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Different types of Negotiable Instruments Different types of Negotiable Instruments

Bronze medal Reporter Adv Rohith Kapoor Posted 22 Dec 2017 Post Comment Visitors: 9398 Read More News and Blogs
Different types of Negotiable Instruments

Negotiable Instrument is a written document that guarantees to pay a certain amount of money to the bearer of the document either on demand or by setting time. It is a method of transferring liability from one person to the other. They are mainly used for commercial transactions and financial dealings. 

Examples of Negotiable Instruments include a cheque, a promissory note and a bill of exchange. 

The characteristics of Negotiable Instrument includes recovery, owing to order or bearer, can be transferred voluntarily, no defects and considered to be presumption to the holder. Negotiable Instrument is always transferred by a single process and it can be recovered at any time. The document is drawn, accepted, endorsed and transferred for consideration. 

Different types of Negotiable Instruments are: 

Mainly there are two types of Negotiable Instruments: the instruments which can be negotiated by statute and the instruments which can be negotiated by custom or usage. Promissory Notes, Bills of Exchange and Cheques are the instruments which are negotiated by statute. Circular notes, Bank notes, share warrants etc. are examples of instruments that are negotiated by custom or usage. 

Promissory notes 

A promissory note is a legal instrument in which a party promises to pay a certain amount of money to another party either at a fixed time or on demand of the payee. The promissory note is unconditional which is signed by the maker. The maker is the person who makes the promissory note and promises to pay the amount. The payee is the person to whom the payment is made. 

Some of the essential features of promissory note include, it must be in writing, it is unconditional and it is payable to a definite person. A maker or payer need to sign the promissory note. The amount can be paid on demand or at a fixed or determined date. The document must bear a stamp that is prescribed by the law of the country. 

Bill of Exchange 

Bill of exchange is a written promissory document for a person to pay a certain amount of money to the required payee. It also contains unconditional order which is signed by the maker for directing a person to pay. 

The essentials of the bill of exchange include amount which is payable are to be certain, the payment is done by money and the bill must be paid at required time or on demand. Bill of exchange is always paid by the creditor and it should be accepted by the drawee. 


A cheque can be defined as an order to the bank to pay the stated amount in the document to the account of the drawer. It is payable on demand and it can be considered as a bill of exchange. The cheque can be crossed to end its negotiability. The acceptance of cheque is not always needed. 

The cheque is always accepted into the account of the payee. A cheque bounce is a cheque which cannot be able to process due to the insufficiency of funds in the account holder. Banks will always return such cheques. 

There are different types of cheques. Some of them are, order cheque, bearer cheque, marked cheque, open cheque, crossed cheque, bad cheque, Ante-dated Cheque, Post-dated Cheque, Stale Cheque, Mutilated Cheque, Digital Cheque- Cheques in Electronic form and Truncated Cheques, Banker Cheque, Golden Cheque and Travellers Cheque. 

Other Negotiable Instruments include Bill in sets, Accommodation Bill, Ambiguous Instruments, Inchoate Stamped Instrument and Forged Instruments. 


Click on the image to read LANDMARK JUDGMENT : SECTION 139 OF THE N.I. ACT

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