Define the following: (1) Promissory Note (2) Bill of exchange (3) Cheque (4) Drawer (5) Drawee (6) Acceptor

The Negotiable Instruments Act, 1881 opens Chapter II — the heart of the statute — with a set of carefully drawn definitions. These definitions are not mere exercises in statutory language; they are the building blocks upon which the entire law of negotiable instruments rests. Each term carries a precise legal meaning, and understanding that meaning is the first step to understanding the rights and liabilities that flow from the instrument.

1. Promissory Note (Section 4)

Section 4 of the Act defines a promissory note as follows:

"A promissory note is an instrument in writing, not being a bank note or a currency note, containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument."

At its core, a promissory note is a written, signed, and unconditional promise made by one person to pay a fixed sum of money to another. The person who makes the promise is called the maker; the person to whom the promise is made is called the payee. The instrument recognises three forms: a note payable to a named person, a note payable to the order of a named person, and a note payable to the bearer. The definition expressly excludes bank notes and currency notes — those belong to the exclusive domain of the Reserve Bank of India under the Reserve Bank of India Act, 1934.

The illustrations appended to Section 4 are instructive: "I promise to pay B or order Rs 500" (Illustration (a)) and "I acknowledge myself to be indebted to B in Rs 1,000 to be paid on demand for value received" (Illustration (b)) are both promissory notes; instruments marked (c) through (h), which are either mere acknowledgements, conditional promises, or promises to deliver goods in addition to money, are not.

2. Bill of Exchange (Section 5)

Section 5 defines a bill of exchange in these terms:

"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."

The bill of exchange introduces a third party into the payment relationship. Unlike the promissory note, where the maker binds himself to pay, the drawer of a bill orders another person — the drawee — to make the payment. The three necessary parties are: the drawer (the person who gives the order), the drawee (the person directed to pay, who upon acceptance becomes the acceptor), and the payee (the person to whom payment is to be made). It is, however, not necessary that three distinct persons fill these roles; the drawer and payee may be the same person, as when a bill is expressed "pay to my order."

Section 5 also contains two clarifying explanations of importance. The first states that a promise or order to pay is not conditional merely because payment is triggered by an event certain to happen, though the time of its happening may be uncertain — such as the death of a named person. The second explanation states that the sum payable is certain even if it includes future interest, is payable at an indicated rate of exchange, or by instalments with an acceleration clause on default.

3. Cheque (Section 6)

A cheque is not a separate species of instrument created from scratch by Section 6 — it is defined as a special type of bill of exchange. Section 6 reads:

"A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand."

The section further includes within its definition the electronic image of a truncated cheque and a cheque in electronic form, following the amendments introduced by the Negotiable Instruments (Amendment) Act, 2002. A cheque is thus a bill of exchange with two additional and indispensable qualifications: first, the drawee must always be a specified banker; and second, the instrument must be payable on demand — meaning immediately upon presentment, without any days of grace.

All cheques are bills of exchange, but not all bills of exchange are cheques. A bill drawn on a banker, but payable at a future date, is not a cheque. The Supreme Court, in Punjab and Sind Bank v Vinkar Sahakari Bank Ltd (AIR 2001 SC 3641), explained that a bill of exchange acquires the status of a cheque when it is payable on demand and drawn on a specified banker — both conditions must co-exist.

4. The Drawer (Section 7)

Section 7 defines the drawer as the maker of a bill of exchange or cheque. The drawer is the person who signs the instrument and gives the unconditional order to the drawee to pay. In a bill of exchange, the drawer's liability is secondary and conditional — he becomes liable only if the drawee dishonours the bill by refusing to accept or pay it. The drawer, in essence, stands as a surety behind the drawee's primary obligation. As the Act itself recognises, the drawer of a bill corresponds to the first endorser of a promissory note — not to its maker.

In the context of a cheque, the drawer is the account holder who issues the cheque upon his banker. The drawer is primarily responsible to the payee when the cheque is dishonoured, and it is upon this liability that the criminal sanction under Section 138 of the Act is founded.

5. The Drawee (Section 7)

Section 7 defines the drawee as the person directed by the drawer to pay. On a bill of exchange, the drawee is the person to whom the bill is addressed and who is called upon to accept and pay the instrument. The drawee has no liability upon the bill until he has accepted it; before acceptance, he is under no obligation to either the drawer or the payee. The necessity of a certain drawee is an essential feature of the bill of exchange that distinguishes it structurally from the promissory note, where no such third party exists.

In the case of a cheque, the drawee is invariably a banker — the bank with which the drawer maintains an account. The drawee-banker's obligation runs to the drawer under the contract of banking, not directly to the payee of the cheque; hence, the mere dishonour of a cheque by the bank gives no direct right of action to the payee against the bank.

6. The Acceptor (Section 7)

Section 7 further defines the acceptor as the drawee of a bill who has signed his assent upon the bill. Acceptance, in law, is the act by which the drawee acknowledges his obligation to pay the bill according to its tenor and thus transforms himself from a mere drawee — a stranger to the instrument — into the acceptor, who becomes the primary debtor.

Acceptance must be written on the bill itself and must be signed by the drawee. As Section 5 makes clear, once the drawee affixes his signature of assent upon the bill and delivers it back, he is thereafter called the acceptor. The moment of acceptance is the moment at which the instrument acquires its primary obligor. Before acceptance, the drawer is the person conditionally liable; after acceptance, the acceptor assumes primary liability and the drawer's liability becomes secondary — the drawer is, in effect, a surety who will be called upon only if the acceptor fails to pay at maturity.

A cheque, being payable on demand, requires no acceptance. The drawee-banker honours it not as an acceptor but in performance of his contractual duty to his customer.