In one line
A negotiable instrument carries a monetary obligation that can pass by negotiation and entitle its holder to payment.
After this note, you should be able to
- Distinguish notes, bills and cheques.
- Identify the parties and essential wording.
- Explain negotiation, endorsement and delivery.
The three statutory instruments
Each instrument must be in writing and concern a certain sum of money.
- Promissory note
- An unconditional written undertaking, signed by the maker, to pay a certain sum to or to the order of a certain person, or to the bearer where law permits.
- Bill of exchange
- An unconditional written order, signed by the drawer, directing a certain person to pay a certain sum to or to the order of a certain person, or to bearer.
- Cheque
- A bill of exchange drawn on a specified banker and payable on demand, including electronic and truncated cheques recognized by Section 6.
- Core difference
- A note contains a promise by its maker. A bill or cheque contains an order by the drawer to the drawee.
Negotiability and transfer
Negotiation transfers the instrument so the transferee becomes its holder.
- Bearer instrument
- Negotiated by delivery under Section 47.
- Order instrument
- Negotiated by endorsement and delivery under Section 48.
- Blank endorsement
- The endorser signs without naming an endorsee, making the instrument payable to bearer for further negotiation.
- Full endorsement
- The endorser directs payment to a specified person, who must endorse for further negotiation.
- Inchoate instrument
- Section 20 permits the holder of a signed and stamped incomplete instrument to complete it within the authority given, subject to statutory protection for a holder in due course.
Work through the facts
Illustration
Facts
A signs a document stating, "I acknowledge that I owe B Rs 50,000," but includes no promise to pay.
Likely result
A mere acknowledgment is not a promissory note because it lacks an express unconditional undertaking to pay.
What to learn
Look for promise or order, certainty, signature, money and identifiable parties.
Cases with a purpose
Landmark judgments
Learn the rule and where to use it. A case name without its legal function adds little to an answer.
Keshoram Industries Ltd. v. Commissioner of Wealth Tax
Further readingAIR 1966 SC 1370
Principle: A debt is a present obligation to pay money, though payment may become due later.
Use in an answer: Use it to distinguish an existing monetary obligation from a merely contingent liability.
Bir Singh v. Mukesh Kumar
Further reading(2019) 4 SCC 197
Principle: A voluntarily signed blank cheque can be completed by the payee, and filling its particulars alone does not invalidate it.
Use in an answer: Use it with Sections 20 and 139 where signature is admitted but later completion is disputed.
For a 10-mark answer
Answer structure
- Identify the document as a promise or an order.
- Test writing, signature, certainty, money and parties.
- Classify it as note, bill or cheque.
- Explain how it is negotiated and who becomes holder.
Common mistakes
- Treating an acknowledgment as a promise to pay.
- Calling every bill a cheque.
- Forgetting delivery in negotiation.
Before you close the tab
Quick revision
- Note means promise.
- Bill means order.
- Cheque means demand bill drawn on a banker.
- Bearer passes by delivery.
- Order passes by endorsement and delivery.
Test yourself
- What separates a note from a bill?
- How is an order instrument negotiated?
- What is an inchoate instrument?
Short answers
Frequently asked questions
Is every written promise to pay a promissory note?
No. It must satisfy Section 4, including unconditional undertaking, signature, certain money and identified payment direction.
Can a cheque be electronic?
Yes. Section 6 recognizes electronic cheques and electronic images of truncated cheques.
Primary sources
This is an educational study note. Read the bare provision and full judgment before relying on a proposition in research or practice.