Page 83 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes
4.9.2 Dishonour of a Cheque on Ground of Insufficiency of Funds
4.9.3 Consequences of a Wrongful Dishonour
4.9.4 Collection of Bills
4.10 International Law Concerning Negotiable Instruments
4.11 Summary

4.12 Keywords
4.13 Review Questions
4.14 Further Reading

Objectives

After studying this unit, you will be able to:

Recognize the meaning and types of negotiable instruments;
Discuss the endorsement and crossing of cheque;
Describe the dishonour of cheques;

Explain the concerned parties to negotiable instruments.
Introduction

The law relating to negotiable instruments is primarily contained in the Negotiable Instruments
Act, 1881, which came into force on 1st March, 1882. Bills of exchange, cheques and promissory
notes have been dealt with in considerable detail in this Act.
The term ‘instrument’ means ‘any written document by which a right is created in favour of
some person’. The word ‘negotiable’ has a technical meaning whereby rights in an instrument
can be transferred by one person to another. Thus, a negotiable instrument is a document by
which rights vested in a person can be transferred to another person in accordance with the
provisions of the Negotiable Instruments Act, 1881.
The sections quoted in this unit refer to the sections of the Negotiable Instruments Act, 1881,
unless otherwise stated. The latest amendment to the Act was done in 1988 by the Banking,
Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988.

4.1 Meaning and Definition of a Negotiable Instrument

4.1.1 Meaning of a Negotiable Instrument

An ‘Instrument’ as referred to in the Act is a legally recognised written document, whereby
rights are created in favour of one and obligations are created on the part of another. The word
‘negotiable’ means transferable from one person to another either by mere delivery or by
endorsement and delivery, to enable the transferee to get a title in the instrument. According to
s.13, a negotiable instrument means a promissory note, a bill of exchange or a cheque payable
either to the order or to the bearer, whether the words, ‘order’, or ‘bearer’ appear on the instrument
or not. Although s.13 mentions only three instruments, it does not prohibit any other instrument
from being treated as a negotiable instrument provided it possesses the character of negotiability.
An instrument may possess the characteristics of negotiability either by statute or by usage.

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