UNIT 4

Definition of Negotiable instrument - Essential features of negotiable instruments - difference between negotiability
and assign ability - Promissory note, Bill of exchange, cheque and other analogous instruments (Bankers draft,
travellers cheque, dividend warrant) - Cheque: Kinds of cheques- Crossing of cheques, endorsements and its kinds
Holder and older in due course-Payment in due course-Marking of cheques - Presentment- Material alteration

NEGOTIABLE INSTRUMENTS

DEFINTION OF NEGOTIABLE INSTRUMENT

The word “instrument” refers to a written document by virtue of which a right is created in
favour of some individual. The word “negotiable” indicates transferable from one person to
another in exchange for payment. Therefore, any document that confers ownership over a quantity
of money and that can be transferred (like currency) by delivery is considered to be a “negotiable
instrument.” Consequently, a document that can be delivered is a negotiable instrument.

The Negotiable Instruments Act of 1881 does not define the phrase “negotiable instrument”
as such; at most, Section 13 of that legislation indicates that “negotiable instrument” refers to a
promissory note, bill of exchange, or cheque payable to order or to the bearer.

In England Justice K.C. Wallis defines a negotiable instrument as "one, the property in
which is acquired by anyone who takes it bonafide and for value, not Withstanding any defect of
title of the person from whom he took it.” According to Bhashyam and Adiga "A Negotiable
Instrument is one, which when transferred by delivery or endorsement and delivery passes to a
transferee a good title to payment according to its tenor and irrespective of title of the transferor".
According to Thomas (in his Principles of Banking)" a Negotiable the Instrument is one which is
by a legally recognized custom of trade or law, transferable by delivery in such circumstances that

(a) the holder of it for time being may sue on it in his own name and
(b) the property in it passes free from equities, to a bonafide transferee for value, not
withstanding any defect of the transferor

FEATURES OF NEGOTIABLE INSTRUMENTS

Negotiable instruments are transferable by nature: A negotiable instrument may be freely

transferred as many times as necessary until it reaches maturity. Delivering the instrument is
sufficient if it is “payable to the bearer.” However, if it is “payable to order,” it is accepted upon
delivery and endorsement. In addition to becoming entitled to the money transferred with a
negotiable instrument, the transferee also gains the ability to transfer the instrument again.

Having an independent title: When it comes to negotiable instruments, the usual rule that states
that no one can grant a superior title than he or she possesses does not apply. If the transferor had
gained a negotiable instrument by fraud but the transferee had acquired it in good faith (bona fide)
for value, the transferee would have a good title with regard to that instrument. As a result, the title
of the transferee in relation to a negotiable instrument is separate from the title of the transferor.

Application of presumptions: All negotiable instruments are subject to certain presumptions,

such as those outlined in Sections 118 and 119 of the Negotiable Instruments Act of 1881.

Having the right to sue: A negotiable instrument’s transferee (payee) is not required to notify the
party (drawer) responsible for making or honouring the payment under the negotiable instrument
of the transfer. In the event of dishonour, the transferee may bring a claim against a negotiable
instrument in its own name without notifying the original debtor of the transfer, i.e., without telling
the original debtor that the transferee has taken possession of the negotiable instrument.

Being certain: A carrier with no bags is a negotiable instrument. A negotiable instrument must be
written in the fewest number of words possible and in such a way as to make the contract as clear-
cut and certain as possible. A negotiable instrument needs to be devoid of any constraints that
would significantly hinder its circulation. A negotiable instrument must also include the payment
of a specific (fixed or defined) amount of money (money only and on a specific time period).

Salient features or characteristics of a Negotiable instrument

• A negotiable instrument must be easily transferable and it may be payable either to bearer
or to order of the named payee.
• A bona fide transferee for value, subject to his complying with some other conditions,
acquires absolute and good title to the instrument even if the transferor had no title or a
defective title.
• An instrument must be in writing
• The negotiable instrument should not be conditional.
• Ther must be clear and specific period of time for it’s payment
 • No notice of transfer is required to the person liable for payment
• It is presumed that the instrument was drawn for consideration and it was accepted or
negotiated for consideration
• A negotiable instrument can be transferred infinitum i.e. can be was transferred any number
of times till its maturity
• It must be paid in money and money only and it should contain the sum money to be paid.
There must be a promise or order to pay on the negotiable instrument.
• It must be signed by the maker or drawer.

PROMISSORY NOTE (SECTION 4 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881)

Section 4 “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 a
certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

A Signs instruments in the following terms:

a. “I promise to pay B or order Rs. 500.”

b. “I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for value
received.”
c. “Mr. B, I O U Rs. 1,000.”
d. “I promise to Pay B Rs. 500 and all other sums which shall be due to him.”
e. “I promise to Pay B Rs. 500, first deducting thereout any money which he may owe me.”
f. “I promise to Pay B Rs. 500 seven days after my marriage with C.”
g. “I, promise to Pay B Rs. 500 on D's death, provided D leaves me enough to pay that sum.”
h. “I promise to Pay B Rs. 500 and to deliver to him my black horse on 1st January next.”

The instruments respectively marked (a) and (b) are promissory notes. The instruments
respectively marked (c), (d), (e), (f), (g) and (h)are not promissory notes.

S 2(22) Stamp Act 1899 provided definition of promissory notes : A promissory note
includes a note promising the payment of any sum of money out of any particular fund which may
or may not be available or upon any condition or contingency which may or may not be performed
or happen. According to Section 2(k) of the Limitation Act, 1963, promissory note means any
instrument whereby the maker engages absolutely to pay a specified sum of money to another at a
time therein limited, or on demand, or at sight.

Characteristics of a promissory note

1. A written document:- An oral engagement to pay a sum of money is not an instrument. The
writing may be in pencil or ink, and writing shall be construed lithography, and other modes
of representing, or reproducing words including printing, lithography or reproducing words in
visible form as per Section 3(58) of the General Clauses Act, 1897.
2. An undertaking to pay:- The essential element of a promissory note is that it must contain an
express promise to pay. It is not necessary that the word 'promise' should be used in the
instrument, but the language must be such that the written undertaking to pay may be fairly
deduced therefrom. Briji Kishore Rai v Lakhan Tewari : Acknowledgement of debt is not
promissory note. Acknowledgement along with promise to pay is a promissory note
3. Unconditional promise to pay:- To be valid, a promissory note must contain an unconditional
promise to pay i.e, the payment should not be made subject to happening of a particular event
or fulfilment of any condition. Beardsley v Baldwin : written undertaking to pay a sum of
money within so many days after the defendant's marriage was not recognised as a promissory
note, because possibly the defendant may never marry and the sum may never become
payable."
4. Money only and a certain sum of money : The instrument must be payable in money and
money only. If the instrument contains a promise to pay something other than money or
something in addition to money it will not be promissory note. An instrument containing a
promise to pay "money and paddy" or a promise "to deliver A 100 tons of iron" has not been
held to be a promissory note. The sum of money payable must also be certain.
5. Certainty of parties: The parties to the instrument must be designated with reasonable
certainty. There are two parties to a promissory note, namely, the person who makes the note
and is known as the maker and the payee to whom the promise is made. Both the maker and
the payee must be indicated with certainty on the face of the instrument
6. Signed by the marker: The person who promises to pay must sign the instrument even though
it might have been written by the promisor himself. Until the maker affixes his signature to the
 instrument, it is incomplete and of no effect. There are no restrictions regarding the form or
place of signatures in the instrument. It may be in any part of the instrument.
7. Delivery of promissory note:- A promissory note is deemed to be drawn only when the person
who has prepared it delivers it to the other party to whom it is meant. Hence, delivery is
essential to constitute a negotiable instrument.
8. Other formalities: The other formalities regarding number, place, date, consideration etc.
though usually found given in the pronote but are not essential in law. An undated instrument
will be treated as having been made on the date of its delivery. An anti-dated or post-dated
instrument is not invalid.

BILL OF EXCHANGE (SECTION 5)

As per Section 5, A “bill of exchange” is an instrument in writing containing an unconditional

order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to
the order of, a certain person or to the bearer of the instrument.

Characteristics of bill of exchange

• A bill of exchange involves three parties: the drawer, the drawee, and the payee;
• It must be in writing, suitably stamped, and duly accepted by its drawee;
• There must be a payment order;
• Unconditional promise or order to pay is required; and
• Both the sum and the parties must be agreed upon and must be certain.

Kinds of Bill of Exchange

1. Inland Bill: An inland bill of exchange is when the bill is drawn and paid in the same country.
For example, a bill of exchange drawn in India will also be paid in India.
2. Demand Bill: A bill of exchange that must be paid on demand is called a demand bill. It has
no specified date or time on when it will be paid. The payment can be made as and when the
bill is presented.
3. Foreign Bill: A foreign bill is when a bill of exchange is issued and paid outside India’s
territory. Different rules and regulations back these bills compared to other bills. There are two
types of foreign bills:
 • Export Bill - A bill of exchange drawn by an exporter for a party outside Indian
waters.
• Import Bill - A bill of exchange drawn by an exporter outside India for Indian
importers.
1. Usance Bill: An usance bill of exchange specifies the time period within which the credit
purchase payment is to be made to the seller by the buyer. It is called a time-bound bill.
2. Clean Bill: A bill of exchange without document proof is called a clean bill. These bills levy
a higher interest rate than other documented bills since no documents are involved in issuing
them.
3. Documentary Bill of Exchange: A bill supported by all necessary and relevant documents to
verify the genuineness of the trade transaction taking place is called a documentary bill of
exchange. It helps to confirm the trade transaction between the exporter and importer. A
document bill of exchange includes:
• Documents against acceptance bills (D/A) - Here, the documents are provided in exchange
for accepting the bill of exchange.
• Documents against payment bills (D/P) - Here, the documents are given in exchange for
payment of the bill of exchange.

DIFFERENCE BETWEEN PROMISSORY NOTE AND BILL-OF-EXCHANGE

• A bill of exchange contains an unconditional order to pay, but a promissory note contains
an unconditional promise to pay.
• There are only two parties in a promissory note, the maker and the payee, whereas there
are three parties in a bill of exchange, namely, the drawer, the drawee, and the payee.
• In a promissory note, acceptance is not necessary; in a bill of exchange, however, the
drawee must accept.
• In a bill of exchange, the obligation of the drawer is secondary and contingent upon the
drawee’s failure to pay; in a promissory note, the liability of the drawer or the note’s
manufacturer is main and absolute.

CHEQUE (SECTION 6)
 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

• A cheque involves three parties: the drawer, the drawee bank, and the payee;
• It must be in writing and has the drawer’s signature;
• Payee is confident;
• The payment is always due upon demand;
• It must contain a date in order for the bank to honour it; otherwise, it is invalid;
• The sum must be expressly stated. If the amount undertaken or ordered to be paid is stated
differently in figures and in words, the amount stated in words shall be the amount
undertaken or ordered to be paid, according to Section 18 of the Negotiable Instruments
Act, 1881;
• When a cheque is truncated, it is scanned, an electronic image of the cheque is created, and
instead of a physical cheque being communicated in a clearing cycle, the image is instantly
used to replace any further physical movement of the cheque; and

Surendra Madhavrao Nighojakar v. Ashok Yeshwant Badave (2001): A cheque is a bill of

exchange written by the owner of an account payable on demand to a bank. A post-dated cheque
becomes a cheque under Section 138 of the Negotiable Instruments Act of 1881 on the date
specified on the face of the cheque, and the 6-month term must be calculated from that date for
purposes of Proviso (a) of Section 138 of the Negotiable Instruments Act of 1881.

Cheque and post-dated cheque

The Hon’ble Supreme Court of India explained the distinction between a cheque and a
post-dated cheque with reference to Sections 5 and 6 of the Negotiable Instruments Act, 1881, in
the case of Anil Kumar Sawhney v. Gulshan Rai. According to the Supreme Court’s ruling:

“A post-dated cheque is only a bill of exchange when it is written or drawn; after it is due
on demand, it is a cheque. A post-dated cheque is not cashable before the date printed on the
document’s face. It remains a bill of exchange under Section 5 of the Negotiable Instruments Act
of 1881 until the date indicated on it, at which point it becomes a cheque. Since a post-dated cheque
cannot be presented to the bank, the issue of its return would not come up. The requirements of
Section 138 of the Negotiable Instruments Act, 1881 only apply when the post-dated cheque
becomes a “cheque” with effect from the date indicated on the face of the said cheque. A postdated
cheque is nevertheless valid as a bill of exchange until the date printed on it. However, as of the
date printed on the face of the said cheque, it qualifies as a cheque under the Negotiable
Instruments Act of 1881, and in the event that it is dishonoured, Section 138’s proviso (a) is
triggered.”

DIFFERENCE BETWEEN CHEQUE AND BILL-OF-EXCHANGE

• A bill of exchange can be drawn on anyone, including a banker, unlike a cheque, which is
drawn on a banker.
• According to Section 19 of the Negotiable Instruments Act of 1881, a cheque is always
payable immediately; a bill of exchange, however, is either payable immediately or after a
certain amount of time.
• One can cross a cheque to make it non-negotiable, but one cannot cross a bill of exchange.
• Acceptance is not necessary for a cheque, but it is necessary for a bill of exchange.

TYPES OF CHEQUES

Bearer Cheque: A bearer cheque is the one in which the payment is made to the person bearing
or carrying the cheque. These cheques are transferable by delivery, that is, if you are carrying the
cheque to the bank, you can be issued the payment to. The banks need no other authorisation from
the issuer to be allowed to make the payment.

Order Cheque: In these cheques, the words ‘or bearer’ is cancelled. Such cheques can only be
issued to the person whose name is mentioned on the cheque, and the bank will do its background
check to authenticate the cheque bearer’s identity before releasing the payment.

Crossed Cheque: Cheques with two sloping parallel lines with the words ‘a/c payee’ written on
the top left. The lines ensure that irrespective of who presents the cheque, the payment will only
be made to the individual whose name is written on the cheque, in other words, the a/c payee along
with his/her account number. These cheques are relatively safe because they can be encashed only
at the drawee’s bank.
Open cheque: An open cheque is basically an uncrossed cheque. This cheque can be encashed at
any bank, and the payment can be made to the person bearing the cheque. This cheque is
transferable from the original payee (the original recipient of the payment) to another payee too.
The issuer needs to put his signature on both the front and back of the cheque.

Post-Dated Cheque: These types of cheques bear a later date of being encashed. Even if the bearer
presents this cheque to the bank immediately after getting it, the bank will only process the
payment on the date mentioned in the cheque. This cheque stands valid past the mentioned date,
but not before.

Self Cheque: The word ‘self’ written in the drawee column. Self cheques can only be drawn at
the issuer’s bank. (drawer himself)

Stale Cheque: A cheque past its validity, three months after the date of being issued, is called a
stale cheque.

Traveller’s Cheque: Foreigners on vacations carry traveller’s cheques instead of carrying hard
cash, which can be cumbersome. These cheques are issued to them by one bank and can be
encashed in the form of currency at a bank located in another location or country. Traveller’s
cheques do not expire and can be used for future trips.

CROSSING OF CHEQUES

Crossing is an instruction to the paying banker to pay the amount of cheque to a particular
banker and not over the counter. The crossing of the cheque secures the payment to a banker. It
also traces the person so receiving the amount of cheque.

General crossing : When a cheque only possesses two parallel transverse lines without
having anything written between them is called General Crossing, When a cheque possesses
General Crossing the payee bank can only pay the said cheque to a banker. This protects the issuer
of the cheque as the amount can only be credited to the bank account of either the named payee or
an endorsee.

Special crossing: Where the line of crossing has the name of a specific banker, then the payment
can be obtained only by the said bank whose name is written between the crossing of lines. The
drawing of two parallel lines is not necessary in the case of a specially crossed cheque. The object
of special crossing is to direct the drawee banker to pay the cheque only if it is presented through
the particular bank mentioned therein. This makes cheques safer.

Account Payee Crossing: When the cheque has “A/c Payee” written between the crossed lines
and “A/c Payee” is added to a case of general or special crossing then it is Restrictive crossing. In
this case, the collecting bank has to credit the amount of the cheque in the payee’s bank account
only. It is also considered the safest form of crossing and is widely used in the market.

Not Negotiable Crossing: When “Not Negotiable” is written between the crossing lines, the
cheque is said to be a non-negotiable cheque. The effect of this cheque is that the person accepting
a “Not Negotiable” cheque shall not be allowed to pass the title of “Holder” to any other person
i.e. a better title can’t be passed on to any other Party/Person. However, this crossing doesn’t affect
the transferability of the cheque. A bank, therefore, should be extra careful in paying such cheques.
The payment should be made only after he is satisfied that the person demanding payment is the
person entitled to receive it.

PARTIES

4. Drawer: The person who makes and signs the cheque and promises to pay the debtor a specific
amount.
5. Drawee: In the case of a cheque Drawee is always the bank on whom the cheque is drawn and
it’s the responsibility of Drawee to make the payment.
6. Payee: The person in whose favour the cheque is drawn, his name is written on the cheque he
is the person in whose name the cheque is endorsed.

Section 7.

• “Drawer” “Drawee”.—The maker of a bill of exchange or cheque is called the “drawer”;

the person thereby directed to pay is called the “drawee”.
• “Drawee in case of need”.— When in the Bill or in any indorsement thereon the name of
any person is given in addition to the drawee to be resorted to in case of need such person is
called a “drawee in case of need.”
• “Acceptor”. After the drawee of a bill has signed his assent upon the bill, or, if there are more
parts thereof than one, upon one of such parts, and delivered the same, or given notice of such
signing to the holder or to some person on his behalf, he is called the “acceptor”.
 • “Acceptor for honour”.— When a bill of exchange has been noted or protested for non-
acceptance acceptance or for better security, and any person accepts it supra protest for
honour of the drawer or of any one of the indorsers, such person is called an “acceptor for
honour”.
• “Payee”.—The person named in the instrument, to whom or to whose order the money is by
the instrument directed to be paid, is called the “Payee”.

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

Section 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 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

Section 10 - “Payment in due course”: “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.

DIFFERENCE BETWEEN NEGOTIABILITY AND ASSIGNABILITY

(1) Negotiation means transfer of a negotiable instrument to any other person so as to constitute
that person the holder of such negotiable instrument. But, transfer of a right to receive the
payment of a debt by one person by way of a written document is called as assignment.
(2) Negotiation can be made for transferring negotiable instrument only, whereas assignment
can be made of any right.
(3) If a negotiable instrument is transferred by way of negotiation, Negotiable Instruments Act,
1881 applies, while the Transfer of Property Act applies when any right transferred by way
of assignment
(4) A bearer instrument can be negotiated merely by delivery and an order instrument can be
negotiated by endorsement and delivery, but, assignment is valid only if it is made in writing
and is assigned by the assigner.
(5) Notice of negotiation is not required to be given to any party, while notice of assignment
must be given by the assignee to the debtor.
(6) Consideration is normally presumed in case of negotiation but, there is no such presumption
in case of assignment.
(7) In negotiation, the other party has to prove that negotiation was without any consideration
while the assignee has to prove that there is some consideration.
(8) The transferee of a negotiable instrument acquires a title better than that of the transferor
i.e., he becomes a holder in due course whereas the assignee does not acquire a title better
than that if the assigner.
(9) A transferee can sue the third party in an assignment. But in negotiations, an assignee cannot
do so.
(10) Negotiation does not require payment of stamp duty, while assignment requires payment of
stamp duty.
(11) Negotiation requires mere 'delivery' of a 'bearer' instrument and 'endorsement and delivery'
of an 'order' instrument to effectuate a transfer. Assignment requires a written document
signed by the transferor irrespective of whether the instrument is a 'bearer' or 'order' one.
(12) The essential distinction between transfer by negotiation and transfer by assignment is that
in the latter case, the assignee does not acquire the right of a holder in due course but has
only the right, title and interest of his assigner, on the other hand in the former case he
acquires all the rights of a holder in due course. [Mohammed Khunerali v. Ranga Rao].

PRESUMPTIONS AS TO NEGOTIABLE INSTRUMENTS

According to Section 118 of the Negotiable Instruments Act, 1881, the following are the
presumptions as to Negotiable Instruments unless the contrary is proved:

• 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 for consideration;
 • as to date: that every negotiable instrument bearing a date was made or drawn on such
date;
• as to time of acceptance: that every accepted bill of exchange was accepted within a
reasonable time after its date and before its maturity;
• as to time of transfer: that every transfer of a negotiable instrument was made before its
maturity;
• as to order of indorsements: that the indorsements appearing upon a negotiable
instrument were made in the order in which they appear thereon;
• as to stamps: that a lost promissory note, bill of exchange or cheque was duly stamped;
• that holder is a holder in due course: that the holder of a negotiable instrument is a holder
in due course:

Section 119. Presumption on proof of protest.—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 fact is disproved.

Kundan Lal Rallaram v Custodian Evacuee property Bombay: As the negotiable instrument or
the endorsement was made or endorsed for consideration, the burden of proof of failure on
consideration is on the maker of the note or the endorser, as the case may be.

CT Joseph v Philip : presumption under s 118 of act arises if only the execution of the document
is proved as true.

HOLDER, HOLDER IN DUE COURSE AND HOLDER FOR VALUE

Holder

• Every instrument initially belongs to the payee and he is entitled to possession. Payee can
transfer it to any person . This transfer is known has negotiation

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.

In order to be called a holder, a person must satisfy the following conditions:

• He should be entitled in his own name to the possession of the instrument; and
• He should have the right to receive or recover the amount thereon from the parties thereto.
• To a holder, he should have a right to possess.
• A person in possession of an instrument without having a right to possess the same cannot be
called the holder.
• A thief having a de facto possession cannot be called the holder, because his possession is
wrongful and he is not entitled to the possession of the negotiable instrument.If one delivers
an instrument to his servant for safe custody, he does not become the holder because he is not
entitled to the possession in his own name. Holder, therefore, means only a 'de jure holder' and
not merely a de facto holder'. Holder should have acquired the instrument in a lawful manner
• Holder has right to suit i.e. either he should be the bearer of the instrument or he should have
acquired it in the capacity of payee/endorsee,
• The use of the phrase "entitled in his own name" is significant, because of the institution of
'binami’. In Sarjoo Prasad v. Rampayari Debi, the plaintiff advanced a sum of Rs. 2459 under
a hand note. The note was executed not in the name of the plaintiff, but hand name of X who
was the lender or a benamidar. On maturity the plaintiff brought an action to recover the the
amount. The High Court of Patna held that he was not entitled to the possession of the note in
his own name' and therefore was not the holder
• Even if a person loses a negotiable instrument, he still continues to be its holder, i.e. he remains
entitled to its possession. Thus if somebody finds a negotiable instrument, he does not thereby
become the holder.
• Similarly, if a negotiable instrument is destroyed, the person who is the holder thereof at the
time of the destruction, continues to remain the holder thereof, and continues to have the rights
of a holder in that instruction.
• When a negotiable instrument is originally made, the payee is the holder of the same. If the
payee transfers his rights to another person, then the transferee becomes the holder in place of
the payee.
• In the case of a bearer instrument, the transferee to whom the negotiable instrument is delivered
is known as the 'bearer' of the instrument and such transferee (bearer) is the holder.
• In the case of an order instrument, the instrument is transferred by an indorsement and delivery
to the indorsee, in such a case the 'indorsee' becomes the holder.
• Thus, the term holder would include: (1) the payee; (ii) the bearer (i.e. the transferee of a
bearer instrument) or the indorsee (i.e. the transferee of an order instrument).

Rights of a Holder

(i) Conversion of indorsement in blank into indorsement in full:- The holder of a

negotiable instrument indorsed in blank may, without signing his own name, by writing
above the indorser's signature a direction to pay to any other person as indorsee, convert
the indorsement in blank into an indorsement in full; and the holder does not thereby
incur the responsibility of an indorser (Sec. 49).
(ii) Crossing after issue:- Where a cheque is uncrossed, the may cross it generally or
specially. Where a cheque is crossed generally the holder may cross it specially. Where
crossed specially, the holder may add the words 'not negotiable'. Where the cheque is
crossed specially, the banker to whom it is crossed may again cross it specially to
another banker, his agent, for collection (Sec. 125).
(iii) Holder's right to duplicate of lost bill:- Where a bill of has been lost before it is over-
due, the person who was the holder of may apply to the drawer to give him another bill
of the same tenor, giving security to the drawer, if required, to indemnify him against
all person whatever in case the bill alleged to have been lost shall be found again If the
drawer on request as aforesaid refuses to give such duplicate bill he may be compelled
to do so (Sec. 45-A).

HOLDER IN DUE COURSE

Section 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 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

A holder in due course is one who holds the instrument free from any defect of the title of
prior parties. The property in a negotiable instrument is acquired by any one who takes it bona
fide, and for value, notwithstanding any defect of title in the person from whom he took it. Now
such a person who takes an instrument "in good faith and for value" becomes the true owner of the
instrument and is known as a 'holder in due course'.

According to Section 58 (Instrument obtained by unlawful means or for unlawful

consideration) of the Negotiable Instruments Act, 1881, when a negotiable instrument has been
lost, or has been obtained from any maker, acceptor or holder thereof by means of an offence or
fraud, or for an unlawful consideration, no possessor or indorsee who claims through the person
who found or so obtained the instrument is entitled to receive the amount due thereon from such
maker, acceptor or holder, or from any party prior to such holder, unless such possessor or indorsee
is, or some person through whom he claims was a holder thereof in due course.

Section 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

Condition to be satisfied by a person to a be a holder of due course

i) Consideration : The instrument must be acquired for consideration and not as a gift.
Consideration must be lawful. .It however does not make any difference whether the
consideration was adequate or inadequate. Holder in due course can’t be challenged merely
on the ground that the consideration was inadequate. A past consideration is sufficient to
support . In JMS Punto V AC Rodrigues, it was held that a promissory note issued for
price of a buffalo sold sometimes before was supported by valid consideration
ii) Before maturity : Before the amount mentioned in it became payable. It was laid down as
early as 1825 in Down v. Halling that "if a bill or note or cheque be taken after it is due",
the person taking it takes at his peril. He "can have no better title to it than the party from
whom he takes it, and, therefore, cannot recover upon it if it turns out that it has been
previously lost or stolen.“
iii) Complete and regular instrument : The instrument should be complete and regular and
there should be no material defect . Person taking an incomplete instrument cannot claim
to be holder of due course. In Hogarth v Latham & Co, the plaintiff took two bills of
exchange without any drawer's name and completed them himself . The court held that he
could not recover upon the bills.
iv) Good Faith : He must be honest in his behalf that the instrument which is being transferred
by a person having a good title and act in due causation.
Right and privileges of a holder in due course

1. Presumption : As per s 118 (g) “ that the holder of NI id a holder of due course . The
burden of proving his title does not lie on him.
2. Privilege against inchoate stamped instrument :

Section 20 - Inchoate stamped instruments.—Where one person signs and delivers to

another a paper stamped in accordance with the law relating to negotiable instruments then
in force in 2 India, and either wholly blank or having written thereon an incomplete
negotiable instrument, he thereby gives prima facie authority to the holder thereof to make
or complete, as the case may be, upon it a negotiable instrument, for any amount specified
therein and not exceeding the amount covered by the stamp. The person so signing shall
be liable upon such instrument, in the capacity in which he signed the same, to any holder
in due course for such amount: provided that no person other than a holder in due course
shall recover from the person delivering the instrument anything in excess of the amount
intended by him to be paid thereunder.

3. Fictitious drawer or payee : S 42. Acceptance of bill drawn in fictitious name. An

acceptor of a bill of exchange drawn in a fictitious name and payable to the drawer's order
is not, by reason that such name is fictitious, relieved from liability to any holder in due
course claiming under an indorsement by the same hand as the drawer's signature, and
purporting to be made by the drawer.
4. Indorsee from a holder in due course : S 53. Holder deriving title from holder in due
course. A holder of a negotiable instrument who derives title from a holder in due course
has the rights thereon of that holder in due course.
5. Acceptance by several drawees not partners : s 34. Acceptance by several drawees not
partners.—Where there are several drawees of a bill of exchange who are not partners, each
of them can accept it for himself, but none of them can accept it for another without his
authority
6. Liability of prior parties to hold in due course: S 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.
7. Negotiation by delivery : S.46. Delivery.—The making, acceptance or indorsement of a
promissory note, bill of exchange or cheque is completed by delivery, actual or
constructive. As between parties standing in immediate relation, delivery to be effectual
must be made by the party making, accepting or indorsing the instrument, or by a person
authorized by him in that behalf. A promissory note, bill of exchange or cheque payable to
bearer is negotiable by the delivery thereof. A promissory note, bill of exchange or cheque
payable to order is negotiable by the holder by indorsement and delivery thereof.
Section 47 - Negotiation by delivery: Subject to the provisions of section 58, a promissory
note, bill of exchange or cheque payable to bearer is negotiable by delivery thereof.
8. Estoppel against denying original validity of instrument :S.120. Estoppel against
denying original validity of instrument.—No maker of a promissory note, and no drawer
of a bill of exchange or cheque, and no acceptor of a bill of exchange for the honour of the
drawer shall, in a suit thereon by a holder in due course, be permitted to deny the validity
of the instrument as originally made or drawn.
9. Estoppel against denying of payee to endorse: 121. Estoppel against denying capacity of
payee to indorse.—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 bill, to indorse the same.
10. Estoppel against denying signature of capacity to prior party:122. Estoppel against
denying signature or capacity of prior party.—No indorser of a negotiable instrument shall,
in a suit thereon by a subsequent holder, be permitted to deny the signature or capacity to
contract of any prior party to the instrument.
11. Prior Defects :S. 58. Instrument obtained by unlawful means or for unlawful
consideration.—When a negotiable instrument has been lost, or has been obtained from
any maker, acceptor or holder thereof by means of an offence or fraud, or for an unlawful
consideration, no possessor or indorsee who claims through the person who found or so
obtained the instrument is entitled to receive the amount due thereon from such maker,
acceptor or holder, or from any party prior to such holder, unless such possessor or indorsee
is, or some person through whom he claims was, a holder thereof in due course.

Gemini vs. Chandran 2007 (1) KHC 698

In this case, the court held that there is no provision in the act by the holder in due can be presumed
as holder but section 118 states that holder is a holder in due in certain cases. Therefore, holder
and holder in due does not mean same.

Braja Kishore Dikshit vs. Purna Chandra Panda AIR 1957 Orissa 153

It was held that a suit for recovery of the amount liable through a negotiable instrument can be
filed only by a person who is the holder in due course of the negotiable instrument.

• First, he must have become the holder by way of a consideration.

• Secondly, he must have got the right to the instrument before it becomes overdue and,
finally, he must be a transferee in bonafide faith and he must have some reason to believe
that the title was the transferor’s fault.

S.V. Prasad vs. Suresh Kumar AIR 2005 AP 37

In this case, the court held that the holder in due has the right to recover the amount from the holder
of the instrument. The endorsement can be done without the involvement of the maker of the
instrument. The holder gets the same right in due course which was with the holder. He can neither
rectify nor modify the liability.

DIFFERENCE BETWEEN HOLDER AND HOLDER IN DUE COURSE

(1) A holder may become the possessor or payee of an instrument even without
consideration. But a holder in due course is one who acquires possession for
consideration.
(2) Holder in due course gets a good title even though the title of the transferor was
defective. Title of the holder can in no case be better than that of the transferor.
(3) A holder in due course as against a holder, must become the possessor/payee of the
instrument before the amount thereon becomes payable.
(4) A holder in due course as against a holder, must have become the payee of the
instrument in good faith i.e. without having the sufficient cause to believe that any
defect existed in the transferor's title.

Holder for value

 Holder in value means all parties prior to himself, a holder of an instrument for which value
has at any time been given. NI act does not define holder for value. S. 27(2) and 27(3) of bill of
exchange Act of England as follows : (1) Where value has at any time been given for a bill the
holder is deemed to be a holder for value as regards the acceptors and prior parties to the bill who
became parties prior to such time.(2) Where the holder of a bill has a lien on it, arising either from
contract or by implication of law, he is deemed to be a holder for value to the extent of the sum for
which he has a lien.

PAYMENT IN DUE COURSE

Section 10 - “Payment in due course”: “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.

The essential features of a payment in due course are as follows

• The payment should be in accordance with the apparent tenor of the instrument : Apparent
tenor means that appears on the face of the instrument to be the intention
• In good faith and without negligence
• To the holder : payment should be done to the person who has the possession of instrument

Example of payment which are not deemed payment in due course

1. Payment over forgery cheque is not a payment in due course

2. Payment of a cheque containing material alteration and not authenticated by the drawer
3. Payment of a cheque wherein the drawer has countermanded(revoke) the payment
4. A cheque bearing a special crossing in the name of "State Bank of India" is paid when
presented through 'Bank of India’.
5. A cheque dated 31.8.2005 is presented for payment on 30.8.2005 and is paid on the same
day.
6. A clerk of a company presents a cheque for a big amount on behalf of the company, which
is contrary to the past practice. The banker should enquire from the company before its
payment is made.
Protection when it is a payment in due course

There are certain provisions in the Negotiable Instruments Act, 1881 which grant
protection to the person making the payment in due course. They are:

(a) Discharge from liability by payment:- According to Section 82(c) of the Act, "to all parties
thereto, if the instrument is payable to bearer or has been endorsed in bank, and such maker,
acceptor, or endorser makes payment in due course of the amount due thereon.
(b) Cheque payable to order: As per Section 85 of the Act:
(1) Where a cheque payable to order purports to be indorsed by or on behalf of the
payee, the drawee is discharged by payment in due course.
(2) Where a cheque is originally expressed to be payable to bearer, the drawee is
discharged by payment in due course to the bearer thereof notwithstanding any
indorsement whether in full or in blank appearing thereon, and notwithstanding that
any such indorsement purports to restrict or exclude further negotiation.

Payment of instrument on which alteration is not apparent

Section 89 of the Negotiable Instruments Act, 1881 provides

1) Where a promissory note, bill of exchange or cheque has been materially altered but does not
appear to have been so altered, or where a cheque is presented for payment which does not at
the time of presentation appear to be crossed or to have had a crossing which has been
obliterated, payment thereof by a person or banker liable to pay and paying the same according
to the apparent tenor thereof at the time of payment and otherwise in due course, shall discharge
such person or banker from all liability thereon; and such payment shall not be questioned by
reason of the instrument having been altered, or the cheque crossed.
2) Where the cheque is an electronic image of a truncated cheque, any difference in apparent
tenor of such electronic image and the truncated cheque shall be a material alteration and it
shall be the duty of the bank or the clearing house as the case may be, to ensure the exactness
of the apparent tenor of electronic image of the truncated cheque while truncating and
transmitting the image.
3) Any bank or a clearing house which receives a transmitted electronic image of a truncated
cheque, shall verify from the party who transmitted to image to it, that the image so transmitted
to it and received by it, is exactly the same."

Payment in due course of crossed cheque

Section 128 of the Negotiable Instruments Act, 1881 provides:“Where the banker on whom a
crossed cheque is drawn has paid the same in due course, the banker paying the cheque, and (in
case such cheque has come to the hands of the payee) the drawer thereof, shall respectively be
entitled to the same rights, and be placed in the same position in all respects, as they would
respectively be entitled to and placed in if the amount of the cheque had been paid to and received
by the true owner thereof."

EFFECTS OF MATERIAL ALTERATION AND MARKING OF CHEQUES

RBI Guidelines on Alteration of Cheques: As per RBI guidelines on Alterations/ Corrections on

cheques, effective from l December 2010, no changes/ corrections would be allowed on cheque
forms (with exception of date). For any changes in the cheque, a fresh cheque form needs to be
issued. This will be applicable only for cheques cleared under the image based cheque truncation
system (CTS) .This is not applicable to cheques cleared under other clearing arrangements such as
MICR clearing, non MICR clearing, over the counter collection (for cash payment) or direct
collection of cheques outside the Clearing House arrangement.

Meaning of material alteration in cheque: Material alteration means to make alter or change
some material parts of the instrument and try to make it a valid created with the purpose of the
nature of that instrument. Due to the effects of Material Alteration, the said instrument become a
void. But a material alteration is different from filling up a blank cheque by the payee or holder of
the cheque. Only such type of changes who create negatively effect from another side it may be
called material alteration. As per the provision under section 87 of the negotiable instrument act
1881, it’s clearly defined that any material alteration of a negotiable instrument renders the same
void who makes such alteration without consent of original parties.

Definition of material alteration: Any material alteration of a negotiable instrument renders the
same void as against anyone who is a party thereto at the time of making such alteration and does
not consent thereto unless it was made in order to carry out the common intention of the original
parties.

Alteration by indorsee – And any such alteration, if made by an indorsee, discharges his indorser
from all liability to him in respect of the consideration thereof. Here is some object in the
negotiable instrument act which is not considered as a material alteration like,

• S.20 Inchoate stamped instruments mean to fill an incomplete negotiable instrument.

• S.49 Conversion of indorsement in blank into indorsement in full.
• S.86 Parties not consenting discharged by qualified or limited acceptance.
• S.125 crossing after issue.

Effects of material alteration in cheque:

• A drawer to voluntarily re-validate a negotiable instrument, including a cheque.

In the case of Veera Exports vs.T. Kalavathy the Supreme Court held that invalid cheque can be
re-validated voluntarily by altering the dates, so as to give fresh life to cheques for another 6
months. A cheque which has become invalid because of the expiry of the stipulated period could
be made valid by alteration of dates. There is no provision in the Negotiable Instruments Act or in
any other law which stipulates that a drawer of a negotiable instrument cannot re-validate it. It is
always open to a drawer to voluntarily re-validate a negotiable instrument, including a cheque.

• When the document itself is void it cannot be held any legally recoverable debt on the
basis of that document.

In the case of Ramchandran vs. K. Dineshan and another, the Kerala High Court observed that
the basic principle of law is that any change in a written instrument which changes the legal identity
or business character of the instrument, either in its terms or in the legal relationship of the parties
to it, is a material alteration and such a change invalidates the instrument against the person not
consenting to the change. This principle of law is essential to the integrity and sanctity of contracts.
By alteration, the identity of the instrument is destroyed. So, the effect of making a material
alteration on a negotiable instrument without the consent of the party bound under it is exactly the
same as that cancelling the instrument.
 • The date of the cheque was altered to make it post-dated cheque is amounts to
material alteration.

In the case of M. B. Rajasekhar v. Savithramma, the Karnataka High Court held that date of
cheque was altered to make it post-dated cheque handwriting in alteration of cheque did not match
handwriting of drawer nor was it signed by her after said alteration held material alteration of date
by drawer not proved, such instrument not worthy of reliance.

• Blank signed cheque leaf held, It cannot be said to be ‘cheque’ within the meaning of
S. 6 of Act.

In the case of Nikhil P. Gandhi v. State of Gujarat and Anr. the Gujarat High Court held that
when a signed blank cheque leaf is handed over, it can never be filled up and that if it is filled up
it would amount to a material alteration within the meaning of using Section 87 of the N.I. Act
does not stand to rhyme or reason. Similarly, the contention that Section 20 of the N.I. Act is
applicable to an unfilled or blank cheque leaf also cannot be accepted. It would depend upon the
facts of each case. Therefore, it is neither a case which attracts Section 87 of the N.I. Act nor is it
a case where the complainant can rely upon Section 20 of the N.I. Act and contend that as a signed
blank cheque leaf is given it gives an authority to fill up the same according to the whim and fancy
of the payee.

• Date inserted later in instrument it amounts to material alteration.

In the case of Jayantilal Goel vs.Smt. Zubeda Khanum Andhra Pradesh High Court held that
Where a look at the pro-note itself made it apparent that the date which was in a different ink, that
is other than the ink that had been used for body of instrument, was a subsequent introduction into
the document, the subsequent insertion would amount to “material alteration”. Further held that
“Material alteration”, takes in not only a case where the certain thing which is already written has
been altered or erased but also a new insertion.

• Sufficient Balance: If the funds available are not sufficient to honour a cheque, the paying
banker is justified in returning it.

• Signature of the Drawer:It is the duty of the paying banker to compare the signature of
his customer found on the cheque with that of his specimen signature.
 • Endorsement: The banker must verify the regularity of endorsement, if any, that appears
on the instrument.

• Legal Bar: The existence of legal bar like Garnishee order limits the duty of the banker to
pay a cheque. Statutory Protection to the Paying Banker in case of order cheque.

Marking of a cheque

Marking of a cheque is writing on a cheque by the drawee banker that it would be honoured when
it is duly presented for payment. Marked cheque cannot be countermanded (i.e Stop payment) by
the drawer. Payee is certain of getting money.

NEGOTIATION

Transfer of an instrument by one party to another so as to constitute the transferee a holder

is called negotiation.

Section 14 Negotiation.—When a promissory note, bill of exchange or cheque is transferred to

any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated.

How is NI negotiated ?

1. Negotiation by delivery : section 46 and 47

2. Negotiation by endorsement :S48

Negotiation by endorsement (Section 48): Subject to the provisions of section 58, a promissory
note, bill of exchange or cheque 1 payable to order, is negotiable by the holder by indorsement and
delivery thereof.

Who may negotiate.(Section 51): Every sole maker, drawer, payee or indorsee, or all of several
joint makers, drawers, payees or indorsees, of a negotiable instrument may, if the negotiability of
such instrument has not been restricted or excluded as mentioned in section 50, indorse and
negotiate the same.

INDORSEMENT
 An order cheque requires indorsement before delivery. Indorsement is
nothing but the process of signing one's name or affixing an accepted rubber stamp impression on
a cheque, for the purpose of transfer. Thus it is both a contract and a transfer. The delivery of the
instrument is necessary to complete its indorsement. The word 'indorsement is also spelt as
endorsement. The word 'indorsement is also spelt as endorsement. The word 'indorsement' is
derived from the Latin word 'indorsum' which means 'upon the back ('in' means 'upon' and 'dorsum'
means 'back'. As the derivation suggests, the usual place for an endorsement is upon the back of
the instrument. But, there is no legal prohibition against the validity of an endorsement on the face
of the instrument

Does a bearer cheque require an indorsement?

Possession of a bearer cheque is a conclusive evidence of the bearer's ownership. A bearer cheque,
in a strict legal sense, does not require endorsement. However, in practice, bankers request the
holder of a bearer cheque to indorse it, before obtaining payment. This is only for the purpose of
identifying him, as the person receiving the cash.

Objects or Significance of Indorsement

(i) He had a good title to it;

(ii) The instrument was genuine in all its particulars at the time of his indorsement;
(iii) All the previous indorsements were genuine. Thus, Section 122 of the Negotiable
Instruments Act, provides that "No indorser of a negotiable instrument shall, in a suit
thereon by a subsequent holder, be permitted to deny the signature or capacity to contract
of any prior party to the instrument".
(iv) The instrument will be only paid at maturity;
(v) Further, the indorser, by his act of indorsing, promises to indemnify the indorsee or any
subsequent holder for any loss suffered by him on the dishonour of the instrument,
provided, the procedure necessary on dishonour has been duly followed;
(vi) In addition to the above, an indorsement carries with it a right of further negotiation to
the indorsee, along with the right of ownership. Indorsement, is for the purpose of 'the
transfer' of the instrument.

Kinds of indorsement
 1. General Indorsement or Indorsement in Blank : Section 16 - Indorsement “in blank”
and “in full”.— If the indorser signs his name only, the indorsement is said to be “in
blank,” and if he adds a direction to pay the amount mentioned in the instrument to, or
to the order of, a specified person, the indorsement is said to be “in full”, and the person
so specified. Blank indorsement is known as general endorsement
2. Indorsement in full or special Indorsement : S. 16
3. Conditional Endorsement: The conditional endorsement is an arrangement that
produces results on the occurrence of an expressed occasion, or not something else.
Section 52 - Indorser who excludes his own liability or makes it conditional.—The
indorser of a negotiable instrument may, by express words in the indorsement, exclude
his own liability thereon, or make such liability or the right of the indorsee to receive
the amount due thereon depend upon the happening of a specified event, although such
event may never happen. Where an indorser so excludes his liability and afterwards
becomes the holder of the instrument, all intermediate indorsers are liable to him
4. Restrictive Endorsement: Restrictive Endorsement tries to end the chief qualities of
a Negotiable Instrument and seals its further negotiability.
Section 50 - Effect of indorsement: The indorsement of a negotiable instrument
followed by delivery transfers to the indorsee the property therein with the right of
further negotiation; but the indorsement may, by express words, restrict or exclude such
right, or may merely constitute the indorsee an agent to indorse the instrument, or to
receive its contents for the indorser, or for some other specified person.
5. Partial Endorsement: A partial indorsement is one which purports to transfer only a
part of the amount payable under the instrument or which purports to transfer the
instrument to two or more indorsees.
Section 56: Indorsement for part of sum due: No writing on a negotiable instrument is
valid for the purpose of negotiation if such writing purports to transfer only a part of
the amount appearing to be due on the instrument; but where such amount has been
partly paid, a note to that effect may be indorsed on the instrument, which may then be
negotiated for the balance.

Essentials of a valid Indorsement

 (1) Indorsement must be on the instrument itself. If no space is left on the instrument, it must
be on a separate slip of paper attached to the instrument called 'allonge’.
(2) Indorsement may be made by the Indorser either by merely signing his name on the
instrument or by specifying his name on the instrument or by specifying in addition to his
signature the person to whom or to whose order the instrument is payable. No particular
form of words is necessary for an indorsement.
(3) Indorsement must be completed by the delivery of the instrument. The delivery of the
instrument with the intention of passing the property in it to indorsee is important. It is
also important that the delivery must be made by the indorser himself or by someone on
his behalf.
(4) Where there are two or more indorsements on an instrument, each indorsement is deemed
to have been made in the order in which it appears on the instrument, until the contrary is
proved.
(5) Indorsement must contain an order to pay. It need not contain any complimentary prefixes
or suffixes.
(6) An illiterate man can make an indorsement by putting his left hand thumb impression in
the presence of certain other person, who should sign it as a witness.

Legal provision regarding endorsement

• Section 50: Effect of indorsement.—The indorsement of a negotiable instrument

followed by delivery transfers to the indorsee the property therein with the right of further
negotiation; but the indorsement may, by express words, restrict or exclude such right, or
may merely constitute the indorsee an agent to indorse the instrument, or to receive its
contents for the indorser, or for some other specified person.
• Section 60: Instrument negotiable till payment or satisfaction.—A negotiable
instrument may be negotiated (except by the maker, drawee or acceptor after maturity)
until payment or satisfaction thereof by the maker, drawee or acceptor at or after maturity,
but not after such payment or satisfaction.

PRESENTMENT FOR ACCEPTANCE AND PAYMENT

Presentment
 Presentment means placing before the drawee a negotiable instrument for acceptance, for
sight and for payment. The Negotiable Instruments Act, 1881 contemplates three kinds of
presentment:

(i) presentment of a bill of exchange for acceptance;

(ii) presentment of a promissory note for sight; and
(iii) presentment of a promissory note, bill of exchange or cheque for payment.

Presentment for acceptance.(Section 61): A bill of exchange payable after sight must, if no time
or place is specified therein for presentment, be presented to the drawee thereof for acceptance, if
he can, after reasonable search, be found, by a person entitled to demand acceptance, within a
reasonable time after it is drawn, and in business hours on a business day. In default of such
presentment, no party thereto is liable thereon to the person making such default. If the drawee
cannot, after reasonable search, be found, the bill is dishonoured. If the bill is directed to the drawee
at a particular place, it must be presented at that place; and if at the due date for presentment he
cannot, after reasonable search, be found there, the till is dishonoured.

Presentment of promissory note for sight.(Section 62): A promissory note, payable at a certain
period after sight, must be presented to the maker thereof for sight (if he can after reasonable search
be found) by a person entitled to demand payment, within a reasonable time after it is made and in
business hours on a business day. In default of such presentment, no party thereto is liable thereon
to the person making such default.

Presentment for payment.(Section 64): Promissory notes, bills of exchange and cheques must
be presented for payment to the maker, acceptor or drawee thereof respectively, by or on behalf of
the holder as hereinafter provided. In default of such presentment, the other parties thereto are not
liable thereon to such holder. Where authorized by agreement or usage, a presentment through the
post office by means of a registered letter is sufficient.

Where an electronic image of a truncated cheque is presented for payment, the drawee bank
is entitled to demand any further information regarding the truncated cheque from the bank holding
the truncated cheque in case of any reasonable suspicion about the genuineness of the apparent
tenor of instrument, and if the suspicion is that of any fraud, forgery, tampering or destruction of
the instrument, it is entitled to further demand the presentment of the truncated cheque itself for
verification.

Hours for presentment(Section 65): Presentment for payment must be made during the usual
hours of business and, if at a banker's within banking hours

Presentment for payment of instrument payable after date or sight (Section 66):A promissory
note or bill of exchange, made payable at a specified period after date or sight thereof, must be
presented for payment at maturity

Presentment for payment of promissory note payable by instalments: (Section 67): A

promissory note payable by instalments must be presented for payment on the third day after the
date fixed for payment of each instalment; and non-payment on such presentment has the same
effect as non-payment of a note at maturity.

Presentment for payment of instrument payable at specified place and not elsewhere.(Section
68): A promissory note, bill of exchange or cheque made, drawn or accepted payable at a specified
place and not elsewhere must, in order to charge any party thereto, be presented for payment at
that place.

Instrument payable at specified place (Section 69): A promissory note or bill of exchange made,
drawn or accepted payable at a specified place must, in order to charge the maker or drawer thereof,
be presented for payment at that place.

Presentment where no exclusive place specified (Section 70): A promissory note or bill of
exchange, not made payable as mentioned in sections 68 and 69, must be presented for payment
at the place of business (if any), or at the usual residence, of the maker, drawee or acceptor thereof,
as the case may be.

OTHER ANALOGOUS INSTRUMENTS (BANKERS DRAFT, TRAVELERS CHEQUE,

DIVIDEND WARRANT)

1. Banker’s Drafts (Demand Drafts): A bank draft is a convenient and secure instrument for
making large payments without having to withdraw cash from one’s account. Bank drafts are
guaranteed by financial institutions and can be used by individuals to make payments to third
 parties. Bankers draft is a payment order issued by one office of a bank on another office of
the same bank, for a certain sum of money payable to order on demand.

2. Travellers Cheque: As per Section 6(1)(a) of the Banking Regulation Act travellers cheque
is a draft issued by a bank, express company etc. having the bearers signature and payable
when the bearer signs it again in order to cash it. A traveler’s check is for a prepaid fixed
amount and operates like cash, so a purchaser can use it to buy goods or services when
traveling. A customer can also exchange a traveler’s check for cash. Major financial service
institutions issue traveler’s checks, and banks and credit unions sell them, though their ranks
have significantly dwindled today. Travellers cheque is one of the negotiable instruments. It
possesses all characteristic features of a cheque.
3. Banknotes: A banknote is a negotiable promissory note which one party can use to pay another
party a specific amount of money. A banknote is payable to the bearer on demand, and the
amount payable is apparent on the face of the note. Banknotes are considered legal tender;
along with coins, they make up the bearer forms of all modern money.

4. Exchequer Bills: The exchequer bill was an obligation of the exchequer issued by direction
of the Treasury. It was a negotiable instrument transferable by endorsement. It was sometimes
for three months, sometimes for one year, sometimes for several years.

5. Share Warrants: A Share Warrant is a document issued by the company under its common
seal, stating that its bearer is entitled to the shares or stock specified therein. Share warrants
are negotiable instruments. They are transferable by mere delivery without registration of
transfer. It is a negotiable instrument and mere delivery transfers the ownership of the shares.

6. Bearer Debentures: Debentures are a common type of long-term loans raised by a company.
Debentures and are issued in the form of a document containing the terms and conditions of
the loan, redemption of the loan, payment of interest, and other features. Most debentures pay
a fixed rate of interest to its holders. Generally, debentures are secured, however, there are
unsecured types of debentures as well. Bearer debentures can be transferred by mere delivery
and hence, are payable to the bearer of the instrument.

7. Dividend Warrant: An order, or warrant, issued by a company, and drawn upon its bankers,
in favour of a member of the company. for payment of the interest or dividend due to him upon
 his holding of shares or stock in the company. A dividend warrant is a cheque sent by a
company to a shareholder for payment of dividend to the registered address of the shareholder.

8. Share Certificate: Share certificates are written documents that are attested on behalf of a
firm or a corporation, which acts as legal proof for ownership stating the number of shares
shown. Another name of the share certificate is 'stock certificate'.When a firm issues stocks in
the market, the investors who purchase the same are given share or stock certificates. Share
certificates fundamentally act as the receipt of purchase and indicate the ownership of stocks
in a particular company. Share certificate confirms ownership that is registered and shows the
date from which it is registered.
9. Hundis: A hundi is a negotiable instrument. But it is not necessary to be a bill of exchange as
given in the Act. Hundis are famous among Indian traders. Specifically, it is famous amongst
those operating in suburban areas. These are under control of the Negotiable Instrument Act,
1881 unless there is a local usage to the contrary.