Negotiable Instrument Act, 1881

Negotiable means transferable by delivery, instrument means a written document by which a right is created in favour of some person. In other words negotiable instrument means a written document transferable by delivery in favour of some person.

According to Section 13 (i) of the Act negotiable instrument means Promissory Notes, Bill of Exchange or Cheque payable either to order or to bearer.

 Payable to order: The notes, bill of exchange or cheque payable to order means which is expressed to be payable to a particular person or to his order as it specified in the instrument. Example: Pay Mr. Arun(or) Pay Mr. Arun or order (or) Pay Mr. Arun or to the order of In this case, payable to order should not contain any words prohibiting transfer from person to person. Example: Pay to Raman only (or) Pay Mr. Raman & none else This order is restrictive and the transferability is not possible in this case, then it is not said to be a negotiable instrument.

 Payable to bearer: the instrument payable to bearer means it is payable to any person whoever bears it or holds it. Example: Pay to Mr. Ram or bearer (or) Pay bearer Negotiable instrument originally payable to order may become payable to bearer if endorsement in blank by the order.

Features of a N.I
1. 2. 3. 4. 5. Free Transfer Transfer free from defects. Right to sue No notice to transfer Presumptions as to negotiable instruments That every negotiable instrument was made, drawn, accepted, endorsed or transferred for consideration. That every negotiable instrument bearing a date was made or drawn on such date That every bill of exchange was accepted within a reasonable time after its date and before its maturity.

Promissory Note
Rs. 10,000/-

Date: 01.01.2009 Bangalore

Four months after date I promise to pay A or order the sum of Rupees Ten Thousand for value received stamp (Maker)

It must contain a promise or undertaking to pay The promise to pay must be unconditional, The maker (promisor) must sign it The maker and payee must be a certain person (alternative promises are not permitted in law) The sum payable must be certain, The sum payable must be certain and the interest thereon such amount can also be paid or payable, provided that the rate of interest is stated in the instrument.

Bill of Exchange
Rs. 50,000/Date: 01.01.2009 Bangalore Four months after date pay to X or order the sum of Rupees Fifty Thousand only, for value received.

Accepted (Drawee)

stamp (Maker or drawer)

Essential of bill of exchange: It must be in writing It must contain an order to pay; mere request will not amount to order. The order to pay must be unconditional Maker (drawer) must sign it before obtaining the acceptance from the drawee. Parties to bill of exchange must be certain Sum payable must be certain and only in money It must comply with formalities as regards date, consideration, stamp etc. It needs acceptance by drawee

Cheques:

According to the Negotiable Instrument Act of 1881 section 6 a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise then on demand.

 Requisites or Characteristics of cheques;

The law does not lay down any restrictions as to the writing materials to be used for making out a cheque. A cheque is a bill of exchange, but all bill of exchange is not a cheque. A cheque is always drawn upon a banker only. A cheque is always payable on demand by the banker, to his customer.

 The parties to cheque are, the drawer a person who is customer of the bank, the drawee banker on whom the cheque is draw and the payee a person to whom the payment to be made by the banker.
A cheque is an unconditional order from the drawer, directing the banker to make payment of money only, without any conditions to be fulfilled by the payee (holder of cheque).

 A cheque must contain the exact amount in words as well as in numeric, date of issue, name of the person to whom the payment to be made and the signature of the drawer which has to be same as per the specimen signature submitted with banker at the time of opening account and the signature of the payee on the reverse of the cheque as he endorsing to the banker. A person can write the part of the cheque other than the signatory of the cheque is valid to whom it is issued. The cheque can also be payable to bearer and the drawer can issue a bearer cheque to himself or to other.