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NEGOTIABLE INSTRUMENTS ACT, 1881
26 of 1881
9th December, 1881
An Act to define the Law relating to Promissory Notes, Bills of Exchange and cheques. Whereas it is expedient to define and amend the law relating to promissory notes, bills of exchange and cheques, It is hereby enacted as follows :-
SECTION 01: SHORT TITLE
This Act may be called the Negotiable Instruments Act, 1881. Local extent, Saving of usage relating to hundis, etc., Commencement-It extends to1[the whole of India2[***]; but nothing herein contained affects the [Indian Paper Currency Act, 1871 (3 of 1871),section 21-, or affects any local usage relating to any instrument in an oriental language:
Provided that such usages may be excluded by any words in the body of the instrument, which indicate an intention that the legal relations of the parties thereto shall be governed by this Act; and it shall come into force on the first day of March, 1882.
SECTION 02: REPEAL OF ENACTMENTS
[Rep. by the Amending Act, 1891 (12 of 1891), section 2 and Sch.l,Pt.1.]
SECTION 03: INTERPRETATION CLAUSE
In this Act-3[***] "Banker"-4["banker" includes any person acting as a Banker and any post office saving bank].5[***]
SECTION 04: PROMISSORY NOTE
- A "promissory note" is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. Illustrations - A signs instruments in the following terms :-
(a) "I promise to pay B or order Rs. 500".
(b) "I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for value received".
(c) "Mr. B.l.O.U. Rs. 1,000."
(d) "I promise to pay B Rs. 500 and all other sums which shall be due to him."
(e) "I promise to pay B Rs. 500 first deducting thereout any money which he may owe me."
(f) "1 promise to pay B Rs. 500 seven days after my marriage with C."
(g) "I promise to pay B Rs. 500 on D's death, provided D leaves me enough to pay that sum."
(h) "I promise to pay B Rs. 500 and to deliver to him my black horse on 1st January next."
The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked (c), (d), (e), (f), (g) and (h) are not promissory notes.
SECTION 05: BILL OF EXCHANGE
" A "bill of exchange" is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. A promise or order to pay is not "conditional" within the meaning of this section and section 4. by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain. The sum payable may be "certain", within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due. The person to whom it is clear that the direction is given or that payment is to be made may be a "certain person", within the meaning of this section and section 4, although he is mis-named or designated by description only.
SECTION 06: CHEQUE.
6A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.
Explanation 1.-For the purposes of this section, the expressions-
(a) "a cheque in the electronic form" means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system;
(b) "a truncated cheque" means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.
Explanation II.-For the purposes of this section, the expression "clearing house" means the clearing house house managed by the Reserve Bank of India or a clearing cliaring house recognised as such by the Reserve Bank of India.
SECTION 07: DRAWER" "DRAWEE
The maker of a bill of exchange or cheque is called the drawer"; the person thereby directed to pay is called the "drawee". Drawee in case of need"- When in the bill or in any indorsement thereon the name of any person is given in addition to the drawee to be resorted to in case of need, such person is called a "drawee in case of need". "Acceptor"- After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the "acceptor". "Acceptor for honour"-7[When a bill of exchange has been noted or protested for non-acceptance or for better security], and any person accepts it supra protest for honour of the drawer or of any one of the indorsers, such person is called an "acceptor for honour". "Payee"- The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the "payee".Acceptance ofhill of exchange must he on the hill itself. It may even be on its hack. Usual mode of accepting hills of exchange is for the drawee to write 'accepted' across the face of the hill with the signature underneath.
SECTION 08: HOLDER
The "holder" of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.
SECTION 09: HOLDER IN DUE COURSE
"Holder in due course" means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if8[payable to order], before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
SECTION 10: PAYMENT IN DUE COURSE
"Payment in due course" means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances, which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.
SECTION 11: INLAND INSTRUMENT
A promissory note, bill of exchange or cheque drawn or made in9[India] and made payable in, or drawn upon any person resident in10[lndia) shall be deemed to be an inland instrument.
SECTION 12: FOREIGN INSTRUMENT
Any such instrument not so drawn, made or made payable shall be deemed to be a foreign instrument.
SECTION 13: NEGOTIABLE INSTRUMENT
11[(1) A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer.
Explanation (i)- A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.
Explanation (ii)- A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last indorsement is an indorsement in blank.
Explanation (iii)- Where a promissory note, bill of exchange or cheque, either originally or by indorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.]
12[(2) 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.]
SECTION 14: NEGOTIATION
When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute the person the holder thereof, the instrument is said to be negotiated.
SECTION 15: INDORSEMENT
When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called the "indorser".
SECTION 16: INDORSEMENT "IN BLANK" AND "IN FULL"- "INDORSEE
13[(1) If the indorser signs his name only, the indorsement is said to be "in blank", and if he adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specified person, the indorsement is said to be "in full", and the person so specified is called the "indorsee" of the instrument.
14[(2) Endorsee- The provisions of this Act relating to a payee shall apply with the necessary modifications to an indorsee.]
SECTION 17: AMBIGUOUS INSTRUMENTS
Where an instrument may be construed either as a promissory note or a bill of exchange, the holder may at his election treat it as either, and the instrument shall be thenceforward treated accordingly.
SECTION 18: WHERE AMOUNT IS STATED DIFFERENTLY IN FIGURES AND WORDS
If the amount undertaken or ordered to be paid is stated differently in figures and in words, the amount stated in words shall be the amount undertaken or ordered to be paid.
SECTION 19: INSTRUMENTS PAYABLE ON DEMAND
A promissory note or bill of exchange, in which no time for payment is specified, and a cheque, are payable on demand.
SECTION 20: INCHOATE STAMPED INSTRUMENTS
Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in15[India], and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount:
Provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder.
SECTION 21: AT SIGHT
, "On presentment", "After sight"- In a promissory note or bill of exchange the expressions "at sight" and "on presentment" means on demand. The expression "after sight" means, in a promissory note, after presentment for sight, and, in a bill of exchange after acceptance, or noting for non-acceptance, or protest for non- acceptance.
SECTION 22: MATURITY
The maturity of a promissory note or bill of exchange is the date at which it falls due. Days of grace- Every promissory note or bill of exchange which is not expressed to be payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is expressed to be payable.
SECTION 23: CALCULATING MATURITY OF BILL OR NOTE PAYABLE SO MANY MONTHS AFTER DATE OR SIGHT
In calculating the date at which a promissory note or bill of exchange, made payable at stated number of months after date or after sight, or after a certain evf is at maturity, the period stated shall be held to terminate on the day of month vhich corresponds with the day on which the instrument is dated, or presented for acceptance or sight, or noted for non-acceptance, or protested for non-acceptance, or the event happens, or where the instrument is a bill of exchange made payable a stated number of months after sight and has been accepted for honour, with the day on which it was so accepted. If the month in which the period would terminate has no corresponding day, the period shall be held to terminate on the last day of such month. Illustrations
(a) A negotiable instrument dated 29th January, 1878, is made payable at one month after date. The instrument is at maturity on the third day after the 28th February, 1878.
(b) A negotiable instrument, dated 30th August, 1878, is made payable three months after date. The instrument is at maturity on the 3rd December, 1878.
(c) A promissory note or bill of exchange, dated 31st August, 1878, is made payable three months after date. The instrument is at maturity on the 3rd December, 1878.
SECTION 24: CALCULATING MATURITY OF BILL OR NOTE PAYABLE SO MANY DAYS AFTER DATE OR SIGHT
In calculating the date at which a promissory note or bill of exchange made payable a certain number of days after date of after sight or after a certain event is at maturity, the day of the date, or of presentment for acceptance or sight, or of protest for non- acceptance, or on which the event happens, shall be excluded.
SECTION 25: WHEN DAY OF MATURITY IS A HOLIDAY
When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument shall be deemed to be due on the next preceding business day.
Explanation- The expression "Public holiday" includes Sunday:16[***] and any other day declared by the17[Central Government], by notification in the Official Gazette, to be a public holiday.
SECTION 26: CAPACITY TO MAKE, ETC., PROMISSORY NOTES, ETC.
Every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, indorsement, delivery and negotiation of a promissory note, bill of exchange or cheque. Minor- A minor may draw, indorse, deliver and negotiate such instruments to as to bind all parties except himself. Nothing herein contained shall be deemed to empower a corporation to make, indorse or accept such instruments except in cases in which, under the law for the time being in force, they are so empowered.
SECTION 27: AGENCY
Every person capable of binding himself or of being bound, as mentioned in section 26, may so bind himself or be bound by a duly authorized agent acting in his name. A general authority to transact business and receive and discharge debts does not confer upon an agent the power of accepting or indorsing bills of exchange so as to bind his principal. An authority to draw bills of exchange does not of itself import an authority to indorse.
SECTION 28: LIABILITY OF AGENT SIGNING
An agent who signs his name to a promissory note, bill of exchange or cheque without indicating thereon that he signs as agent, or that he does not intend thereby to incur personal responsibility, is liable personally on the instrument, except to those who induced him to sign upon the belief that the principal only would be held liable.
SECTION 29: LIABILITY OF LEGAL REPRESENTATIVE SIGNING
A legal representative of a deceased person who signs his name to a promissory note, bill of exchange or cheque is liable personally thereon unless he expressly limits his liability to the extent of the assets received by him as such.
SECTION 30: LIABILITY OF DRAWER
The drawer of a bill of exchange or cheque is bound in case of dishonour by the drawee or acceptor thereof, to compensate the holder, provided due notice of dishonour has been given to, or received by the drawer as hereinafter provided.
SECTION 31: LIABILITY OF DRAWEE OF CHEQUE
The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required so to do, and. in default of such payment, must compensate the drawer for any loss or damage caused by such default.
SECTION 32: LIABILITY OF MAKER OF NOTE AND ACCEPTOR OF BILL
In the absence of a contract to the contrary, the maker of a promissory note and the acceptor before maturity of a bill of exchange are bound to pay the amount thereof at maturity according to the apparent tenor of the note or acceptance respectively, and the acceptor of a bill of exchange at or after maturity is bound to pay the amount thereof to the holder on demand. In default of such payment as aforesaid such maker or acceptor is bound to compensate any party to the note or bill for any loss or damage sustained by him and caused by such default.
SECTION 33: ONLY DRAWEE CAN BE ACCEPTOR EXCEPT IN NEED OR FOR HONOUR
No person except the drawee of a bill of exchange, or all or some of several drawees, or a person named therein as a drawee in case of need, or an acceptor for honour, can bind himself by an acceptance.
SECTION 34: ACCEPTANCE BY SEVERAL DRAWEES NOT PARTNERS
Where there are several drawees of a bill of exchange who are not partners, each of them can accept it for himself, but none of them can accept it for another without his authority.
SECTION 35: LIABILITY OF INDORSER
In the absence of a contract to the contrary, whoever indorses and delivers a negotiable instrument before maturity, without, in such indorsement, expressly excluding or making condition
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