Oct 25, 2017
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Important definition under negotiable instruments act,1881

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Negotiable Instruments Act

Negotiable instruments define as under:

  1. The word negotiable means ‘transferable by delivery’
  2. Thus word instrument means ‘a written document by which a right so created in favor of some person’.
  3. The transfer should be unrestricted and in good faith.
  • Therefore, a negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, with the payer named on the document. Its an indebtedness to pay an amount and the negotiable instrument is an unconditional guarantee for the same.
  • Some Examples of Negotiable instruments are Promissory notes, Cheques bounce case , Bills of Exchange, bearer bonds, bank notes etc.
  • Thus Indian law on Negotiable instruments govern by the Negotiable Instruments Act of 1881.
  • Since,  Negotiable Instrument Act 1881 was passed in 1882 and was amended in 1989,2002 and 2015.
  • Before 1988 there was no provision to restrain the person issuing the cheque without having sufficient funds in his account. The only remedy against a Dishonored cheque a civil liability accrue.
  • With 2002 amendment, Act inserts five new sections from 143 to 147 touching various limbs of the parent Act.

Important definition under Negotiable instruments act,1881:

Negotiable instruments:

(1)A ” negotiable instrument ” means a promissory note, bill of exchange or cheque payable either to order or to bearer.

(2) Though negotiable instrument may make payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or -some of several payees.

Promissory note:

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.

Bill of exchange:

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.


A “cheque” said as bill of exchange drawn on a specified banker and not expressed to payable otherwise than on demand.

Drawer, Drawee:

Thus maker of a bill of exchange or cheque called the drawer “; the person thereby directed to pay called the ” drawee” . Drawee in case of need. When in the bill or in any endorsement thereon the name of any person give in addition to the drawee to resort to in case of need, such person called a ” drawee in case of need “.


Thus ” holder” of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder the person so entitled at the time of such loss or destruction.

Payment in due course:

“Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.

Inland instrument:

A promissory note, bill of exchange or cheque drawn or made in 1 [India], and made payable in, or drawn upon any person resident in, 1 [India] shall deem to be an inland instrument.

Foreign instrument:

Thus, any such instrument not so drawn, made or made payable shall deem to be a foreign instrument.


Thus maturity of a promissory note or bill of exchange is the date at which it falls due.Days of grace. Every promissory note or bill of exchange which not expressed to payable on demand, at sight or on presentment at maturity on the third day after the day on which it express to payable.

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Article Categories:
Negotiable Instrument Act

Renuka is a Final Year LL.B. student at Siddharth College of Law. She has done her Bachelors in Banking & Insurance and has also completed her Masters in Business Management . She likes to participate in legal workshops and Moot Courts. Besides her interest in law, she has a keen aptitude for legal research and is good at putting her analysis into words.

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