What is the definition of negotiable instrument under NI Act?

Answer

A:

Under the Negotiable Instruments Act, 1881, a negotiable instrument is defined in Section 13(1) as a promissory note, bill of exchange, or cheque payable either to order or to bearer.

In simple terms, a negotiable instrument is a written, signed document that guarantees the payment of a specific sum of money either on demand or at a fixed future date, and the right to receive that money can be freely transferred from one person to another.

1. Transferability – It can be transferred by delivery (bearer instrument) or by endorsement and delivery (order instrument).

2. Right to Money – It entitles the holder to receive a specific sum of money.

3. Presumption of Consideration – The law presumes that every negotiable instrument is made for valid consideration, unless proven otherwise.

4. Holder in Due Course – A person who receives the instrument in good faith acquires a better title, even if the previous holder had defects.

5. Types – Promissory note, bill of exchange, and cheque are the three main negotiable instruments recognized under the Act.

• Cheque issued by a bank customer.

• Promissory note executed by a borrower in favour of a lender.

• Bill of exchange used in business transactions.

A negotiable instrument under the NI Act is a legally recognized financial document like a promissory note, bill of exchange, or cheque, that guarantees payment of money and can be freely transferred, ensuring trust and smooth functioning of trade and commerce.