Negotiable Instrument Act 1881

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  • Topic: Negotiable instrument, Promissory note, Bearer instrument
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  • Published : December 2, 2012
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The Negotiable Instrument Act 1881
Compiled By Neelakshi Jaidka

After reading this lesson, you should be able to-
• Understand meaning, essential characteristics and types of negotiable instruments;
• Describe the meaning and marketing of cheques, crossing of cheques and cancellation of crossing of a cheque;
• Explain capacity and liability parties to a negotiable instruments; and
• Understand various provisions of negotiable instrument Act, 1881 regarding negotiation, assignment, endorsement, acceptance, etc. of negotiable instruments.

* The Negotiable Instruments Bill was passed by the Council and received assent on December 9, 1881. The Act came into force from March 1, 1882. * Prior to its enactment, the provision of the English Negotiable Instrument were applicable in India, * It extends to the whole of India except the State of Jammu and Kashmir. * The Act operates subject to the provisions of Sections 31 and 32 of the Reserve Bank of India Act, 1934 * Premable "An Act to define and Law relating to Promissory Notes, Bills of Exchange and cheques"

a negotiable instrument means an instrument the property in which is acquired by any one who takes it bonafide and for the value notwithstanding any defect in the title of the prior party .
A negotiable instrument means
- A promissory note; or - Bill of exchange; or
- Cheque
- Payable either to order or

1 Freely transferable from one person to another person.
2 The holder in due course obtains good title of the instrument notwithstanding any defect in the previous holder. 3 HDC of a negotiable instrument can sue on the instrument in his own name. 4 Transferable infinite times till its maturity.

1. CONSIDERATION:-Every negotiable instrument was made, accepted, endorsed or drawn for consideration 2. DATE: - every negotiable instrument bearing a date was made or drawn on that date. 3. Time of acceptance: - every bill of exchange was accepted within a reasonable time after the date mentioned on it but before of its maturity. 4. Time of transfer:- every transfer of negotiable instrument was made before its maturity. 5. STAMP:-lost promissory note, bill of exchange or cheque was duly stamped. 6. HDC: - that the holder of N/I is a HDC


Definition: - 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 a certain person; or the Order of a certain person.

Essentials Characteristics of a Promissory Note
1. Writing: - Promissory note must be in writing. Writing includes print and typewriting. Oral promise can not Constitute a valid promissory note. Generally consideration, Place and date of making need not be mentioned on the promissory note. 2. Promise to pay:-

(a) A Promissory note must contain an undertaking Promise to pay. (b) Mere acknowledgment of debt is not sufficient.
©Use of word “promise’’ is not mandatory, but the maker should bind himself to pay. EX.:- “I have received a sum of Rs. 5,000 from Sohan. This amount will be repaid on demand’’. 3.Unconditional promise:-

(a) The undertaking/ promise to pay should be unconditional and definite. (b)Unconditional event means an event which is certain to happen but the time of its occurrence is uncertain. Examples:- “I promise to pay B Rs. 500, seven days after may marriage with C’’ cannot constitute a promissory note because a condition as to marriage is attached. A writes – “I promise to pay C Rs. 25,000, 7days after the death of B’’. This is a valid promissory note and is not conditional, since only the time of death of B is uncertain, but is sure...
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