by Negotiation is a term used in the context of negotiable instruments, which are documents that represent a promise to pay a certain amount of money. Negotiation refers to the transfer of ownership of a negotiable instrument from one person to another. This transfer can take place through various means such as endorsement, delivery, or both.
When a negotiable instrument is transferred by endorsement, the transferor signs the back of the instrument and delivers it to the transferee. The transferee then becomes the new holder of the instrument and can further negotiate it to another person by endorsement and delivery. In this way, the instrument can be transferred multiple times until the final holder presents it for payment.
Negotiation of a negotiable instrument is governed by the rules laid down in the Negotiable Instruments Act, 1881 in India. The Act provides that a negotiable instrument can be transferred by endorsement, delivery, or both. The endorsement must be made on the back of the instrument or on a slip of paper attached to it. The endorsement must be signed by the holder of the instrument and must contain an order to pay the specified amount to the person named in the endorsement.
The person to whom the instrument is transferred by endorsement becomes the new holder of the instrument and can further transfer it to another person by endorsement and delivery. If the instrument is transferred by delivery alone, the transferee becomes the holder of the instrument, but he must get it endorsed by the transferor to be able to further negotiate it.
Negotiation of a negotiable instrument is important because it enables the holder of the instrument to transfer his right to payment to another person. This helps in the smooth flow of business transactions and promotes trade and commerce. It is important to note that only a holder of a negotiable instrument can negotiate it to another person. A non-holder cannot negotiate the instrument unless he is authorized by the holder to do so.
