The Negotiable Instruments Act, 1881 - Vocabulary Flashcards

Vocabulary practice flashcards covering legal definitions, classifications, and statutory provisions from Chapter 7 of the Negotiable Instruments Act, 1881.

Negotiable Instrument

A document freely transferable by customs of trade from one person to another by mere delivery or by indorsement and delivery, passing property to a bonafide transferee for value.

Promissory Note

Under Section 4 of the NI Act, 1881, an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

Maker

The person who makes and signs a promissory note containing the promise to pay; he is the debtor on the instrument.

Payee

The person named in a negotiable instrument to whom or to whose order the money is directed to be paid.

Bill of Exchange

Under Section 5 of the NI Act, 1881, an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

Drawer

The maker of a bill of exchange or cheque who issues the order to pay.

Drawee

The person directed by the drawer of a bill of exchange or cheque to pay the specified sum of money.

Acceptor

The drawee of a bill of exchange after accepting the bill, becoming primarily and unconditionally liable for its payment.

Cheque

Under Section 6 of the NI Act, 1881, a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, including the electronic image of a truncated cheque and a cheque in electronic form.

Truncated Cheque

A cheque which is truncated during a clearing cycle, either by the clearing house or by the bank, immediately on generation of an electronic image for transmission, substituting physical movement.

Bearer Instrument

An instrument where the name of the payee is blank, specified with the words 'or bearer', or where the last indorsement is blank; negotiated by mere delivery.

Order Instrument

An instrument payable to a specified person, to their order, or where the last indorsement is in full; negotiated by indorsement and delivery.

Inland Instrument

Under Sections 11 and 12, a promissory note, bill of exchange, or cheque drawn or made in India and made payable in, or drawn upon any person resident in India.

Foreign Instrument

Any negotiable instrument (promissory note, bill of exchange, or cheque) that is not an inland instrument.

Inchoate Instrument

Under Section 20, a signed and stamped negotiable instrument delivered to another person that is incomplete in certain respects (wholly blank or partially filled), giving authority to the holder to complete it.

Ambiguous Instrument

Under Section 17, an instrument that is vague and may be construed either as a promissory note or a bill of exchange, allowing the holder to elect its treatment.

Negotiation

Under Section 14 of the NI Act, 1881, the transfer of a negotiable instrument to any person with a view to constitute that person as the holder thereof.

Actual Delivery

The physical change of hands of a negotiable instrument from one person to another.

Constructive Delivery

Delivery occurring when an instrument is delivered to an agent, clerk, or servant of the indorsee on their behalf, or when the indorser holds the instrument as an agent.

Section 138 Penalty

Punishment for dishonour of cheque due to insufficiency of funds, which includes imprisonment for a term up to $2$ years, a fine up to twice the amount of the cheque, or both.

Drawee's Time for Deliberation

Under Section 63, the period of $48$ hours (exclusive of public holidays) allowed by the holder to the drawee of a bill of exchange to consider whether to accept it.

Compensation Interest Rate

Under Section 117(c), the rate of $18BA$ per annum interest that an endorser who pays the amount due on dishonour is entitled to receive from the date of payment until realization.