Negotiable Instruments


Definition: A negotiable instrument is a method of transferring a debt from one person to another.The term “negotiable instrument” as such is notdefined in the negotiable Instrument Act. Sec 13,however,says that ‘a negotiable instrument means a promissory note ,bill of exchange or cheque payable either to order or to bearer”. Or

Definition of Negotiable Instrument 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”.

Characteristics Of a negotiable Instrument:
1. Freely Transferable: The property in a negotiable instrument passes from one person to

another by delivery,if the instrument is payable to bearer ,and by indorsement and delivery if it is payable to order. 2. Title of holder free from all defects: A person taking an instrument bonafide and for a value ,known as a holder in due course,gets the instrument free from all defects in the title of the transferor. He is not in any way affected by any defect in the title of the transferor or of any prior party. Example : A sells certain goods to B . B gives a promissory note to A for the price. He refuses to pay the promissory note,claiming that the goods are not according to order. If A sues B on the note ,B’s defence is good .But if he negotiates the note to C ,a holder in due course, B’s defence will be of no avail. The holder in due course is also not affected by certain defences which might be available against previous holders, for example ,fraud,provided he himself is not a party to it.
3. Recovery: The holder in due course can sue upon a negotiable instrument in his own

name for the recovery of the amount.Further he need not give notice of transfer to the party liable on instrumrent to pay.

for consideration. (b) Date: Every negotiable instrument bearing a date is presumed to have been made or drawn on such date. negotiated or transferred. (e) Order of indorsements: The indorsements appearing upon a negotiable instrument are presumed to have been made in the order in which they appear thereon. (d) Time of transfer: Every transfer of a negotiable instrument is presumed to have been made before its maturity.until such fact is disproved (Sec. (g) Holder presumed to be a holder in due course: Every holder of a negotiable instrument is presumed to be a holder in due course (Sec. 118) (h) Proof of protest: In a suit upon an instrument which has been dishonoured .Presumptions as to negotiable Instruments: Presumptions: Certain presumptions apply to all negotiable instruments . (c) Time of acceptance: When a bill of exchange has been accepted . This would help a holder to get a decree from a court without any difficulty. accepted. 119) . the court . drawn. indorsed. (f) Stamp: When an instrument has been lost. it is presumed that it was duly stamped. These presumptions are dealt within Secs. presumes the fact of dishonor .unless contrary is proved. on proof of the is presumed that it was accepted within a reasonable time of its date and before its maturity. 118 and 119 and are as follows: (a) Consideration: Every negotiable instrument is presumed to have been made .

immediately on generation of an electronic image for transmission. substitution the further physical movement of the cheque in writing.Cheque (Section 6) Amending the Act in 2002 new definition of cheque is “A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise then on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form” Meaning of “a cheque in the electronic form” means a cheque which contains the exact mirror image of a paper cheque. “Clearing house” means the clearing house managed by the Reserve Bank of India or a clearing house recognized as such by the Reserve Bank of India . either by the clearing house or by the bank whether paying or receiving payment. “a truncated cheque” means a cheque which is truncated during the course of clearing cycle. written and singed in a secure system ensuring the minimum safety standard with the use of digital signature (with or without biometrics signature) and asymmetric crypto system. and is generated.

A cheque drawn in future is called “post dated cheque”. The signature on the cheque must tally with the specimen signature of the concerned drawer It must be dated. Banks necessarily provide their costumers with printed cheques contained in the cheque book duly numbered. the amount of the bearer cheque is paid to such person who presents the cheque. payee is the one whom the amount of cheque is made payable. the owner of such cheque is put to loss as a finder or any other person can cash it and hence cheques should be crossed. So as the payment is to be done after the dated day. the advantage of crossing the cheque is that it reduces the risk . provided the cheque is properly and validly drawn and the drawer has sufficient funds to this credit.Essential characteristic features of a cheque: • • • • • • • • • It is always drawn on a specified banker Always payable on demand It can be bearer. Drawee is always a specified bank. order or crossed It requires no acceptance in the ordinary course of business as it is intended for immediate payment. Crossed cheque: If a bearer cheque is lost or stolen. Banker’s name must be honored the cheque by making payment to the payee when cheque is presented for payment to the banker at his office during the office hours. drawer is the one who draws the cheque and has account in the bank. Types of cheque Bearer or open cheque: On presentment to the bank at the counter. A cross cheque is one which has two parallel lines drawn on the face of the cheque in the left hand corner.

.of unauthorized person to get the payment of such cheque as a crossed is only cashed through a bank of which the payee of the cheque is a customer.

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