MGT611 GDB Fall 2011

by munaza Wed Jan 18, 2012 8:43 am

In today’s business arena; where the whole world has become a global village; exchange of goods and services is only the basis for every business activity and goods are bought and sold on cash as well as credit basis. In modern business, all the business transactions require the flow of cash either on immediate basis or after a specific time period; especially when large number of transactions are involved then there would be a huge sum of money takes place. Although it is very convenient but risky for either party to receive and make the payment on cash for larger business transactions but the common practice of businessmen is to make use of certain documents as means for making and receiving payments. Some of these documents are known as negotiable instruments.According to section 13 of the Negotiable Instruments Act, 1881, a negotiable instrument means “promissory note, bill of exchange, or cheque, payable either to order or to bearer”.Negotiable means “transferable” and instruments mean “documents”. So, negotiable instruments are those documents which are transferable; used for payment in business transactions and are transferable freely from one person to another.According to the Negotiable Instruments Act, 1881; there are just three types of negotiable instruments i.e., promissory note, bill of exchange and cheque. However, many other documents are also recognized as negotiable instruments; on the basis of custom and usage, like hundis, treasury bills, share warrants, etc., provided they possess the features of negotiability. You are required to identify the types of negotiable instruments as well as justifications about discussion questions given below.Case 01:Suppose Mr. Ahmad has taken a loan of Rs. 1, 00,000 from his colleague Mr.Ali, and made a proper document which was stating that he will pay the prescribed amount of loan to Mr. Ali immediate after two months, after that he duly signed and stamped that document and handed over to Mr. Ali.After one month Ali had to go abroad for a period of 3 months for an official tour by his company and handed over that document to his younger brother Mr. Hassan to collect the assigned amount of money after a month on his behalf from Mr. Ali, but on due date Mr. Hassan handed over that document to his colleague Mr. Zaid to collect the money from Mr. Ahmad on his behalf.Case 02:Suppose Mr. Bilal has given a loan of Rs. 25,000 to Mr. Umer, which Umer has to return, Now, Mr. Bilal also has to give an amount of Rs. 25,000 to Mr. Saad. So Mr. Bilal has made a document directing Mr. Umer to make payment up to Rs. 25,000 to Mr. Saad on demand or after expiry of a certain period.Discussion Question:
In above two cases, identify the types of negotiable instruments in each case (promissory note, bill of exchange, cheque, hundis, treasury bills, or share warrants).
“A Bill of Exchange must contain an unconditional promise to pay.” While “Promissory Note must contain an unconditional order to pay” Do you agree with this statement? Justify your answer.