16-Mar-26

Negotiable Instrument

MS Palash
Professor of Agribusiness and Marketing
Bangladesh Agricultural University

1. THE NEGOTIABLE INSTRUMENTS ACT-1881

• Negotiable means transferable by delivery and instrument

means a written document by which a right is created in favor
of some person. The term negotiable instrument means a
document transferable by delivery.
• According to negotiable instruments Act of 1881 “A
negotiable instrument means a promissory note, bill of
exchange or cheque payable either to order or bearer”.

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1. Transfer by Negotiation

• Negotiation is a transfer of an instrument from one person to

another in such a manner as to express title & to represent the
transferee the holder thereof.
• Passing of possession
• With intention to pass title
• Must be transferred in such a manner that the transferee
becomes holder thereof.

2. Characteristics of Negotiation

• It is freely transferable
• Better title
• Right to sue
• A negotiable instrument can be transferred any number of times till
its maturity
• A negotiable instrument is subject to certain presumptions
• Presumptions – certain presumptions as to consideration,
reasonable time etc., apply to all negotiable instruments.

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2. Presumptions
1. Consideration (Payment) : Every negotiable
instrument is deemed to have been drawn and
accepted , endorsed, negotiated, or transferred for
consideration
2. Date : Every negotiable instrument must bear the date
on which it is made or drawn
3. Acceptance : Every Bill of exchange was accepted
within a reasonable time after the date mentioned
therein and before the date of its maturity
4. Transfer : Every transfer should be made before the
expiry

3. Meaning of Endorsement

• When a maker or holder writes the person’s name on the face or back
of the instrument & puts his signatures thereto for the purpose of
negotiation, it is called ‘endorsement’.
• Person who signs – endorser
• To whom it is endorsed – endorsee.
• A legal term that refers to the signing of a document which allows for
the legal transfer of a negotiable from one party to another.
• When an employer signs a check, they are endorsing the transfer of
money from the business accounts to the account of the employee.

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3. Essentials of valid endorsement

1. Sign on the back or face of the

instrument.
2. Must be made by maker or
holder.
3. Must be properly signed by the
endorser.
4. It must be for the entire
negotiation instrument.
5. No specific form of words are
necessary for endorsement.

3. Kinds of endorsement

1. Blank or general endorsement – where endorsee simply puts his

signature on the back of the instrument without writing name of
the person in whose favor the instrument is endorsed.
2. Special or full endorsement – An endorsement with the direction
to pay amount mentioned in the instrument to a specified person
or his order & the endorser writes his signature under it.
3. Partial endorsement – When an endorser is willing to transfer to
an endorsee only a part of the amount of the instrument. Such an
endorsement does not operate as a negotiation of the instrument.

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3. Kinds of endorsement

4. Restrictive endorsement – An endorsement is said to be

restrictive if it prohibits or restricts the further negotiability of the
instrument. The holder of such an instrument can only receive the
payment but he cannot negotiate it further. An instrument can be
made restrictive only by expressed words.
5. Conditional endorsement – It limit the liability of the endorser.
E.G. – “ Pay A or order on his marrying B”.

4. Promissory Notes
• Section 4 defines it
as, “ A promissory
note is an instrument
in writing 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”.

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4. Promissory Notes
• The person who makes the promissory note is called the
maker. Maker promise to pay a specified sum after the
expiry of a specified duration.
• The person to whom payment is to be made is called the
payee. Payee is also called the creditor. Payee is the
person in whose favor the promissory note is made. e.g.
–
Mr. X promises to pay Mr. Y tk.5000. Mr. X is the
maker of promissory notes and Mr. Y is the payee of
the Promissory notes.

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4. Essentials of Promissory Note

• It must be in writing
• It must contain express promise to pay :- ‘I am liable to pay’
• The promise to pay must be unconditional
• It must be signed by maker
• The maker must be certain- It must describe the name & designation of the
maker, sum of money
• There are 2 parties involved i.e., maker and the payee
• The payee must be certain- It is essential that it must contain a promise to
pay some person ascertained by name or designation.
• The sum payable must be certain
• The payment must be in legal money
• A currency note is not a promissory note

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5. Bill of Exchange
• Section 5, is defined
as “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”.

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5. Bill of Exchange
• Parties to bill of exchange :
• Drawer – The person who makes or draws bill of exchange. (maker/
creditor)
• Drawee – The person who is directed to pay on bill. On acceptance
he becomes acceptor.
• Payee – The person to whom the payment is to be made.
• Drawer & Payee can be the same person.
• Mr. X orders Mr. Y to pay 60,000 for 90 days after the date and Mr.
Y accepts such order by signing his name, then it will be a bill of
exchange.

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5. Essential of Bills of Exchange

• It must be in writing
• It must contain an order to pay and a promise or request
• The order must be unconditional
• There must be 3 parties i.e. : drawer, drawee, and payee
• The parties must be certain
• It must be signed by the drawer
• Number, date and place are not essential

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5. Kinds of Bills of Exchange

• Inland Bill
a) must be drawn (a paper specially prepared for the use of
drawers) and made payable in Bangladesh, or
b) must be drawn in Bangladesh upon a person resident in
Bangladesh although it may be payable outside Bangladesh.
• Foreign Bill
a) drawn in Bangladesh upon a person resident outside
Bangladesh and made payable outside Bangladesh, or
b) drawn outside Bangladesh and payable in Bangladesh.

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5. Kinds of Bills of Exchange

• Trade and Accommodation Bill
• A trade bill is a bill of exchange issued in respect of a genuine
trade transaction.
• Such bills are drawn by the seller on the buyer in respect of
payment of the price of the goods sold and purchased.

Example:
Suppose Mr. X sells goods worth 75,000 to Mr. Y. Mr. y is not in a
position to pay the amount immediately. So, Mr. X the seller draws a
bill on Mr. Y the buyer and Mr. Y accepts such a bill.

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5. Kinds of Bills of Exchange

• Accommodation Bill
• Where a bill of exchange is drawn and accepted for mutual help, it
is called Accommodation bill.
• This bill is for mutual benefit without a trade transaction.
• It does not involve a sale or purchase of any goods or services.
• This bill carries an agreement between two parties for the purpose
of giving financial support to others.

Example:
If Mr. A is in need of money, he draws a bill on his friend Mr. B who
accepts it. Mr. A then discounts this bill with bank i.e. bank will pay
money before the due date. Mr. A and Mr. B share the money
between them. On the due date, Mr. B pays to the bank and Mr. A
pays to Mr. B his share.

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6. Cheques

• Section 6, defines it as “ A cheque is a bill of exchange drawn

on a specified banker & not expressed to be payable
otherwise than on demand”.
• It is always drawn on a bank
• It is payable to bearer on demand

• Parties To Cheque:
1. Drawer – who makes the cheque
2. Payee – to whom payment is to be made
3. Drawee – Bank .

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6. Meaning of Crossing of Cheque

• Crossing of a cheque is a unique feature associated with a cheque

affecting to a certain level the responsibility of the paying Banker
and also its negotiable Character.
• Crossing of a Cheque is a direction to a particular Banker by the
Drawer that Payment should not be made across the Counter. The
payment on the crossed Cheque can be collected only through a
Banker.
• Crossing of the Cheque is affected by drawing two parallel
Transverse lines .
• The Cheque that is not crossed is an open Cheque.

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6. Types of cheque
• There are two types of cheque:
1. Open cheque – those which can be en cashed across the
counter of the bank. Liable to great risk if stolen or lost. Finder
can get payment from bank.

2. Crossed cheque – which bears two transverse lines with or

without the words “ & co.”

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6. Various kinds of Crossing

1. General Crossing:- which bears across its face the words “ & co.” or the
words “not negotiable”. For general crossing two transverse lines on the
face of cheque are essential. The paying banker shall pay only to a
banker. There are two sloping parallel lines, marked across its face
• The cheque bears a short form "& Co.“ between the two parallel lines
• The cheque bears the words "A/c. Payee" between the two parallel lines.
• The cheque bears the words "Not Negotiable" between the two parallel
lines.

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6. Specimen of General Crossing

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6. Various kinds of Crossing

2. Special or Restrictive Crossing :- When a particular bank's name
is written in between the two parallel lines the cheque is said to be
specially crossed. Where a cheque bears across its face an addition
the name of banker either with or without the words “not negotiable”. It
contains:
• The name of the banker across the face of cheque.
• With the words “ not negotiable”
• In addition to the word bank, the words "A/c. Payee Only", "Not
Negotiable" may also be written. The payment of such cheque is not
made unless the bank named in crossing is presenting the cheque. The
effect of special crossing is that the bank makes payment only to the
banker whose name is written in the crossing. Specially crossed
cheques are safer than a generally crossed cheques.

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6. Specimen of Special or Restrictive Crossing

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6. Why Crossing of Cheque is being used

• The important usefulness of a crossing cheque is that it cannot be covered at the
counter but can be collected only by a bank from the drawee bank.
• Crossing provides a protection and safeguard to the owner of the cheque as by
securing payment through a banker it can be easily detected to whose use the
money is received. Where the cheque is crossed the paying banker shall not pay
it except to a banker.
• In case of not negotiable crossing the person holding such a cheque gets no
better title than that of his transfer and cannot suggest a better title to his own
transferee. In case of 'account payee' only crossing, a direction is given to the
collecting banker to collect cheque and to place the amount to the credit of the
payee only.
• A special crossing makes the cheque more safe than a general crossing because
the payee or holder cannot receive payment except through the banker named
on the cheque.

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Promissory Note Bill of Exchange

[Link] contains a promise to pay. [Link] contains an order to pay.
[Link] is presented for payment [Link] is required to be accepted
without any previous either by the drawee or by some
acceptance by the maker. one else on his behalf, before it
can be presented for payment.
[Link] cannot be made payable to
7. Difference the maker himself. The maker [Link] drawer and payee or the
B/W and the payee cannot be the drawee and the payee may be
Promissory same person. the same person.
Note and Bill [Link] the case of a promissory [Link] are three parties, drawer,
note there are only two drawee and payee.
of Exchange
parties, the maker and the 5.A bill of exchange cannot be
payee. drawn conditionally, but it can be
accepted conditionally with the
5.A promissory note can never consent of the holder.
be conditional.
6.A notice of dishonour must be
[Link] case of dishonour no given in case of dishonour of a
notice of dishonour is Bills of Exchange.
required to be given by the
Holder
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Cheque Bill of exchange

[Link]: Cheque can be drawn [Link] drawee may be any person.
only on a banker.
2.A bill may be drawn payable on
2. Time of payment: A cheque is demand or on expiry of certain
payable on demand. period after date or sight.
3. Grace period: Cheque is 3. While calculating maturity three
7. Difference payable on demand and no grace day’s grace is allowed.
period is allowed.
B/W Cheque 4. A notice of dishonour is required.
and Bill of 4. Notice of dishonour: Notice of
dishonour is not necessary. 5. Bills require presentment for
Exchange acceptance, and it is better to
5. Acceptance: A cheque is not present them for acceptance
required to be presented for even when it is not essential to
acceptance. It needs to be do so.
presented only for payment.
6.A bill of exchange cannot be
[Link]: A cheque may be crossed.
crossed.
7. A bill may be drawn for any
[Link] period: A cheque is period.
usually valid for a period of six
months.

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Q&A

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