Page 155 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance Mahesh Kumar Sarva, Lovely Professional University

Notes Unit 8: Negotiable Instruments

CONTENTS
Objectives
Introduction

8.1 Meaning of Negotiable Instruments
8.2 Types of Negotiable Instruments
8.2.1 Promissory Note

8.2.2 Bill of Exchange
8.2.3 Cheques
8.3 Features of Negotiable Instruments
8.4 Endorsement of Cheque
8.5 Payment and Collection

8.5.1 Endorsement
8.5.2 Classes of Endorsement
8.6 Loans and Advances

8.7 Summary
8.8 Keywords
8.9 Review Questions
8.10 Further Readings

Objectives

After studying this unit, you should be able to:

Explain the meaning of negotiable instruments;
Identify the various features of negotiable instruments;

Describe the various types of negotiable instruments; and
Differentiate between bills of exchange, promissory notes, and cheques.
Introduction

The Negotiable Instruments Act was enacted, in India, in 1881. Prior to its enactment, the provision
of the English Negotiable Instrument Act were applicable in India, and the present Act is also
based on the English Act with certain modifications. It extends to the whole of India except the
State of Jammu and Kashmir. The Act operates subject to the provisions of Sections 31 and 32 of
the Reserve Bank of India Act, 1934. Section 31 of the Reserve Bank of India Act provides that no
person in India other than the Bank or as expressly authorised by this Act, the Central Government
shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement
for the payment of money payable to bearer on demand. This Section further provides that no
one except the RBI or the Central Government can make or issue a promissory note expressed to

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