Negotiable Instruments Act 1881

Applicable in entire India except the State of Jammu & Kashmir. Deals with law relating to three specific instruments, viz. Promissory note, Bill of exchange and cheque.

MEANING
There are certain documents which are freely used in commercial transactions and monetary dealings. These documents, if they satisfy certain conditions are known as Negotiable Instruments. A Negotiable instrument is a method of transferring a debt from one person to another.
The word negotiable means transferable from one person to another in return for consideration and instrument means a written document by which a right is created in favour of some person.

Kinds of negotiable instrument

Negotiable instrument By STATUTE . 1) Promissory note. 2) Bill of exchange. 3) Cheque.

Negotiable instrument By custom or usage 1) Bank draft. 2) Pay orders. 3) Hundies. 4) Delivery order

Promissory Note
Sec.4 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.
.

Parties
MAKER : The person who makes the promissory note and promises to pay is called the Maker. PAYEE : The person to whom the payment is to be made is called the Payee. HOLDER: The holder is either the payee or someone to whom he may have indorsed (transfer) the note is known as Holder. ENDORSER: The person who indorses the note to another is called the Endorser . ENDORSEE: The person to whose favour the note is endorsed is called the Endorsee

Essentials Of The Promissory Notes

1. It must be in writing . 2. It must contain a promise or undertaking to pay a definite sum of money. 3. The promise to pay must be unconditional. 4. It must be sign by the maker. 5. The payee must be identified & must be certain. 6. The sum payable must be certain. 7. The amount payable must be in legal tender in money of India. 8. Other formalities like date, place ,& stamp must be mentioned.

FORMAT OF PROMISSORY NOTE Rs. 1,000 Delhi,February10,2009

Three months after date I promise to pay Shyam or order the sum of one thousand rupees, for value received. To, Shyam 222, Ashok Vihar Delhi-110052

Stamp Sd/-Ram

Bill Of Exchange
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.

Parties
DRAWER: The person who makes the bill of exchange is called drawer. DRAWEE: The person who is directed to pay is called drawee. PAYEE: The person to whom the payment is to be made is called payee. ACCEPTOR: When the drawee accepts the bill is called acceptor.

Essentials Features Of Bill Of Exchange:

1.It must be in writing. 2.It must contain an order to pay a definite sum of money. 3.The order to pay must be unconditional. 4.It must be signed by the drawer (who draw money). 5.The drawer, the drawee &the payee must be identified & must be certain. 6.The sum payable must be certain. 7.The bill must contain an order to pay the money in legal tender in India. 8.It must contain the formalities like date, place & stamp etc.

FORMAT OF BILL OF EXCHANGE

Rs. 500 Greater Noida,21 Feb.2009 Three months after the date pay to Ram or order the sum of Five Hundred rupees , for value received. To, Shyam 235,Subhash marg delhi-110006. In case of need with Canara Bank, Delhi Accepted Shyam
Stamp

Sd/-

Krishna

Classification of Bills of Exchange

Time and Demand Bills: When payment of a BOE is to be made after a particular period of time , the bill is termed as a Time Bill In such a case the date of maturity is always calculated by adding three days of grace. Such a bill requires the acceptance of the drawee. It is generally given by writing across the face of the instrument Accepted
R Mohan 1.1.2009

Contd In case of Demand Bill payment is ot be made om demand. Neither the acceptance of the drawee is necessary nor are any days of grace allowed in this case

Inland and foreign bills

Drawn on a person residing in India Drawn on a person residing outside India.

Trade and accommodation bill

Where bill of exchange has been drawn and accepted for a genuine trade transaction Where a BOE is drawn and accepted for provisding funds to a friend in need.

CHEQUE
Sec.6 : A cheque is a bill of exchange drawn on a specified banker & not expense to be payable on a specified banker & not expense to be payable otherwise than on demand & it includes the electronic image Of a truncated cheque & a cheque in the electronic form.

Parties
DRAWER: The person who makes a cheque is called Drawer. DRAWEE: The person who is directed to pay is called Drawee. PAYEE: The person to whom the payment is to be made.

Essential Features Of Cheque:

1.
2.

It is always drawn by a bank & not by any other institutions. It always payable on demand.

FORMAT OF CHEQUE NO.. Date..2009

PUNJAB NATIONAL BANK Subzi Mandi,Delhi -110007 Payor bearer the sum of Rs Rs A/c No Sd/-