The document provides an overview of negotiable instruments under Indian law. It defines key terms like negotiable instrument, bill of exchange, promissory note, cheque, endorsement, and dishonour. It describes the essential characteristics and elements of different types of negotiable instruments. The Negotiable Instruments Act of 1881 governs negotiable instruments in India and helps facilitate valid contracts between parties.

1. 1
The Negotiable
Instruments Act, 1881.
By :
REVA MITTAL.

2. 2
Introduction
• The law relating to negotiable instruments
is contained in the Negotiable Instruments
Act of 1881 which applies and extends to
the whole of India. ( Act No 26 of 1881 )
• It is a pre independence Act which helps to
complete valid contracts which are signed
by either two or three parties.
• It is based on English common Law.

3.  Negotiable Instruments are the most common
credit devices used in modern business.
 They are basically written promises or orders
to pay certain money & it is transferred from
one person/one account/one place to
another.
 The chief objective of this law is to legalize
the system under which negotiable
instruments pass from one hand to other like
an ordinary goods
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4. 4
Definitions
 The word negotiable’ means “transferable
by delivery” and instrument means “a
written document by which a right is
created in favor of some person or persons.
 Thus, the term negotiable instrument
literally means a written document which
creates a right in favor of somebody and is
freely transferable from one person to
anothers.

5. 5
Continued…
• A negotiable instrument is a piece of paper
which entitles a person to a certain sum of
money and which is transferable from one
to another person by a common delivery or
by endorsement and delivery.
 Eg - Promissory note, Cheque and a Bill of
exchange.

6. 6
Types of Negotiable Instruments
Negotiable instruments are of two types which
are as follows:
• Negotiable Instruments recognized by status:
e.g. Bills of exchange, cheque and promissory
notes.
• Negotiable instruments recognized by usage
or customs of trade:
e.g. Bank notes, Exchequer bills, share
certificate ,share warrants, stamp papers,
Travelers cheques, Dividend certificates,
warrants,.Hundis,Treasury Bills etc.

7. 7
Characteristics of Negotiable
Instruments
1)Free transferability or easy negotiability
Negotiable instrument is freely without
any formality transferable from one person
to another because it is a property.
2)Title of holder is free from all defects
A person who takes negotiable instrument
bona-fide and for value gets the instrument
is free from all defects in the title. The
holder in due course is not affected by
defective title of the transferor or of any
other party.

8. 8
Presumptions:
3) Consideration : that every negotiable
instrument is made or drawn for certain
consideration.
4)As to date : that every negotiable
instrument bearing a date is important as it
was made or drawn on such date. It defines
its validity of payment.

9. 9
Continued…
5)As to time of endorsements : that the
endorsements appearing on the negotiable
instrument should be made in the order in
which they appear always.
6)As to time of acceptance : that every
negotiable instrument must be accepted
within a reasonable time after its date and
before its maturity.( Cheque : 6 Months)

10. 10
Continued…
• 7)As to stamps : that a promissory-note,
bill of exchange or cheque must be duly
stamped if required by drawer/maker.
• 8)As to a holder in due course : that
every holder of a negotiable instrument is
also a holder in due course.( Authority of
receipt of payment)
• 9)As to time of transfer : that every
transfer of a negotiable instrument must be
made before its maturity.otherwise it
expires.

11.  10)The legal Remedy :The holder can sue to
the defaulter and can seek the legal remedy
for compensations.
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12. 12
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 a
certain person or to the bearer of the instrument.
Eg - Mr. Suresh purchasesd goods from Mr. Ramesh for
Rs. 10000/- Mr. Ramesh has bought the goods from
Mr.Naresh for Rs. 10000/- Then Mr. Ramesh may order
Mr. Suresh to pay Rs. 10000/- Mr. Naresh which will
be nothing but a bill of exchange.

13. 13
Specimen of a Bill of Exchange
Rs. 100000/- New Delhi,15 November, 2010
Three months after the date pay to Mr. Manjeet Singh
Randhawa or order the sum of rupees one lakh only, for
the value received.
To
Mr.Alok Saxena
Address : 135 Sadar Bazar,
New Delhi 110011. Stamp
------------------------ Signature of Mr Basha
Accepted & Signature of Mr. Alok Saxena.

14. Essential Characteristics
 A) There must be three parties available.
 B) It must have some considerations.
 C) It must be related with some goods/
Articles.
 D) There must be good understanding
between all the parties at Bill Of Exchange.
 E) All the transactions must be legally
qualified.
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15. 15
Promissory Note :
A “promissory –note” is an instrument in
writing [not being a bank-note or a
currency-note} 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 the bearer of the
instrument.

16. 16
Specimen of a promissory note
Rs. 5000/- Pune November 25, 2008
Three months after on 26th of the date of that month, I
promise to pay to Mr. X of Mumbai or order a sum of
Rupees Fifty Thousand for value received by me.
To
Mr.
Address………..
…………… Stamp
Mumbai Signature of Mr Y

17. 17
Essential characteristics of a
Promissory Note
• Promissory note is a negotiable instrument
• It must be in writing
• It is a promise to pay money only.
• It must be definite. The promise to pay
must be definite.
• It must be unconditional. Undertaking to
pay must be unconditional.
• It must be signed by the maker.

18. 18
Continued…
• Maker of the promissory note must be a certain
person and the payee must also be certain.
• Amount of the promissory note must be certain.
• Other formalities like number, date,
consideration, place etc. are generally found in
the promissory notes & they are essential as per
the law.
• Promissory note must be properly stamped
according to the provisions of the Indian Stamp
Act, 1899.

19. 19
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“ &
the person receiving an amount is called
payee.

20. 20
Essential characteristics of a
Cheque
• A cheque is a negotiable instrument.
• It is one of the type of bill of exchange.
• It is always drawn on a specified banker.
• It is always payable on demand.
• A cheque can be bearer, ordered or crossed.

21. 21
Continued…
• A cheque requires no acceptance in the
ordinary course of business as it is intended for
immediate payment.
• In case of a cheque, a drawee is always a
specified bank, a drawer is a person who draws
a cheque and who has an account in the bank
ad payee is a person to whom the amount of
cheque is made payable.
• There are three parties .

22. Types of Cheques
 Bearer Cheque.
 Crossed /Account Payee Cheque.
 Post Dated Cheque.
 Forged Cheque.
 Hypo Cheque.
 At par Cheque.
 Blank Cheque.
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23. 23
Negotiation
“It is a process of transferring the ownership,
right, title, interest of a person in a
negotiable instrument to another person so
as to give a good title to the transferee and
make a transferee a holder of such
instrument.”

24. 24
Continued…
Negotiation does not mean a simple transfer.
Simple transfer may not necessarily involve the
transfer of property in the negotiable instrument
but negotiation implies the transfer of property
or ownership in total.
Eg -X hands over a cheque to Mr. Y here Mr. X
has negotiated for the instrument.
But if he hands over a cheque to Mr. Y asking
him to keep the same in his safe, the cheque is
not negotiated to Mr. Y, Mr. Y does not become
its holder but only a bailey.

25. 25
Essentials of negotiation
• There must be transfer of a negotiable
instrument to another person.
• As a result of such transfer, the transferee
must become the holder of the instrument.

26. 26
Modes of negotiation:
• Negotiation by delivery – The negotiable
Instrument is transferred by delivery, actual or
constructive.” It is physical act of delivering
the instrument or handing over the delivery,
actual possession of the instrument is not
passed only the product is delivered.
• Negotiation by endorsement and delivery –
The negotiable Instrument payable to order is
negotiable by the holder by endorsement and
delivery thereof totally.

27. 27
Endorsement
“Literal meaning of the term endorsement is
writing on an instrument.”
Endorser - The person who signs on the back
or on the face of the instrument or on the
slip is an endorser.
Endorsee - The person to whom the
instrument is endorsed is called the
endorsee.

28. 28
Types of Endorsement
• General or blank endorsement - Endorser
signs his name either on the back or face
of the instrument.
• Full or special endorsement - It specifies
the full name of the person to whom or to
whose order the payment must be made.

29. 29
Continued…
• Partial endorsement – Endorsement is made
for remaining balance of payment.( Eg.The
installment payment to the party)
• Conditional endorsement – The liability of
the endorser is limited or negative. The
endorsement will be effective only when the
conditions are fulfilled.

30.  Forged Endorsement : The endorsement is
made by some another person in the
absence of original one and not by the
original endorser.
 Restrictive Endorsement: The endorser has
instructed to the drawee not to clear the
instrument for some valid reason.
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31. 31
Dishonour of negotiable instrument
• Negotiable instruments, Promissory notes
and Cheques may be dishonored by non
payment.
• Bills of exchange may be dishonored by
non payment or by non-acceptance as they
require acceptance from drawee.

32. DISHONOUR OF NEGOTIABLE INSTRUMENT
The main negotiable instruments are Promissory
notes, cheques and bills of exchange and are
covered by this Act. Of these negotiable
instruments, promissory notes and cheques may be
dishonoured by non payment only while bills of
exchange may be dishonored by non payment or
by non-acceptance as they require acceptance
from drawees.

33.  Section 93 of the Act states that when a
promissory note or a bill of exchange or
cheque is dishonored by non-acceptance or
non-payment the holder thereof, or some
party thereto who remains liable thereon,
must give notice that the instrument has been
so dishonored to all other parties whom the
holder seeks to make severally liable thereon,
and to some one of several parties whom he
seeks to make jointly liable thereon
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34. COVERAGE
 The dishonor of Negotiable instrument
consists of Three elements.
 Noting Process.
 Protest Process.
 Penalties/Punishments.
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