Section 13 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 13 defines a "negotiable instrument" as a promissory note, bill of exchange or cheque payable either to order or to bearer. Three Explanations say when an instrument is payable to order and when to bearer, and sub-section (2) allows joint and alternative payees. This article reads the section as per the consolidated text consulted. If you are unsure whether your own instrument is negotiable, a legal consultation is a sensible first step.
A negotiable instrument is a promissory note, bill of exchange or cheque payable either to order or to bearer. It is payable to order if expressed so, or payable to a particular person without words prohibiting transfer. It is payable to bearer if expressed so, or if the only or last indorsement is in blank. It may be made payable to two or more payees jointly or in the alternative.
Sub-section (1): the definition
Section 13(1) says a "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer.
Notice what the definition does. It does not list features such as ease of transfer. It simply names the three instruments (defined in section 4, section 5 and section 6) and adds one test: payable to order or to bearer. The three Explanations then say what those two expressions mean.
Explanation (i): payable to order
The text says a promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.
There are two routes to being payable to order.
- Expressed to be payable to order. The instrument says, for example, "pay to Asha Textiles or order".
- Expressed to be payable to a particular person, and it does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.
The second route is important. A cheque made out simply to "Asha Textiles" with no words of prohibition is payable to order under this Explanation, even though the word "order" does not appear. The instrument becomes non-order only if it contains words prohibiting transfer or showing an intention that it is not to be transferable. The text gives no sample phrases of prohibition, and none is supplied here.
Explanation (ii): payable to bearer
The text says an instrument is payable to bearer which is expressed to be so payable or on which the only or last indorsement is an indorsement in blank.
Again, two routes.
- Expressed to be payable to bearer. The instrument says "pay bearer".
- The only or last indorsement is in blank. An indorsement in blank is a signature of the indorser's name only, as section 16(1) explains. (The Act spells it "indorsement"; "endorsement" is the common spelling.)
So an order instrument can become a bearer instrument by a blank indorsement. If Asha Textiles signs the back of the cheque with its name only and nothing more, and that is the only or the last indorsement, the instrument is payable to bearer under Explanation (ii). See our article on sections 14 to 16 for blank and full indorsement.
Explanation (iii): payable to a specified person's order, not "or his order"
The text says: where a promissory note, bill of exchange or cheque, either originally or by indorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.
This covers an instrument that says "pay to the order of Asha Textiles" instead of "pay to Asha Textiles or order". The Explanation resolves the difference: it is payable to Asha Textiles or to Asha's order, at Asha's option. In other words, the specified person may take payment, or may direct payment to someone else. The Explanation applies whether the words are in the original instrument or come in by indorsement.
Sub-section (2): joint and alternative payees
Section 13(2) says a negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees.
| Form | Example wording (invented) | What the text allows |
|---|---|---|
| Jointly | "Pay Asha and Bimal" | Payable to two or more payees jointly |
| Alternative, one of two | "Pay Asha or Bimal" | Payable in the alternative to one of two |
| Alternative, one or some of several | "Pay Asha, Bimal or Chitra" | Payable in the alternative to one or some of several payees |
The text does not say how a joint instrument must be indorsed or who must sign, and this article does not add rules the text does not contain. Where a cheque is made out to several payees, check the exact wording and, if in doubt, take advice.
Summary of the tests
| Question | Answer under section 13 |
|---|---|
| Which instruments are negotiable? | A promissory note, bill of exchange or cheque payable to order or to bearer |
| When is an instrument payable to order? | When so expressed, or when payable to a particular person with no words prohibiting transfer |
| When is it payable to bearer? | When so expressed, or when the only or last indorsement is in blank |
| What if it is "to the order of A" without "or his order"? | Still payable to A or his order, at his option |
| Can there be more than one payee? | Yes, jointly or in the alternative |
A worked example
Pinnacle Packaging makes out a cheque "to Raman Chemicals" for a stated sum and adds no words about transfer. Under Explanation (i) it is payable to order. Raman Chemicals signs the back with its name only and hands it to a supplier. Under Explanation (ii), because the only indorsement is in blank, the cheque is now payable to bearer. If Raman had instead written a direction to pay the supplier, that would be an indorsement in full; the later provisions explain what follows from each.
Take another case. Pinnacle writes "Pay Raman Chemicals only, not transferable". The words prohibit transfer and show an intention that it shall not be transferable. On Explanation (i), the instrument is not payable to order merely by naming a particular person. The text does not go on to say what such an instrument is called, so this article stops at what the section says.
Why the definition matters
The word "negotiable" brings the rules of the Act on negotiation, indorsement, holders and presentment into play. The text of section 13 does not itself list those consequences. For an overview of how the three instruments compare, see our guide on types of negotiable instruments.
Need help with an instrument you hold?
If you have received a cheque, bill or note and want to know whether it is payable to order or to bearer, or how joint payees affect you, we can check the wording with you. Book a legal consultation and bring the instrument.
Key takeaways
- A negotiable instrument is a promissory note, bill of exchange or cheque payable either to order or to bearer.
- An instrument is payable to order if so expressed, or if payable to a particular person without words prohibiting or indicating non-transfer.
- An instrument is payable to bearer if so expressed, or if its only or last indorsement is in blank.
- "To the order of A" is still payable to A or his order, at A's option.
- Payees may be joint or in the alternative.
Read next
- Sections 11-12: inland and foreign instruments
- Sections 14-16: negotiation, indorsement in blank and in full
- Sections 8-10: holder, holder in due course and payment in due course
- Types of negotiable instruments
Disclaimer: Based on a consolidated text of the Negotiable Instruments Act, 1881 stating the position as of 26 December 2015 and on the Negotiable Instruments (Amendment) Act, 2018, as consulted on 2 October 2026. Later amendments and current criminal procedure law should be checked. This article is general information, not legal advice; check the official text before acting.