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
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
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
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.