Synopsis: 02

Business Law

Negotiable Instrument Act-1881

1. Practical Significance of Negotiable Instrument

In the commercial world most buying and selling jobs take place on credit. But for
smooth functioning of this buying and selling business there should be a mechanism to
ensure collection of these credit transactions in time or sometimes ahead of due time.
Negotiable instruments like bill, notes and cheques serve this purpose. Moreover, these
instruments can also serve in settlement of debts as one who is the holder has the right to
encash the instrument. Thus negotiable instruments play a vital role in the development
of trade and business.

2. What do you mean by Negotiable Instruments?

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”.

3. Types of Negotiable Instruments:

a. Promissory Note
b. Bill of Exchange
c. Cheque

4. What is promissory note?

A promissory note is a negotiable instrument, containing an unconditional undertaking
signed by the maker to pay a certain sum of money only to order of a certain person, or
to the bearer of the Instrument. It is not a bank note or currency. There are two parties in
the promissory note; maker and the payee.

Specimen of a Promissory Note

Dhak
a July 17, 2014

On demand, I promise to pay abc s/o xyz of Dhaka or order a sum of

Tk 10,000/- (Ten Thousand only), for value received.

Address…….. Stamp
5. Features of a promissory note

Let us know the features of a promissory note.

i. A promissory note must be in writing, duly signed by its maker and properly
stamped
ii. It must contain an undertaking or promise to pay is not enough. For example, if
someone writes ‘I owe Tk. 5000/- to shohag, it is not a promissory note.
iii. The promise to pay must not be conditional. For example, if it is written ‘I
promise to pay Shohag Tk 5,000/- after my sister’s marriage’, is not a
promissory note.
iv. It must contain a promise to pay money only. For example, if someone writes
‘I promise to give Sohag a Maruti car’ it is not a promissory note.
v. The parties to a promissory note, i.e. the maker and the payee must be certain.
vi. A promissory note may be payable on demand or after a certain date. For
example, if it is written ‘three months after date I promise to pay shohag or
order a sum of rupees Five Thousand only’ it is a promissory note.

6. What do you mean by Bill of Exchange?

Suppose Shohag has given a loan of Tk. Ten Thousand to Hannan, which Hannan has to
return. Now, Shohag also has to give some money to riead. In this case, Shohag can make
a document directing Hannan to make payment up to Tk Ten Thousand to Riead on
demand or after expiry of a specified period. This document is called a Bill of Exchange,
which can be transferred to some other person’s name by riead.

Section 5 of the Negotiable Instruments Act, 1881 defines a bill of exchange 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
7. How does a promissory note differ from bill of exchange?
Or, Difference between promissory note and bill of exchange.

The differences between the promissory note and bill of exchange are stated here under:

Subject Promissory Note Bill of Exchange

Definition A promissory note is a A bill of exchange is an instrument

negotiable instrument in writing in writing containing an
containing an unconditional unconditional order, signed by the
undertaking signed by the maker, maker, directing a certain person to
to pay a certain sum of money pay a certain sum of money only
only to, or to order of a certain to, or to the order of a certain
person, or to the bearer of the person or to the bearer of the
instrument. instrument.
Number Two parties; the maker and Three parties; drawer, drawee
arties the payee and payee.

A cceptance No acceptance is necessary acceptance is required

Relationship The maker stands in an A drawer stands in immediate
immediate relationship to the relationship with the acceptor
payee and not to the payee.

Tanvir Hasan,FCA
General Manager
CFO & Company Secretary
01715094176
tanvir24@hotmail.com