Applicable in entire India except the State of Jammu & Kashmir.

Deals with law relating to three specific instruments, viz. Promissory note, Bill of exchange and cheque.

There are certain documents which are freely used in commercial transactions and monetary dealings. These documents, if they satisfy certain conditions are known as “Negotiable Instruments.”

A Negotiable instrument is a method of transferring a debt from one person to another.

The word negotiable means “transferable from one person to another in return for consideration ” and instrument means “a written document by which a right is created in favour of some person.”

Kinds of negotiable instrument

Negotiable instrument 1) Promissory note. 2) Bill of exchange.

3) Cheque.

Sec.4

“ A promissory note is an instrument in writing 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”.

.

MAKER : The person who makes the promissory note and promises to pay is called the Maker.

PAYEE : The person to whom the payment is to be made is called the Payee.

ENDORSER: The person who indorses the note to another is called the Endorser .

ENDORSEE: The person to whose favour the note is endorsed is called the Endorsee

1. It must be in writing .2. It must contain a promise or undertaking to

pay a definite sum of money.3. The promise to pay must be unconditional.

4. It must be sign by the maker.

5. The payee must be identified & must be certain.

6. The sum payable must be certain.

7. The amount payable must be in legal tender in money of India.

8. Other formalities – like date, place ,& stamp must be mentioned

FORMAT OF PROMISSORY NOTE

Rs. 1,000 Delhi,February10,2010

Three months after date I promise to pay Shyam or

order the sum of one thousand rupees, for value received.

To, Shyam 222, Ashok Vihar

Delhi-110052

Stamp

Sd/-Ram

Sec.5 :

“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.”

BOE are issued by a bank , they can be refered to as bank draft. If issued by individual, can be referred to as trade draft.

DRAWER: The person who makes the bill of exchange is called drawer.

DRAWEE: The person who is directed to pay is called drawee.

PAYEE: The person to whom the payment is to be made is called payee.

Essentials Features Of Bill Of Exchange:

1.It must be in writing.2.It must contain an order to pay a definite

sum of money.3.The order to pay must be unconditional.4.It must be signed by the drawer (who

draw money).5.The drawer, the drawee &the payee must

be identified & must be certain.6.The sum payable must be certain.7.The bill must contain an order to pay the

money in legal tender in India.8.It must contain the formalities like date,

place & stamp etc.

Rs. 500 Greater Noida,21 Feb.2009

Three months after the date pay to Ram or order the sum of Five Hundred rupees , for value received.

To,

Shyam

235,Subhash marg

delhi-110006.

In case of need with Accepted

Canara Bank, Delhi Shyam Sd/-

Stamp

Krishna

Time and Demand Bills: When payment of a BOE is to be made after a particular period of time , the bill is termed as a “Time Bill” In such a case the date of maturity is always calculated by adding three days of grace. Such a bill requires the acceptance of the drawee.

It is generally given by writing across the face of the instrument

AcceptedR Mohan1.1.2009

In case of “Demand Bill” payment is ot be made om demand. Neither the acceptance of the drawee is necessary nor are any days of grace allowed in this case

Promissory note bill of exchange

There are two parties- maker & payee

There are 3 parties – drawer, drawee, & payee

An Unconditional promise to pay

An unconditional order to pay

A promissory note does not require any acceptance since it is signed by the person who is liable to pay

Require an acceptance of the drawee before it is presented for payment

Sec.6 :

“ A cheque is a bill of exchange drawn on a specified banker & expressed to be payable otherwise than on demand

The maker of a cheque is called the ‘ drawer’ the person thereby directed to pay is called the ‘drawee’.

DRAWER: The person who makes a cheque is called Drawer.

DRAWEE: The person who is directed to pay is called Drawee.

PAYEE: The person to whom the payment is to be made.

1. It is always drawn by a bank & not by any other institutions.

2. It always payable on demand.

FORMAT OF CHEQUE

NO…….. Date………..2009

PUNJAB NATIONAL BANK Subzi Mandi,Delhi -110007

Pay…………………………………………………………or bearer the sum of Rs…………………………………

Rs………………… A/c No Sd/-