Negotiable Instrument - Types

 

Define Negotiable Instrument and what are the different kinds of Negotiable Instruments. Make a comparison among all of them.

Negotiable Instruments under Indian law.

Definition of Negotiable Instrument

A Negotiable Instrument is defined under Section 13 of the Negotiable Instruments Act, 1881. It refers to a promissory note, bill of exchange, or cheque payable either to order or to bearer. These instruments are transferable by delivery or by endorsement and delivery, and the holder in due course can obtain a good title to the instrument.

Types of Negotiable Instruments

The primary types of Negotiable Instruments recognized under the Negotiable Instruments Act, 1881 are:

1. Promissory Note:
• Definition: A promissory note is an instrument in writing (not being a banknote 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.
• Section: Defined under Section 4 of the Negotiable Instruments Act, 1881.
• Case Law: In the case of K. P. O. Moideenkutty Hajee v. Pappu Manjooran (AIR 1969 Ker 289), the court held that a promissory note must contain an unconditional undertaking to pay.
2. Bill of Exchange:
• Definition: 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.
• Section: Defined under Section 5 of the Negotiable Instruments Act, 1881.
• Case Law: In the case of K. Bhaskaran v. Sankaran Vaidhyan Balan (AIR 1999 SC 3762), the Supreme Court held that a bill of exchange must contain an unconditional order to pay.
3. Cheque:
• Definition: A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
• Section: Defined under Section 6 of the Negotiable Instruments Act, 1881.
• Case Law: In the case of M. S. Narayana Menon v. State of Kerala (AIR 2006 SC 3366), the Supreme Court discussed the essential characteristics of a cheque.

Comparison of Negotiable Instruments

Feature	Promissory Note	Bill of Exchange	Cheque
Definition	Unconditional promise to pay	Unconditional order to pay	Bill of exchange drawn on a banker
Parties Involved	Maker and Payee	Drawer, Drawee, and Payee	Drawer, Drawee (banker), and Payee
Liability	Primary liability on the maker	Primary liability on the drawee	Primary liability on the banker
Acceptance	No acceptance required	Acceptance required by the drawee	No acceptance required
Payment on Demand	Can be payable on demand or at a future date	Can be payable on demand or at a future date	Always payable on demand
Transferability	Transferable by endorsement and delivery	Transferable by endorsement and delivery	Transferable by endorsement and delivery

One of the significant amendments is the Negotiable Instruments (Amendment) Act, 2018. This amendment introduced provisions to address the issue of cheque dishonor and to improve the efficiency of the legal process related to dishonored cheques.

Key Provisions of the Negotiable Instruments (Amendment) Act, 2018:

1. Interim Compensation: The amendment allows the court to direct the drawer of the cheque to pay interim compensation to the complainant. This compensation can be up to 20% of the cheque amount during the pendency of the case.
2. Deposit on Appeal: If the drawer of the cheque appeals against the conviction, the court can direct the appellant to deposit a minimum of 20% of the fine or compensation awarded by the trial court.
3. Speedy Disposal: The amendment aims to ensure the speedy disposal of cases related to cheque dishonor by allowing the court to try cases on a day-to-day basis until their conclusion.

These amendments were introduced to provide relief to the payees of dishonored cheques and to deter the practice of issuing cheques without sufficient funds.