What are Negotiable Instruments? Name the instruments which are recognized as negotiable instruments by the Negotiable Instruments Act, 1881. -MBA Notes

Answer:
The term “instrument means any written document by which a right is created in favour of some person”. The word “negotiable‟ has a technical meaning whereby rights in an instrument can be transferred by one person to another.

Instruments which are recognized as negotiable instruments by the Negotiable Instruments Act, 1881 are –

• Promissory Note
• Bill of exchange
• Cheques

* Promissory note, bill of exchange and cheque are negotiable instruments by statute as they are so recognized by Sec.13.

 
* There are certain instruments which are recognized as negotiable instruments by usage. Thus, bank notes, bank drafts, share warrants, bearer debentures, dividend warrants, scripts and treasury bills are negotiable by usage.

Promissory note

A promissory note is an instrument in writing (not being a bank 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 instrument.

The following are two illustrations of promissory notes-
Where A signs instruments in the following terms:
(i) “I promise to pay B or order Rs 500.”
(ii) “I acknowledge myself to be indebted to B in Rs 1000, to be paid on demand, for value received.”

Bill of exchange

A “bill of exchange‟ is defined by Sec.5 as “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‟.

Specimen of a bill of exchange
Rs 10, 000
New Delhi – 110 016
Jan. 13, 2006

Six months after date pay to A or order/bearer the sum of ten thousand
rupees only for value received.

To X
Address ______________________________________________________________

Sd/-Y
Stamp

Cheques

A cheque is the usual method of withdrawing money from a current account with a banker. Savings bank accounts are also permitted to be operated by cheques provided certain minimum balance is maintained. A cheque, in essence, is an order by the customer of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or to the bearer.

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