Unit 4: Negotiable Instruments Act

A negotiable instrument (Section 13) means a promissory note, bill of exchange or cheque payable either to order or to bearer. Characteristics: freely transferable by delivery or endorsement; the holder in due course gets a good title even if the transferor's title was defective; the holder can sue in their own name; consideration is presumed. Classification: inland and foreign; bearer and order; demand and time; ambiguous and inchoate instruments.

Acceptance of a bill: the drawee signs on the bill, agreeing to pay — general or qualified. Crossing of cheques: general (two parallel lines — pay only through a bank), special (bank named) and account payee.

• Holder (Section 8): a person entitled in their own name to possession of the instrument and to receive payment.
• Holder in due course (Section 9): a holder who obtained the instrument for consideration, before maturity, and in good faith without notice of any defect in the title. Such a holder gets a better title than the transferor and is protected from prior defects.

• Dishonour by non-acceptance or non-payment; notice of dishonour must be given to prior parties; noting and protest record dishonour of foreign bills.
• Dishonour of cheque for insufficient funds (Section 138): a criminal offence if the cheque is presented within its validity (3 months), the payee sends a demand notice within 30 days of dishonour, and the drawer fails to pay within 15 days of notice. Punishment: imprisonment up to 2 years, or fine up to twice the cheque amount, or both.
• Maturity (Section 22): the date on which a time instrument falls due; three days of grace are added (not for demand instruments). If the due date is a public holiday, it is payable on the preceding business day.