What is a negotiable
instrument?
Negotiability of an instrument depends on 2 criteria -
- Price
Rigidity - The price of the instrument is not firmly established, and can
be adjusted depending on the circumstances. If it cannot be adjusted or be changed,
then it is non-negotiable.
- Transferability - The instrument can be transferred from one party to another, provided all proper documentation are included and valid. But if the ownership cannot be transferred, then it is deemed to be a non-negotiable instrument.
For example, Certificate of Deposit (CD) is a negotiable instrument, whereas
Indian Government Savings bonds
are non-negotiable instruments.
Negotiable Instruments Act, 1881 (India)
It is a British colonial age act that is still in use. It defines 3 types of negotiable instruments that are widely used in Indian market - Promissory Notes, Bills of exchange, Cheques.
Before going into the topics, let some concepts be cleared first -
Negotiable Instruments Act, 1881 (India)
It is a British colonial age act that is still in use. It defines 3 types of negotiable instruments that are widely used in Indian market - Promissory Notes, Bills of exchange, Cheques.
Before going into the topics, let some concepts be cleared first -
- Unconditional
Undertaking / Promise - You are promising
or undertaking to pay without any condition
- Unconditional
Order - You
are providing an order (to someone, or some institution, or
bank) to pay without any
condition
