CLASS PRESENTATION

-ROOTIKA SRIVASTAVA (BA0200042)

In our recent class on Negotiable Instruments, we embarked on a comprehensive exploration
of this pivotal aspect of commercial law. Initially, we delved into the very essence of
negotiable instruments, pondering over their definition and significance.

Our discourse commenced with contemplation on the elusive definition of negotiable

instruments. Surprisingly, the statutory framework remains silent on this matter, as elucidated
in Section 13, merely enumerating them as cheques, bills of exchange, and promissory notes.
However, through our collective analysis, we discerned that negotiation implies a meeting of
minds among parties. Over time, scholars have attempted to encapsulate this concept,
offering varied definitions. A general definition is “A piece of paper that entitles a person sum
of money, transferable from person to person by mere delivery or endorsement and delivery”

William Willis defines it as “A negotioable instrument is one, the property in which is

acquired by anyone who takes it bona fide and for value notwithstanding any defect of title in
the person from whom he took it”

Both definitions emphasize the transferability and acquisition of property rights in a

negotiable instrument. They highlight the concept that a negotiable instrument can be
transferred from one person to another through delivery or endorsement, and the person who
acquires it in good faith and for value obtains valid ownership rights, even if there are defects
in the title of the person from whom they received it. Defect in the title of the person refers to
any legal issues or problems with the ownership or rights associated with the negotiable
instrument.

Characteristics of Negotiable Instruments-

1. Transferability: A negotiable instrument is freely transferable; that is, it is transferable any

number of times till its maturity. If the instrument is ‘payable to bearer’, mere delivery is
enough. However, if it is ‘payable to order’, it passes by endorsement and delivery. The
transferee of a negotiable instrument becomes not only entitled to money but also has the
right to further transfer the instrument

2. Right to Sue: The transferee can sue upon a negotiable instrument in its own name in case
of dishonour without giving notice of transfer to the original debtor, that is, without
informing the original debtor of the fact that the transferee has become the holder of the
negotiable instrument.

3. Certainty: yesterday in the class also we discussed examples of how that if there are
uncertainty then negotiable instrument won’t be valid. So, we can say that NI should specify
a certain amount payable to a certain person on a certain date under certain conditions. There
should be no room for speculations

4. Presumptions: There are certain presumptions given under section 118 of negotiable
Instruments Act which are applicable to every Negotiable Instrument. These presumptions
are- Firstly, it presumes that every negotiable instrument involves consideration, both in its
creation and subsequent transfers, unless proven otherwise. Secondly, the date mentioned on
the instrument is taken as its drawing date. Thirdly, acceptance of the instrument is assumed
to occur within a reasonable time after its execution and before maturity. Additionally,
transfers are presumed to transpire before the maturity date. The order of endorsements on
the instrument is presumed to follow the sequence in which they appear. Moreover, lost
promissory notes, bills of exchange, or cheques are assumed to have been properly stamped.
Finally, it's presumed that every holder of a negotiable instrument acquired it in good faith
and for consideration unless proven otherwise.

5. Independence of title- Usually transfers of property works on the principle of ‘NEMO DAT
QUAD NON HABET’ which means that no one can transfer a better title than what he has.
The principle basically means that a person can only transfer the ownership of property
whose possession lies with him; he can’t give something he does not have legal rights over.
But negotiable instrument does not follow this principle. Under Negotiable Instrument act, if
the transferor had obtained a negotiable instrument by exercising fraud, but the transferee
obtains that negotiable instrument in good-faith (bona-fide) for value, then the transferee
shall enjoy a good title as regards that negotiable instrument

This could be understood better by the “Raephal v Bank of England”1 case that we discussed
yesterday. I will just recall facts of this case, bank notes were stolen and the bank after theft
released a list with number of bank notes to the general public asking them not to deal with
such notes. After 12 months the plaintiff exchanges one such bank note as he has forgotten
about the list. The court held that since that transferee had acted in good faith he will be

1
Raephal v Bank of England, (1855) 17 CB 161
entitled to payment. So here the principle isn’t followed because the robber did not have the
right to give the bill to transferee but court still upheld it to valid

Another similar case2 to this is the plaintiff, Catholic Syrian Bank Ltd., extended credit
facilities to a firm consisting of defendants A, B, and C, and they were going to start a
business. To secure these facilities, defendants A, B, C executed a promissory note in favour
of person D, which was later endorsed to the plaintiff meaning the bank as security.
Additionally, the person D provided her property's title deeds to create an equitable mortgage.
The firm conducted transactions with the 6th defendant and others, receiving payments via
cheques. The plaintiff purchased two such cheques drawn on Union Bank of India in favour
of the firm. Despite the plaintiff's credit to the firm's account, the cheques were dishonoured
by Union Bank of India due to insufficient funds. Defendants A, B, C agreed to pay the
amounts owed to the plaintiff, with monthly instalments and contributions from the 5th
defendant's rent income, yet only a partial sum was paid. In this case what was held was that
the bank here had acted in good faith and had no reason suspect defects in the title of the
defendants and just because they can’t prove their bona fide intentions or lack of negligence
on their part will not revoke the claim.

Kinds of Negotiable Instrument

Section 13 of the act only states three instruments which cheques, Bill of Exchange and
promissory note but this is not exhaustive. Any document which entitles a person to a sum of
money and which transferrable by delivery is entitled to be called negotiable instrument.

 Bill of exchange- it’s a mode of payment that can be utilised for the purpose of
making credit payments. It is a written order that imposes liability on a party to pay a
definite amount of money to another party on a pre-decided date.
 Cheque- it’s a document which orders a bank to pay or transfer a certain sum of
money, mentioned on the cheque, from the account of the person issuing the cheque to
the person whose name the cheque bears. A cheque is inclusive of an electronic image
of a truncated cheque and a cheque in electronic form.
 Promissory Note- its definition is given in section 4 which is exhaustive and states the
terms for what could be called as promissory notes. So in simple terms a promissory
note is a debt instrument that contains a written commitment by one party to pay
another party a specific amount of money, either immediately or at a later date and it
2
The Catholic Syrian Bank Ltd. v. Thomas,1996 (3) CPR 305 (SCDRC-Kerala)
 usually includes all the details of the debt, including the principal amount, interest
rate, maturity date, date and location of issuance, and the signature of the issuer. But
Banks note or cash note can never be promissory note

Elements of promissory notes-

1. The promissory note must be in writing. Any kind of oral promise is excluded from being
considered a promissory note. So, earlier the document could only be handwritten but now
documents could be made digitally as well. So in the case of “Gopal Reddy v Neelakantam
Krishna,”3 it was held that the writing could in ink, pencil, printing or any other form of
representing words in visible form and it will held as valid promissory note

2. Unconditional Undertaking- A promissory note should not be conditional or should only

contain a condition that is bound to happen, for example death is valid condition since the
happening of death is certain although the time is uncertain. So certainty is the key element,
you can’t have any such condition which you are not certain will happen

3. Signed by the maker- until and unless it is signed by the maker it won’t be valid. Signature
is an important part as it expresses the willingness of the maker

4. To pay a certain sum of money- The promissory note must contain an express promise to
pay and should state the specific sum. A mere acknowledgement of debt without any promise
to pay does not constitute a promissory note- Lakxmibai v Ganesh Raghunath. The document
should indicate the intention to pay; the intention is the most important. In “Bal Mukund v
Munnalal Ramjilal,”4 it was held that just because the words ‘I promise to pay are missing’
doesn’t mean it won’t be considered a promissory note as there are clear intentions on the
part of the party to treat the document as promissory note

5. To a certain person/ or bearer of the instrument- The promissory note should point out with
certainty the party the party, who is to receive money. It needs to be clearly visible otherwise
the instrument will be invalid. But, if the payee is not named but is known with certainty at
the time of the execution then it will be a valid promissory note held in “Pomuswami chettiar
v Vellaimuthu Chettiar.”5

3
Jakka Gopal Reddy vs Neelakantam Venkata Krishna, AIR 2008 (NOC) 255 (A.P.)
4
State Of Punjab vs Ramjilal & Ors on 12 October, 1971 AIR 1228
5
A.K. Subramania Chettiar vs A. Ponnuswami Chettiar, AIR 1957 MAD 777
Other than all these five conditions, in “Dokha Joganna v Chayadevi”6 two further conditions
were stated:-

i. There must be nothing else inconsistent with the character of the instrument as
substantially a promise to pay and
ii. The instrument must be intended by the parties to be a promise to pay

The court stated that these requirements show that the court has necessarily to cull out the
intentions of the parties so as to decide whether it is promissory note or not.

6
Dokka Joganna vs Upadrasta Chayadevi, revised petition 1997