Negotiable Instrument Act

2.  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 favour of some
person. Thus the negotiable instrument is a
document by which the right vested in a
person can be transferred to another person
in accordance with the Negotiable
Instruments Act 1881.

3.  The term Negotiable Instrument has been
defined as “Negotiable Instrument means a
promissory note, bill of exchange, or cheque
payable either to order or to the bearer”

4.  An instrument is called negotiable if it
possesses the following characteristic
features:
 FreelyTransferable
 Transferability may be by
 Delivery
 By endorsement and Delivery

5.  Holder’sTitle must be free from Defects:
 The Holder of the negotiable instrument in
due course acquires a good title not
withstanding any defect in previous holder’s
title. A holder in due course is one who
receives the instrument for value and without
any notice as to the defect in title of the
transferor

8.  A promissory note is an instrument in writing
(not being a part of a bank note or a currency
– note) containing an unconditional
undertaking, signed by the maker to pay a
certain sum of money to, or to the order of a
certain person or to the bearer of the
instrument

9.  Examples :
 “ I promise to pay B or order Rs 500/-”
 “I promise to pay Rs 500 and all other sums
which shall be due to him”
 “I promise to pay Rs 500 on D’s death ,
provided D leaves me enough to pay that
sum”.
 “ I promise to pay Rs 500/- and to deliver to
him my black horse on 1st January next”

10.  It must be in writing
 It must contain express promise to pay :- ‘I am liable to
pay’
 The promise to pay must be unconditional
 It must be signed by maker
 The maker must be certain- It must describe the name &
designation of the maker, sum of money
 There are 2 parties involved i.e. maker and the payee
 The payee must be certain- It is essential that it must
contain a promise to pay some person ascertained by
name or designation.
 The sum payable must be certain
 The payment must be in legal money
 A currency note is not a promissory note

12.  Section 5, is defined as “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”.

13.  It must be in writing
 It must contain an order to pay and a promise
or request
 The order must be unconditional
 There must be 3 parties ie : drawer, drawee,
and payee
 The parties must be certain
 It must be signed by the drawer
 Number, date and place are not essential

15.  A cheque is defined as a bill of exchange
drawn on a specified banker and not
expressed to be payable otherwise than on
demand
 Thus a cheque is a bill of exchange with 2
added features:
 It must be drawn on a specified banker &
 It is always payable on demand and not
otherwise

17.  Crossing of a cheque is a unique feature
associated with a cheque affecting to a
certain extent the obligation of the paying
Banker and also its negotiableCharacter.
 Crossing of a Cheque is a direction to a
particular Banker by the Drawer that
Payment should not be made across the
Counter.The payment on the crossedCheque
can be collected only through a Banker.

18.  Crossing of the Cheque is affected by drawing
two parallelTransverse lines .
 The Cheque that is not crossed is an open
Cheque

19. CHEQUE
 It must be drawn only on
Banker
 The amount is always
payable on demand
 The Cheque is not entitled
to days of grace
 Cheque can be crossed
BILL OF EXCHANGE
 It can be drawn on any
person including a Banker
 The amount may be
payable on demand or
after a specified time
 A usance ( time) bill is
entitled to 3 days of grace.
 Crossing of Bill of
Exchange is not possible

20. PROMISSORY NOTE
 There are 2 parties – Maker
(Debtor) and the payee
(Creditor)
 A note contains an
unconditional promise by
maker to pay the payee
BILL OF EXCHANGE
 There are 3 parties –The
Drawer , the drawee, and
the payee
 It contains an
unconditional order to the
drawee to pay according to
the drawer’s directors

21. PROMISSORY NOTE BILL OF EXCHANGE
1. It contains a promise to pay.
2. It is presented for payment
without any previous
acceptance by the maker.
3. It cannot be made payable to
the maker himself.The maker
and the payee cannot be the
same person.
4. In the case of a promissory
note there are only two
parties, the maker and the
payee.
5. A promissory note can never
be conditional.
1. It contains an order to pay.
2. It is required to be accepted either
by the drawee or by some one
else on his behalf, before it can be
presented for payment.
3. The drawer and payee or the
drawee and the payee may be the
same person.
4. There are three parties, drawer,
drawee and payee.
5. A bill of exchange cannot be
drawn conditionally, but it can be
accepted conditionally with the
consent of the holder.
6. A notice of dishonour must be
given in case of dishonour of a
Bills of Exchange.

22. CHEQUE BILL OF EXCHANGE
1. Drawee:Cheque can be drawn
only on a banker.
2. Time of payment:A cheque is
payable on demand.
3. Grace period: Cheque is payable
on demand and no grace period is
allowed.
4. Notice of dishonour: Notice of
dishonour is not necessary.
5. Acceptance:A cheque is not
required to be presented for
acceptance. It needs to be
presented only for payment.
6. Crossing:A cheque may be
crossed.
7. Validity period:A cheque is
usually valid for a period of six
1. The drawee may be any person.
2. A bill may be drawn payable on
demand or on expiry of certain
period after date or sight.
3. While calculating maturity three
day’s grace is allowed.
4. A notice of dishonour is required.
5. Bills require presentment for
acceptance and it is better to
present them for acceptance even
when it is not essential to do so.
6. A bill of exchange cannot be
crossed.
7. A bill may be drawn for any
period.