Money can very easily and safely be transferred from one place to another with the help of negotiable i.e., cheque etc. The holder of these negotiable/ instruments can transfer these instruments merely by delivery and in some cases by delivery and endorsement.

The holder of a negotiable instrument can enforce his claim very quickly and with much less effort in a court in comparison to his claim of credit given without a negotiable instrument as there are number of presumptions in case of a negotiable instrument.

The law relating to negotiable instruments is given in the Negotiable Instruments Act, 1881. The Act is applicable to the whole of India including the State of Jammu and Kashmir. The Negotiable Instruments Act, 1881, specially deals with Promissory Notes, Bills of Exchange and Cheques, but does not exclude other instruments if they satisfy the conditions of negotiability by usage or custom of the trade. For instance. Hundi is the most important single example, beside Share Warrant, Port Trust Debentures, etc.

The Reserve Bank of India Act, 1934 :


The Negotiable Instrument Act, 1881 does not affect the provisions of the Reserve Bank of India Act, 1934, which has an over-riding effect. The Central Government and the Reserve Bank of India have been given the monopoly rights of issuing notes (currency notes) in India.

Sec. 31 of the Reserve Bank of India Act. 1934 provides that no person in India other than the Reserve Bank of India or the Central Government can draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand.

It further provides that no person other than the Reserve Bank, or the Central Government, can make or issue a promissory note expressed to be payable to the bearer of the instrument, whether payable on demand or after a certain period of time.



Sec. 32 provides penalty for violating the provisions of Sec. 31. If any person makes or issues such instruments, then he shall be punishable with fine which may extend to the amount of the bill, note etc. Further, such bill will be illegal and unenforceable.