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Negotiable Instruments Act 1881: Difference Between Promissory Note, Bills of Exchange and Cheque

The document discusses different types of negotiable instruments like promissory notes, bills of exchange, and cheques. It provides details on the key elements of a cheque like it is always drawn on a banker and payable on demand. Furthermore, it explains the differences between a bill of exchange and cheque and covers concepts like crossing and marking of cheques.

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Juhi Jethani
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88 views

Negotiable Instruments Act 1881: Difference Between Promissory Note, Bills of Exchange and Cheque

The document discusses different types of negotiable instruments like promissory notes, bills of exchange, and cheques. It provides details on the key elements of a cheque like it is always drawn on a banker and payable on demand. Furthermore, it explains the differences between a bill of exchange and cheque and covers concepts like crossing and marking of cheques.

Uploaded by

Juhi Jethani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Negotiable Instruments

Act 1881
Difference between promissory
note, bills of exchange and
cheque
Cheque
 Cheque is a bill of exchange drawn upon a
specified banker and payable on demand
and it includes the electronic image of a
truncated cheque and a cheque in the
electronic form
Cheque
 A truncated cheque is one which undergoes
truncation during a clearing cycle. Truncation
basically means the conversion of a physical
cheque into digital format. Either a clearing-
house or a bank may do this upon generating an
electronic image of a cheque.
Cheque
 An electronic cheque is a cheque which exists in
digital format. A computer resource generates
such cheques using digital signatures (either with
or without biometrics).
Cheque
 Cheque is a species of bill of exchange;
but it has the following additional
qualification
 It is always drawn on a specified banker
 It is always payable on demand
Parties to a Cheque
 The drawer is the person who draws the
cheque,
 The drawee is the banker on whom it is
drawn
 A payee who is liable to pay the amount
on the cheque; a holder who is generally
the original payee
Essentials of a Cheque
 They are drawn on a banker and are payable on demand.
 They never require any formal acceptance.
 Cheques can be payable either to the drawer himself or to
a bearer on demand. Hence, there might be two or more
parties to a cheque depending on the situation.
 Cheques are usually valid only for six months.
 They do not require any stamping as other negotiable
instruments do.
Distinction between a bill of
exchange and a cheque
Bill of exchange Cheque

1. Bill can be drawn on any person, 1. Cheque is always


including a banker drawn on a banker.

2. Bill must be accepted before the drawee 2. Cheque requires no


can be called upon make payment upon it acceptance

3. Bill which is not expressed to be payable 3. Cheque is not


on demand is entitled to three days of grace entitled to any days of
grace

4. Bill may be payable on demand or after 4. Cheque is always


the expiry of a certain period after date or payable on demand
sight
Distinction between a bill of
exchange and a cheque
Bill of exchange Cheque

5. Bill must be duly presented 5. Drawer of the cheque is not


for payment to the acceptor or necessarily discharged from his
else the drawer of the bill will liability by delay of the holder
be discharged from liability presenting it for payment

6. Bill may not be crossed 6. Cheque may be Crossed

7. Bill requires stamp 7. Cheques does not require stamp

8. The payment of bill cannot 8. Payment of cheque may be


be countermanded countermanded by the drawer

9. Bill may be noted or 9. Cheque is not required to be


protested for dishonour noted or protested or dishonour
Marking of Cheques
 Marking is the writing on a cheque by the drawee
banker that it would be honoured when it is duly
presented for payment
 The effect of marking a cheque as good by the
drawee banker is that it cannot be cancelled by
the drawer subsequently and the payee is certain
of getting the money
Marking of Cheques
 Marking at the drawer’s instance – drawee banker
earmarks sufficient funds in the account to meet
the cheque
 Marking at holder’s instance – it is the intimation to
the holder that at the time of marking the banker
has sufficient funds
 Marking at collecting banker’s instance – to
safeguard the interest of the customer
Crossing of Cheques
 Open Cheque – cheque which is payable in cash
across the counter of a bank is called an open
cheque
 Closed Cheque – is one on which two parallel
transverse lines with or without the words ‘& Co’
are drawn
 Payment of such cheque can be obtained only through a
banker
Crossing of Cheques
 Types of Crossing
 General crossing
 Special crossing
 (Restrictive crossing) – developed out of
business usage
Types of Crossing
 General crossing – where it bears
 The cheque bears across its face an addition of
two parallel transverse lines and/or the
addition of words ‘and Co.’ or ‘not negotiable’
between them
 In the case of general crossing on the cheque,
the paying banker will pay money to any
banker.
Types of Crossing
 Thus, in this case, the holder of the cheque or the
payee will receive the payment only through a bank
account and not over the counter.
 The words ‘and Co.’ have no significance as such.
 But, the words ‘not negotiable’ are significant as
they restrict the negotiability and thus, in the case
of transfer, the transferee will not give a title better
than that of a transferor.
Types of Crossing
 Special crossing – In special crossing, the cheque
bears across its face an addition of the banker’s
name, with or without the words ‘not negotiable’.

 In this case, the paying banker will pay the


amount of cheque only to the banker whose
name appears in the crossing or to his collecting
agent.
Types of Crossing
 Thus, the paying banker will honor the
cheque only when it is ordered through the
bank mentioned in the crossing or its agent
bank.
 However, in special crossing two parallel
transverse lines are not essential but the
name of the banker is most important.
Types of Crossing
 Restrictive Crossing – This type of crossing

restricts the negotiability of the cheque.

 Adopted by commercial and banking usage


 In this type the word A/c payee are added to the

general or special crossing


Types of Crossing
 It directs the collecting banker that he needs to
credit the amount of cheque only to the account
of the payee, or the party named or his agent.

 However, such crossing will have no effect on the


paying banker. This is so because it is not his
duty to determine that the cheque is collected for
the account of the payee
Types of Crossing
 Not negotiable crossing – It is when the words ‘Not
Negotiable’ are written between the two parallel transverse
lines across the face of the cheque in the case of general
crossing or in the case of special crossing along with the
name of a banker.
 A person taking a cheque bearing a general or special
crossing with the words ‘not negotiable’ will not have and is
neither capable of giving a better title than that which the
person from whom he took it had.

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