Unit-4 Negotiable Instrument Act-1881

Negotiable Instrument Act, 1881
Sec-4
A "Promissory note" is an instrument in writing (not being a bank-note or a currency-note)

containing an unconditional undertaking, signed by the maker, to pay a certain sum of money
only to, or to the order of, a certain person, or to the bearer of the instrument.
Illustrations
"I promise to Pay B Rs. 500 seven days after my marriage with C."
"I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for value
received."
Meaning –
A Promissory Note is a legal financial instrument issued by one party, promising to pay the
debt owed to another party
Definition –
“A Promissory note is an instrument in writing containing an unconditional undertaking,

signed by the maker, to pay a certain sum of money only to, or to the order of, a certain
person, or to the bearer of the instrument”.
Note – Bank note or currency note is not a promissory note.
Requisites of Promisory Notes-
 the Promisory note must be in writing

 ir must contain an undertaking to pay
 there must be an express promise to pay
 the promise to pay should be unconditional
 the promisory note must be signed by the maker
 the sum payable must be certain
 the instrument must contain a promise to pay money only.
 The limitation period for a promissory note to file a suit is 3 years from the date of
execution or from the date of acknowledgement
 It must contain date
Sec-5
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.
1) It should be in writing
2) Freely transferable.
It should create a right of a person to receive money and a corresponding liability of a person
to pay money.
4) Holder's title free from defects –
a) A holder in due course acquires a good title irrespective of any defect in a previous
holder's title.
b) A holder in due course is one who receives the instrument: for consideration;
without notice as to the defect in the title of the transferor; i.e. in good faith and
before maturity
5) Transferability –
A negotiable instrument can be transferred infinitum, i.e., can be transferred any number of
times, till its payment.
Bill of Exchange-
Bill of Exchange can be understood as a written negotiable instrument, that carries an

unconditional order to pay a specified sum of money to a person or the holder of the
instrument, as directed in the instrument by the maker. The bill of exchange is either payable
on demand, or after a specified term.
“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”.
Drawer- the person who gives the order to pay or who makes the bill is called the drawer.
Drawee- the person who is directed to pay is called the drawee. when the drawee accepts bill,
he is called acceptor.
Payee-the person to whom the payment is to be made is called payee.
Essentials of bill of Exchange-
 Parties should be certain

 every bill of exchange must be stamped according to provision fo indian stamp Act,
1899
 it should specifically mention the date and place the payment or the place where it is
drawn.
 Order to pay- Order in this section does not mean command but it mean request or
direction.
 the time of payment must be indicated in bill with certainity.
 Amount payable must be certain.
 It shall be paid only by way of money.
Cheque- Sec-6
Cheque refers to a negotiable instrument that contains an unconditional order to the bank to
pay a certain sum mentioned in the instrument, from the drawer’s account, to the person to
whom it is issued, or to the order of the specified person or the bearer. It also includes
truncated cheque and cheque in electronic form.
Definition – “A cheque is a bill of exchange drawn upon a specified banker and payable on
demand and it includes the electronic image of a truncated cheque and a cheque in the
electronic form”. Note – A cheque is a species of a bill of exchange; but it has the following
two additional qualifications: 1. It is always drawn on a specified banker, and
2. It is always payable on demand.
Requisite of Cheques-
 must be in writing, unconditional order, signed by maker

 specifically mentioned in figures and words
 Cheque may be drawn payable to order or bearer.
 cheque must contain date
 Payee to be certain.

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Negotiable Instrument Act, 1881

A "Promissory note" is an instrument in writing (not being a bank-note or a currency-note)

“A Promissory note is an instrument in writing containing an unconditional undertaking,

Note – Bank note or currency note is not a promissory note.

Requisites of Promisory Notes-

 the Promisory note must be in writing

A "bill of exchange" is an instrument in writing containing an unconditional order, signed by

4) Holder's title free from defects –

Bill of Exchange can be understood as a written negotiable instrument, that carries an

“A bill of exchange is an instrument in writing containing an unconditional order, signed by

Payee-the person to whom the payment is to be made is called payee.

Essentials of bill of Exchange-

 Parties should be certain

2. It is always payable on demand.

 must be in writing, unconditional order, signed by maker

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