NEGOTIABLE INSTRUMENTS

ACT, 1881
LEGAL ASPECTS OF BUSINESS
Presented To
Prof. A. Balasubramaniam
Presented By
Name Roll No.
Trushank Chavan 07
Shankar Gajare 17
Deepak Patil 42
Rohan Rane 49
Anushri Raut 50
INTRODUCTION TO NEGOTIABLE
INSTRUMENTS ACT, 1881
The Negotiable Instruments Act was enacted, in India, in 1881.
Prior to its enactment, the provision of the English Negotiable
Instrument Act were applicable in India, and the present Act is also
based on the English Act with certain modifications. It extends to the
whole of India except the State of Jammu and Kashmir. The Act
operates subject to the provisions of Sections 31 and 32 of the
Reserve Bank of India Act, 1934.
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MEANING OF NEGOTIABLE
INSTRUMENT
The word negotiable means transferable by delivery, and
word instrument means a written document by which a right is
created in favour of some person. Thus, the term negotiable
instrument means a written document transferable by delivery.
According to Section 13 (1) of the Negotiable Instruments Act,
A negotiable instrument means a promissory note, bill of
exchange, or cheque payable either to order or to bearer. A
negotiable instrument may be made payable to two or more
payees jointly, or it may be made payable in the alternative to
one of two, or one or some of several payees [Section 13(2)].
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FEATURES OF NEGOTIABLE
INSTRUMENTS
Writing and Signature
Money
Freely Transferable
Title of Holder Free from all Defects
Notice
Presumption
Special Procedure
Popularity
Evidence
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TYPES OF NEGOTIABLE
INSTRUMENTS
There are two types of Negotiable Instruments:
1. Instruments Negotiable by Statute:
The Negotiable Instruments Act mentions only three kinds of
negotiable instruments (Section 13). These are:
1. Promissory Notes
2. Bills of Exchange, and
3. Cheques
2. Instruments Negotiable by Custom or Usage:
There are certain other instruments which have acquired
the character of negotiability by the usage or custom of trade.
For example: Exchequer bills, Bank notes, Share warrants,
Circular notes, Bearer debentures, Dividend warrants, Share
certificates with blank transfer deeds, etc.
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PROMISSORY NOTES
Section 4 of the Act defines, A promissory note is an
instrument in writing (note being 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 instruments.
The person who makes the promissory note and promises to
pay is called the maker. The person to whom the payment is to be
made is called the payee.
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CHARACTERISTICS OF A
PROMISSORY NOTE
It is an Instrument in Writing
It is a Promise to Pay
Signed by the Maker
Other Formalities
Definite and Unconditional Promise
Promise to Pay Money Only
Maker must be a Certain Person
Payee must be Certain
Sum Payable must be Certain
It may be Payable on Demand or After a Definite Period of Time
It cannot be Made Payable to Bearer on Demand
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PARTIES TO A PROMISSORY NOTE
Maker:
Maker is the person who promises to pay the amount stated in
the note.
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.
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SPECIMEN OF PROMISSORY NOTE
Rs. 10,000
Lucknow
April 10, 2013
Three months after date, I promise to pay Shri Ramesh (Payee) or to his order the sum of Rupees
Ten Thousand, for value received.
To,
Shri Ramesh,
B-20, Green Park,
Mumbai.
(Maker)
Stamp

Sd/-
Ram
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BILL OF EXCHANGE
According to Section 5 of the act, 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. It is also called a Draft.

Special Benefits of Bill of Exchange:
A bill of exchange is a double secured instrument.
In case of immediate requirement, a Bill may be discounted with
a bank.
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ESSENTIAL ELEMENTS OF BILL OF
EXCHANGE
It must be in Writing.
Order to pay
Drawee
Signature of the Drawer
Unconditional Order
Parties
Certainty of Amount
Payment in Kind is not Valid
Stamping
Cannot be made Payable to Bearer on Demand
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PARTIES TO A BILL OF EXCHANGE
Drawer:
The maker of a bill of exchange is called the drawer.
Drawee:
The person directed to pay the money by the drawer is called
the drawee.
Payee:
The person named in the instrument, to whom or to whose order
the money are directed to be paid by the instruments are called
the payee.
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SPECIMEN OF BILL OF EXCHANGE
Rs. 10,000
Mumbai
April 10, 2013
Three months after date pay to Ram (Payee) order the sum of Ten Thousand Rupees, for value
received.
To,
Sushil
B-20, Green Park,
Lucknow - 226020.
Stamp

Sd/- Ram
In case of need with
Canara Bank, Delhi.
(Drawer)
(Drawer)
Accepted
Sushil
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CLASSIFICATION OF BILL OF
EXCHANGE
Inland and Foreign Bills [Section 11 and 12]
Inland Bill:
It is drawn in India on a person residing in India whether payable in or
outside India; or
It is drawn in India on a person residing outside India but payable in India.

Foreign Bill:
A bill drawn in India on a person residing outside India and made payable
outside India.
Drawn upon a person who is the resident of a foreign country.
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CLASSIFICATION OF BILL OF
EXCHANGE (Cont.)
Time and Demand Bills:
Time Bill: A bill payable after a fixed time is termed as a time bill. A bill
payable after date is a time bill.
Demand Bill: A bill payable at sight or on demand is termed as a
demand bill.
Trade and Accommodation Bills:
Trade Bill: A bill drawn and accepted for a genuine trade transaction is
termed as trade bill.
Accommodation Bill: A bill drawn and accepted not for a genuine
trade transaction but only to provide financial help to some party is
termed as an accommodation bill.
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CHEQUE
According to Section 6 of the act, A cheque is a bill of
exchange drawn on a specified banker and not expressed to be
payable otherwise than on demand. A cheque is also, therefore, a
bill of exchange with two additional qualification:
It is always drawn on a specified banker.
It is always payable on demand.

Special Benefits of Bill of Exchange:
A bill of exchange is a double secured instrument.
In case of immediate requirement, a Bill may be discounted with
a bank.
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ESSENTIAL ELEMENTS OF A CHEQUE
In writing
Express Order to Pay
Definite and Unconditional Order
Signed by the Drawer
Order to Pay Certain Sum
Order to Pay Money Only
Certain Three Parties
Drawn upon a Specified Banker
Payable on Demand
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PARTIES TO A CHEQUE
Drawer:
Drawer is the person who draws the cheque.
Drawee:
Drawee is the drawers banker on whom the cheque has been
drawn.
Payee:
Payee is the person who is entitled to receive the payment of a
cheque.
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SPECIMEN OF CHEQUE
Pay ......
. Or Bearer
Rupees

Rs.
Kapoorthala Bagh,
Mumbai 400033
IFSCode:MAHB0000316
A/c No.
473792 000240000 000000 10
SHANKAR GAJARE

Signature
Please sign above
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D D M M Y Y Y Y
TYPES OF A CHEQUE
Bearer Cheque
Cross Cheque



Cheque Crossed Specially


Restrictive Crossing (A/c Payee Only)
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NEGOTIATION
According to section 14 of the Act, when a promissory note,
bill of exchange or cheque is transferred to any person so as to
constitute that person the holder thereof, the instrument is said to be
negotiated. The main purpose and essence of negotiation is to
make the transferee of a promissory note, a bill of exchange or a
cheque the holder there of.
Negotiation thus requires two conditions to be fulfilled, namely:
There must be a transfer of the instrument to another person; and
The transfer must be made in such a manner as to constitute the
transferee the holder of the instrument.
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MODES OF NEGOTIATION
Negotiation by delivery (Sec. 47):
Where a promissory note or a bill of exchange or a cheque is
payable to a bearer, it may be negotiated by delivery thereof.
Example: A the holder of a negotiable instrument payable to
bearer, delivers it to Bs agent to keep it for B. The instrument has
been negotiated.
Negotiation by endorsement and delivery (Sec. 48):
A promissory note, a cheque or a bill of exchange payable
to order can be negotiated only be endorsement and delivery.
Unless the holder signs his endorsement on the instrument and
delivers it, the transferee does not become a holder. If there are
more payees than one, all must endorse it.
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ENDORSEMENT [SECTION 15]
The word endorsement in its literal sense means, writing on
the back of an instrument. But under the Negotiable Instruments Act it
means, the writing of ones name on the back of the instrument or
any paper attached to it with the intention of transferring the rights
therein. Thus, endorsement is signing a negotiable instrument for the
purpose of negotiation. The person who effects an endorsement is
called an endorser, and the person to whom negotiable instrument
is transferred by endorsement is called the endorsee.

Who may Endorse / Negotiate [Section 51]:
Every Sole maker, drawer, payee or endorsee, or all of several
joint makers, drawers, payees or endorsees of a negotiable instrument
may endorse and negotiate the same if the negotiability of such
instrument has not been restricted or excluded as mentioned in
Section 50.
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ENDORSEMENT (Cont.)
Essentials of a Valid Endorsement:
It must be on the back or face of instrument or on a slip of paper
annexed thereto.
It must be signed by the endorser.
It must be completed by the delivery of the instrument.
It must be made by the holder of the instrument.

Kinds of Endorsement:
Blank or General Endorsement
Full or Special Endorsement
Partial Endorsement
Restrictive Endorsement
Conditional Endorsement
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