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This section concerning the repeal of enactments was repealed by the Repealing and Amending Act, 1891.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