Negotiable Instruments Act: What are Negotiable Instruments?

Goods and services are exchanged for cash as well as credit. However, it is quite inconvenient and risky to make cash payments where huge amount of money is involved. Businessmen often use specific types of documents to overcome this limitation. These are known as negotiable instruments. A negotiable instrument is a type of contract for payment of money that is not bound by any condition and which is capable of being transferred by negotiation. The Negotiable Instruments Act, 1881, regulates law relating to negotiable instruments in India.

The Negotiable Instrument Acts, 1881

Under Section 13 of the Negotiable Instruments Act, 1881, ‘Negotiable Instrument’ is defined as, “A promissory note, bill of exchange or cheque payable either to order or to bearer.”  Here are a few definitions under this Act (applicable across India):

• Bill of Exchange: Is an instrument in writing with an unconditional order, signed by the maker, directing a specific person to pay a fixed sum of money only to a certain person or to the bearer of the instrument.
• Promissory Note: Is an instrument in writing containing an unconditional undertaking signed by the maker, to pay a fixed amount of money only to a certain person or to the bearer of the instrument.
• Cheque: A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
• Drawer and Drawee: The maker of a bill of exchange is called the drawer and the person thereby directed to pay is called drawee.

Negotiable Instruments Act: Features of a Negotiable Instrument

Some key features of a negotiable instrument are:

• The instrument should be conveniently transferable by delivery or endorsement and delivery.
• Any person who is the holder of a negotiable instrument can file a lawsuit against the opposite party, without issuing any notice to him, for recovery of his money.
• It includes only a fixed amount of money.
• It should bear the signature of the maker and it should always be in writing.