Negotiable instrument Act, 1881 


The word “negotiable” means transferable from one person to another, and the term “instrument” means, any written document by which a right is created in favor of some person.


According to Section 13(1) of the negotiable instrument Act “ a negotiable instrument means a promissory note, bill of exchange or cheque payable either on order or to bearer”.


Transfer by Negotiation


Negotiation is a transfer of an instrument from one person to another in such a manner as to express title and to represent the transferee the holder thereof.

 

Passing of possession With intention to pass title Must be transferred in such a manner that the transferee becomes holderthereof.


Features of Negotiable Instruments


  • Writing and Signature 
  • Money 
  • Freely transferable 
  • Title 
  • Notice Presumptions 
  • Special Procedure 
  • Popularity 
  • Evidence


Types of Negotiable Instruments


The Negotiable Instrument Act mention only three kinds of Negotiable Instruments    ( Sec 13) These are:


Promissory Notes - A promissory note is a written instrument that documents or records a transaction where money is loaned or owed from one party to another. The terms of the loan, the repayment schedule, the interest rate (if any), where the payments are to be made, etc., are included in the note. The note is signed by the person borrowing the money. Then note is kept by the person lending the money as evidence of the loan and the repayment agreement with a copy usually provided to the borrower.


Essential Of Promissory Notes


The instrument must be in writing The instrument must be signed by the maker of it The instrument must contain a promise to pay The promise to pay must be unconditional Must contain promise to pay in terms of money only There are 2 parties involved i.e. maker and the payee.A Promissory note must be stamped according to Indian Stamp Act The sum of money to be paid must be certain

 

The instrument must be signed The payee must be certain The sum payable must be certain The promissory note may be payable on demand or after a certain definite period of time Acurrency note is not a promissory note


Parties to be in Promissory notes


Maker - Maker is the person who promise to pay the amount Payee Payee is the person to whom the amount of the note is payable 


Holder  - He is either the payee or the person to whom the note may have been endorsed

 

 

2. Bills of Exchange - According to sec, 5 of Negotiable instrument act, “Abill of exchange is a document in writing containing an unconditional order, signed by the maker, directing a certain person to paying a certain sum of money only to or to the order of a certain person, or to the bearer of instrument”. It is also called Draft.


Essential of Bills Of Exchange 


The instrument must be in writing It must express order to pay The order must be unconditional There must be three parties i.e. Drawer, Drawee, Payee Order to pay money only Order to pay certain sum It must be signed by the drawer It must be stamped Parties to be in Bills Of Exchange


Drawer

 

The maker of a bill is called drawer Drawee.

The party on whom such bill of exchange is drawn and who is directed to pay is called the drawee 

Payee -  The person to whom the amount of the bill is payable is called the payee


3. Cheques - According to section 6 “Acheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than ondemand”.

 

  • It is signed by the person who has deposited money with the banker 
  • It is always drawn on a specified bank 
  • It is payable on demand


Essential Of Cheques :


In Writing Requisites of bill of exchange Unconditional Signature of the Drawer Certain Sum of Money Payable On Demand Only Money No stamped Drawn upon a specified Banker Payable to bearer

            Types of Cheque :

            There are two kinds of cheques:

            Bearer Cheque A cheque which is payable to any person who presents it for payment             at the bank counter is called „Bearer cheque‟.

            Crossed Cheque When a cheque is crossed, the holder cannot encash it at the counter of the bank.

            There are three types of crossing

                     1. General Crossing

                     2. Special Crossing

                     3. Restrictive Crossing