Law on Negotiable Instruments Act 1881

The Negotiable Instrument Act is a very interesting subject of Economic, Business and Commercial Law, explained below:

The Negotiable Instruments Act was enacted in India in 1881 and entered into force on 1 March 1881. Prior to its enactment, the provisions of the English Negotiable Instrument Act were applicable in India and, with certain modifications, this Act is also based on the English Act. It extends to the whole of India, with the exception of the state of Jammu and Kashmir. The Act operates subject to the provisions of Sections 31 and 32 of the Indian Reserve Bank Act, 1934.

What's the Negotiable Instrument?

A "negotiable instrument" means a promissory note, a bill of exchange or a check payable either to the ordering party or to the holder.

EXPLANATION – A promissory note, bill of exchange or check is payable to an order which is expressed as being payable or which is expressed as being payable to a particular person and does not contain words prohibiting a transfer or indicating an intention not to be transferable.

EXPLANATION – A promissory note, bill of exchange or check is payable to the bearer which is expressed as payable, or on which the only or last endorsement is a blank endorsement.

EXPLANATION – Where a promissory note, bill of exchange or check is expressed as being payable to the order of the specified person and not to him or his order, it shall nevertheless be payable to him or his order at his option.

A negotiable instrument may be made payable jointly to two or more payees, or it may be made payable as an alternative to one of the two, or to one or more payees. The word negotiable means 'transferable by delivery,' and the word instrument means 'a written document by which a right is established for the benefit of a person.' Thus, the term 'negotiable instrument' literally means 'a written document which creates a right for the benefit of a person and is freely transferable by delivery.'

A negotiable instrument is a piece of paper that entitles a person to a certain amount of money and which is transferable by delivery or endorsement and delivery from one person to another. "According to Blackburn J, the negotiable instrument has two characteristics:

i. It is transferable, like cash, by delivery (which assumes that it is in the State of delivery) so that the transferee can enforce the rights embodied in it in his own country.

ii. A transferee who is a bonafide holder of a value may acquire a better title than that of his transferor."

In addition, the Negotiable Instrument is a document of title which clearly sets out the rights to the payment of money or security for money which can be transferred either by customs or by law. The use of negotiable instruments is mainly intended to facilitate payment for exports and imports of trade. The rapid growth of technology has revolutionized the world with a computer that is used in every field or profession. This has reduced the use of the negotiable instrument and may decrease further in the future. Even though the electronic revolution has more advantages, it can be considered the next step, because the world needs time to get used to it.

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