The Negotiable Instrument Act, of 1881 was enacted on 9th December 1881 to define and amend the law relating to Negotiable Instruments i.e. Promissory Notes, Bills of Exchange, and Cheque. The act came into force on the first day of March 1882.
The Act extends to the whole of India but nothing herein contained affects the Indian Paper Currency Act, 1871 (3 of 1871), section 21, or affects any local usage relating to any instrument in an oriental language, provided that such usages may be excluded by any words in the body of the instrument which indicate an intention that the legal relations of the parties thereto shall be governed by this Act;
Section 13 of Negotiable Instrument Acts 1881 defines a negotiable instrument as under.
A “negotiable instrument” means a promissory note, bill of exchange, or cheque payable either to the order or to the bearer.
An instrument is said to be negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to the bearer, it is negotiated by delivery; if payable to the order, it is negotiated by the endorsement of the holder and completed by delivery. Thus, any instrument that has the following characteristics is deemed to be a negotiable instrument.
(i) Title passes on mere delivery, or endorsement and delivery
(ii) The holder may sue in his own name
(iii) No notice of assignment needs to be given
(iv) The holder takes the instrument in good faith, has given value, and has no notice of defection in the title of the transferor.
The principal advantages of negotiable instruments are that they pass through the operation of law to a bona fide transferee for value by mere delivery or by endorsement and delivery. The negotiable instrument can be transferred in the name of another person without the necessity of the complex procedure of executing the deed of assignment. A promissory note, or bill of exchange, or cheque payables either to the order or bearer are deemed as the instruments under Negotiable Instrument Acts of 1881. A demand draft issued by the bank is a bill of exchange, therefore, it is also a negotiable instrument. There are other kinds of instruments like dividend warrants, railway receipts, delivery orders, etc., which are by usage recognized as negotiable instruments.
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