Quiz on Negotiable Instruments Act (NI Act) 1881

The Act defines and amends the law relating to promissory notes, bills of exchange and cheques.

The Act came into force on 1 March 1882.

Section 13 defines a negotiable instrument as a promissory note, bill of exchange or cheque payable to order or bearer.

Section 4 defines a promissory note.

It contains an unconditional written undertaking, signed by the maker, to pay a certain sum of money.

Section 5 defines a bill of exchange.

Section 6 defines a cheque and includes specified electronic and truncated forms.

A cheque is drawn on a specified banker.

The drawer is the person who makes and signs the cheque.

The payee is the person named to receive payment.

Section 8 concerns a person entitled in their own name to possess the instrument and recover the amount due.

Section 9 generally requires consideration, acquisition before the amount is payable, and no sufficient cause to believe title is defective.

Negotiation is transfer in a manner that makes the transferee the holder.

A bearer instrument is generally negotiated by delivery.

An instrument payable to order is generally negotiated by endorsement and delivery.

Section 15 deals with signing an instrument for the purpose of negotiation.

A blank endorsement consists of the endorser‘s signature without naming an endorsee.

Section 87 generally makes an instrument void against parties who did not consent to a material alteration, subject to exceptions.

Section 10 broadly requires payment according to apparent tenor, in good faith and without negligence.

RBI directions generally limit cheque validity to three months from the date of issue.

Section 123 deals with general crossing of cheques.

Section 124 deals with special crossing.

Crossing generally directs payment through a banker rather than direct cash payment over the counter.

Section 131 provides protection in specified circumstances to a collecting banker acting in good faith and without negligence.

Section 118 includes presumptions such as consideration, subject to rebuttal.

Unless rebutted, Section 139 presumes the holder received the cheque to discharge a debt or liability.

Section 138 addresses dishonour of a cheque for insufficiency of funds or exceeding the agreed arrangement, subject to conditions.

Section 138 requires a cheque for a legally enforceable debt or other liability.

Section 138‘s text refers to six months from the date drawn or the period of validity, whichever is earlier. RBI directions generally make cheques valid for three months, so three months is normally the operative presentation period.

The written demand notice must be given within 30 days of receiving information of dishonour from the bank.

The drawer has 15 days from receipt of the statutory notice to pay.

Under Section 142, complaint is generally filed within one month of the cause of action; delay may be condoned for sufficient cause.

Section 138 allows imprisonment up to two years, or fine up to twice the cheque amount, or both.

The fine may extend to twice the amount of the cheque.

Section 142 requires a written complaint by the payee or holder in due course, as applicable.

For a cheque delivered for collection through an account, Section 142(2) generally points to the branch where the payee/holder maintains the account.

Section 141 deals with offences by companies and liability of persons meeting its conditions.

A director is not automatically liable merely by title; statutory conditions about responsibility for business conduct must be met.

Section 147 provides that offences under the Act are compoundable, subject to law.

Section 143 provides for summary trial of relevant offences, subject to its terms.

Section 145 allows the complainant‘s evidence to be given on affidavit in specified proceedings.

Section 146 makes a qualifying bank slip or memo prima facie evidence of dishonour unless disproved.

Section 143A permits interim compensation in specified circumstances in a Section 138 case.

Interim compensation under Section 143A cannot exceed 20% of the cheque amount.

Section 143A provides 60 days to pay, with a possible extension of up to 30 days for sufficient cause.

Section 148 deals with a deposit that may be ordered in an appeal against conviction under Section 138.

Section 148 says the appellate court may order a deposit of a sum that is a minimum of 20% of the fine or compensation awarded by the trial court. The amount is not necessarily exactly 20%; the statutory provision also provides a 60-day period and a possible extension of up to 30 days.

Section 144 addresses the mode of service of summons.

Section 142A addresses validation for transfer of pending cases.

Section 140 excludes the defence that the drawer had no reason to believe the cheque would be dishonoured.

Section 118 includes a presumption that an instrument was made or drawn on the date it bears.

Acceptance is the drawee‘s signification of assent to the drawer‘s order.

The drawee becomes the acceptor when they accept the bill.

Maturity is the date an instrument becomes due for payment, subject to applicable rules.

Section 22 generally provides three days of grace for instruments payable at a specified time after date or sight, where applicable.

Section 20 addresses an inchoate stamped instrument.

Section 30 deals with the liability of the drawer of a bill of exchange.

Section 35 deals with liability of an endorser, subject to its terms.

Section 43 addresses negotiable instruments made, drawn, accepted, endorsed or transferred without consideration.

Section 6 includes specified electronic and truncated cheques within the definition of cheque.

A truncated cheque is one whose physical movement is stopped during clearing and an electronic image is used for processing, as defined by law.

In Renuka v. State of Maharashtra (2026), the Supreme Court reaffirmed that once foundational facts such as execution/signature are established, the Section 139 presumption arises and can be rebutted at trial.

In Sainaba v. State of Kerala (30 September 2026), the Supreme Court discussed the rebuttable presumption of service where notice is sent by registered post to the drawer‘s correct address.

Cause of action generally arises after the drawer fails to pay within 15 days after receiving the statutory notice.

Dishonour marked ‘account closed‘ can potentially attract Section 138 if its statutory requirements are met.

A stop-payment dishonour can potentially attract Section 138 if statutory conditions are met, including a legally enforceable debt.

A Section 138 notice should demand payment of the cheque amount and meet statutory requirements.

The presumptions under Section 118 are generally rebuttable in accordance with law.

In banking practice, an account-payee crossing indicates that proceeds should be collected for credit to the named payee‘s account; its legal effect depends on applicable law and facts.

A prior payment may affect the amount of legally enforceable liability represented by the cheque; facts and law must be considered.

Good faith and lack of sufficient cause to believe title is defective are relevant to holder-in-due-course status under Section 9.

Dishonour by non-acceptance is principally relevant to a bill of exchange where acceptance is required and refused.

Notice of dishonour informs relevant parties that an instrument has been dishonoured, subject to statutory rules and exceptions.

Section 45A addresses the holder‘s right to obtain a duplicate of a lost bill in specified circumstances.