Lecture Sheet of Final Syllabus: Negotiable Instruments Act, 1881

LECTURE SHEET OF FINAL SYLLABUS
By
Masoud Ahmad
Assistant Professor of Law, DBA, IIUC
Negotiable Instruments Act, 1881
Meaning of Negotiable Instrument

• The word ‘Negotiable’ has a technical meaning whereby rights in an instrument can be
transferred by one person to another.
• The term ‘Instrument’ means ‘any written document by which a right is created in favour
of one person and obligations are created on the part of another ’.
• Thus, a “Negotiable Instrument” is a document by which rights vested in a person can be
transferred to another person in accordance with the provisions of the Negotiable
Instruments Act, 1881.
Finally
• According to Section 13 of N.I. Act, “Negotiable Instrument" means a promissory note, bill
of exchange or cheque, payable either to order or to bearer.
Main Features/Elements of NI
1. Freely transferable.
2. It must be in writing, which includes, typing, computer print out or engraving.
3. The instrument must be signed by the person who is the maker or a drawer.
4. There must be an unconditional promise or order to pay.
5. The instrument must involve payment of a certain sum of money only and nothing else.
6. The holder can sue in his own name.
7. In case of a bill or cheque, the drawee must be named or described with reasonable certainty.
Kinds of Instruments
1. Negotiable Instruments (a) by Statute, (b) by Custom or Usage
2. Non-negotiable Instruments
3. Quasi-negotiable Instruments
Examples of Instruments:
• Negotiable Instruments:
By Statute By Custom or Usage
1) Promissory Note. 1) Bank Draft.
2) Bill of Exchange. 2) Pay Orders.
3) Cheque. 3) Hundies.
4) Delivery Order
5) Treasury Bills (TB)
6) Share Warrants (SW)
7) Dividend Warrants (DW)
8) Bearer Debentures (BD)
• Non-negotiable Instruments:
1. Money Order (MO)
2. Postal Order (PO)
3. Fixed Deposit (FD)
4. Share Certificates (SC)
5. Letter of Credit (L/C)
• Quasi-negotiable Instruments:
1. Bills of Lading (BL)
2. Dock Warrant (DW)
3. Railway Receipt (RR)
4. Wharfinger Certificates (WC)
Promissory Note
• Definition: A promissory note is an instrument in writing (not being a bank or a currency
note) containing an unconditional undertaking, signed by the maker to pay a certain sum
of money to the bearer of the instrument (s.4).
Essentials of a Promissory Note

• A promissory must be in writing.
• It must contain an undertaking or promise to pay a definite sum of money.
• The promise to pay must not be conditional.
• It must be signed by the maker.
• The payee must be identified & must be certain.
• Other formalities – like date, place & stamp must be mentioned.
Parties to a Promissory Note
• The maker: The person who makes the promissory note and promises to pay is called the Maker.
• The payee: The person to whom the payment is to be made is called the Payee.
• The holder: The holder is either the payee or someone to whom he may have indorsed
(transfer) the note is known as Holder.
• The endorser: The person who indorses the note to another is called the Endorser.
• The endorsee: The person to whose favour the note is endorsed is called the Endorsee
Format of Promissory Note
Tk. 5,000 Chittagong, Jan 10, 2016

Three months after the date I promise to pay Rakib or order the
sum of Five Thousand taka for value received.
To,
Rakib The Maker
16/A, Chawkbazar Manik STAMP
Chittagong-4202
Bill of Exchange
• Definition: According to Sec.5,
“A bill of exchange is an in strument 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.” Ex: bKash.
Essentials of a BoE
• It must be in writing
• It must contain an order to pay
• The order must be unconditional
• It must be signed by the drawer, and dated
• The drawer, drawee and the payee must be certain
• It must be properly stamped
Ex: bKash: Your Brother------bKash-Dhk.-------bKash-Ctg.-------You.
Parties to a BOE
• DRAWER: The person who makes the bill of exchange is called drawer.
• DRAWEE: The person who is directed to pay is called drawee.
• ACCEPTOR: When the drawee accepts the bill is called acceptor.
• PAYEE: The person to whom the payment is to be made is called payee.
Format of Bill of Exchange
Tk. 10,000 Chittagong, Jan 10, 2016

Three months after date pay to Kamal or order the sum of Ten
Thousand taka for value received.
To,
Manik Acceptor The Drawer
16/A, Chawkbazar Manik Sohel STAMP
Chittagong-4202
Distinction between PN & BoE
CHEQUE
• Definition: According to Sec.6,
“A Cheque is a bill of exchange drawn on a specified banker & not expense to be payable
on a specified banker & not expense to be payable otherwise than on demand & it includes the
electronic image of a truncated cheque & a cheque in the electronic form”.
Features of a Cheque:
• It is always drawn by a specific bank & not by any other institutions.
• It is always payable on demand.
• The signature on the cheque must tally with the specimen signature of the concerned
drawer.
• A cheque must be dated.
Parties to a Cheque
• DRAWER: The person who makes a cheque is called Drawer. (Account holder)
• DRAWEE: The person who is directed to pay is called Drawee. (Bank)
• PAYEE: The person to whom the payment is to be made.
Types of Cheque
a) Open cheque: A cheque is called ‘Open’ when it is possible to get cash over the counter at the
bank. The holder of an open cheque can do the following:
i. Receive its payment over the counter at the bank,
ii. Deposit the cheque in his own account
iii. Pass it to some one else by signing on the back of a cheque.
b) Crossed cheque: Since open cheque is subject to risk of theft, it is dangerous to issue such
cheques. This risk can be avoided by issuing another types of cheque called ‘Crossed cheque’. The
payment of such cheque is not made over the counter at the bank. It is only credited to the bank
account of the payee. A cheque can be crossed by drawing two transverse parallel lines across the
cheque, with or without the writing ‘Account payee’ or ‘Not Negotiable’.
c) Bearer cheque: A cheque which is payable to any person who presents it for payment at the
bank counter is called ‘Bearer cheque’. A bearer cheque can be transferred by mere delivery and
requires no endorsement.
d) Order cheque: An order cheque is one which is payable to a particular person. In such a cheque
the word ‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. The payee can
transfer an order cheque to someone else by signing his or her name on the back of it.
There is another categorization of cheques which is discussed below:
Ante-dated cheques:- Cheque in which the drawer mentions the date earlier to the date of
presenting if for payment. For example, a cheque issued on 20th May 2020 may bear a date 5th
May 2020.
Stale Cheque:- A cheque which is issued today must be presented before at bank for payment
within a stipulated period. After expiry of that period, no payment will be made and it is then
called ‘stale cheque’. Find out from your nearest bank about the validity period of a cheque.
Mutilated Cheque:- In case a cheque is torn into two or more pieces and presented for payment ,
such a cheque is called a mutilated cheque. The bank will not make payment against such a
cheque without getting confirmation of the drawer. But if a cheque is torn at the corners and no
material fact is erased or cancelled, the bank may make payment against such a cheque.
Post-dated Cheque:- Cheque on which drawer mentions a date which is subsequent to the date
on which it is presented, is called post-dated cheque. For example, if a cheque presented on 8th
May 2020 bears a date of 25th May 2020, it is a post-dated cheque. The bank will make payment
only on or after 25th May 2020.
Distinction between a Cheque and a Bill of Exchange

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LECTURE SHEET OF FINAL SYLLABUS

Negotiable Instruments Act, 1881

Meaning of Negotiable Instrument

Essentials of a Promissory Note

Format of Promissory Note

Tk. 5,000 Chittagong, Jan 10, 2016

Tk. 10,000 Chittagong, Jan 10, 2016

Distinction between PN & BoE

Distinction between a Cheque and a Bill of Exchange

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