1.

Introduction to Negotiable Instruments

Definition and Scope
A "Negotiable Instrument" is defined under Section 13.1 as a promissory note, bill of exchange,
or cheque payable either to order or to bearer1. The law governing these instruments in
Bangladesh is the Negotiable Instruments Act, 1881, which was amended by subsequent
ordinances and acts in 1962, 1994, and 20002.
Key Characteristics
Negotiable instruments possess unique traits that distinguish them from other contracts:
●​ Transferability: Property in the instrument can be transferred without formalties. A
bearer instrument is transferred by simple delivery, while an order instrument requires
endorsement and delivery3.​

●​ Holder in Due Course: A bona fide transferee for value (a "holder in due course") gets
the instrument free from any defects in the title of the previous transferor4.​

●​ Right to Sue: The transferee can sue in their own name in case of dishonor5.​

●​ Presumptions: The law presumes certain facts, such as that the instrument was drawn
for consideration, on the date it bears, and that the holder is a holder in due course6666.​

2. Types of Negotiable Instruments

The Act primarily recognizes three specific types, though usage has recognized others (e.g.,
Hundis, Share Warrants)7777.

A. Promissory Note (Section 4)

Definition: An instrument in writing (excluding bank notes or currency notes) 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 bearer8.

Essential Requisites:
1.​ Must be in writing9.​

2.​ Must contain an undertaking (promise) to pay10.​

 3.​ The promise must be unconditional11.​

4.​ Must be signed by the maker12.​

5.​ The maker and payee must be certain persons13131313.​

6.​ The sum payable must be certain and consist of money only14141414.​

Examples from text:

●​ Valid: "I promise to pay B or order Taka 500"15.​

●​ Valid: "I promise to pay B Taka 500 on D's death, provided D leaves me enough to pay
that sum" is not valid because it is conditional, but a promise to pay simply on D's death
is valid because death is a certainty16.​

●​ Invalid: "Mr. B, IOU Taka 1,000" (This is merely an acknowledgement of debt, not a
promise to pay)17.​

B. Bill of Exchange (Section 5)

Definition: 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 bearer18.

Parties:
●​ Drawer: The maker of the bill who gives the order19.​

●​ Drawee: The person directed to pay20. Once they sign assent, they become the
Acceptor21.​

●​ Payee: The person named to receive the payment22.​

Essentials: Similar to a promissory note, it must be in writing, signed, and for a certain sum.
Crucially, it must contain an order (direction) to pay rather than a promise23.
C. Cheque

Definition: A cheque is a bill of exchange drawn on a specified banker and expressed to be

payable otherwise than on demand24. (Note: The text implies cheques are payable on
demand).

Distinction from Bill of Exchange:

●​ Acceptance: A cheque requires no acceptance; a bill of exchange must be accepted to
make the drawee liable25.​

●​ Grace Period: A bill of exchange is entitled to days of grace; a cheque is payable

immediately on demand26.​

●​ Drawee: The drawee of a cheque is always a banker27.​

●​ Notice of Dishonor: Not necessary for a cheque (want of assets is sufficient notice), but
necessary for a bill28.​

Other Classifications
●​ Inland Instrument: Drawn and payable in Bangladesh, or drawn on a person resident in
Bangladesh29.​

●​ Foreign Instrument: Any instrument that is not an inland instrument30.​

●​ Inchoate Instrument: An incomplete instrument (e.g., blank amount or payee) signed

and delivered. The holder has implied authority to fill it up, and the signer is liable for the
amount filled (up to the stamp coverage) to a holder in due course31313131.​

●​ Accommodation Bill: A bill drawn/accepted without consideration to help a friend

(accommodated party) raise money. The "accommodation party" lends their name32.​

3. Negotiation and Endorsement

Negotiation (Section 14)
Negotiation occurs when an instrument is transferred to a person so as to constitute that
person the "holder"33.
●​ Bearer Instruments: Negotiated by simple delivery34.​
 ●​ Order Instruments: Negotiated by endorsement followed by delivery35.​

Endorsement (Section 15)

Signing on the back or face of the instrument for the purpose of negotiation36.
●​ Endorsement in Blank: The endorser signs their name only. This makes the instrument
payable to bearer37.​

●​ Endorsement in Full: The endorser adds a direction to pay a specific person (e.g., "Pay
C or order")38.​

●​ Restrictive Endorsement: Restricts further negotiation (e.g., "Pay C only")39393939.​

4. Parties and Liabilities

Holder vs. Holder in Due Course
●​ Holder (Section 8): Any person entitled in their own name to possession of the
instrument and to recover the amount due40.​

●​ Holder in Due Course (Section 9): A person who becomes the possessor of the
instrument for consideration, before maturity, and without notice of any defect in the
title of the transferor41.​

Privileges of a Holder in Due Course:

1.​ Better Title: They get the instrument free from all prior defects of title42.​

2.​ Purging Defects: Once an instrument passes through a holder in due course, it is
purged of defects for all subsequent holders43.​

3.​ Fictitious Drawer: Can hold the acceptor liable even if the drawer is a fictitious person44.​

4.​ Estoppel: The drawer or acceptor cannot deny the validity of the instrument or the
payee's capacity to endorse against a holder in due course45.​

Liabilities of Parties
1.​ Drawer: Liable to compensate the holder if the bill is dishonored, provided they receive
due notice of dishonor46.​
 2.​ Maker (Promissory Note) / Acceptor (Bill): Liability is primary and unconditional. They
must pay according to the apparent tenor of the instrument47474747.​

3.​ Indorser: Liable to every subsequent holder if the instrument is dishonored, provided
due notice is given48.​

4.​ Banker: The banker must honor a customer's cheque if there are sufficient funds. If they
refuse without cause, they must compensate the drawer for loss/damage49. Note: The
banker is liable to the drawer, not the payee50.​

5. Discharge from Liability

An instrument is discharged when all rights of action on it are extinguished. Modes of
discharge include:
1.​ Payment in Due Course: Payment made in good faith and without negligence to the
person in possession51.​

2.​ Cancellation: Intentional cancellation of a party's name by the holder discharges that
party and subsequent endorsers52525252.​

3.​ Release: The holder unconditionally renounces rights against the acceptor53.​

4.​ Material Alteration: Any alteration of date, sum, time, or place of payment without
consent renders the instrument void54545454.​

5.​ Default of Holder: If the holder allows the drawee more than 48 hours to accept,
previous parties not consenting are discharged55.​

6. Dishonor and Consequences

Types of Dishonor
1.​ By Non-Acceptance: The drawee refuses to accept the bill, or cannot be found, or gives
a qualified acceptance56.​

2.​ By Non-Payment: The maker, acceptor, or drawee defaults in payment upon maturity57.​

Notice of Dishonor
When dishonored, the holder must give notice to all parties they wish to hold liable58.
●​ Omission: Failure to give notice discharges the parties entitled to it (e.g., drawer,
endorsers)59.​

●​ When Unnecessary: Notice is not needed if waived, if the drawer countermanded

payment, if the party charged could not suffer damage, or if the drawer is also the
acceptor60606060.​

Noting and Protest

●​ Noting: Recording the fact of dishonor by a notary public within a reasonable time61.​

●​ Protest: A formal certificate by the notary attesting to the dishonor62.​

●​ Difference: Noting/Protest is optional for Inland bills but compulsory for Foreign bills if
required by the law of the place where drawn63636363.​

7. Penalties for Dishonor of Cheques (Section 138)

This is a critical section regarding "bouncing cheques" due to insufficiency of funds.

The Offence:
If a cheque is returned unpaid because of insufficient funds or exceeding the arrangement
with the bank, the drawer is deemed to have committed an offence64.
Punishment:
●​ Imprisonment for a term up to one year.
●​ Fine extending to thrice (3x) the amount of the cheque.
●​ Or both65.​

Conditions for Prosecution:

1.​ Presentation: Cheque must be presented to the bank within 6 months or its validity
period66.​

2.​ Demand Notice: The holder must give notice in writing to the drawer demanding
payment within 30 days (note: text says 30 in one place, 15 in another, standard is
usually 30 days in updated laws, text specifically cites "within thirty days" in Section
138(b)) of receiving the bounce memo67.​

3.​ Failure to Pay: The drawer fails to pay within 30 days of receiving the notice68.​
Cognizance:
A court can only take cognizance of this offence upon a written complaint made by the
payee/holder within one month of the cause of action arising69.

8. International/Foreign Instruments
Liability:
●​ Capacity & Validity: Determined by the law of the place where the instrument was
made/drawn70.​

●​ Payment & Dishonor: Determined by the law of the place where the instrument is
payable (e.g., date of maturity, what constitutes dishonor)71717171.​

Presumption:
Foreign law regarding negotiable instruments is presumed to be the same as Bangladeshi law
unless proved otherwise72.