Introduction

Negotiable means transferable from one person to

another person in return for some consideration.
Instrument means a written document by which a
right is created in favor of some person.
Negotiable Instrument means a written document,
which entitles a person to certain sum of money and
which is transferable from one person to another
person.
Definition
Negotiable instrument means a promissory note, bill
of exchange or cheque payable either to order or
bearer, whether the words order or bearer appear on
the instrument or not.
A negotiable instrument entitles the holder to a sum
of money and which is transferable from person to
person by mere delivery like cash.
When transferred, the transferee becomes entitled to
receive the money or acquire the right to further
transfer it
 Characteristics Of a Negotiable Instrument
1) Freely transferable: The right of ownership in these
instruments can be transferred from one person to
another easily.
 If the instruments is payable to bearer, the property in
negotiable instrument is transferred to the transferee
by delivery.
 If instruments is payable to order, the property in
negotiable instrument transfers by endorsement and
delivery.
Characteristics Of a Negotiable Instrument
2) Rights of Holder : A holder of negotiable instruments
has a right to recover the money from the person liable
on the instrument. The holder can recover the amount
himself or transfers his right to another person.

3) Promise or order : A negotiable instrument contain an

unconditional promise or order to pay. In case of
promissory note the maker promises to a certain sum of
money to the holder of the instrument. In case of bill of
exchange and cheque the makers order s to pay a certain
sum of money to the holder of the instruments.
 Conti..
4) Certain Amount: In negotiable instruments, the promise or
order is made for the payment of certain amount. The person
liable to pay on the instrument must pay certain amount of
money and not anything else.

5) Presumptions: Certain presumptions of law apply to all

negotiable instruments such as consideration, date, time of
acceptance, stamp and holder in due course.

6) In writing: A negotiable instrument must be in writing. An oral

promise or order to pay money cannot be called negotiable
instrument.
Promissory Note

“ A promissory note is an instrument in writing

containing an unconditional undertaking signed by
the maker, to pay a certain sum of money only to or
to a certain person or to the bearer of the
instrument”.
.
Parties

MAKER : The person who makes the promissory note and

promises to pay is called the Maker.

PAYEE : The person to whom the payment is to be made is called

the Payee.
Essentials Of The Promissory Notes

1. It must be in writing .
2. It must contain a promise or undertaking to pay a definite sum
of money.
3. The promise to pay must be unconditional.
4. It must be signed by the maker.
5. The payee must be identified & must be certain.
6. The sum payable must be certain.
7. The amount payable must be in legal tender in money.
8. Other formalities – like date, place ,& stamp must be mentioned.
 Example
a) I promise to pay or order Rs.2000.
b) I acknowledge myself to be indebted to john in Rs.5000
to be paid on demand, for value received.
c) I am liable to Arnold Rs.3000.
d) I have taken Rs.10000 from John to whom I am
accountable for the same with interest.
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.”
Parties
DRAWER: The person who makes the bill of exchange is called
drawer.

DRAWEE: The person who is directed to pay is called drawee.

PAYEE: The person to whom the payment is to be made is called

payee.
Essentials Features Of Bill Of
Exchange:
1. It must be in writing.
2. It must contain an order to pay a definite sum of money.
3. The order to pay must be unconditional.
4. It must be signed by the drawer (who draw money).
5. The drawer, the drawee &the payee must be identified & must
be certain.
6. The sum payable must be certain.
7. The bill must contain an order to pay the money in legal
tender.
8. It must contain the formalities like date, place & stamp etc.
CHEQUE

“ A cheque is an instrument in writing containing an

unconditional order, it drawn on a specified bank and to
be payable on demand a certain sum of money only to or
to the order of certain person or to the bearer of
instrument.”
FORMAT OF CHEQUE

Cheque No.:12345675 Date: 13.01.2017

Afghanistan International Bank Account No.
Baraqi square , Kabul 14734-4

Pay…………………………………………………………or bearer the sum of

AF…………………………………
Rs…………………

Sd/-
Parties

DRAWER: The person who makes a cheque is called Drawer.

DRAWEE: The person who is directed to pay is called Drawee.

PAYEE: The person to whom the payment is to be made.

Essential Features Of Cheque:

1. It is always drawn by a bank & not by any other institutions.

2. It always payable on demand.
3. A cheque can be bearer, order or crossed.
4. The drawee, that is, the banker named must honour the cheque
by making payment to the payee when the cheque is presented
for payment to the banker at his office during the usual office
hours, provided the cheque is properly and validly drawn and
the drawer has sufficient funds to his credit.
5. The signature on the cheque must tally with the specimen
signature of the concerned drawer.
6. A cheque must be dated.