Negotiable instrument – definition and features

  • All negotiable instruments in India are governed by the Negotiable Instrument Act 1881.
  • The sec 13 of this act states that negotiable instruments means bill of exchange, promissory note or cheque payable either to order or to bearer. Only these three are recognized by the Law namely
  1. A cheque
  2. A bill of exchange
  3. A promissory note

 

  • But due to mercantile usage or custom there are other such negotiable instruments in use namely
  1. Dividend
  2. Warrants
  3. Bearer bonds
  4. Bearer scripts
  5. Debentures payable to bearer
  6. Treasury bill
  7. Share warrant to bearer

Definition – a negotiable instrument, thus, plays a key role in the modern business as a document which is transferable with ease. Wills defines it as “One, in which the property is acquired by any one, who takes it bona-fide and for value, notwithstanding any defect of title in the person, from who he took it.”

Features of a negotiable instrument

  1. Transfer free from defects – it grants an absolute and good title on the transferee, even if the transferor has a bad title to the instrument, he can pass on the good title to any holder who takes it in good faith.
  2. No notice to transfer – the transfer of this can be simple i.e. no requirement of a notice while transfer.
  3. Presumptions as to negotiable instrument – it is presumed that the instrument is always obtained with for consideration and other presumptions regarding the date and time of acceptance, transfer, stamp, etc.
  4. Right to sue – it confers a right on the holder to sue in his own name, in case of need
  5. Credit of the party – the credit of the party who signs the instrument is pledged to the instrument. Hence this will be never dishonored normally
  6. Free transfer – there is no formality to be complied with the transfer of a negotiable instrument.
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