NEGOTIABE INSTRUMENTS

INSURANCE, BANKING AND NEGOTIABLE

INSTRUMENT

FACULTY OF LAW
JAMIA MILLIA ISLAMIA

Submitted To: Dr. S.Z Amani

Submitted By: Soumya Singh, Xth Semester
 ACKNOWLEDGEMENT

The topic that I am dealing in my project is “Negotibale Instruments” under

Banking, Insurance and Negotiable Instruments.

First and foremost I would sincerely like to thank Professor Dr. S.Z
Amani, for his invaluable support, encouragement, supervision and useful
suggestions throughout this research work. His moral support and
continuous guidance enabled me to complete my work successfully. His
intellectual thrust and blessings motivated me to work rigorously on this
study. In fact this study could not have seen the light of the day if his
contribution had not been available.

Secondly, I would like to thank my friends Ojasvi Nautiyal, Bhavini Mishra

and Irshad Ahmed for keeping me motivated and supporting me
throughout the completion of my project.

Soumya Singh.
(Xth Semester)

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 TABLE OF CONTENTS

1. INTRODUCTION……………………………………………4

2. HISTORICAL DEVELOPMENTS….…………….……….6

3. MEANING AND DEFINITION…………………………….8

4. CHARACTERISTICS AND PRESUMPTION……………9

5. TYPES OF NEGOTIABLE INSTRUMENTS…………..11

6. PARTIES TO NEGOTIABLE INSTRUMENTS…..……25

7. LIABILITIES OF PARTIES TO NEGOTIABLE

INSTRUMENTS……………………………………………27

8. CONCLUSION……………………………..………………29

9. BIBLIOGRAPHY………………………………..…………30

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INTRODUCTION
The law relating to negotiable instruments is not the law of one country or of one
nation, it is the law of the commercial world in general, for, it consists of “certain
principles of equity and usages of trade which general convenience and common
sense of justice had established to regulate the dealing of merchants and mariners in
all the commercial countries of the civilised world.” Even now the laws of several
countries in Europe are, at least so far as general principles are concerned, similar in
many respects. Of course, on questions of detail, different countries have solved the
various problems in different ways, but the essentials are the same, and this
similarity of law is a pre-requisite for the vast international transactions that are
carried on among the different countries.1

A negotiable instrument is in more than one sense a ‘thing’. In understanding what

is meant by a ‘thing’ in law, we must on the one hand avoid the metaphysical niceties
about the conception of ‘thing’, and on the other, the peculiar conception of the word
in England, as in the phrases, ‘things in possession’ and ‘things in action’. In
jurisprudence, a ‘thing’ denotes an object of rights. In that sense every instrument is
a ‘thing’, but in so far as the paper on which it is written is concerned. It is not only
in that sense is a negotiable instrument a ‘thing’ also in the sense that it is a physical
embodiment of rights. A person lawfully getting possession of such an instrument
acquires title to it, and the same cannot be said of other instruments. Again, it
represents money and possesses all the characteristics of money which it
represents. For example, it is not tainted by any defect or fraud in the source from
which it flows, so long as its acquisition is bonafide and for value. It also passes by
delivery like cash, and the person in possession of the instrument can sue on it in his
own name. It also possesses the characteristics of a contract for it embodies either
an order or a promise to pay money. The capacity of the parties to it, the liability of
persons on it and the discharge of such liabilities are regulated mostly by rules
belonging to the domain of contracts. It is also regarded as a chattel; and being so, it
has been held that the transfer of such instruments should be regulated by the law
of the place where the transfer takes place.

The term ‘Negotiable’ is one of classification and does not of necessity imply
anything more than that the paper possesses the negotiable quality. Generally
speaking, it applies to any written statement given as security, usually for the
payment of money, which may be transferred by endorsement or delivery, vesting in
the party to whom it is transferred or delivered a legal title on which he can support

1
The Negotiable Instrument Act- Bhashya & Adiga, 13th Ed. p. 1

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a suit in his name. The term signifies that the note or paper writing to which, it is
applied possesses the requisites of negotiability. A negotiable instrument is one,
therefore, which when transferred by delivery or by endorsement and delivery,
passes to the transferee a good title to payment according to its tenor and
irrespective of the title of the transferor, provided he is bona fide holder for value
without notice of any defect attaching to the instrument or in the title of the
transferor, in other words the principle nemo dat quod non habit does not apply.

IN INDIA
The Negotiable Instruments Act was enacted, in India, in 1881. Prior to its
enactment, the provision of the English Negotiable Instrument Act were applicable in
India, and the present Act is also based on the English Act with certain modifications.
It extends to the whole of India except the State of Jammu and Kashmir. The Act
operates subject to the provisions of Sections 31 and 32 of the Reserve Bank of India
Act, 1934. Section 31 of the Reserve Bank of India Act provides that no person in
India other than the Bank or as expressly authorised by this Act, the Central
Government shall draw, accept, make or issue any bill of exchange, hundi,
promissory note or engagement for the payment of money payable to bearer on
demand. This Section further provides that no one except the RBI or the Central
Government can make or issue a promissory note expressed to be payable or
demand or after a certain time. Section 32 of the Reserve Bank of India Act makes
issue of such bills or notes punishable with fine which may extend to the amount of
the instrument. The effect or the consequences of these provisions are:
1. A promissory note cannot be made payable to the bearer, no matter whether
it is payable on demand or after a certain time.
2. A bill of exchange cannot be made payable to the bearer on demand though it
can be made payable to the bearer after a certain time.
3. But a cheque {though a bill of exchange} payable to bearer or demand can be
drawn on a person’s account with a banker.

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HISTORICAL DEVELOPMENTS
The early origin of Negotiable Instruments is a matter of speculation among text-
writers. In primitive societies, the system of bills of exchange could not, of course,
have existed; for firstly, money which it represents was not invented till long after,
and secondly, the art of writing was a thing unknown to them. When the system of
bartering, by which crude and uncivilised societies carried on their commerce, was
found inconvenient, a common medium of exchange and a representative of
property of an easily convertible character was found necessary, and money came
into use. It might have had its humble origin in cowrie shells, brass or copper rings;
but when once the utility of money was found, it never was lost sight of. With the
progress of civilisation, nobler metals displaced the baser ones, and the use of gold
and silver as instruments of exchange is now to be found generally current in all
civilised countries. With facility of communication between countries, and security
of peace between nations, commerce of the world grew apace, and one nation after
another struggled for supremacy. The Phoenicians, Grecians and Carthaginians were
more or less the chief commercial nations of the ancient world. The routes along
which the vast commerce was carried on were insecure, and merchants carrying
specie or coins were robbed of their wealth by roving pirates on sea and marauding
robbers on land. Money by itself did not obviate all these difficulties arising from the
multiplicity of commercial transactions and in the course of centuries, there came
into existence the idea of exchange, whereby letters of credit, generally called bills of
exchange, from a merchant in one country, to his debtor, a merchant in another,
were issued requiring the debt to be paid to a third person who carried the letter to
the place where the debtor resided. A bill of exchange was thus originally an order to
pay a trade-debt, and the system of such bills afforded a convenient and facile way
for the payment of debts in one country due to a person in another, without the
danger or the in-cumbrance of carrying money in specie.

In its origin, then, a bill of exchange effected the transfer of trade-debts of persons
residing in distant countries and when once the advantages of such a course were
realised, the system was extended to apply to inland trade debts, and gradually to
private debts also. By the scrupulous fulfilment of the obligations arising under such
instruments in the early stages of their growth, confidence was begotten, and from
that confidence arose the peculiar use to which such instruments are now put. The
instruments are now merely instruments of credit readily convertible into money
and easily passable from one hand to another. With expanding commerce, the
growing demands for money could not be met by mere supply of coins, and these
instruments of credit took the function of money which they represented, and thus
became, by degrees, articles of traffic. Thus, the negotiable instrument came to be

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largely employed by merchants as an effective substitute for money. “The most
striking characteristic of money as distinguished from other species of property is
the facility and freedom with which it circulates. Its possession with bearer is
conclusive title to those who deal with him in good faith; and one taking it,
therefore, in the course of business need look no further than the face of the coin
and the possession of the person from whom he receives it. These are qualities
which every representative of money must possess in order to answer its purpose
effectively; and a negotiable paper does possess them in an eminent degree.”

For the present, however, credit is not only the keystone of modern commerce, but
also the sinews of modern industries and enterprises, and so long as credit has these
important functions to perform, instruments of credit will also continue to be in use;
and the present perhaps complicated, but certainly convenient practice and rules
relating to exchange and the instruments effecting such exchange form a necessary
part of the knowledge to be acquired by any practical lawyer or a modern
businessman.

The origin and history of negotiable instruments was well traced by Lord Chief
Justice Cockburn in Goodwin v. Roberts,2 of which the summary is given below:

“The law as to bills of exchange and other negotiable securities

forms a branch of the general body of the Law Merchant and is
comparatively of recent origin. The origin of these instruments
can be traced to the usage and custom of merchants and
traders which Courts of law have adopted as settled law, in
view of the general interests of trade and the convenience of
the public. Thus, a general usage, being ascertained and ratified
by the decisions of Courts of law, becomes a part of general law
of the country which the Courts are bound to recognise. Bills of
exchange seem to have been brought into use by the
Florentines in the twelfth, and the Venetians in the thirteenth
century. Though in England, there is reason to believe that bills
of exchange were known earlier, their use does not seem to
have been general, even as late as 1622. About the close of the
sixteenth century, the practice of making bills payable to order
and of transferring them by endorsement took its rise. At first,
such bills were allowed only between merchants in foreign
countries, but were gradually extended to traders in the same
country, and finally to all persons, whether traders or not.
About this time, the usage among merchants of making
promissory notes payable to bearer or to order began to
prevail and was more than once even recognised by Courts in
England. But in 1703 Lord Holt who was then the Chief Justice
of England, opposed this extension of negotiability and
persistently refused to recognise the custom of merchants in
the case of promissory notes and the Legislature had to end the
unseemly conflict by passing the Statute of 3 and 4, Anne c. 9,
whereby promissory notes were made capable of being
assigned by endorsement.”
2 (1875) L.R. 10 Ex. 337, Holden :History of Negotiable Instruments in English Law

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MEANING AND DEFINITION
DEFINITION OF NEGOTIABLE INSTRUMENT:

According to Section 13 (a) of the Act3, “Negotiable instrument means a promissory

note, bill of exchange or cheque payable either to order or to bearer, whether the
word “order” or “ bearer” appear on the instrument or not.”

MEANING OF NEGOTIABLE INSTRUMENT

In the words of Justice, Willis, “A negotiable instrument is one, the property in which
is acquired by anyone who takes it bonafide and for value notwithstanding any
defects of the title in the person from whom he took it”.

Thus, the term, negotiable instrument means a written document which creates a
right in favour of some person and which is freely transferable. Although the Act
mentions only these three instruments (such as a promissory note, a bill of exchange
and cheque), it does not exclude the possibility of adding any other instrument which
satisfies the following two conditions of negotiability:

the instrument should be freely transferable (by delivery or by

endorsement. and delivery) by the custom of the trade; and the person who
obtains it in good faith and for value should get it free from all defects, and
be entitled to recover the money of the instrument in his own name.

As such, documents like share warrants payable to bearer, debentures payable to

bearer and dividend warrants are negotiable instruments. But the money orders and
postal orders, deposit receipts, share certificates, bill of lading, dock warrant, etc. are
not negotiable instruments. Although they are transferable by delivery and
endorsements, yet they are not able to give better title to the bonafide transferee for
value than what the transferor has.

3
Negotiable Instruments Act, 1881

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CHARACTERISTICS AND PRESUMPTION
CHARACTERISTICS OF THE NEGOTIABLE INSTRUMENTS:

A negotiable instrument has the following characteristics:

I. Property: The prossessor of the negotiable instrument is presumed to be the

owner of the property contained therein. A negotiable instrument does not
merely give possession of the instrument but right to property also. The
property in a negotiable instrument can be transferred without any formality.
In the case of bearer instrument, the property passes by mere delivery to the
transferee. In the case of an order instrument, endorsement and delivery are
required for the transfer of property.

II. Title: The transferee of a negotiable instrument is known as ‘holder in due

course.’ A bona fide transferee for value is not affected by any defect of title on
the part of the transferor or of any of the previous holders of the instrument.

III. Rights: The transferee of the negotiable instrument can sue in his own name,
in case of dishonour. A negotiable instrument can be transferred any number
of times till it is at maturity. The holder of the instrument need not give notice
of transfer to the party liable on the instrument to pay.

IV. Presumptions: Certain presumptions apply to all negotiable instruments e.g.,

a presumption that consideration has been paid under it. It is not necessary to
write in a promissory note the words ‘for value received’ or similar
expressions because the payment of consideration is presumed. The words
are usually included to create additional evidence of consideration.

V. Prompt payment: A negotiable instrument enables the holder to expect

prompt payment because a dishonour means the ruin of the credit of all
persons who are parties to the instrument.

PRESUMPTIONS IN REGARDS TO NEGOTIABLE INSTRUMENTS

Sections 118 and 119 of the Negotiable Instrument Act, 1881 lay down certain
presumptions which the court presumes in regard to negotiable instruments. In
other words these presumptions need not be proved as they are presumed to exist in
every negotiable instrument. Until the contrary is proved the following
presumptions shall be made in case of all negotiable instruments:

I. Consideration: It shall be presumed that every negotiable instrument was

made drawn, accepted or endorsed for consideration. It is presumed that,

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 consideration is present in every negotiable instrument until the contrary
is presumed. The presumption of consideration, however may be rebutted
by proof that the instrument had been obtained from, its lawful owner by
means of fraud or undue influence.

II. Date: Where a negotiable instrument is dated, the presumption is that it

has been made or drawn on such date, unless the contrary is proved.

III. Time of acceptance: Unless the contrary is proved, every accepted bill of
exchange is presumed to have been accepted within a reasonable time
after its issue and before its maturity. This presumption only applies when
the acceptance is not dated; if the acceptance bears a date, it will prima
facie be taken as evidence of the date on which it was made.

IV. Time of transfer: Unless the contrary is presumed it shall be presumed

that every transfer of a negotiable instrument was made before its
maturity.

V. Order of endorsement: Until the contrary is proved it shall be presumed

that the endorsements appearing upon a negotiable instrument were
made in the order in which they appear thereon.

VI. Stamp: Unless the contrary is proved, it shall be presumed that a lost
promissory note, bill of exchange or cheque was duly stamped.

VII. Holder in due course: Until the contrary is proved, it shall be presumed
that the holder of a negotiable instrument is the holder in due course.
Every holder of a negotiable instrument is presumed to have paid
consideration for it and to have taken it in good faith. But if the instrument
was obtained from its lawful owner by means of an offence or fraud, the
holder has to prove that he is a holder in due course.

VIII. Proof of protest: Section 119 lays down that in a suit upon an instrument
which has been dishonoured, the court shall on proof of the protest,
presume the fact of dishonour, unless and until such fact is disproved.

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TYPES OF NEGOTIABLE INSTRUMENTS
Section 13 of the Negotiable Instruments Act states that a negotiable instrument is a
promissory note, bill of exchange or a cheque payable either to order or to bearer.
Negotiable instruments recognised by statute are:

I. Promissory notes
II. Bills of exchange
III. Cheques.

Negotiable instruments recognised by usage or custom are:

I. Hundis
II. Share warrants
III. Dividend warrants
IV. Bankers draft
V. Circular notes
VI. Bearer debentures
VII. Debentures of Bombay Port Trust
VIII. Railway receipts
IX. Delivery orders.

This list of negotiable instrument is not a closed chapter. With the growth of
commerce, new kinds of securities may claim recognition as negotiable instruments.
The courts in India usually follow the practice of English courts in according the
character of negotiability to other instruments.

1. PROMISSORY NOTES

1.1 HISTORICAL DEVELOPMENT

Promissory note is a creation of Western Business world. After the decline of Barter
System of economy, business transactions with the currency came into existence
with the advancement of business and industry, it has became inevitable to have
credit transactions. In that process it has become inevitable to have a document in
token of credit transactions with an understanding to repay the amount borrowed
at a later point of time. It may be the beginning of promissory note. Common people
also used to borrow money to meet their requirements and in that process
promissory note became more popular.

With the increasing popularity of promissory notes, disputes regarding promissory

notes are also increasing day-by-day. Under those circumstances, then the British
Colonial Rulers introduced a separate Act for promissory notes. The said act is called
Negotiable Instruments Act. This Act came into force for the first time in India in the
year 1881. The British Rulers considered cheques and Bills of Exchange also as

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Negotiable instruments along with promissory notes. In ancient India, “Hundies” were
most popular. Hundi is also a kind of negotiable instrument. Under some circumstances,
Hundi is also used as bills of exchange. Negotiable Instruments Act does not recognize
“Hundi” as a negotiable instrument. There is no specific law in ancient India regarding
negotiable instruments. Nothing was mentioned in ancient law books of Hindus and
Muslims about negotiable instruments. When ever a dispute arose regarding a
negotiable instrument like hundi, Courts used to apply conventions and customary law
prevailing among the merchant community of those respective communities. In those
circumstances, the British colonial government enacted Negotiable instrument Act in
1881. From the beginning, promissory notes are common even among middle class and
ordinary people. Middle class people use to borrow money from their friends, relatives
or money lenders by executing a promissory note, to meet their immediate or urgent
domestic needs or requirements. With the advancement of chit fund and Banking
transactions, promissory notes are becoming more popular. Chit Fund companies,
commercial Banks and other various business establishments are taking promissory
notes from their customers, in some cases as security and in some cases as collateral
security while lending money or advancing loans.

It is a fact that in most cases people used to execute a promissory note while
borrowing money. But promissory note can be executed even without borrowing
money. In some cases a person may be liable to pay same amount to another person
even though he did not borrow any amount from such person. He may execute a
document in favor of that person promising to pay that amount to him after some
time. Such a document is called a promissory note. That means a promissory note
need not be in token of borrowing. It is something more than that, Promissory note
is a combination of two words “Promise” and “note”. ‘Promise’ implies an
understanding or agreement to pay where as ‘Note’ implies written document. If
these two words are clubbed together, it is easy to understand the real meaning and
concept of the word ‘Promissory note’ and in that process, it can be said that
promissory note is a document executed by one person promising to pay the
amount mentioned there in after some time to the person mentioned there in.

But every document agreeing or promising to pay certain amount is not a

promissory note. That apart from promise to pay there must be certain special
features to make document a promissory note. If these special features are not
present in a document, it cannot be considered as promissory note. It may be an
agreement or receipt or bond or something else. Most of the promissory notes in use
come under the purview of negotiable Instruments Act. But, there are certain other
promissory notes which do not come under the purview of Negotiable Instruments
Act. The India stamp Act also defines a promissory notes, which are not promissory
notes under the Negotiable Instruments Act will also be considered as promissory
notes. Promissory notes can be classified into two categories. They are (a)
Promissory notes under Negotiable Instruments Act, (b) Promissory notes under
the Indian stamp Act.

There is no rule that promissory note should be written only on paper. Technically
speaking, promissory note can be executed even on a cloth or on paper or any
material or substance that can be used as substitute for paper. The main object
behind this principle is that promissory note should be in a visible form. Now-a-
days, printed promissory notes are available in the market with necessary blanks.
Most of the chit fund companies, banks and other financial institution and money

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lenders are using printed promissory notes with necessary blanks pertaining to
names of parties, amount, rate of interest etc. Those blanks will be filled in while
executing a promissory note.

The basic feature of a promissory note is that it should be in writing and also signed
or thumb impression by the maker. The amount mentioned in the promissory note
should be paid in the form of money only, it should be kept in mind that even if
promissory note was executed in connection with the sale or purchase of any article
or property, the repayment should not be in the form of goods or property.

The amount payable by the executant of the promissory note should be specifically
and clearly mentioned in the promissory note. It will be mentioned in the
promissory note that the amount mentioned there in will be paid along with certain
rate of interest. Another important feature for a promissory note is that there
cannot be any condition or conditions regarding the payment of amount mentioned
in the promissory note, in most of promissory notes, these words will be absent. It
has to be understood that ‘Unconditional undertaking to pay’ means payable on
demand.

A combined reading of sections 4, 19 and 21 makes it clear that a promissory note

where no time limit is mentioned for the payment of amount mentioned there in,
and a promissory note payable at right and on presentment will be considered as
promissory note.

The above explanation mainly relates to promissory notes where no time limit is
fixed for the payment of the amount mentioned therein. But in some cases a time
limit may be fixed for payment of the amount mentioned in the promissory note. If a
promissory note is executed with the condition regarding the future incident which
is uncertain to happen, it will be considered as conditional payment and such a
promissory note shall not be considered as a promissory note. However, it has to be
kept in mind that a promissory note with a condition regarding the future incident
that is uncertain to happen is still a promissory under Indian stamp Act. The concept
of ‘Un -conditional undertaking to pay’ shall be understood by making a combined
study of section 4 and second paragraph of section 5 of Negotiable Instruments Act.

1.2 DEFINITION AND MEANING

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.”

MEANING

According to Venkataramaiya’s law Lexicon Dictionary defines promissory note

as under :

“The court is bound to start with the presumption that a promissory note, the
genuineness of which is admitted or proved, was made for consideration. But it is a
rebuttable presumption and the recitals in the instrument are only prima facie

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evidence against the parties there to, the weight to be attached to them varying with
the circumstances.”4

Black’s law Dictionary defines Promissory note as under:-

“A promise or engagement in writing to pay a specified sum at a time there in limited,

or on demand, or at sight, to a person there in named, or to his order or bearer. A
written promise made by one or more to pay another or order, or bearer, at a specified
time, a specific amount of money, or other articles of value.”5

Wharton ‘s law lexicon dictionary defines Promissory note as under:-

“An unconditional promise in writing, made by one person to another, signed by the
maker engaging to pay on demand, or at a fixed or determinable future time, a sum
certain in money to or the order of specified person or to bearer.”6

Stroud’s Judicial Dictionary defines Promissory note as under :-

“The expression ‘Promissory note, includes any document or writing (except a bank
note) containing a promise to pay any sum of money “(Stamp Act 1939 (c39), s 33(1)
replacing stamp Act 1870 (c 97), s 49(1). A document is not within that definition
unless it contains, a promise to pay a definite and ascertained sum of money, which
promise is substantially the whole contents of the document Mortgage Instirance v. In
Inland Revenue Commissioner7; Brown v inland Revenue Commissioners,8 cited
marketable security.”9

A promissory note by two or more that time may be given to either without the
other’s consent, does not necessitate an agreement stamp nor present the document
from being a good promissory note. But semble, the exact opposite was held in
Kirkwoood v. Smith;10but Kurkwood v. Smith is now over ruled, and Yates v.
Evans11 is approved by CA Kirkwood v. Carioll.12

1.3 ESSENTIAL ELEMENTS

An instrument to be a promissory note must possess the following elements:

I. It must be in writing: A mere verbal promise to pay is not a promissory note.

The method of writing (either in ink or pencil or printing, etc.) is unimportant,
but it must be in any form that cannot be altered easily.

4
2nd Edn, 1982, Vol.111
5
5th Edn, July 1973, Pg. No. 1093
6
14th Edn, Re-print, 2006, Pg No. 809
7
21 QBD 165
8
(1895) QB 598
9 th
4 Ed 1947 by John S. James, p 2145.
10
(1896) 1 Q.B 582
11
612 JQB 446
12
1903 KB 531

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 II. It must certainly an express promise or clear understanding to pay:
There must be an express undertaking to pay. A mere acknowledgment is not
enough. The following are not promissory notes as there is no promise to pay.
If A writes:
“Mr. B, I.O.U. (I owe you) Rs. 500”
“I am liable to pay you Rs. 500”.
“I have taken from you Rs. 100, whenever you ask for it have
to pay” .

The following will be taken as promissory notes because there is an express promise
to pay:

If A writes:

“I promise to pay B or order Rs. 500”

“I acknowledge myself to be indebted to B in Rs. 1000 to be paid on demand, for the
value received”.

III. Promise to pay must be unconditional: A conditional undertaking destroys

the negotiable character of an otherwise negotiable instrument. Therefore,
the promise to pay must not depend upon the happening of some outside
contingency or event. It must be payable absolutely.

IV. It should be signed by the maker: The person who promise to pay must sign
the instrument even though it might have been written by the promisor
himself. There are no restrictions regarding the form or place of signatures in
the instrument. It may be in any part of the instrument. It may be in pencil or
ink, a thumb mark or initials. The pro-note can be signed by the authorised
agent of the maker, but the agent must expressly state as to on whose behalf
he is signing, otherwise he himself may be held liable as a maker. The only
legal requirement is that it should indicate with certainty the identity of the
person and his intention to be bound by the terms of the agreement.

V. The maker must be certain: The note self must show clearly who is the
person agreeing to undertake the liability to pay the amount. In case a person
signs in an assumed name, he is liable as a maker because a maker is taken as
certain if from his description sufficient indication follows about his identity.
In case two or more persons promise to pay, they may bind themselves jointly
or jointly and severally, but their liability cannot be in the alternative.

VI. The payee must be certain: The instrument must point out with certainty
the person to whom the promise has been made. The payee may be
ascertained by name or by designation. A note payable to the maker himself is
not pronate unless it is indorsed by him. In case, there is a mistake in the
name of the payee or his designation; the note is valid, if the payee can be
ascertained by evidence. Even where the name of a dead person is entered as
payee in ignorance of his death, his legal representative can enforce payment.

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VII. The promise should be to pay money and money only: Money means legal
tender money and not old and rare coins. A promise to deliver paddy either in
the alternative or in addition to money does not constitute a promissory note.

VIII. The amount should be certain: One of the important characteristics of a

promissory note is certainty—not only regarding the person to whom or by
whom payment is to be made but also regarding the amount. However,
paragraph 3 of Section 5 provides that the sum does not become indefinite
merely because there is a promise to pay amount with interest at a specified
rate. The amount is to be paid at an indicated rate of exchange. The amount is
payable by instalments with a condition that the whole balance shall fall due
for payment on a default being committed in the payment of anyone
instalment.

IX. Other formalities: The other formalities regarding number, place, date,
consideration etc. though usually found given in the promissory notes but are
not essential in law. The date of instrument is not material unless the amount
is made payable at a certain time after date. Even in such a case, omission of
date does not invalidate the instrument and the date of execution can be
independently ascertained and proved.

On demand (or six month after date) I promise to pay Peter or order the sum of
rupees one thousand with interest at 8 per cent per annum until payment.

2. BILL OF EXCHANGE

2.1 HISTORICAL DEVELOPMENT

Bill of exchange, a form of negotiable instrument, defined below, the history of
which, though somewhat obscure, was ably summed up by lord chief justice
Cockburn in his judgment. Bills of exchange were probably invented by Florentine
Jews. They were well known in England in the middle ages, though there is no
reported decision on a bill of exchange before the year 1603. At first, there use
seems to have been confined to foreign bills between English and foreign merchants.
It was afterwards extended to domestic bills between traders, and finally to bills of
all persons, whether traders or not. But for some time after they had come into
general employment, bills were always alleged in legal proceedings to be drawn
SECUNDUM USUM ET CONSUETUDINEM MERCATORUM. The foundations of
modern English law were laid by Lord Mansfield with the aid of juries of London
Merchants. No better tribunal of commerce could have been devised. Subsequent
judicial decisions have developed and systematized the principles thus laid down.

Before 1882 the English law was to be found in 17 statutes dealing with isolated
points, and about 2600 cases scattered over some 300 volumes of reports. The Bill of
Exchange Act, 1882 codifies for the United Kingdom the law relating to bills of

Page | 16
exchange, promissory notes and cheques. One peculiar Scottish rule is preserved,
but in other respects uniform rules are laid down for England, Scotland and Ireland.
Two salient characteristics distinguish negotiable instruments from other
engagements to pay money .In the first place, the assignee of a negotiable
instrument, to whom it is transferred by endorsement or delivery according to its
tenor, can sue there on in his own name and secondly, he holds it by an independent
title. If he takes it in good faith and for value, he takes it free from “all equities” that
is to all defects of title or grounds of defence which may have attached to it in the
hands of any previous party. These characteristic privileges were conferred by the
law merchant, which is part of the common law, and are now confirmed by statute.

Sir John Comyn’s digest in the early part of the 18th Century defines Bill of Exchange,
“A bill of exchange is when a man takes money in one country or city upon exchange,
and draws a bill where by he directs another person in another country or city to
pay so much to A, or order, for value received of B, and subscribes it. Comyns’
definition illustrates the original theory of a bill of exchange. A bill in its origin was a
device to avoid the transmission of cash from place to place to settle trade debts.
Now a bill of exchange is a substitute for money. It is immaterial whether it is
payable in the place where it is drawn or not. It is immaterial whether it is stated to
be given for value received or not , for the law itself raises a presumption that it was
given for value . But though bills are a substitute for cash payment, and though they
constitute the commercial currency of the country, they must not be confounded
with money. No man is bound to take a bill in payment of debt unless he has agreed
to do so. If he does take a bill, the instrument ordinarily operates as conditional, and
not as absolute payment. If the bill is dishonoured the debt revives. Under the law’s
of some continental countries, a creditor, as such, is entitled to draw on his debtor
for the amount of his debt, but in England the obligation to accept or pay a bill rests
solely on actual agreement. A bill of exchange must be an unconditional order to pay.
If an instrument is made payable on a contingency, or out of a particular fund, so
that its payment is dependent on the continued existence of that fund, it is invalid as
a bill, though it may, of course avail as an agreement or equitable assignment. In
Scotland it has long been the law that a bill may operate as an assignment of funds,
in the hands of the drawee and section 53 of the act preserves this rule.

2.2 DEFINITION AND MEANING

Section 5 of the Negotiable Instruments Act,1881 defines,

“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”.

According to Black ‘s law Dictionary, Bill of Exchange means as under :-

“Bill of Exchange. A three party instrument in which first party draws an order for the
payment of a sum certain on a second party for payment to a third party at a definite
future time.”13

13
5th Ed, July 1973., Pg No.149

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Wharton ‘s law lexicon Dictionary defines Bill of exchange as under :-

“As an unconditional order in writing, addressed by one parson to another, signed by

the person giving it, requiring the person to whom it is addressed to pay on demand or
at a fixed or determinable future time a sum certain in money to or to the order of a
specified person, or to bearer.”14

Stroud’s Judicial Dictionary defines Bill of Exchange as under :-

“An order to pay out of a particular fund is not unconditional within the meaning of
this section, but an unqualified order to pay, coupled with (a) an indication of a
particular fund out of which the drawee is to reimbures himself or a particular
account to be debited with the amount, or (b) a statement of the transaction which
gives rise to the bill, is unconditional.”15

A bill of exchange, therefore, is a written acknowledgement of the debt, written by

the creditor and accepted by the debtor. There are usually three parties to a bill of
exchange drawer, acceptor or drawee and payee. Drawer himself may be the payee.

2.3ESSENTIAL ELEMENTS AND CLASSIFICATION

I. It must be in writing.
II. It must be signed by the drawer.
III. The drawer, drawee and payee must be certain.
IV. The sum payable must also be certain.
V. It should be properly stamped.
VI. It must contain an express order to pay money and money alone.

For example, In the following cases, there is no order to pay, but only a request to
pay. Therefore, none can be considered as a bill of exchange:

“I shall be highly obliged if you make it convenient to pay Rs. 1000 to Suresh”.“Mr.
Ramesh, please let the bearer have one thousand rupees, and place it to my account
and oblige”

However, there is an order to pay, though it is politely made, in the following

examples:

“Please pay Rs. 500 to the order of ‘A’.

‘Mr. A will oblige Mr. C, by paying to the order of’ P”.

The order must be unconditional.

14
14th Edn Reprint 2006, Pg No. 446
15
4th Edn Vol.1, John S James, Pg No.290

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CLASSIFICATION OF BILLS:

Bills can be classified as:

I. Inland and foreign bills.

II. Time and demand bills.

III. Trade and accommodation bills.

I. Inland and Foreign Bills

Inland bill: A bill is, named as an inland bill if: it is drawn in India on a person residing
in India, whether payable in or outside India, or it is drawn in India on a person residing
outside India but payable in India.

The following are the Inland bills:

 A bill is drawn by a merchant in Delhi on a merchant in Madras. It is payable in

Bombay. The bill is an inland bill.
 A bill is drawn by a Delhi merchant on a person in London, but is made payable
in India. This is an inland bill.
 A bill is drawn by a merchant in Delhi on a merchant in Madras. It is accepted for
payment in Japan. The bill is an inland bill.
Foreign Bill: A bill which is not an inland bill is a foreign bill. The following
are the foreign bills:

 A bill drawn outside India and made payable in India.

 A bill drawn outside India on any person residing outside India.
 A bill drawn in India on a person residing outside India and made payable
outside India.
 A bill drawn outside India on a person residing in India.
 A bill drawn outside India and made payable outside India.

II. Time and Demand Bill

Time bill: A bill payable after a fixed time is termed as a time bill. In other words, bill
payable “after date” is a time bill.

Demand bill: A bill payable at sight or on demand is termed as a demand bill.

III. Trade and Accommodation Bill

Trade bill: A bill drawn and accepted for a genuine trade transaction is termed as a
“trade bill”.
Accommodation bill: A bill drawn and accepted not for a genuine trade transaction
but only to provide financial help to some party is termed as an “accommodation
bill”.

Example: A, is need of money for three months. He induces his friend B to accept a
bill of exchange drawn on him for Rs. 1,000 for three months. The bill is drawn and
accepted. The bill is an “accommodation bill”. A may get the bill discounted from his
bankers immediately, paying a small sum as discount. Thus, he can use the funds for
three months and then just before maturity he may remit the money to B, who will
meet the bill on maturity.

In the above example A is the “accommodated party” while B is the “accommodating

party”.

It is to be noted that an recommendation bill may be for accommodation of both the

drawer arid acceptor. In such a case, they share the proceeds of the discounted bill.

3. CHEQUE

3.1 HISTORICAL DEVELOPMENTS

It is very difficult to trace out the origin of cheque. There is no definite view regarding
the original of the cheque. The different thinkers have different views relating to its
origin. The origin of word Cheque is obscure. According to J.W.Gilbert :

“The word Cheque is derived from the French ‘Eches’ meaning

Chess. The Chequers placed at the doors of public houses were
intended to represent Chess-boards, and originally denoted
that the game of Chess was played in those houses. Similar
tables were employed in reckoning money, and hence came the
expression ‘to check an account’; and the Government office
where the public accounts were kept, was called the
‘Exchequer’. There is also another explanation. It is said that
the word `Cheque’ arose from the consecutive numbers which
were placed upon the official forms to act as a check or means
of verification”.16

In India although the high mountains ranges have separated India from the rest of Asia,
yet this separation did not prevent intercourse with the countries of world. Similarly,
the long sea coast of India facilitated the growth of maritime trade and large numbers of
harbour were established thorough which trade relations with Rome, China, Malasiya
etc. were set up. The well developed financial system can be traced from Kautilya’s
(Chanakya) Arthsastra. It has been described in it, “All undertaking depend upon
finance. Hence, foremost attention shall be paid to the treasury.”17

16
M.S.Parthasarathy – Cheque in law and practice at pp. 1-2
17
Kautilya Arthsastra, Book – II , Chapter 3

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 (a) Indigenous Banking –

Indigenous banking is an age old tradition in India. Although evidence regarding the
existence of money lending operations in India is found in the literature of the Vedic
times, i.e. 2000 to 1400 B.C., no information is available regarding their pursuit, as a
profession by a section of the community, till 5000 B.C. From this time onwards,
India possessed a system of banking, which admirably fulfilled her needs and
proved very beneficial to her, although its methods were different from those of
modern Western Banking. The literature of the Buddhist period supplies ample
evidence of the existence of Srethis, or bankers, in all the important trade centres
and of their widespread influence in the life of the community. Their chief activity
was to lend money to traders, to merchant-adventures who went to foreign
countries, to explorers who marched through forests to discover valuable materials,
and to kings who were in financial difficulties due to war or other reasons, against
the pledge of movable or immovable property or personal surety.17

Usury was practised but was held in contempt. From the laws of Manu, it appears
that money lending and allied problems had assumed considerable importance, and
that deposit banking in some form had come into existence by the second or third
century of the Christian era. Kautilya’s Arthsastra laid down 15 to 60 per cent as the
maximum legal rates of interest per annum on secured and unsecured loans
respectively, but permitted a maximum of 240 per cent if the risk was specially
heavy.18

(b) Hundi –

There is no legal definition either statutory or otherwise of a hundi, though such

documents are in common use. Hundis are of several kinds the chief being Shahjogi
Hundi Jokhmi Hundi , Namjag Hundi.

In fact, the word ‘hundi’, a generic term used to denote instruments of exchange in
vernacular, is derived from the Sanskrit root ‘hund’ meaning ‘to collect’ and well
express the purpose to which such instruments were utilised in their origin. Hundis
or indigenous bills of exchange came into use from the 12th century, and it appears
from the writing of a few Muslim historians, European travellers, State records and
the Ain-i-Akbari that both under the early Muslim and Mogul rulers in India
indigenous bankers played a prominent part in lending money, financing internal
and foreign trade with cash or bills, and giving financial assistance to rulers during
periods of stress. No exact information is available regarding the rates of interest
charged by them, but it appears from the evidence that is available, that they were
higher than those prescribed in Kautilya’s Arthashastra.

In India, there is reason to believe that instrument of exchange were in use from
early times and we find that papers representing money were introduced into the
country by one of the Muhammadan sovereigns of Delhi in the early part of the
fourteenth century, the idea having been borrowed from China; and it is the
accepted theory of the western savants, that in China a complete system of paper

Page | 21
currency and banking had been developed as early as the tenth century and it is not
improbable that such an idea filtered into India sometime later.18

During the Mohgul rule the issue of various of metallic money in different parts of
the country gave the indigenous bankers great opportunities for developing the very
profitable business of money-changing and the most important among them were
appointed mint officers, revenue collectors, bankers and money-changers to
Government in various parts of the Empire. Many of them wielded great influence in
the country, and those among them who came to be known as Jagat Seths (world
bankers) in the 17th and 18th centuries possessed as great a power as the private
bankers of any Western country. The indigenous bankers, however, could not
develop to any extent the system of obtaining deposits regularly from the public and
paying interest on them and those who made savings either horded them, or lent
them to friend and neighbours. The reason seems to be that many of them combined
trade with banking business; this combination reduced the stability of their banking
business, and produced an unfavourable reaction upon banking development in
India.

The English trader who came to India in 17th century could not made much use of
the indigenous bankers owing to their ignorance of the latter’s language and owing
to the latter’s inexperience of the finance of the former’s trade. Therefore, although
the East India Company established connections with these bankers, borrowed
funds from them, and for the first few years collected a portion of the land revenue
through them, the English agency houses in Calcutta and Bombay began to conduct
banking business besides their commercial business. From this time, the business
and power of the indigenous bankers began to wane, although the East India
Company successfully prevented the establishment in India of banking on Western
lines for a considerable time, on the ground that the agency houses and the
indigenous bankers were more suited to the banking requirements of the country.22

Other causes also operated to bring about the decline of the indigenous bankers. The
continuous warfare and chaos that resulted from the breaking down the Mogul Empire
seriously checked their activities. Some of them at times unable to fulfil their promises,
had to resort to questionable practices, and found their claims not infrequently evaded
by their debtors, some of whom were ruling princes. Further, they lost their profitable
money changing business from 1835, when a uniform currency was established
throughout the country. Moreover, the diversion of trade from old to new routes and
the change on basis of India’s trade relations with other countries, that were brought
about by the development of railways, steamships, post and telegraph, affected their
business adversely. Their decline and gradual expansion of English trade and power in
India led the East India Company to abandon its opposition to the establishment of
banks on Western lines in India. Consequently, such banks and Government treasuries
came to be established, and they accentuated the decline of the indigenous bankers. 23

18
Bhashyam and Adiga- The Negotiable Instrument at p.5

Page | 22
 (c) Chittis –

Documents known as “barati chittis “and “Samachari chittis “which are in use among
Indian merchants for carrying on transactions in which money passes from hand to
hand , are liable to stamps duty in the same manner as Hundis as bill of exchange.

(d) Drafts and Demand drafts -

A written order by the first party, called the drawer, instructing a second party, called
the drawee (such as a banks ), to pay a third party, called the payee An order to pay a
sum certain in money, signed by a drawer, payable on demand or at a definite time , and
to order or bearer :

An unconditional order drawn by drawer or drawee to the order of the payee, same
as a bill of exchange.

A demand draft by one branch of bank on another branch of the same bank in the
form of a bill of exchange payable on demand to a third party is a bill of exchange
within the meaning of section 2 (2) of the Indian Stamps Act, and is exempt from
stamp duty by virtue of Finance Act 5th of 1927.

The name of the person to whom the amount mentioned in the promissory note is
payable should be specifically and clearly mentioned in the promissory note.
Regarding promissory note, promise to pay the amount mentioned in the
promissory note is most important when compared with the mentioning of reasons
or circumstances for executing a promissory note. There is no specific proforma is
given in the Negotiable Instruments Act or in any other Act. A promissory note will
be written in any form basing upon the circumstances under which it was written.
But, a promissory note should contain all the essential features in corporated in
section 4 of the Negotiable Instruments Act.

3.1 DEFINITION AND MEANING

Section 6 of the Negotiable Instruments Act, 1881 defines “A cheque is a bill of
exchange drawn on a specified banker, and not expressed to be payable otherwise
than on demand”.
According to Black’s Law Dictionary with pronunciation19 defines cheque as under:
“Cheque. - A draft drawn upon a bank and payable on demand signed by the maker or
drawer, containing an unconditional promise to pay a sum certain in money to the order
of the payee.”

Wharton’s Law Lexicon33 defines it as –

“ Cheque- An order addressed to a banker requesting him to pay to (a) the person therein
mentioned, or his order, or (b) the person therein mentioned, or the bearer of the

19
5th Edn July 1973, Pg No. 215-216

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cheque, the sum of money therein mentioned; defined in the Bill of Exchange Act, 1882,
Sec. 73 by which such provisions of that Act as are applicable to a bill of exchange
payable on demand apply also to a cheque as a bill of exchange drawn on a banker
payable on demand.

A cheque is bill of exchange with two more qualifications, namely,it is always drawn
on a specified banker, and (ii) it is always payable on demand. Consequently, all
cheque are bill of exchange, but all bills are not cheque. A cheque must satisfy all the
requirements of a bill of exchange; that is, it must be signed by the drawer, and must
contain an unconditional order on a specified banker to pay a certain sum of money
to or to the order of a certain person or to the bearer of the cheque. It does not
require acceptance.

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PARTIES TO NEGOTIABLE INSTRUMENTS
1. PARTIES TO PROMISSORY
I. Maker. He is the person who promises to pay the amount stated in
the note. He is the debtor.

II. Payee. He is the person to whom the amount is payable i.e. the
creditor.

III. Holder. He is the payee or the person to whom the note might have
been indorsed.

The endorser and endorsee (the same as in the case of a bill).

2. PARTIES TO BILL OF EXCHANGE

I. Drawer: The maker of a bill of exchange is called the ‘drawer’.

II. Drawee: The person directed to pay the money by the drawer is called the
‘drawee’,

III. Acceptor: After a drawee of a bill has signed his assent upon the bill, or if
there are more parts than one, upon one of such pares and delivered the
same, or given notice of such signing to the holder or to some person on his
behalf, he is called the ‘ acceptor’.

IV. Payee: The person named in the instrument, to whom or to whose order the
money is directed to be paid by the instrument is called the ‘payee’. He is the
real beneficiary under the instrument. Where he signs his name and makes
the instrument payable to some other person, that other person does not
become the payee.

V. Endorser: When the holder transfers or indorses the instrument to anyone

else, the holder becomes the ‘endorser’.

VI. Endorsee: The person to whom the bill is indorsed is called an ‘Endorsee’.

Page | 25
VII. Holder: A person who is legally entitled to the possession of the negotiable
instrument in his own name and to receive the amount thereof, is called a
‘holder’. He is either the original payee, or the Endorsee. In case the bill is
payable to the bearer, the person in possession of the negotiable instrument is
called the ‘holder’.

VIII. Drawee in case of need: When in the bill or in any endorsement, the name of
any person is given, in addition to the drawee, to be resorted to in case of
need, such a person is called ‘drawee in case of need’.

In such a case it is obligatory on the part of the holder to present the bill to
such a drawee in case the original drawee refuses to accept the bill. The bill is
taken to be dishonoured by non-acceptance or for nonpayment, only when
such a drawee refuses to accept or pay the bill.

IX. Acceptor for honour: In case the original drawee refuses to accept the bill or
to furnish better security when demanded by the notary, any person who is
not liable on the bill, may accept it with the consent of the holder, for the
honour of any party liable on the bill. Such an acceptor is called ‘acceptor for
honour’.

3.PARTIES TO CHEQUE

I. Drawer. He is the person who draws the cheque, i.e., the depositor of
money in the bank.

II. Drawee. It is the drawer’s banker on whom the cheque has been drawn.

III. Payee. He is the person who is entitled to receive the payment of the
cheque.

The holder, endorser and endorsee (the same as in the case of a bill or note).

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LIABILITIES OF PARTIES TO NEGOTIABLE
INSTRUMENTS
Section 32 which provides about the liability of the maker of a note or the
acceptor of a bill, is as follows:-
In the absence of a contract to the contrary, the maker of a promissory note
and the acceptor before maturity of a bill of exchange are bound to pay the
amount there of at maturity according to the apparent tenor of the note or
acceptance respectively, and the acceptor of a bill of exchange at or after
maturity is bound to pay the amount thereof to the holder on demand.
In default of such payment as aforesaid, such maker or acceptor is bound to
compensate any party to the note or bill for any loss or damage sustained by
him and caused by such default.
When the maker of a promissory note signs the same there is an
unconditional undertaking made by him to pay the amount of the note
according to its tenor. His engagement to pay is unconditional and his liability
to pay is absolute. His liability arises when he signs the promissory note and
delivers the same to the person in whose favour it has been made, the payee.
The drawee of a bill of exchange becomes liable on the bill when he accepts
the same. The liability of the acceptor of a bill of exchange is similar to that of
the maker of the promissory note. An acceptance by him, the acceptor
becomes primarily liable to pay the amount of the bill on its maturity. The
acceptor of a bill of exchange is liable there under as principal debtor and as
such, the suit filed merely against the acceptor of a bill of exchange is
maintainable in law even though a separate suit has been filed by the
plaintiffs against the drawers of that bill of exchange on the basis of the suit
bill of exchange along with other relief’s claimed there in.
When a bill of exchange is payable to draw’s order and the drawer is a
fictitious person, the acceptor of the bill will still be liable to a holder in due
course provided the latter can show that he got the bill purporting to be
endorsed by the drawer and the signatures of the first endorsement and of
the drawer are in same handwriting. A forged endorsement cannot convey a
good title even to a holder in due course and therefore no person can be made
liable on a negotiable instrument towards one who derives his title through a
forged endorsement. To this general rule there is an exception. If the forged
endorsement is there before acceptance, negligently accepting such a bill will
make the acceptor liable. An acceptor is also not liable towards a holder
deriving title out of a forged endorsement which was made after the bill has
been accepted.

Page | 27
The nature of the liability of the endorser is similar to that of drawer, i.e. it is
conditional upon the non-performance of the duty by those whose liability is
primary and unconditional. Every endorser impliedly undertakes to be liable
to every subsequent holder if the maker, drawee or the acceptor dishonour
the same. It may be noted that if payee transfers an instrument by making an
endorsement, then only his liability can arise. In the absence of any
endorsement by the payee his liability cannot arise. In Gaddam Venkata
Raju v. Andhra Bank, Hyderabad,20 the payee delivered a cheque to the
bank without making endorsement and the bank discounted the same. The
said cheque was dishonoured by the drawee bank. The bank to whom the
payee had delivered the cheque brought an action against the payee for
recovery of the amount of the cheque. It was held that that payee could not be
held liable because he had not made any endorsement.
Such a liability of the endorser, as stated above, arises unless he, in such
endorsement, excludes his liability or makes the same conditional. Section 52,
permits an endorser to make the endorsement in such a way that he either
excludes his own liability (by sans recourse endorsement), or, makes such
liability or the right of the endorsee to receive the amount due there on
depend upon the happening of a specified event.

20
AIR 2000 A.P 379

Page | 28
CONCLUSION
A negotiable instrument is a piece of paper which entitles a person to a sum of
money and which is transferable from one person to another by mere delivery or by
endorsement and delivery. The characteristics of a negotiable instrument are easy
negotiability, transferee gets good title, transferee gets a right to sue in his own name
and certain presumptions which apply to all negotiable instruments. There are two
types fo negotiable instruments (a) Recognised by statue: Promissory notes, Bill of
exchange and cheques and (b) Recognised by usage: Hundis, Bill of lading, Share
warrant, Dividend warrant, Railway receipts, Delivery orders etc. The parties to bill
of exchange are drawer, drawee, acceptor, payee, endorser, endorsee, holder, drawee
in case of need and acceptor for honour. The parties to a promissory note are maker,
payee, holder, endorser and endorsee while parties to cheque are drawer, drawee,
payee, holder, endorser and endorsee.

Negotiation of an instrument is a process by which the ownership of the instrument

is transferred by one person to another. There are two methods of negotiation: by
mere delivery and by endorsement. In its literal sense, the term ‘endorsement’
means writing on an instrument but in its technical sense, under the Negotiable
Instrument Act, it means the writing of a person’s name on the face or back of a
negotiable instrument or on a slip of paper annexed thereto, for the purpose of
negotiation. A bill may be dishonoured by non-acceptance (since only bills require
acceptance) or by non-payment, while a promissory note and cheque may be
dishonoured by non-payment only. Noting means recording of the fact of dishonour
by a notary public on the bill or paper or both partly. Protest is a formal notarial
certificate attesting the dishonour of the bill. The term ‘discharge’ in relation
to negotiable instrument is used in two senses, viz., (a) discharge of one or
more parties from liability thereon, and (b) discharge of the instrument.
BIBLIOGRAPHY
1. BOOKS REFERRED:

I. The Negotiable Instruments Act, 1881., Bare Act

II. R.K Gupta: Banking: Law And Practise, Modern Law Publications,
Allahabad

2. SITES REFERRED:

I. http://ecourts.gov.in/sites/default/files/negotiable%20instrument
s%20act.pdf
II. https://astrealegal.com/negotiable-instruments-meaning-types-
and-legal-aspects/
III. http://shodhganga.inflibnet.ac.in/bitstream/10603/7935/9/09_ch
apter%201.pdf
IV. http://shodhganga.inflibnet.ac.in/bitstream/10603/7935/10/10_c
hapter%202.pdf

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