Negotiable Instruments Act

Short title

This section defines the title, extent, and commencement date of the Act, and preserves local usages for oriental instruments like Hundis unless excluded.

Repeal of enactments

This section concerning the repeal of enactments was repealed by the Repealing and Amending Act, 1891.

Interpretation-clause

This section defines the key terms used in the Act, specifically defining banker to include post office savings banks and anyone acting as a banker.

Promissory note

Defines a promissory note as a signed, written, unconditional undertaking to pay a specified sum of money, excluding bank and currency notes, and provides examples of what qualifies.

Bill of exchange

Defines a bill of exchange as a written, signed, unconditional order directing a person to pay a specific sum, and clarifies terms regarding certainty of sum, conditions, and parties.

Cheque

Defines a cheque as a bill of exchange drawn on a bank, payable on demand, including electronic and truncated cheques, referencing IT Act 2000 terms.

Drawer and Drawee

Defines roles including drawer (maker), drawee (payer), drawee in case of need, acceptor, acceptor for honour, and payee (recipient) for bills of exchange or cheques.

Holder

Defines a holder as a person entitled in their own name to possess the instrument and recover the amount due, including at the time of loss/destruction.

Holder in due course

Defines a holder in due course as someone who acquires a negotiable instrument for consideration, before maturity, in good faith, and without knowledge of any title defects.

Payment in due course

Defines payment in due course as a good-faith, non-negligent payment made in accordance with the instrument's apparent terms to the person in possession.

Inland instrument

Defines an inland instrument as any promissory note, bill, or cheque drawn or made in India and payable in India or drawn on an Indian resident.

Foreign instrument

Defines a foreign instrument as any negotiable instrument that is not drawn, made, or made payable in India.

Negotiable instrument

Defines a negotiable instrument as a promissory note, bill of exchange, or cheque payable to order or bearer, and details rules for payees and transferability.

Negotiation

Defines negotiation as the transfer of a promissory note, bill of exchange, or cheque to another person in a way that makes them the holder.

Indorsement

Defines endorsement as when a maker or holder signs a negotiable instrument (on back, face, or attached slip) for negotiation, and defines the signer as the endorser.

Indorsement in blank and in full

Defines endorsement in blank (signature only) and in full (with payment direction to a specified endorsee), applying payee provisions to the endorsee.

Ambiguous instruments

Allows the holder of an ambiguous instrument (construable as either a promissory note or a bill of exchange) to choose how it is treated.

Where amount is stated differently in figures and words

Establishes that if there is a discrepancy between the amount written in figures and the amount written in words, the amount in words takes precedence.

Instruments payable on demand

Specifies that promissory notes or bills of exchange with no indicated payment time, along with all cheques, are payable on demand.

Inchoate stamped instruments

Allows a holder to complete a blank or incomplete signed, stamped paper as a negotiable instrument up to the stamp's value, making the signer liable to a holder in due course.

At sight, On presentment, After sight

Defines the terms 'at sight' and 'on presentment' as meaning on demand, and defines 'after sight' depending on whether it is a promissory note or bill of exchange.

Maturity and Days of grace

Defines maturity as the due date of a bill or note and grants a mandatory three days of grace for instruments not payable on demand.

Calculating maturity of bill or note payable so many months after date or sight

Explains how to calculate maturity in months, stating that the period ends on the corresponding day of the target month or the month's last day if no corresponding day exists.

Calculating maturity of bill or note payable so many days after date or sight

Directs that when calculating the maturity date of a bill or note payable a set number of days after a date or event, the starting day is excluded from the count.

When day of maturity is a holiday

Provides that if a bill or note matures on a public holiday (including Sundays and government-declared holidays), it is due on the preceding business day.

Capacity to make, etc., promissory notes, etc.

States that anyone competent to contract can make/negotiate negotiable instruments. Minors can negotiate them to bind other parties, but cannot bind themselves.

Agency

Allows duly authorized agents to bind their principals on negotiable instruments, but clarifies that general business authority or drawing authority does not imply power to endorse or accept.

Liability of agent signing

Holds agents personally liable on negotiable instruments they sign unless they explicitly state they are signing as agents or exclude personal liability.

Liability of legal representative signing

Holds the legal representative of a deceased person personally liable on negotiable instruments they sign unless they explicitly limit liability to the inherited assets.

Liability of drawer

Makes the drawer of a bill of exchange or cheque liable to compensate the holder upon dishonour, provided they receive due notice of the dishonour.

Liability of drawee of cheque

Obligates the drawee bank to pay a cheque if the drawer has sufficient applicable funds, making the bank liable to compensate the drawer for damages if it defaults.

Liability of maker of note and acceptor of bill

Binds the maker of a note and the acceptor of a bill to pay the amount at maturity or on demand, making them liable to compensate other parties for default damages.

Only drawee can be acceptor except in need or for honour

States that only the designated drawee, drawee in case of need, or acceptor for honour can accept a bill of exchange and bind themselves.

Acceptance by several drawees not partners

Provides that if a bill of exchange has multiple drawees who are not partners, each can only accept the bill for themselves, not for each other without authority.

Liability of indorser

Makes an endorser liable to compensate subsequent holders if the instrument is dishonoured, provided they receive due notice of dishonour, unless they explicitly limit or exclude liability.

Liability of prior parties to holder in due course

Makes all prior parties to a negotiable instrument (maker, drawer, acceptor, and endorsers) liable to a holder in due course until the instrument is fully paid.

Maker, drawer and acceptor principals

Designates the maker, acceptor, or drawer (before acceptance) as principal debtors, with all other parties (like endorsers) acting as sureties for them.

Prior party a principal in respect of each subsequent party

Provides that among parties liable as sureties, each prior party acts as a principal debtor to all subsequent parties, illustrated by an endorsement chain.

Suretyship

Allows a bill's holder to contract with the acceptor without discharging other parties (sureties) by expressly reserving the right to hold those other parties liable.

Discharge of indorser's liability

Discharges an endorser from liability if the holder destroys or impairs their legal remedy against any prior party without consent (e.g., striking out intermediate endorsements).

Acceptor bound, although indorsement forged

Holds the acceptor of a bill of exchange liable even if an endorsement is forged, provided the acceptor knew or suspected the forgery at the time of acceptance.

Acceptance of bill drawn in fictitious name

Holds an acceptor of a bill drawn in a fictitious name liable to a holder in due course, provided the drawer's signature and the endorsement are in the same handwriting.

Negotiable instrument made, etc., without consideration

Provides that instruments without consideration create no payment obligation between immediate parties, but remain enforceable by subsequent holders for consideration, detailing accommodation exceptions.

Partial absence or failure of money-consideration

Provides that if a money-consideration for an instrument is partially absent or fails, the amount recoverable between immediate parties is proportionally reduced.

Partial failure of consideration not consisting of money

Provides for a proportional reduction in liability between immediate parties if a non-monetary consideration partially fails, provided the failed part's money value is easily ascertainable.

Holder's right to duplicate of lost bill

Entitles the holder of a lost, non-overdue bill of exchange to obtain a duplicate from the drawer by providing an indemnity bond if required.

Delivery

States that making, accepting, or endorsing instruments is completed only by delivery, actual or constructive. Bearer instruments negotiate by delivery; order instruments by endorsement and delivery.

Negotiation by delivery

States that bearer instruments are negotiated by delivery, subject to Section 58, and details exceptions for conditional deliveries.

Negotiation by indorsement

States that order instruments are negotiated by the holder through endorsement followed by delivery, subject to Section 58.

Conversion of indorsement in blank into indorsement in full

Allows a holder of an instrument endorsed in blank to convert it into an endorsement in full by writing a payment direction above the signature, without incurring endorser liability.

Effect of indorsement

States that endorsement and delivery transfer title and negotiation rights, but express words can restrict negotiation or make the endorsee an agent, with examples.

Who may negotiate

Specifies who is entitled to negotiate an instrument, requiring lawful possession or holder status, and provides an example.

Indorser who excludes his own liability or makes it conditional

Allows an endorser to exclude their liability (e.g., 'sans recours') or make it conditional, and explains the status of intermediate endorsers if they re-acquire the bill.

Holder deriving title from holder in due course

Provides that any holder who gets their title from a holder in due course inherits the full rights of a holder in due course.

Instrument indorsed in blank

States that any instrument endorsed in blank becomes payable to the bearer, regardless of whether it was originally payable to order, subject to crossed cheque rules.

Conversion of indorsement in blank into indorsement in full (Endorsement chain)

Determines that if a blank-endorsed instrument is later endorsed in full, only the full endorsee or their successors can claim payment from that full endorser.

Indorsement for part of sum due

Declares that partial endorsements transferring only a portion of the due amount are invalid for negotiation, unless the instrument notes a previous partial payment, allowing negotiation of the balance.

Legal representative cannot by delivery only negotiate instrument indorsed by deceased

Prevents the legal representative of a deceased person from negotiating an order instrument by mere delivery if it was endorsed by the deceased but not delivered before their death.

Instrument obtained by unlawful means or for unlawful consideration

States that if an instrument is lost, or obtained via fraud, offense, or unlawful consideration, no subsequent holder claiming through the finder/wrongdoer can recover payment, unless they are a holder in due course.

Instrument acquired after dishonour or when overdue

Determines that acquiring an instrument after dishonour (with notice) or maturity limits the holder to their transferor's rights, with exceptions for accommodation bills.

Instrument negotiable till payment or satisfaction

Allows a negotiable instrument to be negotiated until it is paid or satisfied by the maker, drawee, or acceptor at or after maturity, after which negotiation is blocked.

Presentment for acceptance

Regulates the presentation of after-sight bills for acceptance, detailing the timeframe, business hours, and location requirements, and consequences of default.

Presentment of promissory note for sight

Requires a promissory note payable after sight to be presented to the maker for sight within a reasonable time, during business hours, on a business day, to hold prior parties liable.

Drawee’s time for deliberation

Requires a holder to give the drawee up to 48 hours (excluding public holidays) to decide whether to accept a bill of exchange, if requested.

Presentment for payment

Requires all instruments to be presented for payment to hold prior parties liable, outlines demand note exceptions, and grants banks rights to verify truncated electronic cheques.

Hours for presentment

Requires presentment for payment to be made during normal business hours, and specifically within banking hours if presented to a bank.

Presentment for payment of instrument payable after date or sight

Directs that a promissory note or bill of exchange payable a set time after date or sight must be presented for payment precisely on its maturity date.

Presentment for payment of promissory note payable by instalments

Requires installment promissory notes to be presented for payment on the third day after each installment's due date (including grace days), treating default as dishonour at maturity.

Presentment for payment of instrument payable at specified place and not elsewhere

Directs that if an instrument is made or accepted payable only at a specified place, it must be presented at that exact location to hold any party liable.

Instrument payable at specified place

Requires an instrument payable at a specified place to be presented at that location to charge the maker or drawer of the instrument.

Presentment where no exclusive place specified

Directs that if no specific place of payment is designated in the instrument, it must be presented for payment at the business place or usual residence of the payer.

Presentment when maker, etc., has no known place of business or residence

Allows presentment for acceptance or payment to be made to the payer in person anywhere they can be found, if they have no known business address or residence.

Presentment of cheque to charge drawer

Requires a cheque to be presented to the drawee bank within a timeframe that prevents prejudice to the drawer, subject to Section 84.

Presentment of cheque to charge any other person

Directs that in order to hold any person other than the drawer (such as endorsers) liable on a cheque, it must be presented within a reasonable time after delivery by that person.

Presentment of instrument payable on demand

Requires any negotiable instrument payable on demand to be presented for payment within a reasonable time after the holder receives it, subject to Section 31.

Presentment by or to agent, representative of deceased, or assignee of insolvent

Allows presentment for acceptance or payment to be legally made to an authorized agent, a deceased payer's legal representative, or an insolvent payer's assignee.

Excuse for delay in presentment for acceptance or payment

Excuses delay in presenting an instrument for acceptance or payment if caused by circumstances beyond the holder's control, requiring presentment once the cause ends.

When presentment unnecessary

Lists circumstances under which presentment for payment is dispensed with and the instrument is treated as dishonoured, such as intentional prevention or waiver.

Liability of banker for negligently dealing with bill presented for payment

Holds a bank liable to compensate a bill's holder if the bank negligently or improperly handles, delays, or returns a dishonoured bill, causing loss.

To whom payment should be made

States that in order to discharge the maker or acceptor from liability, payment must be made directly to the legal holder of the instrument, subject to Section 82(c).

Interest when rate specified

Directs that if a specific interest rate is written on a promissory note or bill of exchange, interest is calculated at that rate from the instrument's date until payment or court-directed date.

Interest when no rate specified

Directs that if no interest rate is specified in the instrument, interest is calculated at a statutory rate of 18% per annum from the due date until realization.

Delivery of instrument on payment or indemnity in case of loss

Entitles a payer to see the instrument before paying and have it delivered upon payment (or receive an indemnity if lost), regulating rules for electronic truncated cheques.

Discharge from liability

Outlines the three modes of discharging a maker, acceptor, or endorser from liability: cancellation of names, release by the holder, or payment in due course.

Discharge by allowing drawee more than forty-eight hours to accept

Discharges all prior non-consenting parties from liability if the holder allows the drawee more than 48 hours (excluding public holidays) to accept a bill of exchange.

When cheque not duly presented and drawer damaged thereby

Discharges the drawer of a cheque from liability to the extent of actual damage suffered due to unreasonable delays in presentment, transferring creditor rights against the failed bank to the holder.

Cheque payable to order

Protects the paying banker by discharging them upon payment in due course for order cheques with forged endorsements and original bearer cheques.

Drafts drawn by one branch of a bank on another payable to order

Extends the banking protection under Section 85(1) to bank drafts (demand drafts) drawn by one branch of a bank on another office of the same bank.

Parties not consenting discharged by qualified or limited acceptance

Discharges all previous parties who do not consent when a holder agrees to a qualified (conditional, partial, or modified) acceptance of a bill of exchange.

Effect of material alteration

Renders a negotiable instrument void against any non-consenting party if it undergoes a material alteration, unless done to reflect the original parties' common intent.

Acceptor or indorser bound notwithstanding previous alteration

Binds an acceptor or indorser to their acceptance or endorsement even if the instrument was altered prior to their signature.

Payment of instrument on which alteration is not apparent

Protects a paying banker or liable person who pays an altered or de-crossed instrument in due course if the alteration or obliteration is not apparent on its face.

Extinguishment of rights of action on bill in acceptor's hands

Extinguishes all legal rights of action on a negotiated bill of exchange when the acceptor becomes the holder in their own right at or after maturity.

Dishonour by non-acceptance

Defines when a bill of exchange is dishonoured by non-acceptance, including default by the drawee, qualified acceptance, or legal incompetence to contract.

Dishonour by non-payment

Defines dishonour by non-payment as the failure of the maker, acceptor, or drawee to make payment upon due presentment.

By and to whom notice should be given

Requires the holder or liable party to give notice of dishonour to prior parties to preserve their liability, excluding primary obligors like the maker or acceptor.

Mode in which notice may be given

Outlines valid methods for serving dishonour notices—orally, in writing, or by post—and protects against postal miscarriage if properly addressed.

Party receiving must transmit notice of dishonour

Requires any indorser or party who receives a dishonour notice to transmit notice to their prior parties within a reasonable time to preserve recourse.

Agent for presentment

Grants an agent for presentment independent time to notify their principal upon dishonour, and allows the principal an additional identical period to notify liable parties.

When party to whom notice given is dead

Validates a notice of dishonour dispatched to a deceased party if the sender was unaware of the death at the time of sending.

When notice of dishonour is unnecessary

Lists the statutory exceptions where notice of dishonour is dispensed with, including stop-payment instructions, waiver, and untraceable parties.

Noting

Empowers the holder of a dishonoured promissory note or bill of exchange to have the dishonour officially recorded and authenticated by a notary public.

Protest

Authorizes a notary public's formal certificate of dishonour (protest) and provides for protest for better security if the acceptor becomes insolvent before maturity.

Contents of protest

Mandates the essential statutory contents of a protest certificate, including instrument transcript, parties' names, demand details, notary's signature, and dishonour specifics.

Notice of protest

Directs that notice of protest replaces the ordinary notice of dishonour where protest is legally required, and permits the notary to issue it directly.

Protest for non-payment after dishonour by non-acceptance

Allows a bill dishonoured by non-acceptance to be protested for non-payment at its specified payment place upon maturity without re-presenting it to the drawee.

Protest of foreign bills

Mandates protest for foreign bills of exchange upon dishonour if required by the law of the country where the bill was drawn.

When noting equivalent to protest

Provides that timely noting of a bill by a notary satisfies any deadline for protest, allowing the formal protest certificate to be drawn up later.

Reasonable time

Sets the standard for determining reasonable time in negotiable instrument transactions based on commercial practice and specifically excludes public holidays.

Reasonable time of giving notice of dishonour

Defines the precise statutory timeframe for sending a dishonour notice based on whether the parties reside in different places or the same locality.

Reasonable time for transmitting such notice

Gives an intermediate indorser the same window of time upon receiving a notice of dishonour to forward it upstream to prior parties as allowed to an original holder.

Acceptance for honour

Allows a third party to step in and accept a protested bill of exchange for the honour of any liable party, subject to the holder's consent.

How acceptance for honour must be made

Prescribes the mandatory formal writing on the bill required to constitute a valid acceptance for honour, specifying the party honoured.

Acceptance not specifying for whose honour it is made

Establishes a statutory presumption that an acceptance for honour is made on behalf of the drawer if no specific party is named.

Liability of acceptor for honour

Defines the conditional liability of an acceptor for honour to subsequent parties upon drawee's default, and grants them full indemnity against prior parties.

When acceptor for honour may be charged

Bars recovery from an acceptor for honour unless the bill was duly presented to the drawee at maturity, dishonoured, and officially noted or protested.

Payment for honour

Allows any person to pay a protested bill for the honour of a liable party, provided they formally declare before a notary the party being honoured.

Right of payer for honour

Subrogates the payer for honour to all rights of the holder, entitling recovery of the paid sum, interest, and incidental expenses from the honoured party and prior parties.

Drawee in case of need

Provides that when a bill names an alternative drawee in case of need, no legal dishonour occurs until that designated referee has also refused acceptance or payment.

Acceptance and payment without protest

Authorizes a designated drawee in case of need to accept or pay the bill without requiring prior formal protest.

Rules as to compensation

Sets out the comprehensive rules for assessing compensation upon dishonour, covering principal, noting expenses, currency exchange rates, re-drafts, and 18% statutory interest for paying endorsers.

Presumptions as to negotiable instruments

Mandates statutory rebuttable presumptions in favour of negotiable instruments, presuming valid consideration, correct date, timely acceptance/transfer, and holder in due course status.

Presumption on proof of protest

Obliges the court to presume the fact of dishonour upon production of a valid notarial protest certificate, shifting the burden to disprove dishonour onto the defendant.

Estoppel against denying original validity of instrument

Estops the maker, drawer, or acceptor for honour from challenging the original validity of the instrument against a holder in due course.

Estoppel against denying capacity of payee to indorse

Prevents makers and acceptors from disputing the payee's legal competence to endorse the instrument as of the date it was issued in a suit by a holder in due course.

Estoppel against denying signature or capacity of prior party

Estops an endorser from challenging the authenticity of signatures or legal contractual capacity of any party prior to them on the instrument.

Cheque crossed generally

Defines general crossing of a cheque by the addition of two parallel transverse lines, with or without words like and company or not negotiable.

Cheque crossed specially

Defines special crossing as the addition of a specific banker's name across the cheque's face, directing payment solely to or through that designated bank.

Crossing after issue

Empowers the holder of a cheque to convert an open cheque into a crossed one, upgrade general crossing to special crossing, or add not negotiable.

Payment of cheque crossed generally

Prohibits paying bankers from paying generally crossed cheques except to a banker, and specially crossed cheques except to the specified bank or its agent.

Payment of cheque crossed specially more than once

Mandates that a paying bank must refuse payment on a cheque specially crossed to more than one bank, unless crossed to a second bank purely as a collecting agent.

Payment in due course of crossed cheque

Grants complete statutory discharge to the paying bank and the drawer when a crossed cheque is paid in due course according to its crossing.

Payment of crossed cheque out of due course

Imposes direct financial liability on a banker who pays a crossed cheque in violation of its crossing terms to the true owner for any resulting loss.

Cheque bearing “not negotiable”

Removes the holder-in-due-course shield from a cheque marked not negotiable, ensuring that a transferee cannot acquire a better title than the transferor.

Non-liability of banker receiving payment of cheque

Protects a collecting banker from liability to the true owner for handling cheques with defective title, provided the bank acted in good faith and without negligence.

Application of Chapter to drafts

Extends all statutory crossing and banking protection provisions of Chapter XIV to bank demand drafts.

Set of bills

Allows bills of exchange to be drawn in numbered parts forming one single set, extinguishing upon payment of any one part, with an exception if separate parts are negotiated to different persons.

Holder of first acquired part entitled to all

Resolves conflicting claims between holders of different parts of a bill set by awarding priority and the underlying money to the person who acquired title first.

Law governing liability of maker, acceptor or indorser of foreign instrument

Determines conflict of laws for foreign instruments: maker's/drawer's liability is governed by the place of execution, while acceptor's/indorser's liability is governed by the place of payment.

Law of place of payment governs dishonour

Declares that the law of the place where an instrument is payable governs what acts constitute dishonour and what mode of notice of dishonour is legally sufficient.

Instrument made, etc., out of India, but in accordance with the law of India

Validates subsequent acceptances or indorsements made in India on a foreign instrument that conforms to Indian law, even if the underlying foreign transaction was invalid under local foreign law.

Presumption as to foreign law

Directs Indian courts to presume foreign negotiable instrument law to be identical to Indian law until foreign law is formally pleaded and proven by expert evidence.

Dishonour of cheque for insufficiency, etc., of funds in the account

Criminalizes the dishonour of cheques issued for legally enforceable debts due to insufficient funds or exceeding credit limits, prescribing up to 2 years imprisonment, fine up to double the cheque amount, or both.

Presumption in favour of holder

Mandates a statutory presumption that the cheque was received for the discharge of a legally enforceable debt or liability, shifting the burden of proof to the accused.

Defence which may not be allowed in any prosecution under section 138

Bars the drawer from raising the defense of lack of intent or genuine belief that the cheque would be honoured when issued, establishing strict liability.

Offences by companies

Imposes vicarious criminal liability on companies, partnership firms, managing directors, active partners, and officers in charge of daily business when a cheque issued by an entity is dishonoured.

Cognizance of offences

Governs cognizance of Section 138 complaints, fixing territorial jurisdiction at the payee's home bank branch and establishing a 1-month limitation window with condonation of delay.

Validation for transfer of pending cases

Validates the retrospective transfer of Section 138 cases pursuant to the 2015 amendment and mandates consolidation of all subsequent complaints against the same drawer in the same court.

Power of Court to try cases summarily

Empowers Magistrates to try Section 138 offences summarily with imprisonment up to 1 year, mandating day-to-day proceedings and endeavouring to conclude the trial within 6 months.

Power to direct interim compensation

Empowers the trial court to direct the drawer to deposit up to 20% of the cheque amount as interim compensation within 60 to 90 days of pleading not guilty, refundable with RBI interest upon acquittal.

Mode of service of summons

Permits service of summons on an accused or witness via Speed Post or approved courier, and empowers the court to declare deemed service if the delivery is refused.

Evidence on affidavit

Allows the complainant to tender their examination-in-chief by way of an affidavit, requiring court summoning only for cross-examination upon application by the accused.

Bank’s slip prima facie evidence of certain facts

Mandates that the court shall presume the fact of cheque dishonour upon production of a bank return slip or memo bearing an official mark or seal, shifting the burden to disprove it.

Offences to be compoundable

Declares all offences under the Negotiable Instruments Act to be compoundable at any stage of proceedings without requiring leave of court, overriding standard CrPC compounding restrictions.

Power of Appellate Court to order payment pending appeal against conviction

Empowers the Appellate Sessions Court to direct a convicted drawer to deposit a minimum of 20% of the awarded fine or compensation pending appeal, which may be released to the complainant.