NEGOTIABLE INSTRUMENT ACT- 1881
The Negotiable Instrument Act 1881 is an act in India dating from the British colonial rule that is still in force largely unchanged. The act was enacted on 9th December 1881 and commenced from 1st March 1882. A Negotiable Instrument means a promissory note or bill of exchange or cheque payable either to order or to bearer. A negotiable instrument may be made payable to tow or more payees jointly or it may be made payable in the alternative to one of two or one or several of several payees. A negotiable instrument is a signed document that promises a sum of payment to a specified person or the assignee. These are transferable in nature, allowing the holder to take the funds as cash or use them in manner appropriate for the transaction or according to their preferences.
The most common types of Negotiable Instruments are as follows:-
- Promissory notes.
- Bill of exchange.
- Delivery notes.
- Customs receipts.
Section 4 of the act defines promissory note as an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money to order of a certain person or to the bearer of the instruments. This note is a legal instrument and has a legal binding along with it and at no cost this can be changed nor can the legality be taken away. This is a signed document of written promise to pay a stated sum to a specified person or the bearer at a specified date or on demand.
Section 5 of the act defines a bill of exchange as an instrument in writing containing an unconditional order signed by the maker directing a certain person to pay a certain sum of money to the bearer of the instrument. This bill is drawn by a person directing another person to pay the specified sum of money to another person. These contain an order from the creditor to the debtor to pay a certain person after a certain period.
A cheque is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specified transactional account held in the drawer’s name with that institution. Both the drawer and payee may be natural persons or natural entities. A cheque is a document which ensures the payment of a particular amount of money on demand to a certain individual or to the bearer of the instrument. There are various types of cheque books which depend on the type of account one has. It is an instrument in writing containing an unconditional order signed by the maker.
Delivery is defined in the negotiable instruments law as a transfer of possession according to section 46 of the act actual or constructive from one person to another. Subject to provisions of section 58 of the act a promissory note, bill of exchange or cheque payable to bearer is negotiable by delivery itself.
Negotiable instruments by customs or mainly the government notes and railway receipts that has been held to be negotiable by usage or custom of the trade.
The features or rather the characteristics of the negotiable instrument are as follows:-
- Easily transferable.
- Must be in writing.
- Time of payment must be certain.
- Payee must also be certain.
Negotiable instruments serve two different functions in commercial transactions that is a credit function and payment function. The credit function allows negotiable instruments to be used to obtain credit now, to be repaid out of future income. Common examples include promissory notes, certificates of deposit, and debentures. Common examples are cheques and bills of exchanges. The payment function allows negotiable instruments to be used in lieu of cash payments which may be inconvenient or risky to transfer directly. A cheque is a more specific term of bill of exchange, usually on a printed form, drawn on a bank and payable on demand.
A negotiable instrument is a document that guarantees the payment of a specific amount of money to a specified person and requires payment either on demand or at a set date. Negotiable instruments are distinct from non-negotiable instruments in that they can be transferred to different people and in that case the new holder obtains full legal title to it. The instruments contain key information such as principal amount, interest rate, date and most importantly the signature of the payor.
Negotiable instruments enable its holders to either take the funds in cash or transfer to another person. The exact amount that the payor is promising to pay is indicated on the negotiable instrument and must be paid on demand or at a specific date. Like contracts, negotiable instruments are signed by the issuer of the document.
The negotiable instruments bill, 2017 has been introduced in the Lok Sabha earlier on January 2nd 2018. The bill seeks for amending the existing act. The bill defines the promissory note, bill of exchange, and cheques. The bill also specifies the penalties for dishonour of cheques and various other violations related to negotiable instruments.
The advantage of negotiable instruments is that of bills of exchange that the consideration between the debtor and the creditor is presumed. So one will assume that the purchaser is in debt of the seller, the seller need not prove this fact. Since the bill has been accepted by the debtor the court will assume that such debt legitimately exists. The creditor does not have to wait for the maturity period to get the money.
Negotiable instruments are transferable in nature, allowing the holder to take the funds as cash or use them in a manner appropriate for the transaction or according to their preference. The main purpose of negotiable instruments is to avoid the carriage of higher amount of money and to reducing the risk of theft, robbery etc. To give legal effect to negotiable instruments there is legislation and the name of that legislation is the negotiable instruments act 1881.
The above discussion makes clear that negotiable instruments are the documents which are related to the business transactions. Negotiable instruments play a major role in trade world. One can use negotiable instruments for international trades. These instruments can be both negotiable and non-negotiable in nature.
Few of the cases relating to negotiable instruments act are as follows:-
- Heerachand VS Jeevraj and anr.
- K.Ramalakshmi VS Swarnalatha.
- Subal Mandal VS R.R.Tripathi.
- Md.Rijwan VS Md.Sajid Beg.
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