[Commerce Class Notes] on Negotiable Instruments Act – Definition of Negotiable Instruments Pdf for Exam

There are several modes of financial transactions. The previous methods mainly focussed on cash transactions. Cash was mainly used as the preferred mode in exchange for goods or services. However, in recent times, there has been the introduction of several negotiable instruments (NI), which has eased out the transaction process. Several countries have devised their own negotiable instrument laws. Let us know the definition of negotiable instruments or the meaning and kinds of negotiable instruments in detail.

What is a Negotiable Instrument Meaning?

Talking about negotiable instrument meaning, the first things that come to our mind are bills and cheques. The best way to define negotiable instruments is to consider them as anything that possesses monetary values. Additionally, such instruments must also be transferable between individuals. Therefore, the two main characteristics of negotiable instruments are financial value and ease of transfer. Like many other countries, India also had the Negotiable Instruments Act being validated in 1881. It is mainly devised to govern the use of such documents in transactions. The Indian negotiable instrument act identifies each of such documents individually and has separate rules for each of them. The act defines the list of negotiable instruments in India consisting of promissory notes, bills of exchange, and cheques. Although another form of payment method called hundis is prevalent in India, it is not considered in the Indian negotiable instrument act.

What is the Negotiable Instrument Act? 

To know what is negotiable instrument act, we need to understand them based on our country. According to the Indian negotiable instrument act 1881, negotiable instruments can be anything that has a monetary value and are transferable. It enlists cheques, exchange bills, and promissory notes, but excludes hundis, a common means of monetary transfer prevalent in some parts of India. The law considers each of these negotiable instruments separately and has defined rules for each of them. Any other instrument can be considered to be negotiable if it qualifies to some basic criteria. For example, the mode of the transaction will be considered under the NI act if they can be transferred by endorsement or delivery. It must also give the right to sue to the holder if there are some means of discrepancies in the transaction.

Similarly, there are negotiable instruments laws in other countries. Singapore has devised laws for Singapore instruments with meaning related to the economy of the country. 

What is the Meaning and Kinds of Negotiable Instruments? 

As discussed earlier, any instrument that has a financial worth and can be transferred is called a negotiable instrument. However, if we define what is NI act, then these attributes are not taken into consideration. Rather these constants are considered to be in relation to the act. Therefore, the act did not provide a clear, defined description for negotiable instruments, but has followed an inclusive approach in describing them. 

According to Section 13 (1) of the NI Act, the list of negotiable instruments in India includes bills of exchange, promissory notes, and cheques that are deemed payable to the bearer or to order. Therefore, the negotiable instruments act notes consider only these three types of NI. 

Just like other properties have financial values, negotiable instruments also have monetary worth. One only has to pay monetary support to the owner in order to purchase it. 

Therefore the main properties of a negotiable instrument are:

• The negotiable instrument has to be freely transferable by a simple delivery process or by endorsement followed by delivery.

• If the name of the sellers of the instruments is defective, it should not affect the person who buys these instruments by trusting them.

• The holders can sue the instruments upon themselves.

Effect of the Negotiable Instrument Law

The ‘Nemo dat quad non-habet’ is considered as one of the essential principles related to transferring property. Such a maxim indicates that the person can pass the best title related to property transfer. Therefore, the owner of the property has the sole power to transfer it, and any transaction being made not by the owner is considered to be void.

However, the negotiable instrument meaning provides an exception to this law of transferring property. Here, any person can acquire a NI from a seller who does not possess them. The only rule pertaining to NIs is that it must be transferred due to bonafide reasons.