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Major Provisions of Negotiable Instruments Act 1881 PDF Download

Major Provisions of Negotiable Instruments Act 1881 PDF Download


Negotiable Instruments Act 1881 is aAct which define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques. Negotiable instruments recognized by Negotiable Instruments Act are: Promissory notes,Bills of exchange and Cheques. 

In this Article we are Negotiable Instruments Act 1881 and Important Sections with the Banking Exams (IBPS, SBI & RBI Grade B) Perceptive. These days in lots of Competitive Exam specially in banking sector, questions are directly coming from Important Sections of Negotiable Instruments Act 1881 

What is Negotiable instruments

Negotiable instruments are unconditional orders or promise to pay, and include checks, drafts, bearer bonds, some certificates of deposit, promissory notes, and bank notes (currency).

Some of the important definitions of the Act are:

Section 4 - Promissory note


A "promissory note" is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

Section 5 - Bill of exchange

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.
  • A promise or order to pay is not "conditional", within the meaning of this section and section 4, by reason of the time for payment of the amount or any installment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.
  • The sum payable may be "certain", within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an installment, the balance unpaid shall become due.
  • The person to whom it is clear that the direction is given or that payment is to be made may be a "certain person", within the meaning of this section and section 4, although he is mis-named or designated by description only.
Section 6 - Cheque

A cheque is 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.

Explanation: I. - For the purposes of this section, the expressions-
  1. a cheque in the electronic form means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system;
  2. a truncated cheque means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.
Explanation II - For the purposes of this section, the expression clearing house means the clearing house managed by the Reserve Bank of India or a clearing house recognized as such by the Reserve Bank of India.

Section 13 - Negotiable Instruments

I. Negotiable instrument. A Negotiable Instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.
  1. Explanation (i).-A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.
  2. Explanation (ii).-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.
  3. Explanation (iii).-Where a promissory note, bill of exchange or cheque, 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.
II. 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 4 of the Negotiable Instruments Act 1881 defines the promissory note, “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.”
Section 5 of the Act defines the bill of exchange, “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”.
Section 6 of the Act defines the cheque “A cheque is a bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand”.

All cheque are bill of exchange, but all bills are not cheque.
  • Section 6(a) defines ‘a cheque in the electronic form’
  • Section 6(b) defines ‘a truncated cheque’
Section 7 of the Act gives definition of ‘drawer’ and ‘drawee’. The maker of the bill of exchange or cheque is called “drawer” and the person thereby directed to pay is called the “drawee”
Section 13 of the Act states that a negotiable instrument is a promissory note, bill of exchange or a cheque payable either to order or to bearer.
Section 18. Where amount is stated differently in figures and words: If the amount undertaken or ordered to be paid is stated differently in figures and in words, the amount stated in words shall be the amount undertaken or ordered to be paid.
Section 19. Instruments payable on demand: A promissory note or bill of exchange, in which no time for payment is specified, and a cheque, are payable on demand.
Section 22. “Maturity”. The maturity of a promissory note or bill of exchange is the date at which it falls due. The section also defines days of grace.
Section 25. When day of maturity is a holiday: When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument shall be deemed to be due on the next preceding business day.
Section 45. Holder’s right to duplicate of lost bill.
Section 58. A promissory note, bill of exchange or cheque payable to bearer is negotiable by endorsement and delivery thereof.
Section 78. To whom payment should be made: Payment of the amount due on a promissory note, bill of exchange or cheque must, in order to discharge the maker or acceptor, be made to the holder of the instrument.
Dishonor of a Negotiable Instrument 
When a negotiable instrument is dishonoured, the holder must give a notice of dishonor to all the previous parties in order to make them liable. A negotiable instrument can be dishonoured either by nonacceptance or by non-payment. A cheque and a promissory note can only be dishonored by non-payment but a bill of exchange can be dishonoured either by non-acceptance or by non-payment.
Section 91: Dishonor by non-acceptance
Section 92: Dishonor by non-payment 
Section 138: Dishonor of cheque for insufficiency, etc., of funds in the account


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