NEGOTIABLE INSTRUMENT Group :- 1 Submitted By:-Submitted To:- 43. Mital RankMr. Varun Dhingra 47. Mitul Sevak 50. Ruchi Shah 54. Mehul suratwala 58. Viral.

NEGOTIABLE INSTRUMENT

Group :- 1Submitted By:- Submitted To:-

43. Mital Rank Mr. Varun Dhingra

47. Mitul Sevak

50. Ruchi Shah

54. Mehul suratwala

58. Viral Vaghani

Dishonour Of Cheques Disharge Of Parties Presumption Of Negotiable Instrument

DISHONOUR

OF

CHEQUES:-

A drawer of a dishonoured cheque shall be deemed to have committed an offence. For this offence he shall be punished with imprisonment for a term which may be extend to two years or with a fine which may extend to twice the amount of cheque or with both provided:-

1. The cheque has been dishonoured due to insufficiency of fund in the account maintained by him with a banker for payment of ant amount of money to another person from out of that account;

2. The payment for which the cheque was issued, shold have been in discharge of legally enforceable debt or liability in whole or part of it;

3. The cheque should have been presented by the payee or holder in due course within a period 6 month from the date of which it is drawn or within the period of its validity, whichever is earlier;

4. The payee or holder in due course of cheque should have given notice demanding payment within 30 days from the drawer on receipt of information of dishonour of cheque from the bank;

5. The drawer is liable only if he fails to make payment within 15 days of such notice period;

6. The payee or holder in due course of cheque dishonour should have made a complaint within one month of cause of action arising under Sec. 138

It should be presumed unless contrary is provided

that the holder of a cheque received the cheque of

the nature referred to in Sec. 138 for discharge, in

whole or in part, of any debt or other liability.

It shall not be a defence in a prosecution Sec. 138

that the drawer had no reason to believe when he

issued a cheque that the cheque may be

dishonoured for the reason mentioned in Sec. 138.

If the person committing an offence is a company, every

person who, at the time the offence was committed,

was in charge of, and was responsible to, the company

for the conduct of the business of the company as well

as the company, shall be deemed to be guilty of that

offence and shall be liable to be proceeded against and

punished accordingly. Further, a director, manager,

secretary, or other officer of the company shall be

deemed to be guilty of that offence and shall be liable to

be proceeded against and punished accordingly in any

case the offence has been committed with his consent

or connivance, or it is attributed to any neglect on his

part in this regard.

1. Where such persons proves that the offence was

committed without his knowledge, or

2. Where he has exercised all due diligence to

prevent the commission of such offence.

3. Where a person is nominated as director of

company by virtue of his holding any office or

employment in Central Govt. or State Govt. or

official corporation owned or controlled by Central

Govt. or State Govt.

Notwithstanding anything contained in Code of criminal

Procedure, 1973,---

(a)No court shall take Cognizance of any offence

punishable under Sec. 138 except upon a complaint,

in writing, made by the payee or, as the case may be,

the holder in due course of cheque;

(b)Such complaint is made within one month of the date

on which the cause of action arises under Sec. 138;

(c)No court inferior to that of a Metropolitan Magistrate

or a Judicial Magistrate of the first class shall try any

offence punishable under Sec. 138.

DISCHARGE

OF

PARTIES:-

1. By payment:

when payment on an instrument is made in due course, both the instrument and parties to it are discharged.

2. By cancellation:

when the holder of negotiable instrument or his agent cancel the mane of party on the instrument with intent to discharge him, such party and all subsequent parties, who have a right of recourse against the party whose name id cancelled, are discharge from the liability to the holder [sec. 82 (2)]. The subsequent parties are in the position of sureties to the prior party whose name is cancelled and discharge of the principal debtor automatically discharges the sureties.

3. By release:

where the holder of negotiable instrument release any party to the instrument by any method other than cancellation, the party so released is discharge from liability [sec. 82 (b)]. Sec. 63 of the Indian contract Act, 1872 also enunciates this rule.

4. By allowing drawee more than forty-eight hours:

If the holder of a bill of exchange allows the drawee more than forty-eight hours exclusive of public holidays. To consider whether he will accept the same, all previous parties not consenting to such allowance are thereby discharged from liability to such holder.

5. By none presentment of cheque:

Where a cheque is not presented by the holder for payment within a reasonable time of its issue and the drawer suffers actual damage through the delay because of the failure of the bank, he is discharged from liability to the extent of such damage. In determining what is reasonable time, regard shall be had to the nature of the instrument, the usage of trade and of bankers, and the facts of the particular case (sec. 84)

Examples:

1.) A draws a cheque for RS. 1,000 and when the

cheque ought to be presented, has funds at the bank

to meet the cheque. The bank fails before the cheque

is presented and pays 25 paisa in the rupee. The

drawer is discharged to the extent of RS. 750.

2.) A draws a cheque at Delhi on a bank in Calcutta.

The bank fails before the cheque could be presented

in ordinary course. A is not discharged for he has not

suffered any damage though any delay in presenting

the cheque.

6. Cheque payable to order:

Where a cheque payable to order purports to be indorsed by the payee, the banker is discharged by payment in due course. Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof. It makes no difference even if any indorsement whether in full or in blank appears on the cheque and even if any such indorsement purports to restrict or exclude further negotiation (sec. 85).

7. Draft drawn by one branch on another:

When any draft (that is an order to pay money) drawn by one office of bank upon another office of the same bank for a sum of money payable to order on demand purports to be indorsed by or on behalf of the payee, the bank is discharged by payment in due course(sec. 85-A).

8. Parties not consenting discharged by qualified acceptance:

If the holder of a bill of exchange acquiesces (assents) in a qualified acceptance, all the previous parties whose consent is not obtained to such acceptance are discharged from liability (sec. 86). They will however, be liable if on notice being given to them they give their assent to such acceptance.

9. By operation of law: this in includes discharged –

a) By an order of insolvency court, discharging the insolvent.

b) By merger: when a judgment is obtained against the acceptor, maker or indorser, the debt under the bill is merged into judgment debt.

c) By lapse of time: when the remedy becomes time-barred.

10. By material alteration:

A material alteration of a negotiable instrument renders the same void against persons who were parties there to before such alteration unless the have consented to the alteration (sec. 87)

11. Discharge by payment of altered instrument:

When 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, payment on such an instrument discharges the party liable if he pays according to the apparent tenor of the instrument at the time of payment and otherwise in due course. Such a payment altered or that the cheque was originally crossed [sec. 89 (1)].

PRESUMPTION

OF

NEGOTIABLE

INSTRUMENT

Certain presumptions apply to all negotiable instruments, unless is proved. These presumptions are dealt with in sec. 118 and 119 are as follows:

1. Consideration: Every negotiable instrument is presumed to have been made, drawn, accepted, indorsed, negotiated or transferred, for consideration. This would help a holder to get a decree from a court without any difficulty.

2. Date: Every negotiable instrument bearing a date is presumed to have been made or drawn on such date.

3. Time of acceptance: when a bill exchange has been accepted, it is presumed that it was accepted within a reasonable time of its date and before its maturity.

4. Time of transfer: every transfer of a negotiable instrument is presumed to have been made before its maturity.

5. Order of indorsements: The indorsements appearing upon a negotiable instrument are presumed to have been made in the order in which they appear thereon.

6. Stamp: When an instrument has been lost, it is presumed that it was duly stamped.

7. Holder presumed to be holder in due course: Every holder of a negotiable instrument is presumed to be a holder in due course (sec. 118)

8. Proof of protest: In a suit upon an instrument which has been dishonored, the court, on proof of the protest, presumes the fact of dishonor, until such fact is disproved (sec. 119)

The above presumptions are rebuttable by evidence. If anyone challenges any of these presumptions, he has to prove his allegation. Again, these presumptions would not arise where an instrument has been obtained by any offence, fraud or unlawful consideration.