Concept of Negotiable under NI Act, 1881

According to Section 13 (1) of the Negotiable Instruments Act, 1881 ("Act"), a “negotiable instrument” is a written financial document in the form of a promissory note, bill of exchange, or cheque excluding any words or instructions on the instrument prohibiting or restricting transfer or payment that is transferable and payable to a specific payee(s) jointly or otherwise, or the bearer of the instrument.

In its essence, according to Section 14 of this Act, notwithstanding any defects in title or limitation of transfer, the instrument is only considered as negotiated if it in a state wherein the drawer of such instrument could transfer it by simple delivery.

Negotiability is created out of customs and lex mercatoria resulting in these instruments having the ability to be transferable like money, parties involved capable of being sued, and property in the instrument passing on valid transfer.

Section 7 states that the maker of the above negotiable instruments will be its drawer and the person accepting this instrument by giving his assent will be termed as its drawee who may not always be the person who is finally going to receive the amount of the instrument.

In its essence, according to Section 14 of this Act, notwithstanding any defects in title or limitation of transfer, the instrument is only considered as negotiated if it is in a state wherein the drawer of such instrument could transfer it by simple delivery. ry. restricting transfer or payment that is transferable and payable to a specific payee(s) jointly or otherwise, or the bearer of the instrument.

Under Section 5, a bill of exchange is a tripartite order to pay.

Cheque defined under Section 6 also consists of three parties, viz-drawer, drawee, and payee which is an instrument drawn on bank-provided dated proformas with the amount to be paid mentioned in numbers and words.

According to Section 18, if there is a difference between the amount stated in figures and words, the amount written in words shall be paid out.

Section 8 defines the holder of the negotiable instrument to be the person who in their name, out of possession, may be entitled to receive or recover the amount owed of the instrument, example-The legal representative of a deceased payee or their agent with powers to receive monies on the principal’s behalf holding the instrument on a de jure basis whereas simple bearers and finders hold it on a de facto basis.

Section 9 goes further with the concept of a holder in due course of a negotiable instrument to be the individual who accepted it as a consideration in good faith and now is its real owner.

Unless it is proven otherwise, under Section 118 of this Act, negotiable instruments enjoy the following legal presumptions:

1. In the event of dishonor, the complainant must show that they had received the negotiable instrument in question as a consideration in good faith;

2. It will be assumed that the negotiable instrument was drawn on the date mentioned on it;

3. It will be assumed that it was accepted within a reasonable period before its maturity;

4. It will be assumed that all transfers took place before their maturity which occurred in the sequence of their appearance; and

5. It will be assumed that it was appropriately stamped.

Section 138 is the most important feature of the Act because it contains provisions related to the dishonor of cheques because it makes such default on payment a criminal offence.

However, the same is obviously not applicable to self-cheques. Section 25 (5) of the Payment & Settlement Systems Act, 2007 provides that, the provisions of Chapter XVII that house the dishonor and default sections including the above Section 138 shall also be applicable for electronic dishonor of cheques and non-remittance of electronic transfer.

Art: "The Misers" by the Followers of Marinus van Raymerswael