negotiable instruments are documents which promise payment to the assignee (the person whom it is assigned to/given to) or a specified person.

1. Negotiable Instrument Act 1881
Unit 1
Teacher : Mr. Shahab Ud Din
LL.B. ,M.B.A
Department of Commerce and Business Management
Integral University

2. Syllabus
Definition, Features and Kinds of Negotiable Instruments, Bills
of Exchange, Promissory Note & Cheques. Endorsement,
Presentment and Discharge of Parties, Liabilities of Banker
and Dishonor

3. Definition
• Negotiable Instruments Act 1881 , was
introduced in India on 1st March 1982.
• To protect Business Activities, this Act was
introduced
• Negotiable means Transferable
• Instrument:Any document which is written
• Negotiable Instruments can b e negotiated as
many times depending upon maturity period of
the instrument (Viz. Cheque for 3 months can
b e negotiated)

4. By virtue of Convenience ,modern businessmen prefer credit
instruments to money as a medium of exchange
Credit Instrument
in business
NON- NEGOTIABLE
INSTRUMENT
1. Share warrants
2. Postal Orders,
Letters of Credit
Negotiable Instrument
1. Promissory Note
2. Bill of Exchange
3. Cheque

5. CurrencyNote isnota Negotiable
Instruments

6. Negotiable Instrument
Section 13.
“Negotiable instrument”.— A negotiable
instrument means a promissory note, bill of
exchange or cheque payable either to order or
to bearer.

7. Kinds of Negotiable Instruments
1. Promissory Note
2. Bill of Exchange
3. Cheque

8. Promissory Note
Section 4.
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 ( payee) ,
or to the bearer of the instrument.

9. Payee.—The person named in the instrument,
to whom or to whose order the money is by
the instrument directed to be paid, is called
the Payee.

10. Illustrations
A Signs instruments in the following terms:
(a ) “I promise to pay B or order Rs. 500.”
(b) “I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for
value received.”
(c) “Mr. B, I O U Rs. 1,000.”
(d) “I promise to Pay B Rs. 500 and all other sums which shall be due to him.”
(e) “I promise to Pay B Rs. 500, first deducting there out any money which he may owe
me.”
(f) “I promise to Pay B Rs. 500 seven days after my marriage with C.”
(g) “I, promise to Pay B Rs. 500 on D's death, provided D leaves me enough to pay that
sum.”
The instruments respectively marked (a) and (b) are promissory notes. The
instruments respectively marked (c), (d),(e), (f), and (g) are not promissory notes.

14. Bill of exchange
Section 5
“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.
If the payment is to be made immediately is called a sight
bill or on a fixed date is callled a term bill.

15. Features of Bill of echange
• Itshould b e inwriting(hand written or type written printed)
• Unconditional order, prep a red by a creditor for the d e btor
regarding the payment of a certain sum of money
• The amounttobe paidiscertain
• The date of payment of amount must b e certain
• The personto whom the amount tobe paid mustbe certain
• The makerhastosignthe billwith a proper stamp

16. Parties to Bill of Exchange
1) The Drawer/Maker/Creditor/Seller:
Suppose ‘X’ sold goods to ‘Y’,so ‘X’ should receive money from ‘Y’
To ge t paym ent from ‘Y’, ‘X’ prepares
a Bill of Exc h a nge on his own name and sends itto ‘Y’.
(Xisthe Drawer)
 Since ‘X’ sells goods, he isthe Seller,
 he has to receive money from ‘Y’,he isthe Creditor,
 Since the BoE ism a d e by ‘X’ , he isthe Maker/Drawer

17. 2) Drawee/Acceptor/Debtor/Payer/Buyer:
Since ‘Y’ has to make payment against
the goods purchased he isthe
Buyer/Payer.
‘Y’ accepted to make payment to ‘X’ , he
isthe Acceptor.
Since ‘Y’ has to make payment to ‘X’, he
will be the Drawee/ Debtor.

18. 3) The Payee: Payee is the person, who will
actually receive the Money mentioned in BoE.
The Payee can be the Drawer himself or a 3rd
person (Agent) appointed by the Drawer, who
will receive money from the
(Drawee/Acceptor/Buyer) on behalf of the
Drawer.
Hence Drawer can give instruction to
the Drawee to make payment to his agent.
Thus therecan be 3partiesinvolved inBillsofExchange

19. Parties to Bill of Exchange
Drawer/Payer
Payee/3rd Party
Drawer

20. Demand Draft

21. S.No Explanation Entry in the DD Details
1
Bank branch at the top
left
State Bank of India MADHAVADHARA
Branch
The branch of bank issuing the
DD
2 To Pay Chief Minister of Delhi
Who gets the amount specified
in the DD
3 Date 1/2/2016
Date of issue of DD (Validity
period is 3 months)
4 Amount Three hundred and sixty four only
The amount payable to the party
in words
5 Amount 364
The amount payable to the party
in figures
6 Branch, at bottom State Bank of India
The branch of bank which pays
the amount
8
DD number at the
bottom
596203 Number of DD
7 on the right Signatures
Signatures of the officers of
branch issuing DD

23. Cheque
Section 6
“Cheque”.—A cheque is a bill of exchange
drawn on a specified banker and not
expressed to be payable otherwise than on
demand and it includes the electronic image
of a truncated cheque and a cheque in the
electronic form.

24. • Cheque must include, Sign of the
Drawer, Unconditional order to a
specified banker, certain sum of
money, and payment to a certain
person, or to his order orto the bearer of
the instruments.

25. Parties to Cheque
• DRAWER - The person who signs the cheque
and order for payment
• DRAWEE - It is always bank on which cheque
is drawn and is ordered to pay the amount of
cheque.
• PAYEE - The person to whom the cheque is
payable. ( In many cases, drawer and payee
can be the same person.)

26. Types of Cheques
1) Bearer Cheque: The phrase “or bearer” is
writtenafter the name of the payee.
• Itispayable on demand to the bearer or to
the presenter.
• Itdoes not require endorsement.
• Ifa bearer cheque islost, the finder can cash it,
unlessthe bank is notifiedintimeto stop the
payment (non crossed).
• Itisnota safe method of payment.
• If the bearer cheque is lost or payment is
made to a wrong person, bank hasno responsibilityfor it.

28. 2) Order Cheque: In these types of cheque
the word “order” is written against the name of
payee.
• The payment of such c h e q u e is made only tothe
person named there inthecheque on the production of a valid
identification.
• No other person c a n ge t the payment of an order cheque.
• Payment though an order c h e q u e isa saferway, b e c a u s e
receiver willhave to prove hisidentity before receivingmoney.
• Inc a s e of any problem, Bank willb e held responsible.
• Order C h e q u e can be transferred to anotherpersonby the act of
endorsement.

29. Open Cheque
An open cheque is a cheque that is not crossed
on the left corner and payable at the counter
of the drawee bank on presentation of the
cheque.

30. Crossing of Cheque
• A crossed cheque is a cheque that has been
marked specifying an instruction on the way it
is to be redeemed.

31. Types of Crossing of cheque
General Crossing
A crossed cheque generally is a cheque that only bears two parallel
transverse lines, optionally with the words 'and company' or '&
Co.' (or any abbreviation of them) on the face of the cheque,
between the lines, usually at the top left corner or at any place in
the approximate half (in width) of the cheque

32. Special or Restrictive Crossing :-
When a particular bank's name is written in
between the two parallel lines the cheque is
said to be specially crossed.

34. Endorsement
• Endorsement means signature of the holder
(An individual who has lawfully received
possession) made with object of transferring
the document.
• The signature & message on the back of a
cheque to either cash it, deposit it or to
handover the rights of the cheque to someone
else.

35. Who may endorse
The payee of an instrument is the rightful
person to make the first endorsement.
Thereafter, the instrument may be endorsed
by any party who has become the holder of
the instrument (sec.15).

36. Presentment
– Demand for acceptance or for payment of a
negotiable instrument.
• To pay the instrument made to the drawee or a party
obliged to pay.
• To accept a draft made to the drawee.
– Holder is to make presentment at proper place
and within reasonable time.
– Presenting party must satisfy reasonable demands
or requests of the primary party.

37. – Must be made before a dishonor can be shown.
– Made through mail, it occurs when mail is
received.
– Persons receiving presentment have protection.
• Can require proof.
• Can require presenter to show them the instrument.
• Demand reasonable identification of presenter.
• Require a showing of authority to make the
presentment.

38. Discharge
• Removes liability or potential liability on a
negotiable instrument.
• Payment.
– Primary party pays the instrument on
presentment and cancels it.
– Payment will not operate as discharge when:
• It is made in bad faith to a thief.
• To a person holding through or after a thief.

39. • Tender of Payment.
– Party tenders payment in full to a holder when an
instrument is due, or later, and holder refuses
payment.
• Cancellation and Renunciation.
– Holder may discharge party by canceling party’s
signature on instrument or canceling instrument
itself.
– Renounces his or her rights on instrument in a
signed writing.

40. • Impairment.
– Holder elects to release party from liability on the
instrument.
– Holder releases a prior party or collateral securing
payment.
– Holder also discharges some or all of secondary
parties on instrument.
• Other Discharges.
– Other acts may cause a complete or partial
discharge of liability.

41. Dishonour
• A bill of exchange may be dishonoured either by non-
acceptance
• Or by non-payment.
• Dishonour by Non-Acceptance: Section 91
enumerates the circumstances when a bill will be
considered as dishonoured by non-acceptance.
• Dishonour by Non-Payment: A negotiable instrument
is said to be dishonoured by non-payment when the
maker, acceptor or drawee, as the case may default in
payment upon being duly required to pay the same
(Section 92