This document provides an outline of key topics in the Negotiable Instruments Act of 1881 in India. It defines negotiable instruments as promissory notes, bills of exchange, or cheques payable to order or bearer. It classifies different types of negotiable instruments and outlines the essential elements and parties involved, including makers, drawers, drawees, payees, and endorsers. The document also discusses negotiation and transfer of instruments, presentation and dishonor, discharge, and rules of evidence and international law as they relate to negotiable instruments.

1. NEGOTIABLE
INSTRUMENT ACT, 1881
Kunal Upadhyay

2. OUTLINE OF CHAPTEROUTLINE OF CHAPTER
 Definition and types
 Notes, Bills and Cheques- Classification
 Parties to a Negotiable Instrument- Capacity, Holder
and Liability
 Negotiation – Transfer and Forged instrument
 Presentation of Negotiable Instrument – Modes and
When
 Dishonour of a Negotiable Instrument
 Discharge of a Negotiable Instrument
 Rules of Evidence, Estoppels and International Law

3. DEFINITION OF NEGOTIABLEDEFINITION OF NEGOTIABLE
INSTRUMENTINSTRUMENT
 As per sec 13, A negotiable instrument means
promissory note, bill of exchange or cheque
payable either to order or to bearer
 A negotiable instrument is a method of
transferring a debt from one person to another

4. TYPES OF NEGOTIABLETYPES OF NEGOTIABLE
INSTRUMENTSINSTRUMENTS
 Instruments negotiable by statuteInstruments negotiable by statute
 Promissory notes
 Bill of exchange
 cheques
 Instruments negotiable by custom or usageInstruments negotiable by custom or usage
 Government promissory notes
 Banker’s drafts and pay orders
 Hundis
 Delivery orders
 Railway receipts of goods

5. PROMISSORY NOTESPROMISSORY NOTES
 An instrument in writing (not being a bank note or
a currency note) containing an unconditional
undertaking, signed by maker, to pay sum of money
only to, or order of , a certain person, or to bearer of
the instruments (Sec.4)
 The person who makes the promissory note to pay is
called THE MAKER
 The person to whom the payment is to be made is called
THE PAYEE

6. Rs. 1,000 Bhuj, Jan 02,2013
Three months after date I promise to pay John
Sunder or order the sum of one thousand rupee, for
value received.
To,
John Sunder
99, Ashok Vihar,
Bhuj-370001
Stamp

7. ESSENTIAL ELEMENTSESSENTIAL ELEMENTS
 Writing
 Promise to pay
 Specific and unconditional
 Signed by the maker
 Certain parties
 Certain sum of money
 Promise to pay money only
 Bank note or currency note is not a promissory note
 Formalities like number, date, place
 Payable after demand period of time
 Cannot payable to bearer on demand

8. BILL OF EXCHANGEBILL OF EXCHANGE
 An instrument in writing containing an
unconditional order, signed by the maker, directing a
certain person to pay a certain sum or money only to,
or to the order of , a certain person or to the bearer
of the instrument.
 The person who gives the order to pay or who makes the
bill is called THE DRAWER
 The person who is directed to pay is called THE
DRAWEE
 When the drawee accepts the bill, he called THE
ACCEPTOR
 The person to whom the payment is to be made is called
THE PAYEE

9. Rs. 1,000 Bhuj, Jan 02,2013
Three months after date I promise to pay John Sunder or
order the sum of one thousand rupee, for value received.
To,
John Sunder
99, Ashok Vihar,
Bhuj-370001
in case of need with accepted
Canara Bank, Bhuj
Stamp

10. ESSENTIAL ELEMENTSESSENTIAL ELEMENTS
 It must be n writing
 It must contain an order to pay
 The order must be unconditional
 It requires three parties, The drawer, The drawee and
The Payee
 The parties must be in certain
 It must be signed by the drawer
 The sum payable must be certain
 It must contain an order t pay money
 Formalities like number, date, place

11. CHEQUECHEQUE
 A cheque is a bill of exchange drawn upon a specified
banker and payable on demand and it includes the
electronic image
 A cheque which is truncated during the course of a
clearing cycle either by the clearing house or by the
bank
 A cheque is species of a bill of exchange
 Its always drawn on a specified banker
 Its always payable on demand

12. TYPES OF CHEQUE

13. CLASSIFICATIONCLASSIFICATION
 Inland Instrument
 A promissory note, bill of exchange or cheque drawn or
made in [India] and made payable in, or drawn upon any
person resident in, [Indian] shall be deemed to be an
inland instrument.
 Foreign Instrument
 Any such instrument not so drawn, made or made payable
shall be deemed to be a foreign instrument
 Instrument payable on demand
 A cheque is always payable on demand

14. CONT...
 Time instruments
 After fix period
 After sight
 On specific day
 On the happening event
 Accommodation bill
 A genuine trade bill
 A bill drawn and accepted for a genuine trade
transaction is termed as “trade bill”
 An accommodation bill
 A bill drawn and accepted not for a genuine trade
transaction but only to provide financial help to some
party is termed as an “accommodation bill”

15. CONT...
 Documentary bill
 When documents of title to the goods and other
documents
 Escrow
 A negotiable instrument is delivered conditionally or
for a special purpose as a collateral security of for
safe custody
 Ambiguous Instrument
 An instrument paid to its faulty drafting may be
interpreted either as promissory note or bill of
exchange

16.  Fictitious bill
 When the name of the drawer or the payee or both is
fictitious in a bill
 Inchoate Instrument
 Its an incomplete instrument in some respect. When a
person signs and delivers to another a blank or
incomplete stamp paper
 Undated Bill and notes
 Its not invalid by reason that it is undated, if the
instrument fulfils the legal requirement

17. PARTIES TO A NEGOTIABLEPARTIES TO A NEGOTIABLE
INSTRUMENT- CAPACITY, HOLDERINSTRUMENT- CAPACITY, HOLDER
AND LIABILITYAND LIABILITY
Capacity of parties
Minors
Persons of unsound mind
Corporation
Agents
Partners
Hindu Joint Family
Legal representatives

18. PARTIES TO NEGOTIABLE
INSTRUMENTS
 Maker
 Person who makes a promissory note called the
maker
 Drawer
 The person who makes a bill of exchange or cheque
is called drawer
 Drawee
 The person on whom the bill of exchange is drawn
and who directed pay is called drawee
 Acceptor
 When drawee accept bill called acceptor
 Payee
 The person named in the bill, cheque and promissory
note called payee

19. CONT..
 Indorsers
 The person who indorses the bill, note or cheque is
called indorser
 Indorsee
 The person to whom the bill, note or cheque is
indorsed called indorsee

20. HOLDER IN DUE COURSEHOLDER IN DUE COURSE
 He must be entitled to the possession of the
instrument in his own name.
 He must be entitled to receive or recover the
amount due thereon from the parties liable
thereto.
 He obtained the instrument for valuable
consideration i.e. lawful consideration
 He became holder of the instrument before its
maturity, i.e. before the amount mentioned in it
became payable

21. PRIVILEGES OF A HOLDER INPRIVILEGES OF A HOLDER IN
DUE COURSEDUE COURSE
 Inchoate stamped instruments
 Liability of prior parties
 Fictitious payee
 Negotiable officials without consideration
 Conditional delivery
 Every holder is a holder in due course
 Estoppel against denying original validity of
instruments

22. CONT...
Liability of Parties
Liability of drawer
Liability of drawee of cheque (Bankers)
Liability of Maker of note and acceptor
of bill
Liability of indorser
Liability of prior parties

23. PRESENTATION OF NEGOTIABLEPRESENTATION OF NEGOTIABLE
INSTRUMENT – MODES & WHENINSTRUMENT – MODES & WHEN
 ModesModes
 General acceptance
 Qualified acceptance
 Conditional
 Partial
 Qualified as to place
 Qualified as to time
 Acceptance by some of the drawee, but not all
 WhenWhen
 It must be presented within that time and before its
maturity
 If party for acceptance is not obligatory, it may be
presented before its maturity

24. DISHONOUR OF A NEGOTIABLEDISHONOUR OF A NEGOTIABLE
INSTRUMENTINSTRUMENT
 Dishonour by non-acceptance (Sec.91)
 If the drawee does not accept the bill within forty-eight
hours from the time of payment
 If there are several drawees (who are not partners) and
all of them do not accept
 When presentment for acceptance is excused,
 When the drawee is incompetent to contract
 When the drawee gives a qualified acceptance
 When the drawee is fictitious person
 Dishonour by non-payment (Sec.92)
 When acceptor of the bill or drawee of the cheque make
default in payment upon being duly required to pay the
same

25. NOTICE OF DISHONOURNOTICE OF DISHONOUR
 Notice by whomNotice by whom
Notice by holder or any prior party (Sec.93)
Chain method of giving notice of dishonour
(Sec.95)
Notice by the principal or agent (Sec.96)
 Notice to whomNotice to whom
Notice to all parties whom the holder seeks to
make liable
Notice to party or his agent or to legal
representatives (Sec.94)

26. DISCHARGE OF A NEGOTIABLEDISCHARGE OF A NEGOTIABLE
INSTRUMENTINSTRUMENT
 By payment in due course
 By party primarily liable becoming holder
 By express waiver
 By cancellation
 By discharge as a simple contract

27. DISCHARGE OF A PARTYDISCHARGE OF A PARTY OROR
PARTIESPARTIES
 By payment
 By cancellation
 By release
 By allowing drawee more than forty-eight hours
 By non-presentment of cheque
 Cheque payable to order
 Draft drawn by one branch on another
 Parties not consenting discharged by qualified acceptance
 By operation of law
 By material alteration
 Discharge by payment of altered instrument

28. RULES OF EVIDENCE, ESTOPPELSRULES OF EVIDENCE, ESTOPPELS
AND INTERNATIONAL LAWAND INTERNATIONAL LAW
 EstoppelEstoppel
 Estoppel against denying original validity of instrument
(sec.120)
 Estoppel against denying capacity of payee to indorse
(Sec.121)
 Estoppel not permitted to deny the capacity of prior
parties (Sec.122)
 International LawInternational Law
 Liability (Sec.134)
 Dishonour (Sec.135)
 Instruments made out of Indian according to provisions of
Indian law (Sec.136)
 Presumptions as to foreign law (Sec.137)