Negotiation, endorsement, assignment and presentment

1. Negotiation

Section 14: when a promissory note, bill or cheque is transferred to any person so as to constitute that person the holder of it, the instrument is said to be negotiated.

• By delivery (s.47). An instrument payable to bearer is negotiated by delivery alone. Delivery, actual or constructive, completes the making, acceptance or indorsement of every instrument (s.46).
• By indorsement and delivery (s.48). An instrument payable to order is negotiated by the holder's indorsement and delivery.
• Who may negotiate (s.51). The sole maker, drawer, payee or indorsee, or all of several joint ones, if negotiability has not been restricted.
• Until when (s.60). Until payment or satisfaction by the maker, drawee or acceptor at or after maturity. A person who takes it after maturity or after dishonour with notice has only his transferor's rights (s.59).

2. Endorsement

Section 15: when the maker or holder of a negotiable instrument signs it, otherwise than as maker, for the purpose of negotiation, on the back or face or on a slip of paper annexed to it (an allonge), he is said to indorse it and is called the indorser. The person to whom it is indorsed is the indorsee.

The kinds:

• Blank (general) indorsement (s.16). The indorser signs his name only. The instrument becomes payable to bearer (s.54), even if originally payable to order, and can then pass by delivery. Any holder may convert it into a full indorsement by writing above the signature a direction to pay a named person, without becoming liable as indorser (s.49).
• Full (special) indorsement (s.16). The indorser adds a direction to pay a specified person or his order: “Pay C or order”, signed B. Only C can negotiate further, by his own indorsement.
• Restrictive indorsement (s.50). It restricts or excludes further negotiation, or makes the indorsee only an agent: “Pay the contents to C only”, “Pay C for my use”, “Pay C or order for the account of B”, “The within must be credited to C” (illustrations to s.50). The indorsee can receive payment but, in the first, second and fourth examples, cannot negotiate.
• Partial indorsement (s.56). An indorsement purporting to transfer only part of the amount is invalid for negotiation. But where part has been paid, that may be noted on the instrument and it may be negotiated for the balance.
• Conditional or qualified indorsement (s.52). The indorser may, by express words, exclude his own liability or make it, or the indorsee's right to receive, depend on a specified event:
  • sans recours (“without recourse to me”): the indorser passes the instrument but is not liable to later holders. If he later becomes holder again, all intermediate indorsers are liable to him (s.52);
  • facultative: the indorser waives a right, such as notice of dishonour (“notice of dishonour waived”);
  • conditional: “Pay C on his marriage”; the condition binds only the indorser and indorsee, not the maker or acceptor.
• Indorsement by a legal representative. A legal representative cannot negotiate by mere delivery an instrument payable to order which the deceased had indorsed but not delivered (s.57).

The effect of indorsement followed by delivery is to transfer the property in the instrument with the right of further negotiation (s.50). The indorser becomes liable to every subsequent holder on dishonour, after notice (s.35), and cannot deny the signature or capacity of any prior party (s.122).

3. Negotiation and assignment

An instrument may also be assigned, like any actionable claim, under ss.130 to 132 of the Transfer of Property Act. The differences matter:

• Mode. Negotiation is by delivery or indorsement and delivery. Assignment needs a written instrument signed by the transferor.
• Notice. No notice to the debtor is needed on negotiation. On assignment the debtor who pays the original creditor without notice is discharged.
• Title. A holder in due course takes free from defects of title. An assignee takes subject to all equities that the debtor had against the assignor.
• Consideration. Consideration is presumed on negotiation (s.118(a)); an assignee must prove it.
• Stamp. No stamp duty on negotiation; an assignment deed must be stamped.

4. Presentment for acceptance

• A bill payable after sight must be presented for acceptance within a reasonable time after it is drawn, in business hours on a business day, where no time or place is fixed; in default, no party is liable to the person in default (s.61). Bills payable on demand or on a fixed date need not be presented for acceptance, though it is prudent.
• A promissory note payable at a certain period after sight must be presented to the maker for sight (s.62).
• The drawee may ask for forty-eight hours, excluding public holidays, to decide whether to accept (s.63).
• Only the drawee, or a drawee in case of need or an acceptor for honour, can accept (s.33).

5. Presentment for payment

• Notes, bills and cheques must be presented for payment to the maker, acceptor or drawee, by or for the holder; if not, the other parties are not liable to the holder (s.64).
• When. Instruments payable after date or sight at maturity (s.66); demand instruments within a reasonable time after the holder receives them (s.74); in business hours, and at a bank within banking hours (s.65).
• Where. At the place specified, or the maker's place of business or residence (ss.68–71).
• Cheques. To charge the drawer, a cheque must be presented before the relation between the drawer and his banker has altered to the drawer's prejudice (s.72), and under s.84 delay discharges the drawer only to the extent he suffers actual damage (for example, by the bank's failure). To charge any other person, such as an indorser, it must be presented within a reasonable time after he delivered it (s.73). RBI directions make a cheque valid for three months from its date; a stale cheque will be returned.
• Excuses (ss.75A, 76). Delay is excused if caused by circumstances beyond the holder's control. Presentment is unnecessary where the maker or drawee intentionally prevents it, closes his place of business, cannot be found, has promised to pay regardless, or where the drawer could suffer no damage from non-presentment.

Maturity (ss.21–25). An instrument not payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is expressed to be payable (days of grace, s.22). If the day of maturity is a public holiday, the instrument is due on the next preceding business day (s.25). Cheques, being payable on demand, have no days of grace.

6. Problem

Mr. Harsha could not present a cheque he received from his friend because of a busy schedule. The period of limitation is about to expire on a day which happens to be a holiday. Advise Mr. Harsha. (February 2025)

Issue. Whether a cheque whose period for presentment ends on a holiday may be presented on the next working day, and what Harsha loses if it is not presented in time.

Law. A cheque must be presented within a reasonable time (ss.72–74) and, under RBI directions, within three months of its date. Section 138(a) requires presentation within six months or within the period of validity, whichever is earlier, for the criminal remedy. Days of grace and the holiday rule of s.25 apply to notes and bills at maturity, not to cheques, and s.25 moves the due date back to the preceding business day, not forward. Delay is excused under s.75A only for circumstances beyond the holder's control, which a busy schedule is not. Section 84 discharges the drawer only to the extent of actual damage from delay. For a suit, s.4 of the Limitation Act, 1963 allows institution on the day the court reopens if the period expires when the court is closed.

Application. Harsha cannot count on the holiday to extend the validity of the cheque. The bank will not pay a cheque presented after its validity has run, and the delay, caused by his own business, is not excused. He should present it through his bank on the last working day before the holiday; with electronic clearing he can deposit it the same day. If he misses that day, the cheque becomes stale and he loses the remedy under s.138. He does not lose the debt: the drawer remains liable on the original debt and, under s.84, on the cheque itself unless he has suffered damage from the delay. Harsha can ask his friend to issue a fresh cheque or revalidate the old one, or sue for the debt within three years, using s.4 of the Limitation Act if the last day of limitation falls on a court holiday.

Conclusion. Present the cheque before the holiday. If that is missed, seek a fresh cheque or sue on the debt; the criminal remedy will no longer be available on this cheque.

How this is examined

“What is endorsement? Explain the different types of endorsement” (June 2025, August 2024); short note “Blank endorsement” (January 2026). For the short note, give s.16, s.54 (converts to bearer), s.49 (conversion into full) and the risk that a blank-indorsed instrument can be negotiated by a finder. Presentment appears as a short note and in problems like Harsha's; negotiation versus assignment is a good 6-mark answer in list form.