Welcome to the presentation on

Kinds Of Negotiable Instruments.

Submitted To- Submitted By -

Mrs. Monika Aggrawal. Nilima (2193/23).
Dhruv Kakkar (2101/23).
Sahil (2055/23).
BCom-I (SECTION-A)
What Are Negotiable Instruments?
• A negotiable instrument is a written
document that guarantees the payment of a
specific amount of money, either on-demand
or at a predetermined future date.
• It is transferable from one person to another
by delivery or endorsement.
• Negotiable instruments facilitate trade and
commerce by providing a secure means of
payment.
 Characteristics Of Negotiable
Instruments.
• Unconditional Promise or Order: The instrument must contain an
unconditional promise to pay (in the case of a promissory note) or
an unconditional order to pay (in the case of a bill of exchange or
check).
• Fixed Amount: The amount to be paid must be certain and easily
ascertainable.
• Time of Payment: It should specify the time of payment, either
on-demand or at a future date.
• Payable to Bearer or Order: It can be payable to the bearer
(anyone in possession of the instrument) or to a specific person or
their order.
• Transferability: It must be transferable from one party to another.
• In Writing: It must be in writing, either handwritten, printed, or in
electronic form.
 Kinds Of Negotiable Instruments.
1. Promissory Note (Section 4) :
Definition: A promissory note is a written promise by one party
(the maker) to pay another party (the payee) a specified
summoney either on-demand or at a specified future date.
Parties Involved:
Maker: The individual or entity who promises to pay the specified
amount.
Payee: The individual or entity to whom payment is promised.
Example:
Personal IOUs: When a friend lends money to another and receives a
written promise to repay.
Bank Promissory Notes: When a borrower obtains a loan from a bank
and signs a promissory note agreeing to repay the loan amount.
 Essentials Of A Promissory Note
1. Promissory Note is a Negotiable Instrument
2. It has to be in writing.
3. It is an undertaking i.e promise to pay
4. It is an unconditional undertaking.
5. It must be signed by maker.
6. To pay certain sum.
7. To pay money only.
8. Payable to order or bearer.
9. Both parties must be certain.
10. Promissory note payable on demand.
11. Maturity of promissory note.
12. Promissory note payable otherwise than on demand.
13. Days of grace.
Bill Of Exchange (Section 5) :
• Defination: A bill of exchange is an
unconditional written order by one party (the
drawer) to another (the drawee) to pay a
certain sum of money to a third party (the
payee).
• Parties Involved : It involves three parties.The
drawer (issuer), the drawee (ordered to pay),
and the payee (recipient of payment).
• Example: Trade invoices, international
transactions.
 Essentials Of Bills Of Exchange
• It is a Negotiable Instrument.
• In Writing.
• Is an order.
• Is an unconditional promise.
• Must be signed by the drawer.
• Must be accepted by the drawee.
• To pay certain sum.
• To pay money only.
• Payable to order or bearer.
• Parties of a bill of exchange.
• Bill of exchange payable on demand.
• Bill of exchange payable otherwise than on demand.
• Maturity of a Bill of Exchange.
• Days of grace.
 Cheque (Section 6) :
• Defination : A cheque is a written, dated, and
signed instrument that directs a bank to pay a
specific sum of money from the drawer's
account to the payee's account.
• Parties Involved : It involves three parties:
the drawer (account holder), the drawee
(bank), and the payee (recipient of payment).
• Example: Personal, business, or cashier's
cheques.
 Essentials Of a Cheque
• Cheque is in writing.
• Cheque is a Negotiable Instrument.
• Cheque is an order.
• Cheque is an unconditional order.
• To pay certain sum.
• To pay money only.
• Cheque may be payable to order or to bearer.
• Parties of a cheque drawer & drawee.
• Cheque is always payable on demand.
• Cheque is always drawn on a specified banker. Kinds of
Negotiable Instruments
• Maturity of a cheque — is as and when demanded but the
period of validity of a cheque is 6 months.
 Other Negotiable Instruments
1. Inland Instrument(Section 11) :A promissory note, bill of
exchange or cheque drawn or made in India, and made payable
or drawn upon any person resident in India, shall be deemed to
be an inland instrument. An inland instrument, therefore, may
be, either :
made or drawn in India and also made payable in India; or,
drawn in India on a person resident in India, although it is
stated to be payable in a foreign country.
Examples of inland instruments are :
1.A promissory note made in Delhi and payable in Bombay.
2. A bill of exchange drawn in Delhi and made payable in
Bombay (It may have drawn on some person resident abroad, e.
g., London).
2.Foreign instrument (Section 12) :
An instrument which is not so drawn, made or made payable
that it may be called an inland instrument, shall be deemed
to be a foreign instrument. Thus, a foreign instrument is one
which is not an inland instrument.
Examples of foreign instruments are :
1. A promissory note made in India, but made payable in
England.
2. A promissory note made in England, but payable in India.
3. A bill of exchange drawn in India and payable in England.
4. A bill of exchange drawn in England and made payable in -
India.
5. A bill of exchange drawn in England and payable in Paris,
although it may have been indorsed in India.
3.Order and Bearer Instruments :
• Order Instrument : Order instrument is an instrument which is
payable to a specific payee i.e. the name of the payee is
mentioned on the instrument. Only the person whose name
mentioned on an order instrument has the legal right to
ownership of that instrument and fight to claim the money
of the instrument.
• Bearer instrument : A bearer instrument is an instrument on
which no specific name the payee (receiver of money) is
mentioned. Such an instrument is the property of the person
MO, holds the instrument i.e. who has the physical possession
or custody of the instrument.
 4.Instruments payable on demand:
When a negotiable instrument is expressed to be payable on
demand, it is due for payment immediately after its issue. U/
S 21 the expression "at sight" and "on presentment"
payment also mean on demand. In a promissory note and a
bill of exchange it may be mentioned whether the same is
payable on demand or otherwise, but in the case of cheque
nothing of that sort is to be mentioned because a cheque is
always payable on demand.
The following instruments are payable on demand :-
• Instruments where no time is specified (U/S 19)
• Instruments payable at sight (U/S 21 )
• Instruments payable on presentment (U/S 21)
 5.Instruments Payable otherwise than on demand:
A promissory note or a bill of exchange can be payable otherwise
than on demand.
6. Time Instrument:
A bill of exchange or a promissory note payable :-
(i) Payable after a fixed period or
(ii) Payable after sight; or
(iii) Payable on a specified day or
(iv) Payable on the happening of an event which is certain to happen
—is called as a time instrument .
• Payable after sight means :-
(a) for a bill of exchange means after acceptance.
(b) (b) for a promissory note means after presentiment for sight.
7.Accomodation Bills:
When a bill is drawn , accepted, or indorsed for consideration, it is
called a genuine trade bill . When it is drawn ,accepted or indorsed
without any consideration ,it is called an accommodation bill.
8 Fictitious bills (Section 42):
When the name of the drawer or payee or both are fictitious, the bill is
called a fictitious bill. The word 'fictitious' means (i) a non-existing person
and (ii) pretended person, i.e., a person other than the actual person
intended by the parties. Where a bill is drawn in the name of a fictitious
person, and payable to the drawer's order, the acceptor is liable to pay to
the order of the person who signed it as drawer. Therefore, the endorsee
can recover the amount as against the acceptor provided he is in a position
to show that the signature of the supposed drawer of the bill and the first
endorsement on it are in the handwriting of the same person. In case of
fictitious instruments, only a holder in due course can recover the money
as against the acceptor.
9. Ambiguous instrument (Section 17):
• When an instrument owing to its faulty drafting may be
interpreted either as a promissory note or a bill of exchange, it is
called an ambiguous instrument. Its holder has to elect once for all
whether he wants to treat it as a promissory note or a bill of
exchange [Sec. 17]. Once he does so, he must abide by his election.
If the amount undertaken or ordered to be paid is stated
differently in figures and in words, the amount stated in words is
the amount undertaken or ordered to be paid (Sec. 18).
10. Inchoate instrument (Section 20):
An inchoate instrument is an incomplete instrument in some
respect. When a person sings and delivers to another a blank or
incomplete stamped paper, he authorizes the other person to
make or complete upon it a negotiable instrument for any amount
not exceeding the amount covered by the stamp. The person so
signing is liable upon such instrument, in the capacity in which he
signed the same, to any holder in due course for such amount.
11. Escrow:
When a negotiable instrument is delivered conditionally or for a
special purpose as a collateral security or for safe custody only,
and not for the purpose of transferring absolutely property therein,
it is called an escrow.The liability to pay in case of an escrow does
not arise if the conditions agreed upon are on. I not fulfilled or the
purpose for which the instrument was delivered is not satisfied.
12. Documentary and clean Bill:
When documents of title to the goods and other documents,
e.g., invoice, marine Insurance policy, etc., are annexed to a
bill, the bill is called a documentary bill. Such documents are
delivered to the buyer only on acceptance or payment of the
bill. When no documents relating to the goods represented
by the bill are attached to it, it is called a clean bill.
 13.Bills in sets:
A bill of exchange is sometimes drawn in parts, especially when it has to
be sent from one country to another. This is known as drawing a bill 'in
a set'. The object of drawing a bill in a set is (a) to avoid undue delay
and unnecessary inconvenience which may arise due to the loss or
miscarriage of the bill during the transit, and (b) to ensure the safe
transmission of at least one part of the bill to the drawee and its
acceptance by him as early as possible.
Rules regarding bills in sets (Secs. 132 and 133) :
• A bill of exchange may be drawn in parts (two, three or four). All the
parts together make a set and the whole set constitutes only one well.
• Each part of the bill in a set must be numbered and must contain a
provision that it shall continue to be payable only so long as the other
parts remain unpaid.
• The entire bill is extinguished when payment is made on one of the
parts.
• The drawer must sign each part of the bill deliver all the parts. But the
stamp is affixed on one part only and only one part of the whole set
needs to be accepted.
THANK
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