1. NEGOTIABLE INSTRUMENTS
The term negotiable instruments means a documents transferable by delivery.
According to section 13(1) of the Negotiable Instruments Act,
“A negotiable instruments means a promissory note, bill of exchange or cheque payable either to order or to bearer.”

2. KINDS OF NEGOTIABLE INSTRUMENTS U/S 13
BILL OF EXCHANGE
(U/S 5)
CHEQUE
(U/S 6)
OTHERS
(UNDER DIFFERENT SECTIONS)
PROMISSORY
NOTE
(U/S 4)

3. PROMISSORY NOTES
A Promissory note is defined by section 4 of the negotiable instruments act as,
“an instruments in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money only to, or to the other of, a certain person, or to the bearer of the instruments.”

4. An unconditional undertaking Signed by the maker
A Promissory note is
A Instruments
In writing containing
An unconditional undertaking
Signed by the maker
To pay certain sum of money to
ORDER
BEARER

5. Essentials of a Promissory Note
It must be in writing : A promissory note must always take the form of a written document. The instruments may be written on any paper, on any book or any substitute for paper.
The promise to pay must be express: The essentials of a promissory note is an express promise to pay. A mere acknowledgement of debt without express promise to pay is not a promissory note. A mere implied promise will not do.
The promise to pay must be unconditional: A promissory note must contain an unconditional promise to pay. The promise to pay must not depend on the happening of a contingency.

6. (4) It must be signed by the maker: The signature of the maker on the face of the note is most essential feature. In the absence of the signature of the maker, an instruments cannot be called a promissory note.
(5) The maker must be certain: The maker of the note must be definite. The note must show on its face the person who is liable as a maker. The maker is taken as certain if from the description of the maker, sufficient indication follows about his identity.
(6) Promise must be to pay a certain sum: The amount promised to be paid by the promissory note must be certain and definite. If the amount to be paid is uncertain the instrument will not operate as a promissory note.

7. (7) The promise should be to pa money and money only: It is essentials that the medium of payment must be money only and not bonds, bills or any other article. Thus a document containing a promise to pay money and paddy is not a promissory note.
(8) The payee must be certain: It is essentials td be capable of being the validity of a promissory note that the person who is to receive the money should be capable of being ascertained from the instrument itself.
(9) Other formalities: Formalities like number, place, date, attestation, etc., are usually found in the promissory note, but they are not essential in law. It is not essential to the validity of a promissory note that it should contain the name of the place where it is made or the place where it is payable.

8. (10) It may be payable on demand or after a definite period of time: where no time is mentioned, the note is payable on demand
(11) It cannot be made payable to bearer on demand:
Form of the promissory note : no special form is laid down in the act. Bt all above essentials must be present. A promissory note may be in the form of a letter or any other form.

9. Specimen form of The Promissory Note
Patiala
15 July, 2002
On demand, I promise to pay Mr. X Y or order Rs.2000(Rupees two thousand only) with interest at 8% per annum for value received.
SD/-
Stamp
A.B.

10. Bills Of Exchange
Section 5 Define - a bill of exchange as “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 order of a certain person or to the bearer to the instrument”.

11. Parties to a bill of exchange
Debtor draws the bill
Drawee sign and accepted it.
3.On due date drawer represent the bill to
drawee and drawee pays it.
Creditor / Drawer
Debtor / Drawee

12. Essentials of a bills of exchange
It must be in writing- bills of exchange should always be in writing .It can not be oral.
It is an order- Unlike a promissory note , a bill of exchange is not a promise to pay but an order hereby the drawer order the drawee to pay.
It is an unconditional order- The order to pay should be unconditional. If the drawer order to pay on fulfillment of some condition, it would be an unconditional order.

13. It must be signed by the drawer- The instrument must be signed by the drawer, otherwise it is incomplete and no effect . Even if it is written by the drawer himself.
To pay certain sum- It is also necessary that the sum of money promised to be payable in a promissory note must be certain or definite.
To pay money only- In every contract there should be some consideration, then only it became a valid contract. Therefore it is very necessary that a bill of exchange contain to pay money only.

14. Days of grace- Every bill of exchange which is
Maturity of bill of exchange-The maturity date of bill of exchange is determined whether the bill was payable on demand.
Days of grace- Every bill of exchange which is
Not payable on demand
Not payable at sight
No payable on presentation is entitled to (3) three days of grace while calculating its maturity date.

15. DIFFERENCE BETWEEN PROMISSORY NOTE AND BILL OF EXCHANGE
Points of Difference
Promissory Note
Bill of Exchange
1. Definition
Refer the definition stated U/S 4
Refer the definition stated U/S 5
2. Parties
There are 2 parties: Maker and Payee
There are 3 parties: Drawer, Drawee and Payee
3. Acceptance
Not required
Acceptance is must
4. Unconditional Promise/Order
A promissory note is an unconditional promise to pay
A bill of exchange is an unconditional order to pay.

16. 5. Signature
A promissory note must be signed by the maker i.e. the debtor who makes the note and has to pay it also.
A bill of exchange is drawn by the drawer and signed by the drawer. But the drawee also has to write the word “accepted and sign the bill.”
6. Presented for acceptance
A promissory note is never presented for getting the acceptance
A bill of exchange has to be presented by the drawer to the drawee, so that the drawee may accept it.
7. Identity of the creator of document
Promissory note is made by the debtor
Bill of exchange is drawn by the creditor

17. 8. Liability to pay
The liability to pay promissory note is of the maker
The liability to pay bill of exchange is of the drawee
9. Payable to bearer
A promissory note cannot be made payable to bearer
A bill of exchange can be drawn payable to bearer
10. Notice of Dishonor
In case if a dishonor of a P/N, no notice is required to be given to the maker (U/S 93)
In case of a dishonor of a bill of exchange, due notice of dishonor must be given to all the prior parties including drawer, but excluding drawee (U/S 93)

18. lll . CHEQUE (Section 6 ) According to section 6 :-
“A Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise on demand and it includes electronic image of a truncated cheque and a cheque in the electronic form.”
Cheque
Bill of Exchange
that is
Drawn on a Payable on demand
specified banker

19. The definition of the cheque has been enlarged by the Negotiable instruments ( Amendment ) 2002, so as
“ to include electronic image of a truncated cheque and a cheque in the electronic form.”
Cheque can be signed using digital signature and asymmetric crypto system.
“ 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.
“ 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.
“ clearing house” means the clearing house managed by the Reserve Bank of India or a clearing house recognized as such by the Reserve Bank of India.
The debtor to pay to his creditor can also make use of another negotiable instrument which is a “ cheque”. But the only difference is that when a debtor instead of paying cash to his creditor, hands over a cheque then the creditor has to present this cheque in a bank for getting his payment. This means that the creditor can present this cheque to a specified banker demanding his payment and shall get his payment.

20. A cheque is always payable on demand
In other words,
A cheque is always drawn upon a bank
(1) The Customer draws a cheque on the drawee who is a bank
Drawer/ Customer Drawer/Banker
(2) when the cheque is presented for payment, the bank has to pay immediately
A special trait of a cheque is that it is that kind of a bill of exchange which is drawn on a drawee who is always a banker. Unlike a normal bill of exchange, where drawee can be anybody , in case of a cheque the drawee is a specified banker.
A cheque is always payable on demand
A bill of exchange can be either payable on demand or may not be payable on demand. But a cheque is a bill of exchange which is to be paid as and when the cheque is presented for payment to the bank. The date of maturity of a cheque is whenever the drawer demands payment from the drawee.

21. Period of validity of a cheque
A Cheque is valid for payment within a period of six months from the date on which it is drawn. According to the banking practise, a cheque remains valid for payment for six months from the date on which it is drawn. Thereafter, it becomes stale and then the drawee bank can refuse to pay the same.
Sometimes the drawer mentions a period of less than 6 months for which the cheque is to remain valid. For the instance, there may be a mention, “valid for 3 months only” . In such a case the validity period of the cheque would be 3 months from the date of its issue. Similarly, for example, a cheque dated 1st January may mention “ valid upto 30th April”. Then the validity of the cheque will be upto the specified date.
Revalidation of stale cheque
A cheque which has become stale by the expiry of the period of validity can be revalidated by the drawer. A revalidated cheque gets a new lease of life and remains valid for the extended period of validity.
Validity of a post-dated cheque
In case of post dated cheque, the period of validity is to be counted from the date which has been put on the cheque because that date is to be considered as the date of issue of cheque rather than the date on which the cheque ha been drawn. A post dated cheque is not a cheque on the date on which it is drawn. It becomes a cheque on the date written on it and till that date the instruments remains a bill of exchange.

22. ESSENTIALS OF A CHEQUE
Cheque is a negotiable instrument: A Cheque is freely transferrable i.e. negotiable therefore is called as a negotiable instrument. A Cheque is freely transferrable any number of times before its due date.
Cheque is in writing: Every cheque has to be in writing. An oral promise to pay does not become a cheque. No particular form is prescribed, a promise contained in a letter will suffice. Writing includes printing or typing.
Cheque is an order: In a cheque one person makes an order to another person to pay a certain sum of money to someone. A cheque is different from promissory note.

23. 4. Cheque is an unconditional order: The payment should be conditional
Cheque is an unconditional order: The payment should be conditional. The word ‘unconditional’ has already been explained in connection with a promissory note and same considerations apply here.
To pay certain sum: It is also necessary that the sum of money promised to be payable in a promissory note must be certain and should be paid by cheque with certainty and definite.
To pay money only: “an agreement without consideration is a void agreement .” In other words, in every promise consideration must exist. The instrument must be payable in money and money only. If the instrument contains a promise to pay something other than money or something in addition to money, it will not be a promissory note, obviously not a cheque. The sum of money payable must also be certain.
Cheque may be payable to order or to bearer: The person to whom the cheque is payable i.e. payee., he should be certain. In other words, the cheque must specify clearly the name or the designation of the person who is to receive the payment.

24. 8. Parties of a cheque:- drawer & drawee : Drawer: The one who draws the bill.
Drawee : The one on whom bill is drawn.
Payee: Payee is the one who is entitled to receive the payment on the bill of exchange.
Cheque is always payable on demand: Like a bill of exchange, a cheque can also be payable on demand. When a cheque is payable on demand, the drawee has to pay the bill amount whenever the drawer demands the payment. The instruments payable on demand are meant for immediate payment, therefore no question arises for their maturity.
Maturity of a cheque: The maturity of a cheque is depend on is as and when demanded but the period of validity of a cheque normally is 6 months.

25. EXAMPLE: sS State Bank Of India PGI Branch, Chandigarh
No Date: Jan 26th 2017
Pay to Reena or order Rupees ten lakhs only.
Rs.10,00,000
Sd /- M/s Jagriti &publishers ltd.

26. DIFFERENCE BETWEEN BILL OF EXCHANGE AND CHEQUE
Points of Distinction
Bill of Exchange
Cheque
1. Definition
Refer the definition as stated U/S 5 of the Act
Refer the definition as stated U/S 6 as stated U/S 6 of the Act
2. Parties
Drawer and a drawee
Drawer and a drawee, but drawee is always a banker
3. Acceptance
Acceptance is must for a bill of exchange
No acceptance is required
4. Grace Days
3 days of grace are allowed while calculating the maturity date
No days of grace are allowed

27. 5. Identity of drawee
Drawee can be any person
Drawee in case of a cheque is always a banker
6. Payable on Demand
A bill of exchange may be payable on demand or not payable on demand
A cheque is always payable on demand
7. Crossing
A bill of exchange cannot be crossed
A cheque may be crossed. A crossed cheque has to be credited to the account of the customer. i.e. no cash payment on counter can be made for a crossed cheque.

28. 8. Presented for acceptance
A bill is first presented to the drawee for acceptance and then is presented in the due date for payment.
A cheque is only presented for payment
9. Reason for Dishonor
A bill may get dishonored for:-
Non acceptance ; or
Non payment
A cheque is dishonored only for non-payment
10. Validity period
There is no validity period for a bill of exchange. The maturity date is calculated accordingly.
A cheque is valid for maximum period of o months. However, it may be drawn for a period of less than 6 months also.

29. (IV) OTHER NEGOTIABLE INSTRUMENTS
Inland Instruments (section 11)
A promissory note ,bill of exchange or cheque drawn or made in India , and
made payable in, or drawn upon any person resident in India , shall be
deemed to be an inland instrument . An inland instrument ,therefore may be,
either:
(i) made or drawn in India and also made payable in India ; or,
(ii) drawn in India on a person resident in India , although it is stated to be
payable in a foreign country.
Examples of inland instruments are:
1. A promissory note made in Delhi and payable in Bombay.
2. A bill of exchange drawn in Delhi and made payable in Bombay (it may have
been drawn on some person resident abroad ,e.g., London ).
3. A bill of exchange drawn in Delhi n a person resident in a Bombay
( although it is stated to be payable in Bombay).

30. (3) Order and Bearer Instruments
(2) Foreign instrument ( section 12)
Any instrument which is not is drawn , made or made payable that it may
be called an inland instrument , shall be deemed to be a foreign instrument
is one which is not an inland instrument . Thus , a foreign instrument is one
which is not an inland instrument.
Examples of foreign instrument are :
1. A promissory note made in India, but made payable in England .
2. A promissory note made in England , but payable in India.
3. A bill of exchange drawn in England but made payable in India.
4. A bill of exchange drawn in India and made payable in England.
5. A bill of exchange drawn in England and payable in Paris , although it
may have been indorsed in India.
(3) Order and Bearer Instruments
{refer chapter 1, for detailed information order and bearer instruments}
(4) Instruments payable on demand
When a negotiable instrument is expressed to be payable on demand, it
is due for payment immediately after its issue. U/S 21 The expression “at sight”
and “on presentment also mean on demand.

31. (5) Instruments payable otherwise than on demand
The following instruments are payable on demand:-
(i) Instruments where no time is specified (U/S 19)
Instruments payable at sight (U/S21)
Instruments payable on presentment (U/S21)
Since the instruments payable on demand (or at sight or on presentment are meant
for immediate payment no question of their maturity arises. They are due for
payment from the date of their issue.
(5) Instruments payable otherwise than on demand
A promissory note or bill of exchange can be payable otherwise than on
demand but not a cheque.
A promissory note or a bill of exchange can be expressed to payable
otherwise than on demand and not a cheque. Examples of such instruments
are –
(i) When it is made on one date but it is expressed to be payable on some other
future date . For example , a bill of exchange drawn on 1st January could
be expressed to be payable on 1st April.
(ii) When the payment is to be made at certain period after date , for example
a bill of exchange drawn on 1st January could be expressed t be payable
“ Two months after date”. It means that the drawer wants the payment of
such bill to be made two months after the date of its issue.

32. A bill of exchange or a promissory note payable:-
(6) Time Instruments
A bill of exchange or a promissory note payable:-
(i) Payable after a fixed period ; or
(ii)Payable after sight ; or
(iii) Payable on a specified day; or
(iv) Payable on the happening of an event which is certain to happen is called
as a time instrument.
Payable after sight means
(a) for a bill of exchange means after acceptance
(b) for a promissory note means after presentiment for sight.
Accommodation Bills
When bill is drawn , accepted , or indorsed for consideration , it is called an
‘Accommodation bill’.
Example. A is in need of rs 1,000 .He approaches his friend B for borrowings the amount .B is not in a position to lend , but he suggests that A might draws a bill on him which he would accept .If the credit of A is good , he would get the bill discounted with his banker . On the due date .A would pay Rs 1,000 to B who meet the bill . The bill is an accommodation bill.

33. (9) Ambiguous Instrument ( section 17)
In this case , B is the ‘ accommodating party’ , or ‘ accommodation party and A is the ‘accommodated party’ . The accommodating party signs the “accommodation bill” as the drawer ,acceptor or indorser without other person. He is liable on the bill to the holder , and it is immaterial whether , when such holder took the bill , he knew such party to be an accommodating party or not.
(8) Fictitious Bills (section 42) When the name of the drawer or payee or both are fictitious , the bill is called fictitious , the bill is called a fictitious bill. The word ‘fictitious’ means (i) a non existing person and (ii) pretended person ,i.e., a person other than actual person intended by the parties . Where a bill is drawn in the name of a fictitious person , and payable to the drawer’s order, the acceptor is liable to pay to the order of the person who signed it as drawer . Therefore, the endorsee can recover the amount as against the acceptor provided he is in a position to show that signature of the supposed drawer of the bill and the first endorsement on It are in the handwriting of the same person . In case of a fictitious instruments , only a holder in a due
course can recover the money as against the acceptor.
(9) Ambiguous Instrument ( section 17)
When an instrument owing to its faulty drafting may be interpreted either as a
promissory note or a bill of exchange , it is called an ambiguous instrument .Its holder has to select once for all whether he wants to treat it as a promissory note
or a bill of exchange .( section 17)

34. (10) Inchoate Instrument (section .20)
If the amount under taken or ordered to be paid is stated differently in figures and
in words is the amount undertaken or ordered to be paid ( sec.18).
(10) Inchoate Instrument (section .20)
An inchoate instrument is an incomplete instrument in some respect.
When a person signs and delivers to another a blank or incomplete
stamped paper , he authorises the other person to make or complete
upon it a negotiable instrument for any amount not exceeding the
amount covered by the stamp. The person so signing is liable upon
such instrument in the capacity in which he signed the same , to any
holder in due course for such amount.
The following points should be noted in connection with an
inchoate instrument:
(1) The liability of the person who signs and delivers an inchoate
instrument arises only when the blanks are filled in and the
instrument is completed .
(2) To make the signer liable on an inchoate instrument, it is
necessary that the instrument should be delivered to the
transferee.
(3)If an inchoate instrument is completed and negotiated to a
holder in due course ,he can claim payment of the full amount
covered by the stamp even though the authority has been
exceeded ., and even though the signer might have given
secret instructions to the holder that it should be filled in

35. or transferring absolutely property therein , it is called an escrow.
in for a smaller amount.
(11) Escrow
When a negotiable instrument is delivered conditionally or for a special purpose
as a collateral security or for a safe custody only, and not for the purpose
or transferring absolutely property therein , it is called an escrow.
(12) Documentary and clean bill
When a document of title to the goods and other documents e.g ., invoice,
marine insurance policy, etc., are annexed to a bill , the bill is called
documentary bill. Such documents are delivered to the buyer only a
acceptance or payment of the bill. When no documents relating to the
goods represented by the bill are attached to it, it is called a clean bill.
(13) Bills in sets
A bill of exchange is sometimes drawn in parts , especially when it has to
be sent from one country to one another. This is known as drawing a bill in set
is (a) to avoid undue delay and unnecessary inconvenience which may arise
due to the loss or miscarriage of the bill during the transit , and
(b) to ensure the safe transmission of at least one part of the bill to the
drawee and its acceptance by him as early as possible.

36. Rules regarding bills In sets ( section . 132 and 133).
A bill of exchange may be drawn in parts ( two , three or four).
All the parts together make a set and the whole set constitutes
only one well.
Each part of the bill in a set must be numbered and must contain
a provision that it shall continue to be payable only so long as
the other parts remain unpaid.
The entire bill is extinguished when payment is made on one of
the parts.
The drawer must sign each part of the bill deliver all the parts.
But the stamp is affixed on one part only and only one part of
the whole set needs to be accepted.

37. Made By:
Roll no.
JAGRITI
BHAVNA
DIKSHA
SIMRANJEET
NEESHU