Oct 25, 2017
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Negotiable Instrument Act overview with supreme court landmark cases

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Negotiable Instrument Act

  • Negotiable instrument define as under:
  1. The word negotiable means ‘transferable by delivery’
  2. Thus word instrument means ‘a written document by which a right so created in favor of some person’.
  3. The transfer should be unrestricted and in good faith.
  • Therefore, a negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, with the payer named on the document. Its an indebtedness to pay an amount and the negotiable instrument is an unconditional guarantee for the same.
  • Some Examples of Negotiable instruments are Promissory notes, Cheques bounce case , Bills of Exchange, bearer bonds, bank notes etc.
  • Thus Indian law on Negotiable instruments govern by the Negotiable Instruments Act of 1881.
  • Thus  Negotiable Instruments Act 1881 was passed in 1882 and was amended in 1989,2002 and 2015.
  • Before 1988 there was no provision to restrain the person issuing the cheque without having sufficient funds in his account. The only remedy against a Dishonored cheque a civil liability accrue.
  • With 2002 amendment, Act inserts five new sections from 143 to 147 touching various limbs of the parent Act.

Following are the landmark judgement by supreme court:

1.Dalmia Cement (Bharat) Ltd. v. Galaxy Traders and Agencies Ltd

Thus the Supreme Court referred to the object of Section 138 of the Act in present case. The court observed that the Act was enacted and section 138 thereof incorporated with a specified object of making a special provision by incorporating a strict liability so far as the cheque as a negotiable instrument is concerned.

2.Rangappa Vs. Sri Mohan

One of the important part of judgement stated as presumptions as to negotiable instruments.-

Until the contrary is proved, the following presumptions shall made that every negotiable instrument was made or drawn for consideration, and that every such instrument when it has been accepted, endorsed, negotiated or transferred, was accepted, endorsed, negotiated or transferred for consideration;

3.Rangachari(N.) v.Bharat Sanchar Nigam Ltd.

Thus Apex Court in this case held that the Law merchant must treat as negotiable instruments as instruments. The court further has observed that negotiable instruments are merely instruments of credit that are readily convertible into money and easily passable from one hand to another.

4.K.BhaskaranVs.SankaranVaidhyanBalan and Anr

Thus Court in the judgment presented that “Under Section 177 of the Code “every offence shall ordinarily inquire into and tried in a court within whose jurisdiction it was committed.

Considering and reproducing the constituents of section 138 of NI Act and section 178(d) of the Code, held:

  • Drawing of the cheque,
  • Presentation of the cheque to the bank,
  • Returning the cheque unpaid by the drawee bank,
  • Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,
  • failure of the drawer to make payment within 15 days of the receipt of the notice.

It is to note that concatenation of all the above five constituents are a sine qua non for the completion of the offence under Section 138 of the Code. In this context a reference to Section 178(d) of the Code is useful.

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Negotiable Instrument Act

Renuka is a Final Year LL.B. student at Siddharth College of Law. She has done her Bachelors in Banking & Insurance and has also completed her Masters in Business Management . She likes to participate in legal workshops and Moot Courts. Besides her interest in law, she has a keen aptitude for legal research and is good at putting her analysis into words.

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