A negotiable instrument is a signed document that promises a sum of payment to a specified person or the assignee. In other words, it is a formalized type of IOU: A transferable, signed document that promises to pay the bearer a sum of money at a future date or on-demand

1. Name: Syed Ziyad Bin Hasan
Class ID: 105469
StudentID: 11091
Course: Corporate& BusinessLaw
CourseInstructor: Attia Iqbal
MAIN CAMPUS

2. Q. Write a comprehensive note on negotiable instrument:
Negotiable Instrument
A negotiable instrument is a documentthat guaranteespaymentof a specific
amountof money to a specified person (the payee). It requires paymenteither
upon demand or ata set time and is structured like a contract.
OR
A negotiable instrument meansa promissory note, bill of exchange or
cheque payable either, to order or to bearer. ...
A promissory note, bill of exchange or cheque is payableto bearer which, is
expressed to be so payableor on which the only or last endorsementis an
endorsementin blank.
Transactionsare a very importantpartof businesses. Thereare many
documentswhichare required for these transactions. These documentsare
used for transactionsas wellas transferringfrom oneperson to the other.
Thus, these documentsin businesstermsarecalled the negotiable instrument.
Cheques, bill of exchange, bank draft, etc are someof the examplesof these
instruments.
Most Common Types of Negotiable Instruments are;
 Promissory notes.
 Bill of exchange.
 Check.
 Governmentpromissorynotes.
 Delivery orders.
 CustomsReceipts.
features of Negotiable Instrument
Some of the common featuresof these negotiable instrumentsareasfollows:
 It is alwaysa written document.
 It is payableto bearer than it is transferred justby delivery. Anditis
payableto the orderer than it is transferred by delivery and endorsement.

3.  The person who holdsthe negotiable documentcan suebased on this
document.
 There is no consideration mentioned in theinstrument. Itis presumed
already that it has been drawn for a valuableconsideration.
 It worksjustlike money and can be transferred from oneperson or the
other.
 For debt, it is considered oneof the simplestmode.
typesof NegotiableInstrument
As discussed above, thereare many typesof negotiable instrumentsin the
market. They areas given below:
Commercial bill
This deals in commercialmarkets. They are drawn either by the seller or the
drawer and itis drawn by the drawer of the goodsof the buyer in placeof the
valuefor the goods delivered.
They arealso called tradebills. When these bills are accepted by the
commercialbanks, they are called commercialbills..
Promissory note
This is considered asa legal documentbetween theborrower and the lender.
Throughthis document, thelender agrees to certain conditionsregardingthe
money whichis borrowed.
Whenever someoneborrowsthemoney from commercialbanksthen they
have to sign a promissory note. Thus, thesenotescan also be bought and sold.
This only happensin somecountriesand it is issued by large companies.
Cheque
There are many formsof chequeavailable as the negotiable instrumentsin the
market. The cheque is also known asthe bill of exchange.

4. It ordersthe bank to pay a specified amountto a person’saccountfrom a
person who has issued the cheque. Blank cheque, order cheque, bearer cheque,
etc arethe differenttypesof the cheque.
Commercial paper
Commercialpaper isalso issued in the form of promissory note. Itcan be sold
directly by the issuer to the investors. Itcan also be transferred to the
borrowersthroughagents.
These instrumentscan only be issued in multiplesof 5 lakhs and thereafter.
The maturity period variesfrom oneweek untiloneyear.
Treasury bills
Treasury billsare also known asT-bills. It is a short-term instrumentfor
borrowingfor the government. For thesebills, the tender is issued in the
money marketand variousgovernmentdepartments.
Thus, for this, tendersareinvited weekly from brokersand bankers. It
providesthegovernmentavery cheap way to borrow the money in the times
of fluctuatingcash and further it also providesthesecurity for the transaction.
Furthermore, theRBIwhich is the banker for governmentprovidesthesebills
at a discountrate.
Bank draft
These are also the bills of exchange. So, in this, the bank’sordersoneits branch
to repay the money to a person or to his order. For this, the bankscharge a
nominalfee.
Use Of Negotiable Instrument:
Weprefer to carry a small piece of paper known as Cheque rather than
carryingthe currency worththe valueof the Cheque. Before1988 therebeing
no provision to restrain the person issuingthe Chequewithout having
sufficientfundsin his account. Of courseon Dishonoured cheque there is a
civil liability accrued. In order to ensurepromptitudeand remedy againstthe

5. defaultersof the Negotiable Instrumentacriminal remedy of penalty was
inserted in Negotiable InstrumentsAct, 1881 by amendingitwith Negotiable
InstrumentsAct, 1988.
Parliamentenacted the Negotiable Instruments(Amendmentand
MiscellaneousProvisions)Act, 2002 (55 of 2002), whichis intended to plug
the loopholes. This amendmentAct insertsfive new sections from 143 to 147
touching variouslimbs of the parentAct and Cheque truncation through
digitally were also included and the amendmentActhas been recently
brought into force on Feb. 6, 2003.[3]
a) Aims to amend the Negotiable InstrumentsAct, 1881, askingthe
drawer of a cheque that has been dishonoured to pay interim
compensation to the complainant.
(b)The interim compensation will, however, not exceed 20% of the
amountof the cheque that was dishonoured.
(c)The drawer of the cheque has to pay interim compensation within 60
daysfrom the date of the order. If the courtis satisfied, it can grant an
extension of a further 30 daysbut notbeyond that.
(d)The drawer of the cheque has to pay interim compensation within 60
daysfrom the date of the order. If the courtis satisfied, it can grant an
extension of a further 30 daysbut notbeyond that.
Six Of The Offence Under Section 138:
It is manifestthat to constitute an offenceunder Section 138 of the Act, the
followingingredientsare required to be fulfilled
1. a must have drawn acheque on an accountmaintained by him in
a bank for paymentof a certain amountof money to another
person from outof that account
2. the cheque should have been issued for the discharge, in whole or
in part, of any debt or other liability;
3. that cheque has been presented to bank within a period of three
months from the date on which it is drawn or within the period of
its validity whichever is earlier;[10]
4. that cheque is returned by the bank unpaid, either because of the
amountof money standingto the credit of the account is
insufficientto honour the cheque or that it exceeds the amount

6. arranged to be paid from that account by an agreement made
with the bank;
5. the payeeor the holder in duecourseof the cheque makes a
demand for the paymentof the said amountof money by givinga
notice in writing, to the drawer of the cheque, within 30 daysof
the receipt of information by him from the bank regardingthe
return of the cheque as unpaid;
6. the drawer of such cheque fails to make paymentof the said
amountof money to the payeeor the holder in duecourse of the
cheque within 15 daysof the receipt of the said notice.