Negotiable Instruments Act
The Negotiable Instruments Act, 1881, is the primary law in India governing money-related documents. The word 'Negotiable' means something that is easily transferable from one person to another. The word 'Instrument' refers to a written document that creates a legal right to receive money. This Act was created to help businesses trade easily without always using physical cash. It provides a legal framework for three main types of documents: Promissory Notes, Bills of Exchange, and Cheques.
Concepts (3)
A Bill of Exchange is a written order from a seller to a buyer. The seller (Drawer) tells the buyer (Drawee) to pay money to a specific person or bank (Payee). It is very common in international trade.
A Bill of Exchange is a written order from a seller to a buyer. The seller (Drawer) tells the buyer (Drawee) to pay money to a specific person or bank (Payee). It is very common in international trade. The buyer must write 'Accepted' on the bill to make it valid. Example: A manufacturer in Delhi sends goods to a buyer in Mumbai and sends a bill for payment through a bank.
Crossing means drawing two parallel lines on the top left corner of a cheque. It is a safety instruction to the bank. It tells the bank not to pay cash at the counter. The money must only be deposited into a bank account.
Crossing means drawing two parallel lines on the top left corner of a cheque. It is a safety instruction to the bank. It tells the bank not to pay cash at the counter. The money must only be deposited into a bank account. This helps track the money and prevents theft. Example: An 'Account Payee Only' cheque ensures the money cannot be cashed by anyone except the person named on it.
A Promissory Note is a simple document where one person writes a promise to pay a fixed amount. Unlike a bill, it does not need 'acceptance' because the person who has to pay is the one who wrote it. It must be in writing and signed.
A Promissory Note is a simple document where one person writes a promise to pay a fixed amount. Unlike a bill, it does not need 'acceptance' because the person who has to pay is the one who wrote it. It must be in writing and signed. Example: When you take a personal loan, you sign a note saying 'I promise to pay the bank ₹1,00,000 on June 1st'.
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