The Negotiable Instruments Act, 1881 came into force on 1st march,1881.

It extends to the whole of india except the state of Jammu & kashmir.
The act deals with the law relating to three specific classes of Negotiable instruments.

1. Promissory Note 2. Bill of Exchange and 3. Cheque.

1. It means a promissory note, bill of exchange or cheque, payable either to order or to the bearer.

2. A Negotiable instrument is one the property in which is acquired by anyone who takes it bonafide and for the value, notwithstanding any defect of title in the person from whom he took it.

A Negotiable Instrument possess two features :-

1. The right of ownership contained in the instrument can be transferred from one person to another by mere delivery if it is payable to bearer or by endorsement and delivery if payable to order, and 2. The transferee taking the instrument in good faith and for consideration gets good title to the same even though the title of the transferee is defective.

a. b. c. d.

Bearer Instrument Order Instrument Inland Instrument Accommodation Bills

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

1. In Writing not oral 2. Express promise to pay not acknowledgement 3. Definite and unconditional promise 4. Signed by the maker 5. Promise to pay certain sum 6. Promise to pay money only 7. Certain payee

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.

1. 2. 3. 4. 5. 6. 7. 8.

In Writing not oral Express order to pay Definite and unconditional order Order to pay certain sum Order to pay money only Signed by the drawer Three parties Revenue stamp, date, Amount

1. 2. 3. 4. 5. 6. 7. 8.

No. of parties Promise / order Nature of liability Acceptance Same identity of payor and payee Payable to bearer Protest for dishonour Notice of dishonour

BASIS OF Bill of Exchange DISTICTION

1. No. of parties Three parties:Drawer , drawee and payee 2. Promise/ order 3. Nature of liability It contains a unconditional order. The liability of the drawer is secondary and conditional

Promissory Note

Two parties :Maker and payee

It contains a unconditional promise. The liability of the maker is primary and absolute

4. Acceptance

Requires acceptance to Does not require any become a valuable acceptance since it is a

BASIS OF DISTINCTION
5. Same identity of payor and payee

Bill of Exchange

Promissory Note

The drawer and payee may be the same person.

It can be payable to bearer. It cannot be drawn as payable to bearer on demand (Sec 31 of RBI Act) It requires the protesting for dishonour Notice of dishonour must be given to all

The drawer and payee cannot be the same person.

It cannot be payable to bearer on demand

6. Payable to bearer

7. Protest for dishonour 8. Notice of dishonour

It does not require any protesting Such notice is not required to be given

A Cheque is a bill of exchange which is drawn upon a specified banker, and payable on demand.

1. 2. 3. 4. 5. 6. 7. 8. 9.

In Writing not oral Express order to pay Definite and unconditional order Order to pay certain sum Order to pay money only Signed by the drawer Three parties Payable on demand Drawn upon a specified banker

1. 2. 3. 4. 5. 6. 7. 8.

Drawer Payable on demand Payable to bearer on demand Acceptance Three days of grace Crossing Form Notice of dishonour

The crossing of a cheque is an instance of an alteration which is authorised by the Act. When it bears across its face two parallel transverse lines which is usually drawn on the left hand top corner of the cheque.

1. General crossing
2. Special Crossing

Who can Cross a Cheque after issue ?

A cheque is said to be bounced or dishonoured by non-payment when the drawee of the cheque makes default in payment upon being duly required to pay the same.

A person is called holder if he satisfies two conditions :1.He must entitled to the possession of instrument in his own name.

2.He must be entitled to receive/recover the amount due on the instrument from the parties liable under the instrument.

A person is called holder in due course if he satisfies two conditions :1. He must be a holder 2. He must have become , for consideration, either possessor of instrument if payable to bearer, or payee if payable to bearer.

3. have obtained the instrument before its maturity.

4. have obtained the instrument in good faith 3. receive the instruments complete and regular on the face of it.