What are Negotiable Instruments? & Relevant law under Negotiable Instrument Act, 1961.

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Negotiable Instrument is a document which contains undertaking by the person named on in to pay a fixed amount of money to the holder of the instrument.

The payer named in the negotiable instrument is obliged to pay unconditionally to the bearer either on demand or within a stipulated time.

Cheque, Promissory Note, Hundis and bill of exchange are the best examples of  Negotiable Instruments. These instruments can be issued in writing only. The instrument is payable to the bearer or on order only. These instruments are frequently issued for trade purposes or to discharge monetary liabilities.

Features of Negotiable Instruments:

  1. Negotiable Instruments like Cheque, promissory notes, etc. are freely transferable & and easy to negotiate.
  2. I are popular because they are substitute of money in cash as it provides alternative to keep larger amount of money safe through written instrument rather to keep it in hands.
  3. The person who takes it for value and in good faith is not affected by the defect in the title of the transferor.
  4. It is easy to carry these instruments.
  5. It is reliable to make payment through Negotiable instrument.

Following are some popular negotiable instruments and laws pertaining to these instruments under N.I. Act, 1961.


A cheque is a bill of exchange which orders the banks to pay a specific sum of money from the bank account of the issuer to the person in whose name it has been issued. It can also be in electronic form. The person issuing the cheque is known as drawer and in whose favour it is issued is termed as payee in the said Act. Frequent use of cheques also lead to cases of Cheque bouncing in India.

Section 138 to 147 of N.I. ACT, 1961 provides for remedies & punishment in case of dishonor of cheque. The Act makes it a criminal offence and is punishable with 2 year imprisonment along with fine.

Highlights of the Negotiable Instruments (Amendment) BILL, 2017:

Sec.143A & 148 have been inserted by the 2017 Amendment Bill in the Negotiable Instrument Act, 1881 which provides as follows:

  1. The court may order to the drawer to pay interim compensation up to 20% of the cheque amount to the complainant, where he pleads not guilty and wants to defend the case.
  2. The interim compensation shall be paid within 60 days from the date of the order, which may be further extend for 30 days by the court if sufficient cause Is shown by the accused/drawer.
  • If the drawer is acquitted then the complainant is required to repay the compensation back along with interest to the drawer.
  1. The appellant/drawer needs to deposit 20% of the compensation awarded by the trial court before filing appeal.

Section 4 of the Act defines “A promissory note is an instrument in writing containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments.” For example “A Promise to pay B or Order Rs.500” or “I acknowledge myself to be indebted to B in Rs.1000 to be paid on demand, for the value received.”

  •  BILL OF EXCHANGA (as per Sec. 5 of N.I. Act)

 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 instrument.

A bill of exchange is an order of a creditor upon his debtor requiring him to pay the money to the person specified.

Essential Elements of a Bill of Exchange:

  1. It must be in writing.
  2. There are three parties in BOE i.e. Drawer, Drawee and payee
  3. It must be signed by the drawer
  4. The drawer, drawee and payee must be certain.
  5. Unconditional Order.

Legal recourse to recover amount for non making payment under promissory

Note & Bill of Exchange:-

One can file a summary suit under Order 37 of CPC to recover debt or money

Ordered/promise to pay under promissory notes & Bill of Exchange.

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