NEGOTIABLE INSTRUMENT ACT, 1881

PRESENTATION BY :
MOHAMMAD ZAKARIA
GENERAL MANAGER
AGRANI BANK
INTRODUCTION
 The law relating to negotiable
instruments
is contained in ‘The Negotiable
Instruments Act, 1881’.

 The act comes into force on 1st

march, 1882.
 DEFINITION
 Literally, ‘negotiable instrument’ means a
written document which creates a right in
favour of some person and which is freely
transferable.
 Justice Willis says, a negotiable instrument
is one, the property in which is acquired by
anyone who takes it bona fide and for value
, notwithstanding any defect in the title of
the person from whom he took it.
DEFINITION---

 According to N I Act (Section 13):

A negotiable instrument means a

promissory note, bill of exchange or
cheque, payable either to order or
bearer.
PAYABLE TO BEARER
 An instrument is payable to bearer, if
it is expressed to be so payable.
 Example:
Pay to A or bearer.
The instrument is payable to A. If A
delivers it to B, the instrument is
payable to B, who is bearer.
 PAYABLE TO ORDER
 An instrument is payable to order, if it is
expressed to be so payable.
 Such instrument is payable to a particular
person. However, the instrument shall not
cease to be transferable.
 Example:
Pay to A or order.
The instrument is payable to A or to the
order of A.
ESSENTIAL CHARACTERSTICS OF
A NEGOTIABLE INSTRUMENT
 Negotiability: The property in a negotiable
instrument is freely transferable.

 Title: A holder in due course is not affected

in any way by the defective title of the
transferor or any party.

 Recovery: The holder in due course is

entitled to sue on the instrument in his own
name.
 PRESUMTIONS
 The following legal presumptions are made
in respect of a negotiable instrument until
the contrary is proved( Sec.118 & 119):
 That every negotiable instrument was
drawn, accepted and endorsed, made or
transferred for consideration;

 That the date it bears is the date on which

it was made;
 PRESUMTIONS
 That it was accepted within a reasonable
time after being made and before
maturity;
 That every transaction was made before
maturity;
 That the endorsements were made in the
same order in which they appear;
 That the lost instrument was duly signed
and stamped;
 PRESUMTIONS
 That every holder is a holder in due course
unless it is proved that the holder has
taken it from the true owner either without
his free consent or without consideration;

 That in a suit upon a dishonoured

instrument ,the court shall, on proof of the
protest, presume that it was dishonoured
untill this fact is disproved.
 NEGOTIABLE INSTRUMENTS
 Section-13 states :
A negotiable instrument means a
promissory note,
bill of exchange or
cheque
payable either to order or bearer.

In addition, Demand Draft is also regarded as

negotiable instrument as defined in Section-85A
and in accordance with Section- 131A.
MATERIAL PARTS OF A NEGOTIABLE
INSTRUMENT

 Date: The date of making or drawing is a

material part of the instrument where the
amount is payable at a certain time after
date or is an essential factor in calculation
of interest. Authorised insertion of date is
permitted. A cheque may be undated or
anti-dated or post-dated.
 MATERIAL PARTS----
 Amount: The instrument must contain a
certain sum payable to be written in words
and figures. Where a difference in words and
figures appears, the amount stated in words
shall be taken to be correct (Section-18).
 Stamp: Instrument must be stamped before
or at the time when they are signed.
However, cheque has been exempted from
duty.
 MATERIAL PARTS----
 Time for payment: The time for payment is
expressed to be either:
a. on demand, or
b. at sight, or
c. after sight, or
d. after some specified certain event.

 Place of payment: Ordinarily not specified, but a

drawer may fix the place. If he does so , payment
must be made at the place specified.
MATERIAL PARTS----

 Designation of payee: The payee must be

a certain person. A note, bill or cheque is
generally made payable either:
a. to certain person or persons; or
b. to the order of a certain person; or
c. to a certain person or order; or
d. to a certain person or bearer; or
e. to bearer.
 MATERIAL PARTS----
 Signature of Drawer: Signature of drawer
is essential to making or drawing of the
instrument. The maker of a note or drawer
of a bill until acceptance is principally liable
on the note or bill.
 Name of Drawee: The drawee must be
named or othrwise indicated in the bill with
certainty for the holder has to present the
bill for accptance to the drawee.
 NEGOTIATION
 Section-47 :
A promissory note, bill or cheque payable to
bearer is negotiable by delivery thereof.
 Section-48 :
A promissory note, bill or cheque payable to
order is negotiable by the holder by
endorsement and delivery thereof.
 Section-46 :
The making, acceptance or endorsement of a
promissory note, bill of exchange or cheque is
completed by delivery, actual or constructive.