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Question No-2 List the Types of negotiable instrument?

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.

1) PROMISSORY NOTE- A promissory note is that written document by


way of which a written promise to pay a certain amount of money
taken/levied from the payee is made

The person who makes the promissory note and who lends the money from another
is known as the Maker and the person from whom such amount is lended/levied
is known as the Payee.

A promissory note should always be made with that person who has the ability to
repay the money. A promissory note requires two parties to come into existence.
A promissory note must always be signed by the Maker, should always be in
writing, it must contain an undertaking to pay and should also bear a sufficient
stamp as required under the Indian Stamp Act.

2) BILL OF EXCHANGE- Section 5 of the Act provides that a bill of


exchange is that instrument which is in writing consisting of an
unconditional order, which is signed by the maker in order to pay a certain
amount of money to a certain person at a predetermined future date.

A bill of exchange is made between three parties namely the- drawer, drawee and
payee.

A person who makes the bill of exchange is known as the drawer. A person on
whom the bill is drawn is called a drawee and to whom the amount mentioned in
the bill of exchange is payable is known as payee.

The difference between a promissory note and a bill of exchange is that a bill of
exchange can bind one party to pay a third party the money who was not a party to
the bill of exchange at the time it was executed.

3) CHEQUE- A cheque in general is that document that orders a payment of


money from a bank account. But as per Section-6 of the Negotiable
Instruments Act provides that- 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 of a truncated cheque and the cheque in
the electronic form.

A cheque is always payable by the banker only on demand and must fulfill all the
requirements of a bill of exchange and can be drawn for a certain sum of money.

The person who writes the check is known as the drawer. The drawer writes the
date on the cheque, writes the amount of money payable, signs it ordering his bank
which is known as the drawee to pay the amount of money stated in the cheque to
such person, in the favor of whom the cheque has been signed.