Negotiable Instruments Act, 1881

Negotiable Instruments Act 1881 had been passed in 1882 and was modified in 1989 and 2002, as some more sections were added into the age old law. This act is applicable in entire India, including Jammu & Kashmir. J & K was brought in the ambit of the act in 1956. The act has provisions of Negotiable Instruments such as Promissory Notes, Checks, Drafts, Bills of exchanges etc.

What is a Negotiable Instrument?

Negotiability means transfer of an instrument from a person / entity to another person / entity. The transfer should be without restriction and in good faith.

                                                              

Section	TERM	MEANING
3	Banker	Banker includes any person acting as a Banker and any post office savings bank.
4	Promissory Note	A Promissory Note is an instrument in writing, containing an unconditional undertaking signed by 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.
5	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 certain sum of money only to or to the order of a certain person or to the bearer of the instrument. Here, the promise to pay is not conditional.
6	Cheque	A cheque is a Bill of Exchange drawn on a specified banker and not expressed to be payable otherwise then on demand and it includes the electronic Image of a truncated cheque & a cheque in the electronic form.
7	Drawee Payee	The maker of a Bill of Exchange or Cheque is called the drawer, the person thereby directed to pay is called the Drawee.
		The person named in the instrument, to whom or to whose order the money is, by the instrument directed to be paid, is called the payee.
8	Holder	The 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 bill of exchange or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.
9	Holder In Due course	Holder in due course means any person who for consideration became the possessor of the promissory note, bill of exchange or cheque ,if payable to bearer, or the payee or endorsee thereof, if, before the amount mentioned in it became payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
10	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.
11	Inland Instrument	A Promissory Note, Bill of Exchange or Cheque drawn or made in, and made payable in or drawn upon any person resident in (India) shall be deemed to be an Inland Instrument.
13	Negotiable Instrument	A NI means Promissory Note, Bill of Exchange or Cheque payable either to order or to the bearer.
14	Negotiation	When a Promissory note, bill of exchange or cheque is transferred to any person, so as to constitute the person the holder thereof, the instrument is said to be negotiated.
15	Endorsement	When the maker or the holder of the negotiable instrument signs the same, otherwise than as such maker, for the purpose of the negotiation, on the back or the face thereof or on a slip of paper annexed thereto or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to endorse the same is called the Endorser.
16	Endorsement in Blank and Full	If the endorser signs his/her name only, the endorsement is said to be “in blank”, and if he adds direction to pay, the amount mentioned in the instrument, or to the order of a specified person the endorsement is said to be in full and the person so specified is called the endorsee of the instrument.
20	Inchoate stamped instrument	Where one person signs and delivers to another person a paper stamped in accordance with the law relating to negotiable instrument then in force in India and either ,wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be , upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount.
21	“At Sight” / “On presentment”/ “After Sight”	In a promissory note or bill of exchange the expressions “at sight” and “on presentment” means “on demand”. The expression “after sight” means, in a promissory note, after presentment for sight and in a bill of exchange after acceptance or noting for non acceptance, or protest for non acceptance .
22	Maturity	The maturity of a promissory note or bill of exchange is the due date at which it falls due. Every promissory note or bill of exchange which is not expressed to be payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is expressed to be payable.
25	When maturity is a holiday	When the day on which a promissory note or bill of exchange is at maturity, is a public holiday, the instrument shall be deemed to be due on the next preceding business day.
26	Minor	A minor may draw, endorse, deliver and negotiate such instruments so as to bind all parties except himself.
30	Liability of Drawer	The drawer of a bill of exchange or cheque is bound in case of dishonor by the drawee or acceptor thereof, to compensate the holder, provided due notice of dishonor has been given to or received by the drawer as hereinafter provided.
46	Delivery	The making, acceptance or endorsement of a promissory note, bill of exchange or cheque is complete by delivery, actual or constructive.
47	Negotiation by delivery	A promissory note, bill of exchange, or cheque, payable to bearer is negotiable by delivery thereof.
48	Negotiation by Endorsement	A promissory note, bill of exchange, or cheque, payable to order is negotiable by the holder by endorsement and delivery thereof.
49	Conversion of Endorsement in Blank in to full	The  holder of a negotiable instrument, endorsed in blank may without signing his own name by writing above the endorser’s signature a direction to any other person as endorsee, convert the endorsement in blank into an endorsement in full.
77	Liability of banker for negligently dealing with bill presented for payment.	When a bill of exchange, accepted payable at a specified bank, has been duly presented there for payment and dishonored, if the banker so negligently or improperly keeps, deals with or delivers back such bill as to cause loss to the holder, he must compensate the holder for such loss.
85	Cheque payable to order	Where a cheque is payable to order purports to be endorsed by or on behalf of the payee, the Drawee is discharged by payment in due course.
87	Effect of Material Alteration	Any material alteration of a negotiable instrument renders the same void as against any one whom is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out  the common intention of the original parties.
115	Drawee in case of need	Where a Drawee in case of need is named in a bill of exchange or in any endorsement thereon, the bill is not dishonored until is has been dishonored by such Drawee.
123	Cheque crossed generally	Where a cheque bears across its face an addition to the words “and company” or any  abbreviation thereof, between two parallel transverse line, or of two parallel transverse  lines simply, either with or without the words  “not negotiable”, that addition shall be deemed a crossing , and the cheques shall be deemed to be crossed generally.
124	Cheque crossed specially	Where a cheque bears across its face an addition of the name of a banker either with or without the words “not negotiable”, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially and to be crossed to that banker.
128	Payment in due course of crossed cheque	Where the banker on whom a crossed cheque is drawn has paid the same in due course, the banker paying the cheque, and (in case such cheque has come to the hands of the payee) the drawer thereof, shall respectively be entitled to the same rights, and be placed in the same position in all respects, as they would respectively be entitled to and placed in if the amount of the cheque had been paid to and received by the true owner thereof.
129	Payment of crossed cheque out of due course	Any banker paying a cheque crossed generally otherwise than to a banker, or a cheque crossed specially otherwise than to the banker to whom the same is crossed, or his agent for collection, being a banker, shall be liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid.
130	Not Negotiable	A person taking a cheque crossed generally or specially, bearing in either case the words “not negotiable”, shall not have and shall not be capable of giving, a better title to the cheque than that which the person from whom he took it had.
131	Non liability of banker receiving payment of cheque	A banker who has in good faith and without negligence, received payment for a customer of a cheque crossed generally or specially to him-self shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment.
138	Dishonor of Cheque for insufficiency etc. of funds in the account.	Where any cheque drawn by a person on account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended up to two years, or with fine which may extend up to twice the amount of the cheque, or with both.