Negotiable Instrument

Introduction
Exchange of goods and services is the basis of every business activity. Goods are bought and sold for cash as well as on credit. All these transactions require flow of cash either immediately or after a certain time. In modern business, large number of transactions involving huge sums of money take place everyday. It is quite inconvenient as well as risky for either party to make and receive payments in cash. Therefore, it is a common practice for businessmen to make use of certain documents as means of making payment. Some of these documents are called negotiable instruments. In this lesson let us learn about these documents.

Learning objectives
On completion of this topic, you should be able to:
 Describe the principle of negotiability and the uses of negotiable instrument;
 Describe the nature of accommodation bills and promissory notes;
 Outline the main legislation dealing with negotiable instruments;
 Describe the definitions and types of instruments under the Cheques Act;
 Explain transferability with respect to cheques;
 Describe the use of signatures and the consequences of unauthorised signatures for drawer and endorser;
 Describe what sorts of holders there are on negotiable instruments;
 Describe what sorts of crossings can be put on cheques;
 Describe role and liability of the drawee and collecting institutions; and
 Apply the rules and concepts examined in this topic to factual problems.

Basis of the Law
This law created to govern the creation, transferring and liquidation of Negotiable Instruments, to observe and reconcile the international best practice on Negotiable Instrument.

Definition
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. According to the Negotiable Instruments Act, 1881 in India there are just three types of negotiable instruments i.e., promissory note, bill of exchange and cheque.
More specifically, it is