Thursday, 30 June 2022

Negotiable Instrument Act


The Negotiable Instrument Act was promulgated in the year 1881 which was

introduced to ease the growth of banking and commercial transactions. The basic

purpose was to legalize the system of negotiable instruments. The Act was

enforced during British rule and to date, most of the provisions still remain


Types :

Most of the negotiable instruments transactions can be categorized into three parts.

However, there are no explicit statements that it is limited or it must be specified

into only three parts. The railway receipts or the delivery orders are also common

examples of negotiable instruments.

 Promissory notes-This transaction generally takes place between the

debtor and the creditor. The debtor creates the instrument promising the

amount of money on a specified date. 

 Bills of Exchange- This is just the opposite of the promissory notes as this

is an order from the creditor to the debtor. Here, the creditor makes the

instrument that instructs the debtor to pay the payee a certain amount of

money. The bill is created by the creditor.

 Cheque- This is just one of the forms of bill of exchange. In this case, the

drawee is a bank and such cheques are payable on demand. The bank is

instructed by the debtor to pay a certain amount of money to the assigned


Salient features 

In order to regulate the negotiable instruments under the Act, it should fulfill some

of the essential features that would be mandatorily fulfilled to consider the

Negotiable instrument.

 Writing- Every negotiable instruments transaction would be in writing as

the parties would have relevant documents of negotiable instruments.

This may vary as per the rules depending upon the type of negotiable

instruments such as promissory notes, bills of exchanges, cheques, etc.

There is no scope of any verbal dealings among the parties as per the law

and it would not be considered in case of any disputes. A written

document serves as a prima facie document or evidence in a court of law

explaining the factual matters in case of any disputes between the parties.

 Signature- The instrument has no value unless it gets validated by the

parties. The sign acts as an authentication of the valid consent for the

settlement transactions between the parties. Thus, instruments must be

duly signed by the parties. 

 Monetary value- The negotiable instruments should be exclusively dealt

with in terms of money that are recognized by the government as well as

the laws of the country. The transactions in legal tender money would be

the sole intention to have this under the negotiable instruments. The

products or any other transactions would be invalid and so it must be

strictly in terms of monetary terms. 

 Demand- Nowadays, “this system is very popular in business as well as

other commercial transactions”. This is a safe and convenient mode of

payment and settlement between the parties. There is no need for any

cash as the amount would get directly transferred to the payee as per the

rules of the banking transactions. 

 Reliable System- The convenient mode of transactions and the efficient

mode of the system both are simultaneously required for the development

and growth. The safe system and the credibility of the banks would

ensure that the money gets transferred easily and to the right people.

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