Note- Negotiable Instruments

       A SHORT NOTE ON NEGOTIABLE INSTRUMENT                

Hello Readers,              

            A Very Good Morning to everyone. As we know  competition is very tough and we need to keep update ourselves with different types of news related to competitive exams is very important. Here we are posting a brief note on "NEGOTIABLE INSTRUMENTS" specially related to banking and financial sector. Hope you would like it. Happy Reading. 

What is Negotiable Instruments ?

               A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, with the payer named on the document. There are just three types of negotiable instruments:

1-Bills of exchange

2- Promissory notes 

3- Cheques. 

Name some more negotiable instruments ?

                Bill of lading, Bank draft/ pay order, Railway receipts, Dock warrant, Warehouse receipt, Certificate of deposit, Commercial paper,Treasury bills, Hundi.

1- Bill of Exchange:--  It’s an instrument containing an unconditional order signed by the maker directing a certain person to pay a certain sum of amount only to the bearer of that instrument. Bills are used in Banking Operations:-Inland bills and Foreign bills, Time bills and Demand bills, Trade bills and Accommodation bills, Clean bills and Documentary bills.

2- Promissory Note:-- It’s an instrument in writing which contains an unconditional undertaking signed by the maker to pay a certain sum of money to the order or the bearer of instrument. The Promissory Notes require being stamped ad per Indian Stamp Act. 

How many types of Promissory Notes are there:--

            Types of Promissory Note:1. Demand Promissory Note 2. Usance Promissory Note.

3- Cheque:-- A cheque is an instrument drawn on a specified bank and it is only payable on demand. Types of cheque:--

•  Order Cheque : A cheque which is payable to a particular person or his order is called an order cheque.
• Bearer Cheque : A cheque which is payable to a person whosoever bears, is called bearer cheque. 
• Blank Cheque : A cheque on which the drawer puts his signature and leaves all other columns blank is called a blank cheque.
• Stale Cheque : The cheque which is more than three months old is a stale cheque.
• Multilated Cheque : If a cheque is torn into two or more pieces, it is termed as mutilated cheque.
• Post Dated Cheque : If a cheque bears a date later than the date of issue, it is termed as post dated cheque.
• Open Cheque : A cheque which has not been crossed is called an open cheque. Even if a cheque is crossed and subsequently the drawer has cancelled the crossing at the request of the payee and affixes his full signature with the words “crossing cancelled pay cash”, it becomes an open cheque. 
• Crossed Cheque : A cheque which carries too parallel transverse lines across the face of the cheque with or without the words “I and co”, is said to be crossed.
• Gift Cheques : Gift cheques are used for offering presentations on occasions like birthday, weddings and such other situations. It is available in various denominations.
• Traveller’s Cheques : It is an instrument issued by a bank for remittance of money from one place to another. 

Dishonour of cheque:- When the payment is not made by the paying banker with a return memo giving reasons for the nonpayment. 

How is Cheque is different from BoE:-- Cheque is different from bill of exchange in following ways:

1)..Cheque is valid only 3 months from the date of issue.
2)..Cheque is payable to the bearer on demand.
3)..Cheque is drawn in a bank.
4)..Notice of dishonor is not necessary in cheque.

When should banks not pay the Cheque:-- Death of the drawer, Insane customers, Insolvent customers, On receipt of valid stop payment instruction, When cheque is postdated, When account has insufficient fund.

     

                            

Regards,

Classroom Team