Transcript Is this a promissory note?
Slide 1
Law relating to Cheques, Bills of Exchange and Promissory Notes
Slide 2
TOPICS COVERED
Laws relating to the following:
Promissory Note
Bills of Exchange
Cheque
Slide 3
MEANING AND CONCEPT
The word ‘Negotiable’ means transferable from one person to another
And
term ‘Instrument’ means any written document by which a right is created
in favour of some person.
Thus, negotiable instrument is a document by which the right vested
in a person can be transferred to another person in accordance with
the Negotiable Instruments Act 1881.
Slide 4
ACCORDING TO THE NEGOTIABLE
INSTRUMENTS ACT 1881
The 3 negotiable instruments are as follows:
Promissory Notes
Bills of exchange, and
Cheques
Slide 5
PRESUMPTIONS
1. Consideration
Every negotiable instrument is deemed to have been drawn and
accepted for consideration.
2. Date
That the negotiable instrument was drawn on the date shown on the
face of it.
3. Acceptance
Every Bill of exchange was accepted within a reasonable time after the
date mentioned therein and before the date of its maturity.
4. Transfer
Every transfer should be made before the expiry
Slide 6
PROMISSORY NOTE (SECTION 4)
A promissory note is an instrument in writing 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.
The promise to pay must be unconditional or subject to only such conditions
which according to the ordinary experience of mankind is bound to happen.
Example
‘S’ writes “I promise to pay ‘B’ a sum of Rs. 500, seven days after my marriage
with ‘C’ “ . Is this a promissory note?
Promissory note can be based on future event. The event should be certain, but
the date on which it will happen need not be certain. In this case, the event of ‘S’
marriage with ‘C’ is not certain, as ‘S’ may not marry or marry some other
person. Hence, this is not a promissory note.
Slide 7
Example :- (i) ‘X’ promises to pay ‘Y’ by a promissory note, a sum of Rs. 5,000.
fifteen days after the death of ‘B’.
(ii) ‘X’ promise to pay ‘Y’ by a promissory note, Rs. 5,000 and all other
sums, which shall be due, fifteen days after the death of ‘B’
Bank note is frequently referred to as a promissory note
Slide 8
BILLS OF EXCHANGE (SECTION 5)
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.
Should be in
writing
Certainty of
amount
Oder to pay
Bill of
exchange
Accepted by
drawee
Signed by
drawer
Slide 9
SPECIAL BENEFITS OF BILLS OF EXCHANGE
1.
Double secured instrument: if the drawee fails to honor the
order, the holder of the instrument may look the drawer for the
payment
2. In case of immediate requirement a Bill may be
discounted with the bank
Slide 10
MATURITY DATE
The date on which a bill of exchange falls due for payment
•
•
In the case bill is payable after certain days after sight, the maturity
date is calculated by adding 3 days of grace to the period after which
the bill is payable.
In the case the date of maturity happens on public holiday including
Sunday, the bill falls due for payment on the day preceding the
public holiday.
Example :-Ascertain the date of maturity of a bill payable 100 days after
sight and which is presented for sight on 4th May 2013.
100 days from 4th May work out as 12th August 2013 + 3 grace days = 15
August 2013, Since 15th August is a public holiday, maturity date of bill
will be 14th August 2013
Slide 11
CHEQUE (SECTION 6)
“A Bill of Exchange drawn on a specified banker and not expressed to be
payable otherwise then on demand”
Therefore,
Cheques are always drawn on specified banker &
HEADS OF INCOME
It is always payable on demand.
Profit and Gain from
Business or Profession
Slide 12
TYPES OF CHEQUES (SEC. 123)
Cheques
Open
Crossed
General
Crossing
Special
Crossing
Slide 13
TYPES OF CHEQUES
1.
Open cheque – those which can be encashed across the counter of
the bank.
2.
Liable to great risk if stolen or lost.
Finder can get payment from bank.
Crossed cheque – which bears two transverse lines with or
without the words “ & co.”
Slide 14
MEANING OF CROSSING A CHEQUE
• It is a unique feature affecting to a certain level the responsibility of the
paying Banker and also its negotiable Character.
• It is a direction to a particular Banker by the Drawer that Payment should
not be made across the Counter.
• The payment can be collected only through a Banker.
•
Crossing of the Cheque is affected by drawing two parallel Transverse lines
• The Cheque that is not crossed is an open Cheque.
Slide 15
TYPES OF CROSSING
General Crossing
•Where a cheque bears across its face two parallel line without anything written on it
•The payee may get the cheque collected through a bank of his choice
Special Crossing
•Specification of the name of banker or any other specification on the face of the
cheque.
•Ex. “Account Payee”, specification of any bank name etc.
Slide 16
CROSSED CHEQUE = SAFE CHEQUE
Slide 17
DISHONOUR (SEC. 92)
“ A promissory note, bill of exchange or cheque is said to be dishonour by nonpayment 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”
Dishonour
Wrongful
Rightful
Wrongful dishonour
Dishonour of cheque by banker due to negligence or carelessness by its employees.
Rightful dishonour
Dishonour other then wrongful ex.- stale cheque, sign mismatch etc.
Slide 18
DISHONOUR OF CHEQUE: AN OFFENCE (SEC. 138)
Section 138 of Negotiable Instrument Act states that the return of a cheque
by a banker because the money standing to the credit of the accountholder is
insufficient to honour the cheque is a criminal offence.
The drawer shall be punishable with imprisonment for the term up to two
years or with a fine twice the amount of the cheque or both
Slide 19
PROVISIONS OF SECTION 138 APPLY ONLY IF (i) Cheque is presented to the bank within specific validity period
(ii) The payee or holder has given notice demanding payment within 30 days of
receiving information of dishonor
(iii) The drawer does not make payment within 15 days of the receipt of the
notice
NOTE: The complaint can be made only by the payee within one month
Slide 20
POSITION OF A MINOR IN NEGOTIABLE INSTRUMENT ACT
“A Minor may draw, endorse, deliver Negotiable instruments so as to bind all parties”
(Section 26)
An instrument does not void just because a minor is party to it. It remains binding on
all the other parties except minor.
Slide 21
Law relating to Cheques, Bills of Exchange and Promissory Notes
Slide 2
TOPICS COVERED
Laws relating to the following:
Promissory Note
Bills of Exchange
Cheque
Slide 3
MEANING AND CONCEPT
The word ‘Negotiable’ means transferable from one person to another
And
term ‘Instrument’ means any written document by which a right is created
in favour of some person.
Thus, negotiable instrument is a document by which the right vested
in a person can be transferred to another person in accordance with
the Negotiable Instruments Act 1881.
Slide 4
ACCORDING TO THE NEGOTIABLE
INSTRUMENTS ACT 1881
The 3 negotiable instruments are as follows:
Promissory Notes
Bills of exchange, and
Cheques
Slide 5
PRESUMPTIONS
1. Consideration
Every negotiable instrument is deemed to have been drawn and
accepted for consideration.
2. Date
That the negotiable instrument was drawn on the date shown on the
face of it.
3. Acceptance
Every Bill of exchange was accepted within a reasonable time after the
date mentioned therein and before the date of its maturity.
4. Transfer
Every transfer should be made before the expiry
Slide 6
PROMISSORY NOTE (SECTION 4)
A promissory note is an instrument in writing 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.
The promise to pay must be unconditional or subject to only such conditions
which according to the ordinary experience of mankind is bound to happen.
Example
‘S’ writes “I promise to pay ‘B’ a sum of Rs. 500, seven days after my marriage
with ‘C’ “ . Is this a promissory note?
Promissory note can be based on future event. The event should be certain, but
the date on which it will happen need not be certain. In this case, the event of ‘S’
marriage with ‘C’ is not certain, as ‘S’ may not marry or marry some other
person. Hence, this is not a promissory note.
Slide 7
Example :- (i) ‘X’ promises to pay ‘Y’ by a promissory note, a sum of Rs. 5,000.
fifteen days after the death of ‘B’.
(ii) ‘X’ promise to pay ‘Y’ by a promissory note, Rs. 5,000 and all other
sums, which shall be due, fifteen days after the death of ‘B’
Bank note is frequently referred to as a promissory note
Slide 8
BILLS OF EXCHANGE (SECTION 5)
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.
Should be in
writing
Certainty of
amount
Oder to pay
Bill of
exchange
Accepted by
drawee
Signed by
drawer
Slide 9
SPECIAL BENEFITS OF BILLS OF EXCHANGE
1.
Double secured instrument: if the drawee fails to honor the
order, the holder of the instrument may look the drawer for the
payment
2. In case of immediate requirement a Bill may be
discounted with the bank
Slide 10
MATURITY DATE
The date on which a bill of exchange falls due for payment
•
•
In the case bill is payable after certain days after sight, the maturity
date is calculated by adding 3 days of grace to the period after which
the bill is payable.
In the case the date of maturity happens on public holiday including
Sunday, the bill falls due for payment on the day preceding the
public holiday.
Example :-Ascertain the date of maturity of a bill payable 100 days after
sight and which is presented for sight on 4th May 2013.
100 days from 4th May work out as 12th August 2013 + 3 grace days = 15
August 2013, Since 15th August is a public holiday, maturity date of bill
will be 14th August 2013
Slide 11
CHEQUE (SECTION 6)
“A Bill of Exchange drawn on a specified banker and not expressed to be
payable otherwise then on demand”
Therefore,
Cheques are always drawn on specified banker &
HEADS OF INCOME
It is always payable on demand.
Profit and Gain from
Business or Profession
Slide 12
TYPES OF CHEQUES (SEC. 123)
Cheques
Open
Crossed
General
Crossing
Special
Crossing
Slide 13
TYPES OF CHEQUES
1.
Open cheque – those which can be encashed across the counter of
the bank.
2.
Liable to great risk if stolen or lost.
Finder can get payment from bank.
Crossed cheque – which bears two transverse lines with or
without the words “ & co.”
Slide 14
MEANING OF CROSSING A CHEQUE
• It is a unique feature affecting to a certain level the responsibility of the
paying Banker and also its negotiable Character.
• It is a direction to a particular Banker by the Drawer that Payment should
not be made across the Counter.
• The payment can be collected only through a Banker.
•
Crossing of the Cheque is affected by drawing two parallel Transverse lines
• The Cheque that is not crossed is an open Cheque.
Slide 15
TYPES OF CROSSING
General Crossing
•Where a cheque bears across its face two parallel line without anything written on it
•The payee may get the cheque collected through a bank of his choice
Special Crossing
•Specification of the name of banker or any other specification on the face of the
cheque.
•Ex. “Account Payee”, specification of any bank name etc.
Slide 16
CROSSED CHEQUE = SAFE CHEQUE
Slide 17
DISHONOUR (SEC. 92)
“ A promissory note, bill of exchange or cheque is said to be dishonour by nonpayment 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”
Dishonour
Wrongful
Rightful
Wrongful dishonour
Dishonour of cheque by banker due to negligence or carelessness by its employees.
Rightful dishonour
Dishonour other then wrongful ex.- stale cheque, sign mismatch etc.
Slide 18
DISHONOUR OF CHEQUE: AN OFFENCE (SEC. 138)
Section 138 of Negotiable Instrument Act states that the return of a cheque
by a banker because the money standing to the credit of the accountholder is
insufficient to honour the cheque is a criminal offence.
The drawer shall be punishable with imprisonment for the term up to two
years or with a fine twice the amount of the cheque or both
Slide 19
PROVISIONS OF SECTION 138 APPLY ONLY IF (i) Cheque is presented to the bank within specific validity period
(ii) The payee or holder has given notice demanding payment within 30 days of
receiving information of dishonor
(iii) The drawer does not make payment within 15 days of the receipt of the
notice
NOTE: The complaint can be made only by the payee within one month
Slide 20
POSITION OF A MINOR IN NEGOTIABLE INSTRUMENT ACT
“A Minor may draw, endorse, deliver Negotiable instruments so as to bind all parties”
(Section 26)
An instrument does not void just because a minor is party to it. It remains binding on
all the other parties except minor.
Slide 21