Section 13 of Negotiable Instruments Act 1881: Negotiable Instrument
Section 13 of the Negotiable Instruments Act, 1881 defines a "negotiable instrument" and explains when a promissory note, bill of exchange or cheque is payable to order or to bearer. It also permits an instrument to be made payable to joint or alternative payees.
Meaning of Negotiable Instrument under Section 13
Section 13(1): A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.
Explanation (i) - Payable to order: A promissory note, bill of exchange or cheque is payable to order when it is expressed to be so payable, or is expressed to be payable to a particular person, and contains no words prohibiting transfer or indicating an intention that it shall not be transferable.
Explanation (ii) - Payable to bearer: An instrument is payable to bearer when it is expressed to be so payable, or when its only or last indorsement is an indorsement in blank.
Explanation (iii): Where an instrument, originally or by indorsement, is expressed to be payable to the order of a specified person, but not expressly to "him or his order", it is nevertheless payable to him or his order at his option.
Section 13(2): A negotiable instrument may be payable to two or more payees jointly. It may also be payable alternatively to one of two, or one or some of several, payees.
What Section 13 Covers
The statutory definition covers three principal instruments: a promissory note under Section 4, a bill of exchange under Section 5, and a cheque under Section 6, provided the instrument is payable to order or bearer as contemplated by Section 13.
Payable to Order and Payable to Bearer
Instrument payable to order
An order instrument identifies a person to whom payment is to be made and remains transferable unless the wording prohibits transfer or otherwise shows an intention that the instrument is not transferable.
Instrument payable to bearer
A bearer instrument is expressed to be payable to bearer, or becomes bearer in character for this purpose where its only or last indorsement is an indorsement in blank. The rules on negotiation and indorsement under Sections 14 and 15 and indorsement in blank and in full under Section 16 are therefore closely related.
Joint and Alternative Payees
Section 13(2) expressly allows an instrument to name two or more payees jointly. It also permits alternative payment to one of two persons, or to one or some of several payees. This provision clarifies that negotiability is not confined to an instrument naming only one payee.
Related Definitions under the NI Act
For applying Section 13, related statutory concepts include holder and holder in due course under Sections 8 and 9, payment in due course under Section 10, and the distinction between inland and foreign instruments under Sections 11 and 12.
Official text: The current statutory text of the Negotiable Instruments Act, 1881 can be checked on the official India Code portal.