NEGOTIABLE

INSTRUMENT ACT, 1881

KRISHAN KANT MEENA
CENTRAL UNIVERSITY OF RAJASTHAN

NEGOTIABLE INSTRUMENT

Section 13 of the Negotiable Instrument Act, 1881,

defines a negotiable instrument as: A negotiable
instrument means a promissory note, bill of exchange
or cheque payable either to order or to bearer.
[Sec.13(1)].
negotiable + instrument = transferable document
the negotiable instrument is a document by which
rights vested in a person can be transferred to
another person in accordance with the provisions of
the Negotiable Instruments Act, 1881.
which is expressed to be so payable, or which is
expressed to be payable to a particular person

CHARACTERISTICS\FEATURES OF
NEGOTIABLE INSTRUMENT:

Property: where instrument is payable to bearer. Where instrument is

payable to order, right of ownership passes by endorsement and delivery.

Good Title to the Instrument:

Rights of Holder in Due Course: fraud, criminal, smugglers, (The Holder

can sue in his own Name )
Writing & Signature: written and signed by all the parties

Payment: [Sec. 13(2)]. payable to one or two or more payees jointly

Payable by legal Tender Money of India: The liabilities of the parties of

negotiable instruments are fixed in terms of legal tender money only
No Need of giving Notice:

PRESUMPTIONS AS TO NEGOTIABLE INSTRUMENTS

[SECTIONS 118-119]

1) As to Consideration - Every negotiable instrument is deemed to have been

made, drawn, and accepted endorsed, negotiated or transferred for consideration.
2) As to date- Every negotiable instrument bear the date on which it is made or
drawn.
3) As to Acceptance- Every bill of exchange was accepted within a reasonable
time after the date mentioned therein and before the date of its maturity.
4) As to Transfer- Every transfer of a negotiable instrument was made before the
date of its maturity in case of an instrument payable otherwise than on demand.
5) As to the order of Endorsements - The endorsements appearing on it were
made in the order in which they appear thereon.
6) As to lost Instruments - Where an instrument has been lost or destroyed, that it
was duly stamped and the stamp was duly cancelled.
7) As to holder-in-due course - The holder of the instrument is a holder in due
course.
8) As to dishonour - If a suit is filed upon an instrument, which has been
dishonoured, the Court shall, on proof of the protest, presume the fact of
dishonour unless it is disproved.

PROMISSORY NOTE
[SECTION 4]

A promissory note is an instrument in writing (not being a bank

note or a currency note) containing an unconditional undertaking,
signed by the maker to pay a certain sum of money to, or to the
order of, a certain person or to the bearer of the instrument
Examples of Promissory Notes
A signs instruments in the following terms:
"I acknowledge myself to be indebted to 'B' in Rs. 1000, to be
paid on demand, for value received."
Followings are Not Promissory Notes.
(i) "Mr. B, I.O.U. (I owe you) Rs. 1000."
(ii) "I promise to pay B Rs. 1500 on D's death, provided he leaves
me enough to pay that sum,"
(iii) "I promise to pay B Rs. 500 seven days after my marriage with
C."

ESSENTIALS OR CHARACTERISTICS OF A PROMISSORY

NOTE

(1)
In writing - A promissory note must be in writing. Writing includes
print and typewriting.
(2)
Promise to pay - It must contain an undertaking or promise to pay.
Thus, a mere acknowledgement of indebtedness is not sufficient.
Notice that the use of the word `promise' is not essential to constitute an
instrument as promissory note.
(3)
Unconditional - The promise to pay must not be conditional. Thus,
instruments payable on performance or non-performance of a particular act
or on the happening or non-happening of an event are not promissory notes.
(4)
Signed by the Maker The promissory note must be signed by the
maker, otherwise it is of no effect.
(5)
Certain Parties - The instrument must point out with certainty the
maker and the payee of the promissory note.
(6) Certain sum of money - The sum payable must be certain or capable
of being made certain.

ESSENTIALS OR CHARACTERISTICS OF A PROMISSORY

NOTE

(7)
Promise to pay money only - If the instrument contains a promise
to pay something in addition money, it cannot be a promissory note.
(8)
Number, place, date etc - These are usually found in a promissory
note but are not essential in law. If a promissory note does not bear a date,
it is deemed to have been made when it was delivered.
(9)
It may be payable in installments
(10) It may be payable on demand or after a definite period Payable 'on demand' means payable immediately or any time till it
becomes time-barred. A demand promissory note becomes time barred on
expiry of 3 years from the date it bears.
(11) It cannot be made payable to bearer on demand or even
payable to bearer after a certain period
(12) It must be duly stamped under the Indian Stamp Act - It
means that the stamps of the requisite amount must have been affixed on
the instrument and duly cancelled either before or at the time of its
execution. A promissory note, which is not so stamped, is a nullity.

BILL OF EXCHANGE
[SECTION 5]

A 'bill of exchange' is defined by as an instrument

in writing, containing an unconditional order,
signed by the maker, directing a certain person to
pay a certain sum of money only to or to the
order of, a certain person, or to the bearer of the
instrument

CHARACTERISTIC FEATURES OF A
BILL OF EXCHANGE
1. It must be in writing.
2. It must contain an order to pay and not a promise or request.
3. The order must be unconditional.
4. There must be three parties, viz., drawer, drawee and payee.
5. The parties must be certain.
6. It must be signed by the drawer.
7. The sum payable must be certain or capable of being made
certain.
8. The order must be to pay money and money alone.
9. It must be duly stamped as per the Indian Stamp Act.
10. Number, date and place are not essential.

5.4 CHEQUE
[SECTION 6]

A Cheque, in essence, is an order by the customer of the

bank directing his banker to pay on demand, the
specified amount, to or to the order of the person named
therein or to the bearer.
It has been defined as a bill of exchange drawn on a
specified banker and not expressed to be payable
otherwise than on demand.
A 'Cheque in the electronic form' means a Cheque, which
contains the exact mirror image of a paper Cheque, and
is generated, written and signed in a secure system
ensuring the minimum safety standards with the use of
digital signature (with or without biometrics signature)
and asymmetric crypto system

FEATURES OF A CHEQUE

must be in writing;
contain an unconditional order to pay
drawn on a specified banker;
for a certain sum of money;
the payee must be a definite person;
amount must be written both in figures and words;
it must be dated.
it is always drawn on a specified banker; and
it is always payable on demand and not otherwise.

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