Negotiable Instruments: Cheques, Bills and Promissory Notes
What a negotiable instrument is under the Negotiable Instruments Act, 1881, the three named instruments, the parties to a cheque, crossing and endorsement, and how cheque truncation (CTS) clears a cheque without moving the paper.
What you will be able to do
- Define a negotiable instrument and name the three under the 1881 Act.
- Identify the drawer, drawee and payee of a cheque, and the endorser and endorsee.
- Explain general and special crossing and 'account payee' crossing.
- Describe how the Cheque Truncation System clears a cheque.
What is inside this lesson
- 1What a negotiable instrument is
- 2The three instruments
- 3Parties to a cheque
- 4Crossing
- 5Endorsement
- 6Cheque truncation (CTS)
- 7Common confusions
- 8Quick revision
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What a negotiable instrument is
A negotiable instrument is a written document that contains an unconditional promise or order to pay a certain sum of money, and whose ownership can be transferred by delivery (or by endorsement and delivery) so that the transferee, if a holder in due course, gets a good title even if the transferor's title was defective.
The Negotiable Instruments Act, 1881 names three: the promissory note, the bill of exchange, and the cheque. Instruments negotiable by custom, such as bearer bonds, exist but the three named ones are the exam focus.
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