Вы находитесь на странице: 1из 7


Negotiable Instruments Act,



 Perhaps the single most well know offence considered criminal in

nature is cheque bouncing!
 Sec 138 of the Negotiable Instruments Act, 1881 is more famous
than any other section in any other law.
 Citizens may not their fundamental rights, but they are aware of Sec
 This section is included in Chapter XVII of the Act. The chapter was
inserted through an amendment in 1988.
 Since then, there have been several cheque bouncing cases of have
been prosecuted under this section.
 The offence carries an imprisonment of up to 2 years or fine up to
twice the amount involved, or both.



 A negotiable instrument is essentially an instrument of credit

convertible into money and easily carried from one hand to another.
 The word negotiable means ‘passable by delivery’ i.e. ‘transferable’
and instrument means ‘a written document which, creates a right in
favour of some person.’
 Thus, the expression ‘negotiable instrument’ literally implies a written
document transferable by delivery from one person to another.
 It is transferable with a simple procedure
• Requires a signature; and
• Needs to be delivered.
 The law endorses such a way of transfer of a negotiable instrument
and protects it.


 Purely commercial in nature, to protect business transactions.

 Protecting the transfer of instruments.
 Guaranteeing the payment of amount specified on the instrument
and discharge of liability.
 Provides for different types of negotiation and delivery.
 Recognises the transfer of title (good or bad) along with transfer of
 Modes of presentment of instruments.
 Provision for interest on delayed payment.
 Consequences of default.
 Making cheque bouncing a criminal offence has given protection to
business transactions.



 Freely transferable
 Defect free title to the transferee
 Recovery. Holder in due course (who obtains defect free title) is entitled
to recover, even without informing about his ownership to the debtor.
 No ceiling on number of transfers.
 Payable to bearer or Payable to order. If instrument contains words ‘ not
transferable’ or ‘not negotiable’ etc., it becomes not negotiable. To make
it negotiable, it should be ‘payable to order’.
 Payment may be to one or more payees.
 Presumptions: consideration, date, time of acceptance, time of transfer,
order of endorsements etc.
 Amounts in figures and words different?


 The Act recognises 3 types of negotiable instruments:

• Promissory note
• Bills of exchange
• Cheque
 Drawer, Drawee, Payee.
 Acceptor, Acceptance.
 Holder, Holder in due course.
 Payment in due course: payment at end of term in good faith,
without negligence to any person who holds it clean.
 Payable on demand: where no time is specified. Cheque is always
payable on demand.


 Endorsement: signing on the back or face of the instrument for the
purpose of negotiation – it could also be by way a slip or stamp
paper attached to the instrument
• It could be blank (only signature, no payee) – becomes payable to bearer
• It could be full or special (signature with payee’s name).
 Negotiation: signing and endorsing; if bearer, by delivery. That is
negotiation by endorsement or by delivery.
 At sight – when presented.
 Maturity: Promissory note or Bill of exchange if not payable on
demand – the maturity is on the third day after the payable date.
Rules for no. of months/ days/ holidays.
 Presentment for acceptance, payment and rules thereof.
 Noting and Protest.


1. Bearer instrument
2. Order instrument
3. Inland instrument: drawn in India and made payable in India
4. Foreign instrument: not an inland instrument
5. Time instrument: at sight in future, fixed date, fixed period, at event
6. Demand instrument: a cheque is always payable on demand
7. Ambiguous instrument: could be treated as a promissory note or
bill of exchange
8. Inchoate instrument: incomplete


 A promissory note is an instrument in writing (not being a bank note or
currency note) containing an unconditional undertaking, signed by
the maker to pay a certain sum of money only to, or the order of a
certain person, or to the bearer of the instrument. (Sec 4).

 A bill of exchange is an instrument in writing containing an

unconditional order, signed by the maker, directing a certain person
to pay a sum of money only to, or to the order of a certain person, or
to the bearer of the instrument. (Sec 5).

 A cheque is a bill of exchange drawn on a specified banker and not

expressed to be payable otherwise than on demand and it includes the
electronic image or truncated cheque and a cheque in electronic form.
(Sec 6).

Specimen 1
Rs. 50,000/
New Delhi
1 March 2020
Sixty days after date I promise to pay Mr. Y the sum of rupees fifty thousand only with
interest thereon at 12% per annum for value received.
Mr. Y Revenue Stamp
New Delhi Mr. X (Sd/- on stamp)
Specimen 2
Rs. 5,00,000/-
New Delhi
1 March, 2020
Ninety days after date I promise to pay Mr. Y or order the sum of rupees five lakh only.
Mr. Y Revenue Stamp
New Delhi Mr. X (Sd/- on stamp)


Rs. 50,000/
New Delhi
1 March 2020
Sixty days after date pay Mr. ABC or order the sum of rupees fifty
five thousand only for value received.

Mr. Z Accepted Revenue Stamp
New Delhi Mr. Z Mr. X
(Sd/- on stamp)

 Drawer: Person who makes the cheque
 Drawee: The bank of the drawer
 Payee: To whom it is payable
 Two parallel lines drawn on the left hand top corner of the cheque.
 It is a direction to the drawee or paying banker to pay the money to a
specified banker as desired by the payee or deposit the amount in the
account of the payee if he has an account with the drawee bank and not
to pay otherwise.
 Primary objective of crossing is to secure payment to a holder so that it
could be traced to the person collecting the amount of cheque.
 General crossing: Cheque bears across its face an addition of the words
‘and company’ or ‘& co.’ in between two parallel lines with or without
the words ‘not negotiable’.
 Special crossing: Name of a banker is written across the face of a
cheque with or without the words ‘not negotiable’.



1. Inland bill: made or payable in India even if drawn on a foreign person;
the drawee must be in India
2. Foreign bill
3. Trade bill: in a genuine trade transaction
4. Accommodation bill: one made to provide financial help
5. Documentary bill: when bill of exchange is attached with documents of
title to goods
6. Clean bill: when no documents to tile are attached
7. Bank draft: drawn by a bank branch instructing its another branch to
pay a specified person


 Dishonour of cheque for insufficiency of funds is a criminal offence.

Compliant must be made in writing within one month of the date.
 Dishonour of other instruments:
• Formal notice within reasonable time to be given by holder to all parties
whom he seeks to make liable (certain exclusions)
• Dishonour to be ‘Noted’ by a public notary – legal proof
• A formal certificate of dishonour by notary is ‘Protest’
 In case of dishonour, the amount due plus expenses are to be paid.
 Discharge from liability – by cancellation, release, or payment.