This document provides an overview of negotiable instruments under the Negotiable Instruments Act 1881. It defines negotiable instruments as written documents that entitle the holder to a sum of money. It discusses the key characteristics of negotiable instruments, including being freely transferable, giving the holder free title, and entitling the holder to recovery. The main types of negotiable instruments - promissory notes, bills of exchange, and cheques - are described. Key parties and elements of each type are defined, including makers, payees, endorsers, drawers, and drawees. The document also covers negotiation, dishonor by non-payment and non-acceptance, noting, protesting, holders, and holder in

1. NEGOTIABLE
INSTRUMENTS
ACT 1881

2. What is Negotiable Instruments
The term negotiable instruments means a written
document which entitles a person to a sum of money.
A negotiable instruments is transferable by delivery
or by endorsement and delivery.
The transfer entitles a person to the sum of money
mentioned therein.
“Thus the negotiable instrument is a document which is
legally recognized by custom of trade or law,
transferable by delivery or by endorsement and
delivery.”

3. Characteristics Of a Negotiable Instrument
 Freely transferable: The property in a negotiable instrument passes from
one person to another by a simple process, i.e., by mere delivery if it is
payable to bearer, and by endorsement and delivery if it is payable to
order.
 Holder’s title free from all defects: The holder in due course (one who
acquires the instrument in good faith and for consideration) gets it free
from all defects.
 Recovery: One can sue upon the instrument in his own name.
 Payable to order or bearer: - It must be payable either to order or bearer
 Presumption as to Holder:- Every holder of negotiable instrument is
presumed to be holder in due course.
 Presumption as to considerations:- Every negotiable instrument is
presumed to have been made, drawn, accepted, endorsed , negotiated or
transferred for consideration.

4. Types of Negotiable Instruments
 Promissory note.
 Bill of exchange.
 Cheque.

5. Promissory Note
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.

6. Parties
 MAKER : The person who makes the promissory note and
promises to pay is called the Maker.
 PAYEE: The person to whom the payment is to be made is
called the Payee.
 HOLDER: The holder is either the payee or someone to whom he
may have indorsed (transfer) the note is known as Holder.
 ENDORSER: The person who approves the note to another is
called the Endorser .
 ENDORSEE: The person to whose favor the note is sanctioned is
called the Endorsee

7. It must be in writing.
It must contain a promise or undertaking to pay a definite
sum of money.
The promise to pay must be unconditional.
It must be signed by the maker.
The payee must be identified & must be certain.
The sum payable must be certain.
Essentials Of The Promissory Notes

8. Format of Promissory Note
Rs. 10,000/- Delhi,
February10,2012
Three months after date I promise to pay cyko on
order the sum of ten thousand rupees, for value
received.To,
Cyko
222, Ashok Vihar
Delhi-110052
Stamp
Sd/-Ram

9. Bill Of Exchange
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 certain person to the bearer of the instrument.

10. Parties
 DRAWER: The person who makes the bill of exchange is
called drawer.
 DRAWEE: The person who is directed to pay is called drawee.
 PAYEE: The person to whom the payment is to be made is
called payee.
 ACCEPTOR: When the drawee accepts the bill is called
acceptor.

11. Characteristics of the Bill of Exchange
The amount payable must be certain.
The payment must be made in money.
The bill payable may be either on demand or after a specified
period.
The bill may be payable either to the bearer or to the order of
payee.

12. Format Of Bill Of Exchange
Rs. 500 Greater Noida,21
Feb.2009
Three months after the date pay to Ram or order
the sum of Five Hundred rupees , for value
received.
To,
Cyko
235,Subhash marg
delhi-110006.In case of need with
Canara Bank, Delhi
Accepted
Cyko Sd/-
Stamp
Krishna

13. Cheque
A cheque is a bill of exchange drawn on a specified banker
and expressed to be payable otherwise than on demand.
The maker of a bill of exchange or Cheque is called the
“Drawer"; the person thereby directed to pay is called the
"Drawee".

14. Parties
 DRAWER: The person who makes a cheque is called
Drawer.
 DRAWEE: The person who is directed to pay is called
Drawee.
 PAYEE: The person to whom the payment is to be made.

15. Characteristics of Cheque
In writing
Express order to pay
Definite and unconditional order
Signed by drawer
Order to pay certain amount
Payable on demand

16. Format Of Cheque
No.……..
Date………..2010
Pay…………………………………………………………or bearer
the sum of Rs…………………………………
Sd/-
Rs…………………
A/c No LF No
PUNJAB NATIONAL BANK
Subzi Mandi,Delhi -110007
“5777100” 111013035”

17. Crossing of Cheque
A cheque is said to be crossed when it bears across its face
two parallel transverse lines which are usually drawn on the
left hand top corner of the Cheque.
Legally there are two kinds of crossing.
General crossing: The drawing up of two parallel lines
on the face of the check at the top left hand corner with or
without the words & Co not negotiable or Account payee
only is known as a General Crossing.
Special crossing: A check is deemed to be crossed
specially when it bears across its face the name of the
banker either with or without the words not negotiable.

18. Negotiation
An instrument is said to be negotiated:
 When a promissory note, BOE, cheque is transferred to
any person so as to constitute that person the holder of
the instrument
Transfer with an intention to transfer the title of the
instrument.
Negotiation by delivery
Negotiation by endorsement and delivery

19. Dishonor
A negotiable instrument is said to be dishonored by
non- payment when the maker, acceptor or drawee, as
the case maybe makes default in payment upon being
duly required to pay the same.
 Dishonor by non payment
 Dishonor by non acceptance

20. Dishonor by non acceptance
 According to sec 91 a bill of exchange is said to be
dishonoured by non acceptance in following cases
 When drawee or one of several drawees (not being
partners) does not accept the bill within 48 hrs from
the time of presentment for acceptance. When the
presentment for acceptance is excused and the bill is
not accepted i.e., remains unaccepted.
 When the drawee is incompetent to contract.
 Where drawee makes the acceptance qualified.
 If the drawee is a fictitious person or after a
reasonable search cannot be found (Sec.61)

21. DISHONOUR BY NON PAYMENT
 When the maker of note, acceptor of the bill
or drawee of cheques makes default in
payment upon being duly required to pay the
same (sec.92).
 A promissory note or bill of exchange is
dishonoured by non payment when
presentment for payment is excused
expressly by the maker of note or acceptor
of the bill and the note or bill remains unpaid
at or after maturity(sec. 76)

22. EFFECT OF DISHONOUR
 The holder becomes entitled to sue parties liable to pay thereon.
 The drawer of cheque, maker of note, acceptor and drawer of bill
and all the indorses are liable severally and jointly to a holder in
due course

23. NOTING
 Noting is a convenient method of authenticating the fact of
dishonour. Where an instrument is dishonoured, the
holder, besides giving the above notice, should get the bill
or promissory note 'noted' by the notary public.
 The notary public presents the instrument, notes down in
his register date of its dishonour and the reason, if any,
given by the acceptor. If the instrument has been
expressly dishonoured, the reason why the holder treats it
as dishonoured and the notary's charges should be
metioned. 'Noting' must be made within a reasonable time
after dishonour.
 Noting is not compulsory in the case of an inland bill or
note, but foreign bills must be protested, if s required by
the law of the place where drawn.

24. PROTESTING
 The protest is the formal notarial certificate attesting the
dishonour of the bill and based upon the noting. After the noting
has been made, the formal protest may be drawn up by the
notary at his leisure. When the protest is drawn up it relates
back to the date of noting.
 A protest to be valid must contain the following particulars:
 The instrument itself, or a literal transcript thereof.
 The names of the parties against whom the instrument is
protested.
 The fact and reason/reasons for dishonour.
 Place and time of dishonour or refusal to give better security.
 Signature of the notary public.
 In the event of an acceptance for honour or of a payment for
honour, the name of the person by whom or the person for
whom, and the manner in which, such acceptance or payment
was offered and effected.

25. Holder and Holder in due course
 Holder is a person who is entitled in his own
name to the possession of the negotiable
instrument and to recover the amount thereon.
 Holder in due course is a person who came
into possession of the instrument on payment
of consideration and without knowledge of the
fact that the former owner had a defective title.
 The holder in due course has a better title
than the holder

26. Privileges of a holder in due course
 He can sue every prior party to the negotiable
instrument if the instrument is not duly satisfied.
 When the holder endorses such instrument
further, the new owner has a good title unless he
is party to fraud.
 The burden of proving his title does not lie upon
the holder in due course.

27. THANK YOU