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Negotiable Instruments Act, 1881 – Practical Drafting, Pleading & Conveyancing Notes

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This document provides a comprehensive practical toolkit for handling matters under the Negotiable Instruments Act, 1881, especially for law students, junior advocates, and practising lawyers.

1. Conveyancing under the NI Act

(a) Transfer / Endorsements

  • Transfer of instruments happens by:
    • Delivery (for bearer instruments).
    • Endorsement + delivery (for order instruments).
  • Types of endorsements:
    • Blank endorsement.
    • Special endorsement.
    • Restrictive endorsement.
    • Conditional endorsement.

Sample wording:


Pay to \[Name of Person] or order.
Sd/- \[Endorser]

(b) Inchoate Instruments (Sec. 20)

  • A signed blank instrument can be lawfully completed by the holder.
  • Maker is liable to the extent mentioned in the instrument.

(c) Stamp Duty

  • Promissory notes & bills of exchange must bear appropriate stamp duty under the Indian Stamp Act, 1899.
  • Unstamped or insufficiently stamped instruments are inadmissible in evidence.

2. Noting & Protesting

When to Use

  • Noting: Recording dishonour of instrument by a notary public.
  • Protesting: Formal certificate of dishonour when noting is insufficient.
  • Mainly relevant for bills of exchange (foreign bills).

Drafting Format of Protest (Simplified)


PROTEST
For Non-Payment of Bill of Exchange

At the request of \[Name of Holder], I, \[Name of Notary], do hereby protest
against \[Name of Drawee] for non-payment of bill dated \_\_\_ for Rs. \_\_\_.

Signed,
\[Notary Public]
Date: \_\_\_

3. Evidence Checklist (What to Annex / Preserve)

When filing complaint under Sec. 138 NI Act, annex:

  • Original dishonoured cheque.
  • Bank return memo (reason for dishonour).
  • Copy of statutory notice.
  • Postal receipt / courier receipt.
  • Acknowledgment card or tracking proof.
  • Complaint affidavit under Sec. 145 NI Act.
  • Vakalatnama.

4. Drafting Practical Tips & Common Pitfalls

Tips:

  • Always quote cheque number, date, amount, bank.
  • Attach proof of service of notice.
  • Use precise statutory language (Sec. 138, 142).
  • File within limitation period.

Common Pitfalls to Avoid:

  • Presenting cheque after validity (3 months).
  • Not issuing notice within 30 days.
  • Wrong jurisdiction (check post-2015 amendment).
  • Vague pleadings (no particulars of debt/liability).
  • Filing without annexures.

5. Model Settlement / Compromise Deed


SETTLEMENT AGREEMENT

This Settlement Agreement is executed on this \_\_\_ day of \_**, 20**.

BETWEEN:
Mr./Ms. \[Name of Drawer], residing at \[Address] (First Party)
AND
Mr./Ms. \[Name of Payee], residing at \[Address] (Second Party)

WHEREAS:
(a) A dispute arose relating to dishonour of cheque No. \_\_\_ dated \_\_\_ for Rs. \_\_\_.
(b) Parties have agreed to settle the matter amicably.

NOW IT IS AGREED:

1. First Party shall pay Rs. \_\_\_ to Second Party in full settlement.
2. Payment shall be made on or before \_\_\_ by \[mode of payment].
3. Second Party agrees to withdraw pending complaint under Sec. 138 NI Act.
4. Both parties agree that this settlement is final and binding.

Signed,
\[First Party]             \[Second Party]
Witnesses:

1. ---
2. ---

6. Templates Summary (What to File – Checklist)

  • Statutory Notice (Sec. 138).
  • Criminal Complaint before Magistrate.
  • Affidavit of Evidence (Sec. 145).
  • Annexures: cheque, return memo, notice copy, postal receipts.
  • Vakalatnama (by advocate).
  • Settlement deed (if compromise reached).

7. Practical Examples of Pleading Language

Complainant:

“That the accused issued cheque No. _ dated _ drawn on _ Bank for Rs. _ in discharge of a legally enforceable debt. The said cheque was dishonoured on presentation with remark ‘Insufficient Funds’. Despite statutory notice, the accused failed to pay, hence this complaint under Section 138.”

Defence:

“That the cheque in question was issued as security and not against any existing debt or liability. There is no legally enforceable debt within the meaning of Section 138.”

8. Where to Read – Authoritative Text & Leading Judgments

  • Statute: Negotiable Instruments Act, 1881 (Bare Act – Universal, LexisNexis, CLA).

  • Commentaries:

    • Avtar Singh, Negotiable Instruments Act.
    • Justice M.R. Mallick, NI Act Commentary.

  • Landmark Judgments:

    • Rangappa v. Sri Mohan (2010) – Presumption of debt.
    • K. Bhaskaran v. Sankaran Vaidhyan Balan (1999) – Components of offence.
    • Dashrath Rupsingh Rathod v. State of Maharashtra (2014) – Jurisdiction (later amended).
    • Indian Bank Association v. Union of India (2014) – Fast-track guidelines.

9. Final Strategic Checklist for Practising Lawyer

  1. Verify cheque is within validity.
  2. Present cheque & obtain bank return memo.
  3. Issue statutory notice within 30 days.
  4. Wait for 15 days payment period.
  5. File complaint within 30 days thereafter.
  6. Attach all documents/evidence.
  7. Use affidavit evidence to save time.
  8. Consider settlement/compounding under Sec. 147.
  9. If client is accused, explore defences (security cheque, lack of liability).
  10. Keep updated with amendments & judgments.

10. Closing Notes & Legal Caveat

  • Sec. 138 NI Act is a criminal provision with quasi-civil flavour.
  • Courts favour compounding/settlement to reduce litigation burden.
  • Always comply with statutory timelines—delays may be fatal.
  • Legal caveat: These drafts are illustrative educational tools. Practitioners must adapt to facts, client instructions, and latest case law.
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