Section 13 NI Act: "Negotiable instrument"
Negotiable Instruments Act, 1881
Section 13 NI Act at a Glance
Section 13 NI Act defines a negotiable instrument as a promissory note, bill of exchange, or cheque payable either to order or to bearer, and permits joint or alternative payees.
Section 13 NI Act Bare Act Text
13. "Negotiable instrument".
(1) A “negotiable instrument” means a promissory note, bill of exchange or cheque payable either to order or to bearer.
Explanation (i)—A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.
Explanation (ii)—A promissory note, bill of exchange or cheque is payble to bearer which is expressed to be so payable or on which the only or last indorsement is an indorsement in blank.
Explanation (iii)—Where a promissory note, bill of exchange or cheque, either originally or by indorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.
(2) A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of serveral payees.
Amendments to this section
- Subs. by Act 8 of 1919, s. 3, for the sub-section (1).
- Ins. by Act 5 of 1914, s. 2.
Section 13 NI Act in Simple Words
Section 13 NI Act defines what makes an instrument a negotiable instrument. Under Section 13(1) NI Act, a negotiable instrument means a promissory note, a bill of exchange, or a cheque payable either to order or to bearer.
Three explanations to Section 13(1) NI Act explain those terms. Under Explanation (i), a promissory note, bill of exchange, or cheque is payable to order if it is expressed to be so payable, or if it is expressed to be payable to a particular person and does not contain words prohibiting transfer or indicating an intention that it is not transferable. Under Explanation (ii), a promissory note, bill of exchange, or cheque is payable to bearer if it is expressed to be so payable, or if the only or last indorsement on it is an indorsement in blank. Under Explanation (iii), where a promissory note, bill of exchange, or cheque, either originally or by indorsement, is expressed to be payable to the order of a specified person, and not to that person or that person's order, it is nevertheless payable to that person or that person's order at that person's option.
Under Section 13(2) NI Act, a negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two payees, or to one or some of several payees. The official text prints "payble" in Explanation (ii) and "serveral" in sub-section (2); the sense is "payable" and "several".
Act 8 of 1919 put the present sub-section (1), with its three Explanations, in place of the original sub-section (1). Act 5 of 1914 inserted sub-section (2).
When Section 13 NI Act Applies
- A negotiable instrument is a promissory note, bill of exchange, or cheque payable either to order or to bearer (Section 13(1) NI Act).
- Payable to order: expressed to be so payable, or expressed to be payable to a particular person without words prohibiting transfer or indicating an intention against transferability (Explanation (i)).
- Payable to bearer: expressed to be so payable, or having an indorsement in blank as the only or last indorsement (Explanation (ii)).
- Payable to the order of a specified person: payable to that specified person or that person's order at that person's option, even when not expressed as payable to that person or that person's order (Explanation (iii)).
- Multiple payees: may be made payable to two or more payees jointly, or in the alternative to one of two, or to one or some of several payees (Section 13(2) NI Act).
Example of Section 13 NI Act
FAQs on Section 13 NI Act
What is Section 13 NI Act?▼
Section 13 NI Act defines a negotiable instrument as a promissory note, bill of exchange, or cheque payable either to order or to bearer. It also explains when an instrument is payable to order or to bearer and allows instruments to be made payable to multiple payees jointly or in the alternative.
When is a cheque or bill payable to order under Section 13 NI Act?▼
When it is expressed to be payable to order, or when it is expressed to be payable to a particular person without words prohibiting transfer. Under Explanation (i) to Section 13(1) NI Act, if the instrument contains words prohibiting transfer or indicating an intention that it is not transferable, it is not payable to order.
When is a promissory note, bill, or cheque payable to bearer under Section 13 NI Act?▼
When it is expressed to be payable to bearer, or when the only or last indorsement on it is an indorsement in blank. This rule is set out in Explanation (ii) to Section 13(1) NI Act.
Can a negotiable instrument be made payable to more than one payee under Section 13(2) NI Act?▼
Yes. Section 13(2) NI Act allows a negotiable instrument to be made payable to two or more payees jointly, or in the alternative to one of two payees, or to one or some of several payees.
What if an instrument is written as 'Pay to the order of Manoj' instead of 'Pay to Manoj or order' under Section 13 NI Act?▼
It is still payable to Manoj or to Manoj's order at Manoj's option. Explanation (iii) to Section 13(1) NI Act provides this rule whether the wording appears originally on the instrument or by indorsement.
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Sources: Bare Act Text, Negotiable Instruments Act, 1881 (India Code) ·