Section 5 NI Act: "Bill of exchange"
Negotiable Instruments Act, 1881
Section 5 NI Act at a Glance
Section 5 NI Act defines a 'bill of exchange' as a signed written instrument containing an unconditional order directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer.
Section 5 NI Act Bare Act Text
5. "Bill of exchange".
A “bill of exchange” is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.
A promise or order to pay is not “conditional”, within the meaning of this section and section 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified even which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.
The sum payble may be “certain”, within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due.
The person to whom it is clear that the direction is given or that payment is to be made may be a “certain person”, within the meaning of this section and section 4, although he is mis-named or designated by description only.
Section 5 NI Act in Simple Words
Section 5 NI Act defines a bill of exchange as an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.
The second paragraph of Section 5 NI Act explains when a promise or order to pay is not 'conditional' within the meaning of both Section 5 NI Act and Section 4 NI Act. A promise or order is not conditional merely because the time for payment of the amount, or any instalment of it, is expressed to be after the lapse of a certain period following the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, even though the exact time when that event will happen is uncertain. The official text prints "a specified even which"; the sense is "a specified event which".
The third paragraph of Section 5 NI Act explains that the sum payable may still be 'certain' within the meaning of Section 5 NI Act and Section 4 NI Act even though it includes future interest, or is payable at an indicated rate of exchange, or is payable according to the course of exchange, and even though the instrument provides that the unpaid balance becomes due upon default in payment of an instalment. The official text prints "payble"; the sense is "payable".
The fourth paragraph of Section 5 NI Act explains that the person to whom it is clear that the direction is given, or to whom payment is to be made, may be a 'certain person' within the meaning of Section 5 NI Act and Section 4 NI Act even if that person is misnamed or designated by description only.
When Section 5 NI Act Applies
- The instrument must be in writing and signed by the maker.
- The instrument must contain an unconditional order directing a certain person to pay (and an order is not conditional merely because payment is set a certain period after an event that is certain to happen according to the ordinary expectation of mankind).
- The order must be to pay a certain sum of money only (which remains certain even if it includes future interest, is payable at an indicated rate of exchange or according to the course of exchange, or makes the unpaid balance due on default of an instalment).
- The money must be payable to, or to the order of, a certain person, or to the bearer of the instrument (and a person remains a certain person even if misnamed or designated by description only, where it is clear who is meant).
Example of Section 5 NI Act
FAQs on Section 5 NI Act
What is Section 5 NI Act?▼
Section 5 NI Act defines a bill of exchange as a written instrument containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. Section 5 NI Act also clarifies when a promise or order is not 'conditional', when a sum payable is 'certain', and when a person is a 'certain person' for both Section 5 NI Act and Section 4 NI Act.
How does a bill of exchange under Section 5 NI Act differ from a promissory note under Section 4 NI Act?▼
A promissory note under Section 4 NI Act contains an unconditional undertaking by the maker to pay a certain sum of money. A bill of exchange under Section 5 NI Act contains an unconditional order by the maker directing a certain person to pay a certain sum of money.
Does including future interest or an instalment default clause make the sum uncertain under Section 5 NI Act?▼
No. Under the third paragraph of Section 5 NI Act, the sum payable in a bill of exchange or promissory note remains 'certain' even if it includes future interest, is payable at an indicated rate of exchange or according to the course of exchange, or provides that the unpaid balance becomes due on default of an instalment.
Is an order to pay after a set period following an event that is certain to happen considered conditional under Section 5 NI Act?▼
No. Under the second paragraph of Section 5 NI Act, a promise or order to pay is not conditional under Section 5 NI Act or Section 4 NI Act merely because payment is expressed to be after a certain period following a specified event that, according to the ordinary expectation of mankind, is certain to happen, even if the time of its happening is uncertain.
Does misnaming the person to be paid stop that person being a "certain person" under Section 5 NI Act?▼
No. Under the fourth paragraph of Section 5 NI Act, the person to whom the direction is given or payment is to be made is still a 'certain person' under Section 5 NI Act and Section 4 NI Act even if misnamed or designated by description only, provided it is clear who that person is.
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Sources: Bare Act Text, Negotiable Instruments Act, 1881 (India Code) ·