‘Negotiable Instrument’ is any ‘document, necessarily in

writing’, through which rights, vested in one person, could

be transferred in favour of another person, in accordance
with the provisions of N I Act. Any violation of Sections
31 and 32 of the RBI Act, is punishable under law with
fine.

Section 31 of the RBI Act stipulates that ‘no person

(other than RBI or Central Government), can draw,
accept, make or issue any bill of exchange or a
promissory note payable to bearer on demand’.
Section 32 of the RBI Act provides that, if a person issues
any bill of exchange or a promissory note, payable to bearer,
on demand, shall be punishable with fine. Because, in case
banks’ promissory note, bank drafts, or banker’s cheques
(which are widely accepted without any fear of dishonour) is
made payable to the bearer, the title of such negotiable
instruments could be transferred to any other person, for
any number of times, just by mere delivery, without
endorsements. This way, these instruments, would be
changing hands as currency notes.

‘A negotiable instrument means a promissory note, bill of

exchange or cheque, payable either to order or to bearer’.
(Section 13). But other instruments, having characteristics
of being negotiable, are also treated as Negotiable
Instruments; e.g. bank notes, bank drafts, interest warrants,
dividend warrants, bearer debentures, share certificates, and
treasury bills. Later, under Section 85A, bank drafts have
also been included as a negotiable instrument.
Main features of Negotiable Instruments
(i) Freely transferable, without restrictions, by delivery (if
a bearer instrument), and by endorsement and delivery
(if an order instrument). Thus, actual delivery is of
essence.

(ii) Title of the holder must be free from defects. But,

‘holder in due course’ [who gets title to the
instrument, for consideration, and in good faith (i.e.
without any notice of defect in the title of the previous
endorser], acquires good title even in cases of some
defect in the title of the last endorser.

(iii)Holder in due course can sue in his own name.

(iv)A negotiable instrument can be transferred any

number of times during its maturity, currency or
validity.
Presumptions regarding all negotiable instruments, unless
proved otherwise: [Sections 118 and 119]:

(i) That, all instruments have been drawn, made, accepted,

endorsed, negotiated (or purchased), discounted, or
transferred, for some consideration.

(ii) That, every instrument must bear date of its execution

or drawing or acceptance for payment.

(iii)That every time a bill of exchange was accepted, within a

reasonable time, after the date appearing thereon, and
before the date of its maturity.

(iv)That, every transfer of a time instrument was made before

the date of its maturity.
(v) That, the sequencing of the endorsements was made in
the same order, as appearing on the instrument or on the
‘allonge’.

(vi) That, if the instrument gets lost or destroyed, it is

presumed that it was duly stamped, and that such
stamps were duly cancelled.

(vii)That, the holder of the instrument is its ‘holder in due

course’; unless proved to be only a ‘holder’.

(viii)That, where a suit has been filed, involving the

dishonour of an instrument, Court will, on production of
proof of its having been duly protested, presume that the
bill of exchange was dishonoured.