Law of Negotiable Instruments

Presented by:
Md. Mutasim Billah Kandaker
Lecturer
Department of Law
1
EXIM Bank Agricultural University Bangladesh (EBAUB)
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 Negotiable Instrument
 A written document transferable by delivery
 A negotiable instrument is a document guaranteeing the
payment of a specific amount of money, either on
demand, or at a set time.

 The Negotiable Instruments Act, 1881

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A negotiable instrument is
a) A written instrument,
b) Signed by the maker or drawer of the instrument,
c) That contains an unconditional promise or order to
pay,
 A fixed amount of money with or without interest in a
specified amount or at a Specific rate,
 On demand or at an exact future time,
 To a (specific person), or to order, or to its bearer.
  Section 13 of the said Act provides – “a negotiable
instrument means a promissory note, bill of
exchange or cheque payable either to order or to
bearer.”
 According to section – 13(2), a negotiable
instrument may be made payable to two or more
4 payees jointly or it may be made payable in the
alternative to one of two, or one or some of several
payees.
5 Payable to order
Which is expressed to be ‘payable to particular person or his
order’
example: (i) pay A; (ii) Pay A and order; (iii) pay to the order
of A etc.
No words prohibiting transfer (e.g. Pay to A and none else)
Exception- Crossed cheque ( Account payee only)
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7 Payable to bearer

 It means Payable to any person whoever bears it.

 For example- ‘Pay to A or bearer’ or ‘pay A, B or bearer’ or ‘Pay

bearer’
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 Characteristics of Negotiable Instruments
 Property

 Title

 Rights

 Easy negotiability

 Essentials of Negotiable Instruments

 Written

 Signed

 Promise or Order to Pay

9 Presumptions As to Negotiable Instruments
 Certain presumptions apply to all negotiable instruments. Sections 118 & 119 lay
down the following presumptions, unless the contrary is proved:
 a) That every negotiable instrument are made for consideration;
 b) That every negotiable instrument bearing a date was made or drawn on that date;
 c) That every accepted bill of exchange was accepted within a reasonable time after
its date and before its maturity;
 d) That every transfer of a negotiable instrument was made before its maturity;
 e) That the endorsements appearing upon a negotiable instrument were made in the
order in which they appear thereon;
 f) That a lost promissory note, bill of exchange or chaque was dully stamped;
 g) That the holder of a negotiable instrument is a holder in due course;
10  h) In a suit upon an instrument which has been dishonoured, the court shall, on
proof of the protest, presume the fact of dishonour, unless and until such facts is
disproved;

 i) No maker of a promissory note, and no drawer of a bill of exchange or cheque,

and no acceptor of a bill of exchange by a holder in due course be permitted to deny
the validity of the instrument as originally made or drawn;

 j) No maker of a promissory note and no acceptor of a bill of exchange payable to

order shall, in a suit thereon by a holder in due course, be permitted to deny the
payee’s capacity at the date of the note or bills, to indorse the same; and

 k) No endorser of negotiable instrument, in a suit thereon by a subsequent holder,

shall be permitted to deny the signature or capacity to contract of any prior party to
the instrument.
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 Types of Negotiable Instruments
 According to section 13 of the Negotiable Instrument Act – 1881,
there are three types of negotiable instruments:
1. Promissory Note,
2. Bills of exchange and
3. Cheque
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 Promissory note
 A "promissory note" is an instrument in writing (not being a bank-
note or a currency- note) containing an unconditional undertaking,
signed by the maker, to pay [on demand or at a fixed or
determinable future time] a certain sum of money only to, or to the
order of, a certain person, or to the bearer of the instrument.
(Section- 4)
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 Illustrations
 A signs the instrument in following terms:
(a)‘I promise to pay B or order Taka 500’
(b)‘I acknowledge myself to be indebted to B in Taka 1000 to be paid
on demand, for value received.
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 Here is an example of promissory note given below:

Taka 1000 Dhaka, 06 August, 2023

Sixty days after date I promise to pay to Mr. Nayeem or order the sum
of taka one thousand only with interest thereon at 12 per cent per
annum for value received.
Revenue Stamp
Sd/- Mr. Sani
15 Essentials of a Promissory Note

 In writing
 Promise to pay
 Unconditional
 Signed by the Maker
 Certain Parties
 Certain sum of money
 Promise to pay money only
 Number, place, date etc.
16
Bill of Exchange

 A “bill of exchange” is an instrument in writing containing an

unconditional order, signed by the maker, directing a certain person
to pay on demand or at fixed or determinable future time a certain
sum of money only to, or to the order of, a certain person or to the
bearer of the instrument. (Section-5)
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Here is a specimen of a bill of exchange given below:

Taka 1000 Dhaka, 06 August, 2023

Three months after the date pay to C or order the sum of taka one
thousand only for value received.
To
Mr. Z Accepted Revenue
(Drawee) Sd/- Z Stamp
Sd/- B (Drawer)
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Characteristic Features of a bill of exchange

 1. It must be in writing.
 2. It must contain an order to pay and not a promise or request.
 3. The order must be unconditional.
 4. There must be three parties, viz., drawer, drawee and payee.
 5. The parties must be certain.
 6. It must be signed by the drawer.
 7. The sum payable must be certain or capable of being made certain.
 8. The order must be to pay money and money alone.
 9. It must be duly stamped.
 10. Number, date and place.
 Parties to a Bill of Exchange
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 1. The Drawer - the person who draws or makes the bill.

 2. The Drawee - the person on whom the bill is drawn.
 3. The Payee - the person to whom the amount of the bill is payable.
20  Cheque
 A cheque is defined under section – 6 as “a bill of exchange drawn
on a specified banker and not expressed to be payable otherwise
than on demand’.
 Thus, a cheque is a bill of exchange and hence it is to comply with
all the essential of bill of exchange as prescribed in section 5 of the
Act. But a cheque has two distinctive features, namely:
 (i) it is always drawn on a bank, and
 (ii) it is always payable on demand.
  Features of a Cheque
21
A Cheque is a bill of exchange with following features:-
 (i) must be in writing
 (ii) contain an unconditional order to pay
 (iii) drawn on a specified banker
 (iv) for a certain sum of money
 (v) the payee must be a definite person
 (vi) amount must be written both in figures and words
 (vii) it must be dated
 (viii) it is always drawn on a specified banker
 (ix) it is always payable on demand and not otherwise.
22 Types of Cheque

 Open Cheque
 Can obtain cash from the drawer’s bank directly
 No lines drawn across the face of the cheque

 Crossed Cheque
 Can obtain money through a bank account only
 Two vertical or parallel lines drawn across the face of the cheque
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 Who can cross a cheque
 A cheque may be crossed by any of the following:
 1. The drawer of a cheque.
 2. The holder of a cheque.
 3. The Banker, in whose favour the cheque has been crossed
specially.
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Difference between Bill of Exchange and Cheque

 Drawee
 Acceptance
 Payment
 Crossing
 Notice of dishonor
 Stamp
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Difference between Bill of Exchange and Promissory Note

 Parties- (3 vs. 2)
 Nature of payment
 Acceptance
 Liability
 Notice of dishonor
 Payable to maker
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Parties to negotiable instruments

 Holder

 According to sec-8, a holder of a negotiable instrument is a person

entitled in his own name to the possession of that negotiable
instrument and to receive or recover the amount due thereon from
the parties thereto. Thus, in order to be called a ‘holder’ a person
must satisfy the following two conditions:-
 •He must be entitled to the possession of the instrument in his own
name.
 •He must be entitled to receive or recover the amount due thereon
from the parties liable thereto.
27  Holder in Due Course
 According to section – 9, a ‘holder in-due-course’ is a person who
for consideration became the possessor of a negotiable instrument
before the due date of payment of that instrument and without
having sufficient cause to believe that any defect existed in the title
of the person from whom he derived his title.
 1. He must be a holder
 2. He must be a holder for valuable consideration.
 3. He must have become the holder of the negotiable instrument
before its maturity.
28 Dishonor of Negotiable Instruments
 A negotiable instrument is said to be dishonourd when the drawee
either refuses to accept it or refuses to pay.
 If an instrument is dishonourd, the holder must give the notice
(under section 93 of the Negotiable Instruments Act, 1881) of
dishonor to the drawer or to previous holders if he wants to make
them liable.
29 Dishonour by Non-Acceptance

 Section- (91). A bill of exchange is said to be dishonoured by non-

acceptance when the drawee, or one of several drawees not being
partners, makes default in acceptance upon being duly required to
accept the bill, or where presentment is excused and the bill is not
accepted.
 Where the drawee is incompetent to contract, or the acceptance is
qualified, the bill may be treated as dishonoured.
30 Dishonor by Non-payment
 Under section 92 of the N.I. Act, a promissory note, bill of exchange
or a cheque is said to be dishonoured by non-payment when the
maker of the note, acceptor of the bill or drawee of the cheque
makes default in payment upon being duly required to pay the same.
31 Notice of Dishonour

 Section- (93). When a promissory note, bill of exchange or cheque

is dishonoured by non-acceptance or non-payment, the holder
thereof, or some party thereto who remains liable thereon, must give
notice that the instrument has been so dishonoured to all other
parties whom the holder seeks to make severally liable thereon, and
to some one of several parties whom he seeks to make jointly liable
thereon.
32 Effect of dishonor

 Holders become entitled to sue the parties liable to pay.

33 Discharged from Liability
 By Payment
 By Cancellation
 By Release
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Dishonour of cheque

 Section- 138
 Insufficient Amount
 one year imprisonment, or fine which may extend to thrice the
amount of the cheque, or both
 any amount up to the face value of the cheque as far as is covered
by the fine realized shall be paid to the holder.
35 Conditions for Suit of Dishonoured
Cheque
 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
 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
 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 thirty days of the receipt of the
said notice
36 Manner of Giving Notice of Dishonour

 a) by delivering it to the person on whom it is to be served; or

 (b) by sending it by registered post with acknowledgement due to
that person at his usual or last known place of abode or business in
Bangladesh; or
 (c) by publication in a daily Bangla national newspaper having wide
circulation.
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 Section- 138 (3)

 Notwithstanding anything contained in sub- section (1) and (2), the
holder of the cheque shall retain his right to establish his claim
through civil court if whole or any part of the value of the cheque
remains unrealized.
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 138A. Notwithstanding anything contained in the Code of Criminal

Procedure, 1898, no appeal against any order of sentence under sub-
section (1) of section 138 shall lie, unless an amount of not less
than fifty per cent of the amount of the dishonoured cheque is
deposited before filing the appeal in the court which awarded the
sentence.
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 Section- (141). Notwithstanding anything contained in the Code of

Criminal Procedure, 1898 (Act V of 1898),-
 (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;
 (c) no court inferior to that of a Court of Sessions shall try any
offence punishable under section 138.
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 Trial Court- The Court of Joint Sessions Judge
 30 days
 Appeal Court- The Court of Sessions Judge
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