What is Negotiable Instrument?

According to section 12(1) of the Negotiable Instrument Act, “A negotiable instrument means a promissory note, bill of exchange or cheque payable, either to order or to bearer.” According to Justice Wills, the Negotiable Instrument defined as “One, the property which is acquired by any one who takes it bonafide and for value not withstanding any defect of total in the person from whom he took it.”

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In simple words, a negotiable instrument is a choice-inaction with the characteristics of negotiability attached to it. Thus, a negotiable instrument is one which when transferred by delivery or by endorsement and delivery passes to the transferred provided the transferee is a bonafide holder for vale without notice of any defect in the title of the transferor.

The Negotiable Instrument Act defines only three kinds of negotiable instruments, namely promissory notes, bills of exchange and cheques. It is however, does not mean that there can be no other negotiable instrument in use at all. By usage or law other instruments with the character of negotiability.

Example of Negotiable Instruments

The Negotiable Instruments classified as (a) Negotiable Instruments recognized by status and (b) Negotiable instruments recognized by usage or custom. The common examples of above two types of negotiable instruments are given below:-


(a) Negotiable instrument recognized by Statue: Bills of exchange, promissory notes, cheques etc.

(b) Negotiable instruments recognized by usage or custom: Hundies, Share warrants, Dividend warrants, Banker’s Drafts, Circular notes, Bearer Debentures, Railway Receipts, Delivery orders etc.

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