Negotiable instrument
A promissory note, bill of exchange or cheque payable either to order or to bearer (Section 13(1) of the Negotiable Instruments Act, 1881).
Explained
Section 13(1) of the Negotiable Instruments Act, 1881 defines a negotiable instrument as a promissory note, bill of exchange or cheque payable either to order or to bearer. The statutory list is therefore three instruments: the promissory note (Section 4), the bill of exchange (Section 5) and the cheque (Section 6), which is a bill of exchange drawn on a specified banker payable on demand and includes the electronic image of a truncated cheque and a cheque in electronic form.
The Explanations explain the two modes. An instrument is payable to order if it is expressed to be so payable, or is expressed to be payable to a particular person and contains no words prohibiting transfer. It is payable to bearer if it is expressed to be so payable or if the only or last indorsement is in blank. An instrument payable to the order of a specified person, not to him or his order, is still payable to him or his order at his option. Under Section 13(2), an instrument may be payable to two or more payees jointly, or in the alternative.
The essence of negotiability is free transfer with title. Under Section 14 an instrument is negotiated when it is transferred so as to make the transferee its holder. A bearer instrument is negotiated by delivery (Section 47) and an order instrument by indorsement and delivery. A holder in due course under Section 9 takes the instrument for consideration, before the amount became payable, and without sufficient cause to believe that his transferor's title was defective. He takes the instrument free from defects in the title of prior parties, and under Section 53 a holder who derives title from him has the same rights. Section 118 raises presumptions, until the contrary is proved, that every instrument was made for consideration, bears its true date, was transferred before maturity, carries indorsements in the order they appear, and that the holder is a holder in due course.
Examiners test the three instruments, the order and bearer Explanations, and the presumptions in Section 118.
What the law says
[(1) A “negotiable instrument” means a promissory note, bill of exchange or cheque payable either to order or to bearer.
Explanation (i)—A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.
Explanation (ii)—A promissory note, bill of exchange or cheque is payble to bearer which is expressed to be so payable or on which the only or last indorsement is an indorsement in blank.
Explanation (iii)—Where a promissory note, bill of exchange or cheque, either originally or by indorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.]
Defines negotiable instrument; order and bearer Explanations
A “Promissory note” is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.
Illustrations
A signs instruments in the following terms:
Defines promissory note
A “bill of exchange” is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.
A promise or order to pay is not “conditional”, within the meaning of this section and section 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified even which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.
The sum payble may be “certain”, within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due.
Defines bill of exchange
[A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.
Explanation I.—For the purposes of this section, the expressions—
[(a) “a cheque in the electronic form” means a cheque drawn in electronic form by using any computer resource and signed in a secure system with digital signature (with or without biometrics signature) and asymmetric crypto system or with electronic signature, as the case may be;]
Defines cheque, including electronic forms
When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated.
Meaning of negotiation
(a) of consideration:—that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;
(b) as to date:—that every negotiable instrument bearing a date was made or drawn on such date;
(c) as to time of acceptance:—that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity;
Presumptions as to negotiable instruments
For the exam
- Section 13(1) names three: promissory note, bill of exchange and cheque, payable to order or bearer.
- Bearer instrument passes by delivery (Section 47); order instrument by indorsement and delivery.
- Last indorsement in blank makes the instrument payable to bearer (Explanation (ii) to Section 13).
- A holder in due course (Section 9) takes free from defects in prior parties' title.
- Section 118 presumes consideration, date, time of transfer, order of indorsements and due course holding.
119 questions in the Law Maker question bank use this term. Practise Negotiable Instruments Act, 1881 questions
Related terms
- Promissory noteA written instrument, not a bank-note or currency-note, containing an unconditional undertaking signed by the maker to pay a certain sum of money only to, or to the order of, a certain person or the bearer.
- Bill of exchangeAn instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer (Section 5, NI Act).
- ChequeA bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, including the electronic image of a truncated cheque and a cheque in electronic form. Section 6 of the NI Act.
- Holder in due courseOne who for consideration becomes possessor of a bearer instrument, or payee or indorsee of an order instrument, before maturity and without cause to believe the transferor's title defective. Section 9, NI Act.
- Payment in due coursePayment according to the apparent tenor of a negotiable instrument, in good faith and without negligence, to the person in possession, where nothing gives reasonable ground to believe he is not entitled to it (Section 10, NI Act).
Further reading
Checked 6 November 2026. Statutory text is quoted from the Bare Acts library, taken from India Code. See the full glossary.