As per VNSGU Syllabus 2017-18

1. Semester- Sem- III
Subject: Banking Law & Practice

2. Introductionand Object of Negotiable Instruments
• Documents of a particular type and nature frequently used in commercial transactions and
monetary dealings are called Negotiable instruments.
• The word “Negotiable” connotes that it is transferrable from one person to another by delivery in
return of consideration. The word “Instrument” means a written document by which a right
accrues in favor of some person.
• In this sense, the term “Negotiable Instrument” actually means: “A document transferable from
one person to another person by mere delivery or by endorsement and delivery. The person so
receiving an instrument is entitled to receive money thereon and he also gets a right to transfer it.”
• The chief object of the Act is to legalize the system under which negotiable instruments pass from
hand to hand in negotiation like ordinary goods.

3. Definition of NegotiableInstrument
A Negotiable Instrument Act of 1881, states that, “A Negotiable Instrument
means a promissory note, bill of exchange or cheque payable either to order or
to bearer.”
Thomas has given a beautiful definition in his book “Commerce: Its Theory and
Practice” as follows:
“An instrument is negotiable when it is, by a legally recognised custom of
trade or by law, transferable by delivery or by endorsement and delivery,
without notice to the party liable, in such a way that
(a) The holder of it for the time being may sue upon it in his own name and,
(b) The property in it passes to a bonafide transferee for value free from any
defect in the title of the person from whom he obtained it.

4. Characteristics (or Features)of a Negotiable Instrument
1) Freely Transferrable: The property in negotiable instrument passes from one person to
another
freely by delivery.
2) Title of holder free from all defects: If there is any defect in the title of the transferor of
any prior party, the instrument coming in the hands of the holder in due course is cured of
all defects in the instruments.
3) Recovery: The holder in due course can sue upon a negotiable instument in his own name
for the recovery of the amount specified in the instrument.
4) Presumptions: Certain presumptions apply in all negotiable instruments unless contrary
is proved.
Promissory Note
A promisorry note is an instrument
a) in writing (not being a bank-note or currency note),
b) containing an unconditional undertaking or promise,
c) signed by the maker,
d) to pay a certain sum of money,
e) only to or to the order of a certain person or to the bearer of the instrument.

5. Parties to a Promissory Note
There are two parties to a promissory note:
1) Maker: The person who signs the instrument or promises to pay is called the Maker. He
is the debtor and must sign the instrument.
2) Payee: The person who will receive money (the creditor) is called Payee.
Essential Elements or Features of a Promissory Note
1) Instrument in Writing
2) Signed by the maker
3) Promise to pay
4) Unconditional promise
5) Maker must be definite individual
6) Stamped
7) Certain sum of money
8) Promise to pay money only
9) Payable to certain person
10) Payable on demand or after a definite period

6. Specimen of a Promissory Note

7. Billsof Exchange
A bill of exchange is an instrument
a) in writing,
b) containing an unconditional order,
c) signed by the maker,
d) directing a certain person to pay,
e) a certain sum of money,
f) only to or to the order of a certain person or to the bearer of the instrument.
Parties to Bills of Exchange
1) Drawer: The maker of a bill of exchange is called the Drawer.
2) Drawee: The person who is directed to pay is called the Drawee.
3) Payee: The person who will receive the money is called the Payee.
4) Holder: The drawer or the payee who is in possession of the bill is called the Holder. It
is the holder’s duty to present the bill to the drawee for his acceptance.
5) Acceptor: The drawee signifies his acceptance by signing on the bill. The drawee after
signing becomes the Acceptor.

8. Essential Elements or Features of a Bill of Exchange
1) Instrument in Writing
2) Signed by the drawer
3) Order to pay
4) Definite and certain individuals
5) Stamped
6) Certain sum of money
7) Order to pay money only
8) Payable on demand or after a definite period
Specimen of a Bill of Exchange

10. Cheque
A cheque is
a) a bill of exchange,
b) drawn on a specified bank, and
c) not expressed to be payable otherwise than on demand.
A cheque being a bills of exchange must possess all the essentials of a bill of exchange
specified under Section-6.
Parties to a Cheque
There are three parties to a cheque:
1) Drawer: The account holder who writes the cheque is known as Drawer.
2) Drawee: The bank with whom the account of drawer is maintained is known as
Drawee. Drawee of a cheque can be a bank only.
3) Payee: The person named in the cheque to whom the payment is to be made is known
as Payee.
There are other parties also which come into picture subsequently and include holder,
holder in due course, endorser and endorsee.

11. Essential Elements or Features of a Cheque
1) Must fullfil essential requirements of a bill of exchange.
2) Payable to bearer or order but in either case payable on demand.
3) Drawn on a specified banker.
4) Unconditional order.
5) In written form.
6) Amount must be certain.
7) Payee must be certain.
8) On expiry of 3 months after issue date, a cheque becomes a stale cheque.
9) Cheque must be dated.
10) Post-dated cheque is valid.
11) Signature must tally with specimen signature.
12) Cheque must be presented for payment during working hours of the bank.

12. Specimen of a Cheque