The Negotiable Instruments Act was enacted, in India, in 1881. Prior to its enactment, the provision of the English Negotiable Instrument Act were applicable in India, and the present Act is also based on the English Act with certain modifications. It extends to whole of India.

The Act operates subject to the provisions of Section 31 and 32 of the Reserve Bank of India Act, 1934. Section 31 of the Reserve Bank of India Act provides that "no person in India other than the Bank of as expressly authorised by this Act, the Central Government shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand".

This Section further provides that no one except the RBI or the Central Government can make or issue a promissory note expressed to be payable on demand or after a certain time. Section 32 of the Reserve Bank of India Act makes issue of such bills or notes punishable with fine which may extend to the amount of the instrument.

The main Object of the Negotiable Instruments Act is to legalise the system by which instruments contemplated by it could pass from hand to hand by negotiation like any other goods. The purpose of the Act was to present an orderly and authoritative statement of leading rules of law relating to the Negotiable Instruments.

The term NEGOTIABLE INSTRUMENT means a document transferable from one person to another. However, the Act has not defined the term. It merely says that "A negotiable instrument" means a promissory note, bill of exchange, or cheque payable either to order or to bearer (Section 13)(1).

A negotiable instrument may be define as "an instrument, the property in which is acquired by anyone who takes it bona fide, and for value, notwithstanding any defect of title in the person from whom he took it, from which it follows that an instrument cannot be negotiable unless it it is such and in such a state that the true owner could transfer the contract or engagement contained therein by simple delivery of instrument". (Wilis, the LAW of Negotiable Securities, p.6).