1. NEGOTIABLE INSTRUMENTS
ACT, 1881
Presented By
SHANKAR GANESH
(12NA1E0056)

2. MEANING OF NEGOTIABLE
INSTRUMENT
The word negotiable means ‘transferable by delivery’, and
word instrument means ‘a written document by which a right is
created in favour of some person. Thus, the term “negotiable
instrument” means “a written document transferable by delivery”.
According to Section 13 (1) of the Negotiable Instruments Act,
“A negotiable instrument means a promissory note, bill of
exchange, or cheque payable either to order or to bearer”. “A
negotiable instrument may be made payable to two or more
payees jointly, or it may be made payable in the alternative to
one of two, or one or some of several payees” [Section 13(2)].
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3. FEATURES OF NEGOTIABLE
INSTRUMENTS
 Writing and Signature
 Money
 Freely Transferable
 Title of Holder Free from all Defects
 Notice
 Presumption
 Special Procedure
 Popularity
 Evidence
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4. TYPES OF NEGOTIABLE
INSTRUMENTS
There are two types of Negotiable Instruments:
1. Instruments Negotiable by Statute:
The Negotiable Instruments Act mentions only three kinds of
negotiable instruments (Section 13). These are:
1. Promissory Notes
2. Bills of Exchange, and
3. Cheques
2. Instruments Negotiable by Custom or Usage:
There are certain other instruments which have acquired
the character of negotiability by the usage or custom of trade.
For example: Exchequer bills, Bank notes, Share warrants,
Circular notes, Bearer debentures, Dividend warrants, Share
certificates with blank transfer deeds, etc.
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5. PROMISSORY NOTES
Section 4 of the Act defines, “A promissory note is an
instrument in writing (note being a bank-note or a currency note)
containing an unconditional undertaking, signed by the maker, to
pay a certain sum of money to or to the order of a certain person,
or to the bearer of the instruments.”
The person who makes the promissory note and promises to
pay is called the maker. The person to whom the payment is to be
made is called the payee.
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6. CHARACTERISTICS OF A
PROMISSORY NOTE
 It is an Instrument in Writing
 It is a Promise to Pay
 Signed by the Maker
 Other Formalities
 Definite and Unconditional Promise
 Promise to Pay Money Only
 Maker must be a Certain Person
 Payee must be Certain
 Sum Payable must be Certain
 It may be Payable on Demand or After a Definite Period of Time
 It cannot be Made Payable to Bearer on Demand
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7. PARTIES TO A PROMISSORY NOTE
 Maker:
Maker is the person who promises to pay the amount stated in
the note.
 Payee:
Payee is the person to whom the amount of the note is payable.
 Holder:
He is either the payee or the person to whom the note may
have been endorsed.
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8. SPECIMEN OF PROMISSORY NOTE 8
Rs. 10,000
Lucknow
April 10, 2013
Three months after date, I promise to pay Shri Ramesh (Payee) or to his order the sum of Rupees
Ten Thousand, for value received.
To,
Shri Ramesh,
B-20, Green Park,
Mumbai.
(Maker)
Stamp
Sd/-
Ram

9. BILL OF EXCHANGE
According to Section 5 of the act, A bill of exchange is “an
instrument in writing containing an unconditional order signed by the
maker, directing a certain person to pay a certain sum of money only
to, or to the order of, a certain person or to the bearer of the
instrument”. It is also called a Draft.
Special Benefits of Bill of Exchange:
 A bill of exchange is a double secured instrument.
 In case of immediate requirement, a Bill may be discounted with
a bank.
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10. ESSENTIAL ELEMENTS OF BILL OF
EXCHANGE
 It must be in Writing.
 Order to pay
 Drawee
 Signature of the Drawer
 Unconditional Order
 Parties
 Certainty of Amount
 Payment in Kind is not Valid
 Stamping
 Cannot be made Payable to Bearer on Demand
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11. PARTIES TO A BILL OF EXCHANGE
 Drawer:
The maker of a bill of exchange is called the drawer.
 Drawee:
The person directed to pay the money by the drawer is called
the drawee.
 Payee:
The person named in the instrument, to whom or to whose order
the money are directed to be paid by the instruments are called
the payee.
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12. SPECIMEN OF BILL OF EXCHANGE 12
Rs. 10,000
Mumbai
April 10, 2013
Three months after date pay to Ram (Payee) order the sum of Ten Thousand Rupees, for value
received.
To,
Sushil
B-20, Green Park,
Lucknow - 226020.
Stamp
Sd/- Ram
In case of need with
Canara Bank, Delhi.
(Drawer)
(Drawer)
Accepted
Sushil

13. CHEQUE
According to Section 6 of the act, A cheque is “a bill of
exchange drawn on a specified banker and not expressed to be
payable otherwise than on demand”. A cheque is also, therefore, a
bill of exchange with two additional qualification:
 It is always drawn on a specified banker.
 It is always payable on demand.
Special Benefits of Bill of Exchange:
 A bill of exchange is a double secured instrument.
 In case of immediate requirement, a Bill may be discounted with
a bank.
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14. ESSENTIAL ELEMENTS OF A CHEQUE
 In writing
 Express Order to Pay
 Definite and Unconditional Order
 Signed by the Drawer
 Order to Pay Certain Sum
 Order to Pay Money Only
 Certain Three Parties
 Drawn upon a Specified Banker
 Payable on Demand
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15. PARTIES TO A CHEQUE
 Drawer:
Drawer is the person who draws the cheque.
 Drawee:
Drawee is the drawer’s banker on whom the cheque has been
drawn.
 Payee:
Payee is the person who is entitled to receive the payment of a
cheque.
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16. SPECIMEN OF CHEQUE 16
Pay ……………………………………………………………………………………………………………......
……………………………………………………………………………………………………. Or Bearer
Rupees ……………………………………………………………………………………………………………
……………………………………………………………………………………………Rs.
Kapoorthala Bagh,
Mumbai – 400033
IFSCode:MAHB0000316
A/c No.
“ΙΙ473792ΙΙ” 000240000 000000 10
SHANKAR GAJARE
Signature
Please sign above
D D M M Y Y Y Y

17. CONCLUSION:
I conclude that Negotiation thus requires two
conditions to be fulfilled, namely:
 There must be a transfer of the instrument to
another person; and
 The transfer must be made in such a manner as to
constitute the transferee the holder of the
instrument.
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