A document that guarantees to pay a particular sum of money on demand or at a fixed time to the payer whose name usually stated on the document is called negotiable instruments.
Negotiable instruments are evidence of indebtedness and in trade; they are freely or unconditionally transferred as an alternate of money. These documents are used in commercial transactions and for the deals relating to money.
In negotiable instrument Act 1881 section 13(i), it is stated that,
“A negotiable instrument comprises and means a promissory note, bill of exchange or cheque.”
Uniqueness of Negotiable Instruments:
• It can be transferable freely.
• It must be in written form and signed by parties.
• There is an unconditional order or assurance for payment in negotiable instruments.
• These instruments can be made, drawn, accepted, endorsed, negotiated or transferred for something in return.
• Each negotiable instrument consisting of a date is assumed to be made or drawn on specific date.
• Every move of negotiable instrument is supposed to have been made earlier than its fixed date.
• Liabilities of parties are governed only in term of such money.
• For the transfer of negotiable instruments it is not required to give notice.
Kinds of Negotiable Instruments:
According to section 13 of negotiable instruments, kinds of negotiable instruments are
1. Promissory note
3. Bill of exchange
Promissory note is a promise that is in written form to give a particular amount of money to a specific person, by a particular rate. It is an unconditional promise to make sure the payment on certain fixed date or on demand and maker must have to sign it. In promissory note one promise to pay his liability.
Parties included in promissory note:
The person who makes and draws the promissory note is called maker and also called Promisor and drawer. He promises to pay particular sum as stated in promissory note. Maker is debtor.
The person who accepts the promissory note is called payee and also called drawee or Promisee. The amount is to be payable to the payee. Payee is creditor.
Person to whom promissory note might have been endorsed is called holder. Holder can be the payee.
When holder of promissory note endorses it to someone the holder becomes the endorser.
The person to whom promissory note is being endorsed by endorser is called endorsee.
Essential conditions of Promissory Note:
? A verbal promise to make sure the payment is not considered as promissory note.
? Promise to pay is unconditional.
? Maker of promissory note must sign the document.
? The name and designation of payee must be mentioned.
? Amount to be paid should be current legal money not old coins.
Waleed promises to pay $50,000 to Gul Ahmed Textile. The payment has to be made in form of 300 equivalent payments at 6% interest, or $322.15 payable on 1st of each month, beginning November 1, 2018 until the total debt is satisfied.
An evidence to draw amount from bank is called cheque. A document that commands the bank to give a particular sum of money from account of a person to the person to the name of whom it has been issued is called cheque.
Cheque is negotiable instrument that orders a financial institute to pay a particular amount of a particular currency from a particular transactional bank account to be carried on the name of drawer with that institution.
Parties included in cheque:
The person who makes or draws a cheque is known as drawer.
The person who is recipient of the money is known as payee.
Bank or other financial institute or organization where cheque has been presented for payment is known as drawee.
Essential conditions of cheque:
? Cheque is the order for payment that a customer issued to his bank not the appeal for payment.
? Customer draws the cheque on bank.
? Account holder must have to sign the cheque. Unsigned cheques are not considered.
? Cheque has to be paid on claim. After the date of expiry it can’t be cheque.
? Amount of cheque must have to write in words and also in numbers to keep away from the conflicts.
? Name of payee must be mentioned and the payee should be certain and clear.
? From the date of issue, cheque will be valid for three months.
Bill of exchange:
Bill of exchange is an instrument in written form used for the settlement of amount overdue. It is prepared by the person who entitled to receive money on the person who is responsible to pay money. It is order to pay particular amount of money to a particular person. It is a lawful document which authenticates money owing. It is order for future payment.
According to section 5 of Negotiable instrument act, 1881 bill of exchange can be defined as,
“A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a definite sum of money only to, or to the order of, a certain person or to the holder of the instrument.”
Parties included in bill of exchange:
Drawer is the one who formulates the bill of exchange. Drawer is the creditor.
Drawee is the one who bound to pay money to the drawer. Drawee is the debtor.
When drawee accepts and signed the bill of exchange, he becomes acceptor.
The person to whom money is to be paid by instrument is known as payee.
When holder of bill of exchange transfers or endorses it to anyone else, then the holder becomes the endorser.
The person to whom bill is endorsed is called endorsee.
The person who is lawfully permitted to the possession of the negotiable instrument and to get the amount is called holder.
Essentials of bill of exchange:
? It must be in writing.
? Drawer of bill of exchange must have to sign it.
? Included parties (drawer, drawee, and payee) must be sure.
? Amount to be payable must be certain and clear.
? It must be stamped properly.
? The order must be based on condition.
Mr. Kamal is a wholesaler and he sells goods to Mr. Nabeel for Rs.50000 on credit. Talha is the friend of Nabeel and Kamal and he guaranteed Kamal that Nabeel has good credit paying ability. Upon his guarantee Mr. Kamal made sale on credit for the time period of 3 month.
After making a sale, Kamal draws a bill on Nabeel for Rs.50000 to be paid within 3 months since the date on which bill draws.
Difference between Promissory note, bill of exchange and cheque:
Basis Promissory note Bill of exchange Cheque
Defined in It is defined in section 4 of negotiable instrument act, 1881. It is defined in section 5 of negotiable instrument act, 1881. It is defined in section 6 of negotiable instrument act, 1881.
Promise or order It is a promise. It is an order. It is an order.
Period It is to be paid on demand. It is to be paid on demand only. It is only to be paid on demand.
Grace days Grace days are allowed. Three Grace days are allowed. Grace days are not allowed.
Area It is usually inland.
It is inland and overseas as well. It is only on the depositor’s bank.
Acceptance Its acceptance is not required. Its acceptance by drawee is must. Its acceptance is not required.
Crossing It can’t be crossed. It can’t be crossed. It can be crossed.
Application of copies It can’t be drawn in copies. It can be drawn in copies. It can’t be drawn in copies.
Bank rules for minor
NRSP microfinance bank:
NRSP microfinance bank is one of the foremost microfinance banks in Pakistan. With strong social mission, it began on March, 2011 to offer financial services.
To become foremost Microfinance Bank in Pakistan.
To harness the potential of people through inclusive finance; for scarcity reduction and a brighter future.
? International Finance Corporation (IFC):
? Bank aus Verantwortung (KfW):
? National Rural Support program:
Products offered by bank:
a) Micro lending:
Micro lending include group loan, individual loans, MSME.
b) Savings and deposit:
In saving and deposit they have current account, saving account and terms deposits.
In insurance they offer client health and death insurance.
Here they offer people totally loaning. Loans include short term loans, long term loans etc.
It is a financial plan from 4 – 24 months due to which SMS, agricultural and livestock customers can obtain finance from Rs 5000 with higher limit as per set of laws.
ii. NRSP Sala’m:
It is financial plan from 4 – 24 months due to which agricultural clients can obtain finance from Rs 5000 with higher limit as per set of laws.
Ijarah can be used for rent of plant, car, vehicles and equipment real estate, long-lasting goods, etc. clients in NRSP use Ijarah generally for rental of agriculture equipment, motorcycles, auto rukshas and car as under;
• As on customer demand bank buys leasable assets from the market.
• The bank then leases those assets to customers for decided period.
• The customer pays lease to the bank as per decided rental timetable.
In liability side they open accounts to the people. Simply we can use the term CASA stands for current account and saving account.
i. Asaan modarba:
Asaan modarba is saving account with no least balance obligation and profit payment is to be made monthly or quarterly.
ii. Kisan modarba:
Kisan modarba is saving account with no least balance obligation and payment of profit after six months.
iii. Current account:
It is operating under qarz-e-hasna basis.
iv. NRSP Islamic certificate:
NRSP Islamic certificate is deposited term of 1 month to 5 years tenor and distribution of profit is according to the Islamic certificate.
Terms and conditions of NRSP Microfinance bank regarding Minor’s account:
Minor is one who is under the age of 18.
Rules for minor’s account:
• If minor has to open current or saving account then first requirement is of the NIC of his parents or legal guardian.
• Guardian of minor may be his blood relation and proof of guardian is required.
• Important thing that is required is the proof of minor’s source of income mean to say that from which sources he get income and who supports him.
• There is time limit for which guardian has to look after the account of minor.
• The minor account agreement of the bank with the guardian is valid until the minor is under the age of 18.
• When he gets the age of majority and has NIC than minor have to consult his bank. here the agreement with guardian of minor is break and now after getting NIC he becomes responsible for all his bank transactions and to look after the account
Chances of fraud:
Chances of fraud are less in case of minor account because NRSP Microfinance bank has online biometric system for the confirmation of NIC from NADRA.
Guardian may fraud with minor but fraud of minor with bank has fewer chances nowadays.
Terms and rules of state bank of Pakistan for minor’s account:
i. For opening the minor account, Form-B, Birth Certificate or Student ID card (as suitable) shall be taken from minor.
ii. Photocopy of computerized NIC (issued by NADRA) of the guardian is required.
iii. Proof of Source of income of minor is required.
Here is the letter attached as the proof of our visit to NRSP Microfinance bank, Haripur branch: