Negotiable Instruments Act, 1881

Negotiable Instruments Act, 1881 is an act in India dating from the British colonial rule, that is still in force largely unchanged.

An Act to define and Law relating to negotiable instruments which are Promissory Notes, Bills of Exchange and cheques.

Enacted By :- Imperial Legislative Council (India).

Date enacted :- 9 December 1881.

Date commenced :- 1 March 1882.

History :-

  • The Act was originally drafted in 1866 by the 3rd India Law Commission and introduced in December, 1867 in the Council and it was referred to a Select Committee.
  • Objections were raised by the mercantile community to the numerous deviations from the English Law which it contained. 
  • The Bill had to be redrafted in 1877. 
  • After the lapse of a sufficient period for criticism by the Local Governments, the High Courts and the chambers of commerce, the Bill was revised by a Select Committee. 
  • In spite of this Bill could not reach the final stage. 
  • In 1880 by the Order of the Secretary of State, the Bill had to be referred to a new Law Commission. 
  • On the recommendation of the new Law Commission the Bill was re-drafted and again it was sent to a Select Committee which adopted most of the additions recommended by the new Law Commission. 
  • The draft thus prepared for the fourth time was introduced in the Council and was passed into law in 1881 being the Negotiable Instruments Act, 1881 (Act No.26 of 1881).

Main Types of Negotiable Instruments are :-

  1. Inland Instruments.
  2. Foreign Instruments.
  3. Bank Draft.

The Important Definitions Of The Act Are :-

  • Promissory Note :-

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.

  • Bill of exchange :-

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.

  • Cheque :-

A cheque is 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.

  • Negotiable instrument :-

A Negotiable Instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.

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