Negotiable Instruments Act, 1881 Flashcards
(22 cards)
What does the Negotiable Instruments Act, 1881 govern?
The use of negotiable instruments in India.
Define a negotiable instrument.
A written document that guarantees the payment of a fixed sum of money to the bearer or a specified person.
List the characteristics of negotiable instruments.
- Freely Transferable
- Unconditional Promise or Order
- Holder in Due Course (HDC)
- Payable in Money
- Certain Amount & Time
What are the three types of negotiable instruments recognized by the Act?
- Promissory Note
- Bill of Exchange
- Cheque
What is a cheque?
A bill of exchange drawn on a bank, payable on demand.
What must a paying banker verify before honouring a cheque?
- Signature authenticity
- Sufficient funds
- Date validity
- Crossing and endorsements
- Alterations
List circumstances under which a cheque can be dishonoured.
- Insufficient funds
- Signature mismatch
- Post-dated or stale cheque
- Alteration without authentication
- Account closure or freeze
- Forgery or fraud suspicion
True or False: Dishonouring a cheque for insufficient funds can attract penalties under Section 138 of the Negotiable Instruments Act.
True
What does crossing a cheque mean?
Drawing two parallel lines on the top left corner, instructing the bank to deposit the cheque into an account.
What are the types of crossing?
- General Crossing
- Special Crossing
- Restrictive Crossing
- Not Negotiable Crossing
What is endorsement in the context of negotiable instruments?
Signing the back of a negotiable instrument to transfer rights to another person.
List the kinds of endorsements.
- Blank Endorsement
- Special Endorsement
- Restrictive Endorsement
- Conditional Endorsement
What are the duties of a paying banker?
- Ensure the cheque is genuine and properly signed
- Verify sufficient funds before payment
- Follow instructions regarding crossing and endorsements
What protection does Section 85 provide to a paying banker?
Protection if a cheque is paid in good faith and per the rules.
What are the duties of a collecting banker?
- Checking endorsements before collecting the cheque
- Verifying the drawer’s account before presenting the cheque
- Prompt clearance of the cheque
Who is a Holder in Due Course (HDC)?
A person who receives a negotiable instrument in good faith.
What is the significance of Sections 10 & 118 for an HDC?
An HDC gets a valid title even if there were previous defects in ownership.
Define negligence in handling negotiable instruments.
Can result in legal liability.
Give an example of negligence in banking.
A banker failing to detect a forged cheque may be held responsible.
What was established in the case of Canara Bank v. Canara Sales Corporation (1987)?
Banks are responsible for verifying endorsements before clearing cheques.
What did Lloyods Bank v. Chartered Bank (1929) establish?
Paying banks must exercise due diligence while honouring cheques.
What was defined in RBI v. Peerless General Finance (1987)?
The duty of care required by banks in handling cheques.
