Negotiable instruments Act 1881 and its features
Negotiable instruments Act 1881 and its features: The Negotiable Instruments Act of 1881 is the legislation that governs “negotiable instruments.” The Act covers the whole country of India. The 1881 Negotiable Instruments Act has been revised over a dozen times since then.
The Banking, Public Financial Institutions, and Negotiable Instruments Laws (Amendment) Act, 1988 (effective April 1, 1989), and the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 are the most recent in the series (effective from 6th February, 2003). In Part IV of this book, the provisions of all the Amendment Acts have been integrated at pertinent locations.
The Negotiable Instruments Act of 1881, as modified, governs three types of negotiable instruments: promissory notes, bills of exchange, and checks.
Definition:
Negotiable instruments Act 1881 and its features: The words negotiable and instrument imply “transferable by delivery” and “a written document through which a right is established in favour of some person.”
As a result, “negotiable instrument” literally implies “a written document that may be transferred by delivery.”
“A negotiable instrument” is defined as a promissory note, bill of exchange, or cheque payable either to order or to bearer, according to Section 13 of the Negotiable Instruments Act. “A negotiable instrument may be rendered payable to two or more payees jointly, or to one of two, or to one or some of numerous payees in the alternative” [Section 13(2)].
The Act therefore specifies three types of negotiable instruments: notes, bills, and checks, and states that they must be payable in one of the following ways to be considered negotiable:
(a) Order-payable:
A payable to order note, bill, or check is one that says “payable to a certain individual or his order.” For example, there are numerous forms in which an instrument may be rendered payable to order, such as I Pay A, (ii) Pay A or order, (iii) Pay to the order of A, (iv) Pay A and B, and (v) Pay A or Bare.
‘Pay to A exclusively’ or ‘Pay to A and none else’ is not considered as ‘payable to order,’ and so such a document must not be recognised as a negotiable instrument since its negotiability has been limited.
It’s worth noting that papers with specific prohibitions on negotiability are nonetheless legitimate as documents (i.e., agreements), but they’re not negotiable instruments since they can’t be bargained further.
(b) To be paid to the bearer:
‘Due to bearer’ denotes that it is payable to whomever carries it. A note, bill, or check that is expressly payable to bearer or on which the sole or final endorsement is an endorsement in blank is payable to bearer.
A letter, bill, or cheque that says “Pay to A or bearer,” “Pay A, B or bearer,” or “Pay bearer” is payable to the bearer. Though the payee endorses the instrument in blank, it might become ‘payable to bearer’ even if it was initially ‘payable to order.’
A check, for example, is made payable to A. A just signs it on the reverse and hands it over to B with the aim of negotiating it (without making it payable to B or S’s order). The cheque is a bearer instrument in B’s hands.
The Reserve Bank of India Act, Section 31:
It’s worth noting that the above definition is subject to the following restrictions of Section 31 of the Reserve Bank of India Act, 1934, as modified by the Amendment Act of 1946:
- A promissory note ‘payable to bearer’ may only be made or issued by the Reserve Bank or the Central Government in India.
- A bill of exchange ‘payable to bearer on demand’ may only be drawn or accepted by the Reserve Bank or the Central Government in India.
- On a person’s bank account, a check ‘payable to bearer on demand’ may be drawn.
The foregoing provisions have the following effect:
(i) A promissory note, whether due on demand or after a certain period of time, cannot be made ‘payable to bearer’ from the outset. It must first be made ‘payable to order.’ It may, however, become ‘payable to bearer’ or ‘payable to bearer on demand’ after being endorsed in blank, and it will be legitimate in such event.
(ii) A bill of exchange may be made ‘payable to bearer,’ but it must be payable other than on demand in such instance (for example, three months after the date). It must be made ‘payable to order’ if it is ‘payable on demand.’ It may, however, become ‘payable to bearer on demand’ if it is endorsed in blank afterwards.
(iii) A bank check drawn on a bank may be declared ‘payable to bearer on demand’ at the time of issue and still be legitimate. Cheques are, in reality, always payable on demand.
The aforementioned clauses of the Reserve Bank of India Act are intended to prohibit private individuals from infringing on the Reserve Bank’s and Government of India’s monopoly on “Note Issue.”
Because if people are permitted to create instruments that are “payable to bearer on demand,” there may be someone very wealthy and well-known whose bills of exchange and promissory notes could be used as money.
The lines “I promise to pay the bearer the amount of Rupees 10, 50, or 100,” as the case may be, are printed on a currency note. As a result, the general public is barred from issuing such notes or bills.
The Reserve Bank of India Act, 1934, makes it a criminal offence to issue such bills or notes, and renders them unlawful and unenforceable in court. As a result, a promise to pay A or bearer, or a promise to pay the bearer, is not legally enforceable, and the instrument embodying such a promise is invalid.
The basic elements of a negotiable instrument are not specified under Section 13 of the Negotiable Instruments Act. Thomas proposed the following definition of negotiable instrument, which is perhaps the most expressive and all-encompassing:
“A negotiable instrument is one that is transferable by delivery or endorsement and delivery in such circumstances that (a) the holder of the instrument for the time being may sue on it in his own name and (b) the property in it passes, free of equities, to a bona fide transferee for value, notwithstanding any defect in the transferor’s title.”
Negotiable instruments Act 1881 and its features
- Signature and writing:
The parties must write and sign Negotiable Instruments in accordance with the laws governing Promissory Notes, Bills of Exchange, and Cheques. In the limited scenario, Demand Drafts are likewise seen as Negotiable Instruments since they have the same properties as N.I. Instruments.
- Finances:
Negotiable instruments are paid in India’s legal tender money. Negotiable Instruments’ parties’ liabilities are set and established in terms of legal tender money.
- The capacity to bargain:
A simple technique may be used to transfer Negotiable Instruments from one person to another. Delivery to the transferee suffices in the case of bearer instruments. For a legitimate transfer of order instruments, two things are required: endorsement (i.e., the holder’s signature) and delivery. By employing appropriate wording, such as “pay to X only,” any instrument may be made non-transferable.
- Name:
When the transferee of a negotiable instrument meets specific criteria, he is referred to be the holder in due course. Even if the transferrer’s title is faulty, the holder receives a good title to the instrument in due time.
- Take note:
It is not essential to notify the person obliged to pay of the transfer of a negotiable instrument. The transferee has the right to sue under his own name.
- Hypotheses:
All negotiable instruments are subject to certain presumptions. It is assumed that there is some kind of consideration. Because the payment of consideration is expected, it is not required to state “for value received” or similar terms in a promissory note. The words are often inserted to add to the proof of thought.
- Extraordinary Measures:
Suits on promissory notes and bills of exchange are handled differently (The procedure is prescribed in the Civil Procedure Code). In contrast to regular lawsuits, a decree may be acquired significantly more swiftly.
8. Popularity:
Because of their ease negotiability and speedy cures, negotiating tools are useful in business negotiations.
- Justification:
Even though a document does not qualify as a negotiable instrument, it may nevertheless be used as proof of indebtedness.