DEPARTMENT OF TECHNICAL EDUCATION

Andhra Pradesh
Name : P. Samba Murthy,
Designation : Head of Department

Branch : D.C.C.P.
Institute : S.R.R.S. Govt. Polytechnic, Sircilla,
Karimnagar District
Year/Semester : V Semester
Subject : Banking – I
Subject Code : CCP- 504(B)
Topic : Negotiable Instrument Act
Duration : 50 Minutes
Sub-Topic : Distinguish between Promissory
Note, Bill of Exchange and Cheque
Teaching Aids : PPT and Animations
CCP-504(B).56 1
Objectives
 On completion of this period, you would be able to

 Distinguish between promissory note, bill of exchange

and cheque.

CCP-504(B).56 2
RECAP
 So far we have discussed with regard to
differentiation in between promissory note, bill of
exchange and cheque. Now let us discuss in detail
in this session with the same ideas.
 What is a promissory note ?

CCP-504(B).56 3
RECAP

What are the features of a promissory note ?

 who are the parties to promissory note ?
What is a bill ?
Who are the parties to a bill ?
What is a cheque ?
Who are the parties to a cheque ?

CCP-504(B).56 4
TERMS OF NEGOTIABLE
INSTRUMENTS

• The Instrument must be Payable either ‘ to order’

or ‘to bearer’.
• According to Section 13, a promissory note, bill of
exchange or cheque must be payable either ‘to
order’ or ‘to bearer’.
• The meanings of these words are explained as
under:

CCP-504(B).56 5
Payable to Order:

 A promissory note, bill of exchange or cheque is

payable to order if it is expressed to be so payable

 if it is expressed to be payable to a particular

person and does not contain words which prohibit
its transfer or which indicate an intention that it
shall not be transferable

CCP-504(B).56 6
Payable to Bearer:
A promissory note, bill of exchange and cheque are
payable to bearer :
(a) if it is expressed to be so payable, or
(b) if the only or the last endorsement is an
endorsement in blank.
(c) This means a cheque payable ‘to order’ becomes a
bearer cheque if it is endorsed in blank.

CCP-504(B).56 7
The Payee must be a Certain Person:

 The person to whom payment of the instrument is to

be made must be certain.
 The payee is considered as ‘certain person’ for this
purpose even if he is misnamed or is designated by
description only.

CCP-504(B).56 8
The Payee must be a Certain
Person: (contd..)

The term ‘person’ includes, besides individual

bodies corporate, local authorities, societies and
associations of persons etc., and cheques may be
drawn payable to the Registrar, Principal, Director,
Secretary etc., of these institutions.

CCP-504(B).56 9
The Payee may be more than One Person:

A negotiable instrument may be made payable to two

or more payees jointly or it may be made payable in
the alternative to one of two or one or some of several
payees.

CCP-504(B).56 10
The Time of Payment:

 A cheque is always payable on demand though

words to this effect are not mentioned therein.
 A bill may be payable at sight or after a period of
time specified therein.

CCP-504(B).56 11
The Time of Payment:

 A promissory note or a bill of exchange in which

no time for payment is specified is payable on
demand.
 If a bill is payable after a certain period it must be
accepted by the drawee.
 But no such acceptance is necessary in case of
a cheque.

CCP-504(B).56 12
 The Time of Payment:

 If cheque is a post-dated cheque, it does not

constitute an order to the banker till the date
specified therein approaches.
 Banks do not make payment of such cheque before
the date given in the cheque.

CCP-504(B).56 13
Signature of the Drawer/Promisor:

 A negotiable instrument is valid only if it bears the

signature of the drawer/promisor.
 In case of a cheque the signature of the drawer must
tally with his specimen signature given to the banker at
the time of opening his account.

CCP-504(B).56 14
Delivery of the Instrument is Essential:

 A promissory note, bill of exchange and a cheque

is a negotiable instrument.
 The making, acceptance or endorsement of such
an instrument is completed by delivery.

CCP-504(B).56 15
Delivery of the Instrument is Essential:

 This mean that a negotiable instrument is deemed to

have been drawn, when it is written by the person
concerned and delivered to the other party to whom it is
meant.
 Delivery may be either actual or constructive.

CCP-504(B).56 16
Stamping of Promissory note and Bill
of Exchange is Necessary:

 The Indian Stamp Act, 1899 requires that the

promissory note and the bill of exchange must be
stamped.
 This is not required in case of a cheque.

CCP-504(B).56 17
Stamping of Promissory note and
Bill of Exchange is Necessary:

 The value of stamp depends upon the value of the note

or the bill of exchange and whether it is payable on
demand or at a future date.
 A note or bill without stamp can not be admitted in
evidence.
 It may be stamped either before or at the time of its
execution.

CCP-504(B).56 18
SUMMARY

 The negotiable instruments must be payable

either to order or bearer.
 The payee must be a certain person or
society/association.
 The payee may be more than one person and the
time of payment must be mentioned along with
signature of the drawer as well as stamping is
also one of the important aspect.

CCP-504(B).56 19
Self-examination questions

 Distinguish between a bill of exchange and a

cheque.
 Whether the instrument oral or in writing.
Substantiate.
 What are the points kept in mind while issuing
instrument?
 Why the stamping is necessary over the
instrument?

CCP-504(B).56 20
Assignment
 Prepare answer for the above questions ?

CCP-504(B).56 21
QUIZ
1. Stamping is made for

a) Bills
b) Promissory note
c) Both a and b
d) None

CCP-504(B).56 22
 QUIZ
1. For bills, promissory note and cheques drawer’s
signature is

a) Compulsory
b) Not compulsory
c) None
d) All the above

CCP-504(B).56 23