Negotiable instrument act

Sagar Choudhury

Negotiable Instruments Act, 1881

Instrument means any written document by which a right is created in favour of some person. The Negotiable Instruments Act was enacted, in India, in 1881

Meaning
Negotiable Instrument means a document transferable from one person to another or a negotiable instrument means a promissory note, bill of exchange or cheque payable either on order or to bearer.

Characteristics of a Negotiable Instrument:

i. ii. iii. iv. v.

It must be in writing. It must be signed by the maker/drawer. It must involve payment of money only. There must be an unconditional promise or order to pay. They are transferable by delivery or by endorsement and delivery.

Kinds of Negotiable Instruments:

The Act recognizes the following three types of negotiable instruments:

i. Promissory notes ii. Bills of Exchange iii. Cheques

Promissory Note (section 4):

Promissory Note is an instrument in writing containing an unconditional undertaking, signed by the maker to pay a certain sum of money to a certain parsonon certain date Parties to a promissory note: i. The Maker - The person who makes the promise to pay is called maker and he is the debtor. ii. The Payee The person who will get the money is called payee and he is creditor.

Essentials of a Promissory Note:

i. ii. iii. iv. v. vi. Must be in writing. Must contain an express undertaking to pay a certain sum of money. Undertaking to pay must be unconditional. Maker must sign the note. Payee must be a definite person. Must be properly stamped according to the provisions of the Indian Stamp Act.

Advantages
The use of promissory note is easy and simple method of borrowing and repaying a debt It facilitated easy credit purchase and sale It show the acknowledgement of debt

Bills of Exchange (Section 5):

A Bill of Exchange is an instrument in containing an unconditional order signed maker, directing a certain person to pay a sum of money only to or to the order of a person or to the bearer of the instrument. writing by the certain certain

Parties to a Bill of Exchange: i. Drawer The maker of bill ii.Drawee- The person who is directed to pay (also called the acceptor) iii.Payee Person who will receive the money

Essentials of a Bill of Exchange:

i. ii. iii. iv. v. vi. Must be in writing. Must be dated. Must be signed by the drawer. The sum payable must be certain. The parties must be certain. It must be accepted by the drawee.

Cheques (Section 6):

A cheque is a very safe and convenient method of making payment or with drawing from bank. A bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand. Parties to a cheque: i. The drawer of the cheque is the customer ii. The drawee is always a bank on which it is drawn and which pays the amount iii. The payee is the person to whom the cheque is payable

Amity Business School

Essentials of a Cheque: i. Always drawn on a specified banker. ii. Always payable on demand. iii. It does not require acceptance. iv. It may be made payable to drawer himself. v. Must be dated. vi. Valid for 6 months. vii. No acceptance of cheque is required viii. Cheque is not required to be stamped.

Types of Cheque
Post-Dated Cheque
If a cheque bears a date which is yet to come (future date) then it is known as post dated cheque. A post dated cheque cannot be honoured earlier than the date on the cheque.

Stale Cheque
If a cheque is presented for payment after six months from the date of the cheque it is called stale cheque.

Bearer cheque
A bearer cheque is one which is payable at banks counter to the person who held's the cheque.

Order cheque
An order cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred).