Skip to main content

What are Negotiable Instruments?

We use different negotiable instruments in various financial transactions.

What are Negotiable Instruments?

As per Section 13 of Negotiable Instruments Act, 1881, a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.

What is Promissory Note?

As per Section 4 of Negotiable Instruments Act, 1881, a promissory note is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, 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.

Who are the parties to Promissory Note?

The parties to promissory note are –

  • Maker / promisor – a person who promises to pay
  • Payee / promise – a person to whom it is payable

What is Bill of Exchange?

As per Section 5 of Negotiable Instruments Act, 1881, a bill of exchange is 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.

Who are the parties to Bill of Exchange?

The parties to bill of exchange are –

  • Drawer – a person who orders to pay (seller of the goods / services)
  • Drawee – a person who is directed to pay (buyer of the goods / services)
  • Acceptor – the drawee becomes acceptor on acceptance of bill of exchange for payment
  • Payee – a person who is authorized to receive payment

What is Hundi?

Hundi is a bill of exchange written in vernacular and governed by local usage or practices. 

Hundis are not covered under the Negotiable Instruments Act, 1881. 

What is Cheque?

As per Section 6 of Negotiable Instruments Act, 1881, a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

Who are the parties to Cheque?

The parties to cheque are –

  • Drawer – a person drawing the cheque (account holder)
  • Drawee – bank on whom the cheque is drawn
  • Payee – a person in whose favour the cheque is drawn

What are Demand Drafts?

As per Section 85A of Negotiable Instruments Act, 1881, drafts is an order to pay money, drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand.


References

'THE NEGOTIABLE INSTRUMENTS ACT, 1881'. (n.d.). Retrieved from https://legislative.gov.in/sites/default/files/A1881-26.pdf


Follow at - Telegram   Instagram   LinkedIn   Twitter

Labels:

Comments

Post a Comment

Popular Posts

Highlights of RBI Annual Report 2025-26 – Chapter 1 to 3

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the first article in the series.  Legal framework for publication of Annual Report by the RBI Report of the Central Board of Directors on the working of RBI for the year is submitted to the Central Government in terms of Section 53(2) of the RBI Act, 1934. The letter of transmittal is signed by the RBI Governor and addressed to the Finance Secretary, Ministry of Finance, Government of India. Documents submitted by the RBI to the Central Government In pursuance of Section 53(2) of the RBI Act, 1934, the following documents have been submitted to the Central Government – A copy of the Annual Accounts for the year ended March 31, 2026 certified by the RBI’s Auditors and signed by Chief General Manager-in-charge, all the Deputy Governors and Governor. 2 copies of the Annual Report of the Central Board on the workin...
Post a Comment
Read more

Highlights of RBI Annual Report 2025-26 – Chapter 6 (Part I)

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the third article in the series.  Chapter 6 – Regulation, Supervision and Financial Stability (Part I) Opening of and operation in deposit accounts of minors by banks – Minors of any age can open and operate savings and term deposit accounts through his / her natural or legal guardian or with mother as guardian.  Minors above the age of 10 years may open and operate savings and term deposit accounts independently, if they so desire. Digital lending guidelines – Regulated Entities (REs) were mandated to ensure that lending service providers (LSPs) display all loan offers to borrowers when multiple lenders are involved.  A public directory of Digital Lending Apps (DLAs) was introduced to help borrowers verify their link with REs. Non-Banking Financial Companies (NBFCs) were allowed to consider Default...
Post a Comment
Read more

Trade Receivables Discounting System (TReDS)

Reserve Bank of India (RBI) has issued the directions on Trade Receivables Discounting System (TReDS). What is TReDS? TReDS is a technology platform on a digital or electronic network for facilitating factoring of trade receivables through multiple financiers. What is a Factoring Unit? Factoring unit refers to trade receivable in the form of invoice / bill uploaded either by the seller (in the case of factoring) or by the buyer (in case of reverse factoring), as the case may be. Who are the participants in TReDS? Seller – Micro, Small and Medium Enterprise (MSME) Buyer – any person liable to the seller, whether under a contract or otherwise, against an invoice or bill of exchange, to pay any trade receivable Financier – all entities / institutions permitted to undertake factoring business under the Factoring Regulation Act, 2011 Insurance companies  Credit Guarantee Fund Trust notified by the Government of India Who can operate TReDS platforms? An entity shall seek authorisation fr...
Post a Comment
Read more

Highlights of RBI Annual Report 2025-26 – Chapter 4 & 5

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the second article in the series.  Chapter 4 – Credit Delivery and Financial Inclusion The limit for collateral free loans to Micro and Small Enterprises (MSEs) was enhanced from ₹10 lakh to ₹20 lakh. The RBI was involved with the nationwide campaign, ‘Aapki Poonji, Aapka Adhikar’ (Your Money, Your Right), conducted during October-December 2025 to facilitate the return of unclaimed deposits and timely settlement of eligible claims from the Depositor Education and Awareness (DEA) Fund. During the campaign, ₹2,876 crore of unclaimed deposits were settled by public sector banks and regional rural banks. Expanding and Deepening of Digital Payments Ecosystem (EDDPE) programme  The programme aims to provide every eligible individual in the identified districts at least one mode of digital payment, viz., debit / ...
Post a Comment
Read more

Transfer of Surplus by the RBI to the Government

The surplus payable by the Reserve Bank of India (RBI) to the Central Government for the financial year 2025-26 amounted to ₹2,86,588.46 crore.  Why does the RBI transfer the surplus amount to the Central Government? As per section 47 of the RBI Act, 1934, after making provision for bad and doubtful debts, depreciation in assets, contributions to staff and superannuation funds and other provisions, the balance of the profits of the RBI is required to be paid to the Central Government. Also, the Central Government holds 100% of the share capital of the RBI. How much risk provision is required to be maintained by the RBI? The RBI developed the Economic Capital Framework (ECF) during 2014-15 and 2015-16 for determining the appropriate level of risk provisions to be made under the provisions of section 47 of the RBI Act, 1934.  In November 2018, the RBI, in consultation with the Government, constituted an Expert Committee to review the ECF of the RBI (Chairman: Dr. Bimal Jalan, fo...
Post a Comment
Read more