Negotiable Instruments and Payment Systems
This domain covers the Negotiable Instruments Act, 1881, cheque features and dishonour, and the main electronic payment systems used in India.
Negotiable instruments
A negotiable instrument is a transferable document that gives the holder title free from defects in earlier titles, subject to the Act. The three main instruments are the promissory note, bill of exchange and cheque. A cheque is a bill of exchange drawn on a bank and payable on demand.
Cheque features
A cheque has a drawer, a drawee bank and a payee. It may be bearer or order, and crossed generally, specially or account payee. Endorsement transfers rights. A cheque is valid for three months from its date; a post-dated cheque cannot be paid before its date. The Positive Pay System applies to CTS cheques of ₹50,000 and above.
Dishonour and Section 138
If a cheque is dishonoured for insufficient funds or similar reasons, the payee may send a demand notice within 30 days of receiving the dishonour memo. The drawer gets 15 days to pay. If payment is not made, a complaint may be filed within one month after the cause of action arises.
Payment systems
RTGS is real-time gross settlement with a minimum of ₹2 lakh. NEFT is a 24x7 batch-settled system with no minimum. IMPS and UPI are instant retail systems; UPI is operated by NPCI. CTS is cheque truncation, and AePS supports Aadhaar-enabled transactions.
Worked example
A cheque dated 5 January is presented on 10 April. It is beyond three months, so the bank returns it as stale. Section 138 is not attracted because the return is not a dishonour for want of funds.
Traps
RTGS is not meant for small amounts such as ₹10,000. NEFT is not a real-time gross settlement system. Account-payee crossing does not guarantee that funds exist. Section 138 applies to cheques, not to every negotiable instrument.