INSTITUTE : University School of

Business
DEPARTMENT : Commerce
Bachelor of Commerce
Legal Aspects of Business and CMT-218

THE NEGOTIABLE INSTRUMENT ACT, DISCOVER . LEARN . EMPOWER

1881
 Negotiable
Instrument Act 1881
Course Outcome
CO Title Level
Number

CO-1 The student will be able to demonstrate the acquaintance Understanding

of himself/ herself with Legal Process and negotiable
instruments
CO-2 The student will be able to explain the new and Understanding
contemporary developments in Indian Corporate Law
CO-3 The student will be able to analyse the Understanding
differencebetween the negotiable instruments and also
about the responsibility of the business towards the
society.

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Introduction
• With the advent of British Rule in India, the commercial activities
increased to a great extent.
• The growing demand for money could not be met by mere supply of
coins.
• Therefore, the paper currency was developed as an instrument of
credit.
• The law of negotiable instrument as prevalent in England was applied
to the courts in India as the rules of equity, justice and good
conscience.
• The act came into force on 1st March, 1882 as The Negotiable
Instruments Act, 1881.
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Negotiable Instrument
• A Negotiable Instrument as the name suggests, is an instrument or document which
is negotiable or transferable.
• A negotiable instrument is:-
• Any document in writing.
• This document legally entitles the holder of the instrument to a sum of money.
• Such an instrument can be transferred from person to person.
• The person to whom it is transferred gets two rights:-
• Right to receive the money
• Right to further transfer the same instrument.
• The mode of transfer the instrument is by either of the two ways:-
• By delivery (bearer instruments) e.g. Self cheque
• By endorsement and delivery (order instruments) e.g. bill of exchange
• The act recognizes and deals with 3 kinds of negotiable instruments:-
• Promissory Note, Bill of Exchange, Cheque 4
Characteristics/Essentials of Negotiable
Instruments
1) Entitles the holder a sum of money
2) Element of Negotiability/Transferability
3) Mode of Transfer of Instrument
4) In writing
5) A certain sum of Money
6) Consideration should be money only
7) Unconditional
8) Good title
9) Right to Sue in own name
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1) Entitles the holder a sum of money
• The sum of money is clearly stated on every negotiable
instrument.
• Every holder of the instrument has a legal right to claim the sum
so stated from the person who gave this instrument to the holder.
2) Element of Negotiability/Transferability
• Negotiability means the right to freely transfer the ownership of
the instrument from person to person.
• Every holder of a negotiable instrument can legally transfer the
right to ownership to another person.

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3) Mode of Transfer of Instrument

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• Transfer of Bearer Instrument
• A bearer instrument can be transferred by holder to another person by simply
handing over the instrument to another person i.e. by delivery only.
• A bearer instrument can be transferred any number of times till its maturity
or due date.

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• Transfer of Order Instrument
• For transferring an order instrument, the instrument has to be first endorsed
(signing one’s name on the back of the instrument transferring the instrument
in the name of the other person) and then delivered i.e. handed over to the
transferee.

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4) In Writing
• Every negotiable instrument has to be in writing.
5) A certain sum of money
• The sum of money stated in the negotiable instrument as payable
to the payee must be certain or definite.
• In case, the amount to be paid is differently stated in figures and
in words, the amount stated in words shall be the amount
undertaken to be paid.
6) Consideration should be money only
• If the instrument is not to pay money but to do or pay something
else, then it shall not be a valid negotiable instrument.

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7) Unconditional
• If the payment of the negotiable instrument is on the fulfillment of
some conditions or on the happening of some contingency, then it will
not be a valid negotiable instrument.
• E.g. A bill of exchange of Rs.10,000 payable to X if he supplies goods
to Z
8) Good Title
• The transferee who takes the negotiable instrument in good faith and
for consideration or value, gets a good title to the same even though
the title of the transferor is defective.

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9) Right to sue in own name
• In case of dishonor of a negotiable instrument, the owner
(holder) can sue the liable parties in his own name to recover the
amount due on the instrument.

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THANK YOU