Negotiable Instrument

Negotiable Instrument refers to financial instruments that can be sold, paid or transferred by mere endorsement. These are payable either to order or to a bearer by endorsement in due course. Negotiable instruments got their formal identity and recognition with the promulgation of the Negotiable Instrument Act 1881, according to which negotiable instruments include promissory notes, bills of exchange and cheques, payable either to order or to a bearer.

All negotiable instruments are similar in characteristics, although there are some differences among them. A negotiable instrument must be written and signed by the maker, it must be unconditional. The sum mentioned in it is payable to its bearer or to a certain person or to his order. It is payable also on demand, or at a fixed or future date. All negotiable instruments are transferable by mere delivery if payable to bearer, and by endorsement and delivery, if payable to order. Negotiable instruments differ in terms of formalities to be followed for their encashment. Some instruments require to be stamped while some others do not. Unlike cheques, bills of exchange and promissory notes cannot be crossed. Acceptance is necessary for some but not for all negotiable instruments.

The most common and popular form of negotiable instruments used in Bangladesh is the cheque, which is issued against deposit in banks. All offices of the deposit money banks are allowed to issue cheques to account holders against their current and savings deposits only. No cheque can be issued against term or fixed deposit accounts. The use of cheques as means of payment grew considerably with the expansion of the banking network throughout the country. The use of promissory notes and bills of exchange are traditionally limited in Bangladesh. Promissory notes are issued by the government and held by the bank. Banks can avail of the discount window facility of the bangladesh bank against these instruments.

There are two kinds of bills of exchange in Bangladesh: foreign bills and internal bills. Traditionally, use of these instruments is not widespread in the country. However, with the expansion of industrialisation, trade, and commerce, these instruments are now more frequently used. Usually, holders of these bills sell them for cash to banks, which pay the holder face value of the bills less collection charges and the interest for the remaining period of the bills. [Syed Ahmed Khan and A Samad Sarker]