The Negotiable Instruments Act, 1881

Negotiable Instrument 
Negotiable: transferable from one person to another so as to constitute the person the holder thereof, the instrument is said to be negotiated.  Instrument: any written document by which a right is created in favor of some person.  Negotiable instrument is a document by which rights vested in a person can be transferred to another person.

Negotiable Instrument (contd«)
Negotiable instrument are  promissory note,  bill of exchange,  cheque, etc. 

A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees.

Promissory Note
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 only to, or to the order of, a certain person, or to the bearer of the instrument.

Promissory Note (examples«)
A signs instruments in the following terms: (a) "I promise to Pay B or order Rs.500". (b) "I acknowledge myself to be indebted to B in Rs.1,000, to be paid on demand, for value received." (c) "Mr Ripon, I.O.U Rs.1,000." (d) "I promise to pay B Rs. 500 and all other sums which shall be due to him." (e) ³I promise to pay B Rs. 500 seven days after my marriage with C´. (f) ³I promise to pay B Rs. 500 and to deliver to him my black horse on 1st January next´.

Promissory Note (examples«)
The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked (c), (d), (e) and (f) are not promissory notes.

Features of a Promissory Note 
In writing  Promise to pay  Unconditional  Signed by the maker  Certain parties  Certain sum of money  Promise to pay money only  Number, place, date etc  May be payable in installments  May be payable on demand or after a definite period  It can not be made payable to bearer on demand or even to bearer after a certain period.  It must be duly stamped

Bill of Exchange
A "bill of exchange" is 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.

Features of a Bill of Exchange 
Must be in writing Must contain an order to pay and not a promise or request The order must be unconditional There must be three parties ± drawer, drawee and payee The parties must be certain Must be signed by the drawer The sum payable must be certain The order must be to pay money and money only Must be stamped Number, place and date are not essential. Oral evidence may be obtained as to the date and place of execution.

A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

Features of a Cheque 
It is a bill of exchange with two added features:  Always drawn on a specified banker  Always payable on demand  Being the bill of exchange, a Cheque must be:  In writing  Contain an unconditional order to pay  Drawn on a specified banker  For a certain some of money  The payee must be a definite person  Amount must be written both in figures and words  It must be dated ± antedated, post-dated and stale

Banker¶s Draft 
A bill of exchange is sometimes called a Draft. It is drawn by a bank is called a Banker¶s Draft.  Two types of Banker¶s Draft ± 
From one office to another of the same bank (it cannot be payable to a bearer on demand) From one bank to another.

Features of a Bank Draft 
It is drawn by a banker upon its branch or upon another bank  It is payable on demand  It cannot be payable to bearer.  It cannot be stopped or countermanded, except by the order of the Court.

Parties in Negotiable Instruments 
The maker of a bill of exchange or cheque is called the "drawer";  the person thereby directed to pay is called the "drawee".  "Acceptor": After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to the holder or to some person on his behalf.

Parties in Negotiable Instruments (contd«) 
"Acceptor for honor" : When a bill of exchange has been noted or protested for non-acceptance or for better security, and any person accepts it supra protest for honor of the drawer or of any one of the endorser, such person is called an "acceptor for honor".  "Payee" : The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the "payee".

Essential features of negotiable instruments 

Freely transferable  Better title  Right to sue  Presumptions

{as per sections 118 and 119} 

Consideration  Date  Time of acceptance  Time of transfer  Order of endorsement  Stamp  Proof of Protest


A bill of exchange is said to be accepted when the drawee puts his signature on it, thereby acknowledging his liability under the bill.

Types of Acceptance
1. 2. General / Unconditional Acceptance Qualified / Conditional Acceptance
- acceptance for an amount less than that mentioned in the bill - stipulating a place of payment other than that mentioned in the bill

1. 2. 3. 4. 5. The drawee of the bill The legal representative, when the drawee is dead The Official Assignee or Official Receiver Acceptance by several drawees not partners Acceptance by a person for the honor of the drawee

Mode of Dishonor
1. By non-acceptance
(a) only bill of exchange

2. By non-payment
(a) bills of exchange, (b) promissory notes (c) cheques

Consequences of Dishonor / Steps to be Taken by the Holder
a. The holder becomes entitled to file a suit b. He must give notice of dishonor to parties c. He may also have the instrument noted and protested before a notary public

Notice of Dishonor
The notice which must be given by the holder of a dishonored instrument to all parties liable to pay the amount due on the instrument.

By and To whom Notice should be given?


Mode in which notice may be given
The notice May be Oral or written. Written notice may be sent by post.  Must be made with such language so that it can indicate the basic reason of the notice.  Must be sent to the place of business of the party(s).  Must be sent within the reasonable time after dishonor.

Consequences of not sending notice of dishonor
The person to whom notice of dishonor is not sent:  is discharged from his obligation,  is not liable to pay, and  no suit can be filed against him.

Notary Public
An officer appointed by the Government to exercise the functions of a Notary Public as laid down in the Negotiable Instruments Act.

When a promissory note or bill of exchange has been dishonored by non-acceptance or non-payment; - The holder may note to the notary public upon the instrument, or upon a paper attached thereto - note must be made within a reasonable time after dishonor - must specify the date of dishonor - the reasons assigned for such dishonor - the notary charges

When a promissory note or bill of exchange has been dishonored by non-acceptance or nonpayment, the holder may cause such dishonor to be noted and certified by a notary public. Such certificate is called a Protest. 

Acceptance for honor  Payment for honor

Punishment for the offence of dishonor of cheque
i. ii. Imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque

iii. or with both

Revolution of negotiable instrument 

Credit card  Debit card  Mobile banking  Online banking

Easy availability  Low interest cards  Trends in mobile banking


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