Thursday, July 19, 2012

Negotiable Instruments - Definition and Feature

The term ‘negotiable’ means transferable and the word ‘document’ means ‘in writing’. Therefore, negotiable means a written promise or order to pay money which may be transferred from one person to another.
Section 13 of the Negotiable Instruments Act, 1881 states – “A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.” A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees.

Characteristics of a Negotiable Instruments:
a.       Witting and Signature according to the rules: A Negotiable Instrument must be in writing and signed by the parties according to the rules relating to (a) promissory notes, (b) Bills of Exchange and (c) Cheques.
b.      Payable by Money:  Negotiable Instruments are payable by the legal tender money of India.
c.       Unconditional Promise:  If the instrument is a promissory note, it must contain an unconditional promise to pay. If the instrument is a bill or cheque, it must be an unconditional order to pay money.
d.      Freely transferable:  A negotiable instrument is transferable from one person to another by delivery or by endorsement and delivery.
e.      Acquisition of Property:  Any person who possesses a negotiable instruments, becomes its owner and entitled to the sum of money, mentioned on the face of the instrument.
f.        Acquisition of Good Title: The holder in due course, i.e. the transferee of a negotiable instrument in good faith and for value, acquires a good title to the instrument even if the title of the transferor is defective. Further his title will not be affected, by any defect in the title of the transferor.
g.       No Need of Giving Notice:  There is no need of giving a notice of transfer of a negotiable instrument to the party liable to pay the money.
h.      Right of the Holder in Due Course:  The holder in the due course remains unaffected by certain defences, which might be available against previous holders, as for example , fraud, to which he is not a party.


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