Negotiable instruments are those that can be converted into liquid cash under certain conditions like that of a cheque.
The transactions of these instruments in our country are regulated by a law titled the Negotiable Instruments Act, framed in the year 1881. According to this, the three negotiable instruments that can be used are – a promissory note, a cheque, or a bill of exchange.
The Act is quite important to our banking sector as it gives statutory definitions for these three instruments as well as the conditions under which they can be used. Besides, a certain section of the Act – Section 138 – is a step towards justice.
As per this section, if a cheque issued by someone is bounces due to an insufficient amount in his account, it is an offence. This section inserted later in 1988 was a major change in banking, because till then, there were no provisions to restrain a person from issuing a cheque without sufficient money in his account.