CHAPTER 5 NEGOTIABLE INSUTRUMENTS ACT 1881 5.

1 DEFINITION OF A NEGOTIABLE INSTRUMENT [SECTION 13] The word 'negotiable' means transferable from one person to another, and the ter m 'instrument' means 'any written document by which a right is created in favour of some person.' Thus, the negotiable instrument is a document by which rights vested in a person can be transferred to another person in accordance with the p rovisions of the Negotiable Instruments Act, 1881. The term 'negotiable instrument' has been defined as - A 'negotiable instrument ' means a promissory note, bill of exchange or cheque payable either to order or to bearer." MAIN FEATURES OF A NEGOTIABLE INSTRUMENT An instrument may be negotiable either by (1) Statute - Promissory notes, bills of exchange and cheques are negotiabl e instruments under the Negotiable Instruments Act, 1881; or (2) By usage - Bank notes, bank drafts, share warrants, bearer debentures, d ividend warrants, scripts and treasury bills An instrument is to be called 'negotiable' if it possesses the following charact eristic features: 1) Freely transferable - Transferability may be by (a) delivery, or (b) by endorsement and delivery. 2) Holder's title free from defects: The holder (of the negotiable instrume nt) in due course acquires a good title not withstanding any defect in a previou s holder's title. A holder in due course is one who receives the instrument for value and without any notice as to the defect in title of the transferor. 3) The Holder can sue in his own Name - Another characteristic feature of a negotiable instrument, is that its holder in due course, can sue on the instrum ent in his own name. 4) A negotiable instrument can be transferred infinitum, i.e., can be trans ferred any number of times till its maturity. 5) A negotiable instrument is subject to certain presumptions. Presumptions as to negotiable instruments [Sections 118-119] 1) As to Consideration - Every negotiable instrument is deemed to have been made, drawn, and accepted endorsed, negotiated or transferred for consideration . 2) As to date- Every negotiable instrument bear the date on which it is made or drawn. 3) As to Acceptance- Every bill of exchange was accepted within a reasonable t ime after the date mentioned therein and before the date of its maturity. 4) As to Transfer- Every transfer of a negotiable instrument was made before t he date of its maturity in case of an instrument payable otherwise than on deman d. 5) As to the order of Endorsements - The endorsements appearing on it were made in the order in which they appear thereon. 6) As to lost Instruments - Where an instrument has been lost or destroyed, tha t it was duly stamped and the stamp was duly cancelled. 7) As to holder-in-due course - The holder of the instrument is a holder in due course. 8) As to dishonour - If a suit is filed upon an instrument, which has been dish onoured, the Court shall, on proof of the protest, presume the fact of dishonour unless it is disproved. 5.2 PROMISSORY NOTE [Section 4] Definition A promissory note is an instrument in writing (not being a bank note or a curren

cy note) containing an unconditional undertaking, signed by the maker to pay a c ertain sum of money to, or to the order of, a certain person or to the bearer of the instrument Examples of Promissory Notes A signs instruments in the following terms: "I acknowledge myself to be indebted to 'B' in Rs. 1000, to be paid on demand, f or value received." Followings are Not Promissory Notes. (i) "Mr. B, I.O.U. (I owe you) Rs. 1000." (ii) "I promise to pay B Rs. 1500 on D's death, provided he leaves me enough to pay that sum," (iii) "I promise to pay B Rs. 500 seven days after my marriage with C." Essentials or Characteristics of a Promissory Note From the definition, it is clear that a promissory note must have the following essential elements. (1) In writing - A promissory note must be in writing. Writing includes pri nt and typewriting. (2) Promise to pay - It must contain an undertaking or promise to pay. Thus, a mere acknowledgement of indebtedness is not sufficient. Notice that the use of the word `promise' is not essential to constitute an inst rument as promissory note. (3) Unconditional - The promise to pay must not be conditional. Thus, instru ments payable on performance or non-performance of a particular act or on the hap pening or non-happening of an event are not promissory notes. (4) Signed by the Maker The promissory note must be signed by the maker, oth erwise it is of no effect. (5) Certain Parties - The instrument must point out with certainty the maker and the payee of the promissory note. (6) Certain sum of money - The sum payable must be certain or capable of bein g made certain. (7) Promise to pay money only - If the instrument contains a promise to pay something in addition money, it cannot be a promissory note. (8) Number, place, date etc - These are usually found in a promissory note b ut are not essential in law. If a promissory note does not bear a date, it is de emed to have been made when it was delivered. (9) It may be payable in installments (10) It may be payable on demand or after a definite period - Payable 'on deman d' means payable immediately or any time till it becomes time-barred. A demand p romissory note becomes time barred on expiry of 3 years from the date it bears. (11) It cannot be made payable to bearer on demand or even payable to bearer af ter a certain period (12) It must be duly stamped under the Indian Stamp Act - It means that the s tamps of the requisite amount must have been affixed on the instrument and duly cancelled either before or at the time of its execution. A promissory note, whic h is not so stamped, is a nullity. 5.3 BILL OF EXCHANGE [Section 5] A 'bill of exchange' is defined by as an instrument in writing, containing an un conditional order, signed by the maker, directing a certain person to pay a cert ain sum of money only to or to the order of, a certain person, or to the bearer of the instrument. Characteristic Features of a Bill of Exchange 1. It must be in writing. 2. It must contain an order to pay and not a promise or request. 3. The order must be unconditional. 4. There must be three parties, viz., drawer, drawee and payee. 5. The parties must be certain. 6. It must be signed by the drawer. 7. The sum payable must be certain or capable of being made certain.

8. The order must be to pay money and money alone. 9. It must be duly stamped as per the Indian Stamp Act. 10. Number, date and place are not essential. 5.4 CHEQUE [Section 6] A cheque is defined as 'a bill of exchange drawn on a specified banker and not e xpressed to be payable otherwise than on demand. Thus, a cheque is a bill of exchange with two added features, viz.: (i) it is always drawn on a specified banker; and (ii) it is always payable on demand and not otherwise. Bill of Exchange and Cheque distinguished Cheque Bill of Exchange 1) It must be drawn only on a banker. 2) The amount is always payable on demand. 3) The cheque is not entitled to days of grace.

4) Acceptance is not needed. 5) A cheque can be crossed 6) Notice of dishonour is not necessary. The parties thereon remain liable, even if no notice of dishonour is given. 7) A cheque is not to be noted or protested in case of dishonour. 8) The protection given to the paying banker in respect of crossed cheques is peculiar to this instrument. 1) It can be drawn on any person including a banker. 2) The amount may be payable on demand or after a. specified time. 3) A usance (time) bill is entitled to three days of grace. 4) A bill payable after sight must be accepted. 5) Crossing of a bill of exchange is not possible. 6) Notice of dishonour is necessary to hold the parties liable thereon. A p arty who does not receive a notice of dishonour can generally escape its liabili ty thereon. 7) A bill is noted or protested to establish dishonour. 8) No such protection is available in the case of bills. Promissory Note and Bill of Exchange distinguished Promissory Note Bill of Exchange 1) There are only two parties the maker (debtor) and the payee (creditor). 2) 3) 4) 5) 6) A note contains an unconditional promise by the maker to pay the payee. No prior acceptance is needed. The liability of the maker or drawer is primary and absolute. No notice of dishonour need be given.

The maker of the note stands in immediate relation with the payee. 1) There are three parties the drawer, the drawee and the payee- al though any two of these capacities may be filled by one and the same person. 2) It contains an unconditional order to the drawee to pay according to the drawer`s directors. 3) A bill payable `after sight` must be accepted by the drawee or his agent before it is presented for payment. 4) The liability of the drawer is secondary and conditional upon non-paymen t by the drawee. 5) Notice of dishonour must be given by the holder to the drawer and the in termediate endorsers to hold them liable thereon. 6) The maker or drawer does not stand in immediate relation with the accept

or drawee. 5.5 HOLDER AND HOLDER-IN-DUE-COURSE [Section 8 & 9] Holder of negotiable instrument A holder of a negotiable instrument is a person entitled in his own name to the possession of that negotiable instrument and to receive or recover the amount du e thereon from the parties thereto. A 'holder in-due-course' A 'holder in-doe-course', on the other hand, is a person who for consideration b ecame the possessor of a negotiable instrument before the due date of payment of that instrument and without having sufficient cause to believe that any defect ex isted in the title of the person from whom he derived his title. Thus, where a person receives a negotiable instrument without consideration, he may be a holder but will not be called as a holder in due course. 5.6 CERTAIN IMPORTANT CONCEPTS AND EXPLANATIONS Ambiguous Instrument (Section 17) - the holder may at his election treat it as e ither and the instrument shall be thenceforward treated accordingly. Where Amount is stated differently in Figures and Words (Section 18) - the amou nt stated in words shall be the amount undertaken or ordered to be paid. Inchoate Instruments (Section 20) - It means an instrument that is incomplete in certain respects. Where one person signs and delivers to another person a duly stamped negotiable instruments and however, that negotiable instrument is either wholly blank or ha ving written thereon. Such an instrument is thus incomplete (inchoate). The maker of the instrument has thereby prima facie authorises the holder thereo f to make or complete, for any amount therein but not exceeding the amount cover ed by the stamp. Lost or Stolen Instruments (Sec. 58) - In such instances, the possessor or endor see who has found or had obtained the instrument by fraud shall not be entitled to receive the amount due thereon from such maker of the lost instrument. (Excep tion when the later (finder) person is holder in due course). Forged Instruments - As a general rule, a forged signature does not confer a goo d title. Even a holder in due course cannot claim payment on a forged instrument . 5.7 CHEQUE [Section 6] Meaning of a Cheque A Cheque, in essence, is an order by the customer of the bank directing his bank er to pay on demand, the specified amount, to or to the order of the person name d therein or to the bearer. It has been defined as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. A 'Cheque in the electronic form' means a Cheque, which contains the exact mirro r image of a paper Cheque, and is generated, written and signed in a secure syst em ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system. A "truncated Cheque" means a Cheque which is truncated during the course of a cl earing cycle, either by the clearing house or by the Bank whether paying or rece iving payment, immediately on generation of an electronic image for transmission , substituting the further physical movement of the cheque in writing. Features of a Cheque A Cheque is a bill of exchange with following features, viz., (i) must be in writing; (ii) contain an unconditional order to pay (iii) drawn on a specified banker; (iv) for a certain sum of money; (v) the payee must be a definite person; (vi) amount must be written both in figures and words; (vii) it must be dated.

(viii) it is always drawn on a specified banker; and (ix) it is always payable on demand and not otherwise. Cheques in electronic form In view of the banking transforming from traditional banking to e-banking, the e lectronic form or electronic image of a Cheque as a valid Cheque has also now be en recognized [Negotiable Instruments (Amendment) Act, 2002]. Dating of cheques The drawer of a Cheque is expected to date it before it leaves his hands. A cheq ue without a date is considered incomplete and is returned unpaid by the banks. A post-dated cheque is as much negotiable as a cheque for which payment is due, i.e., the transferee of a post-dated cheque, like that of the cheque on which pa yment is due, acquires a better title than its transferor, if he is a holder in due course. Crossing of cheques Crossing is a unique feature associated with a cheque affecting to a certain ext ent the obligation of the paying banker and also its negotiable character. It is a peculiar method of modifying the instrument to the banker for payment of the cheque. Crossing on a cheque is a direction to the paying banker by the drawer that paym ent should not be made across the counter. The payment on a crossed cheque can b e collected only through a banker. Crossing of a cheque is effected by drawing two parallel transverse lines with o r without the words 'and company' or any abbreviation thereof. A cheque that is not crossed is called an `open cheque`. Significance of crossing As payment cannot be claimed across the counter on a crossed cheque, crossing of cheques serves as a measure of safety against theft or loss of cheques in trans it. Types of crossing Crossing may be either (1) General - to mean as where a cheque bears across its face an addition of the words 'and company' or any abbreviation thereof, between two parallel trans verse lines or of two parallel transverse lines simply, either with or without t he words 'not negotiable', that addition shall be deemed a crossing and the cheq ue shall be deemed to be crossed generally (2) Special - implies the specification of the name of the banker on the fac e of the 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. Thus, it makes the cheque system still safer. Not Negotiable Crossing A person who takes such a cheque shall not have and shall not be capable of givi ng a better title to the cheque than that which the person, from whom he took it in the first instance, had. Thus, by including the words 'not negotiable', the cheque is deprived of its special feature of negotiability. A bank, therefore, s hould be extra careful in paying such cheques. Account Payee Crossing (A/c Payee Crossing) An A/c payee crossing signifies that the drawer intends the payment to be credit ed only to the payees account and in none else. The addition of 'A/c payee' to a crossing has no legal sanctity and the paying banker may ignore such a direction without being liable for any damages. Not Negotiable, A/c Payee Crossing The instrument is rendered not negotiable (making the 'paying banker' responsibl e to see that payment is made to the person who is entitled to receive it) plus A/c payee crossing directs the collecting banker to collect it for the payee only . Who can cross a cheque A cheque may be crossed by any of the following: 1. The drawer of a cheque. 2. The holder of a cheque.

3. The Banker, in whose favour the cheque has been crossed specially. Marking of cheques Marking or certification is a method adopted when the paying banker verifies the customer's account and indicates thereon that there are enough funds in his acc ount torn that cheque. [Sita Ram v. Bombay Bullion Association (1965)]. Marking only certifies the genuineness of the drawer's signature and the sufficiency of funds. Material alterations An alteration is material if it alters materially or substantially the operation of the instrument and thereby the rights and liabilities of the parties. In Aldons v. Cornwall, a material alteration was defined as "an alteration, whic h alters the business effect of the instrument if used for any business purpose. Ex(i) date; (ii) the time of payment; (iii) the place of payment; (iv) the sum payable; (v) the number of parties; (vi) the relationship between parties; (vii) legal character of the instrument; (viii) opening a crossed cheque; (ix) converting an order cheque into a bearer cheque. It is immaterial as to who makes the alteration. An alteration made by an outsid er or stranger to the instrument will be considered as an alteration made by the holder himself as it is the duty of the holder to preserve the instrument, free from such forgeries. Effect of Material Alteration Any material alteration of a negotiable instrument, which has not been, consente d to by either the drawee or the payee is void as against them. Alterations which are not material (i) filling blanks of the instrument; (ii) conversion of blank endorsement into endorsement in full; (iii) crossing of cheques; (iv) altering a general crossing into a special crossing; addition of the wor ds 'account payee' negotiable' to a crossing; and where a cheque is crossed spec ially, the banker to whom crossed, crossing it specially to another banker , his agent for collection; (v) canceling the word bearer and making the cheque payable to order; and (vi) alteration made with the consent of the parties. 5.8 THE PAYING BANKER The 'paying banker' is a term used to denote the position and duties of the draw ee-banks in paying cheques of their customers. Thus, 'paying banker' is a banker upon whom a cheque is drawn. DUTIES AND RESPONSIBILITIES OF A 'PAYING-BANKER' The drawee of a cheque having sufficient funds of the drawer in his hands must p ay the cheque when duly required so to do. In default of such payment, the payin g bank must compensate the drawer for any loss or damage caused by such default Ex In Rolin v. Steward it was held that even though the default arose through inadv ertence, and in fact the cheque was subsequently paid, the Court will not award merely nominal damages, because credit of the customer was seriously affected. T his would be the case even if the customer's account was overdrawn but the banke r had agreed to pay his cheques on an overdraft within certain limits. [Fleming v. Bank of New Zealand]. Protection in case of crossed cheques A banker paying the cheques crossed generally to a banker or to the specified ba nker, is protected even if it turns out to be a payment to a wrong payee. Payment in due course [Section 10] Payment in due course means payment in accordance with the apparent tenor of the instrument made in good faith and without negligence. They are as follows: -

1. Payment must be in accordance with the apparent tenor of the instrument 2. Payment must be made in good faith and without negligence 3. Payment must be made to the person in possession of the instrument 4. Payment must be made to the person entitled to receive. 5. Payment must be made in money only. When banker must refuse payment A paying banker must refuse payment on cheques if any of the following circumsta nces exist: 1. Where the customer countermands the payment (stopped by the drawer) 2. On receipt of a notice of customer's death 3. On customer's becoming insolvent 4. On receipt of a notice of the customer's insanity 5. On receipt of Garnishee order 5. On assignment of Credit balance 7. On suspicious misuse by trustee When banker may refuse payment 1. Where the cheque is post-dated. 2. Where the funds of the customer are insufficient. 3. Where a cheque is not duly presented. 4. Not properly signed joint holders 5. Material alteration or irregularity 5. Presented after validity period 5.9 DISHONOUR OF A CHEQUE ON GROUNDS OF INSUFFICIENCY OF FUNDS [Sections 138 to 142] Section 138 to 142 of the Negotiable Instruments Act provide for criminal penalt ies in the event of dishonour of cheques for insufficiency of funds. The drawer, under Sec. 138, may be punished with imprisonment upto 2 years (earlier I year) or with a fine up to twice the amount of the cheque or with both. The enhanceme nt in the penal provisions was made by Negotiable Instruments (Amendment) Act 20 02 w.e.f. 5.2.2003. In order to attract the aforesaid penalties, following conditions must be satisf ied: (1). Insufficiency of funds The Courts have held the following amounting to dishonour for insufficiency of f unds: (i) Stop-payment instructions to the payee-bank [ET & TD Corpn. Ltd. v. Id T echnologies & Engross P. Ltd. (1996)]. (ii) Request to the payee not to present the cheque till further information [Modi Cement Ltd. v. Kuchil Kumar Nandi (1998)]. (iii) Cheque received back from the payee-bank with the remarks 'Account Close d' [G.M. Mittal Stainless Steel vs. Nagarjuna Investments (1997) and N.E.P. C. M icon Ltd. vs. Magna Leasing Ltd. (1999)]. (2).Payment against an enforceable debt (3). Cheque should be presented to the paying bank within the validity period (g enerally 6 months from the date on which it is drawn) (4). Payee to serve Default Notice, demanding payment within 30 days (5). Drawer liable upon failure to pay within 30 days` Upon failure Complaint in writing; Offence triable by 1st Magistrate The payee having failed to receive the payment within 30 days` of notice of dish onour of the cheuqe, shall have to make a police complaint in this regard. This is a cognizable offence and shall be tried by a Metropolitan Magistrate or a Jud icial Magistrate of the First Class. Offences by companies A director, manager, secretary or other officer of the company shall be liable to be proceeded against and punished accordingly in case the offence has been comm itted with the consent or connivance, or is attributable to any neglect on his p art in this regard. - Rajneesh Aggarwal v. Anil Bhalla (2001). However, a person will not be liable in a case. (i) where such person proves that the offence was committed without his know ledge, or

(ii) where he had exercised all due diligence to prevent the commission of su ch offence; (iii) where he is nominated as a Director of a company by the Central Governme nt or State Government or financial institutions. POWER OF COURT TO TRY CASES SUMMARILY [SECTION 143] This is a non-obstante clause. It overrides the provisions contained in the Code of Criminal Procedure, 1973. It has been now provided that offences for dishono ur of cheques shall be tried by a Judicial magistrate of the first class or by a Metropolitan Magistrate. In the case of summary trial, the maximum sentence that may be passed by the Mag istrate shall be imprisonment for a term not exceeding one year and an amount of fine not exceeding five thousand rupees. The trial shall, so far as practicable, consistent with the interests of justice , be continued from day to day. Further, every trial shall be conducted as expeditiously as possible and an ende avour shall be made to conclude the trial within six months from the date of fil ing of the complaint. Every offence punishable under Negotiable Instruments Act shall be compoundable (Section 147) 5.10 THE COLLECTING BANKER One of the principal functions of a banker is to receive instruments from his cu stomer in order to collect the proceeds and credit them to his customer's accoun t. When acting in this capacity he is called a "collecting banker". While collecting his customer's cheques, a banker acts either: (i) Banker as Holder for value - When, to oblige a customer, a bank pays the pro ceeds of a cheque drawn upon another banker, before collection, he is treated as a holder for value. Similarly, where, a customer pays in a cheque and the banke r expressly or impliedly permits him to draw against it before it is cleared, th e banker will be regarded as a holder for value. (ii) Banker as Agent - A collecting banker acts, as an agent of the customer if he credits the customer's account with the amount of the cheque after it is actu ally realised. Duties and responsibilities of a collecting banker Due Care and Diligence in Collection of Cheques Presentation for payment by the next working day after the receipt of the cheque s. Notice of Dishonour 5.11 BIILS OF EXCHANGE AND PROMISSORY NOTE Kinds of bills Bills are of different kinds. Some of these are: 1. Inland Bill An inland bill: (a) must be drawn and made payable in India, or (b) must be drawn in India upon a person resident in India although it may be pa yable outside India. ExX of Bombay draws a bill on Y of Delhi payable at Yorkshire (U.K.). 2. Foreign Bills A foreign bill of exchange is (a) drawn in India upon a person resident outside India and made payable outside India, or (b) drawn outside India and payable in India. ExX of Bombay draws a bill of exchange on Y of London payable at London. 3. Trade and Accommodation Bills A trade bill is a bill of exchange issued in respect of a genuine trade transact ion. Such bills are drawn by the seller on the buyer in respect of payment of th e price of the goods sold and purchased. Since an accommodation bill is drawn and accepted without any consideration, it creates no obligation of payment between the parties to the transaction.

But, however, all bills are not genuine bills i.e., they do not represent a trad e transaction but are drawn as a convenient mode of accommodating a friend. Ex - Thus, X may be in need of money and approaches his friend Y who instead of lending money directly, draws and accepts a bill of exchange, say, for Rs. 5,000 . If the credit of Y is good it lends a currency to the bill and it can be disco unted with the bankers or any other person. On maturity, X remits the amount with Y who in turn pays it in honouring the bill of exchange on presentment. Thus, it provides an accommodation to the party and is, therefore, called an 'Acc ommodation Bill'. The language and form of an accommodation bill is, however, si milar to a genuine trade bill. 4. Time Bills (Usance Bills) Time bills, also called as usance bills, are bills payable at a fixed period aft er date or sight of the bills. Thus, a bill of exchange drawn payable at 3 month s after the date it is drawn is a time or usance bill. Similarly, a bill drawn payable at 90 days after sight is again a time or usance bill. A time bill may also be made payable at a fixed period after an event whi ch is certain to happen. Hence, a bill payable at 90 days after the death of the drawer will be a valid t ime bill. 5. Demands Bills A bill of exchange or a promissory note is payable on demand when (i) It is made payable 'on demand' or 'at sight' or 'on presentation. (ii) No time for payment is mentioned therein (Section 19). 6. Clean and Documentary Bill It is a common practice in home as well as foreign trade to deliver to the banke r along with the bills of exchange, the documents of title to the goods. (Ex- Lo rry Receipt, Railway Receipt or Bill or Lading). Where the banker is instructed to deliver to the drawee of the bill the document s of title against acceptance of the bill, the bill is called as Documents again st Acceptance of Bill (D/A Bill) and where the documents are to be released only against payment, it is called as Documents against Payment ad Bill (DIP Bill). Parties to a Bill of Exchange 1. The Drawer - the person who draws or makes the bill. 2. The Drawee - the person on whom the bill is drawn. 3. The Payee - the person to whom the amount of the bill is payable. 4. The Holder - is the original payee but where the bill has been endorsed, the endorsee. 5. The endorser - is the person who endorses a bill. 6. The endorsee - is the person to whom the bill is negotiated by endorseme nt. Acceptor for Honour An acceptor for honour is a person who, on the refusal by the original drawee to accept the bill or to furnish better security when demanded by the notary, accep ts the bill in order to safeguard the honour of the drawer or any endorser. Acceptor for honour must specify as to whose honour he is accepting the bill of exchange . Where the acceptor does not express for whose honour it is made, it s hall be Parties to A Promissory Note 1. The Maker - the person who makes the note promising 'to pay the amount stated therein. 2. The Payee - the person to whom the amount of the note is payable. 3. The Holder - is either the original payee or any other person in whose favour the note been endorsed. 4. The Endorser - the person who indorses the note in favour of another person. 5. The Endorsee - the person in whose favour the note is negotiated by indorseme nt. ACCEPTANCE The acceptance of a bill is the indication by the drawee of his assent to the or der of the drawer.

 It has been defined as the signature of the drawee of a bill who has signed his assent upon bill and delivered it or given notice of such signing to the holder to some person on his behalf. An acceptance to be valid must be (a) in writing, (b) signed by the drawee or his agent, (c) on bill of exchange, and (d) completed by delivery to the holder or by notice of acceptance to him or some person on his behalf [Jagjivan Mauji Vithlani v. M/s Ranchahodas Meghaji, 1945] An acceptance of a bill may be general or qualified. (a) General Acceptance (b) Qualified Acceptance Who may Accept A bill of exchange may be accepted by the following persons (1) The drawee of the bill (2) Where there are more than one drawees, by all or some of them. (3) A drawee in case of need. (4) An agent of any of the person mentioned above. (5) An acceptor for honour. (6) An agent of the acceptor for honour. (7) In case no drawee is mentioned in the bill and a person accepts it, he b ecomes an acceptor by estoppel. Acceptance for Honour When a bill of exchange has been noted or protested for non-acceptance or for be tter security and any person accepts it supra protest for honour of the drawer o r of anyone of the endorsers, such person is called an acceptor for honour. After acceptance of the bill by the acceptor for honour, the payee, at the due d ate, has to present the bill first to the drawee for payment and if it is also d ishonoured for payment by the drawee and noted or protested as the case may be i t should then be presented to the acceptor for honour for payment. PRESENTMENT Presentment of a negotiable instrument is made for two purposes. 1. Presentment for acceptance - It is only bills of exchange that require p resentment for acceptance and that too not all but certain kind of bills only. B ill payable on demand or on a fixed date need not be presented for acceptance. 2. Presentment for payment - A negotiable instrument must be presented for payment to the maker, acceptor or drawee, thereof, as the case may be, by the ho lder or his agent. DISHONOUR 1. Dishonour by Non-Acceptance (Section 91) (I) When the drawee does, not accept it within 48 hours from the time of pre sentment for acceptance; (2) when presentment for acceptance is excused and it remains unaccepted; (3) when the drawee is a person incompetent to contract; (4) when the drawee could not be found after a reasonable search. (5) where the acceptance is qualified; (6) where one or more of the several drawees refuse to accept the bill. 2. Dishonour by Non-Payment Notice of Dishonour When a negotiable instrument is dishonoured by non-acceptance or non-payment, th e holder must give notice of dishonour to the drawer and all other parties whom he seeks to make liable. Each party receiving notice of dishonour must in order to render any prior party liable to himself give notice of dishonour to such par ty within a reasonable time after he has received it. The notice may be oral or i n writing though for safety it is advisable to give a written notice. Notice of dishonour unnecessary (1) When it is dispensed with by the party entitled thereto. (2) When the payment has been countermanded by the drawer or endorser. (3) When the party charged could not suffer damages for want of notice.

(4) When the party entitled to notice cannot after reasonable search be foun d. (5) Where the party liable to give notice is unable, without any fault of it s own, to give it, e.g. death or serious illness of the holder or his agent or a ny other accident. (6) Where the promissory note is not negotiable. (7) In case the drawer himself is acceptor, no notice is necessary to charge the drawer. (8) When the party entitled to notice, knowing the facts, promises unconditi onally to pay the amount due on the instrument. NOTING Noting is a convenient method of authenticating the fact of dishonour. Where an instrument is dishonoured, the holder, besides giving the above notice, should g et the bill or promissory note 'noted' by the notary public. The notary public presents the instrument, notes down in his register date of it s dishonour and the reason, if any, given by the acceptor. If the instrument has been expressly dishonoured, the reason why the holder treats it as dishonoured and the notary's charges should be metioned. 'Noting' must be made within a reas onable time after dishonour. Noting is not compulsory in the case of an inland bill or note, but foreign bill s must be protested, if s required by the law of the place where drawn. PROTESTING The protest is the formal notarial certificate attesting the dishonour of the bi ll and based upon the noting. After the noting has been made, the formal protest may be drawn up by the notary at his leisure. When the protest is drawn up it relates back to the date of noting. A protest to be valid must contain the following particulars: 1. The instrument itself, or a literal transcript thereof. 2. The names of the parties against whom the instrument is protested. 3. The fact and reason/reasons for dishonour. 4. Place and time of dishonour or refusal to give better security. 5. Signature of the notary public. 5. In the event of an acceptance for honour or of a payment for honour, the name of the person by whom or the person for whom, and the manner in which, suc h acceptance or payment was offered and effected. COMPENSATION Compensation to holder The holder is entitled to the amount due upon the instrument with interest plus the expenses properly incurred in noting and protesting it. Compensation to Endorser If an endorser of a bill has paid the amount due thereon, he is entitled to the amount so paid plus expenses with interest @ 6 per cent per annum from the date of his paying to the date of his receiving back amount. Compensation against banker Compensation that may be claimed include damages to credit and reputation of the drawer, and the Court would normally award exemplary or vindictive damages. 5.12 HUNDIS Hundis are instruments written in an oriental language. The word 'hundi' appears to have been derived, from the Sanskrit work 'hund' which means 'to collect'. T hese hundis were, therefore, originally used for the collection of debts. Hundis have been in circulation in India from very early times, long before the Negoti able Instrument Act, 1881. It is to be noted that The Negotiable Instruments Act does not apply to hundis, but where, by any words in the instrument itself, the usages regarding such inst ruments are excluded, or where it is expressly indicated that the legal relation s of the parties thereto shall be governed by the Negotiable Instruments Act 188 1, the Act becomes applicable. In the absence of any of the above indications, h undis shall be governed by local usages applying to such documents [Kanhyalal v. Ramkumar, 1956]. Kinds of hundis

Shah-Jog Hundi - A Shah-jog hundi is drawn by one merchant on another asking the latter to pay the said hundi to a 'Shah'. 'Shah' is a respectable and responsib le person, a man of worth and known in the bazar. Darshni Hundi (payable at sight) - A darshni hundi must be presented for payment within a reasonable time after its receipt by the holder. Muddati Hundi or Miadi Hundi Hundi payable agter a specified period of time. Nam Jog Hundi - A hundi payable to the specified person is called Nam-jog hundi. Nishan.Jog Hundi This hundi is payable only to the persons who presents it. Dhani.Jog Hundi- A dhani-jog hundi is payable to a dhani, owner. Firman-Jog and Dekhanhar Hundis There are payable to order.