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NEGOTIABLE INSTRUMENTS ACT, 1881
A negotiable instrument means an instrument the property in which is acquired by anyone who
takes it bonafide and for the value notwithstanding any defect in the title of the prior party.
Definition: Sec. 13
A negotiable instrument means-
1. Promissory note
2. Bill of exchange
3. Cheque
Presumptions as to negotiable instruments: Sec. 118
1. Consideration: Every negotiable instrument was made, accepted or endorsed for
consideration.
2. Date: Every negotiable instrument bearing date was made or drawn on that date.
3. Time of acceptance: Every BOE was accepted within reasonable time, after the date
mentioned on it but before the maturity date.
4. Time of transfer: Every transfer of negotiable instrument was made before maturity.
5. Stamp: A lost PN, BOE or cheque was duly stamped.
6. HDC: Holder is Holder in due course.
Holder (Sec. 8) Holder in due course (Sec. 9)
1. Acquires instrument without consideration
Acquires instrument for consideration.
2. Does not acquire a good title. Acquires a good title.
3. May acquire the instrument after maturity.
Must acquire the instrument before
maturity.
4. He can sue the person who has signed it He can sue all prior parties.
and transferor.
Classification of negotiable instruments:
1. Bearer instrument When an instrument contains words “pay to bearer”, or
When the last endorsement on it is “an endorsement in blank”,
it is said to be a bearer instrument.
Bearer instrument can be transferred by mere delivery.
2. Order instrument A PN, BOE or cheque is payable to order when it is expressed to
be payable to a particular person or his order.
Order instrument can be transferred by endorsement and
delivery.
3. Inland instrument A negotiable instrument is an inland instrument if it is-
Drawn in India and made payable in India or
ADV. RUTUJA PUROHIT (B.S.L, L.L.M, D.T.L) 9763360061
, 2
Drawn in India and drawn on a person resident in India.
4. Foreign instrument Drawn outside India and payable outside India.
Drawn in India and made payable outside India.
Drawn in India and drawn on a person resident outside India.
5. Demand instrument An instrument which is expressed to be payable on demand. An
instrument on which time for payment is not specified.
6. Time instrument An instrument in which time for payment is specified. A time
instrument may be payable on a specific day or after a specified
period or certain period after sight or on happening of an event
which is certain to happen.
7. Ambiguous instrument Instrument which can be treated either as a PN or a BOE.
Such instrument’s language is not clear.
It may give rise to multiple interpretations.
Once an instrument is treated as a bill or note, it canot be
treated in a different manner later on.
8. Inchoate instrument Such instrument is signed but is incomplete in all other aspects.
Holder, gets a right to complete the instrument.
Person digning and delivering it is liable to both holder and HDC.
Promissory note: Sec. 4
A promissory note is an instrument containing an unconditional undertaking, signed by the
maker, to pay a certain sum of money only, to a certain person or order of a certain person.
Exception: Bank note or currency note is not a promissory note.
Essentials of PN:
1. It has to be in writing. Oral promissory note does not constitute a valid PN.
2. A PN must contain an undertaking i.e. promise to pay. Mere acknowledgment of debt is
not sufficient. Use of word promise is not mandatory, but the maker should bind himself
to pay.
3. The undertaking or promise to pay should be unconditional and definite. Unconditional
event means an event which is certain to happen but the time of its occurrence is
uncertain.
4. PN should be signed by the maker himself.
5. PN should specify the payee in clear terms i.e, by name, son of and resident of etc.
6. Sum payable must be certain. Eg: I promise to pay Balu Rs. 10,000 and all other sums
which shall be due, is not valid since the sum is not certain.
7. There must be a promise to pay only money and not other consideration.
ADV. RUTUJA PUROHIT (B.S.L, L.L.M, D.T.L) 9763360061
NEGOTIABLE INSTRUMENTS ACT, 1881
A negotiable instrument means an instrument the property in which is acquired by anyone who
takes it bonafide and for the value notwithstanding any defect in the title of the prior party.
Definition: Sec. 13
A negotiable instrument means-
1. Promissory note
2. Bill of exchange
3. Cheque
Presumptions as to negotiable instruments: Sec. 118
1. Consideration: Every negotiable instrument was made, accepted or endorsed for
consideration.
2. Date: Every negotiable instrument bearing date was made or drawn on that date.
3. Time of acceptance: Every BOE was accepted within reasonable time, after the date
mentioned on it but before the maturity date.
4. Time of transfer: Every transfer of negotiable instrument was made before maturity.
5. Stamp: A lost PN, BOE or cheque was duly stamped.
6. HDC: Holder is Holder in due course.
Holder (Sec. 8) Holder in due course (Sec. 9)
1. Acquires instrument without consideration
Acquires instrument for consideration.
2. Does not acquire a good title. Acquires a good title.
3. May acquire the instrument after maturity.
Must acquire the instrument before
maturity.
4. He can sue the person who has signed it He can sue all prior parties.
and transferor.
Classification of negotiable instruments:
1. Bearer instrument When an instrument contains words “pay to bearer”, or
When the last endorsement on it is “an endorsement in blank”,
it is said to be a bearer instrument.
Bearer instrument can be transferred by mere delivery.
2. Order instrument A PN, BOE or cheque is payable to order when it is expressed to
be payable to a particular person or his order.
Order instrument can be transferred by endorsement and
delivery.
3. Inland instrument A negotiable instrument is an inland instrument if it is-
Drawn in India and made payable in India or
ADV. RUTUJA PUROHIT (B.S.L, L.L.M, D.T.L) 9763360061
, 2
Drawn in India and drawn on a person resident in India.
4. Foreign instrument Drawn outside India and payable outside India.
Drawn in India and made payable outside India.
Drawn in India and drawn on a person resident outside India.
5. Demand instrument An instrument which is expressed to be payable on demand. An
instrument on which time for payment is not specified.
6. Time instrument An instrument in which time for payment is specified. A time
instrument may be payable on a specific day or after a specified
period or certain period after sight or on happening of an event
which is certain to happen.
7. Ambiguous instrument Instrument which can be treated either as a PN or a BOE.
Such instrument’s language is not clear.
It may give rise to multiple interpretations.
Once an instrument is treated as a bill or note, it canot be
treated in a different manner later on.
8. Inchoate instrument Such instrument is signed but is incomplete in all other aspects.
Holder, gets a right to complete the instrument.
Person digning and delivering it is liable to both holder and HDC.
Promissory note: Sec. 4
A promissory note is an instrument containing an unconditional undertaking, signed by the
maker, to pay a certain sum of money only, to a certain person or order of a certain person.
Exception: Bank note or currency note is not a promissory note.
Essentials of PN:
1. It has to be in writing. Oral promissory note does not constitute a valid PN.
2. A PN must contain an undertaking i.e. promise to pay. Mere acknowledgment of debt is
not sufficient. Use of word promise is not mandatory, but the maker should bind himself
to pay.
3. The undertaking or promise to pay should be unconditional and definite. Unconditional
event means an event which is certain to happen but the time of its occurrence is
uncertain.
4. PN should be signed by the maker himself.
5. PN should specify the payee in clear terms i.e, by name, son of and resident of etc.
6. Sum payable must be certain. Eg: I promise to pay Balu Rs. 10,000 and all other sums
which shall be due, is not valid since the sum is not certain.
7. There must be a promise to pay only money and not other consideration.
ADV. RUTUJA PUROHIT (B.S.L, L.L.M, D.T.L) 9763360061
