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A negotiable instrument is a document guaranteeing the payment of a specific amount of money,

either on demand, or at a set time, with the payer named on the document. More specifically, it is a
document contemplated by or consisting of a contract, which promises the payment of money
without condition, which may be paid either on demand or at a future date. The term can have
different meanings, depending on what law is being applied and what country it is used in and what
context it is used in.
Examples of negotiable instruments include promissory notes, bills of exchange, banknotes,
and cheques.
Because money is promised to be paid, the instrument itself can be used by the holder in due
course as a store of value. The instrument may be transferred to a third party; it is the holder of the
instrument who will ultimately get paid by the payer on the instrument. Transfers can happen at less
than the face value of the instrument and this is known as discounting; this may happen for example
if there is doubt about the payer's ability to pay.

Definition[edit]
In the Commonwealth of Nations almost all jurisdictions have codified the law relating to negotiable
instruments in a Bills of Exchange Act, e.g. Bills of Exchange Act 1882 in the UK, Bills of Exchange
Act 1908 in New Zealand, Bills of Exchange Act 1909 in Australia,[1] the Negotiable Instruments Act,
1881 in India and the Bills of Exchange Act 1914 in Mauritius. The Bills of Exchange Act:
1. defines a bill of exchange as: 'an unconditional order in writing, addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed to pay
on demand, or at a fixed or determinable future time, a sum certain in money to or to the
order of a specified person, or to bearer.
2. defines a cheque as: 'a bill of exchange drawn on a banker payable on demand'
3. defines a promissory note as: 'an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or at a fixed or determinable
future time, a sum certain in money to or to the order of a specified person or to bearer.'
Additionally most Commonwealth jurisdictions have separate Cheques Acts providing for additional
protections for bankers collecting unendorsed or irregularly endorsed cheques, providing that
cheques that are crossed and marked 'not negotiable' or similar are not transferable, and providing
for electronic presentation of cheques in inter-bank cheque clearing systems. tae ka youknow?

History[edit]
Common prototypes of bills of exchanges and promissory notes originated in China, where special
instruments called feitsyan were used to safely transfer money over long distances during the reign
of the Tang Dynasty in the 8th century.[2]
In the mid-13th century, the Ilkhanid rulers of Persia printed the "cha" or "chap" which was used as
paper money for limited usage for transactions between the court and the merchants for about three
years before it collapsed. The collapse was caused by the court accepting the "cha" only at
progressive discount.
Later such document for money transfer used by Middle Eastern merchants, who had used the
prototypes of bills of exchange suftadja/softa from the 8th century to present. Such prototypes
came to be used later by the Iberian and Italian merchants in the 12th century. In Italy in the 1315th
centuries, bills of exchange and promissory notes obtain their main features, while further phases of
their development have been associated with France (1618th centuries, where the endorsement
had appeared) and Germany (19th century, formalization of Exchange Law). In England (and later in
the United States), exchange law was different from continental Europe because of different legal
systems.[3]
The modern emphasis on negotiability may also be traced to Lord Mansfield.
[4]

Germanic Lombards documents may also have some elements of negotiability.[5]

Negotiable instruments distinguished from other types of


contracts[edit]

An 1870 Bill of Exchange payable in London with British Foreign Billrevenue stamps attached.

A negotiable instrument can serve to convey value constituting at least part of the performance of
a contract, albeit perhaps not obvious in contract formation, in terms inherent in and arising from the
requisite offer and acceptance and conveyance of consideration. The underlying contract
contemplates the right to hold the instrument as, and to negotiate the instrument to, a holder in due
course, the payment on which is at least part of the performance of the contract to which the
negotiable instrument is linked. The instrument, memorializing: (1) the power to demand payment;
and, (2) the right to be paid, can move, for example, in the instance of a "bearer instrument", wherein
the possession of the document itself attributes and ascribes the right to payment. Certain
exceptions exist, such as instances of loss or theft of the instrument, wherein the possessor of the

note may be a holder, but not necessarily a holder in due course. Negotiation requires a
valid endorsement of the negotiable instrument.
The consideration constituted by a negotiable instrument is cognizable as the value given up to
acquire it (benefit) and the consequent loss of value (detriment) to the prior holder; thus, no separate
consideration is required to support an accompanying contract assignment. The instrument itself is
understood as memorializing the right for, and power to demand, payment, and an obligation for
payment evidenced by the instrument itself with possession as a holder in due course being the
touchstone for the right to, and power to demand, payment. In some instances, the negotiable
instrument can serve as the writing memorializing a contract, thus satisfying any applicable Statute
of Frauds as to that contract.

Negotiation and endorsement [edit]


Persons other than the original obligor and obligee can become parties to a negotiable instrument.
The most common manner in which this is done is by placing one's signatureon the instrument
(endorsement): if the person who signs does so with the intention of obtaining payment of the
instrument or acquiring or transferring rights to the instrument, the signature is called
an endorsement. There are five types of endorsements contemplated by the Code, covered in
UCC Article 3, Sections 204206:

An endorsement which purports to transfer the instrument to a specified person is a special


endorsement for example, "Pay to the order of Amy";

An endorsement by the payee or holder which does not contain any additional notation (thus
purporting to make the instrument payable to bearer) is an endorsement in blankor blank
endorsement;

An endorsement which purports to require that the funds be applied in a certain manner (e.g.
"for deposit only", "for collection") is a restrictive endorsement; and,

An endorsement purporting to disclaim retroactive liability is called a qualified


endorsement (through the inscription of the words "without recourse" as part of the endorsement
on the instrument or in allonge to the instrument).

An endorsement purporting to add terms and conditions is called a conditional


endorsement for example, "Pay to the order of Amy, if she rakes my lawn next Thursday
November 15th, 2007". The UCC states that these conditions may be disregarded. [9]

If a note or draft is negotiated to a person who acquires the instrument


1. in good faith;
2. for value;
3. without notice of any defenses to payment,
the transferee is a holder in due course and can enforce the instrument without being subject to
defenses which the maker of the instrument would be able to assert against the original payee,
except for certain real defenses. These real defenses include (1) forgery of the instrument; (2) fraud
as to the nature of the instrument being signed; (3) alteration of the instrument; (4) incapacity of the
signer to contract; (5) infancy of the signer; (6) duress; (7) discharge in bankruptcy; and, (8) the
running of a statute of limitations as to the validity of the instrument. The holder-in-due-course rule is
a rebuttable presumption that makes the free transfer of negotiable instruments feasible in the
modern economy. A person or entity purchasing an instrument in the ordinary course of business
can reasonably expect that it will be paid when presented to, and not subject to dishonor by, the
maker, without involving itself in a dispute between the maker and the person to whom the
instrument was first issued (this can be contrasted to the lesser rights and obligations accruing to
mere holders). Article 3 of the Uniform Commercial Code as enacted in a particular State's law
contemplate real defenses available to purported holders in due course. The foregoing is the theory
and application presuming compliance with the relevant law. Practically, the obligor-payor on an
instrument who feels he has been defrauded or otherwise unfairly dealt with by the payee may
nonetheless refuse to pay even a holder in due course, requiring the latter to resort to litigation to
recover on the instrument.

What was the need for the amendment?


This is the third major amendment in recent times to the Negotiable Instruments Act 1881,
prompted by dishonour of cheques in lakhs, shaking the credibility of the instrument,
confidence of business community and choking courts. The 1988 amendment introduced
penalty for issuing cheques which get dishonoured for want of fund in the bank. Since that
provision, Section 138, was found insufficient to deal with the menace, the penalty was
increased from one to two years imprisonment after a summary trial. Even this has not
resolved the problem and at present 1.8 million criminal cases are before magistrates'

courts and appellate courts. One of the devices employed by dishonest drawers is to
challenge the jurisdiction of the courts, stalling the proceedings. This was tried to be
resolved by the Supreme Court in its 2009 judgment in Dashrath Rupsingh case.
What does the present amendment do?
The amendment adopts the basic principles laid down by the Supreme Court in the above
case regarding jurisdiction of courts and improves upon it in the light of the representations
made by various stakeholders, including industry associations and financial institutions.
Complications had arisen because a cheque was issued in one place on one bank, and
presented in another place to another bank. The payer company might be in one corner of
the country and the payee might be in another. The payee therefore had to chase the
accused in distant places and even if he won, appeals would be filed in another court and
arguments will continue for years. The Supreme Court found that even high courts had
differed on the question of the choice of courts which should try the case. The present
amendment removes such legal bottlenecks and speeds up the trial. Now the question of
jurisdiction cannot be raised as the law is clear.
What is the procedure laid down by the amendment?
The new provision states that the holder of the cheque can file a criminal complaint before a
magistrate where he resides and tendered the cheque. He need not go to the place where
the cheque was issued or other courts. After this clarification, there is a single place to file
the complaint. Litigation expenses will come down, and the drawers of cheques, including
company directors will be more careful while signing such cheques. The government feels
that these procedural changes will be fair to both parties.
What happens to cases already pending?
According to the newly introduced Section 142A, all cases which were pending in any court,
whether filed before it or transferred to it shall go before the court having jurisdiction under
the new procedure.
What is the other important proposed change in the Bill?
The new law also cures a deficiency in the definition of "a cheque in the electronic form".
The law as it stood presumed drawing of a physical cheque and signature. With the
advance in technology it needed to be updated. Therefore, it is explains that "a cheque in
the electronic form" means a cheque drawn in electronic form by using any computer
resource and signed in a secure system with digital signature (with or without biometrics

signature) and asymmetric crypto system or with electronic signature. The Negotiable
Instruments Act borrows definitions of technical expressions from the Information
Technology Act 2000.

The Repealing and Amending (Fourth) Bill, 2015, passed by Lok Sabha last week, seeks to
repeal 295 obsolete and redundant laws that clog the statute book. Here are some key
economic laws that the bill proposes to do away with

The Excise (Spirits) Act, 1863

The Excise (Malt Liquors) Act, 1890

The Indian Tramways Act, 1902

The Children (Pledging of Labour) Act, 1933

The Indian Companies (Amendment) Act, 1936

The Employers' Liability Act, 1938.

The Income-tax Law Amendment Act, 1940

The Indian Income-tax (Amendment) Act, 1941

The Excess Profits Tax (Second Amendment) Act, 1941

The Railways (Local Authorities' Taxation) Act, 1941

The Income-tax and Business Profits Tax (Amendment) Act, 1947

The Delhi Hotels (Control of Accommodation) Act, 1949

The Indian Merchant Shipping (Amendment) Act, 1949

Clearing the statute books of obsolete laws is an on-going process. A two-member


government-appointed committee has identified 1,741 obsolete central Acts. These include
777 central Acts, 83 central Acts relating to state subjects, to be repealed by state
legislatures, 624 central Appropriation Acts, and 257 Appropriation Acts enacted by

Parliament for states under Presidents Rule. The Law Commission through several reports
has recommended repeal of 289 obsolete Acts. Till now 125 central Acts have been repealed
by the government over the past six months