THE

NEGOTIABLECHAPTER
INSTRUMENT
01 ACT, 1881l

Definitions

11 Object of the Act

The object of this act is to
formalise and legalise the system under cover of
aims certain mercnt1le instruments are treated like which
v.
jnd[Sivaram Jayaram AIR 1966 Mad 297.]
ordinary goods passing from hand to
12 Negotiable Instrument Defined
The term "negotiable" means transferable and such
ih
delivery.)Transferability carries no meaning unless ittransferabilty
is effective
goes hand in hand
through delivery.
Gnstrument" means a written document by which a right is
Anegotiable instrument is a meams of created in favour of some perso
Mntained in Section 13(1) of the Negotiable transferring a debt from one person to
another. As
neans a promissory note, billof exchange or Instruments Act, "A Negotiable Instrument
From the definition it appears that the Act is cheque payable either to order or to bearer.")
confined to only three types of instuments, namely,
romossory notes, bills of exchange and cheques. As regards these
Movisions of the Act may be interpreted so as to promote and three instruments, the
Tamely, the free circulation of the instruments from hand to achieve the object of the Act,
hand without confusion and obscurity
Nut with precision and certainty (Sivaran v. Jayaram,
AIR 1966 Mad 297).
As contained in section 13(2) of the Act, A
negotiable
MO OT more payees jointly, or in thealternative toone of instrument may be made payable to
two, or one or some of several payees.
Ihe Act defines and refers to three kinds of
instrument, namely, Promissory Note, Bill of
uenange and Cheque. But by usage other instruments may be
impressed with the
otiability (AIR 1936 ALL 396.) Accordingly, government promissory notes character
of
come within the
deinition of negotiable instruments.
21 Definition of
As spelt out in
Banker
Section 3 of the Act, "banker includes any person acting as a banker
ypost office savings bank. The above difinition of banker is not
order to clarify the definition we quote below the definition of a exhaustive.
banker'Á banker or
Nank is
a person or a Company carrying on the business of receiving monies and collecting drafts
395
 ligbletopay.
g lProcedure : A special
SSpecial
Exchange as prescribed in theprocedure
is provided for suits on Promissory Notes and
Civil Procedure Code) A decree can be obtained
than it can be in ordinary suits. much
aickly
oonularity : Negotiable instruments are popular in commerce and trade because of the
ytransferabilityand
and quick remedies.

1.3 Promissory
Note [Section 4]
APromissory Note" is an instrument in writing containing an unconditional
Tdertaking,singned by the maker, to pay a certain sum of money only to, or
instrument.)
certain person, or to the bearer of the
lustrations :
signs instruments in the following terms :
A
500 "
(a) "I promise to pay Bor order
myself to be indebted to B in 1000, to be paid on demand, for value re
(b) "I acknowledge
ceived. "
(c) "Mr. B, L.0.U. 1000.
500 and allother sums which shall be due to him"
(d) "I promise to pay B any money which he may owe me.
5O0first deducting thereout
(e) "I promise to pay B marriage with C."
S00seven days after the
() "I promise to pay provided Dleaves me enough to pay
that sum":
promise topay B 500on D'sdeath,
(3) "I
 exchange
of drawee
a should
order, with not anu O er
onlyy toonlv exchangeitis bilil
drawer ofbill
unconditional. a acceptor
thousand unconditional order. time. that drawn. for indicate
also
must a
money India. the bill
no of
reason necessary accepted. condition
of of is certainty essential
that
Six in his period bill it
(Rupees Street073 of instrument.) to
definite.circulating the for where be and
an sum and according is pay
700 invalid withis can
College containing express
definite in place drawer
instrument
6000 -Kolkata certain indicated There exchange to
and specify
Note money not the the
or
Promissory
order 37
Address: a
writing
the exchange certain
absolute, or
certain.person after
a
is or :
137the of t. :
The accept

received,"
XYZ
Sd.
payof drawer. tender orstamped. be
must
exchange should
payment
of
signature AI
if bill pay562
ER even to
or Dated to bearer
Row person be be definite Exchange
demand exchange A or Cal order
in is payment : accept
u Creekvalue instrument of the whichmustmustlegal properly of of drawer
363 1955
ofSpecimen the
certain bill writing,
by payee
paid in a on
bill
person. place The (1936)
TLRto
an
contain
to pay of of A of contract. the upon AIR
58 for pay thousand 51 a signed be to be payable Bill time :Paynment
of annum, to (Section or of
personelements to the be must payable
must
the bill of 45 Bhusan,
Winstanley
A
ABC promise 700014 an adirecting in orderand to a Thecertain specify A
(1929)
signat1ure
called shall
is be be moneypayment made of :
payper Six Exchange
Exchange certain mustmustan drawee be
exchangeclarification
Payment:
Drawee
the
Lackbe Bidhu
I of
received Kolkata
- must
a of
not into v. change
isthat
to cent OR date sum instrument
contain
instrument of be of Place the should
400
ºBusiness
Laws promise maker, Essential drawer, of money may order doesandentering valid. Haseldine v. v. accept
it.
per after amount withiout
Mason Sinha
the value a mode of
12 Row, of ofBill of, bill bill more of the andit Drawerbe who
monthsorder Bill the must Case
Law
I at for order Time
to Datethat drawee to () (ii) (iii)
interest
demand Creek |A by The The The TheThe The The The
or rupees, It Some certainty or exchange
ThreeABC ABC58, 1.4 signedthe 14.11. 2. 3. 4. 5. 6. 7. 8. 9. 1. 2. dated3.
"Onwith To the
to
 othe erein the true date of 1ssue or date of
Ceplance,theinstrument shall
shall be payable
accordingly. question may arise whether such
sertionof holder in due course is a material alteation. Such
The
insertion is lawful and cannot be
gardedas material alteration.
142 Distinction between a promissory note and a
bill of exchange
Promissory Note Bill of Exchange
-
There 4s a promise to pay. 1. There is an order to pay.
2No acceptance is necessary. 2. Acceptance by drawee or by his authorised
person is necessary.
3. The maker of the note has absolute and pri- 3. The drawer of the bill has a secondary and
mary liability. conditional liability.
4 There are two parties the
the maker and the
maker and the 4. There are three parties the drawer, the
payee. drawee and the payee.
5. The maker and the payee cannot be the 5. The drawer and the payee or the drawee and
same person. the payee may be the same person.
6. It is not possible to draw a promissory note 6. Bill of Exchange an be drawn in set.
in set.
1. Apromissory note cannot be conditional. 7. ABill of Exchangecan be conditionally accepted
by the holder. It cannot be drawn conditionally.
8. Notice of dishonour is not necessary to the 8. Notice of dishonour must be given to all
maker of the note. persons liable to pay in case of non-accep
tance or non-payment.
9. The maker of the Promissory Note stands in 9. The drawer of an accepted bill of exchange
immediate relationship with the payee. does not stand in immediate relation with the
payee or the holder.
|0. No protest of a dishonoured promissory 10. In case of foreign bills protest of dishonour
note is required. IS necessary.

BL -26
 402 Business Laws

1.5 Cheque [Section 61

As amended and substituted by the Negotiable Instruments (Ammendment) and
Miscellaneous Prvisions Act, 2002 [effective on and from 6th February, 2003 vide S.0.
(E))a"cheque" is a bill of exchange drawn on a specified banker and not expressed140to
be payable otherwise than on demand and it /ncludes the electronic image of a
cheque and a cheque in the electronic form. truncated
Explanation I.
For the purpose of this section, the expressions
(a) "acheque in the electronic form" means a cheque which contains the exact mirror irne
of apaper cheque, and is generated, written and signed in a secure system ensuring the minimum
safety standards with the use of digital signature (with or without biometric signature) and
symmetric crypto system;
(b) "a truncated cheque" means a cheque which is truncated during the course of a clearing
cycle, either by the clearing house or by the bank whether paying or receiving payment,
immediately on generation of an electronic image for transmission, substituting the further
physical movement of the cheque in writing.
Explariation I.
For the purpose of this section the expression "clearing house" means the clearing house
managed by the Reserve bank of India or a clearing house recognised as such by Reserve Bank
of India.
1.5.1 Characteristics of a cheque
An analysis of Sections 5 and 6 would reveal that-
1. A cheque is a negotiable instrument.
2. A cheque is a bill of exchange but every bill of exchange is not a cheque.
3. A cheque is always drawn on a specified banker .
4. A cheque is always payable on demand without any days of grace.
5. There are three parties to achequea) drawer, (b) drawee (c) payee
(a) Drawer is a person who draws the cheque on a bank
(b) Drawee of a cheque is a bank on which a cheque is drawn by the drawer.
(c) Payee is a person to whom the payment is to be made by the bank on whom the
cheque is drawn.
6. A cheque is always drawn in the form of an order and that order is unconditional
nature.
7. Acheque is an unconditional order from the drawer of a cheque to the drawee bankto
make payment of money only.
8. The amount to be paid as indicated in the cheque must be certain and specific.
9. The cheque must contain the name of the person to whom the payment isto be made.
The name of the person must be certain without any ambiguity.
10. The cheque can also be payable to the bearer.
1 The cheque is not a legal tender but is only a means of payment.
 The Negotiable Instrument Act, 1881 Definitions 403

drawer must be certain and his signature is essential to the validity of acheque. If
12. The When there is a
JIgnature on cheque 1S not genuine, there is no mandate on bank to pay.
discrepancy in the amount in words and figures, the amount in words will prevail.
istinction between a cheque and a bill of exchange
Cheque Bill of Exchange
The drawee must be a banker.
1. The drawee can be a person including a
banker.
,A cheque is always drawn payable on de- |2. A bill of exchange may or my not be pay
mand. able on demand.
3 In a cheque n0 days of grace are allowed. 3. In a bill usually a grace of three days is al
lowed.
4. Acheque may be crossed. 4. A bill need not be crossed.
5 A cheque can be made payable to bearer 5. A billis always payable to bearer except where
and on demand. it is made payable ondemand.
6. Notice of dishonour is to be given to the
6 Notice of dishonour is not normally necessary
to be given to the drawer. Notice is required to drawer and to other parties entitled to receive
be given under clause (b) of the proviso to sec such notice.
tion 138 in case the payee or the holder in due
course of the cheque wants to prosecute the
drawer under Section 138.
7. No acceptance is necessary for a cheque. 7. Presentment for acceptance is necessary at all
times.
8. No stamping is necessary In case of a 8. Bills must be stamped compulsorily under
law.
cheque.
9. Acheque is not to be noted or protested in 9. Noting and protesting is necessary for
case of dishonour. dishonour of a bill.

l5.3_ Different types of cheques

There are two types of cheque Open Cheque and Crossed Cheque
of a bank.
l/Open Cheque : An open cheque is one which is paid across the counter
2/Crossed Cheque : Acheque is crossed when two parallel lines are drawn on the face
0f a cheque. A croSsed cheque is payable only through a banker. The system of crossing the
sanction of law by
ieques arose out of convenience of mercantile usage and later it had the
embodying it in the statute.
54 Different modes of crossing Cheques crossing and (ii)
There are two modes of crossing of cheques such as (1) general
special crossing.
) General Crossing : This is the simplest mode of crossing to put two parallel lines across
lines.
ace of the cheque. The words & co"may or may not be written in between two parallel
ieque crossed generally is payable to any bank through which it is presented tor payment.
) special Crossing : A cheque is said to be specially crossed when the name of a bank
1S written in between two parallel lines. Where a cheque is crossed spccially, the banker on
n it s drawn shall not pay it otherwise than to the banker to whom it is crossed or his agent
'or collection.