Negotiable Act

Negotiable nstruments SYW
.

MET INSTITUTE OF MANAGEMENT
MMS (A)

TOPIC:
EvoIution and RevoIution of negotiabIe instruments as faciIitators
for trade and commerce and ten years taking forward
BY:
Tanvee Honrao 41
Sunny Jain 43
Akshay JaIgaonkar 45
SheetaI Jangid 47
HiraIaI Jethani 49
Pritee Joshi 51
SnehaI Kadam 53
Saurabh KambIe 55
Shreya Kapadia 57
Rijuta KaraIkar 59



CONTENTS PAGE NO
at are Negotiable nstruments 3
Evolution of Negotiable nstruments

6
Types Of Negotiable nstruments

10
Difference Between Negotiable nstruments 22
Features Of Negotiable nstruments

23
mportant sections under Negotiable
nstruments

24
Case studies 29
Revolution of Payment System in ndia

Future

46

50


HAT ARE NEGOTIABLE INSTRUMENTS?

Excange of goods and services is te basis of every business activity. Goods
are bougt and sold for cas as well as on credit. All tese transactions
require flow of cas eiter immediately or after a certain time. n modern
business, large number of transactions involving uge sums of money takes
place every day. t is quite inconvenient as well as risky for eiter party to
make and receive payments in cas. Terefore, it is a common practice for
businessmen to make use of certain documents as means of making
payment. Some of tese documents are called negotiable instruments.

Meaning of NegotiabIe Instruments
Te concept of negotiability is one of te most important features of
commercial paper. A negotiable instrument is a written document, signed by
te maker or drawer, and containing an unconditional promise to pay (or order
to pay) a certain sum of money on delivery, or at a definite time, to te bearer
(or to te order).
To understand te meaning of negotiable instruments let us take a few
exampIes of day-to-day business transactions.
EXAMPLE
Suppose Pitamber, a book publiser as sold books to Prasant for Rs
10,000/- on tree monts credit. To be sure tat Prasant will pay te money
after tree monts, Pitamber may write an order addressed to Prasant tat
e is to pay after tree monts, for value of goods received by im,
Rs.10,000/- to Pitamber or anyone olding te order and presenting it before
im (Prasant) for payment. Tis written document as to be signed by
Prasant to sow is acceptance of te order. Now, Pitamber can old te
document wit im for tree monts and on te due date can collect te
money from Prasant. He can also use it for meeting different business
transactions. For instance, after a mont, if required, e can borrow money
from Sunil for a period of two monts and pass on tis document to Sunil. He

as to write on te back of te document an instruction to Prasant to pay
money to Sunil, and sign it. Now Sunil becomes te owner of tis document
and e can claim money from Prasant on te due date. Sunil, if required, can
furter pass on te document to Amit after instructing and signing on te back
of te document. Tis passing on process may continue furter till te final
payment is made.
n te above example, Prasant wo as bougt books wort Rs. 10,000/-
can also give an undertaking stating tat after tree mont e will pay te
amount to Pitamber. Now Pitamber can retain tat document wit imself till
te end of tree monts or pass it on to oters for meeting certain business
obligation (like wit Sunil, as discussed above) before te expiry of tat tree
monts time period.
You must ave eard about a ceque. at is it? t is a document issued to a
bank tat entitles te person wose name it bears to claim te amount
mentioned in te ceque. f e wants, e can transfer it in favour of anoter
person. For example, if Akas issues a ceque wort Rs. 5,000/ - in favour of
Bidan, ten Bidan can claim Rs. 5,000/- from te bank, or e can transfer it
to Cander to meet any business obligation, like paying back a loan tat e
migt ave taken from Cander. Once e does it, Cander gets a rigt to Rs.
5,000/- and e can transfer it to Dayanand, if required. Suc transfers may
continue till te payment is finally made to somebody. n te above examples,
we find tat tere are certain documents used for payment in business
transactions and are transferred freely from one person to anoter. Suc
documents are called Negotiable nstruments.

Tus, we can say negotiable instrument is a transferable document, were
negotiable means transferable and instrument means document. To elaborate
it furter, an instrument, as mentioned ere, is a document used as a means
for making some payment and it is negotiable i.e., its ownersip can be easily
transferred.

Tus, negotiable instruments are documents meant for making payments, te
ownersip of wic can be transferred from one person to anoter many times
before te final payment is made.

efinition of NegotiabIe Instrument
According to section 13 of the NegotiabIe Instruments Act, 1881, a
negotiable instrument means "promissory note, bill of excange, or ceque,
payable eiter to order or to bearer.

ExpIanation
(i).-A promissory note, bill of excange or ceque is payable to order wic is
expressed to be so payable or wic is expressed to be payable to a
particular person, and does not contain words proibiting transfer or indicating
an intention tat it sall not be transferable.
(ii).-A promissory note, bill of excange or ceque is payable to bearer wic
is expressed to be so payable or on wic te only or last endorsement is an
endorsement in blank.
(iii).-ere a promissory note, bill of excange or ceque, eiter originally or
by endorsement, is expressed to be payable to te order of a specified
person, and not to im or is order, it is neverteless payable to im or is
order at is option.
A negotiable instrument may be made payable to two or more payees
jointly, or it may be made payable in te alternative to one of two, or one or -
some of several payees.


EVOLUTION OF TRAE AN COMMERCE LEAING TO
THE INTROUCTION OF NEGOTIABLE INSTRUMENTS.

Te world as a wole as been te "cradle of commerce because tis
excange is not only between individuals but also between peoples and
nations. Tis naturally implies te existence of:
1- CERTAN SURPLUS OF EALTH
2- CERTAN PROVSON FOR COMMUNCATON
Bot of wic are essential for growt of commerce. Unless tere is a
surplus of wealt and provision for communication, commerce cannot
grow.
EXAMPLE- n te primitive economic society wen eac tribe or family
produced all tat is needed and consumed all tat it produced, need of
commerce did not and could not arise. Only after te division of labour and
consequent development of excange, commerce began to grow. Once it
started growing, it spread its invisible tread trougout te lengt and
breadt of te world leading to its present day complex mecanism. Tese
stages may be summarized as follows:

1. NON EXISTENCE OF COMMERCE- n te early stage of economic
life of man division of labour scarcely existed. Man produced wat e
needed and consumed all tat e produced. Terefore commerce
did not exist in tis stage.
2. TRAE IN THE FORM OF BARTER- n te second stage, wants of
te family became more numerous and many families found
temselves wit certain goods and surplus and deficient in certain
oter goods. Tese families wanted to excange teir surplus goods
for tose goods wic tey did not possess. Tis gave rise to
Negotiable nstruments SYW%

"excange of goods for goods, i.e., Barter system. Tus tis is te
place from were commerce may be said to ave begun.
3. MONEY AS A MEIUM OF TRAE AN TON AS THE CENTRE
OF TRAE- Commerce reaced into its tird stage of growt wen
money was evolved as medium of excange to remove te
limitations of barter. ntroduction of money began led to te
extension of division of labour and specialization. People began to
produce goods for certain local markets. Tus, division of labour was
extended to a locality. Gradually a separate class of artisans and
traders came into existence. Tey settled down at fixed places wic
came to be known as towns.
Growt of tese towns gave great stimulus to commerce. Te size of
te market and te number of commodities excanged in te market,
bot increased. Traders from oter countries brougt luxury articles,
metals and ornaments for sale.

4. ECONOMY AN GROTH OF COMMERCE- Commerce continued
to grow bot in volume and space. After te decline of Guild system, a
new class of people, ENTERPRENEUR class, came into existence.
Tis class of people became a real intermediary between te producers
and consumers. Furter, growt of commercial enterprise took place.
Trade began to assume fixed forms. Production began to be undertaken
for te markets extended for te wole country. Division of labour
received furter impetus. Production was divided into several brances
and eac branc tended to be localized. Various economic activities
came to be clearly marked off into distinct groups:
A- AGRICULTURE
B- TRAE
C- COMMERCE.


ORL ECONOMY AN THE ORL MARKET- Commerce
entered into anoter stage of its growt wen nations of te world
were brougt into commercial relationsips troug te invisible
tread of trade. As a result of te geograpical discoveries of te late
15
t
, 16
t
and 17
t
centuries new trade routes were opened up and
commerce grew between nations. Now, in addition to te local
market and te trade extending over te wole area of a single
country, commodities came to be sold and purcased between
traders from different countries in te world. Tis gave rise to an
international world market and to te international trade. Tus te
nations of te world were linked togeter troug te medium of te
world market.
Evolution of commerce is a never ending process. Almost every day
new experiments in its mecanism are made. New forms and
metods are being evolved in bot socialist and capitalist countries,
in bot developed and developing nations.

HY AS IT NECESARRY TO INTROUCE NEGOTIABLE
INSTRUMENTS?
Historically business developed by stages.
(1) Pastoral stage (2) Agricultural stage (3) Handicrafts stage (4) Guild
stage (5) Domestic stage and (6) Factory stage.
PastoraI stage: n primitive society man used tings just as tey were
found in nature. it time, e learned to domesticate animals and breed
tem for food and cloting. Since e ad to find pastures for is animals,
e tended to lead a wandering life. But in tis stage is work served mainly
to support only im wit is own needs and left very little surplus available
foe excange on a business basis.

AgricuIturaI stage: n course of time, te nomadic tribes settled
permanently at fixed places, built up te uts and selters for teir

residences and began cultivating te land in common. Growing corns,
grasses etc. became te main occupation. Agriculture emerged as te
basic feature of economic living of man. He gradually produced more and
ten started to excange it wit oter commodities. Tis was known as
barter system.

Handicraft stage: n tis stage manufacturing was limited to te uman
efforts to transform raw materials into finised goods. t included candle
and soap making, spinning, weaving, making of clotes and soes,
blacksmiting, leater dressing, carpentry etc.

GuiId stage: A guild is an association of persons following a similar
occupation and it is formed to protect and promote te interest of its
members troug cooperative endeavors.

omestic stage: A new class entrepreneur emerged as a link between
producer and consumer. Now entrepreneur purcased te raw materials
for te purpose of manufacture and sale nut did not do te processing
imself. He took te risk of productions and sale. Out of te proceeds of is
undertaking, e paid for te materials and labour. Te amount left was is
profit

Factory stage: n tis stage an organized system of production under a
single roof came to be identified as a factory. Large scale operations wit
te use of mecanized production processes resulted in producing good
quality products at ceaper rates. However it was greatly influenced not
only by its own processes but also by government under wic it operates.

Tese were te different stages of evolution of business. However it was
noted tat te growt was very slow and te system was very complex.
Tere were different instruments used to purcase different commodities in

different stages. Te system of excange was suc tat it led to confusion
and various complexities. To avoid suc confusion and to operate te
business activities smootly negotiable instruments were introduced.

Types of NegotiabIe Instruments
According to te Negotiable nstruments Act, 1881 tere are just tree types
of negotiable instruments i.e., promissory note, bill of excange and ceque.
However many oter documents are also recognized as negotiable
instruments on te basis of custom and usage, like undis, treasury bills,
sare warrants, etc., provided tey possess te features of negotiability. n te
following sections, we sall study about Promissory Notes (popularly called
pronotes), Bills of Excange (popularly called bills), Ceques and Hundis (a
popular indigenous document prevalent in ndia), in detail.

i. Promissory Note
Suppose you take a loan of Rupees Five Tousand from your friend Rames.
You can make a document stating tat you will pay te money to Rames or
te bearer on demand. Or you can mention in te document tat you would
like to pay te amount after tree monts. Tis document, once signed by
you, duly stamped and anded over to Rames, becomes a negotiable
instrument. Now Rames can personally present it before you for payment or
give tis document to some oter person to collect money on is bealf. He
can endorse it in somebody else's name wo in turn can endorse it furter till
te final payment is made by you to wosoever presents it before you. Tis
type of a document is called a Promissory Note.
Section 4 of the NegotiabIe Instruments Act, 1881 defines a promissory
note as 'an instrument in writing (not being a bank note or a currency note)
containing an unconditional undertaking, signed by te maker, to pay a certain
sum of money only to or to te order of a certain person or to te bearer of te
instrument'.

IIIustration
A signs instrument in te following terms
(a) " promise to pay B or order Rs. 500."
(b) " acknowledge myself to be indebted to B in Rs. 1,000 to be paid on
demand, for value received."
(c) Mr. B, O U Rs. 1,000."
(d) promise to pay B Rs. 500 and all oter sums wic sall be due to im."
(e) promise to pay B Rs. 500, first deducting tere out any money wic e
may owe me."
(f) " promise to pay B Rs. 500 seven days after my marriage wit C."
(g) " promise to pay B Rs. 500 on D's deat, provided D leaves me enoug
to pay tat sum."
() " promise to pay B Rs. 500 and to deliver to im my black orse on 1st
January next."
Te instruments respectively marked (a) and (b) are promissory notes. Te
instruments respectively marked (c), (d), (e), (f), (g) and () are not promissory
notes.
Specimen of a Promissory Note
Rs. 10,000/-
New Deli
September
25, 2002
On demand, promise to pay Rames, s/o RamLal of Meerut or
order a sum of Rs 10,000/- (Rupees Ten Tousand only), for value
received.
To , Rames Sd/
Sanjeev
Address....
Stamp


Parties to a Promissory Note
Tere are primarily two parties involved in a promissory note. Tey are
i. The Maker or rawer - te person wo makes te note and
promises to pay te amount stated terein. n te above specimen, Sanjeev is
te maker or drawer.
ii. The Payee - te person to wom te amount is payable. n te
above specimen it is Rames. n course of transfer of a promissory note by
payee and oters, te parties involved may be -
a. The Endorser - te person wo endorses te note in favour of
anoter person. n te above specimen if Rames endorses it in favour of
Ranjan and Ranjan also endorses it in favour of Puneet, ten Rames and
Ranjan bot are endorsers.
b. The Endorsee - te person in wose favour te note is negotiated
by endorsement. n te above, it is Ranjan and ten Puneet.
(Endorsement means transfer of any document or instrument to anoter
person by signing on its back or face or on a slip of paper attaced to it)

Features of a promissory note
Let us know te features of a promissory note.
i. A promissory note must be in writing, duly signed by its maker and properly
stamped as per ndian Stamp Act.
ii. t must contain an undertaking or promise to pay. Mere acknowledgement
of indebtedness is not enoug. For example, if someone writes ' owe Rs.
5000/- to Satya Prakas', it is not a promissory note.
iii. Te promise to pay must not be conditional. For example, if it is written '
promise to pay Sures Rs 5,000/- after my sister's marriage', is not a
promissory note.

iv. t must contain a promise to pay money only. For example, if someone
writes ' promise to give Sures a Maruti car' it is not a promissory note.
v. Te parties to a promissory note, i.e. te maker and te payee must be
certain.
vi. A promissory note may be payable on demand or after a certain date. For
example, if it is written 'tree monts after date promise to pay Satinder or
order a sum of rupees Five Tousand only' it is a promissory note.
vii. Te sum payable mentioned must be certain or capable of being made
certain. t means tat te sum payable may be in figures or may be suc tat it
can be calculated.
(See specimen below).
Rs. 10,000/-
New Deli
November
14, 2002
, Rames , s/o Sadanand of Surat, Gujarat promise to pay Sasikant, s/o
Sunil Kumar of Amedabad, Gujarat or order, on demand, te sum of Rs
10,000/- (Rupees Ten Tousand only) wit interest at te rate of 10 percent
per annum, for value received.
Sd/-
Rames
Stamp
To
Sasikant
Amedabad, Gujarat

ii. BiII of Exchange
Suppose Rajiv as given a loan of Rupees Ten Tousand to Sameer, wic
Sameer as to return. Now, Rajiv also as to give some money to Tarun. n
tis case, Rajiv can make a document directing Sameer to make payment up
to Rupees Ten Tousand to Tarun on demand or after expiry of a specified

period. Tis document is called a Bill of Excange, wic can be transferred to
some oter person's name by Tarun.
Section 5 of the NegotiabIe Instruments Act, 1881 defines a bill of
excange as 'an instrument in writing containing an unconditional order,
signed by te maker, directing a certain person to pay a certain sum of money
only to or to te order of a certain person, or to te bearer of te instrument'.

Specimen of a BiII of Exchange
Rs. 10,000/-
New Deli

May 2,2001
Five monts after date pay Tarun or (to is) order te sum of Rupees Ten
Tousand only for value received.
To Accepted
Stamp
Sameer Sameer
S/d
Address
Rajiv

Parties to a BiII of Exchange
Tere are tree parties involved in a bill of excange. Tey are
i. The rawer - Te person wo makes te order for making payment.
n te above specimen, Rajiv is te drawer.
ii. The rawee - Te person to wom te order to pay is made. He is
generally a debtor of te drawer. t is Sameer in tis case.
iii. The Payee - Te person to wom te payment is to be made. n tis
case it is Tarun.
Te drawer can also draw a bill in is own name tereby e imself becomes
te payee. Here te words in te bill would be Pay to us or order. n a bill

were a time period is mentioned, just like te above specimen, is called a
Time Bill. But a bill may be made payable on demand also. Tis is called a
Demand Bill.

Features of a biII of exchange
Let us know te various features of a bill of excange.
i. A bill must be in writing, duly signed by its drawer, accepted by its drawee
and properly stamped as per ndian Stamp Act.
ii. t must contain an order to pay. ords like 'please pay Rs 5,000/- on
demand and oblige' are not used.
iii. Te order must be unconditional.
iv. Te order must be to pay money and money alone.
v. Te sum payable mentioned must be certain or capable of being made
certain.
vi. Te parties to a bill must be certain.

iii. Cheques
Ceque is a very common form of negotiable instrument. f you ave a
savings bank account or current account in a bank, you can issue a ceque in
your own name or in favour of oters, tereby directing te bank to pay te
specified amount to te person named in te ceque. Terefore, a ceque
may be regarded as a bill of excange; te only difference is tat te bank is
always te drawee in case of a ceque.
Te NegotiabIe Instruments Act, 1881 defines a ceque as a bill of
excange drawn on a specified banker and not expressed to be payable
oterwise tan on demand. Actually, a ceque is an order by te account
older of te bank directing is banker to pay on demand, te specified
amount, to or to te order of te person named terein or to te bearer.


Specimen of a Cheque

.........20.......

Pay................................................................................................................
......................................................................................................... or
Bearer
Rupees..................
....................
STATE BANK OF INIA
Jawaarlal Neru University, New Deli 110067
MSBL 6 5 3 0 0 3 1 1 0 0 0 2 0 5 6 1 0

9Features of a cheque
Let us look into some important features of a ceque.
i. A ceque must be in writing and duly signed by te drawer.
ii. t contains an unconditional order.
iii. t is issued on a specified banker only.
iv. Te amount specified is always certain and must be clearly mentioned bot
in figures and words.
v. Te payee is always certain.
vi. t is always payable on demand.
vii. Te ceque must bear a date oterwise it is invalid and sall not be
onoured by te bank.

Types of Cheque
Broadly speaking, ceques are of four types.
a) Open ceque, and
b) Crossed ceque.

c) Bearer ceque
d) Order ceque
Let us know details about tese ceques.

a) Open cheque: A ceque is called 'Open' wen it is possible to get cas
over te counter at te bank. Te older of an open ceque can do te
following:
i. Receive its payment over te counter at te bank,
ii. Deposit te ceque in is own account
iii. Pass it to someone else by signing on te back of a ceque.
b) Crossed cheque: Since open ceque is subject to risk of teft, it is
dangerous to issue suc ceques. Tis risk can be avoided by issuing oter
types of ceque called 'Crossed ceque'. Te payment of suc ceque is not
made over te counter at te bank. t is only credited to te bank account of
te payee. A ceque can be crossed by drawing two transverse parallel lines
across te ceque, wit or witout te writing 'Account payee' or 'Not
Negotiable'.
c) Bearer cheque: A ceque wic is payable to any person wo presents it
for payment at te bank counter is called 'Bearer ceque'. A bearer ceque
can be transferred by mere delivery and requires no endorsement.
d) Order cheque: An order ceque is one wic is payable to a particular
person. n suc a ceque te word 'bearer' may be cut out or cancelled and
te word 'order' may be written. Te payee can transfer an order ceque to
someone else by signing is or er name on te back of it.

Tere is another categorization of ceques wic is discussed below:
Ante-dated cheques:- Ceque in wic te drawer mentions te date earlier
to te date of presenting if for payment. For example, a ceque issued on 20t
May 2003 may bear a date 5t May 2003.
StaIe Cheque:- A ceque wic is issued today must be presented before at
bank for payment witin a stipulated period. After expiry of tat period, no

payment will be made and it is ten called 'stale ceque'. Find out from your
nearest bank about te validity period of a ceque.
MutiIated Cheque:- n case a ceque is torn into two or more pieces and
presented for payment, suc a ceque is called a mutilated ceque. Te bank
will not make payment against suc a ceque witout getting confirmation of
te drawer. But if a ceque is torn at te corners and no material fact is
erased or cancelled, te bank may make payment against suc a ceque.
Post-dated Cheque:- Ceque on wic drawer mentions a date wic is
subsequent to te date on wic it is presented, is called post-dated ceque.
For example, if a ceque presented on 8t May 2003 bears a date of 25t
May 2003, it is a post-dated ceque. Te bank will make payment only on or
after 25t May 2003.

iv. Hundis
A Hundi is a negotiable instrument by usage. t is often in te form of a bill of
excange drawn in any local language in accordance wit te custom of te
place. Sometimes it can also be in te form of a promissory note. A undi is
te oldest known instrument used for te purpose of transfer of money witout
its actual pysical movement. Te provisions of te Negotiable nstruments
Act sall apply to undis only wen tere is no customary rule known to te
people.


Types of Hundis
Tere are a variety of undis used in our country. Let us discuss some of te
most common ones.
arshani Hundi : Tis was a demand bill of excange, payable on
presentation according to te usage and custom of te place. Tese were
mainly of four types.
A] Sah-jog - was a undi transferable by endorsement and delivery but
payable only to a Sa or to is order. A Sa was a respectable and
responsible person, a man of wort and substance wo was known in te
market.

B] hanni-jog - was a demand bill of excange payable only to te danni,
i.e. te payee. Tis undi was not negotiable.
C] Firman-jog - undis came into existence during te Muslim period. Firman
is a Persian word meaning order and terefore, firman-jog undis were
payable to te order of te person named. Tese undis could be negotiated
wit a simple or conditional endorsement.
] ekhavanhar - undi was a bearer demand bill of excange payable to te
person presenting it to te drawee. Tus it corresponded to a bearer ceque.
Muddati Hundi : Tis is a usance bill and is payable after stipulated time or
on a given date or on a determinable future date or on te appening of a
certain stipulated event. Muddatiundis of Sa-jog, danni-jog and firman-jog
types ad te same features as tose attaced to te same types of
darsaniundis. However, te most important type of muddatiundi was te
jokamiundi,
A] Jokhami - was a documentary bill of excange corresponding to te
present day bill of lading. Tis ad been in use for centuries and payment was
conditional on te safe arrival of goods.

V. Certificate of eposit: A note by wic a bank or similar financial
institution acknowledges te receipt of money from a party and promises to
repay te money, plus interest, to te party on a certain date.
A CD bears a maturity date, a specified fixed interest rate and can be issued
in any denomination. CDs are generally issued by commercial banks and are
insured by te FDC. Te term of a CD generally ranges from one mont to
five years.


Types of Certificate of eposit:
1. SmaII C: CDs of less tan $100,000
2. Large/Jumbo C: CDs for more tan $100,000. Almost all large CDs, as
well as some small CDs, are negotiable.
3. NegotiabIe C: A certificate of deposit wit a minimum face value of
$100,000. Tese are guaranteed by te bank and can usually be sold in a
igly liquid secondary market, but tey cannot be cased-in before maturity.
Because negotiable CDs require large deposits, tey are typically eld by
institutional investors suc as insurance companies and banks, and
sometimes by wealty individuals. Due to te large amounts of capital
involved, wic may differ significantly from one CD to anoter, te interest
rates and maturation dates are subject to negotiation between te saver and
te bank. A certain wealty individual may only want to save is money for a
specific duration, at a specific interest rate; banks tat would not normally alter
teir rates or maturity offerings for normal individuals are more willing to
negotiate deals wen large amounts of capital are involved.
Te advantages of being able to use negotiable instruments for transactions
are clear. People can use suc documents to do business over long
distances, and to make transactions witout needing to ave te money in
and.
f someone uses a negotiable instrument and reneges, tere will be legal
consequences. Someone wo writes a ceck against a bank account wic
does not ave enoug money to cover te ceck, for example, will be required
to furnis te funds and usually to pay fees for te trouble of processing te
ceck and recovering te insufficient funds. Te bearer of te instrument, in
oter words, can sue to ave it fulfilled.


ifferences between BiII of Exchange & Promissory Notes
Promissory Note BiII of Exchange
1. t contains an unconditional
promise.
1. t contains an unconditional
order.
2. Tere are 2 parties te maker
& te payee.
2. Tere are 3 parties te
drawer, te drawee & te
payee.
3. t is made by te debtor. 3. t is made by te creditor.
4. Acceptance is not required. 4. Acceptance by te drawee is a
must.
5. Te liability of te maker/drawer
is primary & absolute.
5. Te liability of te maker/drawer
is secondary & conditional upon
non-payment by te drawee.

istinction between a Cheque and a BiII of Exchange
Cheque BiII of Exchange
1. t is drawn only on a banker. 1. t can be drawn on anybody
including a banker.
2. Te amount is always payable
on demand.
2. Te amount is payable on
demand or after a specified
period.
3. t can be crossed to end its
negotiability.
3. t cannot be crossed.
4. Acceptance is not required. 4. Acceptance is a must.


Features of NegotiabIe Instruments
After discussing te various types of negotiable instruments let us sum up
teir features as under
i. A negotiabIe instrument is freeIy transferabIe. Usually, wen we transfer
any property to somebody, we are required to make a transfer deed, get it
registered, pay stamp duty, etc. But, suc formalities are not required wile
transferring a negotiable instrument. Te ownersip is canged by mere
delivery (wen payable to te bearer) or by valid endorsement and delivery
(wen payable to order). Furter, wile transferring it is also not required to
give a notice to te previous older.
ii. NegotiabiIity confers absoIute and good titIe on the transferee. t
means tat a person wo receives a negotiable instrument as a clear and
undisputable title to te instrument. However, te title of te receiver will be
absolute, only if e as got te instrument in good fait and for a
consideration. Also te receiver sould ave no knowledge of te previous
older aving any defect in is title. Suc a person is known as older in due
course. For example, suppose Rajiv issued a bearer ceque payable to
Sanjay. t was stolen from Sanjay by a person, wo passed it on to Giris. f
Giris received it in good fait and for value and witout knowledge of ceque
aving been stolen, e will be entitled to receive te amount of te ceque.
Here Giris will be regarded as 'older in due course'.
iii. A negotiabIe instrument must be in writing. Tis includes andwriting,
typing, computer printout and engraving, etc.
iv. n every negotiable instrument tere must be an unconditionaI order or
promise for payment.
v. Te instrument must involve payment of a certain sum of money only and
noting else. For example, one cannot make a promissory note on assets,
securities, or goods.
vi. The time of payment must be certain. t means tat te instrument must
be payable at a time wic is certain to arrive. f te time is mentioned as
'wen convenient' it is not a negotiable instrument. However, if te time of

payment is linked to te deat of a person, it is neverteless a negotiable
instrument as deat is certain, toug te time tereof is not.
vii. The payee must be a certain person. t means tat te person in wose
favour te instrument is made must be named or described wit reasonable
certainty. Te term 'person' includes individual, body corporate, trade unions,
even secretary, director or cairman of an institution. Te payee can also be
more tan one person.
viii. A negotiable instrument must bear the signature of its maker. itout
te signature of te drawer or te maker, te instrument sall not be a valid
one.
ix. eIivery of the instrument is essentiaI. Any negotiable instrument like a
ceque or a promissory note is not complete till it is delivered to its payee. For
example, you may issue a ceque in your broter's name but it is not a
negotiable instrument till it is given to your broter.
x. Stamping of BiIIs of Exchange and Promissory Notes is mandatory.
Tis is required as per te ndian Stamp Act, 1899. Te value of stamp
depends upon te value of te pronote or bill and te time of teir payment.

THE NEGOTIABLE INSTRUMENTS ACT
ACT NO. 26 OF 1881 [9t December, 1881.]

IMPORTANT SECTIONS UNER THE NEGOTIABLE ACT

Section 120- EstoppeIs against denying originaI vaIidity of instrument
Te maker of te note and drawer of te bill of excange or ceque are
directly responsible for te bringing into existence of te instrument and, tus,
cannot be allowed afterwards to deny te validity of te instrument.


Section 121- EstoppeIs against denying capacity of the payee to endorse
Te maker of a promissory note or an acceptor of a bill sall not, in a
suit by older in due course, be allowed to deny te capacity of te payee to
endorse te bill.
Section 122- EstoppeIs against denying signature or capacity of prior
party
An endorser of a negotiable instrument sall, in a suit tereon by te
subsequent older, be allowed to deny te signature or capacity to contract of
any prior party to te instrument.

Section 123- Cheque crossed generaIIy
ere a ceque bears across its face an addition of te words "and company"
or any abbreviation tereof, between two parallel transverse lines, eiter wit
or witout te words "not negotiable" tat ceque sall be deemed to be
crossed generally.

Section 124- Cheque crossed speciaIIy
ere a ceque bears across its face an addition of te name of a banker,
eiter wit or witout te words "not negotiable", tat addition sall be deemed
to be crossed specially.

Section 125- Crossing after issue
ere a ceque is uncrossed, te older may cross it generally or
specially. ere a ceque is crossed generally, te older may cross it
specially. ere a ceque is crossed generally or specially, te older may
add te words "not negotiable".
ere a ceque is crossed specially, te banker to wom it is crossed may
again cross it especially to anoter banker, is agent, for collection. oever,
being a public servant, legally bound as suc public servant to appreend or
to keep in confinement any person carged wit or liable to appreended for

an offence, intentionally omits to appreend suc person, or intentionally
suffers suc person to escape, or intentionally aids suc person in escaping or
attempting to escape from suc confinement, sall be punised as follows,
tat is to say:-
it imprisonment of eiter description for a term wic may extend to
seven years, wit or witout fine, if te person in confinement, or wo ougt to
ave been appreended, was carged wit, or liable to be appreended for,
an offence punisable wit deat; or
tree years, wit or witout fine, if te person in confinement or wo ougt to
an offence punisable wit *[imprisonment for life] or imprisonment for a term
wic may extend to ten years; or
two years, wit or witout fine, if te person in confinement, or wo ougt to
an offence punisable wit imprisonment for a term less tan ten years.
* Subs. by Act 26 of 1955, sec.117 and sc., for "transportation for life"
(w.e.f.1-1-1956).

Section 126- Payment of cheque crossed generaIIy
ere a ceque is crossed generally, te banker on wom it is drawn sall
not pay it oterwise tan to a banker.
Payment of ceque crossed specially. - ere a ceque is crossed specially,
te banker on wom it is drawn sall not pay it oterwise tan to te banker to
wom it is crossed or is agent for collection.

Section 127- Payment of cheque crossed especiaIIy more than once
ere a ceque is crossed specially to more tan one banker, except wen
crossed to an agent for te purpose of collection, te banker on wom it is
drawn sall refuse payment tereof.

Section 128- Payment in due course of crossed cheque
ere te banker on wom a crossed ceque is drawn as paid te
same in due course, te banker paying te ceque, and (in case suc ceque
as come to te ands of te payee) te drawer tereof, sall respectively be
entitled to te same rigts, and be placed in te same position in all respects,
as tey would respectively be entitled to and placed in if te amount of te
ceque ad been paid to and received by te true owner tereof.

Section 129- Payment of cheque crossed especiaIIy more than once
Any banker paying a ceque crossed generally oterwise tan to a
banker or a ceque crossed specially oterwise tan to te banker to wom
te same is crossed, or is agent for collection, being a banker, sall be liable
to te true owner of te ceque for any loss e may sustain owing to te
ceque aving been so paid.

Section 130-Cheque bearing not negotiabIe
A person taking a ceque crossed generally or specially, bearing in
eiter case te words "not negotiable", sall not ave and sall not be capable
of giving, a better title to te ceque tan tat wic te person from wom e
took it ad.

Section 138- ishonor of cheque for insufficiency, etc., of funds in the
accounts
ere any ceque drawn by a person on an account maintained by im
wit a banker for payment of any amount of money to anoter person from out
of tat account for te discarge, in wole or in part, of any debt or oter
liability, is returned by te bank unpaid, eiter because of te amount of
money standing to te credit of tat account is insufficient to onor te ceque
or tat it exceeds te amount arranged to be paid from tat account by an
agreement made wit tat bank, suc person sall be deemed to ave

committed an offence and sall witout prejudice to any oter provisions of
tis Act, be punised wit imprisonment for 2["a term wic may extend to two
year"], or wit fine wic may extend to twice te amount of te ceque, or
wit bot:

Provided tat noting contained in tis section sall apply unless-

(a) Te ceque as been presented to te bank witin a period of six monts
from te date on wic it is drawn or witin te period of its validity, wicever
is earlier.

(b) Te payee or te older induce course of te ceque, as te case may be,
makes a demand for te payment of te said amount of money by giving a
notice, in writing, to te drawer, of te ceque, 3["witin tirty days"] of te
receipt of information by im from te bank regarding te return of te
ceques as unpaid, and

(c) Te drawer of suc ceque fails to make te payment of te said amount
of money to te payee or, as te case may be, to te older in due course of
te ceque, witin fifteen days of te receipt of te said notice.


Case studies
THE JVG SCANAL

THE OOME EPOSITORS
n October 1997, te Reserve Bank of ndia (RB) banned all non-banking
financial companies (NBFCs) of te JVG Group of companies - JVG Finance,
JVG Leasing and JVG Securities - from accepting deposits from te public.
Tis was after an investigation revealed tat tese companies ad been
accepting deposits in excess of teir stipulated limits.
Soon after, JVG downed te sutters of several of its offices in small towns
of Maarastra, Uttar Prades and Biar, claiming it ad detected uge
irregularities in te operations. Te closing of te offices created a panic
among te depositors and strong voices were raised against te group in
te media. n November 1997, JVG urriedly rented an office in Gurgaon
(Haryana) to accommodate irate investors. Hundreds of investors and
agents camped on te grounds of te office. Te agents (or te field-
workers), wo raised deposits from investors on bealf of JVG, were
extremely worried. Tey said tey could not go back to teir local offices
witout collecting te dues fearing te wrat of te investors. More and
more depositors and field workers teemed over te next few days wit
opes of getting teir money back.
Te situation seemed rater bleak wit rumors of te JVG group being in
deep financial crisis. At tis point, JVG Cairman V.K.Sarma (Sarma)
dropped anoter bombsell on te investors. He claimed tat a majority of
te certificates were fake and ence tey would not be paid back. For
many depositors wo ad invested as little as Rs 500 and wo could not
even dream of taking te dispute to court, it meant kissing teir
investments goodbye.

JVG GROUP - THE BACKGROUN
From being a small-time contractor earning less tan Rs 2500 a mont,
Sarma went on to run a group, wic on paper ad an annual turnover of Rs
1000 crore, in just seven years. Known for is lavis lifestyle - is farmouse
in Deli, is fleet of expensive cars and te elicopter e ad taken on lease
to tap deposits from small towns in nort ndia were talked about quite often.
A graduate from Kuruksetra University, Sarma began is career as a
materials supplier to Swadesi Polytex in 1979. Between 1985 and 1989,
Sarma supplied construction materials and equipment to contractors. n
September 1989, Sarma launced is first company JVG Finance. Over te
next few years, te company brougt over 3000 small firms under its control.
Sarma also launced JVG Steels, JVG Departmental Stores, JVG Foods,
JVG Petrocemicals and many oter companies. n 1992, Sarma acquired
San Tosa Resorts and ndia Cero Oil, an oil extraction unit from te Dalmias
in 1993.
However, most part of te JVG empire was created largely from public fixed
deposits. n te early 1990s, Sarma opened brances of is finance
companies in various towns and villages. He followed it up wit eavy
advertising on te interest rates, wic were as ig as 30%. nvestors flocked
to buy te company's scemes
and te deposit base soon crossed Rs 1000 cores. Te JVG group's
turnover increased from Rs 102 cores in 1994-95 to Rs 700 cores in 1995-
96. Sarma was a man wit strong political connections - e was close to
politicians from Biar and was involved wit te Dalit Sena eaded by te
ten railway minister Ram Vilas Paswan. t was reportedly troug tese
connections tat e was able to make JVG Department Stores one of te
largest suppliers of commodities to te Government of ndia.

Sarma ad grand plans for making JVG a Rs 12000 cores empire by 2000.
He announced tat e would invest over Rs 4000 cores in diverse areas suc
as power, cement, otels, steel, textiles and aviation. JVG went aead wit its
plans altoug it came in for a lot of flak in te media. Soon, JVG launced
te 'Avatar' brand of detergent and wasing bars in an attempt to enter te
FMCG segment. Sarma wanted to set up mega townsips in Gurgaon,
Patna, Mumbai and Hyderabad, and to acquire te otel and cement interests
of te Deli-based Jaiprakas ndustries, te steel units of Rati Alloys and
te aircraft of ModiLuft[1]

JVG ad acquired Orkay's polyester yarn plant and a part of its office space in
Mumbai in Marc 1997 troug a tripartite agreement wit financial institutions
led by DB and te Meras wo controlled Orkay. As per te agreement, JVG
agreed to pay te Meras Rs 98 cores in cas and take on te Rs 130 cores
liability to te various Fs. JVG paid off Rs 14 cores to te Meras in Marc
1997. According to te scedule worked out by te Fs, JVG agreed to pay te
second installment in te first week of September 1997. Altoug JVG could
not meet te deadline, it was allowed to run te plant on job-work basis from
September 1997. Te understanding was tat JVG would pay up by te end
of September. However, JVG failed to meet te end-September deadline as
well and Orkay sougt te intervention of DB to take possession of te plant.
Production at te plant was suspended in October 1997. Following tis, te
agreement between te Meras, JVG and te Fs became null and void.
ETAILING THE FRAUS
JVG's troubles started in June 1997, after te Securities and Excange Board
of ndia (SEB) asked JVG Finance to refund te Rs 45 crore it ad raised
from a public issue in Marc 1997. A day after te issue ad opened, RB
issued a sow-cause notice asking wy JVG Finance sould not be barred
from accepting deposits as te group companies ad already exceeded teir
deposit limits. By te time RB conditionally cleared te issue after assurances

from Sarma, te 70-day stipulated period for listing te sares ad passed.
Because of te time-lapse, SEB intervened and ordered te refund of te
public's money according to te allotment rules. Sarma refused to refund te
money to te investors and appealed against te order to te Finance
ministry.
He admitted tat JVG ad exceeded its limits wile accepting deposits but
claimed tat since December 1996 (muc before te RB ban) it ad
stopped accepting deposits on its own and ad even given RB an
undertaking. RB did not accept te argument and barred te group from
accepting any more public deposits.n September 1997, post-dated
ceques issued for principal as well as interest on JVG's deposits bounced.
nvestors ten complained to te civil courts, consumer courts, Company
Law Board and criminal courts under te Negotiable nstruments Act upon
wic legal proceedings were initiated against te group. Te government
received a large number of complaints on non-repayment of deposits on
maturity by te JVG group. On a complaint filed by te RB, te Deli Hig
Court ordered te winding up of te company. Te court also appointed an
official liquidator and said tat te RB did not consider te revival sceme
filed by te company viable. Te RB also filed criminal prosecution
petitions in te Metropolitan Magistrates' Courts in New Deli.
RB alleged tat te company ad accepted deposits wort Rs 88.82 crore
wic was 756.68% of its net owned fund. Tis was muc iger tan te
permissible limit of 25% [1]. Similarly, JVG Leasing ad received deposits
wort Rs 19.28 crore wic was 147.58% of its net owned fund. Te RB
complaint also said tat te deposit forms issued by te JVG Group did not
contain any information regarding premature witdrawals, wic was
necessary as per RB provisions. Te companies ad not provided any
information about te rate of interest to te investors on te receipts issued to
tem. Furter, te companies failed to submit teir audited balance seets for
te period ending Marc 31, 1994 and 1995 15 days after teir annual general

meeting (AGM) and did not inform te RB about te canges in te
composition of te board of directors.

RB's petition also stated tat te company ad not maintained liquid assets
as required by section 45B of te RB Act, 1934. RB furter contended tat
JVG Securities accepted public deposits troug JVG Leasing Ltd. and ad
illegally credited it to te account of JVG Finance Ltd. Tus, JVG Securities
facilitated collection of furter deposits by JVG Finance Ltd., a company wic
ad already accepted public deposits beyond te permissible limit in spite of
te warning from RB not to accept any furter deposits.
A total of 31 bank accounts of te JVG group of companies were seized and
an amount of Rs 5 lak lying in tese accounts was frozen. Land and
property, including 238 acres in Gurgaon, Rewari and Faridabad, in te name
of JVG group of companies were attaced. Nine company veicles were taken
into police possession and a number of properties located in Bombay and
Deli (eld by te company) were identified and te income-tax autorities in
Deli and Bombay were informed.
Meanwile, JVG, fearing a witdrawal rus on its deposits, asked all its
depositors to send teir certificates to te Deli office for scrutiny and also
issued notices in te dailies assuring investors tat all deposits wic ad
matured would be redeemed immediately. Sarma revealed tat all genuine
matured amounts ad been repaid and only Rs 30 crore was to be paid to
depositors of JVG Finance by January 1998 and anoter Rs 100 crore to JVG
Leasing depositors between July 1998 and June 1999. He also admitted tat it
was impossible for im to repay all is depositors, including tose wose
deposits ad not matured. Sarma's allegation tat is agents ad issued fake
certificates to depositors for more tan Rs 100 crore was seen as a ploy to
was is ands off te responsibility to pay tem.

Analysts remarked tat if te certificates were issued by agents wo were
andpicked by Sarma imself, e could not disown tem. Tere was
suspicion as to te dubious nature of te investments Sarma ad made wit
te money, wic ad not yielded te returns e ad expected. As a result, e
serviced te interest on te old deposits out of fres deposits. After e was
barred from raising fres funds, e tried to get rid of te depositors by dubbing
teir certificates fake. However, Sarma claimed tat is investments fetced
im te expected returns. He also refuted allegations tat most of is
investments were in te JVG Group. He said tat e ad invested in
automobiles, plant and macinery and oter equipment troug ire purcase
and lease scemes, and only a minor amount was in group companies.

Sarma commented tat te depositors wit fake certificates would anyway
use teir own resources to recover teir money. Tey were sure to appreend
te agents for issuing fake certificates. He said, "e are responsible only for
te proper investor wo is listed wit us."
Sarma was well-known in te industry circles for sooting is mout off. His
grand comments and claims were frequently splased in business dailies and
magazines. n fact, Sarma claimed tat it was only te attention e drew to
imself by making grandiose announcements tat led to is downfall.
EFLATE REAMS
n May 1998, Te Economic Offence ing of Candigar police lodged an
FR against Sarma under Section 420 of te ndian Penal Code. However,
Sarma failed to appear in te court despite repeated warrants. He ten
moved te Mumbai Hig Court for transferring of all criminal cases registered
in various states against te JVG group to te Central Bureau of nvestigation
(CB) for furter investigation. n June, te court transferred only te cases
registered in Maarastra to te CB. Te next day, Sarma moved an
application for anticipatory bail in te ig court, upon wic e was granted

interim bail till July 6. Te Mumbai Hig Court granted four weeks bail to
Sarma and directed im to appear in te appropriate court in Deli.
Sarma did not appear before any court in Deli and went underground.
Following tis, a team of officers from te Economic Offences ing of te
crime branc was sent to Mumbai in November. Te team arrested Sarma at
a flat in Bandra, a suburb in nortwest Mumbai.

n June 1999, after 16 monts in jail, Sarma was granted bail on a personal
bond of Rs 1 lak and a surety of a similar amount and was directed not to
leave te country witout te court's permission and not to tamper wit
evidence. Sarma ad sougt bail on ealt grounds claiming tat e was
suffering from ypertension, angina and cest pain. Te JVG companies were
delisted and barred permanently from indulging in NBFC activities in te
future. However, JVG's demise and Sarma's stint in jail would peraps never
replace te dreams and opes of te investors wose ard-earned money ad
vanised forever.


Advocate arrested in
credit card fraud case
Ludiana, April 28
Te local police and te lawyers are eading for a sowdown over te issue of
arrest of an advocate by te Division No 8 police in an alleged credit card
fraud case.
A verbal spat took place between a group of local lawyers and city policemen
at te Division No 8 police station wen te policemen were giving details
about a credit card fraud allegedly committed by a city-based advocate, a
pickpocket and a former employee of a private telepone company.
Te police was claiming tat it ad arrested advocate Amarjit Sing of Fauji
Moalla ere on te basis of evidence along wit Vikas, former employee of a
telepone company, for doing sopping wort over Rs 4 lak from a stolen
credit card of an NR. Te tird accused was Sonu, an alleged pickpocket,
wo ad stolen te credit card. He was missing.
Te credit card was stolen six monts ago in November 2004 from GRD
Academy ere were te Miss orld Punjaban contest was being eld. Te
alleged victim, NR Jaswinder Sing, was watcing te sow wen is pocket
was picked.
However, a group of lawyers led by a former president of te District Bar
Association, Mr. Haris Rai Danda, openly carged te police wit falsely
implicating te accused advocate. Tey also alleged tat some policemen ad
demanded money from te advocate but wen e refused to pay, e was
booked in a false case. Te police ave denied te allegations.

DSP Simratpal Sing Dindsa stated at a press conference tat te accused
ad indulged in sopping using te stolen credit card from sowrooms of
Adidas, Nike, eekender, Tanisq, Titan and Sant Ram Mangat Ram.
Te police narrowed down on te accused after te complainant learnt tat
te credit card was being misused.
However, Mr. Danda alleged tat te lawyer was innocent and ad been
falsely implicated in te case. He said te lawyer was tortured in police
custody. A group of lawyers later filed a complaint before a local Judge
against police torture and arassment.
Meanwile, taking a toug stand against te arrest and te alleged custodial
torture of te advocate, te District Bar Association (DBA) as demanded
immediate suspension of te guilty policemen.
Mr. Rana Harjasdeep Sing, Secretary, DBA, said in a statement tat tey
ad got te medical examination of te accused advocate conducted from te
Civil Hospital. A delegation of te DBA would meet te SSP tomorrow and
demand action against te SHO and oter policemen of te Division No 8
police station.
Former DBA president K.R. Sikri condemned te incident and termed it as
breac of trust and of an understanding reaced between te lawyers and a
former DGP, Dr A A Siddiqui, last year tat te police would take te DBA into
confidence before arresting an advocate in any case, except a rape or a
murder case.
FRAU
itin tis specification by a negotiable instrument is meant a ceque,
a credit card, a debit card, a bond, a sare certificate, an account card, a
traveler's ceque, an electronic transfer, and any oter instrument tat as

inerent value to te owner tereof and in relation to wic te owner can
suffer a financial loss as a result of unautorized and/or fraudulent dealing
terewit by tird parties.
Fraud in relation to te use of negotiable instruments is an international
problem. Many different forms of fraud tat can result in te owner of a
negotiable instrument suffering a financial loss are known, wit te
common element generally being tat te negotiable instrument is presented
for serving as a payment for goods purcased, for converting its value into
cas, or for depositing its value into a tird party account, witout
autorization of te original owner or in a form in wic it as been
fraudulently tampered wit to te detriment of te original owner.
Altoug te invention as defined and described ereafter is directed
mainly at inibiting fraud in relation to te use of ceques and credit
cards, it must be understood tat te invention applies also to inibiting
of fraud in relation to te use of any oter negotiable instrument and te
features of te invention must be interpreted as suc.
For te sake of convenience and clarity, te original owner of a negotiable
instrument as erein envisaged sall merely be referred to as te owner of
te negotiable instrument wo, in relation to certain negotiable
instruments suc as ceques, promissory notes, and te like, will be te
person issuing suc instruments, and in relation to oter negotiable
instruments suc as credit cards, will be te person wo legally presents
suc instruments in order to serve teir intended purpose. Te owner is
tus generally te person, weter a natural or a juristic person, wo can
suffer a loss as a result of te unautorized or fraudulent use of te
negotiable instrument of wic e is te owner.
Te person or body to wom a negotiable instrument is presented sall
ereinafter be referred to as te presentee wo, for example, in relation
to ceques, and te like, generally will be a bank and particularly an
employee of a bank, and in relation to credit cards, generally will be a
vendor wo accepts te use of a credit card as payment for goods purcased

or for services rendered. Te presentee also is te party wo, in accordance
wit te present invention, is generally responsible for
ensuring tat te owner of te negotiable instrument is not prejudiced.
Te person presenting a negotiable instrument to te presentee sall
ereinafter merely be referred to as te presentor and, in practice, tis
may be a legitimate person to wom te instrument as been issued or wo
owns te instrument, or an illegitimate person wo may be attempting a
fraudulent act and/or wo is not autorized to present te instrument.
t will be appreciated tat te various negotiable instruments as erein
envisaged can be associated wit various different `types` of presenters
and presentees. Presentees need not necessarily be banks or vendors, but
may be any tird party wo generally deals wit and/or wo is responsible for
dealing wit, suc instruments.
Te application of te system for inibiting fraud in relation to te use
of negotiable instruments is associated wit a suitably programmed central
communication and processing unit tat can be communicated wit via a
direct telepone line, via te internet, or te like. Tis unit sall
erein be referred to as a central communication and processing unit and
any reference to tis unit must be interpreted as a reference to a
suitably programmed unit tat includes means for communicating wit te
unit, as well as data processing means and data storage means tat permit
processing of stored data and of data communicated to it, for enabling te
system of te invention as defined ereafter.

BRIEF SUMMARY OF THE INVENTION

According to te invention tere is provided a system for inibiting fraud
in relation to te use of negotiable instruments, wic includes te steps
of:
te owners of negotiable instruments communicating wit a central

communication and processing unit in order to register wit te unit by
providing information, including at least identification numbers, linked
directly wit te respective owners and information linked directly wit
te negotiable instruments in respect of wic fraud is to be inibited,
eac owner ten being provided wit an individual secret code by te unit;
and te presentees of negotiable instruments communicating wit te central
communication and processing unit in order to register wit te unit by
providing information, including at least identification numbers, linked
directly wit te respective presentees, eac presentee ten being
provided wit an individual secret code by te unit, and wic includes,
in relation to eac negotiable instrument to be issued or used by a
registered owner, te steps of:
te registered owner communicating wit te central communication and
processing unit in order to autorize te negotiable instrument, by
identification via te identification number and te individual secret
code linked wit te owner and by providing sufficient details in respect
of te negotiable instrument for subsequently permitting te instrument to
be verified, te unit ten issuing an autorization code to be linked wit
te instrument; and upon presentation of te autorized negotiable instrument
by a presentor to a presentee, te presentee communicating wit te central
communication and processing unit in order to verify te negotiable
instrument, by identification via te individual secret code linked wit te
presentee and providing te autorization code linked wit te instrument, te
unit in response communicating to te presentee te details for verifying te
instrument provided by te owner of te instrument and tereby permitting te
presentee to verify te instrument as te instrument autorized by te owner.
Te system of te invention particularly may provide for te central
communication and processing unit to permit communication via a direct
telepone line and, as suc, includes an audio text electronic processing
system tat permits verbal information to be converted into binary code,
and a processing and memory system linked to te audio text electronic

processing system for processing information received by te audio text
electronic processing system and tereby carrying out te functions of te
unit. Alternatively, or in addition, te central communication and
processing unit may permit communication via te internet and, as suc,
may include a processing and memory system for receiving and processing
information received via te internet and tereby carrying out te functions of
te unit.
Presentees registering wit te unit also will provide te unit wit any
oter information, including at least teir names, tat will subsequently
permit te unit to identify a particular presentee tat dealt wit te
verification of a particular negotiable instrument.
Owners registering wit te unit, insofar as te owners are natural
persons, may provide at least teir names and teir official identity
numbers. nsofar as owners are juristic persons suc as registered
businesses, upon registering wit te unit tey will provide at least teir
names and teir official registration numbers.
Te system of te invention may provide for owners registering wit te
unit, insofar as tey wis to use te system for inibiting fraud in
respect of negotiable instruments suc as ceques rendered payable via
teir bank accounts, to provide te unit wit te name of eac relevant
bank, te branc code associated wit te said relevant bank and te
relevant bank account number.
nsofar as owners registering wit te unit wis to use te system for
inibiting fraud in respect of negotiable instruments suc as credit cards
issued to tem by banks and linked to accounts, te system will provide
for suc owners to provide te unit wit te name of eac relevant bank
and te card type, te number of eac relevant card and te name of te
card owner tat appears on te card.
Furter according to te invention, te system may provide for te
registered owner of a ceque being issued by te owner, wen autorizing
te ceque, to provide to te unit bank account details of te payee and

an identification number linked wit te payee, te ceque number, te
amount indicated on te ceque and te name of te payee and, wen issued
by te unit wit an autorization code, to apply te code to te ceque. n
relation to an autorized ceque, te system may provide for te presentee,
upon being presented wit an autorized ceque and in order to verify te
ceque, following te identification of te presentee to te unit and te
provision of te autorization code applied to te ceque,
for te unit to communicate to te presentee account details of a payee,
te identification number linked wit a payee, a ceque number, an amount
and a payee name and if tis information matces te information applied to
te ceque presented, to verify te ceque. Still furter, following verification
of te ceque, te system may provide for te unit to provide te presentee
wit a transaction code wic must be applied by te presentee to te
ceque, te transaction code permitting details of verification as stored by te
unit to be retrieved from te unit.
Te system of te invention may provide still furter for te registered
owner of a credit card issued by a bank, upon autorizing a teleponic or
an online credit card transaction, for te owner to provide te unit wit
te name of te bank tat issued te card and te type of card, te card
number and te name of te card owner tat appears on te card, and wen
issued wit an autorization code by te unit, to supply te code to te vendor
wit wom te transaction is taking place to permit te vendor as presentee to
verify te credit card by communicating wit te unit.
Still furter according to te invention, te system may provide, wen a
registered owner of a credit card issued by a bank presents as presentor
te card to a vendor as presentee, in order to perform a direct credit
card transaction, for te autorization and verification of te card to be
simultaneously performed by te presentee providing te unit wit te
credit card number and te presentor providing te unit wit te
individual secret code of te owner, in response to wic te unit
provides te presentee a name of a bank tat issued a card, a card number

and a name of a card owner and if tis information matces te information on
te card as presented to te presentee, te card is bot autorized and
verified tereby.
Te invention extends also to a central communication and processing unit
wic is controlled by a software program for enabling a system for
inibiting fraud in relation to te use of negotiable instruments in
accordance wit te invention. Still furter, te invention extends to a software
program for controlling te operation of a central communication and
processing unit for enabling a system for inibiting fraud in relation to te use
of negotiable instruments in accordance wit te invention.
t must be appreciated tat te system of te invention as above defined
may be applied specifically also to te autorization and verification of
negotiable instruments not particularly in te form of ceques or credit
cards, by applying te same principles to tose applied wen autorizing
and verifying ceques or credit cards, and te system of te invention as
defined must be interpreted as suc.
Inspite of aII the inventions made to stop frauduIent practices, the
fraud keeps taking pIace . Every day we read in the news paper how a
credit card is stoIen and easiIy used for making purchases by the thief
without the knowIedge of the reaI owner. Then when making payments
onIine by credit card so many times the credit card number gets hacked
and then used by the hacker for making onIine purchases .By the time
the owner reaIizes the thief gets away by making big purchases.
New Iaws and ways are being adopted for stopping frauduIent practices
but the best and the onIy way it can be kept under controI is by the
owner of these negotiabIe instruments himseIf. He shouId be carefuI
and take aII necessary precautions whiIe using these negotiabIe
instruments .hen making onIine payments one shouId make sure Iater
by caIIing his bank customer care and confirming that onIy the
transaction made by him is showing .In the event of misuse/theft, one

shouId immediateIy report to the concerned authorities for stopping
payment from that account
PRECAUTIONS TO BE TAKEN TO AVOI FRAU
1. Keep an eye on your credit card every time you use it, and make sure you
get it back as quickly as possible. Try not to let your credit card out of your
sigt wenever possible.
2. Be very careful to wom you give your credit card. Don't give out your
account number over te pone unless you initiate te call and you know te
company is reputable. Never give your credit card info out wen you receive a
pone call. (For example, if you're told tere as been a 'computer problem'
and te caller needs you to verify information.) Legitimate companies don't call
you to ask for a credit card number over te pone.
3. Never respond to emails tat request you provide your credit card info via
email -- and don't ever respond to emails tat ask you to go to a website to
verify personal (and credit card) information. Tese are called 'pising'
scams.
4. Never provide your credit card information on a website tat is not a secure
site.
5. Sign your credit cards as soon as you receive tem.
6. Sred all credit card applications you receive.
7. Don't write your PN number on your credit card -- or ave it anywere near
your credit card (in te event tat your wallet gets stolen).
8. Never leave your credit cards or receipts lying around.
9. Sield your credit card number so tat oters around you can't copy it or
capture it on a cell pone or oter camera.

10. Keep a list in a secure place wit all of your account numbers and
expiration dates, as well as te pone number and address of eac bank tat
as issued you a credit card. Keep tis list updated eac time you get a new
credit card.
11. Only carry around credit cards tat you absolutely need. Don't carry
around extra credit cards tat you rarely use.
12. Open credit card bills promptly and make sure tere are no bogus
carges. Treat your credit card bill like your cecking account -- reconcile it
montly. Save your receipts so you can compare tem wit your montly bills.
13. f you find any carges tat you don't ave a receipt for -- or tat you don't
recognize -- report tese carges promptly (and in writing) to te credit card
issuer.
14. Always void and destroy incorrect receipts.
15. Sred anyting wit your credit card number written on it.
16. Never sign a blank credit card receipt. Carefully draw a line troug blank
portions of te receipt were additional carges could be fraudulently added.
17. Carbon paper is rarely used tese days, but if tere is a carbon tat is
used in a credit card transaction, destroy it immediately.
18. Never write your credit card account number in a public place (suc as on
a postcard or so tat it sows troug te envelope payment window).
19. deally, it's a good idea to carry your credit cards separately from your
wallet -- peraps in a zippered compartment or a small pouc.
20. Never lend a credit card to anyone else.

21. f you move, notify your credit card issuers in advance of your cange of
address.

RevoIution of Payment Systems in India

1. igitaI cash
A digital coin or digital cas consists of a message issued by a bank or oter
entity and encrypted by its Private Key. Te message contains te serial
number of te cas, te identity of te issuer and its nternet address, te
amount of te cas and an expiry date. Tis serial number is unique to
bank and can be decrypted by bank only tis serial cannot be altered unless
message is tweaked i.e. it is permanent in nature and once set cannot be
canged. Main feature of digital cas is tat 1) it is not traceable i.e. one
cannot track te initial user or wom te money is been transferred.2) it is
transnational it can be sent anywere in world. Example- wen ganes as
bougt a book from online retailer and wants to make payment in digital
cas ten for given price digital-cas code tat is associated wit te
requested digital-cas value i.e. book price generated from ganes bank wo
provides im digital cas service tis code s ten communicated to online
retailer ,te retailer will confirm te code from bank weter it is correct value
and tere is no multiple transaction and ten enter te encrypted code wit
retailers bank account code to transfer money into retailers account.

2. Smart Card
A smart card is like an "electronic wallet". t is a standard credit card-sized
plastic intelligent token witin wic a microcip as been embedded witin its
body and wic makes it smart. Amongst oter tings, te card can be used
to store money, or a value of money, including digital coins Example: Rajes
ad gone out of station at is cousin marriage for 5 days to Deli. He ad
gone out for sopping in a mall. He purcase clotes, soes and perfume for

is cousin marriage. He saw tat cas e was carrying in is wallet was not
enoug to pay te bill. So e tougt rater of witdrawing cas from A.T.M
e would pay directly by using is credit card. Tis will save is time and easy
to do te transaction.

3. EIectronic fund transfer
Electronic Funds Transfer (EFT) is te electronic excange or transfer of
money from one account to anoter, eiter witin a single financial institution
or across multiple institutions, troug computer-based systems. Te primary
modes of funds transfer at present are demand draft, mail transfer and
telegrapic transfer. Te time taken by tese modes of transfer for transferring
te money from sender to beneficiary is around 8 to 10 days. n te case of
Electronic fund transfer, fund reaces te beneficiary eiter on te same day
or te next day. For e.g.: Suppose tere are two parties party A and party B
entered into to a contract. f party A wants to make payment to party B troug
Electronic Funds Transfer ten party A will approac is bank to make te
payment to party B. Party A will give all te details of party A and party B
required for making a Electronic Fund Transfer to is bank and ten te bank
of party A will make te payment to te bank of party B. Te bank of party B
ten will make te payment to party B.

4. igitaI Cheque

Digital ceque is a form of payment used in Ecommerce. A digital ceque
functions in te same way as a paper ceque. t acts as a message to a bank
to transfer funds to a tird party; owever, it as a number of security
advantages over conventional ceques since te account number can be
encrypted, a digital signature can be employed, and digital certificates can be
used to validate te payer, te payer's bank, and te account.


Tere are two types of digital ceques1.

EIectronic cheque: Electronic ceque is issued electronically and no paper is
involved. Te electronic ceques are issued in electronic form wit digital
signatures / biometric signatures /encrypted data.

Truncated cheque: n ceque truncation, at some point in te flow of te
ceque, te pysical ceque is replaced wit an electronic image of te
ceque and tat image moves furter. Te processing is done on te basis of
tis truncated ceque and pysical ceque is stored.
For example, a company tat is depending on te received ceque clearing in
time to use te funds to manage an employee payroll will appreciate te
speed tat te electronic ceque deposit metod provides in comparison to
waiting several days for paper ceque to clear.

Kiosk Banking

hat is Kiosk Banking?
Kiosks are aestetically and ergonomically designed cabins containing
computers. Tey are used for advertising, promotion and information
purposes by equipping tem wit necessary security conditions. Kiosks can
be used for viewing or doing banking transactions.

hat is SBI KIOSK Banking?
SB KOSK Banking is a facility provided by State Bank Of ndia werein
customers need not go to te SB branc to make different transactions. Te
branc itself comes to te customer's village/place were te customer can
make te transactions.
hat is MacI?

MacD is te unique id tat is given to te eac system used by a KOSK
operator. You can find you MacD by typing te command "ipconfig /all" in te
command promp. t is sown as Pysical Address in te result.
hat is RTGS System?
Te acronym 'RTGS' stands for Real Time Gross Settlement, wic can be
defined as te continuous (real-time) settlement of funds transfers individually
on an order by order basis (witout netting). 'Real Time' means te processing
of instructions at te time tey are received rater tan at some later
time.'Gross Settlement' means te settlement of funds transfer instructions
occurs individually (on an instruction by instruction basis). Considering tat te
funds settlement takes place in te books of te Reserve Bank of ndia, te
payments are final and irrevocable.

How RTGS is different from NationaI EIectronics Funds Transfer System
(NEFT)?
NEFT is an electronic fund transfer system tat operates on a Deferred Net
Settlement (DNS) basis wic settles transactions in batces. n DNS, te
settlement takes place wit all transactions received till te particular cut-off
time. Tese transactions are netted (payable and receivables) in NEFT
wereas in RTGS te transactions are settled individually. For example,
currently, NEFT operates in ourly batces - tere are eleven settlements
from 9 am to 7 pm on week days and five settlements from 9 am to 1 pm on
Saturdays. Any transaction initiated after a designated settlement time would
ave to wait till te next designated settlement time Contrary to tis, in te
RTGS transactions are processed continuously trougout te RTGS
business ours.

Is there any minimum / maximum amount stipuIation for RTGS
transactions?
Te RTGS system is primarily meant for large value transactions. Te
minimum amount to be remitted troug RTGS is `2 lacs. Tere is no upper
ceiling for RTGS transactions.
Future
Biometrics
It consists of metods for uniquely recognizing umans based upon one or
more intrinsic pysical or beavioral traits. Te traits tat are considered
include fingerprints, retina and iris patterns, facial caracteristics and many
more. Biometrics is used as a form of identity access management and
access control 'Te meaning of Biometrics is life measurement" wic
measure a particular set of a person's vital statistics in order to determine
identity. E.g. dentify individuals in groups are means of identity access
management & A PN on an ATM system at a bank is means of access
control.
Biometric characteristics can be divided in two main cIasses
1. BehavioraI biometrics
: t is basically measures te caracteristics wic are acquired naturally over
a time. t is generally used for verification. e.g.
Speaker Recognition - analyzing vocal beavior
Signature - analyzing signature dynamics
Keystroke - measuring te time spacing of typed words2.
PhysicaI biometric
: t is measures te inerent pysical caracteristics on an individual. t can be
used for eiter identification or verification.
Exampl es:
Fingerprint - analyzing fingertip patterns
Facial Recognition - measuring facial caracteristics
Hand Geometry - measuring te sape of te and

ris Scan - analyzing features of colored ring of te eye
Retinal Scan - analyzing blood vessels in te eye
DNA - analyzing genetic makeup

Advantages of Biometrics in negotiabIe instruments:
ncrease security - Provide a convenient and low-cost additional tier of
security.
Reduce fraud by employing ard-to-forge tecnologies and materials. For e.g.
minimize te opportunity for D fraud, buddy puncing.
Eliminate problems caused by lost Ds or forgotten passwords by using
pysiologicalattributes. For e.g. prevent unautorised use of lost, stolen or "bo
rrowed" D cards.
Reduce password administration costs.
Replace ard-to-remember passwords wic may be sared or observed.

ntegrate a wide range of biometric solutions and tecnologies, customer
applicationsand databases into a robust and scalable control solution for facilit
y and network access
Make it possible, automatically, to know HO did HAT, HERE and
HEN!
Offer significant cost savings or increasing RO in areas suc as Loss
Prevention or Time & Attendance.

The Future of Payments - How will we pay for tings fifty years from now?
About all we can know wit confidence is tat it will be different tan it is now!
Tecnology is sure to develop in directions we can only imperfectly foresee.
Moreover, te public will immediately adopt some new ideas and will resist
oters. Altoug it is dangerous to predict te future, tere are a few emerging
tecnologies today tat look like tey will grow in te coming years. One is te
consolidation of credit-card information in a single pysical item, weter it is
a "smart card," a cellular telepone, or some oter kind of device. Anoter

muc-talked-about tecnology is te "electronic purse," wic will operate like
cas but be transferred electronically eiter in person or over te nternet. But
in order for any of tese tecnologies to become widespread, many problems
of standard-setting and consumer acceptance will ave to be overcome.

AII Your Cards on a Chip - Few consumers carry only a single card. Many
ave wallets crammed full of plastic cards, eac wit its own logo, embossed
numbers, and set of mercants wo accept it. From te standpoint of making
transactions, all tat is needed is te card number and type, expiration date,
and some means of autenticating your ownersip of te card. t is now
possible to load te relevant information from dozens of cards into te
processor of a cellular telepone or a "smart" card.
f you ave loaded all your cards into your pone, and if te mercant is
equipped to use te tecnology, you can ten simply "call up" te mercant's
payment number, coose wic card to use, and autenticate your identity
wit a personal identification number suc as te ones used by ATMs. Suc
tecnology may be convenient for consumers, but cannot spread until many
mercants install te necessary ardware to accept suc payments.

o You ReaIIy Need the Card? - f all tat te credit card really does is to
give account information and to autenticate your identity, do we really need
te card at all? t is not too far-fetced to imagine someday walking up to te
ceckout counter, putting your finger on a fingerprint identification device, and
aving a computer display a list of accounts tat you can use to pay. You
could simply coose one of te accounts and effect te payment. No card, no
telepone, no PN number.

EIectronic Purses - One futuristic tecnology tat as been slow to catc on
is te "electronic purse," wic is a smart card tat actually stores money
rater tan account information. Suc a card could be loaded wit cas at an

ATM just like a traditional purse or wallet. Te cardolder could spend te
money just like cas at any mercant equipped wit te appropriate reader.
Electronic purse tecnology olds promise to replace te last area were cas
is dominant: small-value transactions. t is costly to te mercant to process
transactions for only a few cents wit cecks or credit cards because of te
fixed transaction costs tey incur for processing. Because tey would not
require approval, electronic purse transactions would be as ceap to process
as cas.

Making It AII ork - n order for tese new tecnologies to revolutionize ow
we pay, lots of obstacles must be overcome. New tecnologies usually mean
costly new equipment for mercants to install. Tey will not be persuaded to
undertake tis investment unless tey tink many customers will use tem or
tat tey will save processing costs. it new tecnologies, tere are usually
several versions vying for dominance. However, payment systems work best if
everyone is compatible wit everyone else. Agreeing on wic of tese
tecnologies is to become te standard and licensing its widespread use can
impede adoption. Finally, consumers temselves ave to be confident tat te
new tecnology is beneficial, private, and safe. Only wen all of tese urdles
ave been overcome can a new payment tecnology be successful.

Appendix:-
MET`s Institute of Management
MMS 1
st
yr Div A`
EvoIution and RevoIution of negotiabIe instruments as faciIitators for trade
and commerce and ten years taking forward


Name:- Age:-
ProIession:-
Questionnaire:-
1. Who are the parties in a bill oI exchange?
Ans-
2. is an instrument in writing containing an unconditional undertaking signed by the
maker to pay a certain sum oI money only to, or to the order oI a certain person, or to the
bearer.
3. is an instrument in writing containing an unconditional order, signed by the
maker, directing a certain person to pay a certain sum oI money only to, or to the order oI a
certain person or to the bearer
4 The undertaking contained in a promissory note, to pay a certain sum of money is
(a) conditional
(b) unconditional
(c) may be conditional or unconditional depending upon the circumstances
(d) none oI the above.
5. A bill of exchange contains a/an
(a) unconditional undertaking
(b) unconditional order
(c) conditional undertaking
(d) conditional order.
6. Cheque is a
(a) promissory note
(b) bill oI exchange
(c) both (a) and (b) above
(d) None oI the above.
7.If in an instrument the amount undertaken or ordered to be paid is stated differently
in figures and in words

(a)the instrument is void due to uncertainty
(b)the amount stated in Iigure shall be the amount undertaken or ordered to be paid
(c) the amount stated in words shall be the amount undertaken or ordered to be paid
(d) none oI the above..
. Crossing of a cheque effects the
(a) negotiability oI the cheque
(b) mode oI payment on the cheque
(c) both (a) and (b)
9. A complaint against an offence under section 13 of the Negotiable Instrument Act,
11
(a) must be in writing (section 142) -
(b) may be oral or in writing (section 142)
(c) must be in writing containing a declaration by the drawee that he consents to such Iiling
oI the complaint (section 142)


BibIiography:
ttp://www.slidesare.net/mini244/negotiable-instruments-act-presentation-
862755
ttp://www.vakilno1.com/

ttp://www.lawyersclubindia.com/
ttp://mynation.net/
ttp://www.icmrindia.org/

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