The Negotiable Instruments Act was enacted in India in 1881, Prior to its enactment, the provisions of the English Negotiable Instrument Act were applicable in India and the present Act is also based on the English act with certain modifications.

The Act is applicable to whole of India and to all person’s resident in India, whether foreigner or Indian.

Meaning of Negotiable Instrument:

‘Negotiable means transferable, and instrument’ is a written document which creates a right in favour of any person.

Therefore, a negotiable instrument is a written document which creates a right in favour of any person and which is transferable by delivery.

Definition : Section 13(1) of Negotiable Instruments Act,1881

A negotiable instrument means a promissory note , bill of exchange or cheque.

Type of Negotiable



Promissory Note





Bill of Exchange









Examples: promissory Note , Bill of Exchange , Cheques , Share warrants , Port trust debentures ,Indira Vikas Patras, Government Promissory notes , Treasury Bills , Banker’s Drafts .

Non-Negotiable examples : Money orders , Fixed Deposits , National Savings Certificates , Postal Orders, Letter if credit, Share Certificates.

Concisely we can say that :

  • A negotiable instrument is a signed document that promises a payment to a specified person or assignee.
  • Negotiable instruments are transferable, which allows the recipient to take the funds as cash, then use them as preferred.
  • Examples of negotiable instruments include checks, money orders, and promissory notes.

Features of Negotiable Instruments:

  • Payer and payee:  Without payer and payee there cannot be any negotiable instruments.  The person who will pay the money is called payer and the person who will receive the money is called payee.
  • Written document:  The document has to  be  written  to  be  a  negotiable instrument. It also should contain the details according to the rules mentioned in the different types of negotiable instruments.
  • Signature: Signature is the most important feature of negotiable instruments. Without signature, a negotiable instrument is null and void. So, the parties involved in the negotiable instruments must sign the document as mentioned in the rules.
  • Amount to be paid: The amount of money that is to be paid by the payer should be mentioned clearly in the negotiable instruments.
  • Transferability: A negotiable can be transferable if the payee wants it to be. But it can also be made non-transferable by using certain words like paid only etc.

Characteristics of Negotiable Instruments

  1. Property – The processor of the negotiable instruments is considered as the owner of the document. A negotiable instrument does not just give possession of the document but the right of property also. The property can be transferred and in that case the payer will give the money to the bearer of the property.
  2. 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.
  3. Payment – A negotiable instrument enables the holder to expect prompt payment. The instrument may be made payable to two or more payees jointly.
  4. Rights – The transferee of negotiable instrument can take legal action in his own name, in case of dishonour. A negotiable instrument can be transferred many numbers of times till the date of maturity. The holder of instrument needs to give notice of transfer to the party legally responsible on the instrument to pay.
  5. Presumptions – Certain presumptions apply to all negotiable instruments like a presumption that consideration has been paid under it. The words ‘for value received’ or similar expressions like that is not necessary to write in the promissory note because the payment of consideration is presumed.
  6. Right to sue in his own name : The holder in course has the right to sue on the negotiable instrument in his own name for recovering the amount. A negotiable instrument can be transferred any number of times till its maturity and the holder of the instrument need not to give any notice of transfer to the debtor.
  7. Signature: A negotiable instrument is complete and effective only when it is duly signed. Signature may be on any part of the instrument.
  8. Title of holder is free from all defects: A person who takes negotiable instrument bonafide and for value, he is known as holder in due course gets the instrument free from all defects in title of the transfer. He is not in any way affected by any defect in the title of the transferor or any prior party.
  9. Freely Transferrable or Negotiability: The property of the instrument can be transferred freely from one person to another by delivery. In the case of bearer instrument, the property passes by mere delivery to the transferee. On the contrary, in the case of an order instrument, endorsement and delivery are required for the transfer of property.
  10. Certain sum of money: A negotiable instrument is valid only when it is drawn for a certain sum of money in order to ensure free negotiability of any negotiable instrument.
  11. No notice of transfer: The transferor need not to give notice to any person at the time of transferring the instrument.
  12. Unconditional: A negotiable instrument is always unconditional. A promise to pay or an order to pay in a negotiable instrument must be unconditional.


Presumptions as to Negotiable Instruments [Section 118]


Presumptions made in


Presumptions drawn

Until the contrary is proved, the following presumption shall be made:

of consideration

every negotiable instrument was made or drawn for consideration

as to date

every negotiable instrument bearing a date was made or drawn on such date

as to time of acceptance

every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity

as to time of transfer

every transfer of a negotiable instrument was made before its maturity;

as to order of indorsements

indorsements appearing upon a negotiable instrument were made in the order in which they appear thereon

as to stamps

lost promissory note, bill of exchange or cheque was duly stamped

as to holder

the holder of a negotiable instrument is a holder in due course

Note: The above presumptions are rebuttable by evidence to the contrary.


  Negotiable instrument is a document that guarantees payment of specific amount of money within a set of time. The negotiable instruments rules are guided by the Negotiable Instruments Act, 1881. This document is the proof that the payer will give a certain amount of money to the payee. However, this document is transferrable and can be transferred any number of times till the maturity date but if it is mentioned specifically that the document will remain with the person who originally owed the money then the document cannot be transferred. If the payer fails to give the money or dishonour the negotiable instrument, then legal action can be taken against that person and the negotiable instrument then will act as evidence in the eyes of law. There are many kinds of negotiable instrument and some of the most important ones are promissory notes, bills of exchange etc. The negotiable instrument should be signed and the payer’s name should be mentioned or else the document is null and void. 

  Negotiable instrument is an effective way of payment of money and also acts as a guarantee all by itself. It is very popular and is commonly used because it itself acts as evidence in case the payer fails to pay the money. It acts like a contract. It ensures that the payer will pay the money. The Negotiable Instruments Act, 1881, talks about only three instruments – promissory notes, bills of exchange and cheque but it does not exclude the possibility of adding any other instrument which satisfies the following two conditions of negotiability: 

  1. The instrument should be freely transferable (by delivery or by endorsement. and delivery) by the custom of the trade and 
  2. The person who obtains it in good faith and for value should get it free from all defects, and be entitled to recover the money of the instrument in his own name.

Leave a Comment

Your email address will not be published. Required fields are marked *