Banking Awareness 2017 - All About Negotiable Instruments Act | Important Sections, Types


Hello and welcome to exampundit. Disqus ID Warewolf had requested about Negotiable Instruments Act and we decided to give all about it.


Negotiable Instruments Act, 1881 is an act in India dating from the British colonial rule, that is still in force largely unchanged.

The Act was originally drafted in 1866 by the 3rd India Law Commission and introduced in December, 1867 in the Council and it was referred to a Select Committee.

Meaning and Definition
  • A Negotiable Instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.
  • It must be freely transferable either by delivery (when it is payable to the bearer of the document) or by endorsement and delivery (when the document is payable to order).
  • The transferee taking the instrument in good faith and for consideration gets a good title to the same even if the title of the transferor is defective.
  • The party holding the instrument should be entitled to maintain a suit thereon in case the instrument gets dishonored while in his custody.



Characterstics of Negotiable Instruments
  • Writing and Signed by Its Maker
  • Unconditional
  • Fixed Sum of Money
  • Transferable
  • Absolute And Good Title
  • Right to Recovery



Relevant Provisions of RBI Act 1934
  • A bill of exchange or hundi cannot originally be made payable to ‘bearer on demand’.
  • A promissory note cannot be originally made payable to bearer.


Kinds of Negotiable Instruments
  • Promissory note
  • Bill of exchange
  • Cheque



Important Sections of Negotiable Instruments Act: 

There are total 147 sections in the Negotiable Instruments Act.

  1. Section 4 - Promissory note
  2. Section 5 - Bill of exchange
  3. Section 6 - Cheque
  4. Section 13 - Negotiable Instruments
  5. Section 92 - Dishonour by non-payment
  6. Section 118 - Presumptions as to Negotiable Instruments




Promissory Note
  • An unconditional promise in writing made by one person (maker) to another person( payee)
  • Signed by the maker
  • Stamped
  • Promise to pay
  • On demand or at a fixed or determinable future time
  • A sum certain in money
  • Pay in terms of legal tender money only
  • To, or to the order of, a specified person or to the bearer.
  • The parties i.e. the maker and the payee must be certain.



Bill of Exchange
  • An order in writing directing a person to pay a sum of money to a specified person.
  • Duly signed by its drawer
  • Accepted by its drawee
  • Properly stamped
  • Express order to pay
  • Definite sum of money
  • Definite and unconditional order
  • Parties to a bill must be certain


Cheque
  • A bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand
  • Includes the electronic image of a truncated cheque
  • Includes a cheque in electronic form
  • issued on a specified banker only
  • The amount specified is always certain, and must be clearly mentioned
  • The payee is always certain.
  • Must bear a date
  • Types -Open cheque, Crossed cheque, Bearer cheque, Order cheque













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