TaxByKKLaws by Sector

Negotiable Instruments Act, 1881

An Act to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques.

Sector All SectorsPurpose Corporate & CommercialAct No. 26 of 1881Enacted 9 Dec 1881Ministry Finance
All Acts MSMED Act, 2006 Companies Act, 2013

TaxByKK · Laws by Sector · taxbykk.com

Index of provisions · 17 chapters, 155 sections

I PreliminaryII Of Notes, Bills and ChequesIII Of Parties to Notes, Bills and ChequesIV Of NegotiationV Of PresentmentVI Of Payment and InterestVII Of Discharge from Liability on Notes, Bills and ChequesVIII Of Notice of DishonourIX Of Noting and ProtestX Of Reasonable TimeXI Of Acceptance and Payment for Honour and Reference in Case of NeedXII Of CompensationXIII Special Rules of EvidenceXIV Of Crossed ChequesXV Of Bills in SetsXVI Of International LawXVII Of Penalties in Case of Dishonour of Certain Cheques for Insufficiency of Funds in the Accounts

Chapter I Preliminary3 sections

  1. 1Short title. Local extent, Saving of usages relating to hundis, etc., Commencement
  2. 2[Repealed]
  3. 3Interpretation-clause. “Banker.”

Chapter II Of Notes, Bills and Cheques22 sections

  1. 4“Promissory note.”
  2. 5“Bill of exchange.”
  3. 6“Cheque.”
  4. 7“Drawer”, “Drawee”. “Drawee in case of need.” “Acceptor.” “Acceptor for honour.” “Payee.”
  5. 8“Holder.”
  6. 9“Holder in due course.”
  7. 10“Payment in due course.”
  8. 11Inland instrument
  9. 12Foreign instrument
  10. 13“Negotiable instrument.”
  11. 14Negotiation
  12. 15Indorsement
  13. 16Indorsement “in blank” and “in full”. “Indorsee.”
  14. 17Ambiguous instruments
  15. 18Where amount is stated differently in figures and words
  16. 19Instruments payable on demand
  17. 20Inchoate stamped instruments
  18. 21“At sight” —“On presentment.” “After sight.”
  19. 22“Maturity.” Days of grace
  20. 23Calculating maturity of bill or note payable so many months after date or sight
  21. 24Calculating maturity of bill or note payable so many days after date or sight
  22. 25When day of maturity is a holiday

Chapter III Of Parties to Notes, Bills and Cheques21 sections

  1. 26Capacity to make, etc., promissory notes, etc. Minor
  2. 27Agency
  3. 28Liability of agent signing
  4. 29Liability of legal representative signing
  5. 30Liability of drawer
  6. 31Liability of drawee of cheque
  7. 32Liability of maker of note and acceptor of bill
  8. 33Only drawee can be acceptor except in need or for honour
  9. 34Acceptance by several drawees not partners
  10. 35Liability of indorser
  11. 36Liability of prior parties to holder in due course
  12. 37Maker, drawer and acceptor principals
  13. 38Prior party a principal in respect of each subsequent party
  14. 39Suretyship
  15. 40Discharge of indorser’s liability
  16. 41Acceptor bound, although indorsement forged
  17. 42Acceptance of bill drawn in fictitious name
  18. 43Negotiable instrument made, etc., without consideration
  19. 44Partial absence or failure of money-consideration
  20. 45Partial failure of consideration not consisting of money
  21. 45AHolder’s right to duplicate of lost bill

Chapter IV Of Negotiation15 sections

  1. 46Delivery
  2. 47Negotiation by delivery
  3. 48Negotiation by indorsement
  4. 49Conversion of indorsement in blank into indorsement in full
  5. 50Effect of indorsement
  6. 51Who may negotiate
  7. 52Indorser who excludes his own liability or makes it conditional
  8. 53Holder deriving title from holder in due course
  9. 54Instrument indorsed in blank
  10. 55Conversion of indorsement in blank into indorsement in full
  11. 56Indorsement for part of sum due
  12. 57Legal representative cannot by delivery only negotiate instrument indorsed by deceased
  13. 58Instrument obtained by unlawful means or for unlawful consideration
  14. 59Instrument acquired after dishonour or when overdue. Accommodation note or bill
  15. 60Instrument negotiable till payment or satisfaction

Chapter V Of Presentment18 sections

  1. 61Presentment for acceptance
  2. 62Presentment of promissory note for sight
  3. 63Drawee’s time for deliberation
  4. 64Presentment for payment
  5. 65Hours for presentment
  6. 66Presentment for payment of instrument payable after date or sight
  7. 67Presentment for payment of promissory note payable by instalments
  8. 68Presentment for payment of instrument payable at specified place and not elsewhere
  9. 69Instrument payable at specified place
  10. 70Presentment where no exclusive place specified
  11. 71Presentment when maker, etc., has no known place of business or residence
  12. 72Presentment of cheque to charge drawer
  13. 73Presentment of cheque to charge any other person
  14. 74Presentment of instrument payable on demand
  15. 75Presentment by or to agent, representative of deceased, or assignee of insolvent
  16. 75AExcuse for delay in presentment for acceptance or payment
  17. 76When presentment unnecessary
  18. 77Liability of banker for negligently dealing with bill presented for payment

Chapter VI Of Payment and Interest4 sections

  1. 78To whom payment should be made
  2. 79Interest when rate specified
  3. 80Interest when no rate specified
  4. 81Delivery of instrument on payment, or indemnity in case of loss

Chapter VII Of Discharge from Liability on Notes, Bills and Cheques10 sections

  1. 82Discharge from liability
  2. (a) by cancellation; (b) by release; (c) by payment
  3. 83Discharge by allowing drawee more than forty-eight hours to accept
  4. 84When cheque not duly presented and drawer damaged thereby
  5. 85Cheque payable to order
  6. 85ADrafts drawn by one branch of a bank on another payable to order
  7. 86Parties not consenting discharged by qualified or limi ted acceptance
  8. 87Effect of material alteration. Alteration by indorsee
  9. 88Acceptor or indorser bound notwithstanding previous alteration
  10. 89Payment of instrument on which alteration is not apparent
  11. 90Extinguishment of rights of action on bill in acceptors’ hands

Chapter VIII Of Notice of Dishonour8 sections

  1. 91Dishonour by non-acceptance
  2. 92Dishonour by non-payment
  3. 93By and to whom notice should be given
  4. 94Mode in which notice may be given
  5. 95Party receiving must transmit notice of dishonour
  6. 96Agent for presentment
  7. 97When party to whom notice given is dead
  8. 98When notice of dishonour is unnecessary

Chapter IX Of Noting and Protest7 sections

  1. 99Noting
  2. 100Protest. Protest for better security
  3. 101Contents of protest
  4. 102Notice of protest
  5. 103Protest for non-payment after dishonour by non-acceptance
  6. 104Protest of foreign bills
  7. 104AWhen noting equivalent to protest

Chapter X Of Reasonable Time3 sections

  1. 105Reasonable time
  2. 106Reasonable time of giving notice of dishonour
  3. 107Reasonable time for transmitting such notice

Chapter XI Of Acceptance and Payment for Honour and Reference in Case of Need9 sections

  1. 108Acceptance for honour
  2. 109How acceptance for honour must be made
  3. 110Acceptance not specifying for whose honour it is made
  4. 111Liability of acceptor for honour
  5. 112When acceptor for honour may be charged
  6. 113Payment for honour
  7. 114Right of payer for honour
  8. 115Drawee in case of need
  9. 116Acceptance and payment without protest

Chapter XII Of Compensation1 section

  1. 117Rules as to compensation

Chapter XIII Special Rules of Evidence5 sections

  1. 118Presumptions as to negotiable instruments
  2. (a) of consideration; (b) as to date; (c) as to time of acceptance; (d) as to time of transfer; (e) as to order of indorsements; (f) as to stamp; (g) that holder is a holder in due course;
  3. 119Presumption on proof of protest
  4. 120Estoppel against denying original validity of instrument
  5. 121Estoppel against denying capacity of payee to indorse
  6. 122Estoppel against denying signature or capacity of prior party

Chapter XIV Of Crossed Cheques10 sections

  1. 123Cheque crossed generally
  2. 124Cheque crossed specially
  3. 125Crossing after issue
  4. 126Payment of cheque crossed generally. Payment of cheque crossed specially
  5. 127Payment of cheque crossed specially more than once
  6. 128Payment in due course of crossed cheque
  7. 129Payment of crossed cheque out of due course
  8. 130Cheque bearing “not negotiable”
  9. 131Non-liability of banker receiving payment of cheque
  10. 131AApplication of Chapter to drafts

Chapter XV Of Bills in Sets2 sections

  1. 132Set of bills
  2. 133Holder of first acquired part entitled to

Chapter XVI Of International Law4 sections

  1. 134Law governing liability of maker, acceptor or indorser of foreign instrument
  2. 135Law of place of payment governs dishonour
  3. 136Instrument made, etc., out of India, but in accordance with the law of India
  4. 137Presumption as to foreign law

Chapter XVII Of Penalties in Case of Dishonour of Certain Cheques for Insufficiency of Funds in the Accounts13 sections

  1. 138Dishonour of cheque for insufficiency, etc., of funds in the account
  2. 139Presumption in favour of holder
  3. 140Defence which may not be allowed in any prosecution under section 138
  4. 141Offences by companies
  5. 142Cognizance of offences
  6. 142AValidation for transfer of pending cases
  7. 143Power of Court to try cases summarily
  8. 143APower to direct interim compensation
  9. 144Mode of service of summons
  10. 145Evidence on affidavit
  11. 146Bank’s slip prima facie evidence of certain facts
  12. 147Offences to be compoundable
  13. 148Power of Appellate Court to order payment pending appeal against conviction
  14. SCHEDULE.—[Enactments repealed ]. Rep. by the Repealing and Amending Act, 1891 (12 of 1891), s. 2 and Schedule I

About this Act

The Negotiable Instruments Act, 1881 governs promissory notes, bills of exchange and cheques. It defines these instruments, the parties to them and the rights of a holder in due course, and lays down rules on negotiation, presentment, payment, discharge and dishonour.

The Act sets up no regulator. Chapter XVII makes dishonour of a cheque for insufficient funds an offence, with special procedure on summary trial, interim compensation and compounding. This chapter was added by amendment in 1988 and is the basis of cheque-bounce cases under Section 138.

The Act has seventeen chapters, moving from definitions to parties, negotiation, presentment, discharge, notice of dishonour, protest, crossed cheques and conflict of laws, before the penal provisions.

Who it applies to

  • Drawers, makers, payees, holders and indorsers of cheques, bills and promissory notes
  • Banks as drawees, collecting bankers and paying bankers, including for crossed cheques and drafts
  • Businesses and lenders that accept cheques or post-dated cheques as payment or security
  • Companies and their officers, who can be prosecuted for cheque dishonour under Section 141
  • Magistrates and appellate courts trying cheque dishonour complaints

Good to know

Key chapters
Chapter II (definitions of notes, bills and cheques), Chapter VII (discharge from liability), Chapter VIII (notice of dishonour), Chapter XIV (crossed cheques) and Chapter XVII (penalties for dishonour of cheques, Sections 138 to 148).
Later additions
Section 143A (interim compensation) and Section 148 (deposit pending appeal) were brought in by the 2018 amendment to speed up recovery in cheque cases.

Frequently asked questions

Which section makes cheque bounce an offence?

Section 138.

Who is a holder in due course?

Section 9 defines the term; Section 53 protects later holders who take title from one.

Can the court order interim compensation in a cheque case?

Yes. Section 143A.

How is a company liable for a bounced cheque?

Section 141 deals with offences by companies.

Which sections deal with crossed cheques?

Sections 123 to 131A in Chapter XIV.