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I. INTRODUCTION:-
The law relating to negotiable instruments is not the law of one country or of one
nation, it is the law of the commercial world in general, for, it consists of certain
principle of equity and usages of trade which general convenience and common sense of
justice had established to regulate the dealings of merchants and mariners in all the
commercial countries of the civilized world. even now the laws of several countries area
at least so far a general principles are concerned, similar in may respects of course, on
questions of detail, different countries have solved the various problems in different
ways, but the essentials are the same, and this similarity of law is a pre-requisite for the
vast international transactions that are carried on among the different countries.
A negotiable instruments is in more than one sense a ‘thing.’ In understanding
what is meant by ‘thing’ in law, we must on the one hand avoid the metaphysical niceties
about the conception of ‘thing’ and on the other, the peculiar conception of the word in
England, as in the phrases, ‘things in possession’ and things in action’ In Jurisprudence ,
a ‘thing’ devotes an object of rights. In that sense every instrument is a ‘thing’ in so for
as the paper on which it is written is concerned, A person lawfully getting possession of
such an instrument acquires title to it, Again, it represents money and possesses all the
characteristics of money which it represents, it also passes by delivery of cash, and the
person in possession of the instrument can sue on its own name. It also possess the
characteristics of contract for it embodies either on order or a promise to pay money. The
capacity of the parties to it, the liability of persons on it and the discharge of such
liabilities are regulated mostly by rules belonging to the domain of contracts. It is also
regarded as chattel and being so, it has been held that the transfer of such instruments
should be regulates by the law of the place where the transfer takes place.
The term “Negotiable” is one of the classification and does not of necessity imply
anything more than that the paper possesses the negotiable quality. Generally speaking,
it applies to any written statement given as security, usually for the payment of money,
which may be transferred by endorsement or delivery vesting in the party to whom it is
transferred or delivered a legal title on which he can support a suit in his name. The term
signifies that the note or paper writing to which it is applied, possesses the requisites of
negotiability.

II. THE EARLY ORIGIN OF NEGOTIABLE INSTRUMENTS:

Before the English bills of exchange Act was enacted the development of what
came to be described as negotiable instruments was in the four periods namely.
1. Down to the year 1601,
2. From the year 1602 – 1710,
3. From the year 1710 – 1882 and
4. 1882 down to the present day. a every negotiable instrument embodies a debt which
is a chose in action evidenced, however by a document or a writing,. while an
ordinary debt used not be so evidenced. A Negotiable Instrument partakes also of the
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characteristics of a chose-in-possession for the reason that the writing can be

transferred by delivery just as chose in possession. In the early days there was some
difficulty in English law about the transfer of a choose-in-action, but by the judicature
Act of 1873 under-section 25, clause 6, (Now law of property Act, 1925, Under-
section 136), Such assignments were, in certain circumstances, fully recognized by
courts of common law and become legal assignments.
The origin, therefore, of the quality of negotiability is found in the custom of merchants
judicially recognized or in a statutory enactment, instrument not negotiable at one time
may become so by virtue of the usage of the market even though of recent origin.
The early origin of these instruments is a matter of speculation among text writers, In
primitive societies, the system of bills of exchange could not, of course have existed, for
firstly, money which it represents was not invented till long after, and secondly, the art of
writing was a thing unknown to them. When the system of bartering, by which crude and
uncivilized societies carried on their commerce, was found in convenient, a common
medium of exchange and a representative of property of an easily convertible character
was found necessary. and money came into use. It might have had its humble origin in
cowrieshells, brass or copper rings, but when once the utility of the money was found, its
never was lost sight of with the progress of civilization, nobler metals displaced the
baser once, and the use of gold and silver as instruments of exchange is now to be found
generally current in all civilized countries, with facilities of communication between
countries, and security of peace between nations, commerce of the world grew apace,
and one nation after another struggled for supremacy. The Phoenicians, Grecians and
Cartheginans were more or less the chief commercial nations of the ancient world. The
routes along which the vast commerce was carried on were in secure, and merchants
carrying species and coins were robbed of their wealth by roving pirates on sea and
marauding robbers on land. money by itself did not obviate all these difficulties arising
from the multiplicity of commercial transactions and in the course of centuries, there
came into existence the idea of exchange, where by letters of credit, generally called bills
of exchange, from a merchant in one country, to his debtor, a merchant in another were
issued requiring debt to be paid to a third person who carried the letter to the place where
the debtor resided. for example; If A in Madras buys goods from B a merchant in
London, and if A has a merchant C in London who owes him money, B of London by
getting on order from A once for the payment of that money to himself, can collect that
price of his goods at London without the risk or the trouble of carrying the coins from
Madras to London. It was found that the person in whose favour such order was made
might with advantage, transfer it to the another, and such transfers came to be recognized.
In its origin, then a bill of exchange effected the transfer of trade-debts of persons
residing in distant countries and when once the advantages of such a course were
realized, the system was extended to apply to inland trade debts, and gradually to private
debts also.
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But, the origin of Negotiable instruments cannot be safely traced beyond the
early decades of the 12th century. The passages from the Bible, the pleadings of Isocrates
and the orations of Cicero referred to buy some of the text writers and commentators
from too slander a basis for assuming that mercantile instruments were vogue in ancient
days’ the origin and history of Negotiable Instruments and their career in England are
well traced by Lord chief Justice Cockburn, in his judgment in Goodwin v. Roberts, The
law as to bills of exchange and other negotiable securities forms a branch of the general
body of the law of merchant and is comparatively of recent origin of instruments can be
traced to the usage being ascertained and rectified by the decisions of court of law,
becomes a part of general law of the country which the courts are bound to recognize bill
exchange seem to have been brought in use by the Florentines in the 12th century and
Venetians in the 13th century. Though in the England there is a reason to believe that bill
of Exchange were known earlier, their use does not seem to have been general, even as
late as 1622, about the close of the 16th century, the practice of making bills payable to
order and of transferring them by indorsement took its rise, at first, such bills were
allowed only between merchants in foreign countries, but were gradually extended to
traders in the same country, and finally to all persons, whether traders or not.
In India, there is a reason to the believe that instruments of exchange were in the
use from early times and we find that papers representing money were introduced into the
country by one of the Mohammedan sovereigns of the Delhi in the early part of the 14 th
century, the idea having been borrowed from China, and it is accepted theory of the
western servants, that in China a complete system of paper currency and banking had
been developed as early as the 10th century and it is not improvable that such an idea
filtered into India sometime later, in fact, the word ‘hundi’ a generic term used to denote
instrument of exchange in vernacular is derived form Sanskrit root ‘hund’ meaning ‘to
collect’ and well expresses the purpose to which instruments were utilized in their origin.
Before the passing of the Act, the law of negotiable instruments as prevalent in
England was applied by the courts in India when any question relating to such
instruments arose between Europeans. When the parties were Hindus or Muslims, their
person law was held to apply and further, up to the present day context the Negotiable
Instrument Act 1881 is into existence.

III. NATURE AND DEFINITION OF NEGOTIABLE INSTRUMENTS

Negotiable Instruments have occupied a prominent place not only in trade in
commerce but also in public life. The term ‘Negotiable Instrument’ literally means a
written document which creates a right in favour of some person and which is freely
transferable. These instruments have gained prominence as the principal instruments for
making payments and discharging business obligations. These instruments pass on freely
from hand to hand and thus from an integral part of the Modern Financial Transactions.
Negotiable Instrument in practice means a piece of paper containing which
entitles a person to a sum of money and which is transferable from person to person by
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mere delivery or indorsement and delivery. The person to whom it is so transferred

becomes entitled to the money and also to the right to further transfer it.
For the purpose of Negotiable Instruments Act, a “negotiable instruments” means
a promissory note, bill of exchange and cheque. There are other Negotiable Instruments
also recognized by usage or custom of trade, such as Government promissory notes,
Railway Receipt and Shahjar Hundi, bearer bonds, bearer debentures, shares certificates
and postal orders, etc. but an instrument possessing the quality of negotiability is entitled
to be called as negotiable instrument.
Justice K. C. Wills states, “A Negotiable Instrument is one, the property in which
is acquired by any one who takes it bonafide and for value notwithstanding any defect of
title in the person from whom he took it”.
In words of Justice Thomas, “An instrument is Negotiable when it is by a legally
recognized custom of trade or by law, transferable by delivery or by endorsement and
delivery,
In Halsbury’s Laws of England, it is stated that to be negotiable, an instrument
must be “capable of being sued upon by the holder of it pro tempore in his own name,
and it must be, by the custom of trade, transferable like cash by delivery.
But, here the general principle relating to transfer of property is that no one can become
the owner of any property unless he purchases it from the true owner or with his
authority, here the maxim of law is “nemo dat quod non – habet” means no one can
transfer a better title than he himself has. Negotiable Instruments however, constitute an
exception to this principle for, a person who take a Negotiable Instrument in good faith
and for value become the true owner even if he takes it from a thief or finder.
The great element of negotiability is the acquisition of the property by your own
conduct, not by another’s, that if you take it bonafide and for value, nobody can deprive
it, so the case of Raephal v. Bank of England, is an authorities for this proposition. Here,
some banknotes of the bank of England were stolen in a robbery. The bank immediately
prepared and distributed a list of the stolen notes. The plaintiff who was a money
changer in Paris, also received one such least, twelve months after the receipt of this
notice a man came to the plaintiff to exchange a Bank of England note. The plaintiff had
no recollection of the notice and completely forgetting it cashed the noted. The note
turned out to be stolen one. It was held that the plaintiff, having taken the note in good
faith, was entitled to its payment. He was no doubt somewhat negligent, but he had acted
honestly.

V. SALIENT FEATURES OF A DIFFERENT NEGOTIABLE INSTRUMENTS:

These below stated characteristics of negotiable instrument are as under basing on
various judicial decisions;
Special features :
1. A Negotiable Instrument must be easily transferable and it may be payable either to
bearer or to order of the named payee.
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2. A bonafide transferee for value, subject to his complying with some other conditions,
acquires absolute and good title to the instrument even if the transferor hand no title
or a defective title.
This is the important feature of a Negotiable Instrument a person who take a
negotiable instrument from another person, who had stolen in from somebody
else, will have absolute and in disputable title to the instrument, provided he
receives the same for value and in good faith without knowing that the transferor
was not the true owner of the instrument.
3. A holder in due course can sue on the instrument in his own name, he need not
depend upon another’s title nor is he under any duty to justify his title in the first
instance.
General Features:
4. An Instrument must be in writing
5. The Negotiable Instrument should not be conditional.
6. There must be clear and specific period of time for its payment.
7. No Notice of transfer is required to the person liable for payment.
8. It is presumed that the instrument was drawn for consideration and it was accepted or
negotiated for consideration.
9. A Negotiable Instrument can be transferred infinitum that is can be transferred any
number of times till its maturity.
10. It must call for payment in money and money only and it should contain the sum of
money be paid through it.
11. There must be a promise or order to pay on the Negotiable Instrument.
12. It must be signed by the maker or drawer.
V. PRESUMPTIONS AS TO NEGOTIABLE INSTRUMENT OF
CONSIDERATION:
According to section 118 of the negotiable instrument Act, 1881, the
following are the presumptions as to negotiable instrument unless the contrary is proved;
a) Of consideration; that every Negotiable Instrument was made or drawn for
consideration, and that every such instrument, when it has been accepted, indorsed,
negotiated or transferred for considerations.
b) as to date; that every Negotiable Instruments bearing a date was made or drawn on
such date.
c) as to time of acceptance; that every accepted bill of exchange was accepted within a
reasonable time after its date and before its maturity;
d) as to time of transfer; that every transfer of a Negotiable Instrument was made
before its maturity.
e) as to order of indorsement; that the indorsement appearing upon a Negotiable
Instrument were made in the order in which they appear thereon;
f) as to stamps; that a lost promissory note, bill of exchange and cheques was duty
stamped
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g) that holder is a holder in due course; that a holder of a Negotiable Instrument is a

holder in due course.
On proof protest, section – 119, presumes that in a suit upon an instrument which has
been dishonoured that the court shall, on proof of the protest, presume the fact of
dishonour, unless and until such fact is proved. In Kandan lal Raguram v.Custodian,
Evacuae property Bombay, was held that as the negotiable instrument or the
endorsement was made or endorsed for consideration, the burden of proof of failure
on consideration on the maker of the note or the endorser, as the case may be.
In Kedar Singh Chauhan v. Bhagwan Singh, was held that there is a presumption
under section 118 of the Negotiable Instrument Act, that a Negotiable Instrument is
supposed by consideration unless the contrary is proved.

VI. KINDS OR TYPES OF NEGOTIABLE INSTRUMENTS :

The Negotiable Instrument can be broadly classified into two kinds, namely;
(i) Negotiable Instrument by statute or law.
(ii) Negotiable Instrument by custom or usage of trade (Deemed Negotiable
Instruments).
(i) Negotiable Instruments by statute or law:
Section – 13(1) of the Negotiable Instrument Act, 1881 states that ‘ A Negotiable
Instrument’ means a promissory note, bill of exchange and cheque, payable either to
order or to bearer, or therefore called as Negotiable Instrument by statute.
(a). Promissory Note - Section – 4
Promissory Note is an instrument in writing (not being a bank-note or a currency
note) containing an unconditional 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.
The Promissory Note contains a promise or undertaking to pay a certain sum of
money. The Act does not promise any particular form for a valid Promissory Note but it
is essential that it must satisfy the requirements of section – 4.
Following requirements are essential:
1. It must be in writing and signed by the maker.
2. There must be an undertaking or a promise to pay.
3. Such a promise must be in unconditional
4. The promise must respect of payment of money only.
5. The amount payable must be certain.
6. The payee must be certain.
1. It must be in writing and signed by the maker;
Every Negotiable Instrument has to be in writing i. e., it is one of the essential
requirements of a promissory note. An oral promise to pay does not become a promissory
note. No particular form is prescribed a promise contained in letter will suffice. In
Bollam Venkataih v. Venumuddala Venkata Ramanreddy., It was held that a promissory
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note cannot be admissible in evidence. if it is not duly stamped and again, oral evidence
cannot be admissible to prove the term of pronote.

2. Promise to pay:-
To be on valid Promissory Note there it is essential that there must be a promise
or an undertaking to pay. This promise should be express, when a person merely makes
an acknowledgement of a debt without a promise to pay the same, it is not a valid
Promissory Note. for example; If A signs the instruments that I promise to pay B or order
Rs. 500 is an promissory note but if A say I will owe you 1000 it is not an promissory
note because there is no promise to pay element is present, it is an only mere an
acknowledgement. In B. B. Lohar v. Premprakash Goyal, The court held that mere
acknowledgement of receipt of Rs. 5000. cannot constitute the document as a promissory
note. A promissory note should contain acknowledgement of receipt of a specified sum
by the receiver with an unconditioned undertaking to repay the same.
3. The promise to pay must be unconditional;
It is also necessary that the promise to pay should be unconditional if the maker
promises to pay an fulfillment of some condition or the happening of some contingency,
it would be conditional promise and it will not amounts to a Promissory Note. For
example; an instrument signed by a are in the – I promise to pay X at my convenience, I
promise to pay X Rs. 500, if he supplies one goods, I promise to pay X Rs. 500, if he
goes to Bombay. In S.S. Namboori v. M. Abraham, it was held that as the amount was
payable only on the settlement of account after the litigation was over it was not valid
promissory note because the promise was conditional on the settlement of amount, which
was an uncertain event
4. The promise to pay must be in respect of money consideration only;
It has to be made for consideration because an agreement without consideration is
wide and also the same ratio was held in the case A.K. Hameed v. Appukutti, if there are
several joint promisors of a promissory note and the consideration was received only by
one of the promisors, it is sufficient in so far as other promisors also and all the promisors
are bound by the promissory note and the promise to pay is should be in money only.
5. The amount payable must be certain:
It is also necessary that the sum of money promised to be payable in a promissory
not must be certain or define. For example; If A signs instruments i.e., I promise pay
Rs.500 and all other sums which shall be due to him and I promise to pay Rs. 500 first
deducting there out any money which he may one to be such instrument it is not valid
promissory note because the extent amount to paid by A is not certain.
6. Payee should be certain;
It is also necessary that the payee must be certain, according to section – 4 the
promissory note may be payable to a certain person or to the order of a certain person or
to the bearer of the instrument. The payee may mentioned by name or by designation and
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similarly also stated in the case law Conie v. Stiring, to make a promissory note there
must be payee ascertain by a name or designation.
(b) Bill of Exchange: Section – 5
A Bill of Exchange is an instrument in writing containing an unconditional order,
signed by the member, 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 an instrument.
In Bill of Exchange one person makes an order to anothers person to pay a certain
sum of money to someone. A bill of exchange is different from promissory not in so for
as in promissory note there is a promise to pay, but in bill of exchange there is an order to
pay. In bill of exchange the order should be unconditional. It must be to pay money
only, the some payable to be certain, the instrument should be in writing and signed by
the person who makes it, and the payee should also be certain. and there also parties
required in bill of exchange they are; Drawer, Drawee , Payee, Accepter. In a bill of
exchange there are mainly three parties that is, the person who makes or draws the bill of
exchange is known as a “drawer”, the person on whom the bill of exchange is drawn that
is, the person who has been ordered to make the payment is known as the “drawee” or
“acceptor”, and the person to whom or to whose order the amount is payable is known as
the “payee”
Bill in sets: When the drawer and the payee of the bill are at distant places. particularly
when they are in different countries some times bill which is sent from one place to
another may be lost or miscarried and this may cause a lot of inconvenience and delay to
the person to whom the bill is sent. In order to avoid such delay and in convenience
which would be caused by loss or miscarriage of the bill and with a view to ensuring
speedier presentment for acceptance or payment of a bill and also instead of being drawn
as one document, it is to be drawn in three parts and that is known as drawing the bill in a
sets so the three parts constitute one set. The whole set is considered as only one bill
c) Cheque – Section - 6
A ‘Cheque’ is a bill of exchange drawn on a specified banker and not
expressed to payable other wise than on demand. The cheque is considered as a bill of
exchange with to distinctive features;
i) It is always drawn on same bank, the drawee in case of cheque is always a bank.
ii) A cheque is always payable on demand. A bill of exchange other than a cheque may
be either payable on demand or may not be payable on demand.
In Michael Kuruvilla. v. Joseph Kondody, held that a cheque carried the
words “to pay cash” in the place of the payee and the word bearer was stuck off. Even
so the court held it was a valid negotiable instrument.
Comparison of Bill of Exchange and cheque;
A cheque is no doubt essentially a bill of exchange, but it has certain peculiarities
which distinguish it from of bill of exchange, some of the peculiarities were clearly seen
and stated by justice Parke B. In Ramchuran v. Luchmuchund Radhakissan, he said that a
cheque is a peculiar sort of instrument in many respects resembling a bill of exchange,
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but in some cases entirely different. A cheque does not require acceptance. In the
ordinary course it is never accepted, it is not intended for circulation, it is given for
immediate payment, it is not entitled to days of grace. This passage was cited with
approval by Lord Wright in Bank of Baroda v. Punjab National Bank, His Lordship made
his own valuable contribution to expressing the nature of the cheque. He said in addition
it is to be noted, a cheque is presented for payment, where as a bill of exchange is
dishonored by non-acceptance, this not so in the case of cheque. These essential
differences are sufficient to explain why in practice cheques are not accepted.
Acceptance is not necessary to create liability to pay as between the drawer and the
drawee bank. The liability depends on contractual relationship between the bank and the
drawer to its customer. Other things being equal in particular if the customer has
sufficient funds or credit available with the bank, the bank is bound either to pay a
cheque or to dishonor it at once. It is different in case of an ordinary bill, the drawee is
under no liabilities on the instrument until he accepts, and his liability on a bill depends
on the acceptance of it.
Where as, A cheque has always to be made payable on demand, whereas an
ordinary bill of exchange can be made payable after fixed period. A future dated cheque,
being not payable on demand, may not regarded as a cheque, in the real sense of the word
unless that date arrives and it becomes payable on demand. By referring to one of the
important case in Ashok Yeshwant Badure v. Surendra Madhavrao Nighojakar, the
Supreme Court, emphatically held that a post dated cheque on the date it is drawn is not a
cheque. it become a cheque only on the date written on it. Till a the date the post dated
cheque remains the bill of exchange and similarly in Veera Export v. T. Kalanamy, held
that one of the effect is that the period of six months within which a cheque has to be
presented for payment starts from the date written on the cheque and not from the date of
its issue.
ii) Negotiable Instrument by custom or usage of trade (Deemed Negotiable
Instruments).
Some other instrument has acquired the character of negotiability by the custom
or usage of trade. Section 137 of the Transfer of property Act. 1882 also recognized that
an instrument may be negotiated by law or custom. Thus government promotes Shanjog
Hundi’s, delivery orders and railway receipts have been held to be negotiable by usage or
custom of the trade and they are considered as deemed negotiable instruments.

VII. RIGHTS OF PARTIES TO NEGOTIABLE INSTRUMENTS:

1. Maker: A person who make a Promissory Note i.e., who signs an instrument which
contains an unconditional undertaking by him to pay a certain sum of money is
known as the maker of a promissory note.
2. Drawer: The maker of bill of exchange or cheque is called as the drawer.
3. Drawee: In a bill of exchange or cheque the person who has been directed to pay the
amount is known as the drawee. in the case of cheque the drawee is always a bank.
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4. Drawee in case of need: When in the bill or any indorsement their on the name of any
person is given in addition to the drawee to be resorted to in case of need, such person
is called as a drawee in case of need. Normally the name of only one drawee is
mention in a bill of exchange, in case such drawee does not honor the bill the holder
may go to the drawer and get another bill in the name of another drawee.
5. Acceptor: In a bill of exchange the drawer orders a certain drawee to pay a certain
some of money mentioned in bill. When the drawee signs his a sent on the bill which
he does generally by writing the word acceptor on the bill, then signing the same, is
known as the acceptor of the bill of exchange. Acceptance of drawee means that he
now undertakes to pay the amount in accordance with the order of the drawer.
6. Acceptor for honor: sometimes the drawee may not accept the bill that is he may
dishonor the bill by non – acceptance. It is also possible that after acceptance there
may be no likelihood of payment on the due date because of factors like insolvency of
the acceptor. In such situation the honour of the drawer and the indorser is adversely
affected. If somebody wants to save the honour of the drawer or any indorser of the
bill and he therefore, accepts such a bill of exchange, the person so accepting the bill
of exchange is known as the acceptor for honour.
7. Payee: The person in whose favour a negotiable instrument is drawn or made is
known as the payee, thus a person named in the instrument, to whom or to whose
order the money is by the instrument directed to be paid is called as the payee.
8. Indorser: When a person who is holder of a negotiable instrument and wants to
transfer his rights to another person and with that object in view puts his signature on
the instrument he is said to here indorsed the instrument called as the indorser.
9. Indorsee: Indorsee is the person in whose favour the indorsement is made that is, in
whose favour the negotiable instrument has been transferred by an indorsement.
10. Holder: Broadly speaking the holder means the owner of the negotiable instrument
according to section-8 holder means any person who is entitled in his own name to
the possession of the negotiable instrument and also to receive or recover the amount
due to the instrument. In every negotiable instrument originally payee is the holder.
If the payee transfers his rights to another person. The transferee would become the
holder. Thus if the rights are transferred by an indorsement. The indorse will become
holder and if it is a bearer instrument and the rights are transferred by mere delivery.
The bearer will be its holder.
11. Holder in due course. He is such a holder who takes the negotiable
instrument after satisfying the requirements of section -9. It means that a person who
takes the negotiable instrument as a holder, for consideration, in good faith and before
maturity is a holder in due course. He generally takes the negotiable instrument free from
any defects which could be pleaded against the prior parties he gets a good title even
though the title of the transferor to him his defective.