What is a negotiable instrument?
Negotiable instruments are formally executed legal papers that guarantee the payment of a specific sum to an individual or entity either at a predetermined date or upon demand. They serve as a guarantee for the scheduled payment or refund desired by the bearer. Depending on the type of instrument, the document may or may not specify the names of the recipients.
Negotiable Instruments Act India
The Negotiable Instruments Act of 1881 is a key legislation that regulates the utilization of negotiable instruments in India. The Negotiable Instruments Act serves to govern the regulation of promissory notes, bills of exchange, and cheques. Its enactment was aimed at establishing a consistent legal framework for the utilization of negotiable instruments within India. This legislation has undergone multiple amendments over time, ensuring its alignment with evolving business practices and legal requisites.
Example of Negotiable Instruments
Promissory Notes:
A promissory note is a written promise to pay a specified sum of money to the designated person indicated in the document. The person making the commitment is referred to as the 'maker,' while the recipient of the payment assumes the role of the 'payee.' Transfer of a promissory note can be executed through both approval and delivery.
Bills of Exchange:
A bill of exchange denotes a written directive from the issuer to the payee, instructing the payment of a specific amount of money to a third party. The individual issuing the bill assumes the title of the 'drawer,' the entity liable for the payment is the 'drawee,' and the recipient of the payment is termed the 'payee.'
Cheques:
A cheque includes a written instruction from the drawer to the bank demanding the payment of a particular amount of money to the payee. The bank is obligated to disburse the amount specified in the cheque to the payee or their duly authorized representative. Transfer of a cheque can be executed through both endorsement and delivery