NEGOTIABLE INSTRUMENTS ACT, 1881

01.What is the short title of the act ?

A: This Act may be called the Negotiable Instruments Act, 1881.

02.What is Negotiable Instruments ?

A: The “negotiable instrument” means a promissory note, bill of exchange or cheque
payable either to order or to bearer.

03.What is Negotiable ?
A: The term ‘Negotiable’ means transferable by delivery.

04.What is Instrument ?
A:The term ‘Instrument’ means a written document by which a right is created in favour
of some persons.

05.What is Cheque ?
A: A “cheque” is a bill of exchange drawn on a specified banker and not expressed to
be payable otherwise than on demand .( and it includes the electronic image of a
truncated cheque and a cheque in the electronic form.)

06.How many parties of a cheque ?

A:a)Drawer: The maker of a bill of exchange or cheque is called the “drawer”.
b)Drawee: The person thereby directed to pay by the drawer is called the “drawee”.
c)Payee : 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”.
d)Holder:The Holder of a Negotiable Instruments means the payee or indorsee who is
in possession of it or the bearer.
e)Holder in due course:
(1)  The holder of a cheque is a holder in due course if:
                     (a)  the cheque was transferred by negotiation to the holder and, at the time
when the holder took the cheque, the cheque:
                              (i)  was complete and regular on the face of it;
                             (ii)  Was not a stale cheque; and
                            (iii)  did not bear a crossing not negotiable and
                     (b)  the holder took the cheque:
                              (i)  in good faith;
                             (ii)  for value; and
                            (iii)  without notice:
                                        (A)  of any dishonor of the cheque; or

                                        (B)  of any defect in the title of the person who transferred the cheque to the
holder or that the person who transferred the cheque to the holder had no title to the cheque.

f)Payment in due course: A cheque is paid in due course if the cheque is paid to the holder in good faith and without notice of any
defect in the holder's title or that the holder had no title to the cheque.
g)Endorser : When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of
negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intend-
ed to be completed as a negotiable instrument, he is said to indorse the same, and is called the “indorser”.

h)Indorsee : The indoeser to whom direction to pay the amount mentioned in the instrument to, or to the order of, a specified person,
is called the “indorsee”.

07.What do you mean by bearer ?

A:A person by negotiation comes into possession of a negotiable instrument.

8. What do you mean by Delivery ?

A:Transfer of prossion ,actual or constructive,from one person to another.

9. What do you mean by ‘Payable to Bearer’ ?

A: A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable
or on which the only or last indorsement is an indorsement in blank.

10. What do you mean by ‘Payable to Bearer’ ?

A: A cheque is payable to order if the cheque is expressed, whether originally or by indorsement, to require
the drawee institution to pay the sum ordered to be paid by the cheque to or to the order of:

                     (a)  a person specified in the cheque as payee or indorsee; or

(b) 2 or more persons specified in the cheque, jointly or in the alternative, as payee or
indorsee

CROSSING

11.What in crossing ?

A: Crossing and crossed cheque defined

             (1)  Where a cheque clearly bears across the front of the cheque the addition of:

                     (a)  2 parallel transverse lines; or

                     (b)  2 parallel transverse lines with the words not negotiable between, or substantially
between, the lines;

the addition is a crossing of the cheque, and the cheque is a crossed cheque.

             (2)  Nothing written or placed on a cheque, other than an addition of a kind referred to in
subsection (1), is effective as a crossing of the cheque.

             (3)  Without limiting the generality of subsection (2), the addition of the words not negotiable to a
cheque otherwise than between, or substantially between, 2 parallel transverse lines across the front of the
cheque is not effective as a crossing of the cheque.

Cheque crossed generally.

123. Where a cheque bears across its face an addition of the words “and company” or any abbreviation
thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or
without the words “not negotiable”, that addition shall be deemed a crossing, and the cheque shall be
deemed to be crossed generally.
Cheque crossed specially.
124. 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.
Crossing after issue.
125. Where a cheque is uncrossed, the holder may cross it generally or specially.
Where a cheque is crossed generally, the holder may cross it specially.
Where a cheque is crossed generally or specially, the holder may add the words “not negotiable”.
Where a cheque is crossed specially, the banker to whom it is crossed may again cross it specially to
another banker, his agent, for collection.
Payment of cheque crossed generally.
126. Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to
a banker.
Payment of cheque crossed specially.
Where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the
banker to whom it is crossed, or his agent for collection.
Payment of cheque crossed specially more than once.
127. Where a cheque is crossed specially to more than one banker, except when crossed to an agent for the
purpose of collection, the banker on whom it is drawn shall refuse payment thereof.
Payment in due course of crossed cheque.
128. 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.
Payment of crossed cheque out of due course.
129. 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.
Cheque bearing “not negotiable”.
130. 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.
Non-liability of banker receiving payment of cheque.
131. A banker who has in good faith and without negligence received payment for a customer of a cheque
crossed generally or specially to himself, 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.

12.What is the effect of taking cheque crossed not negotiable ?

  A:Where a cheque that bears a crossing of the kind referred to in paragraph 53(1)(b) is transferred by
negotiation to a person, the person does not receive, and is not capable of giving, a better title to the cheque
than the title that the person from whom the first-mentioned person took the cheque had.
 Liability

Capacity to make, etc., the promissory notes, etc.

26. Every person capable of contracting, according to the law to which he is subject, may bind himself and
be bound by the making, drawing, acceptance, indorsement, delivery and negotiation of a promissory note,
bill of exchange or cheque.
Minor
A minor may draw, indorse, deliver and negotiate such instruments so as to bind all parties except himself.
Nothing herein contained shall be deemed to empower a corporation to make, indorse or accept such
instruments except in cases in which, under the law for the time being in force, they are so empowered.
Agency.
27. Every person capable of binding himself or of being bound, as mentioned in section 26, may so bind
himself or be bound by a duly authorized agent acting in his name. A general authority to transact business
and to receive and discharge debts does not confer upon an agent the power of accepting or indorsing bills
of exchange so as to bind his principal.
An authority to draw bills of exchange does not of itself import an authority to indorse.
Liability of agent signing.
28. An agent who signs his name to a promissory note, bill of exchange or cheque without indicating
thereon that he signs as agent, or that he does not intend thereby to incur personal responsibility, is liable
personally on the instrument, except to those who induced him to sign upon the belief that the principal
only would be held liable.
Liability of legal representative signing.
29. A legal representative of a deceased person who signs his name to a promissory note, bill of exchange
or cheque is liable personally thereon unless he expressly limits his liability to the extent of the assets
received by him as such.
Liability of drawer.
30. The drawer of a bill of exchange or cheque is bound, in case of dishonour by the drawee or acceptor
thereof, to compensate the holder, provided due notice of dishonour has been given to, or received by, the
drawer as hereinafter provided.
Liability of drawee of cheque.
31. The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the
payment of such cheque must pay the cheque when duly required so to do, and, in default of such payment,
must compensate the drawer for any loss or damage caused by such default.
Liability of maker of note and acceptor of bill.
32. In the absence of a contract to the contrary, the maker of a promissory note and the acceptor before
maturity of a bill of exchange are bound to pay the amount thereof at maturity accord ing to the apparent
tenor of the note or acceptance respectively, and the acceptor of a bill of exchange at or after maturity is
bound to pay the amount thereof to the holder on demand.
In default of such payment as aforesaid, such maker or acceptor is bound to compensate any party to the
note or bill for any loss or damage sustained by him and caused by such default.
Only drawee can be acceptor except in need or for honour.
33.No person except the drawee of a bill of exchange, or all or some of several drawees, or a person named
therein as a drawee in case of need, or an acceptor for honour, can bind himself by an acceptance.
Acceptance by several drawees not partners.
34. Where there are several drawees of a bill of exchange who are not partners, each of them can accept it
for himself, but none of them can accept it for another without his authority.
Liability of indorser.
35. In the absence of a contract to the contrary, whoever indorses and delivers a negotiable instrument
before maturity, without, in such indorsement, expressly excluding or making conditional his own liability,
is bound thereby to every subsequent holder, in case of dishonour by the drawee, acceptor or maker, to
compensate such holder for any loss or damage caused to him by such dishonour, provided due notice of
dishonour has been given to, or received by, such indorser as hereinafter provided.
Every indorser after dishonour is liable as upon an instrument payable on demand.
Liability of prior parties to holder in due course.
36. Every prior party to a negotiable instrument is liable thereon to a holder in due course until the
instrument is duly satisfied.

Delivery/ indorsement
46. The making, acceptance or indorsement of a promissory note, bill of exchange or cheque is completed
by delivery, actual or constructive.
As between parties standing in immediate relation, delivery to be effectual must be made by the party
making, accepting or indorsing the instrument, or by a person authorized by him in that behalf.
As between such parties and any holder of the instrument other than a holder in due course, it may be
shown that the instrument was delivered conditionally or for a special purpose only, and not for the purpose
of transferring absolutely the property therein.
A promissory note, bill of exchange or cheque payable to bearer is negotiable by the delivery thereof.
A promissory note, bill of exchange or cheque payable to order is negotiable by the holder by indorsement
and delivery thereof.
Negotiation by delivery.
47. Subject to the provisions of section 58, a promissory note, bill of exchange or cheque payable to bearer
is negotiable by delivery thereof.
Exception : A promissory note, bill of exchange or cheque delivered on condition that it is not to take effect
except in a certain event is not negotiable (except in the hands of a holder for value without notice of the
condition) unless such event happens.
Illustrations
(a) A, the holder of a negotiable instrument payable to bearer, delivers it to B’s agent to keep for B.
The instrument has been negotiated.
(b) A, the holder of a negotiable instrument payable to bearer, which is in the hands of A’s banker,
who is at the time the banker of B, directs the banker to transfer the instrument to B’s credit in the
banker’s account with B. The banker does so, and accordingly now possesses the instrument as
B’s agent. The instrument has been negotiated, and B has become the holder of it.
Negotiation by indorsement.
48. Subject to the provisions of section 58, a promissory note, bill of exchange or cheque payable to order,
is negotiable by the holder by indorsement and delivery thereof.
Conversion of indorsement in blank into indorsement in full.
49. The holder of a negotiable instrument indorsed in blank may, without signing his own name, by writing
above the indorser’s signature a direction to pay to any other person as indorsee, convert the indorsement in
blank into an indorsement in full; and the holder does not thereby incur the responsibility of an indorser.
Effect of indorsement.
50. The indorsement of a negotiable instrument followed by delivery transfers to the indorsee the property
therein with the right of further negotiation; but the indorsement may, by express words, restrict or exclude
such right, or may merely constitute the indorsee an agent to indorse the instrument, or to receive its
contents for the indorser, or for some other specified person.
Illustrations
B signs the following indorsements on different negotiable instruments payable to bearer :—
(a) “Pay the contents to C only”.
(b) “Pay C for my use.”
 (c) “Pay C or order for the account of B.”
(d) “The within must be credited to C.”
These indorsements exclude the right of further negotiation by C
(e) “Pay C.”
(f) “Pay C value in account with the Oriental Bank.”
(g) “Pay the contents to C, being part of the consideration in a certain deed of assignment executed by
C to the indorser and others.”
These indorsements do not exclude the right of further negotiation by C.
Who may negotiate.
51. Every sole maker, drawer, payee or indorsee, or all of several joint makers, drawers, payees or
indorsees, of a negotiable instrument may, if the negotiability of such instrument has not been restricted or
excluded as mentioned in section 50, indorse and negotiate the same.
Explanation : Nothing in this section enables a maker or drawer to indorse or negotiate an instrument,
unless he is in lawful possession or is holder thereof; or enables a payee or indorsee to indorse or negotiate
an instrument, unless he is holder thereof.
Illustration
A bill is drawn payable to A or order. A indorses it to B, the indorsement not containing the words “or
order” or any equivalent words, B may negotiate the instrument.
Indorser who excludes his own liability or makes it conditional.
52. The indorser of a negotiable instrument may, by express words in the indorsement, exclude his own
liability thereon, or make such liability or the right of the indorsee to receive the amount due thereon
depend upon the happening of a specified event, although such event may never happen.
Where an indorser so excludes his liability and afterwards becomes the holder of the instrument, all
intermediate indorsers are liable to him.
Illustrations
(a) The indorser of a negotiable instrument signs his name, adding the words—“Without recourse”.
Upon this indorsement he incurs no liability.
(b) A is the payee and holder of a negotiable instrument. Excluding personal liability by an
indorsement “without recourse”, he transfers the instrument to B, and B indorses it to C, who
indorses it to A. A is not only reinstated in his former rights, but has the rights of an indorsee
against B and C.
Holder deriving title from holder in due course.
53. A holder of a negotiable instrument who derives title from a holder in due course has the rights thereon
of that holder in due course.
Instrument indorsed in blank.
54. Subject to the provisions hereinafter contained as to crossed cheques, a negotiable instrument indorsed
in blank is payable to the bearer thereof even although originally payable to order.
Conversion of indorsement in blank into indorsement in full.
55. If a negotiable instrument, after having been indorsed in blank, is indorsed in full, the amount of it
cannot be claimed from the indorser in full, except by the person to whom it has been indorsed in full, or by
one who derives title through such person.
Indorsement for part of sum due.
56. No writing on a negotiable instrument is valid for the purpose of negotiation if such writing purports to
transfer, only a part of the amount appearing to be due on the instrument; but where such amount has been
partly paid, a note to that effect may be indorsed on the instrument, which may then be negotiated for the
balance.
Legal representative cannot by delivery only negotiate instrument indorsed by deceased.
57. The legal representative of a deceased person cannot negotiate by delivery only a promissory note, bill
of exchange or cheque payable to order and indorsed by the deceased but not delivered.

Instrument obtained by unlawful means or for unlawful consideration.

58. When a negotiable instrument has been lost, or has been obtained from any maker, acceptor or holder
thereof by means of an offence or fraud, or for an unlawful consideration, no possessor or indorsee who
claims through the person who found or so obtained the instrument is entitled to receive the amount due
thereon from such maker, acceptor or holder, or from any party prior to such holder, unless such possessor
or indorsee is, or some person through whom he claims was, a holder thereof in due course.
Instrument acquired after dishonour or when overdue.
59. The holder of a negotiable instrument, who has acquired it after dishonour, whether by non-acceptance
or non-payment, with notice thereof, or after maturity, has only, as against the other parties, the rights
thereon of his transferor:
Accommodation note or bill.
Provided that any person who, in good faith and for consideration, becomes the holder, after maturity, of a
promissory note or bill of exchange made, drawn or accepted without consideration, for the purpose of
enabling some party thereto to raise money thereon, may recover the amount of the note or bill from any
prior party.
Illustration
The acceptor of a bill of exchange, when he accepted it, deposited with the drawer certain goods as a
collateral security for the payment of the bill, with power to the drawer to sell the goods and apply the
proceeds in discharge of the bill if it were not paid at maturity. The bill not having been paid at maturity,
the drawer sold the goods and retained the proceeds, but indorsed the bill to A. A’s title is subject to the
same objection as the drawer’s title.
Instrument negotiable till payment or satisfaction.
60. A negotiable instrument may be negotiated (except by the maker, drawee or acceptor after maturity)
until payment or satisfaction thereof by the maker, drawee or acceptor at or after maturity, but not after
such payment or satisfaction.