Negotiable instruments act
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The document discusses negotiable instruments under Indian law. It defines negotiable instruments as written documents that are transferable by delivery, including promissory notes, bills of exchange, and cheques. It outlines the key features and types of negotiable instruments. Promissory notes are unconditional promises to pay a certain sum of money, while bills of exchange are orders to pay drawn by one party on another. Cheques combine qualities of bills of exchange and are always drawn on a bank and payable on demand. The document provides examples and definitions of the parties involved in each type of instrument.
![MEANING OF NEGOTIABLE
INSTRUMENT
The word negotiable means ‘transferable by delivery’, and
word instrument means ‘a written document by which a right is
created in favour of some person. Thus, the term “negotiable
instrument” means “a written document transferable by delivery”.
According to Section 13 (1) of the Negotiable Instruments Act,
“A negotiable instrument means a promissory note, bill of
exchange, or cheque payable either to order or to bearer”. “A
negotiable instrument 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 several payees” [Section 13(2)].
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Negotiable instruments act
- 1. NEGOTIABLE INSTRUMENTS ACT, 1881 Presented By SHANKAR GANESH (12NA1E0056)
- 2. MEANING OF NEGOTIABLE INSTRUMENT The word negotiable means ‘transferable by delivery’, and word instrument means ‘a written document by which a right is created in favour of some person. Thus, the term “negotiable instrument” means “a written document transferable by delivery”. According to Section 13 (1) of the Negotiable Instruments Act, “A negotiable instrument means a promissory note, bill of exchange, or cheque payable either to order or to bearer”. “A negotiable instrument 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 several payees” [Section 13(2)]. 2
- 3. FEATURES OF NEGOTIABLE INSTRUMENTS Writing and Signature Money Freely Transferable Title of Holder Free from all Defects Notice Presumption Special Procedure Popularity Evidence 3
- 4. TYPES OF NEGOTIABLE INSTRUMENTS There are two types of Negotiable Instruments: 1. Instruments Negotiable by Statute: The Negotiable Instruments Act mentions only three kinds of negotiable instruments (Section 13). These are: 1. Promissory Notes 2. Bills of Exchange, and 3. Cheques 2. Instruments Negotiable by Custom or Usage: There are certain other instruments which have acquired the character of negotiability by the usage or custom of trade. For example: Exchequer bills, Bank notes, Share warrants, Circular notes, Bearer debentures, Dividend warrants, Share certificates with blank transfer deeds, etc. 4
- 5. PROMISSORY NOTES Section 4 of the Act defines, “A promissory note is an instrument in writing (note being a bank-note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments.” The person who makes the promissory note and promises to pay is called the maker. The person to whom the payment is to be made is called the payee. 5
- 6. CHARACTERISTICS OF A PROMISSORY NOTE It is an Instrument in Writing It is a Promise to Pay Signed by the Maker Other Formalities Definite and Unconditional Promise Promise to Pay Money Only Maker must be a Certain Person Payee must be Certain Sum Payable must be Certain It may be Payable on Demand or After a Definite Period of Time It cannot be Made Payable to Bearer on Demand 6
- 7. PARTIES TO A PROMISSORY NOTE Maker: Maker is the person who promises to pay the amount stated in the note. Payee: Payee is the person to whom the amount of the note is payable. Holder: He is either the payee or the person to whom the note may have been endorsed. 7
- 8. SPECIMEN OF PROMISSORY NOTE 8 Rs. 10,000 Lucknow April 10, 2013 Three months after date, I promise to pay Shri Ramesh (Payee) or to his order the sum of Rupees Ten Thousand, for value received. To, Shri Ramesh, B-20, Green Park, Mumbai. (Maker) Stamp Sd/- Ram
- 9. BILL OF EXCHANGE According to Section 5 of the act, 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”. It is also called a Draft. Special Benefits of Bill of Exchange: A bill of exchange is a double secured instrument. In case of immediate requirement, a Bill may be discounted with a bank. 9
- 10. ESSENTIAL ELEMENTS OF BILL OF EXCHANGE It must be in Writing. Order to pay Drawee Signature of the Drawer Unconditional Order Parties Certainty of Amount Payment in Kind is not Valid Stamping Cannot be made Payable to Bearer on Demand 10
- 11. PARTIES TO A BILL OF EXCHANGE Drawer: The maker of a bill of exchange is called the drawer. Drawee: The person directed to pay the money by the drawer is called the drawee. Payee: The person named in the instrument, to whom or to whose order the money are directed to be paid by the instruments are called the payee. 11
- 12. SPECIMEN OF BILL OF EXCHANGE 12 Rs. 10,000 Mumbai April 10, 2013 Three months after date pay to Ram (Payee) order the sum of Ten Thousand Rupees, for value received. To, Sushil B-20, Green Park, Lucknow - 226020. Stamp Sd/- Ram In case of need with Canara Bank, Delhi. (Drawer) (Drawer) Accepted Sushil
- 13. CHEQUE According to Section 6 of the act, A cheque is “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”. A cheque is also, therefore, a bill of exchange with two additional qualification: It is always drawn on a specified banker. It is always payable on demand. Special Benefits of Bill of Exchange: A bill of exchange is a double secured instrument. In case of immediate requirement, a Bill may be discounted with a bank. 13
- 14. ESSENTIAL ELEMENTS OF A CHEQUE In writing Express Order to Pay Definite and Unconditional Order Signed by the Drawer Order to Pay Certain Sum Order to Pay Money Only Certain Three Parties Drawn upon a Specified Banker Payable on Demand 14
- 15. PARTIES TO A CHEQUE Drawer: Drawer is the person who draws the cheque. Drawee: Drawee is the drawer’s banker on whom the cheque has been drawn. Payee: Payee is the person who is entitled to receive the payment of a cheque. 15
- 16. SPECIMEN OF CHEQUE 16 Pay ……………………………………………………………………………………………………………...... ……………………………………………………………………………………………………. Or Bearer Rupees …………………………………………………………………………………………………………… ……………………………………………………………………………………………Rs. Kapoorthala Bagh, Mumbai – 400033 IFSCode:MAHB0000316 A/c No. “ΙΙ473792ΙΙ” 000240000 000000 10 SHANKAR GAJARE Signature Please sign above D D M M Y Y Y Y
- 17. CONCLUSION: I conclude that Negotiation thus requires two conditions to be fulfilled, namely: There must be a transfer of the instrument to another person; and The transfer must be made in such a manner as to constitute the transferee the holder of the instrument. 17