Negotiable Instruments NI Act. 1881 Came Into Force On 1: /conversion/tmp/scratch/438498291.doc - 1

Negotiable Instruments
NI Act. 1881 came into force on 1st March 1882. After liberation it was adapted
through Bangladesh Bank Order – 1972 (P.O.127). Originally there were 141
sections. As the section 2 & 139 have been repealed through Amendment, present
number of section of the Act. is 139.
Definition of Negotiable Instruments: Section 13 states as under:
A “Negotiable Instrument” means a promissory note, Bill of Exchange, or

cheque payable either to order or bearer.
Specimen copy of Promissory Note
/conversion/tmp/scratch/438498291.doc -1-
Specimen copy of Bill of Exchange
Tk. 10,000/- Bill of Exchange Dhaka

May 2, 2010
Please pay Tarun or (to his) order the sum of Taka Ten thousand only for value
received.
To Stamp
Sameer
Address:
Rajib
Specimen copy of Cheque
Meaning of Negotiable: Section 14 states as under:
“When a promissory note, Bill of Exchange or cheque is transferred to any person so

as to constitute that person the holder thereof, the instrument is said to be
negotiable.
Holder in due course
Promissory Note:
Section 4 states as under:
A " promissory note" is 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.
Characteristics:
 It must be written undertaking.
 The maker must sign.
 The amount payable must be specific(certain).
 Payee of the note must be specific.
 Unconditional promise.
 It should be stamped.
 It must be an undertaking to pay money and only money.
Parties involved:
Maker and payee.
Bill of Exchange:
A "bill of exchange" is 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.
Tk. 10,000/- Dhaka

May 2, 2010
Please pay Tarun or (to his) order the sum of Taka Ten thousand only for value
received.
To Stamp
Sameer
Address:
Rajib
Characteristics:
 A bill of exchange must be in writing, duly signed by its drawer, accepted by

its drawee and properly stamped as per Stamp Act.
 It must contain an order to pay.
 The order must be unconditional.
 The sum payable mentioned must be certain.
 The parties to a bill must be certain.
 The order must be to pay money and money alone.
Parties involved:
Drawer, Drawee, Acceptor, Payee (Endorser & Endorsee)
Cheque:
A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be

payable otherwise than on demand.
Characteristics:
 A cheque must be in writing and duly signed by the drawer.

 It contains an unconditional order.
 It is issued on a specified banker only.
 The amount specified is always certain and must be clearly mentioned both in
figures and words.
 The payee is always certain.
 It is always payable on demand.
 The cheque must bear a date otherwise it is invalid and shall not be honoured
by the bank.
Parties involved:
Drawer, Drawee, Payee (Endorser & Endorsee)
Types of Cheque:
i. Bearer Cheque
ii. Order Cheque
The cheque which contains the word “bearer” after the payee’s name is a “bearer
cheque”.
Specimen copy of bearer Cheque
As regards bearer cheque section-85(2) of NI. Act. states as under:
Where a cheque is originally expressed to be payable to bearer, the -drawee is

discharged by payment in due course to the bearer thereof, notwithstanding any
endorsement whether in full or in blank appearing thereon, and notwithstanding that
any such endorsement purports to restrict or exclude further negotiation.
According to the subject “section” a bearer cheque is as good as cash. It can be

transferred to anybody by mere hand to hand delivery i.e. without written
endorsement on the cheque. Even if a stolen bearer cheque is paid, over the
counter, drawee bank cannot be made liable for effecting payment if it is made in
due course. A cheque originally expressed as bearer cheque and if it is subsequently
made restricted for negotiation by endorsement, drawee bank shall not be made
liable for payment. It may be kept in mind that “once a cheque is issued as
bearer it is always bearer”.
As per section-50 legally a bearer cheque can be changed to order cheque by a

restrictive endorsement. Since intension of the transferor is to get the payment by a
specific person it is advisable that the paying bank to find out the bonafide person
before making payment to avoid dispute or litigation though law does not require it.
Order cheque
The cheque in which the words “or bearer” are striken out and order is given by the
drawer to a specific person for payment, is an order cheque.
Specimen copy of order Cheque
Section85(i) states as under:
Where a cheque payable to order purports to be endorsed by or on behalf of the

payee, the drawee is discharged by payment in due course.
The order cheque may be paid over the counter but the drawee bank shall have the
responsibility to verify the identification of the named person.
As per section 47 & 48 an order cheque is negotiable by endorsement and delivery

thereof.
Crossed Cheque
If a cheque bears two parallel lines on its face it is to be called crossed cheque.
Usually a cheque is crossed on the top of its left corner.
A crossed cheque is never paid at the counter of any bank.
Types of crossing:
 General crossing
 Special crossing
General Crossing:
In this connection section123 of NI Act. states as under:
“Where a cheque bears across its face an addition of the words “and company” or
any abbreviation thereof, between two parallel transverse lines, or of two parallel
transverse lines simply, either with or without the words “not negotiable”, that
addition shall be deemed a crossing, and the cheque shall be deemed to be crossed
generally.”
Examples of General crossing:
Characteristics of General crossing:
Except “A/C payee” any cheque with general crossing can be transferred from one
person to another but with endorsement. In case of bearer cheque it can be
transferred from one person to another by mere hand to hand delivery without any
endorsement.
According to section 123A of NI. Act. “A/C payee” cheque
 Shall not be negotiable (transferable).

 It shall be the duty of the banker collecting payment of the cheque to credit
the proceeds thereof only to the account of the payee named in the cheque.
Cheque with “Not negotiable” crossing relates to “section 130 of NI. Act. which
refers to the fact that the person who is taking the cheque shall not have and shall
not be capable of giving a better title than that he took.
/conversion/tmp/scratch/438498291.doc - 10 -
Special crossing:
According to section 124 of NI. Act “ a cheque shall be treated as specially crossed
cheques if it bears across its face the name of a banker either with or without the
words “negotiable”
Example:
Crossing or change of crossing after issue:
Section 125 of NI. Act.
i. When the cheque is uncrossed, the holder may cross it generally or

specially.
Stage-I:
Stage-II: Mr. Karim as holder may cross it as under.
ii. When a cheque is crossed generally the holder may cross it specially.
Example:
Stage-I:
Stage-II:
iii. Where a chque is crossed generally or specially the holder may add the word “Not
negotiable”.
Example:
Stage-I:
Stage-II:
iv. Where a cheque is crossed specially, the banker to whom it is crossed, may again
cross it specially to another Banker his agent for collection.
Stage-I:
Stage-II:
v. When an uncrossed cheque or a cheque crossed generally is sent to a banker for
collection it may cross the same specially to itself.
Example:
Stage-I:
Stage-II:
No one is authorized to change/alter the crossing except the above cases covered by
NI. Act.
Endorsement:
Section 15 of NI.Act states as under:
When the maker or holder of a negotiable instrument signs the same, otherwise than
as such maker, for the purpose of negotiation, on the back or face therof or on a slip
of paper annexed thereto, or so signs for the same purpose a stamped paper
intended to be completed as a negotiable instrument, he is said to endorse the
same, and is called the “Endorser”.
Example:
Stage-I:
order
Stage-II:
Overleaf of the cheque
Please pay to Mr. Rahim or order
Karim
Here:
Mr. Karim is Endorser
Mr. Rahim is endorsee
Mercantile Bank Ltd. is the drawee bank.
Blank Endorsement – Full Endorsement
According to section 16 of NI. Act. if the endorser signs his name only, it is said to
be Blank.
Example:
Blank Endorsement
Stage-I:
order
Stage-II: Overleaf of the cheque
...................................................
Karim
Mr. Karim has made a blank endorsement.
Full Endorsed
If the endorser signs and accords a directive for the amount mentioned in instrument
as to pay to a specified person or to his order. It is said to be endorsed in full.
Example:
Stage-I:
order
Stage-II:
overleaf of the cheque
Please pay to Mr. Rahim or order

Endorsed in full
Karim
Mr. Karim has made a full endorsement mentioning a specified person Mr. Rahim.
Partial endorsement:
Partial endorsement refers to transfer of partial amount of the amount mentioned in

the cheque. It is considered as invalid endorsement.
order
Overleaf of the cheque
Please pay Tk.2,000/- to Mr. Rahim or order
Karim Invalid
It is a partial endorsement and it is invalid.
Restrictive Endorsement:
In this regard section 50 NI. Act. states as under:
 Excludes the right to further negotiate.

 Endorsee becomes the agent of the endorser to endorse the instrument or
to receive money for the endorser or for some other specified person.
Example:
Stage-I:
order
Stage-II:
Pay to Mr. Jashim or order for the A/C of Mr. Karim
Karim
Mr. Rahim has nominated Mr. Jashim as agent and restricted the endorsement by
mentioning “for the A/C of Mr. Karim”.
Conditional Endorsement:
i. Without recourse : Where endorser excludes his liability for the endorsement
made.
Example:
Stage-I:
order
Stage-II:
Pay to Mr. Jashim or order without recourse to the endorser
Karim
Without recourse indicates that if the cheque is dishonoured or paid it otherwise Mr.
Jashim Shall have no right to claim on the instrument.
Facultative Endorsement: In case of dishonour of cheque the Endorsee requires to
give notice of dishonour to the endorser. It is an endorsement whereby, endorser
waives some of his rights on the instrument. Under facultative endorsement
endorser shall endorse the cheque in the following manner.
Example:
Stage-I:
order
Stage-II:
Pay to Mr. Jashim or order, notice of dishonour waived
Karim
Here endorser shall remain liable to the endorsee even notice of dishonour is not
served.
Invalid & irregular endorsement:
Example: i.
order
Pay to Rahim & Jashim
Original endorsement
Karim
Pay to Nasim or order Invalid endorsement as

Rahim and Jashim were joint
holder. It should be as under
Rahim
Pay to Nasim or order
Valid
Rahim Jashim
Example: ii.
Endorser shall spell his name in the same way as it appeared in the cheque or Bill
as payee or endorsee.
Example:
Stage-I:
order
Stage-II:
Please pay to Mr. Rahem or order
Karim
Pay to Mr. Jamil or order
Rahem,
(Rahim)
Any prefix such as Mr., Mrs., Dr. , Colonel, General etc. to the name of the payee or
endorsee should not be included while endorsing the cheque or instrument.
Example: iii.
i. Stage-I
Pay to Colonel Rahim or order
Karim
Stage-II Pay to Mr. Jashim or order
Rahim (Colonel)
Example iv. Pay to Mrs. Rahim or order
Karim
Pay to Mr. Jashim or order

Irregular
(Mrs. Rahim)
Pay to Mr. Jashim or order
Regular
Sharmin
(wife of Mr. Rahim)
Reasons of Dishonour of Cheques:
Banks may dishonour a cheque if it is found to be not in order without incurring any
liability thereagainst:
 Cheque may be post-dated or undated.

 Insufficient balance.
 cheque is presented after business hour.
 Signature of Drawer differs with the recorded specimen signature.
 Cheque is stale i.e. presented after 6 months of its issuance.
 Amount in words and figures differs.
 Cheque is mutilated.
 A/C is seized by the regulatory authority.
Wrongful dishonour
Bank must not dishonour a cheque without justification. According to section 31 of

NI Act Bank is liable to compensate the drawer for the loss or damage due to
wrongful dishonour.
Punishment against dishonoured cheque.
As per section 138 of NI Act if cheque is issued by the drawer and subsequently it is
dishonoured, drawer may be punished with 01(one) year imprisonment or more with
fine twice the amount of cheque or with both.
Before going to the court payee shall have to fulfill the following conditions.
a. The cheque should be presented within a period of six months from the date
of its issuance or within its validity.
b. The payee must serve notice of dishonour within 15 days of dishonour.
c. Failure of the drawer in paying the amount of cheque within 15 days of the
receipt of the notice by the payee.
Holder:
The “holder” of a promissory note, bill of exchange or cheque means any person
entitled in his own name to the possession thereof and to receive or recover the
amount due thereon from the parties thereto.
Holder in due course:
“Holder in due course” means any person who for consideration becomes the
possessor of a promissory note, bill of exchange or cheque if payable to bearer, or
the payee or endorse thereof, if payable to order, before it became overdue, without
notice that the title of the person from whom he derived his own title was defective.
Payment in due course:
“Payment in due course” means payment in accordance with the apparent tenor of
the instrument in good faith and without negligence to any person in possession
thereof under circumstances which do not afford a reasonable ground for believing
that he is not entitled to receive payment of the amount therein mentioned.

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Negotiable Instruments

Definition of Negotiable Instruments: Section 13 states as under:

A “Negotiable Instrument” means a promissory note, Bill of Exchange, or

Specimen copy of Promissory Note

Tk. 10,000/- Bill of Exchange Dhaka

Specimen copy of Cheque

“When a promissory note, Bill of Exchange or cheque is transferred to any person so

Holder in due course

A " promissory note" is an instrument in writing (not being a bank-note or a

Maker and payee.

Section 5 states as under:

A "bill of exchange" is an instrument in writing, containing an unconditional order,

Tk. 10,000/- Dhaka

 A bill of exchange must be in writing, duly signed by its drawer, accepted by

A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be

 A cheque must be in writing and duly signed by the drawer.

Drawer, Drawee, Payee (Endorser & Endorsee)

Specimen copy of bearer Cheque

As regards bearer cheque section-85(2) of NI. Act. states as under:

Where a cheque is originally expressed to be payable to bearer, the -drawee is

According to the subject “section” a bearer cheque is as good as cash. It can be

As per section-50 legally a bearer cheque can be changed to order cheque by a

Specimen copy of order Cheque

Section85(i) states as under:

Where a cheque payable to order purports to be endorsed by or on behalf of the

As per section 47 & 48 an order cheque is negotiable by endorsement and delivery

A crossed cheque is never paid at the counter of any bank.

In this connection section123 of NI Act. states as under:

Examples of General crossing:

According to section 123A of NI. Act. “A/C payee” cheque

 Shall not be negotiable (transferable).

Crossing or change of crossing after issue:

Section 125 of NI. Act.

i. When the cheque is uncrossed, the holder may cross it generally or

Section 15 of NI.Act states as under:

Please pay to Mr. Rahim or order

Stage-II: Overleaf of the cheque

Mr. Karim has made a blank endorsement.

Please pay to Mr. Rahim or order

Partial endorsement refers to transfer of partial amount of the amount mentioned in

Overleaf of the cheque

Please pay Tk.2,000/- to Mr. Rahim or order

It is a partial endorsement and it is invalid.

In this regard section 50 NI. Act. states as under:

 Excludes the right to further negotiate.

Pay to Mr. Jashim or order for the A/C of Mr. Karim

Pay to Mr. Jashim or order without recourse to the endorser

Pay to Mr. Jashim or order, notice of dishonour waived

overleaf of the cheque

Pay to Rahim & Jashim

Pay to Nasim or order Invalid endorsement as

Pay to Nasim or order

Please pay to Mr. Rahem or order

overleaf of the cheque

Pay to Mr. Jamil or order

overleaf of the cheque

Stage-II Pay to Mr. Jashim or order

overleaf of the cheque

Example iv. Pay to Mrs. Rahim or order

overleaf of the cheque

Pay to Mr. Jashim or order

overleaf of the cheque

Pay to Mr. Jashim or order