Instrument Act, 1881
the term ‘negotiable instrument’ and explain its characteristics.
Ans: The term ‘negotiable’ means transferable and the
word ‘document’ means ‘in writing’. Therefore, negotiable means a written
promise or order to pay money which may be transferred from one person to
Section 13 of
the Negotiable Instruments Act, 1881 states – "A negotiable instrument means a
promissory note, bill of exchange or cheque payable either to order or 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 of two, or one or
some of several payees.
characteristics of a Negotiable Instrument are:
Witting and Signature according to
the rules: A Negotiable Instrument must be in writing and signed by the
parties according to the rules relating to (a) promissory notes, (b) Bills of
Exchange and (c) Cheques.
Payable by Money: Negotiable
Instruments are payable by the legal tender money of India.
Unconditional Promise: If
the instrument is a promissory note, it must contain an unconditional promise
to pay. If the instrument is a bill or cheque, it must be an unconditional
order to pay money.
Freely transferable: A
negotiable instrument is transferable from one person to another by delivery or
by endorsement and delivery.
Acquisition of Property: Any person who possesses a negotiable instruments, becomes its owner and
entitled to the sum of money, mentioned on the face of the instrument.
Acquisition of Good Title: The holder in due course, i.e. the transferee of a negotiable instrument in
good faith and for value, acquires a good title to the instrument even if the
title of the transferor is defective. Further his title will not be affected,
by any defect in the title of the transferor.
No Need of Giving Notice: There is no need of giving a notice of transfer of a negotiable instrument to
the party liable to pay the money.
Right of the Holder in Due Course: The holder in the due course remains unaffected by certain defences, which
might be available against previous holders, as for example , fraud, to which
he is not a party.