introduction to negotiable instrument

1. SPECIAL CONTRACTS
Negotiable Instruments

2. Negotiable Instrument
Introduction
• Passed by the council on 9th Dec 1881
• Came into force on 1st March 1882
• It extend to whole India.
• The main object of I.N.A is to legalize the system
under which N.I pass from hand to hand in
negotiable like ordinary good

3. Definition:--
• Negotiable -- “ transferable by delivery”
• Instrument --“a written document by which a right is
created in favor of some person.”
• N.I – “A written document transferable by delivery”
• N.I.A Sec 13 defines :- “A negotiable instrument means
a promissory note , bill of exchange or cheque payable
either to order or to bearer”
• U/S 13(2) “N.I 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 the
several payees”

4. The Act mentions N.I, that to be negotiable they must
be made payable as:--
1. Payable to order - a note, bill or cheque is payable to
order which is expressed to be ‘payable to a particular
person or his order’.
2. Payable to barer - ‘payable to barer’ means ‘payable to
any person whosoever bears it’.

5. Amendment of 1988
• By Banking Public Financial institutions & Negotiable
Instrument Law’s Act 1988
• A new chapter XVII was incorporated
• Penalties in case of dishonor of cheque due to
insufficiency of fund in the account of cheque drawer of
the cheque.
• To encourage culture of use of cheque and enhancing the
credibility of the instrument.
• Sec 138 to 142 of N.I.A have been found deficient in
dealing with dishonor of cheque.
• Large no. of cases are reported to be pending u/s 138 to
142 in various courts.
• After view of this defect & then amendment was in the
year 1988 & dishonor of cheque was made an offence.

6. Amendment of 2002
• Effective from 6th Feb 2003
• To further amendment of ‘the law of dishonor of a
cheque’
• Sec- 138 , 141 & 142
• Inserted five more Sections 143 to 147

7. Characteristics of Negotiable Instrument
1. Easy negotiability :- transferable from one to another
without any formality . Property passes by either
endorsement and delivery or by delivery merely,
no further evidence of transfer is needed
2. Transferee can sue in his own name without giving notice
to the debtor :- A bill, note or a cheque represent a debt,
i.e., an “actionable claim” and implies the right of the
creditor to recover something from his debtor.

8. 3. Better title to a bona fide transferee for value:-
A bona fide transferee of a negotiable instrument for value gets the
instrument ‘free from all defects’.
He is not affected by any defect of title of the transferor or any
prior party.
General rule of the law of transfer of title is not applicable to N.I.
“nobody can transfer a better title than that of his own”
4. Written and signed :-
Negotiable Instrument must be written and signed by the parties
according to the rules relating to promissory notes, bills of
exchange and cheques.

9. Consideration
Date
Acceptance within reasonable time
Transfer before maturity
Sequence/order of endorsements
A lost NI was duly stamped
Holder of NI
5. Presumption to Negotiable instrument

10. Examples of Negotiable Instrument
The following instrument have been recognized as negotiable
instruments:--
1. Bills of exchange
2. Promissory note
3. Cheque
4. Treasure bill
5. Dividend warrants
6. Hundis etc…

11. BILL of EXCHANGE