are made on description, the purpose of
that goods must be fulfilled.
One more statement by a famous jurist. ‘When you contract to buy peas you are
not obliged to accept berries.’
Under this ‘conditions and warranty' we will also study sale by sample and
description
Sale by sample – sec 15 and 17 (exclusive provisions)
Sale by description – sec 15
All these give raise to stipulations in contract.
Soga is too liberal to accept express as well as implied conditions.
Implied conditions – sec 14(1) there is an
1. implied condition that person selling the goods must have a right to sell.
2. Implied conditions as to quality and fitness of the contract.
3. Implied condition in reference to description
4. Implied condition as to sample.
Implied warranty is also there. It is 2 fold. Mentioned under sec 14 b and c.
(b) an implied warranty that the buyer shall have and enjoy quiet possession of
the goods;
(c) an implied warranty that the goods shall be free from any charge or
encumbrance in favour of any third party not declared or known to the buyer
before or at the time when the contract is made.
With regards to quality and fitness of the products the most important thing is
knowledge, and on whom skill and judgment the contract has been performed or
not performed. There is a famous Latin doctrine included in sec 16 that is
Caveat emptor. Opening sentence convey that buyer needs to beware while
buying.
16. Implied conditions as to quality or fitness.—Subject to the provisions of
this Act and of any other law for the time being in force, there is no implied
warranty or condition as to the quality or fitness for any particular purpose of
goods supplied under a contract of sale, except as follows:—
There are 4 exceptions of caveat emptor, known as caveat venditor, mentioned
under sec 16.
(1) Where the buyer, expressly or by implication, makes known to the seller the
particular
purpose for which the goods are required, so as to show that the buyer relies on
the seller’s skill or judgment, and the goods are of a description which it is in
the course of the seller’s business to supply (whether he is the manufacturer or
producer or not), there is an implied condition that the goods shall be
reasonably fit for such purpose:
Provided that, in the case of a contract for the sale of a specified article under
its patent or other trade name, there is no implied condition as to its fitness for
any particular purpose.
(2) Where goods are bought by description from a seller who deals in goods of
that description (whether he is the manufacturer or producer or not), there is
an implied condition that the goods shall be of merchantable quality:
Provided that, if the buyer has examined the goods, there shall be no implied
condition as regards defects which such examination ought to have revealed.
(3) An implied warranty or condition as to quality or fitness for a particular
purpose may be annexed by the usage of trade.
(4) An express warranty or condition does not negative a warranty or condition
implied by this Act unless inconsistent therewith

There is a conflict bw caveat emptor and venditor as to which one should be

followed. Working of sec 16 suggests that caveat venditor is the rule. Brant v
australian eating mills case, 5 judge bench, house of lords, Lord Wright had said
that time has ripened in order to convert from emptor to venditor.
There is a very famous debate in ashington degrees case 1971, where lord
diplock talked about that we need to have a balance bw the 2. Because sec 16 is
based on party autonomy so we can say that emptor is in process or dying and
has not died completely. (Sec 11-17).
Differences b/w condition and warranty:
1. Nature of stipulations- Condition is essential to the main purpose of
contract; Warranty is collateral to the main purpose.
2. Breach of Condition gives 2 rights: repudiation of contract and claim
damages (sec 13); Breach of Warranty gives only one right - to seek damages
 3. Treatment - Breach of Condition may be treated as Breach of Warranty
as well. Once a condition always a condition but for the purposes of
performance that condition may be treated as warranty. Depends upon
subsequent conduct of parties. Once the goods have been accepted, buyer can’t
repudiate the contract ; Breach of Warranty can never be treated as Breach of
Condition
4. Implied conditions and implied warranty – sec 14 says conditions as to title
i.e. whenever a seller is selling a goods, he is making an implied undertaking
that he has right to sell whereas in terms of warranty the buyer is having the
quiet possession of goods and goods must be free from charges and
encumbrances.

Time is essence of contract or not

Sec 55 says yes. Sec 11 says no unless otherwise agreed.
3 conditions have been laid down when time is essence of contract in Orissa
Textile Mills v Ganesh Das, AIR 1961 Pat. 107 .
1. Where the parties have agreed expressly or by implication.
2. Where the delay operates as an injury
3. Where the nature and necessity of the contract requires it to be so
construed.
Generally the above 3 are used but the case laid down a 4th element also which
is very important but have been omitted by many books :
4. When u prove that contract is mercantile contracts (hard core business
transactions contracts) then time is the essence of the contract unless
otherwise agreed.

This 4th condition had been laid down in a very old case and it gave birth to
discussion on this aspect. The case is Hartley v Hymans, (1920) 3 KB 475 at
484.
Js mc Cardy is telling that in mercantile contract stipulations as to time are
generally essence of contract and if seller fails to deliver goods within stipulated
time there is a breach of condition entitling the buyer to reject the goods and
treat the contract as repudiated. This case has been referred in Orissa case.
Our sec 11 us based on sec 10 of British soga so we can say that time is the
essence of mercantile contracts.
Even in international contracts, where parties are situated in different countries,
time is generally the essence.
International obligations provide that if time has been made essence of contract
and if it breached then the contract can be repudiated. Similarly sec 11 provides
that time is essence or not depends upon the intention of the parties. Party can’t
only repudiate but also claim damages. Party can also accept the goods but ask
for damages for losses suffered due to delay.
Repudiation is the last option exercised nowadays. If extended time provided, it
is known as machfrist clause. It is a german term. During the extra time
provided, if buyer suffers damages, then he can ask for it.
Our law is similar to cisg. The relevant provision in cisg in this regard is Art. 33
read with 25.
There is one more famous case on this aspect – British Paints (India) Ltd. v/s
Union of India; AIR 1971 Cal. 393
Krishna singh v pakkhar singh 1974 jodh HC
On similar lines court had talked about time as essence of contract.
One more case - Cehave NV V/s Bremer HandalgesellasahaftmbH; 1975, 3 All
ER 739.
In this lord Denning had provided important judgment on this aspect.
INternational COmmercial TERMS (INCOTERMS) Contracts
Such terms are used across the world. Under sec 39 Indian soga also talks about
them. So sec 39 read with sec 25 talks about certain types of transport contracts
that will be known as incoterms.
There are two famous types of such contracts.
Cost, insurance, and freight (CIF) is a common method of import and export
shipping. CIF determines when the responsibility for goods transfers from the
seller to the buyer. CIF is one of the international commerce terms known as
Incoterms.
Similarly FOB is also a type. When the goods are loaded on the port the seller’s
liabilities are over and buyer’s liabilities arise.
Incoterms is provided by Int Chambers of Commerce. For both CIF and FOB
time is essence.
Sec 11 and sec 55 of indian contract act and soga are different bcoz in sec 55
there is a legal presumption that time generally is the essence, contrary to this,
sec 11 of the SOGA is based on legal presumptions that time is not the essence.
So if the regulating law is law of contracts – time is essence.
In case of soga – there must be an express mention of the time being an essence.
If the contract is mercantile contract or carriage of goods by sea contract i.e.
contract by afraitment (CIF & FOB), then time will be the essence.
Payment for goods
Sec 11, sec 32 read with sec 45 provide that if the time of payment have not
been mentioned then Soga doesn’t insist on punctual payments. It talks about
payment on delivery or payment depending upon the readiness and willingness
of the buyer to make a payment. The aggrieved party needs to prove that the
other party is not having readiness or willingness to pay to seek out payment in
case of delay.

30th July
Sec 11-17
Conditions and warranty
Sec 55 - Presumptive rule which says that says there is a presumption that time
is essence.
Contrary rule - Party autonomy (sec 11) – Presumptive rule will not apply
unless a different intention shown by the parties
(Whenever mentioning sec 55, mention sec 3 also because it gives validity to
application of law of contracts upon law of sales.
Concurrent conditions (sec 32) says that when time not specified then what will
the rule be. Unless otherwise agreed delivery of the goods and payment of the
price are concurrent conditions. If time specified then sec 11, if not specified
then sec 32.
Whether readiness and willingness with ref to time of the payment is there or
not can be brought out by sec 11, 32 and 45 (talks abt unpaid seller).
Payment has to be done within reasonable time (read sec 63 to ascertain
reasonable time, dependant upon facts and circumstances)
Q. When time has been declared categorically the essence of the contract and if
the what will happen with the payment and delivery?
The delivery or payment has to be made within time specified. They are
conditions. The buyer can either repudiate the contract or ask for damages. They
can be termed as fundamental breach.
In National Insurance co ltd v bharat amba n ors 2007, SC said that every
contract contains some core fundamental obligations and breach of such
obligations can be termed fundamental breach. This term is alien bcoz Indian
sale of goods act doesn’t mention it.
But the modern sales law follows the concept of fundamental breach.
Sec 12 defines that there are 2 stipulations.
Sec 13 provides the rights to the parties in case of breach of conditions.
Repudiation or damages
Acceptance of late delivery and payment. Sec 42 provides 3 rules of acceptance
1. Intimation
2. Adopting the particular transaction by selling it further or using it.
3. Didn’t sell or use but remained silent.

When you accept the goods even after late delivery or payment, it means the
condition has become warranty and you have waived the right to repudiate the
contract but you can claim damages.
Q. Diff bw ‘conditional contract’ and ‘conditions in contract’.
Conditional contract - sec 4(3), 4(4) refers to performance that is needed as part
of contracts. For ex – Seller will deliver certain docs to buyer, then only he will
do the payment.
Sec 12 talk about conditions. Conditions are in ref to goods.
- Whether a stipulation is a condition or warranty depends on construction
of contract. There can be 3 types statements in a contract -
- Main statements- If the essential purpose of contract has been stated –
they will be conditions. We need to determine whether the statement is
essence of contract or not.
- Collateral to main statements - If the other purpose stated are required but
not very essential- they will be warranties.
- There is a 3rd stipulation Puffs, simple statement without intention do not
create obligations. (Latin maxim) “simplex common non obligatory....”
- If the party calls a stipulation which is a condition as warranty and a
warranty as condition, it will not change the nature of stipulation because
contract will be interpreted based on its construction.

Sec 12(4) – a very imp statement

In kingston v brestorn 1773 case lord mansfield said
Dependence or independence of covenants is to be collected from the evidence.
Sales and meaning of the parties, that however transport they might be the deed,
Their presidency might depend on order of time in which the intent of the
transaction requires their performance.

That means whether its a condition or warranty or innominate term (introduced

by lord diplock) they are to be understood in regards with collective
prohibitance(idk the exact word he used), sales and meaning of the parties and
howsoever it has been put in the contract, based on these considerations it can
be determined whether the stipulation is the main essence or collateral to it.

Remove the over reliance on intention but still intention is basis of

determination of rights and obligations of parties.

1 more case related to innominate term context

Lord diplock - Hong kong shipping co ltd v. Kavasaki Ltd

Lord denning in caheb case 1976.
These cases tell us about how conduct helps ib determination of which
stipulations are conditions and which are warranty and the result of breach of
such stipulations.

Book by P Ramanatha Aiyer. He mentions 5 concepts for determining

conditions and warranties.
He mentions -
1. Concurrent conditions - where there are concurrent conditions for ex where
seller has to deliver and buyer has to pay, neither can claim for action for breach
unless they have fulfilled their performance of condition. Sec 12 read with sec
32 tell when conditions are concurrent conditions.

2. Where a stipulation is not part of the consideration and breach of that

stipulations can be paid for in form of damages - they are warranty. If the
contract by express term or implied term talks about stipulation that are
independent in nature, they are warranties.

3rd - mutual promises to go to the roots of the considerations, they are condition
precedent. Lord denning also says that conditions go to the root of the contract.
Lord denning and lord diplock say conditions and warranties will be determined
based on conditions subsequent. But ramanatha says it depends on condition
precedent.

4. When one party relies on the breach of the stipulation rather than the
performance of the stipulation, such performance is collateral to the main
transactions, but if the reliance is on performance then performance is a
condition precedent. If the remedy is there, a breach of stipulation leads to
repudiation of contract then that would be condition precedent.

5. If a day has been fixed for performance and the day may happen b4 the
performance of the promise by the other party the latter may claim b4
performance which is not a condition precedent. If something has to be done
before the due date then acc to ramanatha that will not be condition precedent.

So what is imp for us

1. Sec 12(4) -Concept of party autonomy and limitations to it
2. Concepts of lord mansfield
3. 5 famous doctrines by ramanatha book on soga pg 316
4. Modern things that have emerged. Lord diplock in 1962 2 QB hong kong
case.
This case is considered originator of 3rd type of stipulation. He changed the
legal landscape of modern contract law by adding 3rd stipulation. In india it has
not been used. But in
Shiv singh contractor v UOI 2014/2013 2MP LJ 3 this is the only case, some
observations are there with regards to inominate terms and its acceptance in
Indian jurisprudence but this has not been followed.
Sec 66(e) gives some way to it.
Roskill LJ was one of the judges in caheb case who had disagreed with the 3rd
stipulation and ppl who disagree with diplock, cite him.
Time if not specified then how payment will be done – sec 32

2nd August
Sec 14
Implied undertaking as to title. Conditions may be express as well as implied.
Express - main purpose, collateral to main purpose clearly mentioned.
Implied conditions is there in Sec 14(1). It talks about implied undertaking as to
title or property. It is the 1st implied condition our act is having. There is a
debate whether this is the 1st type of IC or not.
2nd is IC as to description. It means goods must be as per description. (Sec 15)
3rd IC as to warranty and sample (sec 17). Its genesis lies in sec 15 as well.
5th IC as to quality and fitness. It has too many things to discuss for ex caveat
emptor, caveat venditor, customs and usages, and is a bit controversial one.
It depends on the buyer's purpose for buying goods and there is a purpose theory
on it which is given in sec 16 and its exceptions.
6th IC as to merchantable quality. Some count it under IC as to quality and
fitness. Merchantability refers to quality and fitness of product only but there is
now jurisprudence has come up. The term merchantability has been used in sec
16 under caveat emptor so the debate is whether merchantability is included in
caveat emptor and venditor. There is ambiguity on this but a case law affirms it.

Merchantability depends upon knowledge and skill of buyer and the purpose of
buying as well. For ex u buy a glass, the seller will sell a glass fit for drinking,
but if the hidden purpose is to pour sulphuric acid into it, the merchantable of
the product cannot be questioned.

If i ask the seller a medicine fit for headache, the seller is liable to give a fit for
consumption and effective medicine, the buyer is relying on the skill and
judgment of the seller. But if i don't tell the seller the ailment and just ask him to
give xyz tablets, the seller will only check the expiry date and give the
medicine. Here we are not relying on his skill. It is not his duty to look into the
purpose.

Sec 14
"14. Implied undertaking as to title, etc.—In a contract of sale, unless the
circumstances of the
contract are such as to show a different intention, there is—
(a) an implied condition on the part of the seller that, in the case of a sale, he has
a right to sell the goods and that, in the case of an agreement to sell, he will
have a right to sell the goods at the time
when the property is to pass". A person who doesn’t have ownership can sell?
The section gives liberty of "a different intention". Read sec 27 to 30.

What is the 'different intention' being talked about in sec 14. It is for those who
have the possession but not the ownership. They can be authorized to sell or
may be the finder of goods
Circumstances in which sale can be allowed
1. U may be a seller
2. U may be authorized
3. U r finder of the goods, no body is claiming
For ex brokers are allowed to sell.
Read Niblett v. Confectioners' ltd case for better understanding. "There was a
good deal of confusion in the authorities as to the exact.......pledging." read this
para by LJ. Scrutton.

Rowland v divall case has been cited many times in niblett. Circumstances of
the contract show a different intention, meaning thereby is, by authorization of
law, by the pawn breaker sec 169 of contracts act and under certain exceptions
given under sec 27-30, we can talk about
exceptions to Nemo dat quod non habet, literally meaning "no one gives what
they do not have".

Right to Sell (14a) means either actual ownership or trapping of ownership.

Trapping means that it should look to the world that u r the owner.
If a thief sells a stolen good then? Such a sale would be called sale in market
overt. It is not allowed in India. It will lead to chaos and violation of laws. (But
in India, strangely enough, this rule is missing in the Sale of Goods Act, 1930.
Consequently, if stolen goods are sold in market overt, a purchaser acting in
good faith acquires a valid title against the true owner, unless the thief is
prosecuted and convicted - Via Google)
Also, being mere owner is not enough. Certain things are required.
1. Your sale of property should not infringe other's rights. (Most commonly
Trademark infringement)
2. Ability to transfer property in some 3rd person.
Right to sell contemplates this is no title no sale (though there r exceptions).

Types of transfer
1. Absolute - sell, assignment
2. Conditional - may be permitted (sec 11)
3. Temporary - bailment. They can't transfer it further

(extra - Sec 18-26 talks about transfer of property and 27-30 talks about transfer
of title.)

3rd August
Sec 12 is a definitional clause. It does not create obligations but only defines.
2 qs related to right to sell
Q.1 stolen goods being sold in chor baazar. Real owner initiates suit against me
because I was in possession of the property. What right do u have as a buyer?
No right because the seller had no right to sell at the 1st place so he can’t
transfer better title to the property. Also since the buyer was aware of property
being stolen he has agreed to take risk of return in case real owner comes back.
So the buyer will not get any refund and he will have to return the goods.
Q.2 custom authorities seizes goods for being counterfeited. Can this be done?
Soga is not a complete code for sale and purchase of goods rather it has to be
read with other laws applicable in India. Thus power of custom authorities
provided under custom act will not be taken away by soga. The seizer is by
operation of law and that is permissible. Customs is economic border of India.
If custom authorities sell the legally seized goods to someone, then buyer gets
absolute title.
Informal trading i.e. smuggled trading takes place in bordering states of India.
They are actually illegal trading.
(Extra info Dumping of goods – selling goods much below their actual price. It
is illegal practice.)

Q. When the seller is not having right to sell? (It includes ownership and ability
to pass the title)
1. No ownership
2. There is ownership but no right to transfer property that is the goods infringe
someone’s better title.
3. Where the sale of such goods are illegal. For ex – marijuana
4. Certain goods that do not match the standards of BSI
5. Goods being sold without jurisdiction. Many goods can be sold only in some
regions of the world.
Lord Atkin in niblett case provides why such goods cannot be sold. “The buyer
has not received any part which he has contracted to receive namely the
property and right to possession and that being so there is a total failure of
consideration.
Q. When goods of some other person is sold. What rights the other person has?
And when buyer has to return all the goods what right he has?
Sec 27-30 provide 2 Responsibilities are there upon buyer. He has to find the
true owner of the property. Also he has a duty to buy the goods in good faith.
Only if he fulfils these 2 conditions his duty gets over.
Rights of buyer –
1. He was fraudulently induced by the seller to buy the property and he was
made to believe that seller has the right of transfer and good title over the
goods, which is the essence.
2. The seller warranted and covenanted that he had a good title.
3. This is not a frivolous claim. It is based upon facts
First 2 points were laid down in niblett case and 3rd one in Taramati anantraj
prakash v gangaran ramdas 1975 Maharashtra LJ 726
Q. Absence of charges and encumbrances and quiet possession under sec 14b
and c, does it have any effect on merchantability of the goods?
Yes, bcoz merchantability includes the saleability of the goods. And goods with
encumbrances and charges cannot be sold by the buyer. From Bristol Tramways
Co v Fiat Motors Ltd, case and Lenning case and HConcepv. Richards case. (In
mulla)
Sec 2(12) states the conditions of the goods. 14b says buyer shall have and
enjoy quiet possession if goods. Quiet Possession is intact until there has been
created some disturbance. If disturbance occurs then merchantability gets
hampered. Merchantability refers to the ability to sell the goods at the same
value. Lord ellenborough in howell v richards the implied warranty of quiet
possession if the analogy of covenants for quiet possession is a sound one, is a
warranty against disturbance and is not broken unless and until disturbance is
done. He further says that the warranty means that the buyer shall have and
enjoy (possession and every right over that property).
Lord atkin in niblett said that ‘warranty resembles the covenant for quiet
enjoyment of real property by a vendor who conveys as beneficial owner in
being subject to certain limitations and only purports to protect the purchaser
against lawful acts of 3rd persons and against breaches of the contract of sale
and tortious acts of the vendor himself.’ It reflects the purpose of sec 14, 15 and
16, they have to be read together.
Indian cases similar to niblett-
Joseph mayor v phani bhushan course AIR 1939 Cal 210
Ranveer singh v gurwak singh 1979 WLN 170

4th August
General principles
1. Concept of party autonomy – default rule is if parties have not determined
obligations, then law will decide. The draft of contract will be the
supreme law governing their performance. Art 6 of CISG talks about
party autonomy as well.
2. There is no fixed format of contract of sale.
3. Binding nature of contract
4. Performance in good faith
5. Duty of confidentiality if there is a clause in this regard
6. Merger clause rule
7. Battle of forms

What are the general principles of Sales contract?

• The provisions are non obligatory-Party autonomy- they can waive and
derogate certain provisions of Party autonomy- if parties are not determining
then SGA will be applicable- this concept is sina qua non- Art 6 of CISG talks
about it- our law is inherent- 2 things determine-contract drafting-performance
• No fixed contract format- S-5 Frauds act
• Binding nature of the contract and performance in good faith
• Duty of confidentiality
• Merger clause rule- whatever you didn’t intend to get included will not
bind you
• Battle of forms- presupposes 2 drafts-at the time of negotiation
-subsequently when both the parties reach to court- some of the conditions are
not met- which will prevail
In common law- the last person which contracted and conditions applicable-In
US- the first rule is applicable- Art 19 CISG
• Contract drafted and started performing- subsequently through whatsapp
and conduct things are exchanged- then dispute occurs- can court go into the
detail of the conduct of parties
Is contract formation a continuous performance? New conditions and warranties
can be added- Is that allowed- it is preponderance of possibilities-
PAROL EVIDENCE
If you want to say that subsequent addition is not permissible then you have to
add a clause there
• Boiler Plate Clauses- Standard form of contracts without which contracts
cannot be regulated- dependent upon jurisdiction, market, customs and usages
of parties are given significance

OWNER REMEDIES- FROM A PERSON HAVING WRONGFUL

POSSESSION- onus will be on the buyer that he acted in good faith and acted
reasonably
- Suit for wrongful interference
- Restitution- waiver can be there
- ICLQ- Trace and follow the goods and then if the goods are mixed up
then ask for severance
- To recover the possession
- Suit for injunction for sale
SECTION 27 to 30 will come – not merely the owner but there are 9
exceptions- nemo dat quad exceptions
Section 14
Section 14 B and C- are seen as a unit
Whether 14 -A is independent or A is flowing from B and C?
Niblett case- twist relationship- if right to sell is not there then there is no
question of quiet possession and enjoyment
There is a difference- primarily A is a condition where B and C are warranties
A is defect of title at the time of sale
B and C- buyer’s right of possession is getting disturbed- buyer’s right is broken
when it is actually disturbed whereas the term implies by a is breached at the
last stage when there is no question of
Bristol case? No idea about the name of the case He will discuss tom

5th August
3 qs related Sec 14
1. Is there any nexus bw sec 14 (implied condition to title), 15 (implied
condition as to description) and 16 (merchantability)
2. If there is, then whether implied condition as to title under sec 14 also
includes merchantability. If yes, then what is merchantability.
3. Diff bw implied conditions and implied warranty of quite possession.
Answers
Section 15 says that if goods have been sold as per description then it is implied
condition on part of seller to provide the goods of that kind to the buyer.
Question arises whether it includes merchantability or not.
Answer has been given in the Neblett case. Th case had referred to british
tramways v fiat motors in this regard. Js bankers said mplied warranty also
includes goods of merchantable quality so the case established Nexus between
section 14, 15 and 16 of soga by invoking the term merchantable quality along
with implied conditions. Quoting the british tramways case js bank scrutton
talks that it is implied condition as to title also includes the merchantability of
the good because if implied condition is getting disturbed then ability to possess
the particular goods and ability to further sell it will get affected that is why
there exists reasonable nexus between section 14a implied condition as to title
and 15 implied condition as to description because here the description in terms
of quality had been mentioned and in this particular case the quality assumed
was of nestle products that is why it was sale as per description but it came out
to be nisle products labelled on the tin. The tin also includes the state of the
goods that is there which makes it saleable or non saleable. So the 3 judges say
that to them sec 12 (sec 14a as per Indian soga) implies that implied condition
as to title includes description as well as merchantability. This case for the 1st
time defined merchantability. Judges said merchantability includes the state or
conditions of the goods. The state of the condensed milk was that of it was
packaged in a tin bearing labels and it also includes the conditions in which the
goods of milk were stored and if the label is removed and replaced then it would
indicate the saleability of the product. Label of a different kind not only defeats
implied condition as to title but also condition as to description.
They also quoted Js Powell who had said “it is implied condition that goods
shall be of merchantable quality” and also quoted Js Ellen borough who said
“intention of both the parties must be that goods shall be saleable in the market
under the denomination mentioned in the contract bw them, the purchaser
cannot be supposed to buy goods to lay them on dunghill.” Over here nobody
was buying goods to keep idle but to sell further so the label means state and
conditions of the goods and its merchantable quality.
The phrase merchantable quality on the court’s opinion means that the “article
is of such a quality and in such condition that a reasonable man acting after
a full examination accepts it under the circumstances of the case in
performance of his offer to buy that article whether he buys it for own use or
sells it again.”
In the warranty that the goods shall be of my merchantable quality applied to a
complicated machine it applies equally to the packaging in which goods are
presented, which in this case forms the most important features of goods as
delivered.
Since the case is of 1921, the reasonable man test is no longer the sole test but
Visibility test, price test, satisfactory quality test have also been added to it.
Indian
Section 16 uses the term merchantable quality but since British law has
erxchanged the term with satisfactory quality, so indian jurisprudence also uses
the term satisfactory quality.
A.2 Implied condition as to title verses implied warranty as to quit possession.
Howell v. Richards 1809 Cl 103 ER 1150, Lord Ellenborough said :
1. Distinction between conditions of title and warranty of quiet position is
similar to that of covenant's for title (ownership) and quiet enjoyment.
Covenant for title means you are buying it for selling it further. Covenant for
quite enjoyment means you are hiring that particular goods as a
bailee/mortgagee etc. but you will not get to further dispose it off.
2. Right to sell is an assurance by the guarantor that he has every stake in
quality and quantity which he purports to convey to him. The former is
guaranty by the seller that he has been authorized to sell or he is the
owner, the latter (quite possession) is an assurance to guarantee against
consequence of defective title quite possession is disturbed when you
have a defective title. Extension theory. 2nd statement is an extension of
first one.

Sale by ostensible owner (trapping of ownership) indicated under section 27 –

30 of soga.
New Topic
Sale by description section 15
Sale by sample is in sec 15 also but has been specially discussed under
section 17
Section 15 description not defined in Soga. ‘Description’ means a particular
class or kind of goods but it also includes any statement which constitute a
substantial ingredient of the identity of the goods sold. Definition given in
Coachman v. Hill 1947 pg no. 554
In section 15 it means 2 things goods that - sold by description goods shall
correspond to description.
Lord Blackburn in Bowes v sand said if you Contract to sell peas you cannot
oblige a party to accept beans. If the description of the article tendered is
different in any respect and it is not the article he bargained for, the other party
is not going to take.
Sec 15 says if goods are sold by description it should conform with that.
Whether it is referring to the famous south african soga doctrine, that also is
mentioned in cisg that is “conformity to the contract” doctrine?
Ans is yes. Goods shall correspond to the description. CISG article 35 talks
about it. Lord wright had said description includes many situations and Grants
v. Australian knitting mill case AIR 1937. Lord wright is saying there is sale by
description even though the buyer is buying something displayed before him on
the counter though it is specific thing so long as it is not sold as a specific thing
but a thing corresponding to the description. It is talking about goods that have
been shown. Some use we can assert in whether the goods is corresponding to
the description or not. In this case the clothes bought were causing skin diseases
after some use. He was provided relief. So something that has been sold before
you can also be called sale on description.

6th Aug.
Halsbury’s law of England description is more apparent as it goes to the nature
of the goods whereas a sample is more with quality of the goods.
Section 17 when goods are sold by sample the supplied goods need to be
confirmed to the contract but the threshold is higher as it mentions that the
goods shall not be unmerchantable. So a negative covenant has been used in
section 17.
Section 41 talks about buyer's rights of examining the goods. If he has not
ascertained the quality at the time of making contract then he should have
opportunity to do so later at the time of delivery. This is the inherent right to
ascertain that the goods conform to that quality. This right can be waived also. It
is not absolute and can be waived by express or implied conditions. Mood and
Co v. land owner and Co made clear that packaging forms an important part of
the description of goods. With regards to different goods different packaging are
required in India by law, BIS 2016.
Time and place of arrival it is considered important for description of goods.
Time here means the particular time period and the place the goods are to be
delivered. Nicolson v. Smith Marriott 1947. The case was related to sale of a
table cloth. Description topic complete.
Sale by sample
Section 17 implies that when sample is shown to the buyer the goods delivered
must be according to the sample. The common intention of the parties regarding
the kind and quality of sample is essential. Both represent a statement as to the
subject matter of the goods.
Average sample is the term used for sample in case of food grains and fruits.
Sample are shown in 4 usual ways
1. sending small representative quantity in advance.
2. Showing a pattern of the goods.
3. showing a model of the goods.
 4. Average sample in terms of food and fruits
The goods must conform to the sample though some small variation in quality
can be there.
2 qs related to sec 17
Q. What is ‘the sample to be included in contract’.
Q. If goods are sold by sample then what are the implied conditions on the seller
and duties on buyer?

Sections 17 it should be read with section 41.

When sale of sample is there it must be reflected in the contract. Term of the
contract expressly or impliedly must mention that goods are sale through
sample.
Sales in exhibition – it merely gives an idea about nature of goods. Merely idea
won’t make it sale by sample. True representativeness of the goods has to be
there which is to be ultimately supplied under the contract with the consent of
both the parties, and the burden of proof lies on the party asserting the sale.
The burden of proof rule is not mentioned expressly but it is inherent in soga
that who seeks a right or remedy has to prove it. Sec 55-60 talks about
remedies. For all these bop lies on the person who claims right or remedy.
17 (1) talks about sale by sample and sec 17(2) gives 3 conditions.
Bulk shall correspond to sample in quality section 17 (2a). strict liability is there
on the part of seller to provide those goods there on the conformity. if the
quality is not in conformity with sample then remedies available are since it is
implied condition once the implied condition under section 17(2a) is vitiated
buyer can reject the contract and seek damages. For this we need to read sec
17(2a) section has to be read with section 13.
Buyers can accept the goods by waving this condition. this acceptance can be
done under 2 sections of soga. One is section 42 that provides 3 ways of
acceptance – intimation, adoption and after passage of reasonable time.
When the defective goods has been accepted, that also has 2 ways. 1st one is that
he can waive (sec 13(1)), he can’t claim damages or repudiate.
Second is electing to treat that particular condition as warranty. It can be done
by simply intimating it to the seller that although i am accepting goods, i will
seek damages. So three options are there with buyer
1. Rejection and damages
 2. Acceptance without damages
3. Acceptance with damages
Where average sample is taken by large quantity of goods contained in a
number of packages and then mixing it together the buyer cannot reject any of
the packages on the ground of inferiority of goods. It is there in Oriental print
works case.
17(2b) Reasonable opportunity of comparing the bulk with the sample so as to
satisfy himself and if he did not have reasonable opportunity at the proper time
then buyer can repudiate the contract. The right of repudiation need not always
be exercised before taking the delivery of the goods.
So section 17 2b relates to right of inspection of delivery and this is where
section 41 comes into picture. Inspection must take place within reasonable
time. as per section 63 of sale of goods act what is reasonable time is a qs of
fact.
Inspection can be done at 3 times.
At the time when goods are getting delivered.
When goods are ready to be delivered.
When goods have been delivered within reasonable time.
This particular provision can be waived off with express provisions bcoz this is
not implied condition. Section 62 exclusion clause says that whatever contract
we are entering into any of the provisions (except some) can be waived off by
express terms or intimation.
3rd implied condition is in Section 17 (2c) says goods shall be free from any
defect rendering them unmerchantable which would not be apparent on a
reasonable examination of this sample so it includes both latent and patent
defects.
Next class
Principle of caveat emptor, caveat venditor, product liability etc. Sec 16. These
terms can be used interchangeably.

16th August
THIRD MODULE
Art 18 -23 CISG– transfer of property
Implied condition as to Wholesomeness means the totality of the goods.
Intention to pass the property – sec 19
By the terms of the contract
By conduct of the parties
By circumstances
These 3 indicate when property in goods passes from one person to another.
Passing of property in Unascertained goods – sec 18, 19, 23, 25.
Sec 2(14) specific goods (a contrary provision) sec 18, 20 and 24
Sec 26 – risk in passing of property
Chapter 3 is divided into 2 parts – transfer if property and title.
Ownership transfer nd possession debate.
Much confusion. From roman law we take dominum and possessio dominum means absolute
control over goods. Possessio means only physical control over goods. In bailment we r
having possessio but not proprietary rights are absent.
Austin and Salmond on ownership nd possession
Austin – a right which avails against everyone who is subject to the law conferring the right
to put things to user of infinite nature. Ownership refers to right in rem.
Salmond – Ownership denotes the relationship bw a person and the object in which his right
has been vested. Which a man owns in all classes or right, be it in rem or personal or
proprietary.
Possession does not change ownership.
Right to transfer, alienate etc. Are part of ownership right.
Transfer of possession in case of agreement to sell takes place subsequent to transfer of
ownership unlike sale.
Sec 2(11) is very important. It talks about Property. Property here means general property and
not special property (bailment etc).
Significance of transfer of property
1. Ownership changes
2. Risk follows the ownership
3. Action against 3rd party
4. Suit for price
5. In case of insolvency, right to sell it further
Passing of property – intention can be discerned.
Section 18more clarity is needed -sale of Unascertained goods and sale of specific goods
It affirms the negative. In case of Unascertained goods, the property is transferred from seller
to the buyer.
2 statements r imp in this regard
Lord Blackburn in heat v mood (check spelling) talks about it is essential that articles must be
ascertained and specific in a manner binding on both the parties or unless that is so, the
contract cannot be considered a contract to pass the property in that article. So ascertainment
and specificity is imp.
In Re Waidens, Lord Atkin privy council judgment had defined the term ascertained for the
1st time. “ascertained probably means identified in accordance with the agreement after which
the contract of sale is made. specific means identified and agreed upon at the time of entering
into contract. This has been accepted in many indian cases like in Dan singh v janki saran
kailash air 1981 Allahabad 143.
What is Unascertained goods?
Benjamin gives 3 types of such goods.
1. Generic goods- when only name of the good is referred. Transfer will take place at the
time of appropriation of goods.
2. Future goods – all future goods are not Unascertained. Goods name have been
mentioned, and they have been acquired as per specification provided. For the
purposes of transfer, the goods will be Unascertained goods. The goods will be
brought by seller and upon reasonable examination by buyer, the transfer will take
place.
3. Unascertained part of the larger quantity of ascertained goods. For ex if a godown is
there and the type of goods have been ascertained but not the quality and quantity
aspect. Then that is Unascertained goods.
These 3 kind of Unascertained goods will be governed by sec 23.
In specific goods – 4 essentials of sec 4, plus 20, 21, 22 and may be 24 also. Transfer of
property will take place.
Diff bw Specific and Unascertained goods
1. In terms of time of transfer. In case of specific goods, if the 4 essentials of sec 4 are
fulfilled then transfer of property will take place immediately if unconditional. Read
sec 20 along with this. If Unascertained goods, then the conditions attached will have
to be fulfilled under sec 4b. As per sec 23 when these will be fulfilled the transfer of
property will take place. (Appropriation i.e. identification of products will be done)
2. Breach of specific goods contract – suit for specific performance or damages can be
claimed. In case of non delivery of Unascertained goods – only suit for damages.
3. Non-perishability condition – specific goods – may be perished then contract will be
void. In case of Unascertained goods, there is no qs of perishability.
4. Delivery – specific goods – in case of whatever goods have been identified at the time
of entering into contract will have to be delivered. In case of Unascertained goods the
seller can fulfill his obligations by delivering any goods that conform to the
description at the required time.
Sale of specific goods under sec 20
Where there is an unconditional contract for the sale of specific goods in a deliverable state,
the property in the goods passes to the buyer when the contract is made, and it is immaterial
whether the time of payment of the price or the time of delivery of the goods, or both, is
postponed.
3 imp things - So for sec 20 to apply Contract of sale must be unconditional, it must be for
sale of specific goods, and the goods must be in deliverable state.
Contract of sale – Conditional or unconditional have been discussed under sec 4b and 20.
Conditions are usually with regards to payment or delivery or procurement or documents.
What is deliverable state – given under sec 2(3). goods are said to be in a “deliverable state”
when they are in such state that the buyer would
under the contract be bound to take delivery of them;
For more clarity, read sec 2(3) with 31 and 35. But these 3 sections are not adequately
defining deliverable state. So read the case – Underwood ltd v burgh castle and cement
syndicate 1922 1 KB 843. L.J. Bank provides delivery is not complete upon the mere
completion of the subject matter but it depends on the actual state of goods, date and state in
which the goods are to be delivered as per the terms of the contract. The goods shall be in
such conditions in which the buyer can take delivery and on which he has agreed to take
delivery under the contract.
As per Benjamin, deliverable condition is, when goods are in such physical conditions in
which the buyer can take delivery and such conditions in which the buyer had agreed to take
delivery.
In case of sale by sample or description, it is the duty of seller that on completion of
manufacturing, he has to inform the buyer, who will then ask for delivery. If this req has been
waived off by way of contract, then seller will have to deliver goods when required by the
buyer. So this will be the deliverable state when duty of the seller is completed as per the
these two scholars.
Sec 21 and sec 22 provide examples when goods are not in deliverable state. Self
explanatory.
Sale of Unascertained goods
Sec 6, 23 and 25. Property will pass only when goods are ascertained (sec 23) 4 requirements
are there:
1. Appropriation of goods by either party.
2. Appropriation by one party is by the assent of other express or implied.
3. Goods r of same description as promised at the time of entering into contract and in
deliverable state. (Conformity to the contract)
4. Appropriation must be unconditional
Appropriation has not been defined in the act. In waid v baker it was held that “Appropriation
means the selection on the part of the vendor where he has right to choose the article which
he has to supply in the performances of contract where both the parties agreed that certain
articles must be delivered in pursuance of the contract and then the property passes.
Benjamin says Appropriation is an overt act manifesting the intent to identify the specific
goods as those to which the bargain of the parties has to apply. This will be done by mutual
consensus of the parties. Therefore Appropriation is a bilateral act.
If the contract is conditional, the Appropriation must be as per the conditions.

17th Aug
What are the essentials of ownership
Right to dispose off goods
Res perit domino
Right to possess
Right to exhaust (use as per will)
Suit for price
Retention clause - Owner’s right can be limited by seller by express covenant. Sec 23, 25
Aluminium Industries Case v romalpa, 1975;
judgement by House of Lords- Reservation of Right of Disposal or retention clause was
giveb, popularly known as romalpa clause.
There cannot be an absolute retention clause. It must be limited otherwise it will violate sec
27 of ICA 1872. (Restraint of trade is not permitted).
Transfer of property in future goods S 25.
Appropriation either by seller or buyer and right of reasonable examination by the other party
(sec 41 and 42)
Description requirements s.15
After appropriation goods need to be in a Deliverable state s. 2(3) Js park's observations
Appropriation must be conditional
Document related conditions
S.23 (2) deemed appropriation - if seller delivers goods to carrier, his part of appropriation is
over. When goods actually reach buyer and he reasonably examines and accepts the goods, it
will be appropriation for him.

"Delivery to carrier.—(2) Where, in pursuance of the contract, the seller delivers the goods to
the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose
of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have
unconditionally appropriated the goods to the contract."

Why delivery to carrier deemed appropriation?

Read sec 39 along with it. It uses the term "incoterms". Incoterms is in use since 1919. 3
incoterms imp for soga CIF: Cost, Insurance, Freight, FOB: Free on Board, xBox (x means
named place of destination)
When the goods has been delivered to carrier, the carrier becomes agent of the buyer. Js
Parke in waid v baker for the first time said "the moment the goods which has been selected
in pursuance of the contract are delivered to the carrier, the carrier becomes the agent of the
vendee and if there is a binding contract bw the vendor and the vendee then there is no doubt
that the property passes by such delivery to the buyer."

A hidden problem in sec 23(2) - if carrier is named by seller, how that carrier can be agent of
the buyer? Under what circumstances seller can name the carrier? If seller lives in an area
where he knows the carriers, then he will name them. Or in case seller thinks buyer will not
be able to pay the carrier then he will for the time being choose the carrier.

Qs. If carrier has been chosen by seller and he delivers the goods to the buyer but buyer
rejects them. Now carrier demand payment from seller, which he denies. What carrier can
do? Read sec 23(2).

Bill of lading (Bol) (s 2(4))- it is a receipt that shows that the goods have been delivered to
the owner. It is governed under Carriage of Goods by Sea act 1933 (check year).

When Bol is issued to seller - When the shipper (seller) delivers the goods to the carrier i.e.
the captain of ship, the latter makes a doc in his name for the buyer to claim the goods when
it reaches him.
Met's certificate- the moment goods are delivered by the shipper a mett's doc will be issued to
the shipper to act as an evidence to prove delivery of goods.
Bill of lading will be issued always in name of the buyer bcoz he is the owner. S 25 read with
sec 23(2) gives a default retention clause, which says that if the bol has been named after
seller it means even if the physical possession or actual possession of the goods is with the
buyer he cannot sell it further. Bcoz he doesn't have ownership.
There r many types of bol. For ex - dirty bol

If bol is named in favour of seller - it means that seller has retained property for some time
and that is an example of Conditional appropriation. For that time buyer will not get the right
to sell it further.
2 types of carriage by sea
1. Carriage of goods by sea governed by CoG Act 1925
2. Charter party contract governed by contract act
Hugo grotious - dutch sailor. He wrote Law of the sea. Father of int law.

Sec 24
Only sec were buyer is not there. When goods are delivered to a person, he becomes bailee
and he buys the goods then he becomes buyer. Sale by approval
Sale and return. If u approve then sale, if reject then return otherwise u will be bailee.
Three things needed
Acceptance of goods by express intimation
Adoption of transaction by using or disposing goods
Retention of goods. If u do not return goods within the given time, transfer of property will
take place. If time not provided then after passing of reasonable time. (What is reasonable
time - sec 24 and 63)
If rejects the goods then intimate the provider of goods.

18th aug
Aluminium industries v romalpa 1976 WLR 676
Due to this case retention clause is known as romalpa clause.
Putting a condition implies romalpa clause.
In germany retention clause is known as - security interest clause
In other european countries -conditional sale agreement
2 basic ingredients of retention clause
1. Seller seeks to preserve property in goods until payment is made. Buyer will have
conditional appropriation.
2. Proprietary rights is with the seller i.e. right to dispose. Buyer cannot sell it further.
Ownership 'rights' are there. Only the right to dispose off has been taken.
If disposed then seller has the right to trace and follow the goods.
Keheb v bremer- there is no strictness in what will Constitute condition and as warranty. Ship
of consignment arrived late, but no harm to any parties. Then it will not lead to repudiation of
contract.

It is also not compulsory to expressly mention the term romalpa or retention clause. Your
conduct and intention will itself reflect the application of the clause.
End of sec 23 n 25.

Section 26: Risk - accidental injury to goods. Acc to Article - Passing of risk published in
American journal of law, risk covers theft, seizure, destruction, damage, deportation.
26. Risk prima facie passes with property.—Unless otherwise agreed, the goods remain at the
seller’s risk until the property therein is transferred to the buyer, but when the property
therein is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been
made or not
Provided that, where delivery has been delayed through the fault of either buyer or seller, the
goods are at the risk of the party in fault as regards any loss which might not have occurred
but for such fault:
Provided also that nothing in this section shall affect the duties or liabilities of either seller or
buyer as a bailee of the goods of the other party.

Origin lies in 1872 case Martineau v kitching by j blackburn, mandate of sec 26- "As a
general rule the doctrine is old civil law maxim, the meaning is when u can show that the
property passed, the risk of the loss prima facie is on the person under whom the property is."
Risk gets transferred to buyer irrespective of delivery or possession with the buyer.
Owneeship matters. Maxim - Risk parit domino means - risk passes with property.
3 exceptions :
1. Contrary intention implied by contract
2. Delivery is delayed due to the fault of any party, risk lies on that party at fault.
3. 2nd Proviso of sec 26
If any profit arises out of goods - it will be enjoyed by buyer
Ans given in:
Roman law maxim that came into civil law Nemm det cemmode eius debet cui steculum est
meaning provided in switing v dernel (check spelling) lord blackburn.
Types of risk
Risk in executory contract, that is risk in agreement to sell - since the property has not passed,
risk will lie with the owner only
In absolute and sale contract - buyer will bear the risk
But the seller will always have to take care of goods as a bailee.
Sometimes delivery is dependent or contingent upon certain event, if event becomes
impossible then who will bear the loss - how the event become impossible, will determine
who will bear the loss. Impossibility to perform. S 56 and 65 of ICA 1872 will apply and then
risk will be determined.
Risk of deterioration of goods during transaction- 3 factors will determine- owner of goods in
transit, cause of deterioration, and nature and character of goods, will be liable. How
packaging has been done. Carrier can also be liable.

19.08 21

Meaning of risk in terms of ownership context- it can be understood through effect of

transmission from the seller to the buyer and to understand this a statement is often qouted of
professor saly wrote "risk in the law of sale" that has been there in 1972 article that is
commercial law journal and the statement is that "truth is that risk is the derivative and
essentially negative concept and either or both of the primary obligations of the parties shall
be enforceable and that those of the other party shall be deemed to have discharged, though
the normally prerequisite conditions have not been satisfied".
Examples of risk
Physical risk
Damage of the goods sold (Loss or damage must be accidental and not due to act or
ommission of either party.)
Situations like theft, confusion of goods, etc.
Risk is being done by act of state, is it covered under sec 26?
No. If state confiscates goods, then risk is not covered under ssec 26. Insurance cover will not
apply.
3 theories that examine the efficacy of sec 26
1st theory links time of passing of risk with the time of the conclusion of contract of sale.

2nd theory - passing of risk is related with passing of ownership (risk parit domino)

3rd theory - time of passing of risk is linked with time of payment

1st theory is very injust. Buyer will keep accusing seller of not practising due diligence if
goods are not . Then litigation etc will take place.
3rd theory seems to be the most plausible and fair acc to legal thinkers bcoz the party in
possession of goods is most well equipped to guard the goods and take appropriate actions to
protect the goods.
UndeR CISG 66-70 says delivery to carrier or buyer means risk passes. It is most appropriate.
Though our law and eng law follows the 2nd theory.
Right to transfer the title lies with owner. But it has many exceptions (27-30)
No one can transfer better title which he himself possesses (s 27) nemo dat quat non habet.
The section talks about person and not only owner. So ostensible owner concept comes in as
well.
Ostensible owner means those seller wjo r not the owner themselves but following certain
terms they are allowed to sell.
Transfer of title related provisions. - our law accepts other laws application as well under sec
54(2) so subject to our law as well as any other law for the time being will be applicable
simultaneously.
A very famous statement by lord denning in Bishop gate motor finance corp ltd v transport
bricks ltd 1949 1 kb 322
"In the dev of our law 2 principles r must, 1st is protection of property, nemo dat ... and 2nd
is protection of commercial transactions, the person who takes in good faith or value, should
get good title.
Onus lies on both seller n buyer
Exceptions of nemo dat..
1. Person who is not owner but sells with the authority or consent of owner
2. Where an owner is precluded by his conduct (like negligent acts) to deny the seller
authority to sell.
3. Mercantile agent
4. Sale by one of the joint owners
5. Sec 29, sale by person in possession under a voidable contract
6. Sec 30(1), sale by 1 who has already sold but continues possession, if he sells to a 3rd
person who fulfills the 2 conditions, will be a valid sale. Dispute, if any will be between 1st
and 2nd buyer And not the seller
7. Sec 31, sale of gods by buyer obtaining possession before property in goods are vested in
him. I.e. there is agreement to sell. Ir the romalpa clause. Read 30(2)
8. Where unpaid seller and buyer becomes insolvent, on giving notice to buyer, can sell the
goods.
9. Sale in market overt. (Not applied in england anymore).
Read sec 56 of ica with 27 of soga

20th aug
Whatever happening in Afghanistan (traders may get killed) will it come under sec 27?
It is frustration of contract. (Very vague qs and ans)

Case in which nemo dat quat non habet evolved - whistler v forester 1863 14 CB 248
Exceptions continued
- transfer of title on estoppel by representation or negligence - sec 27
By reason of representation by the true owner to the buyer that the person who is selling is
the true owner. So the seller will get authority to sell by estoppel.
Concept brought out un Leak barrow v mason 1787 by justice asthurst -"Wherever one of the
2 innocent persons must suffer by the acts of the third, he who has enabled such third person
to occasion the loss must sustain." This statement created an exception.
For estoppel to be applied in nemo dat quod no habet, the following 2 conditions need to be
fulfilled:
1. Representation made by the true owner that the seller is the owner of the particular
goods.
2. By negligence on the part of the true owner which enable the seller to create an
appearance of ownership.

CONDITIONS:
1. The representation must be clear and unequivocal.
2. Merely parting or giving possession will not entitle u to sell. There must be an overt act.
3. It must induce the subsequent buyer to purchase it.
3. There must be reliance on the representation of the true owner by the buyer. This
representation can be given by the agent also.
True owner has provided possession of docs related with goods to 2nd person, can 2nd person
sell the goods? Mere delivery of docs of title will not 'generally' lead to transfer of ownership.
But if the docs are of such nature that indicate ownership for ex bill of lading, railway
receipts etc. Then it will be considered transfer of ownership. Case - morwee mercantile bank
v uoi 1965 case.
Estoppel by negligence
3 things req to hold the true owner negligent:
1. Duty to be careful
2. True owner was negligent
3. This negligence primarily induced the buyer to hold the seller as owner of property.
non est factum, fact itself indicates, means whatever u have done, u will have to respect that.
Where the true owner has signed a doc that transferred ownership to second person, can he
later say that he did not know the nature of doc. Yes he can take the defence of fraud,
misrepresentation, coercion etc.
Another exception - sec 27proviso, sale by mercantile agent. An agent can sell or dispose off
property of his principal, if such act is within the scope of his actual authority express or
implied. This principle given in Case -folkes v kings 1923.
What is mercantile agent - sec 2(9)
Duties and authorities
Sell, buy, consign and place the goods
In India it is not necessary to give consideration to a mercantile agent.
He must be mercantile agent
He must be having express authority
He must be having possession of the goods and docs of title, anything suggesting ownership.
Cehave v Bremer 1976 HoL
Forwarding agents like auctioners, factors, brokers etc are not authorized to sell.
Sale by joint owners
"Sec 28. Sale by one of joint owners.— If one of several joint owners of goods has the sole
possession of them by permission of the co-owners, the property in the goods is transferred to
any person who buys them of such joint owner in good faith and has not at the time of the
contract of sale notice that the seller has not authority to sell."
If the bonafide purchaser acts in good faith and has no reason to suppose that he is not
entitled to sell, sale will be valid.
A partner is permitted to sell goods to any partner or any other person. The joint owner need
not be complete owner.

Sale by person in possession in voidable contract. Sec 29

"29. Sale by person in possession under voidable contract.—When the seller of goods has
obtained possession thereof under a contract voidable under section 19 or section 19A of the
Indian Contract Act, 1872 (9 of 1872), but the contract has not been rescinded at the time of
the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and
without notice of the seller’s defect of title."
Another exception "30. Seller or buyer in possession after sale.—(1) Where a person, having
sold goods, continues or is
in possession of the goods or of the documents of title to the goods, the delivery or transfer
by that person or by a mercantile agent acting for him, of the goods or documents of title
under any sale, pledge or other disposition thereof to any person receiving the same in good
faith and without notice of the previous sale shall have the same effect as if the person
making the delivery or transfer were expressly authorised by the owner of the goods to make
the same.
(2) Where a person, having bought or agreed to buy goods, obtains, with the consent of the
seller, possession of the goods or the documents of title to the goods, the delivery or transfer
by that person or by a mercantile agent acting for him, of the goods or documents of title
under any sale, pledge or other disposition thereof to any person receiving the same in good
faith and without notice of any lien or other right of the original seller in respect of the goods
shall have effect as if such lien or right did not exist."

Another exception- Sale in market overt. It is not permitted in India but approved in other
jurisdictions.
New topic
DUTIES OF SELLER
Delivery- it is a bilateral act. 2(2) and 33 are the 2 sections that talk about delivery. It is
voluntary transfer of physical possession (not in all circumstances physical possession is
required) of goods to the other party. The duty to transfer arises when buyer asks for it. (Sec
35)
"35. Buyer to apply for delivery.— Apart from any express contract, the seller of goods is not
bound to delivery them until the buyer applies for delivery."
Q. What is the meaning of possession?
Acc to Pollock n wright book in their famous work 'Possession' - possession in all cases the
essence of delivery is that the deliverer by some apt or manifest act put the delivereree in the
same position of control over the thing either directly or through a custodian (mercantile
agent) which he held himself immediately before the act.

The term possession has not been defined in our act. It is best ascertained from different acts.
There can be constructive or symbolic delivery too.
Q. What is the importance of delivery?
It indicates the completeness of contract. It completes the obligations on the part of the
parties.
1. That delivery which suffices to pass the title so that if the goods be destroyed the loss falls
upon the
vendee.
2. The delivery which suffices to destroy the lien of the vendor which consists in total and
unqualified surrender of possession and of a special claim to retain the goods by the vendor.
3. That delivery which requires not only an utter relinquishment of possession by the vendor
but also an absolute and final appropriation (examination; Section 10 and 23- term
appropriation used) by
the vendee.
Types of delivery
1. Actual delivery: It means transfer of title, unless romalpa clause is there.
• It has 3 requirements
• involves consideration of the person to whom goods are to be delivered (Section 32 and 39);
• Place: seller’s place of business,
• Time: reasonable. S 11 and 36(2).
2. Symbolic/Constructive/ Fictitious/Attornment/Acknowledgement- sec 33 read with 2(2)
defines delivery as doing something which the parties recognise as delivery. For ex - if key of
godown is given, it will be treated as delivery. Constructive delivery is doing something
which parties recognise as delivery. It does not require change in place of goods.

21st, 22nd, 23rd – no classes

24th aug
FOURTH MODULE (Most imp)
The performance of the contract as per the duties assigned. Buyer's main duty is to pay for
the goods bought. If previously paid, he needs to accept the goods after examination that they
r in conformity with the contract.
English Factors act 1889 (based on pollock n mulla) - case laws pertaining to delivery refer to
this act coz it defines possession.
Our law defines deliverable state, but it is not sufficient, so we use lord Bank's statement in
this regard.
Constructive delivery (continued)
Analogy from sec 33. Goods come ynder control of buyer but physical place of goods don't
change.
Sec 36(3) delivery by Attornment/Acknowledgement
3rd type of delivery- symbolic delivery for ex deluvery of bill of lading, paper of house. It is
almost same as constructive delivery.

Q. What goods are required to be delivered?

Whatever goods have been ordered need to be delivered otherwise it is a violation of contract
and other party may repudiate.
Delivery of goods and payment are concurrent conditions, i.e. both are to be done at the
same time.
What is the effect of part-delivery (it is diff from instalment delivery)
S. 34 It means in pursuance of the whole delivery if the goods are getting delivered, it will be
part-delivery. If goods cannot be delivered in one go.
"34. Effect of part delivery.—A delivery of part of goods, in progress of the delivery of the
whole, has the same effect, for the purpose of passing the property in such goods, as a
delivery of the whole; but a delivery of part of the goods, with an intention of severing it
from the whole, does not operate as a delivery of the remainder."
Unless that is mentioned in contract that goods will be delivered in instalment, then
instalment delivery will be allowed otherwise not. S. 38

Duty of buyer - sec 35 to ask for delivery. "35. Buyer to apply for delivery.— Apart from any
express contract, the seller of goods is not bound to delivery them until the buyer applies for
delivery."
Sec 37 talks abt rules of delivery
1st rule place of delivery sec 36(5) + 37 where buyer located, deliver goods, unless otherwise
agreed
2nd rule time of delivery, if time not fixed then, then reasonable time. If time has been
extended, it becomes the rule.
Reasonable hour like business hours has not been talked about in act. It depends on contract.
3rd rule expenses of delivery, act is silent on it. As per stipulations in contract, the expenses
can be made.
4th rule insufficient quantity of goods (sec 37) have been delivered. Then buyer can reject
can file a suit, and if price already paid, it can be recovered. If buyer choses to retain the
goods, he can pay for the received goods and take balance for the undelivered goods. If
shortfall is minimal then u can't reject. Sometimes rejection are subject to customs n usages.
5th Acceptance of goods - sec 42
India follows the Perfect tender rules - both in qualititative & quantitative terms. If any
deviation, then other party can repudiate. However, If main essence of contract has not been
breached and the defect is curable then there cannot be repudiation. Repudiation/contract
avoidance is the last resort.
6th Excessive delivery - same as under insufficient delivery. If all goods accepted - then pay
for extra goods.
7th Goods mixed- if severable then sever it. If not then buyer can reject and repudiate.
8th Instalment delivery - sec 38
9th Buyer's right of examining the goods to ensure that goods are in conformity to the
contract. At the time of making or at the time of delivery.
If accepted then through intimation, adoption or silence.
Rejection can only be bona fide and he needs to intimate the other party. There must be
fulfillment of requirements to reject. (S 43 n 44). Cost of return to be borne by seller.
Qualitative and quantitative breach act as fundamental breach of contract.
9) Delivery in inferior quantity- not acceptable because goods become unmercantible
(Section 2(12)).
▪ How do we determine goods are of deliverable quantity? - de minimis rule (Benjamin-
microscopic variations will not be considered as delivery of inferior quality; 2%
variation in delivered goods is allowed globally; not in case of gold, diamonds and
other precious goods)
▪ Suresh Kumar v. K. Assan Koya and Sons AIR 1990 Kerala 20.
• For rejection of goods in case of non-conformity, intimation or notice is required.
Section 39 - delivery to carrier
INCO TERMS - CIF, FOB, Ex Works contract
Incoterms are pre defined contractual terms, introduced by ICC and are widely used in
international commercial transactions. It includes:
1. Obligations - who does what
2. Risk - where sellee passes risk to buyer
3. Costs - which party will pay which costs.
Incoterms are getting updated every decade. Total 11 incoterms out of which 3 are in our act.
There are various categories of contract, for ex E contract, D contract, F contract (sec 39) etc.
Incoterms can be incorporated through express provisions in contract. It is assumed that
parties are located at different places.

Fas, fob car, cif - are used on for sea and inland waterway transport. Rest 7 can be used in
any mode.

25th aug
3 types of contract
1. Ex Works contract (also known as ex store/ ex warehouse) - named place of collection.
Buyer's duty is to go to seller’s place and collect the goods. It is known as collection
arrangement if goods are in conformity (36(1)). It means delivery is done to the carrier, it is
appropriation.
Overseas buyer collects goods through agents and then buyer arranges for in which mode he
will take away them through sea, land etc. Once goods collected, seller’s liability is over.
In case of long distance, Insurance is very imp and it will be arranged by the buyer.
Exworks contract - highest duty on buyer
Supply as per sec 32 check, measure, package
Supply docs as per contract
India has recently become part of _____ of WTO which will reduced documentary
requirements.
Duty to cooperate - seller has to cooperate the buyer like try to arrange carrier
Buyer has to collect n accept the goods, intimate the seller, pay the goods as per required
method. If by letters of credit, then open an LC account for the seller in the bank where he is
located.
Another duty is to obtain import licenses. India is part of WTOs agreement on import
licensing procedure. To ratify india has passed foreign trade development act 1992 under
which license is required for some goods.
Another duty is to pay any cost incidental to export of goods including pre shipment
inspection. Under it quality, quantity and the prevailing international market price of the
goods are checked. The third act is done because it is the duty of the govt to provide foreign
exchange to the buyer.

FoB (free on board)

Here u have to deliver the goods to the carrier at the port and then seller's responsiblity gets
over. (Bit higher responsibility)
Supply of conforming goods, commercial invoices, documents confirming conformity
What is the difference bw receipt, comm invoice, bill of lading
All these are docs of title (s 2(4))
Receipt less info, invoice provides more info and bill of lading most info. (Read urself)
Through comm invoice goods cannot be transferred. FOB: Free on Board
➢ Parties: Consigner/Shipper, Carrier and Consignee
➢ SELLERS OBLIGATIONS:
1. Supply conforming goods packed appropriately or in accordance with the contract.
2. Supply all documents conforming to the contract.
3. Deliver the goods to the buyer by placing them on port at the time required in the contract,
without delay. Mate certificate will be issued to indicate receipt of goods by port authorities
and then the BOL will be issued. This delivery has to be informed to buyer through notice.
4. Place the goods on vessel in the position and the manner required
5. Pay any costs incidental to delivery of the goods.
6. Obtain export licence
7. Provide proof of delivery in the manner agreed
8. Provide any assistance for getting any documents facilitating the export.
➢ BUYERS OBLIGATIONS
1. Give sufficient notice to the seller of the time and location of delivery, the port of delivery
2. Bear any risk of loss or damage of the goods from the time of loading of the goods to the
ship
3. Obtain any license for importation
4. Compliance with all customs formalities. (2 laws india has, customs act 1972 n customs
tariff act 1965)
5. Pay any cost incidental to the importation of goods
6. Bear the cost of any assistance
7. Pay for the goods.
8. Insurance by buyer.

CIF: Cost, Insurance, Freight - it is more expensive and has obligations.

➢ SELLER’S OBLIGATIONS
1. Ship goods of description contained in the contract
2. To procure a contract of carriage by sea under which goods will be delivered at the
destination agreed by the contract.
3. Obtain the BOL as an evidence of contract of carriage and send it to the buyer through a
speedier mode
4. To arrange insurance for the contract.
5. To arrange all documents
6. To deliver all the documents to the buyer.
Concept of party autonomy will be applied here also. Inco terms are pre pronted contract and
the obligations will be assigned by merely mentioning the type of incoterm. No need for
futher negotiation. Time taken for negotiation is minimal. Help in uniform interpretation of
clauses in case of dispute. The dispute will be resolved keeping in mind these 3 points:
Treat international in character
Uniformity
Good faith obligations on the court
➢ BUYER’S OBLIGATIONS
1. Accept goods and documents if they are in conformity with the contract
2. Pay according to the contracted price
3. To receive the goods at the agreed port of destination.
4. Pay all charges including unloading and any unloading during transit.
5. To bear all risk from the time goods pass to the buyer.
6. To pay all the charges incidental to transportation
7. To pay all charges for importation and to get import license
Some case laws - Mahavir comm co ltd commissioners income tax, WB 2002 2SCC - talks
about time n place of appropriation are imp element in transfer of property in these 3
incoterms
National insurance co v sky games 1973 - obligations of seller n buyer under sec 39.
Byrne co ltd v syndia navigation co ltd 1954 2 QB - loading n unloading req in fob contract
Wimberly sons v Rosenberg - diff bw cif and ex works

UNPAID SELLER’S RIGHTS

Section 45 provides who are deemed to be unpaid seller: unpaid seller’s right to exercise lien
and refusal to accept delivery suit for acceptance of the particular goods can be there; bona
fide or mala fide refusal needs to considered.
"45. “Unpaid seller” defined.—(1) The seller of goods is deemed to be an “unpaid seller”
within the meaning of this Act—
(a) when the whole of the price has not been paid or tendered;
(b) when a bill of exchange or other negotiable instrument has been received as conditional
payment, and the condition on which it was received has not been fulfilled by reason of the
dishonour of the instrument or otherwise.
(2) In this Chapter, the term “seller” includes any person who is in the position of a seller, as,
for instance, an agent of the seller to whom the bill of lading has been endorsed, or a
consignor or agent who has himself paid, or is directly responsible for, the price.
46. Unpaid seller’s sights.—(1) Subject to the provisions of this Act and of any law for the
time being in force, notwithstanding that the property in the goods may have passed to the
buyer, the unpaid seller of goods, as such, has by implication of law—
(a) a lien on the goods for the price while he is in possession of them;
(b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has
parted with the possession of them;
(c) a right of re-sale as limited by this Act.
(2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition
to his other remedies, a right of withholding delivery similar to and co-extensive with his
rights of lien and stoppage in transit where the property has passed to the buyer."

Deviation- open price contract. Price not determined at the time of making contract. Price to
be used is prevailing at the time when contract was entered into. Art 55 of cisg.

Paid and payment tendered.

Paid - immediate payment in cash
Payment tendered - payment at a subsequent date through negotiable instruments.
(Conditional payment) some time is needed. Till that time seller remains unpaid.

26th aug

If we submit a cheque and bank hasn't paid it within 48 hrs due to insufficiency of funds then
the cheque is dishonored. Under sec 45 clause 2 the dishonour can be of any nego
instruments including letters of credit.
Goods have been sold and price has not been paid, then prove whole amount has not been
paid or if through nego instru, prove that it has been dishonored or payment time lasped.
Sec 46 - rights of unpaid seller
If possession has been passed, then lien cannot be exercised and there can only be a suit for
price.
Right against goods
1. Where property in goods passed to buyer
Lien
Estoppage
Resale
2. Where property in goods not passed to buyer
Withholding delivery
Lien
Estoppage
Resale

Right against buyer

1. Suit for price
2. Suit for damages
3. Suit for interest (sec 80 of NIA)
4. Suit for specific performance

LIEN
Means- it is an additional security to seller, it is a right to retain goods as security until
payment has been done. Goods must be in actual possession of seller. When payment is not
be done in credit and whole payment is remaining by buyer. Sec 47 provides when lien can
be exercised. Even if docs of title have been transferred and goods remain with seller, lien
can be exercised. Also when right of lien can be exercised only for proce and not for anyother
consideration (like interest).
Termination of lien - sec 49
ESTOPPAGE if goods in transit
Main purpose is to resume possession of goods to perform lien. Goods have been parted and
have been given to carrier. Since carriers are named after seller, so it becomes easy for him to
practice of Estoppage.
As per sec 49 c of soga, right to practice lien can be waived also.
Part delivery n lien - sec 48
In case of contract in instalments, if one instalment not given, can the entire contract be
repudiated?
If one instalment not delivered, generally contract is not rescinded; for rescinding there must
be recurrence of omission.
Stoppage in transit - self explanatory
Sec 51(4) - lien can be exercised by carrier. (171 of ICA 1872, maritime lien) read with 54
(2) the goods can be resold. Before doing this u need to inform the 1st buyer. Otherwise
losses arising will have to be borne by u. And any profit will go to 1st buyer.

2nd sept

2nd September, 2021

Commercial transactions
What are the rights against the buyer that are available? [available to seller]
1) Suit for price
2) Suit for damages for non-acceptance
3) suit for interest
4) Suit for specific performance
Rights of the buyer against seller-
1) Suit for damages for non-delivery
2) Suit for specific performance
3) Suit for breach of warranty
4) Repudiation of the contract
5) Suit for interest
Parties usually have equal bargaining power and equal status; complications start when
parties are located in different countries. American and British laws are more seller friendly;
our laws are slightly more favourable towards the buyer. So, to make sure that both the
parties are at equal pedestal, parties decide to be regulated by CISG.
In our law system, that is, common law system, there are usually four kinds of damages. The
fifth one, depends on the intention of the parties.
Damages for inconvenience and discomfort-
Conventional wisdom in the common law countries is applicable on burden of proof. It lies
on the person who is claiming for the same. The question arises whether sale of goods act
contains rules pertaining to the principle of burden of proof? Whenever we talk about this,
the relation lies with procedural laws and not with the substantive laws. The burden of proof
is there in the CPC but if we look at this act and bring CPC related matters here, so when the
goods have not been delivered of the description or sample or of the quality and fitness or the
person who is selling does not have the right to sell or if the time was the essence, it has not
been adhered to, then the person who is claiming for benefit under such a thing will have to
proof.
CISG does not contain burden of proof. If certain things have been expressly mentioned by
the CISG that it will not regulate it, then it will be regulated by private international sales law
that is the local laws. But the conformity, the impediment and third parties’ rights and open-
price contracts and anticipatory breach have been mentioned in CISG and on this it will be
applicable. Article 7 of CISG talks about the interpretation of convention will be done on 5
things-
1) uniformity
2) international character
3) good faith
4) rule inherent in CISG
5) if not there, then rule of locus law [local laws]
Exemplary and vindicative damages- Specifically in dishonour of cheques related matters.
Statutory damages- In civil law countries, statutes prescribe damages.
Equitable remedies- equity based remedies. What is equity? In India, whichever court has
appellate powers, it has equitable remedies. If something is not being redressed by the law,
then through good conscience and common sensical approach, equity remedies are provided
by the courts. Law is contemplating a situation but that law is not God. Therefore, in court of
first instance, law is strictly to be followed, however, in appellate courts, common sensical
approach needs to be followed too. Residuary authorities are used to fix the limits, for
example, if something does not lie with the centre and the state, it lies with the centre. These
equatorial principles are not codified but time and again have been applied. They should be
the grund norm based on something that is just, fair and equitable. For example, if a doctor
thinks that if he is prescribing medicines and if he is negligent, he will be prosecuted as per
the law, so he will stop applying his mind in fear of being negligent, so in these lines,
professions in which nobility has been attached, certain discretion is given.
Equitable remedies example- recession [if the damages awarded are not sufficient, the courts
looks not only in the breach aspect but also to restore the parties where they would have
been], restitution [return goods or properties received from other party to rescind the contract,
applies under quasi- contract], injunction [restraining orders], Anton Piller order [there in
procedural aspects, they require injunction, it allows the plaintiff to enter into defendant’s
premises and as per law needed, he can take it and try to find it out from the defendant.
usually happens in copyright cases, in a nutshell it is called search and seizure, case through
which it came into picture Anton Piller KG v. Manufacturing Processes Ltd & Ors.],
Quantum Meruit [return the money that I had incurred on the services], Mareva Injunction
[also known as freeze injunctions or freezing, freezes the assets of the party pending further
order and final resolution by the court, from the case Mareva Compania Naviera v.
International BulkCarriers SA, 1980 1 All ER 213].
Damages for non-acceptance- claimed by the seller as buyer is not accepting the goods
Section 56 of SOGA- how it applies? what are the requirements the seller has to prove?
1) delivery
2) conformity- qualitative and quantitative [sections 14 to 17 and section 37
respectively]
3) wrongfully rejecting the goods, malafide rejection
4) substantial deprivation
5) section 55, failing to make the payment when due and wrongfully rejecting
6) section 31 and 32- when goods conform in quality and quantity, buyer is required to
accept, only bonafide rejection is permanent. Payment should also be the there on time.
7) section 11- time of delivery was essence and time of payment was the essence too.
it has been proved that buyer is not accepting, what remedies does seller have now?
1) Seller can ask for specific performance, that is, order the buyer to accept the goods.
2) Loss due to non-acceptance incurred to seller, by safekeeping the goods
3) Suit for interest
4) Liquidated damages and special damages
5) Damages for inconvenience and discomfort
6) Resale of the goods after giving the notice to the buyer and also the goods must be
perishable [that if goods that are being sold if not sold currently, their prices would dip, this
also comes under perishability] as per section 54(2). Perishability means commerciality as
per sections 7 and 8, it doesn’t mean that goods are being destroyed over a period of time as
per case of Lickbarrow v. Mason.
To sum it up-
Seller may-
1) withhold or stop delivery of goods
2) resale the goods and recover damage for the breach
3) recover damage for non-acceptance or repudiation
4) recover lost profits
5) recover the contract price
6) obtain specific performance
7) recover liquidated damages and reclaim the goods.
But if buyer is rejecting the goods on certain grounds, what is buyer required to do-
1) He’ll have to prove thre grounds on which he is rejecting
2) under section 43, he needs to intimate the seller and give the notice
Who will bear the cost of re-delivery to seller in case of bona fide rejection? The seller will
bear it as in bonafide rejection, a notice is sufficient. Buyer will act as a bailee. However, it
may change as per agreed by the parties as per exclusion clause under 62.

3rd sept

SUSPENSION OF PERFORMANCE
What is suspension of performance of a contract? When the parties suspend the operation of
contract? It is not mentioned in the breach related to contract. It is not avoidance which
means that parties have left the contract. Suspension is that for some time because of certain
conditions that are not beyond the imagination of the parties. Natural disaster makes the
parties exempted from performing their duties, wars, floods, natural disasters, these frustrate
the contract [some supervening impediments] (section 56). These are commercial hardships
and contract is finished, that is, terminated.
Convention on law of the seas has declared that problem of pirates has been solved however,
it is stated that if goods have been seized by the pirates, contract need not be performed.
If time is the essence of the contract and by conduct, the parties have extended the time
through mutual acceptance, it is known as nachfrist clause, the extended time thus becomes
the essence and if delay is there, and that delay is abnormal, the other party need not perform
the contract as it amounts to breach.
It is required to be explained that on what conditons the suspension of contract needs to be
there. It provides the opportunity to both the parties to arrive upon a solution (favour
contractus) - this is lack of confidence in counterpart parties in terms of performance of
parties
If it is not mentioned, whether suspension of performance can still be there? Suspension
doesn’t mean that contract gets over. unpaid seller is an example of suspension of
performance, till the time is money is not paid, seller has a right to retain the goods.

How can suspension of performance can be there in contract?

1. Have express provision/clause in the contract
2. Something akin to clause - requiring the contract to be performed in good faith. How does
this provide room for suspension? Duty to cooperate violation, reasonable endeavours have to
be taken. Reasonable man test can be undertaken to scrutinise such a behaviour. When we
talk about suspension of obligations for non-performance, we invoke a common law term that
is violation of duty to cooperate. Whatever the stipulations were required of the parties to
perform, the other party will not terminate but suspend the obligations for the time being.
In case of buyer:
1. He will pay only when conforming good have been delivered (both qualitative and
quantitative). The right to withhold performance – buyer can withhold payment until he has
been conformity. Both parties are given opportunity to arrive at mutual solution. Hence, he
can withhold payment until these conforming goods
2. Seller may make payment obligations a condition for the handing over goods or the
documents, seller may dispatch the goods for carriage on terms whereby the goods and
documents controlling their disposition would be handed over to buyer only at such payment.
3. Simple Romalpa - retention of title conditional on payment for those goods.
4. Enlarged Romalpa – not only the retention power we get but also the retention power as
long as the payment related with other contracts are also paid. So, not only those particular
goods but the entire goods arising from any contract that you both are the parties to. Not only
one contract but also other contracts- it guarantees the payments and debts related with the
performance and contracts.
5. Extended Romalpa – all the debts, not only arising from contract but also all the
outstanding things between the parties, retention will be there only if all this has been
clarified.
PREREQUISITES FOR DEFAULT/SUSPENSION OF OBLIGATIONS
1. Performance is due - has to be proven that performance is due, that is no failure to perform
and no breach is performance is not there.
2. When the obligations are concurrent in nature - Sec. 32 of SOGA. Deliver the goods, take
the money. Payment conditional upon delivery.
3. Non-performance by co-contractors- Part-performance, non-conformity, failure to pay
additional duties [applies when goods are coming from under countries, duties that are
required to be paid under customs.]
4. Readiness to perform
HOW TO INVOKE THIS? IF DELIVERY IS NOT THERE, WE BOTH CAN'T STAY
SILENT
Reason for suspension and which clause. Can this requirement be waived? complete party
autonomy. Limitations on party autonomy - can duty to take care be waived by express
provision of the contract? If you are my contracting party and you are carrying my goods, can
there be a clause that even if the goods get spoilt, the carrier will not have any liability? Sec.
31 of SOGA in accordance with the terms in contract of sale, all obligations individually read
with Sec 62 = the parties can exclude liability by express mention, apart from unlawful
contracts, public policy violation cases. Because their exclusion will be inconsiderable
bargaining and the burden of proof lies on the other party. In a similar party whether duty to
take reasonable care can be excluded or not? Duty to take care cannot be excluded even by
expressed provision, however one case by Mumbai High Court in Mulla, in this case only, the
court has said that duty to take care can be waived. [mentioned under section 62].
This duty to take care comes under which provision of the contract?
To invoke suspension- [Right to withhold performance obligations]
1) no notice is required especially in common law countries. Withholding must be done in
good faith- only condition.
1) Notice of withholding party - Article 26 of CISG - civil law element has been brought
forward - notice is required [party avoiding the contract needs to tell the other party that they
are avoiding the obligation].
3. Order by Court
Estoppage of goods in transit- notice is not mandatory. it is a conditional right. Notice
requirement is there only for reselling of goods.
Suspension of performance rule is there in different jurisdictions differently.

Damages for non-delivery [section 57] Suit for price and suit for non-acceptance and non-
delivery
What is seller required to do and what buyer should do if seller is not delivering the goods?
Section 2(2) and 33 - Delivery
What seller must not perform, conditons to invoke section 57?
1) Time of delivery can be made the essence as per section 11.
2) Section 35 buyer will apply for delivery.
3) section 33- an act to state that the goods have been delivered.

6th sept -handwritten

NIA STARTS

7th sept
What is the nature of negotiable instruments act 1881? Civil, Criminal etc. mein kya hai?
This is civil law which is having subject matter dealing with commercial acts
Hybrid in nature- Chapter 17 in 1988 which runs from 138 to 148. Punishment of 2 years or
fine or both. This makes it a hybrid legislation
138 is applicable only only and only on cheque.
It is hybrid though the substantial aspect is majorly civil.
S. 13 which tries to determine negotiable instruments but fails miserably. It mentions the
types of instruments but fail to define.
4 types of nego. Instruments- Promissory notes, bill of exchange, cheque, and bank draft
(added by Section 85A in 1930)
Cheque is defined in S. 6.
In strict legal terms, only two nego. Instruments- promissory note and bill of exchange.
Bank drafts and cheques are distinctive types of bill of exchange.
What is the source of this act? SOGA was British
Bill of exchange act, 1882 (British)
Ours act is 1881 and the source is 1882. McKenzie Chalmers introduced this act.
He also introduced the SOGA.
Chalmers was inspired by Willis. When this act was introduced, the first edition of Willis was
there and Chalmers did complete cut copy paste. The bill of exchange act was inspired by the
latest edition of Willys. The changes took place later in British Act but not in Indian act.
Definition?
S. 14- Negotiation means a Written instrument which is negotiable and can be transferred.- S.
14 and 46: written instrument and delivered.
What is Hundi? It is a negotiable instrument. History of this instrument?
Samudragupta had started coins.
Hundi is a local negotiable instrument. It is a sanskrit term.
Hund means to collect. Hundi is governed by local customs and usages and not by Nego.
Instruments act.
The general meaning of this negotiable instrument indicates A piece of paper which entitles a
person to a sum of money stated therein which is transferable by mere delivery or by
endorsement and delivery. The person to whom it is transferred becomes entitled to money
and the right of the person to further transfer it.
Indorsement means that the person who receives the instrument and when he transfers the
same.

8 September

A Promissory Note is a promise to make a payment. If I write a letter to someone stating a lot
of things. I also write that I have taken 20k rupees. I promise to pay on 20 September 2021. Is
it a promissory note?
There is no fixed format. In any manner whatsoever: acknowledgement of debt and
unconditional undertaking to pay. There is no fixed format of writing a bill of exchange.
This is a decision of Delhi HC.
Transferable Infidium
If RBI brings any changes, it would prevail over the NIA.
Nemo debt quad non habet is inapplicable in NIA.
A gives a promissory note to B. B signs the note and gives it to somebody else.
Maker is the person who writes the promissory note while payee receives the money.
3 parties in Bill of Exchange.
Person who draws is drawer
To whom it is drawn is drawee
Person who gets money is payee
Person who draws the cheque is drawer
Entity which makes payment i.e. bank is drawee
Who gets money is payee
It can be transferred by putting a signature.
Holder and holder in due course to be discussed later.
S. 1: Provided that such usages may be excluded by any words in the body of the instrument
which indicate an intention that the legal relations of the parties thereto shall he governed by
this Act- Champaklal v. Kesari Chand, Pannalal v. Hargopal etc.- If the parties want the basic
features of

S. 13 is the first one. Start the answer with this and say it cannot be a proper definition.
Section nahi daala to number bhool jaao
According to Thomas,
“A negotiable instrument is one which is, by a legally recognized custom of trade or by law,
transferable by delivery or by endorsement and delivery in such circumstances that
(a) the holder of it for the time being may sue on it in his own name and
(b) the property in it passes, free from equities, to a bonfire transferee for value,
notwithstanding any defect in the title of the transferor.”
In the words of Justice Willis, “A negotiable instrument is one, the property in which is
acquired by anyone who takes it bonafide and for value notwithstanding any defects of the
title in the person from whom he took it”.
Smith- A negotiable instrument is a signed document that promises a sum of payment to a
specified person or the assignee
Section 14 and 46 makes it clear the meaning of negotiable instruments but section 13 makes
no mention of anything. Section 13 fails to define negotiable instruments. Negotiable
Instruments ‘include’ hota to sahi tha, par ‘mean’ use hua hai.

What are the special features?

It is written and certain
First certainty as to the person who makes or draws the instrument.
As to the person who receives that instrument. The payee is certain.
As to the time and place of payment
As to the conditions of payment
Foremost important- as to the amount to be paid
The date on which the instrument is reqd. To be paid.
Unconditional order-

9 September-
An instrument can be transferred as many times as possible.
2 ways to further transfer:
Indorsement
There is space shortage. What if there is no place to sign and write the address?
By affixing a piece of paper along with the instrument. What is the name of that paper?
Alongee
Right to sue- The transferee of Nego instrument is entitled to sue the instruments on name in
case of dishonour after serving a notice. Independent title means that the general principles of
nemo debt quad non habet does not apply. The holder is presumed to be the owner of the
instrument and a bonafide transferee of the nego instrument for value without notice takes it
free from all defects in title. These are six special features that are there in Nego. Instruments.
(10:04)
All negotiable instruments have certain presumptions in two sections i.e. 118 and 119 of
NIA:
Nature of presumptions is ‘rebuttable’. 118 says ‘until the contrary is proved’. Chaupeu-
French term indicating hat. All subsequent clauses will be subjected to this.
Consideration- WHenever the maker (P note) or drawer (cheque), there is no need to
mention that there is an unconditional requirement to pay. The consideration is presumed and
it is not required to be mentioned. The presumption is deriving from NIA and S. 114
Illustration C of Indian Evidence Act 1872. It gives the court discretion to presume
consideration in NIA.
S. 118- (a) of consideration:—that every negotiable instrument was made or drawn for
consideration, and that every such instrument, when it has been accepted, indorsed,
negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration.
Date- Everybody can assume that how on a piece of paper we can write a p note. How many
dates are mentioned and what is the validity if it is not mentioned? There are two dates- date
of drawing and date of maturity. Date is mentioned on top side right. Date of maturity- from
that date the instrument can be used. (check)
Validity of instrument is measured from the date mentioned on top right. The date mentioned
along with signature is the date of drawing.
Acceptance- First instrument is P note. P note- two parties. Acceptance is not mandatory.
There is no need to have any kind of acceptance.
Bill of Exchange- 3 parties- drawer is directing the drawee to make payment to the payee.
While doing that the drawee has to accept the instrument and make payment according to the
instrument. It is prima facie deemed to be accepted before the maturity date is over. The
acceptance is not needed for cheque. Presentment for acceptance and payment both are
assumed.
Acceptance rule is there only for BOE.
Time of transfer- Transfer was made before maturity.
NLUJ has decided to make today’s day a public holiday. What is it required to do? S. 25 of
NIA is the only law which gives the power to central and state governments to declare
holiday.
Order of indorsement- If there is no chronological order, where the indorsee will resort to
take money, from the previous indorser, and this cycle. The indorsement must be made in a
chronological order as to who should be resorted first. If the order is not there, the validity is
in doubt.
Stamp- NIA is subjected to Indian Stamp Act 1899. According to the value, the stamp is
affixed to the instrument. If the instrument is stamped the instrument is considered to have
more legal value. Even if the stamp is not there, there is no problem as to validity. But for
court purposes, if it is stamped, there is more clarity as to evidence. P note, Bill of Exchange
is stamped, cheque is not stamped. Cheque is assumed to be stamped.
Holder is a holder in due course- The payee is known as holder. Holder in due course is if a
subsequent payee receives that instrument for consideration before maturity in good faith. He
has the right to claim money. This is controversial section 8 and 9. It is prescribed under S.
78 of NIA.
One more thing can be drawn but it can be-
Absence of discharge- When the payee is claiming the money from the drawee, in order to
indicate that this instrument has not been discharged earlier.
When the instrument is discharged?by payment, By cancellation, by release, by allowing
drawee more than forty eight hours to accept, material alteration.
Is material alteration defined or not defined?
Loon Karan Setia v. Evan E. John- defines material alteration
There are certain material alteration that are permitted and some not permitted.
M seal ad: 1000000 cheque pe sign karwaya, 1 pe drop gir gaya.
Is it material alteration?

In any manner whatsoever, two things-

Acknowledgement of debt and unconditional undertaking to pay. If these two are there, it is a
valid P note.
Specific characteristics required- P note must be in writing, unconditional undertaking to pay,
the p note must be signed by the maker, the maker must be certain, the sum payable must be
certain, the instrument must contain a promise to pay the money and money only, payee must
be certain.

One question- If on instrument, amount is mentioned in numbers and amount is mentioned in

words, there is ambiguity, the words will prevail under S. 18.

10 September-

P note is defined under NIA S. 4, Limitations Act 1963, public Debt Act, 1944 and Indian
Stamps Act 1899. Indian Stamp Act 1899 is very important for the purposes of stamping.
Maker and Payee:
Maker is the person who makes the instrument (maker is always known in terms of P. note).
Payee is the person who is entitled to receive payment. Definitions are there in S. 7.
There is no fixed format. Any form of expression from which an undertaking to pay can be
inferred is sufficient. The nomenclature does not affect the nature of instrument.
Out of these 3 instruments, which of them is most used instrument and what makes it the
most used instrument?
S. 91 of the negotiable instrument act talk about dishonour of bank drafts- non payment and
non acceptance (probability will be less)

Enforcement- If P note is dishonored how much time does it take to get it decided via civil
suit?
(Dada khareede pota pehne) It is too much time consuming and the liability for promissory
note and bill of exchange is civil and it is not time bound.
Second one is the legislative purpose. Legislature itself prefers. Chapter 17 of NIA deals with
dishonour of cheques. The uniqueness is that the act is having one object (the purpose
specified by the MP who introduces the act)
Second object clause in 1988, according to govt., in order to have an investment climate in
the country the govt. Thought to encourage the instruments known as cheque. It is preferred
because of enforceability, summary suit and dishonour of cheques is arbitrable as well. S. 147
of NIA allow to have the arbitrability i.e., outside court settlement.
In order to create investment climate, use of cheque should be encouraged. Why?
Tracking and security. Cross cheques- always the money will go in account and fraud etc. can
be easily traced.
Bipin- Cheque ensures credit worthiness because of the reasons specified above (dishonour
provisions). Still, 50 lakh cases are pending as to dishonour. But the legislature has tried to
make the provisions quick. 30 days for issuance of notice+15 days for asking to make a
payment+1 month for the cause of action to arise (limitation period- the period within which
cause of action arises) [1 month and not 30 days] is the time frame in which a person is
entitled to initiate legal proceedings.
Limitation period is determined by NIA and not Limitation Act because S. 138 to S. 140.
All promissory notes must be in writing in order to exclude the oral agreements to pay. S. 4
says P. notes shall be in writing. Writing can be used either on a paper, cloth, linen anything
which is transferable. It can be written in any language and written by any instrument.
Unconditional undertaking to pay- marriage and death wala. Unconditional undertaking-
mere acknowledgement of debt is not enough. Illustration C S. 4 is merely an
acknowledgement of debt. Both acknowledgement and unconditional undertaking to pay. If it
is contingent on a condition which is certain to happen, it is still valid.
If sir writes- ‘I promise to pay Simran of this class Rupees 5 lakhs’
What will happen? There is a case ‘Mohammad Akbar Khan’ case. In this case, Md. akbar
was the name. Read this case.
In any manner whatsoever, the minimum criteria is that in any name the p. Note is made
would be valid. The minimum criteria is the sine qua non without which it won't be valid.
Facts and circumstances are the most helpful thing- If I execute in dehradun, it can be there
that Simran dehradun wali hai.
Some clarity/indication must be there- hostel name, room number.
I promise to pay is not indispensable. Mere acknowledgement of debt is not sufficient and
unconditional undertaking to pay is required. These two requirements are the most important
things.
The P. note must be signed. What is the meaning of the term signature?
Please download UN Convention on __ and Bill of Exchange. The law is old and archaic.
Article 5 of UN Convention- Everybody should read
Mere marks and initials have been held to be signatures if they were intended to be so.
The maker must be certain. If a promissory note is made by several person jointly and payee
can also be more than one. The sum payable must be certain. 5000 rupees + interest therein is
mentioned- is it valid?
Yes, 18% interest is considered to be valid. Even if interest rate is not specified. Instrument
must be providing it in terms of money and money only
The payee must be certain. More than one payee is permitted.
SECTION 118 
Presumptions: Nature of presumption: These presumptions are rebuttable presumptions.
“Until the contrary is proved” is mentioned.
 Consideration need not be in writing. Whenever maker or drawer is making this
instrument, there is no need to mention the consideration. The moment the instrument
is made, it is assumed that there is some consideration. There is no need to write, it is
presumed. This was there even before NI Act 1881. (This has been derived from
section 114, Illustration C of Indian Evidence Act).
 Date: The first date on the bottom side is the date of drawing, and on the top, the date
of drawing. Date of maturity, if advance date is written.
 You can draw the cheque for any period of time. [Three months default, and section
138].
 Time of acceptance: There are 4 instruments. 1. Promissory Note: There are two
parties. Acceptance is not necessary. 2. Bill of exchange. There are 3 parties. The
drawer is directing the drawee to pay to the payee. While doing that drawee has to
accept the instrument and then only, he can pay. For presumption. It is deemed to be
accepted before the maturity date of that bill gets over. 3. Cheque: Presentment and
Acceptance are presumed.
Q. When and how instruments are discharged? Answer DISCHARGE OF INSTRUMENTS
1. Payment being made 2. Cancellation 3. Release of the parties. (San recourse indorsement)
4. Material Alteration
SECTION 4
  A “Promissory note” is an instrument in writing (not being a banknote or a currency
note) containing an unconditional undertaking, signed by the maker, to pay a certain
sum of money only to, or to the order of, a certain person, or to the bearer of the
instrument.
1. Shall always be in writing
2. It can be written with anything and can be written anywhere, it must be
decipherable.
3. It must be transferrable
4. Singed by the maker
5. Maker must be certain
Intention of the parties is taken into consideration
Other statutes defining promissory notes:
Limitation Act, 1963: Section 2(k)
Public Debt Act, 1944
Stamp Act, 1899 (most important because NIA is subjected to it): Section 2(22)
UN Convention on Bills of Exchange and Promissory Notes, 1988
1. Enforcement
2. Legislative Purpose: Legislation itself gives preference to Cheques. Government
introduced chapter 17 and seconf object clause in order to increase investment.
3. Dishonour of cheque is arbitrable as well: Section 147 of the NI Act mentions this. The
cheque ensures credit worthiness as:
a. Dishonour cases are resolves quickly.
b. 1. It must be in writing - The object of this requirement is to exclude oral engagements to
pay, from the purview of the Act. As per Section 3(65) of the General Clauses Act 1897 the
writing maybe in pencil or ink, and it shall be construed to include printing, lithography, and
other modes of representing or reproducing words in a visible form.  It excludes oral
agreements.
2. It must contain an unconditional undertaking to pay  An express promise to pay is an
essential element of a promissory note. A mere acknowledgement of indebtness without an
express promise to pay the debt is not a promissory note. Also, an implied undertaking
inferred from the use of word debt or pronote is not sufficient, as was held in Bachan Singh v.
Ram Avadh.
3. It must be signed by the maker
 The maker of a note, the drawer of a BoE or cheque or an indorser may, if unable to
write his name, sign by a mark in lieu of signature. The signature need not be in any
particular part of the instrument.
 the words “self of my own handwriting”, written at the foot of the instrument,
whereby the writer declares himself to be bound to pay, may be a sufficient signature.
 It is also essential that the mind of the signatory should accompany the signature, i.e.,
the executant should intend to subscribe to the terms of the document.
4. Maker must be certain  Promissory note should give a clear indication of the person who
enters into the contract and undertakes to pay. A promissory note may be made by several
persons jointly or jointly and severally. A joint and several note though on one piece of paper,
comprises in reality and in legal effect, several notes. Thus, if A, B, and C jointly make a
joint and several promissory note, there are, in effect, 4 notes joint note of the 3 makers and
also several notes of each of the 3. No restriction on the number of makers. But their identity
must be certain.
5. The sum payable must be certain and the instrument must contain a promise to pay money
and money only. If ambiguity in words and numbers, words will go [sec. 18, earlier. Now not
allowed]. Contractus Favourous [Presumption of validity of a contract]. Valid, unless proven
contrary. Exception Inchoate Stamp Instruments. Valid as per section 20.

Promissory note-
Definition is in other acts too- defined in section 4 negotiable instruments act, also in
limitation act, Indian stamps act and public debt act.
Promissory note is subject to stamping. 
 
Section 4- the definition is exhaustive and excludes instruments that does not fall in....
Maker and payee- parties of promissory notes- maker is the person who makes the p.
Notes and payee is the person who has the right to be paid. -these definitions are given
in section 7. 
 
There is no fixed format, any form of expression from which an undertaking to pay can
be inferred will be valid. The nomenclature will not interfere with the nature of the
instrument if it matches with the requirements of the section 4. 
 
Can bank draft be dishonoured? It can be when bank refuses, non payment if it has not
been encashed and non acceptance, when bank refuses to accept it. The bank required to
make acceptance refuses to accept. Bank draft can be dishonoured on the grounds of
non acceptance and non payment.
 
Out of the three instruments, cheques most common???? if p. Note is dishonoured, the
time take by civil suit is huge and legislative purpose is to prefer that when chapter 17
of negotiable instruments act deals with dishonour of cheques, uniqueness is that an act
is having one object, meaning of it is when a bill is introduced in parliament or
legislature, the purpose of the bill is given in object clause, in negotiable instruments,
we have two object clauses, one in 1881 and one in 1998. in order to second object
clause, according to government, investments should encourage the instrument of
cheques. It is preferred because of enforceability and summary suits and also, that
dishonour of cheques is arbitrable as well. Section 147 of negotiable instruments act
allows for arbitration even though the offence created by chapter 17 is criminal in
nature. 
 
Cross cheques that money will go in the account and can be found is this is
transgressed. Crossing of cheques 123- 131. the onus is on the buyer to check where
money is going and he can prevent it. 
 How far is cheque related with investment? The cheque ensures credit worthiness,
dishonour within specified time is resolved, 30 [issue of notice]+15 [waiting for
payment]+30 [period for which cause of actions arises]- the person can initiate a legal
proceeding if cheque is dishonoured. 
3 years is limitation for normal civil suits. Another term for limitation is prescription.
The limitation period for determination of cheques is determined by negotiable act only
and not my limitation act, that is used for p. Notes and bank drafts. 
 
1. A p. Note must be in writing, to exclude an oral agreement to pay from purview of
negotiable instruments act as per section 4. 
2. The writing can be used either on a paper, linen or any other thing that can be
transferred from one place to another and no proper wording is required, it can be
written in any language that 8th schedule prescribes. If it is written in oriental
language, and if section 4 requirements are met, it would be a p. Note. 
3. Unconditional undertaking to pay- section 5- mere acknowledgement of a debt is not
sufficient enough. Acknowledgement + undertaking to pay [unconditional].
Mohommad Akbar Khan case. In any manner whatsoever, the min. Criteria indicating
n whose favour the p. Note has been issued, it will be a valid note. Minimum
requirement is that in any manner whatsoever, you make certain the person you are
referring to. Some clarity must be there.
4. Promise must be there. If " i promise to pay" is not there, it will not create doubts, this
term is not indispensable, mere acknowledgement should not be there, the instrument
must be valid ab initio, that is, along with other things, the two sine qua non
requirements- unconditional undertaking to make a payment and acknowledgement of
the debt. 
5. The instrument must be signed by the .... What is signature? In international law, if
initials are there, that will not be binding?? [what did he say?] can we prescribe any
document or a legislative procedure where this signature is defined? Defined in
United Nations treaty on promissory notes and bills of exchange under article 5. 
6. 18% interest is considered to be valid. Sum payable must be certain. 
7. The payee must be certain. More than one payee is permitted. 

13 September

How has the court interpreted the concept of P. Note?

Mr. X I owe you Rs. 500, everything which has been discussed is there. Is this a valid P.
Note? 
No, S. 4 requires acknowledgement of debt and unconditional undertaking to pay. Former is
there but latter is not there.

I have received 25,000 which I borrowed from you and I have to be accountable to you for
the same with interest. 
Two things are needed to be understood. A promise to pay can be there in any form. The
meaning should convey promising something and unconditional undertaking. I have received
and I borrowed shows acknowledgement. The second line ‘I have to be accountable with
interest’. It sounds like further acknowledgement of the debt. The nature also uses ‘received’
further making it clear that money has been taken. It is making only acknowledgement of
debt clear while the second aspect is missing. 

The amount which I have received from you in cash is Rupees 1 Lakh. This sum I am bound
to pay to you.
This does not show unconditional undertaking to pay but merely it is extension of
acknowledgement.

Deposited with me Rupees 100000 to be returned on demand

The concept of paid/returned on demand. Promissory note can be made payable on demand?
Only the govt. can issue such notes. These two aspects along with the third aspect that is
there because S. 1 mein whatever we have discussed, this act is subjected to Indian Paper
Currency Act, 1871 and now that act is RBI Act 1932. 

I am liable to A in sum of Rs. 1 Lakh which is to be paid as installment for rent. Money and
money only can be paid. Paid by installment mein installment is not clarified.

This receipt is hereby executed by B for Rs. 43900 received from the firm of A or on behalf
of A. The amount to be paid after 2 years at the rate of 14% interest per year to be charged
dated 1 April 2020. 
Mohammed Akbar Khan v. Attar Singh 1937- This looks more like a receipt. The direction
must look like a direction. It should not be said in such a manner which does not look like a
direction. It should make the intention very clear. It is not sufficiently clear that money will
be paid. 
A British case- Claydon v. Bradley 1987- more recent case

I, of my own freewill, approach A and borrow 1 lakh at the rate of 8%. I have therefore
executed few presents by way of a promissory note so that it can serve an evidence and be of
use when needed. 
When needed is making it ‘payable on demand’ which is not permissible. This has been there
in the case of Bachchan Singh v. Ram Awadh. 

Rupees 1000 rupees due to you. I am still indebted to you and promise to pay.
The court uses the term minimum conviction and minimum intention. The rule here is ‘favor
contractum’.
Even if signature is not there, it is now considered to be valid if the conduct proves the
existence of contract.

We have received 9240 rupees from R. This will be paid on demand. We have received 9240
rupees today which was signed by the maker and also contains an indorsement by a third
party guaranteeing repayment.
More than one maker and more than one payee can be there so ‘we’ is not an impediment.  

Can a witness be there in Nego. instrument? If a witness is there then what is the role of the
witness? Does it work like an indemnifier or guarantor? Should it be considered to be
necessary party?
Section 33 of NIA
Acceptance is there on this promissory note? Not at all. Acceptance is needed when there are
three parties, when liability is primary or secondary of different persons. Here the liability is
primary and it is not required. When the drawee accepts the instrument, those things work on
bill of exchange. 
In this case, witnesses had signed to guarantee repayment. Witnesses may be permitted.
If witness are there, only legal validity is there that they were present at the time the P. Note
was executed. 
Witnesses can be guarantors if they sign for it.
Witnesses are not the necessary parties in order to make the payment. They are necessary
party in order to prove the validity of the promissory note. If they sign it, the first person to
pay is the maker but his failure to make payment wont make the instrument invalid because
the intention of the instrument is to have a guarantor.  
When maker or holder of the instrument signs the same, why maker will sign for
reindorsement or further transfer. When the maker is not signing, and on his behalf the agent
is making the note, the maker is reqd. To sign in the capacity of indorser. The maker can also
be indorser. 

Case laws
Kadori lal v. Sukh lal AIR 1968 MP page 4- Core ratio of this case: 
The whole document is required to be read in order to find the intention.
The payment should be made according to the apparent tenor of the instrument meaning
thereby that payment in due course according to the direction and specification.
The purpose for which it was executed as described in the instrument. 
Collateral circumstances which may be contained in evidence cannot be looked into for the
purpose. 
For the fourth ratio, for all evidence rule do not ___ (10:51)
America- parol evidence is not permitted; Britain- may be permitted; India- permitted but
works under Contract Act and SOGA but not under NIA. 

Chabeeldas Mangaldas v. Luharkohan Arya AIR 1967 Gujarat pg. 7

Incidence of negotiabiltiy and requirement of S. 4 is necessary

Baharuddin Nisha Begum v. Basudev Nayak AIR 1967 Andhra Pradesh pg 123
Only one thing is necessary for valid P. note which is certainty. This highlighted that
certainty is the most important thing. Certainty as to: __ (:55)

__ Gopal Reddy v. Neelkantham Venkata Krishna- 

M/s Packing Papers sales and Anr. v. Veena lata Khosla

It should be in writing
Unconditional undertaking by the maker
It must be to pay certain sum of money to a certain person or to a bearer of the instrument.
The maker must sign it
The promise to pay must  be the substance of the instrument
There should be nothing else inconsistent with the CHARACTER of the document as
substantially the promise to pay
The instrument must be intended by the parties to be a promissory note.

14 September 2021

___
The instrument must be intended by the parties to be a promissory note.

Bill of Exchange (S.5 of NIA)

The definition is exhaustive in nature. There are three parties. The person who makes/draws
the Bill of Exchange is known as drawer. He is the person making payment. In P. note, the
relation between drawer and payee was direct. Here, the drawee is the person who makes the
payment to the payee. In P. note, payee approaches the drawer for payment but in case of
BOE, payee approaches the drawee. 

Bill payable out of the particular fund- Some cases talk about __ others- Since assumption is
assumed, particular fund is there with the drawee or not is not material 
Bill of Exchange must be signed by the drawer- Drawer must be certain
Payee must be certain.
Payee will bring the BOE to the drawee. When the drawee accepts the BOE, he becomes the
acceptor. 
Bill in sets- S. 132 
Acceptor is when the drawee has put his signature. Normal way of acceptance is writing
‘accepted’ and signing. 
Drawee in case of need- When the drawer is making the BOE, in case A is not giving you
money, resort this instrument to B. Alternate drawee in addition to main drawee will be
known as Drawee in case of need. Dishonour will take place when both the drawee refuse to
pay. 
At the time of indorsement, the indorser writes ‘claim money from C also’. It can be
mentioned by the drawer or the indorser in case of subsequent transfer of instrument. 
In British cases, it is written ‘refer in case of need’. The form of requirement is no longer
practiced in the world. The legislature does not direct you. 
Acceptor for honour- Till now, whatever was told were not strangers at the time of making
the instrument. These people were certain. Acceptor for honour as the term mentions- 
i- the bill of exchange has been dishonoured
ii- It is ‘noted’ and ‘protested’- These are the authentication of the BOE. The facts are noted
by notary public. The person who is knowing the drawee or drawee in case of a need comes
up and ready to make the payment. If the payee accepts (better word- holder) and this person
puts his signature. This person is known as acceptor for honour. 

Whether minor can issue a negotiable instrument?

Minor can issue Negotiable Instrument under S. 26 but he is not bound so in case dishonour
takes place, one cannot do anything. Can the drawee be a minor? No, minor has no liabilities
but only benefits. 
What is the difference between promissory note and bill of exchange?
1- Number of parties- 2 (P. Note- maker and payee, debtor and creditor, promisor and
promisee) and 3 (BOE- drawer, drawee and payee). Whether we need three entities or status
of three entities? Drawer can be a drawee in case of bank draft. Drawer and payee can be the
same in case of self cheque. 
2- promise and order- A promise remains an unconditional promise by the maker to pay the
money to the payee on his order. In case of BOE, there is unconditional order by the drawer
to the drawee to pay the Payee.
3- Acceptance- in P. note, not required as the maker himself pays money, acceptance is
presumed. 3 requirements of payment in due course- apparent tenor, in good faith and
without negligence (S. 10). In P. note, acceptance is not needed but in BOE, it is necessary
(:39)
4- Nature of Liability- Liability of maker in case of P. note is primary and absolute. Once you
have made a promise, whenever the bill is presented to you for making a payment, you are
liable to do it. In BOE, the liability of drawer will arise only when the acceptor does not pay
to the payee. Primary liability is of the drawee and if he doesn’t pay, drawer’s
conditional/secondary liability. 
5- Position of the maker/drawer- maker stands in the immediate relation with the payee (P.
note). In BOE, drawee stands in immediate nature with the payee. 
6- Bearer- I promise to pay the bearer- whosoever is having the currency, he is to be
honoured. Government promissory note can only be of this kind- ‘bearer promissory note’. A
promissory note issued by a person cannot be considered as bearer promissory note. 
7- Protest- Everything getting done in India is inland instrument S. 11. In case there is
Foreign bill of exchange (S.12), it is necessarily required to be protested for dishonour. In
case of P. Note, it is not needed. 
8- Notice of dishonour- When the bill of exchange is dishonoured, a notice, written or oral, is
required to be there to the drawer. Drawer is the person from where the document was issued
therefore, notice is required to be given. In case of P. note, no notice because of knowledge.
You yourself have dishonoured so there is no need. 

15 September 2021

Drawee is the person directed to pay as mentioned in S. 7.

All or several drawee (when the bill is addressed to many drawee)
Drawee in case of need if there is always mentioned and is named by the drawer himself.
Acceptor for honour S. 33 gives the answer.
To what extent is the definition of banker sufficient as provided under S. 3 of NIA?
Whether footnote is a part of legislation? Footnote is directing us to banking regulation act
for definition.
This question can be addressed only if you address the inadequacy of S.3 because the act
which is subsequent to this act will prevail as it is written in VCLT (Vienna Convention on
Law of Trade). 
What is the problem with this definition?
The problem in definition is with the word ‘any person’. Any person cannot be a bank as per
the requirement of RBI Act and Banking Regulation Act. Therefore, S. 5b and c of Banking
Regulation Act will be used for the purposes of definition. 
Open current account, pay cheques drawn on the bank and collect cheques for customers. 
Relevant case law as to what is the purpose of bank- United dominance trust limited v.
Kirkwoot 1966 1 AIR pg 960.
Banking Company means which transacts the business of banking in India. 

The concept of cheque.

Definition of Cheque- S. 6 of NIA defines cheque- A “cheque” is a bill of exchange drawn on
a specified banker and not expressed to be payable otherwise than on demand and it includes
the electronic image of a truncated cheque and a cheque in the electronic form.

Characteristics of cheque-
1- A cheque is always drawn on a specified bank and is payable immediately on demand
without any grace period. Failure to make payment within 48 hours would dishonor the
cheque.
Three people- drawer, drawee (bank) and the payee. Drawer and payee can also be the same.
2- A cheque requires no acceptance apart from prompt payment. It is always payable on
demand. There is no privity of contract between the banker and payee therefore the payee
cannot sue the bank for dishonour. The bank itself informs the payee about dishonour. The
suit can be always instituted against the drawer. If the bank is not negligent, there will be no
suit against the bank.
3- A cheque is supposed to be drawn upon funds in the hands of the banker, unless
overdrafting facility is available.
4- The drawer of the cheque is not discharged if the cheque is not presented within the time.
The payee can ask for a new cheque as per S. 45 A
5-Cheque is not noted and protested in for dishonour and is generally inland
6- Cheque generally is inland. 
The united nation convention deal only with BOE and P. Note and not cheque.
7- The protection given to the banker is peculiar in case of this instrument.
What are the protections available to bank in case of crossing of cheque?
The protection is given to the banker is peculiar to this instrument. Protection given to banks
in case of crossing. We will discuss crossing under S. 131A of NIA. Crossing means A/C
payee indicating security. 

Bearer cheque- No mention of the payee and only the possession is sufficient enough to the
money. If this cheque is lost, whosoever is the finder is entitled to the amount.
Order cheque-  Name of payee when mentioned on the cheque is known as order cheque.
Crossed and uncrossed-
Ante dated cheque- I know that money will stay in my account for 10 days only. I want him
to take away the money in 10 days. Therefore, I enter the date in the manner so that the
cheque will stay valid only for 10 more days. 
Post dated cheque- Is this a valid cheque? At the time of issuing, it is a bill of exchange. It is
presented for acceptance only and not for payment. When the date on which it falls due
arrives, it is considered as cheque. Case- Anil Kumar Sahani v. Gulshan Roy, 1994. 
Whether in post dated cheque, S. 138 applies?
The cheque has to be valid ab initio. The intention was to issue it as a bill of exchange. Then
how will it apply? Cheque is issued for ‘debt or other liability’ which means legally
enforceable debt or other liability which is existing. In PDC, is the liability existing or in
future? 

Indus Airways case (Ratio no longer applicable)

This case had created a problem. They talked about that the debt and liability has to be
existing only and cannot be future. This had created problems in real estate. The Supreme
Court agreed to the ruling of Anil Kumar Sahani v. Gulshan Roy in which it was agreed that
a PDC is a BOE before the date it falls due. The date on which it becomes a cheque,
provisions of S. 138 and all other provisions will be applicable. Before that, provisions of bill
of exchange shall be applicable. For example- for presentment or acceptance, that can be
done. Why acceptance? The payee will be certain that since he had accepted the cheque the
particular cheque will get it encashed. For better security, PDC can be accepted but the
payment will be done when the due date falls due.
Stale cheque- Expired cheque is known as stale cheque.
Truncated cheque- shortening. While clearing the cheque, the cheque is truncated (shortened)
to show that cheque has been negotiated. 
Electronic cheque- Defined in IT Act 2000. It is the exact mirror image of a paper cheque.
Any info. Generated, received, sent or stored in media magnetic optional computer memory
micro film computer generated micro disc or similar device. DSE (Digital Signature) is
needed for the purposes of making an e-cheque. 

What is the difference between cheque and bill of exchange?  

1- BOE can be drawn on any person or even the bank in case of Bank Draft. A cheque is
always drawn on a specified bank and is payable immediately. 
2- BOE requires acceptance on the part of drawee whenever it is presented. BOE is always
presented for acceptance first and it becomes payable only when it is accepted. BOE is a two
way process: acceptance and payment. It becomes payable only when the BOE has been
accepted. Cheque requires no acceptance. It is presented for payment only and not for
acceptance (except for PDC). There is no privity between the banker and the payee and
therefore, the bank cannot be sued for dishonour.
3- A Bill of Exchange cannot be payable on demand though it can be payable to bearer after a
certain time. A cheque can be drawn payable to bearer on demand.
4- Three day grace period- The date on which the instrument falls due, that date+3 days in
case of BOE (3 day grace period) but in case of cheque, immediate payment. Under no
circumstances, it may go beyond 48 hours as specified in S. 22. 

16 September

5- BOE can be issued even without specified fund that is there with drawee but cheque
cannot be issued if the amount is not there in the bank and even if it is issued there is a
chance of dishonour.
6- BOE cannot be revoked or counterminded but cheque can be.
7- Drawer of a BOE is normally discharged if it is not presented for payment but the drawer
of cheque is discharged only when he suffers any damage in delay in terms of presentment of
that particular cheque.
8- BOE requires stamping as per S. 118 (presumptions) but stamping is not needed in case of
a cheque.
9- In case of dishonour of BOE, a notice is required to be served to the drawer, either written
oral or merely notifying the drawer. In case of dishonour of the cheque, written notice to the
drawer by the payee or holder in due course is mandatory asking for making a payment.
Notice shall be given within 30 days of the dishonour of the particular cheque as specified in
S. 138 of NIA.
These are the differences between BOE and cheque.

Classification of Negotiable Instrument

Certainty must be there in all aspects.
Q- Whether incomplete Nego. instrument if issued, be considered valid or not? If valid, under
what circumstances? 
In choate (Incomplete) stamped instruments (all these sections must be mentioned- S. 8, S.
20, S.9, S. 78, S. 118, along with Indian Stamp Act provisions)
Why incomplete instruments are issued? What is the basis for issuance of inchoate stamped
instruments? How will you prove certainty? Inchoate stamped instruments are what kind of
instruments?
5 problems 1 solution- Section 20 
The amount is not there in Inchoate stamped instruments. Why do people issue it then?
Because NIA is subjected to Stamp Act and it is mentioned under S. 118. When you stamp
the instrument, the purpose is to authenticate and the value of the stamp is determined by the
value of the P. Note or the BOE.
Hypothetical example- 5 rupees stamp is required for affixing the instrument from 100 to
500. There is an indication to the holder to fill the amount within this range. Minimum
certainty is there. The value is determined in terms of the stamp that is affixed as per the
Indian Stamp Act 1899 and they talk about the value to which the stamp is affixed. Stamp is
affixed by the maker or drawer and it is only in case of P note and BOE and not in case of
cheque and bank draft.
The authority to fill is given to whom? Let’s say the money is required to be filled from 100
to 500. This kind of authority will be given to the person whom you are knowing and you are
sure that he will not do any mischief. Inchoation will take place only when the parties are
having utmost good faith over each other. Till the time instruments are discharged (release,
payment, cancellation, material alteration), the drawer’s liability is always there but it is
different matter for the last person. When the indorser has provided that instrument to
someone else, it means consideration is flowing. The payee or the holder of the instrument
will present to the immediate endorser not directly to the maker. But if the indorser is not
making the payment, he can resort to the last person i.e., the drawer or the maker.      
What happens when the person who held the inchoate instrument and was expected to fill the
amount exceeded the maximum amount under the stamp? Later, he transferred it to someone
else. What is the liability of the maker? How much money will the payee (last person) get?  
The last person will be considered as holder in due course specified under S. 9. One of his
privileges is that in case of inchoate stamped instrument which exceeded the max. Amount,
the burden is on him to show that he is the holder in due course as per S. 9. If he proves, his
title will be free from any defects created by the holder. He will be entitled to receive the
specified amount from any person (drawer or maker and the person who has done the
mischief or fraud) if he is able to prove the same.
Requirements for holder in due course as per S. 9-
He must be a holder
Become holder for consideration
Obtain the possession of instrument before maturity
Obtain the same in good faith
4 requirements he talked about- also discussed above
He must be a holder as per S. 8 (entitled in his own name to the possession thereof and to
receive and recover the amount from maker/drawer or drawee). For holder, consideration is
not required. In inchoate, the holder in due course has received the instrument for
consideration before maturity in good faith, he will get the amount.

[Inchoate stamped instrument

a) Section 20: incompleteness to the extent of amount to be filled. It is generally
expected that the holder will fill that amount which is in consonance with the stamp to be
fixed
b) Section 118 (f): talks about stamping but over the years stamping act is not applicable
to cheques. Thus cheques don’t come under the terms of Section 20.
c) Stamp fixes the maximum amount which can be there.
d) Even though any excessive money is filled (previous holder’s right is defective) and
indorsed to someone else, indorsee has to look for 3 requirements to be fulfilled: (1) received
in good faith, (2) before maturity and for consideration. If these 3 are cumulatively fulfilled
the indorsee becomes holder in due course. Stamp loses importance in such a case. [Privilege]

Who pays the excessive amount? The drawer or the maker. Why not drawee? If BOE is there
then maybe drawee or the drawer as well. Isn’t it wrongful? No, nemo dat quad non habet do
not apply that means utmost good faith. Whosoever paid consideration is entitled to have
certain privileges. 
This is not only the single privilege to the holder in due course. There are 8-9 privileges to
the holder in due course.

Order Instrument
S. 13 explanation 1 of NIA provides the meaning of order instrument-
1- which is payable to a particular person
2- which is payable to a particular person or to his order
3- which is payable to the order of a particular person
Payee’s name is mentioned payable to a particular person or payable to a particular person or
to his order or payable to the order of a particular person is known as Order instrument.
One line- when an instrument is required to be paid to a particular person, it is known as
order instrument.

Bearer instrument- (i)- expressed to be payable to the bearer or 

(ii)- where the last indorsement is blank. S. 50 says that instrument can further be transferred.
This can be done in two ways- indorsement in blank (the holder without writing any name
can sign the instrument and give it to someone. In legal terms, it is order instrument turning
into a bearer instrument Second way, not related with the present context, whosoever is
having the instrument provides complete directions, the person to whom he directed to make
payment and his signature. This is known as special indorsement. Order instrument remains
an order instrument. S. 14 read with S. 46 when negotiation has been completed-
writing+delivery (constructive or whatever). When the order instrument is indorsed by
indorsement in blank, order instrument turns into a bearer instrument. 

Time instrument (S. 13 Explanation 3)- 

4 types
Payable on specified date
Payable after a specified period
Certain period after ___ (will be clear once we discuss S. 21)
On the happening of an event which is certain to happen

Demand Instrument- S. 19
If no time is specified, then it is payable on demand.
4 things-
Time of payment is not specified
3 day grace period is not provided (S. 22 to 24)
Cheque is always payable on demand
Maybe presented for payment at any time BUT within its validity period

17 September 2021
Payment of interest in terms of negotiable instrument. 
If not mentioned by parties, 18% interest is charged as per S. 80 (amended in 1988 from 6%
to 18%)
What is payment in due course?
Payment made as per the direction. See S. 10-
“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 therein mentioned. 
Apparent tenor
Good faith
Without negligence
Payment must be made to the person who is holder as specified in S. 78 and in case of bearer,
the payment should be made to the bearer of this instrument.
Payment must be made in money and only money

Inland Instrument- Negotiable Instrument is drawn in india, paid in India and all the parties
are in india, payable in india, drawee must be located in india, as per S. 11

Foreign instrument- This is defined under S. 12. 

[Can we say NI Act has many definitional clause and it is a unique feature of this act.
Normally there’s one section for definition but here there are a lot of definitions.]
Whatever that is not inland is foreign instrument as per S. 12.
Drawn or made in India for a person outside India
Drawn outside for a person resident of India
Drawn outside India for a person outside India.

What is ambiguous instrument? S. 17- drawn in such a manner that it can be taken either as
BOE or P. note.

Escrow- It’s an instrument where one party can deposit amount with a third party and the
third party shall pay the amount to the second party on the fulfilment of certain conditions. 
Sir- When a negotiable instrument is endorsed or delivered conditionally or for a specific
purpose or safe custody and not for the purpose of transferring absolute property therein is
called escrow. In case the payment is not done, you can get it encashed but the purpose is to
raise money.
S. 47- inference can be made concerning escrow.

Bill in sets- S. 132

What is the meaning? In what kind of transactions? Each part is known as what? One part can
be indorsed and if it is indorsed, it will become a separate BOE? 
Bill in sets is BOE drawn in parts each part being numbered containing a provision that it
shall continue to be payable only so long as the others have not been paid. Whole set
constitutes only one bill. There must be a reference on each bill to the whole set. Ex- 10 parts
are there, all bills must be referring to all the parts (1 of 10, 2 of 10 and so on). All the parts
must be numbered. These parts make one bill. It shall continue to be payable only if the other
parts are unpaid. Payment of one discharges the entire set.
BOE requires acceptance. Whether acceptance is needed on all parts or any of part?
If any of it is accepted, all parts are considered accepted.
If a person indorses to different persons, different sets will constitute as if they were separate
bills.
Since it is part and parcel of one instrument, payment of one means payment of all, each part
will continue to be payable, so long as all other parts are unpaid. All copies are required to be
there. If only one part of the set given to encash, then the onus will lie on the original payee
to show that the if one of the parts has been indorsed, that indorsed part is a separate part.
Each part is known by a term
Each part is having a reference of other parts and each part is having certain value. The part
which is not having a reference is considered to be a separate bill. 
If two or more parts are negotiated to different holders in due course, the person first who
first acquire title to a part is entitled to the other parts and he is alone entitled to receive
money in lieu of the bill. Section 132 n 133
Bill in sets is used in International Commercial Transactions when the parties are residing
overseas and goods are transferred by carriage of goods by seas. When bill are in parts, it is
easier to transfer the parts of bills. 
Twofold purpose:
1- To prevent inconvenience and undue delay which may arise due to the loss or miscarriage
of the bol during transit.
2- To ensure the safe transmission of at least one part by the drawee and its acceptance as
early as possible.

When a person accepts or indorses different parts to different persons, the bill in sets will be
treated as separate bills only.

Usance Bill of Exchange

Time fixed for the payment of the bill drawn in one country and payable in another country is
called Usance Bill.

Accommodation Bill of Exchange

Bill is drawn by one person and accepted by another without consideration merely to enable
the buyer to raise money On bill by discounting it.

Documentary Bill of Exchange

When Bill of Exchange is attached along with other documents of carriage) as well.
Documents- bill of lading, railway receipts, airway bills (basically carriage transactions)
[How many types of carriage of goods are there? Bill of lading, Charter Party Contract
(governed by Contracts Act) and combination of so many things i.e., multi modal
transportation of goods (multimodal transportation of goods act 1993. For bill of lading
which law is there in India-  Carriage of goods by sea Act 19]

Claused BOE
A clause providing for payment at a specific rate of interest and specified charges is known as
claused BOE (check)

Irregular BOE
What is irregular indorsement? S. 118 talks about that the indorsement must be in order.
What is regular and irregular?
Regular Indorsement means that as S. 15 talks about there is no limit as to the time that the
indorsement can be made. That ensures the order of making payment to the last payee. It
creates an order by which the last person can resort to claim money.
If the order is not created properly and not telling whom to approach to claim money and an
ambiguity is created as to who is the last payee. Irregular BOE is considered to be invalid. 

BOE is like a currency. It should be above suspicion. Explain. What is the meaning of this
statement?

Avalised boe – It means including a signature by a person who wants to back it to guarantee
its payment to the holder in due course. If drawer is not paying the guarantor will pay.
Fine trade BOE
In banking circle, the accepted BOE is known as fine trade BOE. 

21st sept
PRIVILEGES OF HOLDER IN DUE COURSE
1. Every prior party to a negotiable instrument is liable to holder in due course and this
is provided under Section 36.
2. Privilege in case of inchoate stamped instruments mentioned under Section 20.
3. A holder who derives the title from the holder in due course has the same rights as
that of the holder in due course. If he further transfer, the person to whom it is transferred will
become a holder in due course only- Section 53
4. No prior party can set up a defence that NI was drawn, made or indorsed by him
without any consideration- under Section 43. Hence no defence can be taken that there was
no consideration.
5. No prior party can set up a defence that NI was lost or was obtained from him by an
offence or fraud or for unlawful consideration. Holder in due course gets a valid title of the
NI even though the title of the transferor was defective- under Section 58 read with sec 9.
6. No prior party can allege that NI was delivered conditionally or for special purpose
only and special purpose here refers to purpose other than payment- Section 46
7. Estoppel against denying original validity of the instrument- Section 120. Thus no
defence that instrument is not original.
8. Estoppel against denying the capacity of the indorsee- Section 121. Minor’s position
related to NI.
9. Estoppel against denying signature or capacity of prior party- Section 122
Definition of Holder
First and Foremost Section
8. “Holder”.—The “holder” of a promissory note, bill of exchange or cheque means any
person entitled in his own name to the possession thereof and to receive or recover the
amount due thereon from the parties thereto.
Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the
time of such loss or destruction.
1. Named Payee, Named Endorsee,
 2. Intention of drawer/maker. We can use the term drawer only, as bearer P-note can
only be issued by the government.
3. Holder can be payee or endorsee as per Sec. 8
4. Sec 78 requires payment to be paid to the holder
5. Sec. 138 requires that in case the instrument has not been honored, holder can initiate
dispute against the drawer
6. Section 118 defines and makes it clear that holder is holder in due course

Holder has the right to possess - Sec. 8. 2 things are needed

1. Entitlement to possess
2. Entitlement to receive and recover and get a payment

If Holder has the right to possess the document, he also has the concomitant right. In both the
cases, the first thing is entitlement - right over the particular instrument and its usage.
Entitlement is the bedrock of the holder, and is for two things. It is between the parties of the
instrument - maker/drawer/endorser. Entitlement denotes the legal right to have something or
do something. Therefore, illegal possession or dubious possession will not entitle the person
to legally recover the said amount.

Actual possession of the instrument is not necessary, we need de jure possession. When the
name of the Holder is mentioned on the instrument either in the form of the payee or the
endorsee or whosoever.

By operation of law as well, a person can become the holder -

 By passing of a decree a person can become a holder
 Legal representative of a deceased payee can claim as the holder. Exception - when he
is endorsing in his own capacity, not as the LR, this isn't valid
 Between insolvency and CIRP approval

For collection of money, he cannot be considered as a Holder. He should be entitled to

receive the money.

The Assignee of an instrument cannot be considered a holder of that instrument. Two ways of
transfer of instrument - Sec 15,16 - endorsement and Sec. 130 of TPA.

Entitlement should be in his own name, not in any other person's name. Any and every
entitlement is not enough, own name is super important.
Amount must be due stated thereon. Due indicates owing to or become liable to from the
parties to the instrument - drawer/maker/endorser to the holder. Holder's right to recover from
any of the previous parties.
What is the difference between holder in due course and holder?

9. “Holder in due course”.—“Holder in due course” means any person who for
consideration became the possessor of a promissory note, bill of exchange or cheque if
payable to bearer,
or the payee or indorsee thereof, if 1[payable to order,] before the amount mentioned in it
became payable, and without having sufficient cause to believe that any defect existed in the
title of the person from whom he derived his title
 Instrument has been received by Holder for a consideration
 Said consideration must be lawful
 Person should have the possession before the amount becomes due, before date of
maturity
 This holding should be in good faith

The definition makes it clear that to be a 'holder in due course' a person must be a holder for
consideration and the instrument must have been transferred to him before it becomes
overdue and he must be a transferee 'in good faith and another important condition is that
the transferee namely the person who for consideration became the possessor of the cheque
should not have any reason to believe that there was any defect in the title of the transferor.
1. Holder means any person entitled in his own name and entitled to recover or receive
the amount theron due between the parties. A holder in due course, means a holder
who has taken an instrument in good faith, at fair value, and before maturity
2. The Holder does not get good title if the title of any of the prior party is defective. In
Holder in DC, he gets a title free from any defect, he gets a better title than the person
from whom he got the instrument
3. For Holder, title must be bona fide. For Holder in DC, even mala fide possessor may
transfer an effective title. Why this privelege? Because one- consideration and two -
because he exercises good faith.

Law confers certain privileges to holder in DC

4. Holder may acquire instrument even after maturity, but holder in DC must acquire
before it is due for payment, before maturity date
5. The Holder of an instrument can recover the amount from the person who signs the
instrument and also from the transferor, but the holder in DC can recover from any of
the prior parties before maturity date, he can enforce his right against all the prior
parties Section 36 talks about this

36. Liability of prior parties to holder in due course.—Every prior party to a negotiable
instrument is liable thereon to a holder in due course until the instrument is duly satisfied.
PRIVELEGES
1. Every prior party to a NI is liable to holder in due course - Sec. 36
2. Sec 20 - Privileges' incase of inchoate stamped instruments - in HDC, even though
exceeded amount is mentioned, then even that is recoverable by the HDC
 3. The holder who derives the title from the HDC has the same title as the HDC, the
same right and priveleges as for HDC - Sec. 53
4. No prior party can setup a defence that an NI was drawn, made or endorsed by him
without any consideration. Therefore, if the drawer/maker/endorser - if he signs an
instrument and delivers it, then subsequently he cannot take a defence - Sec. 43 r/w
Sec. 118 Consideration is presumed not only for the maker, but all the subsequent
parties
5. No prior party can set out a defence that NI was lost or obtained from him from an
offence/fraud/ unlawful consideration. Hence, HDC's title will be valid even if.
previous title was defective Sec 9 read with Sec. 58. Till the instrument is discharged,
it is their legal duty if your name or signature is mentioned on that particular
instrument
6. No prior party can allege that NI was delivered conditionally or special purpose only -
Sec. 46. For HDC, only one purpose - to claim money from any of the parties
7. Estoppel applies against denies original validity of the instrument - the person who is
required to make the payment does not have the defence that the instrument is not
original - Sec. 120 of NIA.
8. Estoppel against denying the capacity to endorse - the moment one endorses. Once
negotiated, then subsequently you can't claim that there is no capacity. The HDC has
the right to recover amount
9. Estoppel against denying the signature or capacity of prior party - Sec. 122.

The main provisions of Sec. 9 but other provisions are also important.
23rd sept
What is the difference between negotiation and assignment?
When the P. note or cheque is transferred from one person to another is known as negotiated
and the person who gets the instrument is known as payee and is known as holder. Under this
act there is no restriction as to how many times it can be transferred. It can be transferred ad
infinitum, until restricted by any party but if restriction is not there, it can be freely
transferred from one party to another for consideration and sometimes, without consideration
as well. Even if it is without consideration, it is most of the time presumed as we have talked
in S. 118A.
S. 47 is the only provision which talks about lack of consideration when the instrument is
issued in the form of Escrow. (there that is there)

Transfer by negotiation is the only way of transfer recognized by the NIA and transferee is
known as holder,

Methods of negotiation-

1- Negotiation by delivery- S. 4. It depends upon what the instrument is that is, P. notes,
BOE or cheques. Whomsoever it is there, it is required to be delivered. Negotiation S. 4
(Negotiation- the moment the instrument is transferred, it is completed) and by delivery (S.
14 read with S. 46, 47 and 48).
Delivery of the instrument completes the negotiation of the instrument. The negotiation
cannot be said to be completed unless the instrument is delivered to the payee, holder or
holder in due course.
Two things: drawing+delivery

What do you mean by delivery?

S. 46, 47 and 48 talks about actual and constructive delivery.

Actual delivery takes place when the instrument is physically handed over to the party who is
entitled to the instrument.
In fact, the actual or constructive delivery, i.e., the physical or control element as has been
discussed in SOGA will be applicable over here. Only thing is that it has been clarified in
Sections 46 and 47.
Next thing is delivery to whom?
Delivery is required to be done to the immediate party. Delivery should be made by the party
who is liable to pay or by a duly authorized agent.

Conditional delivery is permitted or not? S. 47- If the instrument is delivered and subject to
the conditions if certain things will take place, then only delivery then in that case it will not
be considered that the instrument has been negotiated. Conditional delivery makes the
instrument invalid as it is there under S. 47.

We have discussed many types of Negotiable Instruments. Two things are there:
How the transfer of bearer instrument will take place and how the transfer of order instrument
will take place?
The instrument payable to a bearer can be negotiated by simple delivery only. Order
instrument can be delivered to the holder by indorsement+delivery.
Bearer instrument can be delivered to anybody. Order instrument can be negotiated
subsequently by that party by indorsement and delivery because the first time if that is getting
done, that will be known as negotiation. If order instrument that is writing+delivery that is
getting done negotiation taking place but if it is done subsequently, in that case it can be
transferred by any person by doing 2 things i.e., indorsement and delivery. This has been
there in S. 46.

2- Negotiation by Indorsement- Now the question comes what is indorsement? who can do
this? when can it be done? whether the maker can also indorse? Rights of the indorsee? Types
of indorsee? All these things are required to be understood.
Q- What do you mean by indorsement?
A- Indorsement ordinarily means the writing of one’s name on the face of it or back of it with
the intention of transferring the rights therein. It can be there on a paper or a slip
attached/annexed to the instrument. It is then known as alongee. S. 15 merely states that the
signature may also amount to indorsement. It may be made either by the holder or the person
who is authorized on his behalf.
S. 15. Indorsement.—When the maker or holder of a negotiable instrument signs the same,
otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or
on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended
to be completed as a negotiable instrument, he is said to indorse the same, and is called the
“indorser”.
Now the question comes that Is merely putting a signature and then they talk about
indorsement in blank and indorsement in full. Only thing that is required to be understood is
that when a holder of the instrument signs that instrument then the intention to transfer it
further and deliver is the meaning of indorsement is very clear. But the question is when the
maker himself will be considered as indorser, the answer to this is when the instrument has
been drawn by his authorized agent, that he requires to sign it in order to provide authenticity
to the particular instrument. This is the only way through which the maker of that particular
instrument can indorse as that has been said by a famous commentator Bhasyan and Adiga,
Sharma and Moga else, no book talks about when the maker can be an indorsee. S. 15 is
required to be read with S. 118 which states that except where indorsement bears a date after
maturity in the bill, every indorsement is prima facie deemed to have been effected before the
bill was overdue. This is very clear that we need to read S.15 along with S. 118 where it talks
about that before the bill overdue that means before the maturity if it is indorsed that there is
a presumption that the money is required to be paid that is the timing of that instrument that
they have clarified.

Who may indorse?

There can be two answers each with different sections of NIA: S. 15 and S. 51
That means maker or the holder of the instrument can indorse. Other day, he asked who may
negotiate an instrument. Under this topic, he brought S. 51 and that can be reiterated, sole
maker, drawer, payee or indorsee, or all of several joint makers, drawers, payee or indorsees.
Who may indorse? That is the holder or maker of the particular instrument and as that is there
by S. 15. Three sections can be there- S. 15, S. 8 and S. 51. These three sections put together
entitles because when he talked about S. 15, when a maker that is Section 8 mein maker
defined, holder also that means read with holder, and who may negotiate, put it together.
Who may indorse? The answer is maker or the holder.

What are the kinds of indorsement? There are two kinds of indorsement as per S. 16:
indorsement in blank and indorsement in full.

Indorsement in blank
Where the indorser at the time of indorsing specifies no name of indorsee, it is known as
indorsement in blank or general indorsement. It consists of bare signature of indorser and the
bill so indorsed is payable to the bearer. Other technical terms can be there- when an order
instrument is there, a holder merely puts his signature, that becomes the bearer instrument.
And anyone with the possession can claim the money as that is there under S. 8. S. 54
specifies if the last indorsement is blank, it will be paid to the bearer even if the instrument
was originally made as an order instrument. S. 16 read with S. 54.

Indorsement in full or special indorsement

S. 16 talks about that when the indorser not only signs the instrument but also signifies the
person to whom or to whose order the instrument is payable, it is known as indorsement in
full or special indorsement. Along with his signature he has also specified that who will be
the holder in due course, then it is known as indorsement in full.

Q- We know that order instrument can be converted into bearer instrument by indorsement in
blank. Whether the bearer instrument can be converted into order instrument or not? Whether
it will amount to material alteration?
S. 49 or S. 55? What is the difference? Ek hi cheez likha hai kya? This is the question
recruiter asks.

Answer nahi bataya, college reopening wala discussion.

24 September 2021

Rights of the indorsee- Indorsee gets the same rights as the payee- He is entitled to receive
money as well as transfer the instrument.
Kinds of indorsement- Indorsement in blank and indorsement in full.
Effects of Indorsement- S. 54
Blank indorsed negotiable instrument is transferred in the same manner as if the instrument
was originally drawn payable to bearer.
Negotiable instrument though originally drawn payable to order may be indorsed in blank
and delivered to any person.
The effect is to convert the instrument into payable to bearer as if the instrument was actually
drawn payable to bearer.
Conversion of the blank indorsement in full indorsement.
S. 49- When the person receives a negotiable instrument indorsed in blank, he may write over
it the directions making it payable to another person on his order and in this case, the person
is not liable as an indorser or on bill or note. If he further transfers it by writing his own
name, then he will be liable. - S. 49
When I talk about effects of indorsement, we need to see S. 50- Indorsement followed by
delivery of instrument transfers to the indorsee all the property therein (whatever the money
that is there can be claimed by the indorsee, as he is a holder in due course of the instrument)
It can be inferred by the presumption provision under S. 118.
S. 50- restrictive indorsement- (i)- prohibits or excludes further negotiation of the instrument.
(ii)- to constitute the indorsee or agent who indorse the instrument and receive its content for
the indorsers at their order but that agent won’t get the right to further indorse it.
(iii)- to constitute an indorsee and agent to receive the contents for some other person
specified therein. Two things- indorsement can be done for the purposes of transferring the
rights that is there on that particular instrument. Indorsement can also be done for collecting
the property on the particular instrument.
To summarize, the effects are- 1- Gives the right to the indorsee to further transfer; 2- While
doing this indorsement, the indorsee’ right can be restricted by using express provision in that
particular instrument. If something like ‘pay to the order of C only’ then it is indicative of the
fact that it cannot be indorsed further.
S. 52- Conditional indorsement and indorsement without liability (san recourse indorsement)
The indorser by express words to the indorsement, exclude his liability, make his liability
depend upon the happening of a contingent event, make the right of the indorsee to receive
money depend upon a contingent event.
San recourse indorsement- indorsement without recourse. S. 52- the person who has indorsed
it has no liability. The liability of previous parties including the maker/drawer will be there.

Whether partial indorsement can be done or not?

S. 56 talks about partial indorsement cannot be done. Negotiable instruments cannot be
transferred for a part of the amount. However, if some part has already been paid, a note to
that effect can be indorsed on the instrument which then can be indorsed to some other
person.
The purpose of this prevention of partial indorsement is to prevent an instrument being
transferred from person only of the sum at the time due upon it. Whatever the amount that is
there, that is the entire amount that is required to be transferred.

Can legal representative indorse?

S. 57 says legal representative cannot complete indorsement made by the deceased by merely
delivering the instrumrnt. A legal representative is not the agent of the deceased. S. 56
contemplates a situation that if a person has indorsed particular instrument, only requirement
left is delivery. In case indorsement has been done, whether by delivery by legal
representative, can the indorsement be completed? NO. The second answer that comes into
consideration is that if he wants to take his own liability and transfer it, he can do it. This is
the understanding in S. 56. More thing which is not mentioned here but very famous is-
Facultative indorsement- means by express words the indorser abandons some rights or
increases his liabilities, in such cases, indorsement is known as facultative indorsement.
Example- ___ __ or order, notice of dishonour is waived.

Forged indorsement is very popular but not allowed. Indorsement must be genuine and it
should not be forged. If the holder has forged somebody’s signature and further transfers it,
the holder in due course will get the right that is there. We have studied that holder in due
course gets full rights.

Irregular indorsement- Whatever that is called as indorsement related provisions that is not
there at one place but scattered everywhere. Two things are left- What is negotiation bank?
What is the difference between negotiation and assignment?
First wala baad mein, second karenge.
We have studied that transfer can be made by indorsement or assignment (S. 130 of TPA)
This is the question asked in competitive exams.
4-5 differences are there in negotiation and assignment. Provisions- 14, 46, 47, 48 for NIA.
Whatever the provisions are there for indorsement can be cited. For assignment, S. 130 of
TPA.

Negotiation
Negotiation of a bearer instrument can be made by delivery and negotiation of order
instrument can be made by indorsement and delivery
When a negotiable instrument is negotiated, there is a presumption that negotiation was made
for consideration unless rebutted by the person who transfers the instrument (S. 118A)
No notice is required for the negotiation of instrument when the payment is getting made by
the maker or the drawer.
The holder in due course of the instrument takes it free from all defects in the title of the
previous transferer.
Indorsement of the instrument does not require any other formality and do not require
payment of any stamp duty. (S. 46)

Assignment
It has to be made by a written document signed by the transferer and this is required both in
respect to a bearer or order instrument.
In case of assignment, there is no presumption of consideration and the burden of proof lies
upon the transferee to show that the transfer was for consideration.
In case of assignment, notice is required to be given to the person who is to make the
payment.
The assignee of a debt takes it subject to all defects and equities that may exist in the title of
the assigner. Exceptions to nemo dat quad non habet do not apply.
Assignment under S. 130 of TPA requires payment of stamp duty.

These are the 5 differences in terms of negotiation and assignment.

Presentment
S. 61 to 77 of NIA. What do you mean by presentment? What are the types of presentment?
Presentment is done for the purposes of instrument that is getting accepted or presentment
that is getting done for the instrument that is getting paid. That explains that there are two
types of presentment:
Presentment for acceptance and presentment for payment.
When you present a particular instrument for acceptance, whether it includes presentment for
payment or not?
Whether S. 61 of NIA is there for presentment for payment or not? Because it is there only
presentment for acceptance.
This talks about presentment for payment and acceptance are distinct. First presented for
acceptance and then payment. It wont be applicable if the instrument is payable on demand,
because both things got synchronized it is presentment for payment which includes both
payment and acceptance.
Presentment- S. 61 to S. 77.
P. Note- no need of acceptance
BOE- both acceptance and payment
Cheque- Payment only

American Express Bank Ltd.v Kolkata Steel company

Acceptance in regard to BOE is a tech. Term. It does not merely mean taking or receiving the
particular instrument.
Acceptance of the BOE is the signification by the drawee of his assent to the order of the
drawer.
In commercial parlance, acceptance of BOE is the drawee’s signed engagement to honour the
BOE as presented.
The contract of the acceptor is new and independent one. It comes within the rules as to
consideration fro the contract on negotiable instruments and like evry contract on negotiable
instruments in incomplete and revocable until delivery of the instrument for the purpose of
giving effect thereto.
The contract of the acceptor is a new and independent one.
To summarize -Acceptance is needed only in case of BOE. It is not limited to taking or
receiving but drawee’s assent to respect that particular instrument and drawee’s signed
engagement to honour the BOE as presented.

Acceptance- write accepted, signature and the above thing can be done on the face of it or
back of it both. This is the normal way of acceptance.

27 September 2021

Whether presentment is necessary? When it is desirable?

Presentment for acceptance is necessary if the BOE is payable after cite (specific date or
event). If BOE stipulates that it must be presented for acceptance, it must be before the bill is
overdue. Before maturity, the BOE is required to be presented in the manner prescribed on
the instrument.
When this is desirable?
Acceptance is reqd. Only in BOE. P. Note and cheque is not required to be accepted. P. Note
is only required to have ‘presentment for payment. In BOE, presentment for acceptance as
well as payment. Cheque is payable on demand so it is presented for payment only. Post
dated cheques can be there for presentment for acceptance.
What is the specific purpose of acceptance?
It indicates that the drawee, drawee in case of need, acceptor for honour, etc. will make sure
that the payment can be done. In cases when BOE is optional (payable after certain date), it is
desirable to get acceptance asap in order to obtain additional security of acceptor’s name on
the instrument and obtain an immediate right of recourse against the drawer if the BOE is
dishonoured by non acceptance.
When the bill of exchange is accepted, it provides additional security as the acceptor’s name
comes with his consent and that is required to be paid. Acceptance gives an immediate right
to recourse against the drawer in case the BOE is dishonoured. Therefore, this is desirable.
Why acceptance is necessary?
Acceptance ensures payment. It is necessary to fix the liability of the party. Without
acceptance, drawee cannot be held liable or even the drawer, notice and other things is
difficult to do.
What are the remedies if the drawee or acceptor for honour or drawee in case of need are not
accepting? And remedy against whom? The drawer.
Holder gets immediate right of action against all antecedent parties. That means the indorser,
drawee, drawee in case of need, drawer. Till the instrument has been discharged, liability of
the drawer is always there.
[maker is only there in P. Note]

Presentment to whom?
1. First is the drawee.
2. Duly authorized agent
3. In case of several drawees, to all.
4. Acceptor for honour
5. In case drawee is dead, to his legal representative.
6. In case bill in sets, any sets be presented to any of the mentioned parties

Merely saying it is presented to all antecedent parties will fetch you zero marks and Bipin’s
curse.

How presentment takes place?

What is the manner of presenting the particular instrument?

Actual showing of the bill of exchange- merely giving the notice is not sufficient. If that is
presented in physical form, demand for payment and acceptance must be made in
unequivocal terms. Actual exhibition as well as demand are required.

What is the time for presentment?

All BOE must be presented before maturity

In case BOE specifies period of presentment, then that time.
In case of BOE presentment is optional, it must be presented at any time before payment.
A BOE payable after site must if no time is specified for presentment be presented within
reasonable time after it is drawn
Presentment must be made during business hours and on a business day (must not be a public
holiday)
What is the effect of non presentment?
It gives you the right and liability. If you do not present, what will happen?
In case of non presentment of instrument, drawers, indorsers are discharged from liability.

Presentment for acceptance is not needed in certain circumstances. When?

When the drawee is not capable of contracting
When the drawee cannot be found after reasonable search where though presentment has
been regular, acceptance has been refused on some other grounds
When the drawee becomes insolvent.
S. 61 to S. 77- Presentment for acceptance and presentment for payment.
For P. Note, it is there for payment only
For BOE- acceptance and once accepted, presentment for payment.
When the instrument is payable on demand, both things take place together. For Ex- Cheque
After having discussed all this, a silly question- How many times presentment can be there?
Before the due date, it can be presented for acceptance any number of times.
If no acceptance is taking place before due date, then no liability. It is like anticipatory
breach. The burden of proof will be on you why you think the instrument is discharged.
According to apparent tenor the instrument is required to be presented but there are no
restrictions as to the number of times it can be presented to the person who has been
earmarked or accepting the particular instrument. The failure to accept the instrument, it does
not mean that it is discharged until a specific thing has been put on the instrument concerning
its dishonourability.
When it is presented for payment, whether this instrument will be transferred? Of course the
answer is no. Once it is paid, the instrument is discharged.

S. 26 to S. 40: Capacity of the parties

Who can issue a negotiable instrument?

S. 7 and S. 108 we have already discussed. Whether a company can issue an instrument?
Whether minors can issue?
S. 26 exclusively provides that minors can be the party to Negotiable instruments.
Corporations are an exception to S. 26 (Nothing herein contained shall be deemed to
empower a corporation to make, indorse or accept such instruments except in cases in which,
under the law for the time being in force, they are so empowered.) Anything issued by the
companies shall attract Companies Act, 2013 except the fact that in case Company has issued
an instrument particularly and merely a cheque, and the director is held liable, that is in the
domain of NIA. Dishonour of cheques by partnership firms, companies, head of Hindu
Undivided family, etc. all are governed by NIA.
Every person capable of contracting as determined by the law by which contracts are
regulated in India (S. 11 of Indian Contracts Act) can issue P. notes BOE and cheque.
Exception is the minor.
Minor can issue P. Note or not?
A minor may draw, … all instruments so as to bind all parties except himself. Pehle bhi
bataya hai:
Minor can issue Negotiable Instrument under S. 26 but he is not bound so in case dishonour
takes place, one cannot do anything. Can the drawee be a minor? No, minor has no liabilities
but only benefits.
It is a well recognized principle that the guardian cannot impose personal liability on a minor
and if any Negotiable Instrument is so regarded as an undertaking merely to pay out a
minor’s estate is no Instrument as there is no undertaking to pay. This has been held in the
case: Hanuman Prasad v. Musammad PP (1854). Guardian related provisions of contract act
don’t apply here and there are ambiguities.

Bipin was reading a book titled ‘Minor in law’. It incorporated everything about minors. It is
there in our library. Aao to padh lena.
Whether minor can be the originator of the liability?
When they talk about ‘bind all parties except himself’. In case of P. Note, the maker is a
minor. Can the holder claim money from the minor.
Minor issued a p. Note and give it to the holder. Can he be held liable for default?
But it is written in S. 26 2nd paragraph, that minor can be drawer. Whether the liability can
origin from the minor?
Minor cannot be the originator of liability
Minor issued a P. Note and gave it to the holder.
Minor issued a P. Note and the holder indorsed it further.
Whether both these instruments are valid?
Minor cannot be forced, restitution won’t apply. If he fraudulently represents, mohri bibi will
be applicable but generally, law is very clear that he can bind all parties except himself. The
instrument has been issued as order instrument. The holder can come and ask money from the
maker. The minor cannot be bound to the payment. Then what’s the sense?
In first case, the instrument is void ab initio
In second case, minor acts as a channel to convey title and liability but not to originate it in
case of negotiable instrument. Similarly, in BOE, the drawer can be minor but the drawee
cannot be. If the drawee is minor then it is void ab initio. In case of cheque, the bank cannot
be a minor. But in case of dishonour of cheque, whether the minor can be held liable? Minor
cannot have bank account and guardians are there so those things.
There are so many parties to the instrument and one of them is the minor? What will happen
to the liabilities of all parties?
Sulochna v. Pandyan Bank Ltd.
The minor’s immunity from liability cannot absolve other joint promisors from liability.
Except that only one person that is the promisor is minor, but it would not absolve other
promisors from liability.
28 September 2021

What is material alteration?

Does in all cases material alteration makes an instrument void? Is there any material
alteration which is permitted?
The liability is changing therefore, it is void.

We require to understand it in 3 stages: define it, why material alteration makes it void, what
is common intention and why it won’t be void even in cases of certain material alteration

Material alteration is any alteration in instrument which is material. But what is material?

Loon karan Sethiya v. Ivan E. John- a small paragraph from this case-
A material alteration is one which varies the rights, liabilities or legal position of the parties
as ascertained by the deed in its original state or otherwise varies the legal effects of
instruments as originally expressed or which may otherwise prejudice the party bound by the
deed as originally executed.

Halsbury’s laws of England

Alteration must be material
Alteration must be made after the Negotiable Instrument is executed
Absence of the consent of the party liable for the instrument
Alteration does not incorporate the common intention of the original party

If we combine it with S. 87, effect of material alteration is void. Material alteration is not
provided in the act.
We are required to give certain examples of material alteration.

Changing the date of instrument- Subba Reddy v. Nilappa Reddy Ramanna Reddy AIR 1966
AP 267: Alteration of date makes the instrument void.
Alteration at the time of payment
Alteration of the place of payment
Alteration of the sum or amount payable
Alteration of rate of interest
Alteration by adding new party to the instrument (Exception- acceptor for honour)
Alteration by tearing material part of the instrument
Alteration by affixing a stamp without promisor’s knowledge
Alteration by erasing account payee crossing. Under S. 123 to 130 there are two types of
crossings, general crossing (account payee or other things) and special crossing (along with
general crossing, 2 triverse lines on the right or left side, there are no restrictions). If AC
payee is erased, it is material alteration.
Alteration of an order cheque to bearer cheque except by the consent of the drawer.

For the purposes of crossing, bank drafts are considered to be cheque.

Examples of valid material alteration- When the bearer instrument is changed to order
instrument with the consent of the parties,
[Typographical mistake- You require to either cancel the cheque or put signature again on
altered cheque. That is permitted to bank under S. 131 of NIA.]
[When acceptor for honour accepts the instrument, does he write anything on the instrument?
Accepted in the honour of <the person who is primarily liable, i.e. drawee’s name> and
signature]
Inchoate stamped instrument ko complete karna is a permitted material alteration.
The amount that you are altering, the common intention is there to make it clear that
whosoever has the possession is required to do material alteration and it is permitted as per
the law.
Holder of the uncrossed cheque may cross it, may convert into special crossing or make it not
negotiable, etc. It is not necessary that the drawer will cross it. It can be crossed by the payee
or holder. General crossing may be converted to special crossing. When you name the bank
as well along with account payee, it is special crossing. If along with triverse lines write not
negotiable, it is making the instrument not negotiable. All these are permitted under S. 125 of
NIA.
S. 49 and S. 54-Converting indorsement in blank to indorsement in full/general indorsement
to special indorsement
S. 86- Qualified acceptance is permitted
Alteration made before the completion of the instrument
Alteration with the consent of the parties liable in the instrument
Alteration made with the purpose of correcting a clerical error
Alteration made in furtherance of common intention
Alteration made to Bearer cheque to make it into order cheque
Alteration which is accidental (making the amount visible) (m-Seal advertisement jisme 1 pe
drop gira tha). A case in which parties were allowed to revive the number: Hong Kong and
Saigia Bank Limited and Lee Shi 1928 AC pg 181
Any alteration which is accidental in nature, the burden of proof lies on the person who has
done it. He has to prove that it was accidental. Then, Holder is permitted to revive the number
which got omitted because of certain accidental events that took place.

Difference between Forgery v. Material Alteration

Forgery- S. 463 of IPC- Whoever makes any false documents or false electronic record or
part of a document or electronic record, with intent to cause damage or injury], to the public
or to any person, or to support any claim or title, or to cause any person to part with property,
or to enter into any express or implied contract, or with intent to commit fraud or that fraud
may be committed, commits forgery.
and material alteration- S. 87 of NIA
How it is done? Alteration is altering an important aspect of the instrument. Forgery may be
affected by making signature of another person on the instrument. Alteration is an important
aspect of NI. In this, signature thing does not come. Therefore. the gravity of the offence is
more there in forgery than the civil offence of material alteration.
Material alteration- all such parties are discharged. Instrument is not discharged, the parties
are discharged. It is not illegal but discharge of liability
Forgery is making the instrument illegal and it is not a discharge of liability
Material alteration is allowed under certain circumstances but forgery is not allowed at all in
any manner whatsoever.

Manner of dishonour of instrument- non acceptance and non payment

S. 91 talks about dishonour by non acceptance and S. 92 about dishonour by non payment.

Dishonour by non acceptance

1. When BOE is duly presented for acceptance the drawee makes a default in accepting
it within 48 hours.
2. If there are several drawees not being partner, the bill is said to be dishonoured by non
acceptance if any of them refuses to accept them.
3. When the presentment is excused and the BOE is not accepted
4. Where the drawee is incompetent to contract, the bill may be treated as dishonoured.
Eg.- If the drawee is minor.
5. When the drawee gives a qualified acceptance, the bill may be treated as dishonoured.
It is permitted in certain circumstances but not in payment.

Dishonour by non payment

 1. When the maker of a P. Note refuses to make a payment. 2 parties are there, time
whenever stipulated and according to apparent tenor in good faith without negligence
(he has combined sections because we have discussed)
2. When the drawee or acceptor refuses to make payment. Eg- when the bank refuses to
pay, cheque is dishonoured.
3. When the drawer of the cheque even after serving of notice by the holder refuses to
make a payment. When the cheque is presented ot the bank, the bank has indicated
that the instrument has been dishonoured. For the purposes of liability, it is not
dishonoured yet. It would be dishonoured when a notice is served within 30 days and
the drawer does not pay within 15 days.
4. Stop payment

29 September 2021

Dishonour of instrument
Non payment- applicable to all
Non acceptance- Bank draft and BOE
A P. Note has been issued by the maker and he has sent this P. Note by post to the payee.
Payee had ‘received’ that instrument and he sent it back by post to the maker for getting
payment. The maker has not received the P. Note. Whether the instrument has been
dishonoured?
K. Venkatsubaiya v. P Rao
Court has held that not to accept the instrument via post which you had earlier made amounts
to dishonour by non payment. P. Note does not require acceptance.
Who has made the P. note? Your client. He knows the apparent tenor, the date, place, time of
payment, etc. You are knowing the fact that the other party i.e., the holder is located
outstation and he will send it via post only. You need to receive the instrument.
Another example- You issued a cheque of 50 crore. You know that your account has no
money but you purchased a house. You said I will pay through cheque. You know that
liability will arise only when the notice is issued. What you do, you locked your house and
settled to USA. Poor holder sends a notice to your house. Lock is there. He finds your
location in USA. Can you say that I was not aware that the notice has been served?
Delay default in serving of the notice amounts to duly served. If the notice has been sent to
the correct address, whether the notice is received or not, it amounts to that the notice has
been received. Duly sent means by the registered post.
Once you have received a P. note, holder is required to resort to you for making a payment
but you refused to receive the instrument. The instrument has been dishonoured because of
non-payment.
Till the time instrument has not been discharged, maker’s liability is there.
There are two ways of dishonour. The remedies of dishonour to the holder:

Remedies for holder to make the party who is liable on the instrument to pay the amount.

1- Gives the holder an immediate right to recourse against the drawer or the maker or the
indorsers but this right is subjected to one aspect i.e., notice. If the payment has been refused
by the drawers or indorsers, he is required to serve a notice.
One question as to non payment, there is remedy of recourse. What if the instrument has not
been accepted and the maturity period is still there. Dishonour by non acceptance constitutes
a material part of dishonour against the drawer. There is no need to wait for maturity period
to be over. The holder can proceed against the drawer by anticipatory breach. The burden of
proof lies on the holder. Dishonour by non acceptance forms a material part of the cause of
action against the drawer and therefore there is no need to wait for the maturity of the bill or
to present it for payment again.

Requirement of notice is there as per S. 93 i.e. the sine qua non. Notice has to be given before
taking any recourse.
The object of giving notice is not to demand payment for the party giving notice, but to warn
the party notified of his liability, and in the case of the drawer, to enable him to protect
himself as against the drawee or acceptor who has dishonoured his draft.

Object of the notice:

Firstly, asking for payment
Secondly, warning the legal consequences for not making payment.
It gives the opportunity to the other party to present its case. What is expected is readiness
and willingness to pay within the stipulated period of time.
30 days notice requirement is there in case of a cheque. Can the party say that within 10 days,
you make a payment? Whereas the legal requirement is that 15 days time for payment should
be there. Whether the notice is valid or not?
For institution of the suit as per S. 142, one month time has been given (this mentions one
month and not 30 days). Coming back to the question.
The notice will not be invalid but the cause of action that is available to the holder will arise
only after the expiration of 15 days.
Notice will be given by whom? Holder will issue a notice but holder in person or through a
legal representative?
Notice will be given by the holder, by the person liable on the instrument (holder in due
course), agent of the holder and fourth is the clarification that a stranger cannot give a legal
notice. Stranger does not include legal representative.
Notice must be given to all parties other than the maker, acceptor or drawee against whom
the holder wish to proceed.
For example- In case of dishonour of P. note, the maker knows it so no need of notice. Those
parties who are not knowing about the facts of dishonour, a notice is needed to be served. In
case of P. note, the maker himself is not paying so there is no need to serve notice to the
maker.
In case of BOE, if the acceptor refuses payment, notice is required to be given to the drawer
but not to the acceptor because he himself has refused.
Notice of dishonour can be given to a duly authorized agent of the person to whom it is
required to be given.
Notice may be given to his legal representative when the drawer or indorser is dead.
When two parties are jointly liable as drawers or indorsers, notice to one of them is sufficient
to bind them all.
When you do not serve a notice, what are the implications? If legal recourse is not there, can
there be a subsequent legal recourse?
Discharge of liability- In case of drawer (S. 30) in case of indorser (S. 35). If the notice is not
given, the drawer or indorser won’t be held liable (S. 93 read with S. 30 and S. 35 make it
absolutely clear. In case of cheque, S. 138 makes it absolutely clear. In S. 98, notice is not
required but is applicable only on BOE and P. Note.
In case of P. Note, whether notice is not required. In case of BOE and cheque, it is
necessarily required.
In case the P. Note is indorsed, a notice is required but if it has not been indorsed, no notice is
required.
In case of P note, the holder has to ask for payment from the maker. When the P. note has
been indorsed, the holder will ask the payment from the indorsee. In case of BOE, he will ask
from drawee and in case it is indorsed, then from indorsee.
When the instrument is indorsed, holder can ask for payment from indorsers or maker, jointly
or severally. He will issue a notice to parties who don’t know about dishonour. He does not
require to serve a notice to the immediate party which dishonoured the instrument because it
knows about it itself.

Mode of notice

Oral, written, partly written, partly oral any notice can be there but written is preferred.
Notice is an actual formal notification of that particular knowledge of making a payment.
May be given in person, in case of post, last known address. In case of business, office is
there. Delay or miscarriage does not render the notice invalid. No form of words is necessary.
It should merely ask for payment and warn about legal consequences.
What are the requirements of a notice?
Along with these 2 basic requirements, what other things are required to be there?
Statement of the fact that the instrument has been dishonoured
The instrument should be identified in the notice
How has it dishonoured? Non payment, non acceptance or both?
He will be held liable on the dishonoured instrument
The mere demand for payment is not sufficient notice. The instuemtn in respect of which the
payment was to be made has dishonoured. This means demand+warning of consequences.
Why do you think it has dishonoured? Identification of dishonour
(poori kahani I asked you to make a payment, you refused it)
Narration- Timeline preparation
Time and place of notice- Time in case of P. Note- reasonable time, Time in case of BOE-
reasonable time. S. 105 to S. 107 makes it absolutely clear. For serving of a notice in case of
cheque, 30 days has been specified in special section 138. If a place is specified then notice
should be served at that place.

30 September 2021

Whether the place of serving of notice plays a role in determining the jurisdiction?
Such question can be answered with the reference to case laws decided by the apex court.
Considering the ingredients of sec.138 referred above the Hon'ble Apex Court in case of K.
Bhaskaran vs. Shankaran AIR 1997, SC 3762, had given jurisdiction to initiate the
prosecution at any of the following 5 places in case of dishonour of cheques.
1. Where cheque is drawn.
2. Where payment had to be made.
3. Where cheque is presented for payment
4. Where cheque is dishonoured.
5. Where notice is served upto drawer.

However, in case of Dashrath Rupsingh Rathod vs. State of Maharashtra, the 3 judge bench
of the Supreme Court took a strict approach and held that the territorial jurisdiction under
section 138 should be exclusively be determined and considered by place of the offence. The
return of the cheque by the drawer bank only constitutes the commission of offence under
section 138.
5 places jurisdiction will not be applicable. Where the party is located, where the bank is
located and one more thing that is required to be seen (sidhe nahi bolta yaad nahi)

S. 138 to S. 148
Most important part
After 2014, RSR case, amendment has taken place 28th time in NIA. It is now settled that at
five places the jurisdiction will be there.
Place of serving o f notice is an important ground for determining the jurisdiction- K
Bhaskaran case
After 2014 RSR case, which case of SC provided that K. Bhaskaran wale rules are valid?

[some judgments which created a lot of controversy. One such instance was when SC had
created controversy in Indus Airways case when it held that in PDC, S. 138 won’t apply . The
position of law in this case is not a good law. Whatever was held in Anil Kumar Sahani v.
Gulshan Roy is the proper law in this regard.]

When notice is not required- Plain reading of S. 98 makes it absolutely clear.

98. When notice of dishonour is unnecessary.—No notice of dishonour is necessary— (a)
when it is dispensed with by the party entitled thereto (by express mentioning in the
contract); (b) in order to charge the drawer when he has countermanded payment; (c) when
the party charged could not suffer damage for want of notice; (d) when the party entitled to
notice cannot after due search be found; or the party bound to give notice is, for any other
reason, unable without any fault of his own to give it; (e) to charge the drawers, when the
acceptor is also a drawer; (f) in the case of a promissory note which is not negotiable; (g)
when the party entitled to notice, knowing the facts, promises unconditionally to pay the
amount due on the instrument.

First is dishonour, now we will discuss discharge:

3 aspects of discharge- S. 82 to 86
Although he mentioned that there are 4 ways of discharge. S 82 talks about 3 and S. 87 which
we discussed comprehensively- material alteration.
Is the instrument discharged or something more is discharged?
Discharge means discharge of instrument and discharge from the liability.
82. Discharge from liability.—The maker, acceptor or indorser respectively of a negotiable
instrument is discharged from liability thereon— (a) by cancellation.—to a holder thereof
who cancels such acceptor's or indorser’s name with intent to discharge him, and to all parties
claiming under such holder; (b) by release.—to a holder thereof who otherwise discharges
such maker, acceptor or indorser, and to all parties deriving title under such holder after
notice of such discharge; (c) by payment.—to all parites thereto, if the instrument is payable
to bearer, or has been indorsed in blank, and such maker, acceptor or indorser makes payment
in due course of the amount due thereon.
There are 4 ways- cancellation, release, payment and material alteration.
Out of these which one is applicable for discharge of instrument and discharge of liability?
What is the effect of discharge of instrument? And what is the effect of discharge of liabilities
of the parties?
Whether it affects negotiability/transferability?-
(i)- in case of discharge of instrument

i) in case of discharge of instrument, no action lies on the instrument, no legal action is there
because the instrument is not even there.
ii) Once the discharge of instrument takes place, the instrument cannot be negotiated further.
The very purpose that the instrument is made i.e., negotiability is lost.

(ii)- in case of discharge of liability

According to Kunal, negotiability is not affected in this case.

When we talk about payment, the question which comes under consideration is, who will pay
and how will it be discharged?
The key word for this question is the primary party or the secondary party? Which is the
primary party and which is the secondary party?
For the holder, which party is primarily liable and which is secondarily liable? The
instrument is getting discharged because the payment has been done. But the question is who
will make the payment: indorser or the maker? If indorser, he is primary or secondary party?
If I have issued a cheque/P. Note, and the other party made payment, I did nothing, then how
is there a chain?
When a party primarily liable makes a payment at or after maturity, the instrument is
discharged for all practical purposes.
The payment by a party which is secondary (indorser) does not discharge an instrument
because in that case the payer holds it to enforce it against the prior indorsers and the
principal debtor. If the indorser has made the payment to indorsee or holder in due course, the
indorser will claim money from previous indorsers because the instrument has been issued
for consideration (S. 118). If the subsequent indorser comes into the shoes of the
indorser/maker for the purposes of making payment then that particular indorser who has
made payment will go back to the previous indorser to claim money.
If the BOE has been negotiated at or after maturity hailed by the acceptor in his own right
(when he accepted, he kept the instrument but made a payment), whether the instrument will
be discharged. The acceptor is the secondary party to whom? The drawer And primary party
to whom? The payee. This is there in S. 19

When the primarily liable party becomes insolvent, what will happen to the instrument?
The instrument will be said to be
Whether the holder can negotiate it? No. Can the holder request the person who became
insolvent? No.
Unless time instrument is there where no time has been specified, this is an exception.

____not audible___ Otherwise, the instrument is discharged. When the primary party is
insolvent, the validity of instrument is a problem and money cannot be claimed from a
secondary party. Till the time the instrument is not discharged, the maker has to find it out
where the instrument is because he has to ultimately make a payment, not to the holder but to
the first indorsee.
Which law is in place for insolvency? Insolvency and Bankruptcy Code, 2016. (Modi sarkaar
ki tareef kardi)
When the holder cancels the instrument with the intention of releasing the party, the
instrument is discharged.

Discharge of one or more parties to the instrument

i) cancellation of one of the secondary party. Discharge of that secondary party will be there
from that particular instrument. Sometimes it do happens that is indorsement without
recourse. We have used in reference ot S. 52 that is san recourse indorsement. It is the perfect
example that he is no longer the party to that particular thing
This can be understood in two ways- once the name of one person is cancelled (S. 82(1)) that
is cancelling one of the parties on the instrument. His liability will not be there. Secondly,
release of the parties, it can be there by entering into a separate agreement. The payment
thing- the primary party liable makes payment in due course makes payment to the holder
and all the parties to the instrument stand discharged.
First- cancelling the name except the primary party, the one whose name is cancelled is no
longer liable. This is cancelling him from liability.
Second-
Releasing the parties- If the holder release any party to the instrument by separate agreement
or
by payment, if the primary party pays, the secondary party's liability gets over.
Payment will come in both the aspects.
Cancellation, release, payment, any other thing? Material Alteration

- S. 94 for P note and BOE and 138b for cheque- By not giving notice of dishonour
- By non payment of acceptance of BOE
- By allowing drawee more than 48 hours to accept the instrument
- By taking qualified acceptance, S. 86
- By not giving notice of dishonour, S. 94 (for P. Notes and BOE) and S. 138 (b) (for
cheque)
- By non payment for acceptance of a BOE.
 - By delay in presenting the cheque. If 3 months after the cheque is presented whether
the liability of the party is still there? His liability in terms of debt is there but liability
in terms of cheque is not there
- Material alteration
All this there in S. 82 to S. 87

Acceptor for honour? What are the rights and liabilities?

The provision is S. 7
It is also mentioned in sections 108 to 112. What are the conditions for a valid acceptor for
honour?
What is acceptor for honour? What are rights and liabilities for an acceptor?

Acceptor for honour for which instrument?

P. Note- no acceptance
Q. Cheque- no acceptance is required?
Is it correct to say that no acceptance is required at all for cheque? Presentment in 61
(acceptance) and 64 (presentment for payment) (payment)

The foremost thing is that acceptance is needed. Whenever it is presented for payment it is
assumed that both the things put together, presentment for acceptance and payment are
assumed to happen simultaneously. BOE must be accepted by the person to whom it is
drawn. After protest, it can be accepted by the consent of the holder.

Conditions for a valid acceptance for honour? [53]

1- The bill must have been noted and protested for better security
2- Can take place with the consent of the holder
3- The holder has the discretion to take or refuse such acceptance and cannot be compelled to
take it. (person who is insisting on being the acceptor for honour, it is the sole discretion of
holder)
4- An acceptance for honour must be made in writing on the bill
5- Can only be made by a party not already liable on the bill, i.e., complete stranger to protect
the honour of the drawee or drawee in case of need or any party already liable on the bill,
either primary or secondary after supra protest.

Rights and liabilities of acceptor for honour (111 and 112)

1- BOE should be presented at maturity to the drawee for payment.
2- bill should be noted and protested after non payment
3- Bill should be presented or forwarded for presentment to the acceptor for honour not later
than the day next after the day of its maturity
4- THe acceptor for honour virtually takes the place of the person for whose honour he has
accepted both with regard to his rights and liabilities.
5- He is entitled to recover the amount from the parties after paying the bill.

1st oct
Noting is A convenient method of authenticating the facts of dishonour. Minute recording
(noting all facts) by a notary public officer on a dishonoured instrument at the time of after
dishonour, made upon the instrument or a paper attached or partly on paper and partly on
instrument.

Essential ingredients-
Noted by - Holder/holder in due course/endorsee
Against - person who didn't make payment.
What amounts to minute recording, what facts are noted?
Date of dishonour plays a significant role for serving notice and initiating a claim.
Identification of instrument
Timeline of instrument
Who issued it
Where it was issued
What was the time within which it was required to be paid
Such note must be made within a reasonable time after dishonour, and must specify the date
of dishonour, the reason, if any, assigned for such dishonour, or, if the instrument has not
been expressly dishonoured, the reason why the holder treats it as dishonoured, and the
notary's charges.

Noting acknowledges the fact that the instrument has been dishonoured and helps in initiation
of formal legal proceedings and helps in claiming damages.
Though the provisions of dishonour are criminal in nature, out of court settlements can
happen.

What happens when a party defaulrs in payment, u initiate a suit and on the day the decision
was going to come in your favour the party promises you to pay a bigger sum if you
withdraw from case. You do so and the party again defaults. Dishonest behaviour again.
What will happen in that case:
Answered in Lalit Kumar Sharma v. State of UP [2008, 143 Company Case, SC p. 593]
➢ Second cheque does not create any legal debt and liability because thete wasn't any
consideration for 2nd case. Thus there is no 2nd cause of action, . It won’t be covered under
Section 138.
➢ If the cheque has been issued for security, then also Section 138 will not be applicable.

Noting covers only BOE and P note.

It is optional (sec 99)
In case of foreign instrument noting is commonly used for authentication.
Time - within reasonable time, within limitation period. For pnote and boe, limitation period
will be determined by limitation act 1963, and for cheques noting is not required.
Protest - formal notorial certificate, attested with the dishonoured bill.
Advantages
1. It offers authentic and satisfactory evidence to dishonour to the drawer or endorser living
abroad who would find it difficult to make enquiries of such dishonour and would be
compelled to rely on the representation of the holder.
2. Under sec 119 of NIA in a suit upon a dishonoured instrument, court shall on the proof of
the protest assume the facts of dishonour unless and until such fact is disproved.
Basic ingredients of protest have been given under the case - Sineximco pvt ltd v Dinesh int.
Pvt. Ltd. 2010 DLT 422. A protest must contain:
Thus, the protest must contain
(a) either the instrument itself, or a literal transcript of the instrument and of everything
written or printed thereupon;
(b) the name of the person for whom and against whom the instrument has been protested;
(c) a statement that payment or acceptance, or better security, as the case may be, has been
demanded of such person by the notary public; the terms of his answer, if any, or a statement
that he gave no answer, or that he could not be found;
(d) when the note or bill has been dishonored, the place and time of dishonor, and, when
better security has been refused, the place and time of refusal;
(e) the subscription of the notary public making the protest;
(f) in the event of an acceptance for honour or of a payment for honour, the name of the
person by whom, of the person whom, and the manner in which, such acceptance or payment
was offered and effected.
(g) signature of the notary public

NOTICE OF PROTEST
102. Notice of protest.—When a promissory note or bill of exchange is required by law to be
protested, notice of such protest must be given instead of notice of dishonour, in the same
manner and subject to the same conditions; but the notice may be given by the notary public
who makes the protest.
(Notice of dishonour + intimation to other party that the protest has been done)
What is the use of this notice of protest?
Combined reading of 94 and 102
Fixation of liability
Not only demanding payment but also to warn of legal consequences
In case of drawer to enable him to protest as against the drawee/acceptor who had
dishonoured the instrument

Negotiation back
From Khergamwala- When a bill or note is negotiated back to a prior party, the prior party is
remitted to his former position and
comes within the definition of a holder. However, it is not necessary that the bill or note
should be re-indorsed to him. He may cancel the indorsements in full, subsequent to that
which constituted him the holder, and may further negotiate the bill or maintain a suit against
parties antecedent to him. Such a transaction is called taking up of the bill.
However, if the bill or note is negotiated back to a prior party by a proper indorsement, the
prior party in addition to his rights as a former holder also acquires the rights of a holder by
virtue of the last indorsement. However, he cannot enforce, by a suit, payment of the
instrument against an intermediate party to whom he was previously liable by reason of his
prior indorsement, for the law does not permit circuity of action.
For example, A, the holder of a bill indorses it to B. B indorses it to C. C indorses it to D. D
indorses it to A. A by his first indorsement is liable to B, C and D; and B, C and D are liable
to A under the second indorsement. A, therefore, cannot sue B, C and D but A may, by
striking off the indorsement of B, C and D, again negotiate the bill.
However, where an instrument is negotiated back to a prior party, the holder can enforce
payment against all intermediate parties to whom the holder was not liable as prior party, as
for example, where the prior indorsement was without recourse. This is the rule mentioned in
the second clause of the section and illust (b) to the section is to the same effect.
In negotiation back, the holder negotiates the instrument and the endorser again becomes
holder.
Implications -
Holder cannot impose the payment against an intermediate party to whom he was previously
liable
Holder can impose the payment against all the parties to whom he was not previously liable
Holder can sue all buyer parties including all intermediate parties to whom he was previously
liable if he had made san recourse indorsement.
What is payment for honour?
113. Payment for honour.—When a bill of exchange has been noted or protested for non-
payment, any person may pay the same for the honour of any party liable to pay the same,
provided that the person
so paying 1[or his agent in that behalf] has previously declared before a notary public the
party for whose honour he pays, and that such declaration has been recorded by such notary
public.
Any person who does payment for honour is a voluntary payment and not supra protest.
Rights of the person making payment for honour can be secured by person for whose honour
he made payment.
114. Right of payer for honour.—Any person so paying is entitled to all the rights in respect
of the bill, of the holder at the time of such payment, and may recover from the party for
whose honour he pays all sums so paid, with interest thereon and with all expenses properly
incurred in making such payment.
Crossing of cheques
Sec 123-131 -
123. Cheque crossed generally.—Where a cheque bears across its face an addition of the
words “and company” or any abbreviation thereof, between two parallel transverse lines, or
of two parallel transverse lines simply, either with or without the words “not negotiable”, that
addition shall be deemed a
crossing, and the cheque shall be deemed to be crossed generally.
Crossing affects the mode of payment of the cheque but it does not affect transferability. The
holder can transfer it further.
It is an acceptable material alteration.
Object of crossing
It helps to trace the person for whose use money was received and to compel the holder to a
quarter of known respectability and credit. Secure payment. In whose favour crossing is done,
payment will go in that account.
When cross is there, it is the duty of the Bank to cross check and verify all the facts very
cautiously and if anything is left, bank's liability will be there. It is for the purposes of better
security.
Two types of crossing - general and special.
126. Payment of cheque crossed generally.—Where a cheque is crossed generally, the banker
on whom it is drawn shall not pay it otherwise than to a banker.
Payment of cheque crossed specially.—Where a cheque is crossed specially, the banker on
whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed, or his
agent for collection.
Crossing only takes place in Cheques and bank drafts. For purposes of crossing, bank draft is
treated as cheque.
2nd and 3rd oct – sat and sun
4th oct
CROSSING OF CHEQUES
A crossed check is any check that is crossed with two parallel lines, either across the whole
check or
through the top left-hand corner of the check. This symbol means that the check can only be
deposited
directly into a bank account and cannot be immediately cashed by a bank or any other credit
institution.
- It cannot be encashed at the counter of the bank, can only be credited to the account
of the payee.
- Sections 123-131A deal with this.
- Crossing of cheques also involves bank draft- Section 131A. when 85A was introduced,
131A was also provided

- General crossing: caution to bank, “non-negotiable”- general crossing but restricted in

nature. It only makes a direction as which bank the payment has to be made.
- Special crossing: two parallel lines not required. presented for payment in that particular
branch only, when the
bank’s name is mentioned. Who is required to make the payment, as well as name of the
collecting bank fir that particular cheque, both are given.
Two parallel transverse lines are not needed. Simple line will do.
Second special crossing - When a cheque is crossed specially, the bank to whom it is crossed
may again cross it specially to another bank as agent for collection.
This is the only case where the Act allows a second special crossing by a bank and for the
purpose of collection.
- Double special crossing: names of 2 banks are mentioned- 2nd bank is agent of the first
and there is an arrangement between the 2 banks. This implies that there an arrangement the
subsidiary bank A cheque is said to be crossed when it bears across its face 2 parallel traverse
lines.
➢ The lines are usually drawn upon the left side top corner of the cheque- customary not
mandatory.
➢ Crossing is a direction to the paying bank to pay the money generally to a bank or to
particular banks as the case maybe
➢ Crossing affects the mode of payment of the cheque-accounts crossing-alters the direction
how the cheques will be paid
➢ Crossing generally does not affect transferability unless the cheque bears the term “not
negotiable”
➢ Material alteration is allowed material alteration
➢ Who may cross: Drawer, Holder, Banker- Section 125.
➢ How will bank pay: bank’liability -protection of the bank, good faith, without negligence
and payment is there according to payment in due course- Section 128
➢ Section 131- protection available to the bank.

When bank will be held liable -

• When it collects the instrument without verifying the indorsement. Laid down in Central
Bank of India Ltd v Gopinathan Nair, AIR 1970 Ker. 74
• Collecting a cheque for a very large sum for an account that is generally in low water.
Brahama Shum Shere Jung Bahadur v Chartered Bank, AIR 1956 Cal 399.
• Collecting a cheque payable to an official for his private account.
• Collecting a cheque payable to a public official for the private account of an individual.
• Collecting for the account of an agent, a cheque drawn by him on the principal’s account.
• Collecting, for the private account of an employee or his wife, a cheque payable to his
employer.
• Collecting, for the private account of a partner, a cheque payable to his partnership firm.
Cheque must be collected for partnership firm account only.
• Collecting, for the account of a company, a cheque payable to another company. United
Commercial Bank Ltd v Reliable Hire Purchase Co Pvt Ltd, (1976) 46 COMP CASES 403.
• Collecting a cheque payable to a company for the private account of a director or official of
the company.
• Collecting a cheque crossed “account payee” for the account of a person other than the
payee. Anupama stationery Supplies v Vishnuvardhana Enterprises, (1987) 62 COMP
CASES 271.

DISHONOUR OF CHEQUES
Sec 138 onwards was added later in the NIA. It has separate object from rest of the act so
NIA has 2 acts.
ROLE OF Mens Rea IN CASES OF DISHONOUR OF CHEQUES
Every criminal offence requires a certain state of mind to exist before a person can be held
guilty of the commission of such offence. This state of mind of the person committing the
offence is the mens rea or the intention. The presence of the requisite mens rea is essential for
charging a person even though the same may not have been provided under the section.
However, the same can be specifically excluded by the legislature.
Such a specific exclusion has been made by the legislature in case of offences under the
present chapter to achieve the purpose for which the chapter has been incorporated, i.e., to
prevent issue of cheques by unscrupulous persons without having sufficient funds to meet
them.

INGREDIENTS OF SECTION 138- Only covers cheques, not BoE.

1. A person (drawer) must have drawn a cheque on an account maintained by him in a bank
for payment of certain amount of money to another person from out of that account.
2. The cheque must have been drawn for payment of money to a person other than the drawer
for the full or partial discharge of any legally enforceable debt or liability. (Gulshan kr case)
(given in explanation to Section 138) gift cheques or parents’ cheques will not be covered.
3. Cheque has been presented to the bank within the period of its validity. Sec 138A (from
the date on which it is drawn or issued for a period of 3 months [was reduced to 3 from 6 on
1st april 2012 by a RBI circular and it amended sec 138A. As per sec 1 of NIA, it is subject
to Indian Paper Currency Act 1971 which is the RBI Act and Banking regulation act.] If
nothing mentioned, 3 months, can be more also if explicitly mentioned by the parties.
4. The cheque should have been dishonoyred for insufficiency or want of funds in the account
of the drawer.
5. Onky drawer will be liable for dishonour of cheque.
6. What Bank writes? – It is rarely written by the bank that the cheque has been dishonoured.
“referred to the drawer”, “account closed”, “insufficiency of funds”, “dormant account”,
“stop payment” is
most commonly used by the Bank.
6. Notice: The payee or the holder issues a notice making a demand for the payment within
30 days. This means that the notice to that effect is required to be served by the holder or
payee to the drawer within 30 days (time for payment- 15 days)
Provided that nothing contained in this section shall apply unless—
(a) the cheque has been presented to the bank within a period of six months from the date on
which it is drawn or within the period of its validity, whichever is earlier;
(b) 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 thirty days] of the receipt of information by him from the bank regarding
the return of the cheque as unpaid; and
(c) 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 fifteen days of
the receipt of the said notice.

Coverage of sec 138

Corporate bodies, Partnership firm, companies sec 141,Individuals, natural persons
Object
The object of bringing chapter XVII on the statute book appears to be to inculcate faith in the
efficacy of banking operations and credibility in transacting business of negotiable
instruments. Besides the availability of civil remedy against the drawer for the recovery of
money, section 138 intends to prevent dishonesty on the part of
the drawer of negotiable instruments to draw a cheque without sufficient funds in his account
maintained by him in a bank and induces the payee or holder in due course to act upon it.
(Ashok Yeshwant Badave v Surendra Madhavrao Nighojkar, (2001) 105 COMP CASES 167)
In Dalmia Cement (Bharat) Ltd v Galaxy Traders & Agencies Ltd,31 the Supreme Court held
that section 138 of the Act makes a civil transaction to be an offence by fiction of law and has
been incorporated with the specified object of making a special provision by incorporating a
strict liability in case of dishonour of cheque due to insufficiency of funds. It further observed
that the Act has made provisions for conferring such privileges to the mercantile instruments
contemplated under it and provide special penalties and procedures, in case the obligations
under the instruments are not discharged.
The provisions of chapter XVII have been provided to encourage greater vigilance to prevent
the usual callous attitude of drawers of cheques in discharge of debt or liability. In
Sadanandan Bhandaran v Madhavan Sunil Kumar, it has been held that the chapter has been
incorporated to enhance the acceptability of cheques in settlement of liability by making the
drawer liable for penalties, in case of bouncing of cheques due to insufficiency of funds in the
account or for the reason that it exceeds the arrangement made by the drawer.
The law declared in Raj Kumar Khurana is mainly on the ground that section 138 of the NI
Act takes in only two types of dishonour of cheques i.e., either because of insufficiency of
funds to honour the cheque or that where it
exceeds the amount arranged to be paid from that account by an agreement made with that
bank.
However, a Bench of Three Judges of the Supreme Court has held in Modi Cements Ltd v
Kuchil Kumar Nandi that even when the cheque is dishonoured for stop payment, it is
punishable under section 138 of the Act. The court observed that if a contrary proposition is
accepted, “it would make section 138 a dead letter, for, by giving instructions to the Bank to
stop payment immediately after issuing a cheque against a debt or liability the drawer can
easily get rid of the penal consequences notwithstanding the fact that a deemed offence is
committed. In any contractual obligation is not fulfilled it can be dealt under this chapter.
Drawee has to indicate that the instrument has been dishonoured. Drawee in case of cheque
will be bank. Voltas Ltd v Hiralal Agarwalla.
The validity of this chapter was questioned in Nanavati sharma v uoi 2001 107 comp law
cases. It was argued that if dishonour of other instruments have civil liability, then why
criminal liability for cheques. Court said all instruments are distinct and their liabilities are
distinct. To ensure efficacy if cheque, make investment climate and in public interest, this
amendment has been passed. Under article 14, reasonable classification can be made. Similar
cases, Noor Aga v State of Punjab, (2008) 16 SCC 417, In R. Sankaralingam v UOI,19 the
Madras High Court held that section 138 does not run counter to the basic principle of
criminal law that an accused must be presumed to be innocent until and unless proved guilty.
There are many such cases.
Notice
Giving of notice means - sec 138b. It must be in writing. Target Overseas Exports Pvt Ltd v
Iqbal, (2005) II CCR - The provision requires that the notice is to be sent to the drawer of the
cheque. Where the drawer is a natural person, the notice is to be sent to him, but where the
drawer of the cheque is an artificial person i.e. a company or a firm, the company or the firm
is only the de jure drawer while the cheque is issued on its behalf through the agency of some
natural person. Such natural person, who issued the cheque as well as other natural persons
who were in charge of or responsible for the conduct of the business can also be fastened
with liability. In such a case, notice to the drawer alone is sufficient and separate notices to
all the accused is not necessary.
Suman Sethi v Ajay Kumar Churiwal, (2000) 100 COMP CASES 444 SC : (2000) notice
must have 4 things-
Properly addressed, prepaid, registered post, a letter containing the notice. Sec 27 of general
clauses act.
Giving of notice can be by fax, telegram, telex etc. too.
V Raja Kumari v Psubbarama Naidu, (2004) 3 JCC (NI) 226 (SC) it was held that The
service of notice of demand in cl (b) of the proviso to section 138 is a condition precedent for
filing a complaint under section 138.
Constructive notice - In k bhaskaran and v raja kumari - if the 4 essentials of sec 27 of gen
clauses act are there then even if the notice has been not served or delayed, that eould amount
to constructive service. Notice must have been duly served. Info in any manner by written
post must have been received by drawer.
Who will be liable
Aneeta Hada v Godfather Travels & Tours Pvt Ltd, (2012) 5 SCC 661 and in Anil Hada v
Indian Acrylic Ltd, (1999) X SLT 1 : (1999) IV CCR 258 (SC) it was held that Where any
cheque drawn by a person on an account maintained by him with a banker for the 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 provisions of this Act, be punished with imprisonment for 2[a term
which may be extended to two 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—
(a) the cheque has been presented to the bank within a period of six months3
from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) 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, 4[within thirty days] of the receipt of information by him from the bank regarding
the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of said amount of money to the
payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of
the receipt of the said notice.
5Th oct
DISHONOUR OF CHEQUES continued...
48 lakh cases pending for dishonour of cheques. Sec 138 onwards se tions were added in
1988 and the amendment act was named Banking Public Financial Institutions & NI Laws
amendment act, 1988. It was again amended in 2002 and then in 2015 (first by ordinance and
then by amendment act)
Still dishonour of cheques is ramapant :(
Before 1988 act, there was civil liability and it was combined with IPC sections 415 and 420,
cheating and fraud, which made it very difficult for prosecution to prove cheating.
Law Commissions, and Courts have suggested qouting Sec 147, there is a need to bring back
the pre 1988 law. But acc to Sir that won't be fruitful bcoz cases will then go on and on.
Another suggestion is by givt secretary is to make india an arbitration hub which actually
started in 1964 only. He suggests that dishonour of cheque must be made arbitrable.
But sir says will then the law sustain the scrutiny of court? (Jurisdiction of SC and HC cannot
be ousted because judicial review is basic structure).

Such law will not stand valud because it will take away the choice from parries. Such clause
if in a contract is known as scot v adory clause.
Another suggestion by sir us introduce a deadline for adjudication of case.
Objectives of 138
A sense of responsibility in drawers in order to honour their commitments in civil transaction.
To inculcate faith in the efficacy of banking operations and credibility in transacting business
on Negotiable instruments.
To prevent dishonesty on part of drawer
To encourage people to use cheque as a medium of exchange
Mohan shri ramavati v uoi it was argued cheque ctimunal liability and why not for P note. SC
said due process of law allowes reasonable discriminatory treatment based on objects and
motives under art 14. So it is not violative of art 14.
Rajinder steels v uoi - 82 (1999) DLT 963 it has been pleaded that legislature has took away
the defence of mens rea from accused. Also if someone had taken loan from bank, then also
he is imprisoned for 2 years. There is a presumption that u took loan only for debt or liability.
Court said strict liability is needed to ensure greater vigilance and check the callous attitude
of the drawers.
Mens rea has been excluded for greater public interest.
Ingredients of 138 again. “PERSON” in Section 138
➢ Both natural and juristic persons.
➢ Anil Hada v. Indian Acrylic Ltd. 2001 Company Cases p. 36: dishonour of cheques in
case of
company director’s liability, also discussed “person”.
• SECTION 141
➢ Company director’s liability in case of dishonour of cheque- vicarious liability
➢ Anil Hada v. Indian Acrylic Ltd. 2001 Company Cases p. 36: dishonour of cheques in
case of company director’s liability
Those in charge of cheque only will be held liableIndependent directors are ex officio, they
do not participate in day to day activities and thus won. Only those in charge of affairs of the
company dealing with cheques will be liable.
➢ For the purposes of dishonour of cheques, partner will be considered as director of firm.
(Explanation)
➢ Section 19: only those persons who get mandate by other partner regarding financial
matters
Account is dormant - No transaction i.e. withdrawal or deposit is taking place in account.
6th oct
Q - Regarding contempt of court in dishonor of cheque
- If the complain is registered and summon is issued and they don't come then contempt of
court. So when their presence is not necessary and they don't come after the summon then no
sweat but if it is needed like in Summary trial and they don't come after the summon then
contempt of court
If associations, body corporate, HUF Karta, then that will be amounting to dishonour
Electronics LTd Case - this will come under Section 138 - the SC said this
In Modi Cements Ltd vs Kuchil Kumar Narayan - accounts closed, refer to drawer, dormant
account etc - al those things are reiterated by the SC, and the reasons for dishonour are
properly explained therein
Notice serving is necessary under Section 138 - due service, posting, constructive notice -
giving of a notice - duly posted, quoting section 27 of General Clauses Act.

After serving of notice, then drawer is not paying. These 15 days can be cutshort to 10 days
etc, but the cause of action - Section 142 proceedings, along with CPC (civil remedy can also
be had along with criminal liability).
POST DATED CHEQUE
Definition has not been provided in the Act.
Halsbury's Laws of England and Corpus Juris - Time specified which will come in
subsequent time. If the time on which the cheque is made payable, the demandability of the
cheque will be then as and when the date arises, after which it will be useful for all practical
purposes. Till then, it will be considered a Bill of Exchange. It can be presented for
acceptance under Section 61 of NIA (2 ways for acceptance - acceptance for payment and
acceptance for honour, who may accept - Section 33). Why to present for acceptance? -
Better security. If accepted, then that is insured that payment will definitely be there, but later
on. No maturity period per se, but validity period is started later on. Under Section 64,
presentment for payment can be done later on.
By Halsbury and Mackenzie Chalmers - Law of Mercantile transactions will be universal
UN convention on promissory note and BE 1995, much newer than 1881 - produced by
UNCITRAL, international agency recognised by 193 countries. Certain terms which are
significant -
1st Case anywhere in world which recognised post dated cheque:
Emanuel vs Roberts - 1868 Britain - customary rules, mercatoria.
The laws started getting codified as many common law principles, general principles of law.
This particular aspect has been taken by things differently.

• Babu Xavier vs Lal Chand Mumoth 1990 TN LJ Crim. 121

• Manoj Kumar Seth vs Fernandez 1991 2 AIR KLT
• Anil Kumar Sawhney vs Gulshan Roy 1993 3 SCR 204 - DB Singh and Dayal. Bench
rejected Babu Xavier, they talked about post dated cheque, a cheque which is brought into
operation after the date is passed. No ground, on the basis of which the remedies under
Section 138 will not apply for post-dated cheque.
• Indus Airways 2014 - DB - Lodha and Singh - talk about adjusting data liability
procedure
• Sri Minakshi Sundaram Textiles vs State of Gujarat
• Bharat overseas bank ltd vs Aseema Ltd
• Goa plast pvt ltd vs Shri Chicko Ursula D'Souza and Anr AIR 2003 SC 2035 - the
court ends this controversy, the law is settled that PDC is cheque for purpose of section 138.

Basel convention is international banking standards, that talks about that if implemented in
totality, then there would be no post dated cheque. Prior permission of bank is required for
PDC. The cheque itself it will be written that it is post dated cheque. PDC is payable on
demand once the date comes.
Cheque can be ante- dated as well - validity period is less.
Transactions are based on trust, people have various trust building exercises - inchoate
stamped instrument - perfect example of nothing like an incomplete instrument - a blank
space does not mean blank instrument.
Person done
Ground of dishonour done
Post dated cheque done
Gorporia Committee before Harshad Mehta scam - Maximum amount in Crores, if more is
needed, then permission of bank is needed
Q - Whether contempt proceedings can be initiated for dishonour of cheques?
A - They can be initiated, as we are not seeing the mens rea in these provisions.
Q- Which section takes away mens rea?
A - Section 140 r/w 138. Case like Rajendar Steel, in which it was argued that how come you
can take away important right of mens rea from this offence? No protection to person for
person defaulting on loan payment. There is a presumption that whether intention was there
or not, it is irrelevant. The constitutionality of these 2 cases was valid on ground of Article 21
- no procedure established by law. Certain reasonable classifications based on Article 14.
Why to punish payee or holder in due course to punish if the drawer is defaulting. The
purpose of Section 138 - Kalmia Cements case - to prevent unscrupulous drawer from acting
in wrong manner. TO maintain that balance in bank account after issuing the cheque. Section
140 cannot be read in isolation, it is required to be read in conjunction with 138.

Contempt of Court proceedings - when the court has issued summons for a person to be
present at a particular date - then can court issue punishment for dishonour of cheques.
Company director's liability
Complaint under Section 142
Jurisdiction determination in dishonour of cheques: circular debate
Conflicting opinions:
1. Harman Electronics
2. K Bhaskaran
3. Indus Airways
4. Dashrath Roop Singh Rathore - 2104
Parliamentary interventions in NIA are something completely different - wanted to reduce
ambiguities through Dashrath Roop Singh Rathore, but the mess created has been clearly
wiped out or not
7Th oct
Motive of 138
Not to have multiplicity of proceedings but to ensure speedy remedy.
Criminal and civil proceedings are co-extensive. The purpose of sec 143 is to secure
investment climate, to ensure efficacy, to ensure people's faith in trading system etc. 138-142
all aim to provide speedy remedy and not entangle parties in the name of technicalities.
Offences under section 138 are to be tried summarily by virtue of section 143 of the Act as
amended by Act 55 of 20021138 and sections 262 to 265, CrPC and endeavour shall be made
to conclude the trial within 6 months from the date of filing of the complaint.
A para from M/s Sabura textiles v VS Krishnamoorthy 2001
It is noticed that the criminal Courts, that too in summary cases, dealing with S. 138 of the
Negotiable Instruments Act, would liberally invoke S. 309, Cr.P.C. by staying or postponing
the proceedings before them to indefinite period under the pretext that the similar issues are
pending in the civil Courts. This approach, in my view, is not warranted, since the criminal
Courts should avoid staying the proceedings before them, as it would amount to defeating the
scope of Art. 21 of the Constitution of India, which would provide for speedy trial. Moreover,
it is settled law that the criminal matters should be given precedence between the civil and
criminal proceedings. That apart, the purpose of introduction of Sections 138 to 142 of the
Negotiable Instruments Act to be tried in a summary way is to see the matters relating to the
cheque transactions are to be settled or disposed of in the quickest possible way. If S. 309,
Cr.P.C. is liberally invoked under the pretext of pendency of the civil suit, it would not only
amount to shirking our duty to have an early disposal of summary trial, but also preventing
the parties to the criminal proceedings from getting the relief from the criminal Courts. As
mentioned above, the criminal law remedy and civil law remedy are not mutually exclusive
but clearly co-extensive. If the criminal case is stayed pending civil case for indefinite period,
or till the disposal of civil case, it would affect both the parties. (A person who is presumably
innocent has to wait long number of years with a criminal case hanging over him before he
gets an acquittal. If ultimately the accused person is proved to be guilty after long number of
years, the accused person successfully escaped for the said period from the punishment being
imposed upon him and in the meantime, the complainant has to wait for long period to get the
fruits. In either cases, the stay of the criminal proceedings is not desirable. Therefore, the
criminal Courts should take into account the purpose of the introduction of the Act as well as
the purport of the Art. 21 of the Constitution and avoid invoking S. 309, Cr.P.C. by staying or
postponing the case for an indefinite period, that too till the disposal of the civil case.)
Read this case.

Liability of Company's director in case of dishonour of cheques. For this we have to read sec
141 along with sec 138. Meaning of term person has been given in 138. In case of companies,
juristic person is there. IPC, gen clauses act and companies act also define company but the
definition under sec 141 is broader. It is more similar to IPc and gen clauses act.
s 141 Offences by companies.—
(1) If the person committing an offence under section 138 is a company, every person who, at
the time the offence was committed, was in charge of, and was responsible to the company
for the conduct of the
business of the company, as well as the company, shall be deemed to be guilty of the offence
and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any person liable to
punishment if he proves that the offence was committed without his knowledge, or that he
had exercised all due
diligence to prevent the commission of such offence:881[Provided further that where a
person is nominated as a Director of a Company by virtue of his holding any office or
employment in the Central Government or State Government or a financial corporation
owned or controlled by the Central Government or the State Government, as the case may be,
he shall not be liable for prosecution under this Chapter.]
(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act
has been committed by a company and it is proved that the offence has been committed with
the consent or connivance of, or is attributable to, any neglect on the part of, any director,
manager, secretary or other
officer of the company, such director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to be proceeded against and punished
accordingly.
Explanation.—For the purpose of this section,—
(a) “company” means anybody corporate and includes a firm or other association of
individuals; and
(b) “director”, in relation to a firm, means a partner in the firm.

[s 141.1] MEANING OF THE SECTION

From a reading of section 141 of the Act, it is clear that to hold a person guilty of offence
under section 138 by virtue of section 141 of the Act, the first and foremost requirement to be
established is commission of the offence by another person, i.e., a company, firm or
association of individuals. Unless and until it is established that such juristic person commits
offence under section 138 of the Act, no person referred to in section 141 can be proceeded
against, summoned, prosecuted or convicted for offence under section 138. Therefore, a
complaint is liable to be dismissed as the cheque was issued by the firm but the accused has
been named as
an accused in the complaint in her personal capacity and there is no averment or allegation
against the accused in her capacity as a partner of the firm who is the drawer of the cheque.
Cheque can be issued by GM, secretary or any other authorised person.
Who can be prosecuted?
Company or company director or both? 3 things will be required to determine this, - 7
ingredients under sec 138, definition of person, vicarious liability concept.
Read Aneeta Hada v Godfather Travels and Tours Pvt Ltd,(2008) 13 SCC 703 to understand
this.

Issuance of cheque by a company will be governed by company law but for fixing liability
nego act will be used.
Company and the person who is incharge of the company like director by vicarious liability
principle. (Company liability )
Provided that nothing contained in this sub-section shall render any person liable to
punishment if he proves that the offence was committed without his knowledge, or that he
had exercised all due diligence to prevent the commission of such offence.
When the offence has been committed with the consent or connivance of, or is attributable to,
any neglect on the part of, any director, manager, secretary or other officer of the company,
such director, manager, secretary or other officer shall also be deemed to be guilty of that
offence and shall be liable to be proceeded against and punished accordingly. (Personal
liability)
“company” means anybody corporate and includes a firm or other association of individuals;
5“director”, in relation to a firm, means a partner in the firm. Nominated directors are very
famous nowadays. Companies often provide nominated directors post to politicians and also
provide some salary. They don’t do ant work. They cannot be held liable for any dishonour
unless they personally do any act related with issuance of cheque, under sec 141(2). These
cases are imp: Aneeta Hada case
SMS pharmaceuticals v neeta bhalla 2005 8 SCC
Sabitha Ramamurthy v R.B.S. Channabasavaradhya, (2006) 3 JCC (NI) 247 (SC)
Filing of complaint. Done in:
1. Metropolitan Magistrate or
2. Judicial Magistrate of the first class
3. Special designated courts, happens mostly in Kerala
4. ADR usually in case of high profile cases.
8Th oct
Burden proof in case of dishonour
Sec 139 with 138. Mens rea - sec 139 read with 141
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.
[s 139.1] MEANING OF THIS SECTION
This section means and lays down that there shall be a statutory presumption in favour of a
holder in due course that he received the cheque in question in a proceeding under section
138 of the Act for the discharge
of any debt or other liability, either in part or in full, unless the accused is able to rebut this
presumption by proving to the contrary.
Thus, in every proceeding for an offence under section 138 of the Act, the presumption under
section 139 is
mandatory but rebuttable by proof of facts contrary to the receipt of cheque for discharge of
any debt or other liability. The initial burden, however, of proving that the cheque was drawn
by the drawee for payment of any amount of money and it being returned by the bank unpaid
remains with the complainant.
Rightful Dishonour
Sec 31. Liability of a drawee to make payment in circumstances bank cannot pay—The
drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to
the payment of such cheque must pay the cheque when duly required so to do, and , in default
of such payment, must compensate the drawer for any loss or damage caused by such default.
It is assumed that bank is required to pay.

What are the conditions in which bank is entitled to dishonour the cheque. The drawer will be
liable.
1. Account must be actually in credit.
2. There must be no countermanding. Countermanding has been discussed under sec 75 of
english bill of exchange 1882.
3. Cheque should be presented at a branch where account is kept by customer.
4. The cheque shoukd be presented for payment in business hours.
5. Withdrawl should be whole amount of cheque
6. there should be no ambiguity in the material part if the instrument
7. Words and figures should represent the same amount and cheque must not be altered bw
drawing and presentation. In case reasonable doubt is in mind of bank then under sec 131 it
can be returned unpaid.
8. Cheque should not have been carelessly drawn. Sign at correct place
9. There is no irregular endorsement and it should not have been forged and unauthorized.
10. Cheque is not in proper form, not dated, mutilated (wear n tear) then in that case also
bank may refuse the payment.
11. Closing or dormant account should not be there.
12. Death of customer. Title to his bank balance passes to his legal representative. In case
bank has no knowledge about death, it can make payment of the cheque drawn by the
customer.
13. Customer's insanity. Bank will not honour the cheque. If insanity is not known then bank
can make payment.
14. Bank has no obligation to pay in case of forged sign. Bank will write refer to drawer or
dishonour the cheque.
If instrument has not been honoured then notice of 15 days for payment and of 1 month time
for cognizance of offence (sec 142).
What is the meaning of month?
Sec 3 (35) of Gen clauses act defines month.
It will be determined as per british calendar.

Burden of proof - Holder

Sec 138 explanation with 139.
Explanation.—For the purposes of this section, “debt of other liability” means a legally
enforceable debt or other liability.
139. Presumption in favour of holder.—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.
142 - Cognizance of offence. initiation of complaint can be dine by holder or holder in due
course against drawer. It is a mandatory provision. Sec 2d of CRPC defines complaint.
142. Cognizance of offences.—
[(1)] Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974),—
(a) no court shall take cognizance of any offence punishable under section 138 except upon a
complaint, in writing, made by the payee or, as the case may be, the holder in due course of
the cheque;
(b) such complaint is made within one month of the date on which the cause of action arises
under clause (c) of the proviso to section 138
[Provided that the cognizance of a complaint may be taken by the Court after the prescribed
period, if the complainant satisfies the Court that he had sufficient cause for not making a
complaint within such period;]
(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first
class shall try any offence punishable under section 138.]
[(2) The offence under section 138 shall be inquired into and tried only by a court within
whose local local jurisdiction,—
(a) if the cheque is delivered for collection through an account, the branch of the bank where
the payee or holder in due course, as the case may be, maintains the account, is situated; or
(b) if the cheque is presented for payment by the payee or holder in due course, otherwise
through an account, the branch of the drawee bank where the drawer maintains the account, is
situated.[Provided that the cognizance of a complaint may be taken by the Court after the
prescribed period, if the complainant satisfies the Court that he had sufficient cause for not
making a complaint within such period;]
(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first
class shall try any offence punishable under section 138.]
[(2) The offence under section 138 shall be inquired into and tried only by a court within
whose local local jurisdiction,—
(a) if the cheque is delivered for collection through an account, the branch of the bank where
the payee or holder in due course, as the case may be, maintains the account, is situated; or
(b) if the cheque is presented for payment by the payee or holder in due course, otherwise
through an account, the branch of the drawee bank where the drawer maintains the account, is
situated.
SECTION 142: COGNIZANCE OF OFFENCE
• Sil Import USA v. Exim Aides Silk Manu/SC 312 199
➢ Section 142 is compulsory in nature.
➢ No court shall take cognizance of the offence except upon a complaint made by the
payee/holder in due course.
➢ The provisions contained in Section 142 are independent of the provisions of CrPC.
➢ The word complaint is defined under Section 2 (d) of CrPC, but the section opens with the
words “unless the context otherwise requires”
➢ Such complaints according to 142(b) is to be made within one month of the date on which
the CoA arises under clause (c) of the provisions of Section 138
➢ No court inferior to the metropolitan magistrate or judicial magistrate of the first class
shall try any offence punishable under Section 138.
➢ If the parties before or after the dispute refer the matter to arbitration, it should be allowed.
(Section 147 read with Section 7 of the Arbitration and Conciliation Act).
• Meaning of “month”- section 3 (35) defines month and that month is according to the
British Calendar.
• Requirements of complaint under S. 142 (After requirements of Section 138 have been
complied
with; 142 cannot be applied independent of Section 138)
1. The allegation must be in writing.
2. That allegation must be there against the drawer of the cheque. (no fault of drawee)
3. The said cheque (“said cheque”→ identification of cheque is required to be mentioned,
ambiguity on technical ground will lead to dismissal of the suit) was issued in discharge of a
legally enforceable debt of liability.
4. The cheques was presented to the bank on which it was drawn within the period of tis
validity. (presentment of cheque→ 21, 64 and 138 and RBI circular)
5. The cheque has been dishonoured by the bank.
6. The endorsement by the bank while returning the cheque unpaid, directly or indirectly,
leads to the inference that the amount of money standing to the credit of that account is
insufficient to honour the cheque or it exceeds the amount arranged to be paid from that
account.
7. A notice was sent to the drawer within 15 days of the receipt of information from the bank
about dishonour of cheque, demanding payment of the amount covered by the cheque.
8. The drawer either actually received the said demand notice or intentionally evaded the
service of notice though properly directed and because of such intentional evasion of the
service of notice, the said notice must be deemed to have been served upon the drawer.
9. The drawer did not make payment within 15 days from the date of actual receipt of the
notice or constructive service of the notice.
10. The complaint is made within one month of the date on which the CoA arises under
clause (c) of Section 138. One month period will be counted after lapse of 15 days.
11. The complaint is to filed before a metropolitan magistrate or judicial magistrate of the
first class having territorial jurisdiction to entertain such a complaint. (S 142c)
12. Section 142 of the Act provides for only one mode of cognizance on a complaint in
writing by the payee or holder in due course of the cheque. In case of companies, General
Manager or any other employee aurhorised to issue cheque will be held liable as held in
MMTC v Pharma case. Complainant in case of company will be director, secretary, finance
or general manager, whosoever had been given the responsibility of looking into the matter.
Aneeta Hada case is most important for company's complaint matters.
9th and 10th sat and sun
11th oct
Modes of cognisance by the magistrate
3 - complaint, police report, information (sec 19 of CrPC). NIA provides only complaint as a
mode of cognisance.
BURDEN OF PROOF IN CASE OF DISHONOUR OF CHEQUE
• Section 139: 2 types of Burden of Proof
1. person who is alleging is required to prove by presentation of the documents (cheques
itself is the most important document).
2. once all the document are there, the second step is Reverse Burden of Proof→ Court will
initially presume it is legal debt under Section 138 Explanation. Then arise rebuttable
presumptions (the other party will try to prove that the cheque was not for a legally
enforceable debt).
What is the duty of Court?
1. Verification of complaint.
CrPC section 200 of the Code requires that the Magistrate, on taking cognizance of an
offence on complaint, shall verify upon oath the complainant and the witnesses present and
the substance of such examination shall be reduced to writing and shall be signed by the
complainant and the witnesses. The requirement of section 142 of the Act that the payee
should be the complainant is met if the complaint is in the name of the payee.
2. In case of company, verify whether the person making the complaint is duly authorized or
not. On the date of verification of complaint, court can direct a person from company to file a
complaint.
If the payee is a company, necessarily the complaint should be filed in the name of the
company.
3. The complaint should have specific environment and the payee should have issued notices
to the drawer and the drawer should have received it.
4. The complaint should have been filed within the limitation time as given under sec 1 of
NIA. Rajan sanant kr. Joshi v. Rajnikant govindlal shah 2007 Cr LJ 2318, Gj HC. It provides
the court, their duties when complaint has been filed under sec 138 read with 142 of NIA.

5 TYPES OF TERRITORIAL JURISDICTION AS PER K. BHASKARAN CASE 1999

• Territorial Jurisdiction in terms of dishonour is there in Section 138.
• TJ where the Cause of Action arises: Where the drawer/drawee/payee/holder is located
1. Place of drawing of cheque
2. Place of presentation of the cheque to the bank by the payee
3. Place of Returning the cheque unpaid by the drawee bank
4. Place of Giving notice of demand
5. Place of failure to make payment within notice period
• K. Bhasakaran v. Sankaran Vaidhyan Balan 1999 7 SCC p. 510
• aberrations from bhaskaran
• Ishwar alloy steels ltd v jaiswal ltd 2005 the where complainant presented case for
encashnent will not have territorial jurisdiction.
• Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd. 2009 1 SCC p. 720
it said wherever notice has been served for purposes of determination of drawer's liability in
dishonour will not have jurisdiction.
Prem chand vijay kumar 2005 4 SCC case said the subsequent presentation of case will not
determine jurisdiction.
• Dashrath Roop Singh Rathore v. State of Maharashtra 2014 9 SCC p. 129. In this local
jurisdictionof offence will have 1st jurisdiction. Further it said conplaint should be filed in the
jurisdiction of court where drawee's bank is situated. It brought many hardships. This led to
amendment of sec 142 and 142 (2) was added. Bhaskaran was upheld. Rest aberrations were
set aside.
➢ The current law however is K. Bhaskaran as diluted by Harman Electronics.
➢ Territorial Jurisdiction in case of dishonour of cheques → Section 138-147 is the stand
alone piece of legislation. No other legislation will be applicable in case of dishonour of
cheques.
Many courts have opined that Bhaskaran’s opinion is right even after the amendment. In
strict legal sense, we can say that whatever the law has been talking about should be the
jurisdiction determination. This is very confusing sometimes.
As SC held, the issues pertaining to jurisdiction have been settled. We will understand the
summary trial.
What is the meaning of summary trial as provided under S. 143?
Chapter 21 of CrPC which consists of S. 265 deals with cases where the summary trial is
possible. It talks about what are the court’s power. It has introduced the special procedure of
summary trial to try matters. For summary trial, it is restricted only to the purposes of
dishonour of the cheque. The magistrate has the power to issue summons and do day to day
basis, post summons, on affidavit the documents can be taken and proceedings can be held.

Rajesh Agarwal v. State Delhi HC judgment- Summary trial procedures under S. 138 should
be done in 5 step process-
Step I : On the day complaint is presented, if the complaint is accompanied by affidavit of
complainant, the concerned MM shall scrutinize the complaint & documents and if
commission of offence is made out, take cognizance & direct issuance of summons of
accused, against whom case is made out.
Step II : If the accused appears, the MM shall ask him to furnish bail bond to ensure his
appearance during trial and ask him to take notice u/s 251 Cr. P.C. and enter his plea of
defence and fix the case for defence evidence, unless an application is made by an accused
under section 145(2) of N.I. Act for recalling a witness for cross examination on plea of
defence.
Step III : If there is an application u/s 145(2) of N.I. Act for recalling a witness of
complainant, the court shall decide the same, otherwise, it shall proceed to take defence
evidence on record and allow cross examination of defence witnesses by complainant.
Step IV : To hear arguments of both sides.
Step V : To pass order/judgment.

12th oct
what is the meaning of non obstante clause? it is a declaration, notwithstanding anything
contained in some other act, the current act will prevail. it overrides the provision of some
other act.
under NI Act, it has been used a lot of times in this chapter - “notwithstanding anything used
in CrPC” however certain CrPC provisions are applicable mutatis mutandis. this chapter 17 is
a combination for civil law and criminal law.
we were discussing about summary trial-
CrPC provisions- 262 to 265 applicable in summary trials- how magistrate of first class
operates for dishonour of cheques provisions. procedure of summary trial is 262 however,
section 144 of NI act will be applicable in mode of service of summons- magistrate to serve
the summons at the place of residence of the accused or place of business etc. through speed
post or any courier services mentioned. if the accused is missing, then it is considered to be
144(2) deemed service of summons, that is, if address and other things are in order including
place of residence or place or business or personally works, even if it is served or not served,
it will assumed as per section 144 that summons have been served.
recording of summary trials- section 143 of NI Act read with 263 of CrPC, specifically
clarifies serial number of the case, commission dates of the offence, date of report for the
complaint, name of the complainant, name, parentage and residence of accused, offence
complained of and offence proved, plea of the accused and his examination, the findings, date
on which proceedings started. summary trial must be completed within 6 months, it is
assumed that negotiable instrument, when summons etc. have been issued, it is understood
that magistrate shall give reasons as to why those findings are there, 264 CrPC is very
important as what reasons and what law made you decide on the matter once the person who
has lost the case, upper courts will be helped by such reasoning as to what trial courts have
done.
Rajesh Agarwal case important for summary trial.
evidences collected must be based on affidavit or otherwise also because section 145 talks
about “may” it can be recorded by the magistrate under 262 to 265 CrPC.
compoundable- section 147 talks about it. it means compromise and for this compromise,
willingness, readiness, acceptability of offer by one party given by the other party and
consent of both the parties is needed. it basically means that if both the parties agree that
other than court, they will have a compromise. if the matter is being resolved before the
designated court and if both the parties come up with this together and give money to settle
the issue, then court may allow this or the matter can be resolved amicably if the matter has
not gone to court yet. without consent there can be no compoundability, so consent is sine
qua non of dishonour of cheques.
in arbitration, third party role is interesting and adjudicatory, after hearing both the parties.
conciliators give options, and their options have persuasive value and are not binding. in
mediation, dispute arises because both parties do not talk therefore, both the parties talk here
compromise is achieved by both the parties through negotiation and conversations. over here
under chapter 17, compromise means in any manner, the compromise can be done by party
with any person but consent is necessary.
S. 147 – “Offences to be compoundable.—Notwithstanding anything contained in the Code
of Criminal Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be
compoundable].
SCHEDULE.—[Enactments repealed].—Rep. by the Repealing and Amending Act, 1891 (12
of 1891), s. 2 and Schedule I.”
Section 147 is in the nature of enabling provision, it means that offence under 138 will be
compoundable. 147 is non obstante clause that anything provided under CrPC under 320 will
be overridden by 147 because compoundability of offence under 320 is for there for offences
covered under IPC.
Gyan Sagar (K) v. Ganesh, 2006 CriLJ 948 SC. – compounding of an offence punishable
under 138, all of this is talked about in this case as to why 320 is not applicable under NI Act.
[1) 147 is non obstante and 2) CrPC 320 covers offences and cases under IPC- because of
these two reasons, CrPC provisions will not be applicable on section 147 of NI Act.]
compromise means agreement between litigating parties and if any one of them is not
aggregable for this compromise, then proceedings cannot be quashed because if compromise
is achieved, both the parties can tell the court that it has been achieved on the ground that
payment or deposit of the amount claimed has been paid by the accused, therefore, the
readiness and willingness on part of accused or the drawer to pay should be there. this would
lead to quashing of criminal proceedings however; civil proceeding would be there as res
judicata cannot be applied here, as because of the non-payment, damages suffered by the
complaining party are being claimed by him. if complainant has not agreed for compromise,
the court cannot impose it and the matter will be resolved as per law under 142 read with 138.
payment paid or the deposit of the payment that has been done or the promise, the court will
ask the parties to wait for some time as per these things, if there is little reluctance on part of
accused to enter into compromise.
on what facts the courts assume that cheque has been dishonoured?
section 146 provides for bank slip or the memo with seal and signature of the bank official
indicating of the dishonour, then it will be presumed that cheque has been dishonoured.
introduced in 2003, earlier not there. 147 also got introduced in 2003.
in 2008 interim order of payment if it is prima facie indicative on the basis of proven fact that
cheque has been dishonoured [section 140 talks about that mens rea is not important, 139
says that if cheque has been issued, it has been issued in pursuance of legally enforceable
debt and liability as per section 138 explanation] were included that it can be issued by a
court of competency.