A negotiable instrument is a document or a written order which guarantees the payment of a specified amount of money, either immediately (on demand) or at a future date. A negotiable instrument promises the payment without condition.

A negotiable instrument means a promissory note, bill of exchange or cheque payable either on order or to beare

Types of Negotiable Instruments 

Promissory Notes

• Section 4 defines it as, “A promissory note is an instrument in writing 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”.
• The person who makes the promissory note is called the maker.
• The person to whom payment is to be made is called the payee.  
• There are 2 parties involved i.e. maker and the payee.

Some examples of Negotiable Instruments:

• "I promise to pay B or order Rs. 500."
•  "I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for value received."

Bill of Exchange
Section 5 is defined as “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”. 
Parties to bill of exchange:

• Drawer – The person who makes/orders to pay bill of exchange.
• Drawee – The person who is directed to pay on bill. On acceptance he becomes acceptor.
• Payee – The person to whom the payment is to be made.

Cheques

• Section 6 defines it as “A cheque is a bill of exchange drawn on a specified banker & not expressed to be payable otherwise than on demand”.
• In other words,Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument.
• It is always drawn on a bank
• It is payable to bearer on demand

Parties to Cheque:

• Drawer – who makes the cheque
• Payee – to whom payment is to be made
• Drawee – Bank .

Types of cheque

Uncrossed / Open Cheque
When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". These cheques may be cashed at any bank and the payment of these cheques can be obtained at the counter of the bank or transferred to the bank account of the bearer. An open cheque may be a bearer cheque or an order one.

Bearer Cheque
When the words "or bearer" printed on the cheque is not cancelled, the cheque is called a bearer cheque. A bearer cheque is made payable to the bearer i.e. it is payable to the person who presents it to the bank for encashment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.

Order Cheque
When the word "or bearer" printed on the cheque is cancelled and and the word ‘order’ may be written on the cheque, the cheque is called an order cheque. An order cheque is one which is payable to a particular person. The payee can transfer an order cheque to someone else by signing his or her name on the back of it.

Crossed Cheque

General Crossing Section 123: Where a cheque bears across its face an addition of words 'and company' or any abbreviation thereof, between two parallel transverse lines or of two pair parallel lines simply, either, with or without the words 'Not Negotiable' that addition shall be deemed a crossing and the cheque shall be deemed to be crossed generally.

Special crossing Section 124:- Where a cheque bears across its face an addition of the name of a banker either with or without the words 'not negotiable', that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed to that banker.It should be noted that in addition to these minimum statutory requirements for two types of crossing addition of words or lines may also be 'A/c payee', "Not Negotiable".

Anti-Dated Cheque
Cheque in which the drawer mentions the date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid upto six months from the date of the cheque. For Example, a cheque issued on 10th Jan 2010 may bear a date 20th Dec 2009.

Post Dated Cheque
Cheque on which drawer mentions a date which is yet to come(future date) to the date on which it is presented, is called post-dated cheque. For example, if a cheque presented on 10th Jan 2010 bears a date of 25th Jan 2010, it is a post-dated cheque. The bank will make payment only on or after 25th Jan 2010.

Stale Cheque
If a cheque is presented for payment after three months from the date of the cheque it is called stale cheque. 
After expiry of that period, no payment will be made by banks against that cheque.

Mutilated Cheque
When a cheque is torn into two or more pieces and presented for payment, such a cheque is called a mutilated cheque. The bank will not make payment against such a cheque without getting confirmation of the drawer.

What is cheque bounce/ dishonour of cheque?
A cheque is said to be dishonoured or bounced when it is presented for payment to a bank but it is not paid because of some reason or the other. The following are some of the reasons why a cheque is generally bounced :

• Signature is not matching
• There is overwriting in the cheque
• Cheque was presented after lapse of three months, i.e. after the cheque has expired
• Account was closed
• Insufficient funds in the account
• Payment stopped by the account holder
• Opening balance insufficient
• Disparity in the words and figures mentioned on the cheque
• In case the cheque is issued by a company, the same does not bear the seal of the company
• Mismatch in account number
• In case of joint account where both signatures are required, only one sign is there
• Death of the customer
• Insolvency of the customer
• Insanity of the customer
• Crossed cheque
• When a cheque is issued against the rules of trust
• Alteration in cheque
• Doubt in genuineness of the cheque
• Presented at the wrong branch
• Crossing limit of overdraft (OD)

Cheque bounce is a criminal offence in India, covered under section 138 of the Negotiable Instruments Act. Under this section there is provision of imprisonment upto 6 months or fine upto twice the amount of cheque or both. . 

Cheque Truncation System

• Cheque Truncation System (CTS) is a cheque clearing system undertaken by the Reserve Bank of India (RBI) for quicker cheque clearance. As the term proposes, truncation is the course of discontinuing the flow of the physical cheque in its way of clearing. Instead of this an electronic image of the cheque is transferred with vital essential data.
• The number 2010 in 'CTS-2010' is because the guidelines for Cheque Truncation System came up in the year 2010.
• Since there is no physical movement of cheques, there is no fear of loss of cheque in transit. Usage of CTS cheques also means quicker clearance, shorter clearing cycle and speedier credit of the amount to your account. Depending on whether the cheque is local or outstation, the cheque can get cleared on the same day or within 24 hours.
• Non CTS cheques are discontinued after 31st Dec, 2018. 

Benefits of CTS:

• Shorter clearing cycle 
• Superior verification and reconciliation process 
• No geographical restrictions as to jurisdiction 
• Operational efficiency for banks and customers alike 
• Reduction in operational risk and risks associated with paper clearing

Other Financial Terms:

NEFT – “National Electronic Fund Transfer”

• It is a nation-wide payment system to tranfer money from one part of the country to another. 
• There is no minimum or maximum limit while transferring through NEFT platform.
• If you have Bank account in any NEFT enabled branches , then you can transfer fund through internet or bank branches directly.
• From July 10, 2017 settlements of fund transfer requests in NEFT system is done on half-hourly basis. There are twenty three half-hourly settlement batches run from 8 am to 7 pm on all working days of week (Except 2nd and 4th Saturday of the month).
• NEFT mode can also be used while transferring fund to Nepal under Indo- Nepal Remittance Facility scheme. Here also RBI sets an upper limit ceiling i.e. one can transfer up to Rs.50,000 per transaction.
• For these schemes, Banks charges as service charge or processing fee for each ENFT transactions.
• While transferring NEFT fund you to anyone you must have His/Her Bank Accounts Details like Account Number , Account Holders Name , IFSC code.

RTGS-  “Real Time Gross Settlement”

• RTGS stands for real time gross settlement, which means that it enables money to move from one bank to another on a real time and gross basis. 
• RBI sets a limit, One can transfer a minimum of Rs.2 Lakh
• The scheme is only applicable for those customers, Corporates, Firms,  whose bank is entitled with RTGS Payment platform system.
• The RTGS service window for customer transactions is available to banks from 8 am to 4.30 pm on a working day, for settlement at the RBI end. However, the timings that the banks follow may vary from bank to bank.
• As per RBI guidelines, Banks charges Rs.25 + Application time charge (Rs.5) A total of Rs.30 for each transaction in-between Rs.2 lakh to Rs.5 lakh.
• However, Above Rs.5 lakh Bank charges Rs.50 + Application time charge

IMPS: Immediate Payment Services

• IMPS is an instant interbank electronic fund transfer service through mobile phones.
• This service is available 24×7 for a transaction between interbank.
• It doesn’t require any “batches”. Though IMPS offers Instant Transfer.
• To be able to transfer fund through IMPS route you must first register for the immediate payment services with your bank.
• After successful registration, the bank will provide you “Mobile Money Identifier(MMID) and Mobile Personal Identification number(MPIN).
• For transferring of funds the Minimum & Maximum amount is to be Rs.1 and Rs.2,00,000.

MTSS: Money Transfer Service Scheme

• It is a system of money transfer for transferring personal remittances from abroad to beneficiaries in India.
• Through this only inward remittances into India are permissible. No outward remittance allowed.
• A maximum of Rs.50,000 can be remitted inwards as per the money value. And a maximum of 30 transactions per the calendar year.

Nepal Remittance Scheme

• It is a cross-border one-way remittance facility scheme for remittance from India to Nepal.
• Maximum amount remittance is INR 50,000 and beneficiaries will receive in Nepalese Rupees.

ECS(Electronic Clearing Services)

• It is a service your bank provides when you need to transfer funds from one bank account to another electronically.
• In fact, it comes handy when you want to make periodic transactions electronically, like when you need to pay your loan EMI. 

IFSC(Indian Financial System Code)

• IFSC is short for Indian Financial System Code and represents the 11 digit character that you can usually see on your bank’s cheque leaves, or other bank sponsored material. This 11 character code helps identify the individual bank branches that participate in the various online money transfer options like NEFT and RTGS.
• The first 4 characters of IFSC code are alphabets which represent the bank. The fifth character is zero (0). Usually, the last 6 characters are numbers but they can be alphabets as well and represent the bank branch. 

SWIFT Code:

A SWIFT code is used to identify a particular branch of a bank. These codes play an important role in various bank transactions, especially when it comes to international transactions. A SWIFT code may also be used by various banks to transfer other messages. 

A SWIFT code may be of eight to eleven digits and has the following components:

• The first four characters are used as the bank codes. Only letters can be used.
• The next two characters, only letters, are to describe or give the country code.
• The next two characters can be a mix of both numbers and letters. These are used for location-based codes.
• The last three characters of the code can be digits and letters, and are optional. These last three characters in a SWIFT code are used to give details about the branch code.

About SWIFT(Society for Worldwide Interbank Financial Telecommunication): The Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment. SWIFT also sells software and services to financial institutions, much of it for use on the SWIFTNet Network, and ISO 9362. Business Identifier Codes (BICs, previously Bank Identifier Codes) are popularly known as "SWIFT codes".SWIFT was founded in Brussels in 1973 under the leadership of its inaugural CEO