NEGOTIABLE INSTRUMENTS

A negotiable instrument is a written order or unconditional promise to pay a fixed sum of

money on demand or at a certain time. A negotiable instrument can be transferred from
one person to another. Once the instrument is transferred, the holder obtains full legal title
to the instrument. According to “The Negotiable Instruments Act, 1881” - A “negotiable
instrument” means a promissory note, bill of exchange or cheque payable either to order or
to bearer.

Features of Negotiable Instruments

 Easily Transferable from one person to another and ownership are passed on by mere
delivery.
 Confers absolute & good title to the transferee.
 “Holder in due course” possesses the right to sue upon the instrument in his to
recover the amount.

Types of Negotiable Instruments

Main Types of Negotiable Instruments are:
 Promissory Note: A “promissory note” is an instrument which is drawn and signed
by the maker, contains an unconditional undertaking or promises to pay a certain sum
of money only to or to the order of, a certain person, or to the bearer of the
instrument, on demand or at a fixed or determinable future time.
 Bill of Exchange: A “Bill of Exchange” is an instrument which is drawn and signed by
the maker, contains an unconditional order to pay a certain sum of money only to, or
to the order of, a certain person or to the bearer of the instrument, on demand or at a
fixed or determinable future time.
 Cheque: A cheque is a bill of exchange drawn on a specified banker which contains an
order to pay a certain sum of money to a certain person or bearer on demand. A
“Cheque” is an unconditional order, drawn on a specified banker to pay a certain
amount of money on demand.

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Date of Cheque
 Anti-Dated Cheque: If the drawer of the cheque mentions a past date or a date
earlier than the date on which it is written or drawn, then it is called as "anti-dated
cheque". Such a cheque is valid upto six months from the date of the cheque. A
cheque issued on 10th June, 2014 may bear a date 20th May 2014.
 Post Dated Cheque: If the drawer of the cheque mentions a date which is yet to
come (future date) to the date on which it is written or drawn, then it is called “post-
dated cheque”. For example, if a cheque written on 10th June 2010 bears a date of 25th
June 2014, it is a post-dated cheque. The bank will make payment only on or after 25th
June 2014.
 Stale Cheque: If a cheque is presented for payment after six months from the date of
the cheque, then it is called stale cheque. After expiry of that period, no payment will
be made by banks against that cheque. For example, if a cheque bears a date of 1st
June 2014, it will be valid till 30th November, 2014. After that it will be expired.

Crossing of Cheque
Crossing is an instrument given to the bank to pay certain amount of money of the cheque
only through bank, not directly to the person presenting it. A cheque bearing such
instruction is called “Crossed Cheque”. Crosse Cheque is of two types:
 General Crossing: When a cheque bears across its face an addition of words “and
company” or any abbreviation thereof between two parallel transverse lines or two
parallel transverse lines simply, either with or without the words “not negotiable” that
addition shall be deemed a crossing & the cheque shall be deemed to be crossed
generally.

When a cheque is generally

crossed, the paying bank on
which the cheque has been
drawn, will make payment
only to a bank.

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 Special Crossing: Where a cheque bears across its face an addition of the name of a
banker, either with or without the words “Not Negotiable” that addition shall be
deemed a crossing and the cheque shall be deemed to b
bee crossed specially, and to be
crossed to that banker”.
Drawing of two transverse
and parallel lines is not
necessary in case of a special
crossing. When
hen a cheque is
specially crossed, the paying
bank on which it has been
drawn, will make the payment only to that bank on which it has been crossed.

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