Negotiable instruments act 1881, Nature and Characteristics of Negotiable instruments

Section 13 of the Negotiable Instruments Act, 1881, defines a negotiable instrument as: “A negotiable instrument means a promissory note, bill of exchange or Cheques payable either to order or to bearer.” [Sec.13 (1)].

Negotiable means transferable. Instrument means document. Negotiable instrument, therefore, means a transferable document. Negotiable instrument entitles holder to the receipt of the money therein. It also gives him the right to transfer the same by delivery or by endorsement thereof. The Act deals with only three types of negotiable instrument, i.e., promissory notes, bills of exchange and Cheques.

The law relating to negotiable instruments is contained in the Negotiable Instruments Act, 1881. The Act is based upon the English Common Law relating to promissory notes, bills of ex-change and Cheques. The Act came into force on 1st March 1882. The Act was enacted with an object to define and amend the law relating to promissory notes, bills of exchange and Cheques.

The Act extends to the whole of India. It does not affect any local usage relating to any instruments in an oriental language- for example, a hundi. Local usage applies to instruments in oriental language. However, such usages may be excluded by contract to the contrary, including that the legal relationship of the parties shall be governed by this Act (Sec.1). It must be noted that only when the local usage in the contrary to the provisions of this Act, then the local usage would override the Act.


Property :

The possessor of the instrument is the holder and owner thereof. A negotiable instrument does not merely give possession of the instrument, but right to property. Whosoever gets possession of the instrument becomes its owner and is entitled to the sum mentioned therein as the holder. The complete right of ownership in a negotiable instrument passes by mere delivery where instrument is payable to ‘bearer’. Where instrument is payable to ‘order’, right of ownership passes by endorsement and delivery.

Defects in title:

The holder in good faith and for value called the ‘holder in due course’ gets the instrument free from all defects of any previous holder.


The holder can sue upon the negotiable instrument in his own name. All prior parties are liable to him. A holder is due course can recover the full amount on the instrument.


The holder in due course is not affected by certain de-fenses which might be available against previous holder, for example, fraud, to which he is not a party.

Payable to order:

A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable to a particular person. An instrument which does not restricts its transferability expressly or impliedly is negotiable whether the word ‘order’ is mentioned or not. The word ‘Order’ or ‘Bearer’ is no longer necessary to render an instrument negotiable. Where the instrument prohibits transfer or indicates that it shall not be transferrable is nevertheless valid as between the parties thereto, but it is not a negotiable instrument.

It must be noted that where a promissory note, bill of exchange or Cheques, either originally or by endorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.

Payable to bearer:

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 endorsement is an endorsement in blank [Sec.13]. It specifies that the person in possession of the bill or note is a bearer of the instrument which is so expressed payable 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 or two, or some of several payees [Sec.13 (2)].


Consideration in the case of a negotiable instrument is presumed.


Certain presumptions apply to all negotiable instruments.

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