1. Law Presentation Made by- Babli 2219 Kavita 2241 Priya 2367 Suman 2383
Submitted To-
Miss Falak Mam
Made by-
Babli 2219
Kavita 2241
Priya 2367
Suman 2383
B.com 2nd sem.

2. Promissory Notes, Bills of Exchange and Cheque
TOPIC
Promissory Notes, Bills of Exchange and Cheque

3. DEFINATION A promissory note is defined by section 4 negotiable instrument in writing 9not being a note or currency 0 containing an unconditional undertaking singed by the maker to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. promissory nPARTIES TO A PROMISSORY 1.who makes the ote is the maker. 2.The person to whom or whose order payment is made is payee

4. Specimen of a Promissory Note

5. Parties to a Promissory Note
There are primarily two parties involved in a promissory note. They are:
(i) The Maker or Drawer: The person who makes the note and promises to pay the amount stated therein. In the above specimen, Sanjeev is the maker or drawer.
(ii) The Payee – the person to whom the amount is payable. In the above specimen it is Ramesh.
In course of transfer of a promissory note by payee and others, the parties involved may be –
(a) The Endorser – the person who endorses the note in favour of another person. In the above specimen if Ramesh endorses it in favour of Ranjan and Ranjan also endorses it in favour of Puneet, then Ramesh and Ranjan both are endorsers.
(b) The Endorsee – the person in whose favour the note is negotiated by endorsement. In the above, it is Ranjan and then Puneet.

6. Essential features
An instrument is a promissory note if there are present the following elements:-
1. Writing : The first essential is that all negotiable instruments must be in writing. An oral engagement to pay a sum of money is not an instrument, much less negotiable.
Promise to pay : Secondly, it must contain a promise to pay. A mere acknowledgement of debt is not a promissory note. “I.O.U., E.A. Gay, the sum of seventeen dollars for value received.” Has been held not to be a promissory note.
Unconditional : Thirdly, the promise to pay the money should be unconditional, or subject only to a condition which according to the ordinary experience of mankind is bound to happen. Thus in Beardsley Vs. Baldwin (1741), a written undertaking to pay a sum of money within so may days after the defendant’s marriage was not recognised as a promissory note because possibly the defendant may never marry and the sum may never become payable. Similarly in Roberts Vs Peake (1757), an action was bought upon a promissory note made in the following form.

7. 4.IT MUST SIGNED BY THE MAKER;A promissory is essential feature is signed of the maker. In the absence of the signature of the maker an instrument cannot be called a promissory note .Signing means writing one ,s name on some documents or paper. 5.THE MAKER MUST BE CERTAIN; The note must show on its face the person who is liable as a maker. The maker is taken as certain if from the description of the maker, sufficient indication follows about his identity .he may be described by his name or description. A promissory note may be made by two or more makers, liable jointly or severally. 6.promise must be to pay a certain sum; the amount promised to be paid try the promissory note be certain and definite. If the amount to be paid is uncertain the instrument will not operate as a promissory note. The promise must be to pay a definite sum and nothing else.

8. 7.the promise should be to pay money and money only ;it is essential that the medium of payment must be money only and not bonds or any other article. Thus, a document containing a promise to pay and paddy is not a promissory note. 8.the payee must be certain; it is essential to the validity of a promissory note that the person who is to receive the money should be capable of being ascertain from the instrument itself. where a document dose not specify the person to whom the money is to be paid, it is not a promissory note .the payee should be certain on the face office of the instrument and at the time of execution . the secretary of a club, or a manager of a bank or the principle of a college is regarded as payable to a certain period. 9.other formalities; formalities like number , place , date ,destination are usually found in the promissory note but they are not essential in law .it is the not essential to the validity of a promissory note that it should contain the name of the place where it is made or the place where it is payable. Similarly a promissory note is valid without a date. 10.ITMAY BE PAYABLE ON DEMAND OR AFTER A DEFINITE PERIOD OF TIME; Where no time is mention the note is payable on demand

9. BILL OF EXCHANGE
SECTION 5 DEFINEA BILL OF EXCHANGE AS AN INSTRUMENTS IN WRITING CONTANING AN UNCONDITIONAL ORDER SIGNED BY MAKER THE MAKER ,DIRECTING A CERTAIN PERSON TO PAY A CERTAIN SUM OF MONEY ONLY OR TO ORDER OF A CERTAIN PERSON OF THE INSTUMENT A bill of exchange is sometimes also called a draft.
PARTIES OF A BILL
There are three parties to a bill of exchange ,namely drawer, and payee The maker of the bill is called the drawer , the person who is ordered to pay is called the drawer, and the person to whom or to whose is order the money is directed to is paid is called the payee.

10. Specimen of Bill of Exchange

11. Parties to a Bill of Exchange
There are three parties involved in a bill of exchange
(i) The Drawer – The person who makes the order for making payment. In the above specimen, Rajiv is the drawer.
(ii) The Drawee – The person to whom the order to pay is made. He is generally a debtor of the drawer. It is Sameer in this case.
(iii) The Payee – The person to whom the payment is to be made. In this case it is Tarun.
The drawer can also draw a bill in his own name thereby he himself becomes the payee. Here the words in the bill would be Pay to us or order.
In a bill where a time period is mentioned, just like the above specimen, is called a Time Bill.
But a bill may be made payable on demand also. This is called a Demand Bill.

12. Parties to a Bill of Exchange
There are three parties involved in a bill of exchange
(i) The Drawer – The person who makes the order for making payment. In the above specimen, Rajiv is the drawer.
(ii) The Drawee – The person to whom the order to pay is made. He is generally a debtor of the drawer. It is Sameer in this case.
(iii) The Payee – The person to whom the payment is to be made. In this case it is Tarun.
The drawer can also draw a bill in his own name thereby he himself becomes the payee. Here the words in the bill would be Pay to us or order.
In a bill where a time period is mentioned, just like the above specimen, is called a Time Bill.
But a bill may be made payable on demand also. This is called a Demand Bill.

13. Essentials of a Bill of Exchange
It must be in writing
It must contain an order to pay. A mere request to pay on account, will not amount to an order
The order to pay must be unconditional
It must be signed by the drawer
The drawer, drawee and payee must be certain. A bill cannot be drawn on two or more drawees but may be made payable in the alternative to one of two or more payees
The sum payable must be certain
The bill must contain an order to pay money only
It must comply with the formalities as regards date, consideration, stamps, etc

14. DIFFERENCE OF PROMISSORY NOTE AND BILL OF EXCHANGE 1PARTIES;There are three parties to a bill of exchange ,namely the drawer ,the drawer , the payee while in promissory note there are only two parties- maker and payee. 2.NATURE OF PAYMENT; In the bill of exchange there is an unconditional order to pay while in a promissory note there is an unconditional promise to pay. 3.ACCEPTANCE; A bill of exchange require an acceptance of the drawer before it is presented for payments while a promissory note does not require any acceptance since it is signed by the person who is liable to pay. 4.liability;the liability of maker of a promissory note is primary and absolute while the liability of a drawer of bill of exchange is secondary and conditional. 5.NATURE OF ACCEPTANCE;A Promissory note can never be conditional while a bill of exchange can be acceptance conditionally 6.COPIES ;a bill of exchange can be drawn in sets ,but a promissory note cannot be drawn in sets.

15. Section 6 : “Cheque”
A “cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

17. Section 6 : “Cheque”
Explanation I – For the purpose of this section, the expression
“ a cheque in the electronic form” means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system 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 is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.

18. Section 6 : “Cheque”
Explanation II -- For the purpose of this section, the expression “clearing house” means the clearing house managed by the Reserve Bank of India or a clearing house recognised as such by the Reserve Bank of India.
A cheque being a bill of exchange must possess all the essentials of a bill and should also meet the requirements of Section 6. For instance, in the case of Cole Vs. Milson (1951) a document was drawn absolutely in the form of a cheque. It was made payable to “cash or order”. The question was whether it was a valid cheque. Section 5 of the Indian Act and Section 3(1) of the English Act require that a bill of exchange must be made payable to or to the order of a specified person or the bearer. This document was made payable to “cash or order”. Hence it was not payable to any person or to bearer and therefore was not a bill of exchange, it could not be a cheque either.

19. PARTIES TO CHEQUE
DRAWER - The person who signs the cheque and order for payment
DRAWEE - It is always bank on which cheque is drawn and is ordered to pay the amount of cheque.
PAYEE - The person to whom the cheque is payable. ( In many cases, drawer and payee can be the same person.)

21. What are Marked Cheques?
Marked cheque: A cheque need not be presented for acceptance. Therefore the drawee of the cheque i.e., the banker, is under liability, to the person in whose favour the cheque is drawn. The banker, however, will be liable to his customer ( drawer), if he wrongly refuses to honour the cheque. In such a case, action can be taken by the customer against the banker for the loss of his reputation. In certain cases, however , a cheque is marked or certified by the banker on whom it is drawn as “good for payment’. Such a certification of marking is strictly not equivalent to an acceptance but is very similar to it and protects the person to whom the cheque is issued against the cheque being refused for payment subsequently by Banking in India, as a rule, do not mark or certify cheque in this manner. Bankers in India, are not liable even if a bank has marked a cheque as “good for payment” (Bank of Baroda vs. Punjab National Bank Ltd. ). 

22. What is Crossing of Cheque ?
A cheque is a negotiable instrument. During the process of circulation, a cheque may be lost, stolen or the signature of payee may be done by some other person for endorsing it. Under these circumstances the cheque may go into wrong hands.
Crossing is a popular device for protecting the drawer and payee of a cheque. Both bearer and order cheques can be crossed. Crossing prevents fraud and wrong payments. Crossing of a cheque means "Drawing Two Parallel Lines" across the face of the cheque. Thus, crossing is necessary in order to have safety. Crossed cheques must de presented through the bank only because they are not paid at the counter.

23. Different Types of Crossing ↓
1. General Crossing :-
Generally, cheques are crossed when
There are two transverse parallel lines, marked across its face or
The cheque bears an abbreviation "& Co. "between the two parallel lines or
The cheque bears the words "Not Negotiable" between the two parallel lines or
The cheque bears the words "A/c. Payee" between the two parallel lines.
A crossed cheque can be made bearer cheque by cancelling the crossing and writing that the crossing is cancelled and affixing the full signature of drawer.

24. Specimen of General Crossing ↓
                                                                                                                              
Specimen of General Crossing ↓

25. 2. Special or Restrictive Crossing :-
When a particular bank's name is written in between the two parallel lines the cheque is said to be specially crossed.
In addition to the word bank, the words "A/c. Payee Only", "Not Negotiable" may also be written. The payment of such cheque is not made unless the bank named in crossing is presenting the cheque. The effect of special crossing is that the bank makes payment only to the banker whose name is written in the crossing. Specially crossed cheques are more safe than a generally crossed cheques.

26. Specimen of Special or Restrictive Crossing ↓
                                                                                                                              
Specimen of Special or Restrictive Crossing ↓

27. Who can cross a cheque
Section 125 deals with the crossing of a cheque after its issue. It provides that the cheque may be crossed by any of the following:
1)The drawer.While issuing a cheque the drawer can cross the cheque generally & specially. If a cheque is crossed by the drawer he has right to cancel by writing the words,'pay cash', & putting down the full signature on the cheque.
2)The holder. It can also cross the cheque in the following way:
a)if the cheque is not crossed, he can cross the cheque generally or specially.
b)if the cheque is crossed, he may cross it specially.
c)if the cheque is crossed generally or specially, he may add the words " not negotiable ".

28. 3)The Banker. It can also cross the cheque in following ways:
a)if the cheque is not crossed & sent to the bank for collection, banker can cross the cheque generally.
b)if the cheque is crossed generally & sent to the bank for the collection, bank can cross the cheque specially.
c)if the cheque is crossed specially, the banker to whom it is crossed, may again cross it specially to another banker for collection.
The crossing of a cheque is an instance of an alteration that is authorized by the act.

29. Different types of Negotiable Instruments:
1. Inland instrument
2. Foreign instrument
3.Ambiguous instrument
4.Inchoate stamped instrument
5.Accommodation bills
6.Fictitious bills
7.Bearer instrument
8.Order instrument
9. Instrument payable on demand
10. Instrument payable after sight
11.Undated bills
12.Banker's draft
13.Bills in sets

30. 1) Inland instrument (section 11)
It is one which is drawn and payable in India on some person resident therein or whether the place of payment is in India or not. Eg:A bill drawn in Madras on a merchant in Bombay & payable in Dacca.
2) Foreign instrument (section 12)
A bill drawn outside India on any person resident outside India & made payable outside India. Eg: A bill drawn in London and made payable in India.

31. 3)Ambiguous instrument (section 17)
An instrument which in form of either be treated as a bill of exchange or a promissory notes. Eg: X draws a bill on Y & endorses it toZ.Y is a fictitious person. Z may treat the bill as a note by X.
4) Inchoate stamped instrument (section 20)
This is one which is an incomplete instrument. Eg: A owed Rs 200 to B.He gave a promissory note to B for the amt. He put a10 pause stamp on it .B filled up Rs300. B cannot recover more than Rs 200.

32. 5) Accommodation bills (exception 1 to sec 43)
A bill drawn and accepted not for a genuine trade transaction but only to provide Financial help to some party. Eg:A is in need of Rs1000.He approach his friend B for borrowing the amount. B is not in a position to lend, but he suggest that A might draw a bill on him which he would accept. If credit of A is good, he would get the bill discount with banker. On due date. A would pay Rs1000 to B who would meet the bill. This bill is an accommodation bill. Rules regarding this bill as follows:
a)the party cannot, after he has paid the amt of bill, recover the amt from any person who became a party to the bill.(exception 1 to sec 43).
b)this can be negotiate after maturity provided the person to whom it is negotiate takes it in good faith & for consideration (sec 59).
c) non presentment of this bill to acceptor for payment does not discharge the drawer.
d)when the bill is dishonored, failure of give notice of dishonour doesnot discharrge the prior parties form the liability (sec 98).
6)Fictitious bills (sec 42)
When the name or the drawer or payee or both are fictitious, the bill is called as fictitious bills.

33. 7.) Bearer instrument
A negotiable instrument is payable to beaer or cash ,rather than to identifiable payee.Eg: pay A or bearer.A bill is made payable to'Usha or order'Usha endorse it in blank and negotiate it. The bill is payable to bearer.
8) Order instrument
A negotiable instrument is payable to order of an identified person. Eg: pay A or bearer, pay to the order of B.
9) Instrument payable on demand (sec 19)
Cheques are always payable on demand. This means at sight and on presentment at any time.

34. 10)Instrument payable after sight (sec21)
Promissory note & bills of exchange, may be expressed to be payable at a certain period after sight or after date.
11)Undated bills:
When the date is not mentioned &where the date of accept the bill, payable at fixed period after sight is omitted is not to be considered as material alteration.
12) Banker's draft:
It is an order addressed by one bank to another or bank to its branch directing the latter to pay a specific sum of money to the named person or his order.

35. 13) Bills in sets (sec 132 to 133)
A bill of exchange is sometimes drawn in parts, especially when it has to be sent from one country to another. This is known as drawing a bill'in a set'.

36. Thank you………